Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
4. The potential BoP market opportunity
Impact investments can benefit different populations: the BoP in emerging countries,
as defined by the World Resources Institute; the broader BoP+, including the lowincome
populations in developed markets; or the broadest group, which can include
those impacted by income-independent factors such as climate change.
In this section, we present a new framework for measuring the potential scale of
impact investments, in terms of both invested capital required and profitability. Our
measures are by no means comprehensive. An attempt to size the entire impact
investments market would have made the scope of this research note unmanageable.
We have chosen instead to focus only on the BoP segment of the customer base for
impact investments and further to analyze only selected businesses within five subsectors:
urban housing, water for rural communities, maternal healthcare, primary
education, and microfinance. While our measures may be incomplete, they yield
impressive results: in housing alone, a total invested capital requirement ranging
from $214–$786bn and a potential profit opportunity of $177–$648bn (see Table 6).
Table 6: Potential invested capital to fund selected BoP businesses over the next 10 years
Sector
Potential invested capital
required, USD bn
Potential profit
opportunity, USD bn
Housing: Affordable urban housing $214–$786 $177–$648
Water: Clean water for rural communities $5.4–$13 $2.9–$7
Health: Maternal health $0.4–$2 $0.1–$1
Education: Primary education $4.8–$10 $2.6–$11
Financial Services: Microfinance $176 Not measured
Source: J.P. Morgan.
Our methodology uses a sector-specific case study approach. We start by analyzing a
successful business model that we assume can be extended to satisfy the demand of a
larger target customer base, determined based on pricing and affordability of the
product and an assumed penetration rate that we deem realistic. To arrive at
conclusions on potential profitability and invested capital requires us to make a host
of other assumptions, including: the timeframe by which a target market can be
reached (we assume 10 years), the operating margin for the business and the
relationship between invested capital and revenues. A change in any of these
assumptions could significantly affect the model outputs. We believe the publication
of our prototype framework itself, more than the resulting measures, contributes to a
better understanding of the opportunity this emerging asset class presents.
Before delving into the details of our methodology and measurements, we discuss
below the challenges and opportunities in providing business solutions to the BoP
population.
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