India to Launch “Impact Investment” Regulatory Body

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May 17 – In India, nine renowned investment entities have joined forces in order to launch the Indian Impact Investor Council (IIC), which is to act as a self-regulatory body for the practice of “impact investment” in India.

Impact investment is the practice of investing in areas and industries with the direct intent of generating a social return along with a financial return, or “impacting” the target investment location in a positive fashion. The topic of impact investment is set to be one of the key themes at this year’s G8 Summit, and is also a growing trend in funds all around the world.

In India’s case, the initiative for a self-regulatory body to deal with impact investing has roots in its previous experience with microfinance, an equally revolutionary form of social investment that began with Bangladeshi businessman and Nobel Laureate Mohammed Yunus. Microfinance, although a highly lauded industry, is widely believed to have resulted in reckless lending in some cases, and investors are determined not to let this happen to impact investing.

One of the participating investors is investment fund Aavishkaar, which specializes in impact and socially oriented investing. Other members include Omidyar, Elevar Equity, and Unilzaer Ventures.

“Microfinance did not have a self-regulatory body. We’ve seen the problems. Being accountable is a good thing, especially being accountable to ourselves,” said Vineet Rai, Aavishkaar’s Managing Director.

Although only in the planning stages, the IIC will play a major role in setting rules for many of India’s leading impact investors. The IIC will create binding rules on all members which will regulate where members can invest, which sectors can be considered for impact investment, the length of the holding period (a standard for measuring social returns), and many other important rules.

It will take at least a year to finalize all the rules and standards, and many questions may continue to arise as impact investing becomes a larger industry in itself.

One thing is certain, however – the council will help to unify many of India’s largest players in impact investing. By the end of the year, the council expects to have 30 members to its name, which will include many prominent financial institutions, and a formal charter. In addition to providing organization to the industry, it will also help to define exactly who is actually in the impact investment space, and which firms do not meet the criteria.

“We are looking at the economics of impact,” says Rai. “Under our definition, if you want to be an impact fund, then 100% of your portfolio needs to deal with low-income population.”

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

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