Impact Investing

This new brand of philanthropy is described in a report from The Monitor Institute.

An excerpt.

“What is Impact Investing?

“In New York City, a low-income mother is moving into an apartment on land developed with a loan from the New York City Acquisition Fund. The Fund, created in 2004, aims to facilitate the construction of 10,000 units of affordable housing in a city with rapidly diminishing affordable housing stock. The Fund came together when private foundations made $32 million in low-interest, subordinated loans and a city-based charitable trust invested $8 million on similar terms, enabling commercial banks to raise and place more than $160 million of commercially priced debt into the fund.

“In rural Tanzania, a student is reading at home by the light of an electric light bulb powered by a solar panel her mother bought on credit from a local distributor. The distribution business could reach her village because of an equity and working capital investment made by E+Co, a nonprofit mezzanine fund focused on making debt and equity investments in businesses that develop and sell modern energy services.

“In Cambodia, a small business is expanding with debt from a microfinance bank. The bank is originating new loans after accessing commercial capital markets through a $110 million loan fund structured in 2007 by Blue Orchard, a Swiss microfinance-focused asset management company, and Morgan Stanley. The loan fund, rated by Standard & Poor’s, was syndicated on commercial terms among institutional investors, such as pension funds, in Europe and the United Kingdom.

“The New Yorker moving into her first home, the student in Tanzania studying under electric light, the small-business owner in Cambodia expanding her payroll—none of these people would recognize one another as coparticipants in the same emerging industry. Neither, perhaps, would the commercial banker placing debt in the Acquisition Fund, the high-networth individuals investing in E+Co, or the German worker whose pension fund invested in microfinance through Blue Orchard.

“Yet these are all examples of the proliferation of activity occurring as a new industry of impact investing emerges. This industry which involves making investments that generate social and environmental value as well as financial return, has the potential to complement philanthropy and government intervention as a potent force for addressing global challenges at scale. This document is intended to shed light on the industry’s recent emergence and highlight the challenges it faces in achieving its promise.” (p 3)