Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
Figure 2.3. Microfinance: clients and institutions globally, 1997-2011
Source: OECD based on Maes and Reed (2012).
2.25 It should be noted, however, that the microfinance industry had a lot of government support, in
the form of grants and low-interest loans, before it got to the more stable and self-sustaining commercial
state that it has now reached.
2.3. Parallels to the evolution of capital markets
2.26 Social impact investment financing models are emerging at multiple levels and in parallel to
traditional markets. As in capital markets, financial intermediation plays a critical role as there are
information asymmetries between investors and investees. Intermediaries play a critical role in connecting
demand and supply, particularly in financial markets that are less developed.
Figure 2.4. Financial Intermediation
Demand
Intermediaries
(Transactions)
Supply
Source: OECD.
2.27 In the traditional capital markets, intermediation is focused on financial dimensions. The social
impact investment market is more complex as social dimensions also need to be valued. Transaction costs
in social impact investment are high due to fragmented demand and supply and the complexity of deal
structuring. For these reasons, coordinating capital for social ventures is more difficult than in the venture
capital industry (Kohler et al, 2011). Given the high costs and early stage of market development, there is a
lack of brokers, advisors, exchanges and other market mechanisms, resulting in a market with imperfect
market competition.
18 © OECD 2015