I am excited to launch this discussion/blog site to expand my knowledge about Impact Investing, its origins, intent and practical implications.  I hope that this site will help to foster discourse amongst both experienced industry professionals and people merely interested in this topic.  I am particularly interested in how the concept of "ethics" applies in the space of impact investing.  A majority of the current discourse seems to take the fact that impact investing is ethically superior to traditional "profit-motivated" investing.  Please help me dig into this preconception a bit more.  Let's consider unintended consequences of impact investing.  Does impact investing promote inefficient allocation of capital?  Does impact investing (from developed nation funds to developing nations) create another potential for exploitation of the bottom of the so-called social/economic pyramid (sending the vast majorty of profits from developing nations' entrepreneurs to western investors).  Are there other implications to consider?  All of these issues and more will be tackled in this blog and resulting scholarship that I am working on surrounding this issue.  Thanks for participating!
Nick Rodrigues
10/6/2013 17:52:06

I think you bring up some very interesting topics. This was a main topic I discussed when I was in EA this summer. Coincidentally, there were two main opinions that people took that closely aligned with their personal backgrounds/culture. When I was talking with local investors they thought that "impact" investing was almost like an ethnocentric fad - aligning to some of the points. Their basic claim, (something that I tend to agree with) is that "impact" investing in frontier markets should be treated the same as "early stage" investing in developed markets. Both genres are high risk, high reward, but the startups and business models of early stage and impact investors are very similar - speculation on potential. Take a look at Savannah Fund - I met the MD a couple of times and I think he's pretty spot on with some of his opinions. One of his quotes really stuck with me, "I don't let anyone invest in my fund if they have not visited Africa."

I think the biggest point of contention is what is a fair rate of return. I spoke with a colleague at FSD Kenya on this and his feedback was the term "impact" felt somewhat condescending. There's millions of "impact" dollars waiting to be invested, but they don't know where to make the investments and the people that have access/visibility to the money are often ex-pats themselves. In contrast, I felt the majority of "impact" investors I met from the west weren't as focused on returns and more focused on "potential" outcomes. This is part of the reason I wanted to work in East Africa this summer - how do you define "impact" and how do you measure "outcomes?" I was with an MBA from Columbia this summer and I learned a lot from him. I suggest taking a look at GIIRS: Ratings & Analytics for Impact Investing. They attempt to address a lot of the questions you bring up. For me, it boils down to the expectations of the investors who are funding these impact funds. If they are family funds that would've traditionally put the money in charity, their expectations for returns are low. If they're traditional banks (eg. JP Morgan), I'm not sure... But it makes me think about how microfinance has transformed access to credit for many in emerging markets, but it's also created many negative externalities (eg. equivalent of payday lending rates from MFI's - exploiting the poor). Take a look at the book Confessions of a Microfinance Heretic - it sheds a lot of light into the topics you're bringing up.

This is something I'm very interested in exploring further and thanks for starting the conversation here. I think there's a huge need to bridge the mentality gap between frontier markets and the expectations of the traditional western investors.

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    Lucas Hartley

    I am an attorney, entrepreneur, educator, adventurer and father.  I have seen first hand the unintended consequences (positive and negative) of  non-profit, NGO and Foreign Aid in developing economies, and am curious as to how the new fad of so-called "impact" investing will play out. 

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