In order to avoid excesses of the kind that derailed the Indian microfinance industry three years ago, nine entities doing ‘impact investing’ – picking up equity stakes in businesses that are anchored in both financial and social returns – have come together to form a grouping that will define what they can do and cannot do in their investment practices to always stay aligned with their stated objectives.
So, besides the promotion and advocacy work that industry groupings typically undertake, the Indian Impact Investor Council (IIIC), will make it binding on its members to follow the standards set by it on investing: for example, which sectors qualify for impact investments, how long should be the holding period, how to measure returns, and so on. Such standard-setting will be a first for any grouping in the investing space, at least in India.
IIIC has nine leading impact investors as its founding members. These include Aavishkaar, Omidyar, Elevar Equity and Unilazer Ventures, the family office of Ronnie Screwvala. “This council will differentiate us from regular PE/VC players because we make high-risk investments,” says Rai.
The council expects to form a charter and have 30 members by end of the year. Prominent in the list of potential members are large developmental finance institutions (DFIs) like DFID, USAID and IFC. “We will come in. No harm in supporting the council,” says Anil Sinha, regional head, advisory services, South Asia, IFC. “It’s a good idea.”
However, Harold Rosen, CEO of US-based Grassroots Business Fund, another impact-investing fund, feels a self-regulatory body like this can be complicated. “The biggest concern with a self-regulatory body is prescribing specific practices that all players may not be willing to accept,” he says. “It needs to be considered carefully.”
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