Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Technology
Many experts focus on the potential to spur development through the adoption of
technology, especially technology that promotes information and communication
(“ICT”). This interest has accelerated recently with the explosive spread of mobile
phones across the developing world. Entrepreneurs are developing business models
that use this new mobile phone infrastructure to deliver basic services such as
healthcare, education, agricultural information and, most successfully, the basic
banking service of money transfer. For the purposes of our analysis, we do not
consider technology as a basic service that constitutes a discrete sub-sector of impact
investing. Instead, technology will play an increasingly important role as an input to
business models that seek to reduce costs in serving dispersed populations of poor
customers (and will therefore be incorporated in comprehensive analyses of these
sub-sectors). Future research could determine what components of technology
investment are most socially beneficial and suitable for impact investment capital.
Investments in infrastructure
According to the World Bank, emerging countries need 7 to 9 percent of their GDP
per annum, or approximately US$400bn, to address their core needs in building
infrastructure. Historically, though, less than half of this amount has been invested in
infrastructure development and maintenance, leaving a financing gap of 3.5 to 4.5
percent. 97 Further, according to the World Economic Forum, this underestimates the
true need as it excludes electricity transmission, waste-water treatment, urban
transport, ports, airports, and oil and gas. Including these sectors would bring the
annual investment need to more than US$900bn or close to 20 percent of the GDP of
emerging countries. In total then, the investment need could be as high as US$3
trillion per annum globally (or close to 5 percent of current global GDP), of which
approximately US$1 trillion per annum needs to be spent in emerging countries. 98 .
We presented the opportunity for investment into water service for the BoP above,
but broader opportunities exist within infrastructure. Ports, roads, on-grid power
generation, and large-scale water delivery are all examples of products or services
that could greatly improve the lives of BoP+ populations. Poor roads for example
contribute to post-harvest food losses that can range from 15% to as high as 50% of
what is produced.
Demographic changes over time
are also ignored in our analysis.
Economic growth in emerging
markets can propel some of the
BoP populations into higher income
categories, outside of our target
markets. On the other hand, fiscal
crises and financial shocks can
have the reverse effect. Rather
than take a view on how these
demographic changes will
materialize, we assume current
dynamics will remain as they are.
“Plus populations” (those that make up the BoP+ category but are not BoP)
As we have explained earlier, impact investments do include businesses that serve or
employ poor people that earn more than the strict WRI definition of $3,000 per
annum. However, we have not endeavored in this report to define which segment of
the more developed countries’ populations would be considered in the BoP+
classification and leave that for future research.
Investments that generate impact through their business processes
Our market sizing work has focused on business models that deliver affordable
products or services to BoP populations, which is one segment of the “means of
impact” characterization we presented in Figure 7. The other segment includes
businesses that employ BoP (or BoP+) people. Root Capital, for example, engages
97 Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World
Economic Forum, August 2010.
98 Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World
Economic Forum, August 2010.
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