Investors’ perspectives – Impact investing: hybrid models needed
While the spectrum of capital available for impact investing has grown significantly over the past two decades, and explosive growth has taken place in the kinds of institution involved in the sector, the field is still young and there is as yet no industry standard and little consolidation. There are two main challenges ahead: first, how can different forms of capital work together across institutional structures and constraints in order to deliver maximum social impact? Second, how can this be done at scale since scaling up requires both operational excellence and innovation in creating the kinds of hybrid institution able to attract many forms of capital.
While capital previously came only from philanthropic and government finance, today it also includes public equities, private equity, debt and venture philanthropy, as well as traditional philanthropy. Not-for-profit organizations, commercial organizations seeking market-based returns, quasi-commercial organizations that attract a blended form of capital, even government social welfare programmes – all are active in the sector. Ancillary organizations like social investment banks, consulting firms and network organizations have also increased significantly in number.
In the Indian healthcare sector, for example, the greatest need is to reach a low-income consumer base effectively by increasing efficiency, developing streamlined protocols and enhancing skill levels dramatically. The solution lies in developing hybrid business models where governments can work with the private and not-for-profit sectors through special-purpose vehicles that can attract philanthropic capital and public finance for market creation activities. This type of hybrid business also allows for scale up of operations, which in turn allows those businesses to hire the best talent available.
