Why impact investing?

We believe that market-based solutions can be important components in the philanthropists’ tool kit for solving pressing social problems and that impact investing is a very powerful way to leverage the market to create change.

Let’s take energy poverty as a case in point. There are a number of social enterprises currently providing solar lighting solutions to address the needs of the over one billion people globally who do not have access to energy and rely predominantly on kerosene for lighting. Netri believes that providing capital to such ventures is a very effective way to ensure that more people currently living with no electrification can benefit from a targeted change or outcome which comes from having more hours of light in their homes for study, leisure, or productive activities; more disposable income as kerosene is typically more expensive than the basic solar alternatives; improved health from less indoor pollution and reduced fire risk; and greater connectivity as solar lighting solutions often come with phone and radio charging facilities.

By way of example, a loan to a social enterprise can really increase the reach of such outcomes to many more people than a traditional, similar sized grant could ever do. This is because a social enterprise can utilize a loan for its working capital, recycling this capital multiple times, thereby selling many more units to its target beneficiaries that would have been the case if we were to use that money to buy the product and then distribute it to those in need.

Whereas...

In fact, from our analysis of the loan we have provided to d.light, the multiplier effect is over three times. In general, the longer the life span or duration of an investment, the greater the impact.

It is really important to differentiate between a traditional grant as highlighted in the example above, which simply procures a specific good or service to beneficiaries versus a venture philanthropic grant provided to a social enterprise with the purpose of making it sustainable over the long-term. Most of the companies Netri has investing in, receive grant funding for piloting their business strategies and for capacity building, which has been absolutely crucial for their development and success. For further details on the important role for philanthropy in impact investing, take a look at The Monitor’s Group Blueprint to Scale.

As highlighted in OUR MODEL section, once an investment matures, the capital can be employed once again to provide further impact investments while any returns made from these investments are used to fund the development projects of the foundation, in the cases where donations are a more appropriate form of philanthropy.