Investment in social firms could rise to $8 bn by 2025

India has emerged as one of largest destinations in the world for investors keen to put their money into firms doing good. Nita Bhalla reports

Social enterprises in the country could attract up to $8 billion (about Rs 53,500 crore) in investment by 2025, eight times more than in 2015, due to the scale of social needs and available capital in the fast-growing economy, a study by consultancy firm McKinsey & Company showed.

Businesses designed to bring about social development have mushroomed in India over the last decade. Thousands of Indian start-ups have pioneered solutions aimed at improving services from water and sanitation to health, education and housing.

India has emerged as one of the largest destinations in the world for investors keen to put their money into firms doing good, according to the initial findings of the research conducted by McKinsey.

“India is one of the world’s biggest markets for Impact Investing, given the nation's many pressing social needs and an abundance of global capital,” said Toshan Tamhane, Senior Partner at McKinsey, in a statement.

“Assuming a growth of 20-24 per cent based on global rates and strong growth of underlying sectors, we estimate that India’s Impact Investing sector could absorb $6 to $8 billion of capital annually by 2025, provided some critical barriers are addressed by the industry and the government.”

Investments in India’s social enterprise sector grew by 15 percent annually from 2010 to 2015, bringing in investments of over $4 billion in social enterprises covering sectors such as microfinance, agriculture, health, education and clean energy.

At least 60 to 80 million lives have been impacted by these social enterprises, said the research, adding the sector had also shown a promising average rate of return of 10 per cent, which it said was likely to increase further.

“This eight-fold expansion of impact investing in India could make life better for millions and generate competitive returns for investors.”

The full report, 'Impact Investing in India -- Has the Time Come?' -- which is based on interviews with funds, investors and social enterprises, will be released in January 2017.

Investors welcomed the study's initial findings, saying continued investment in India’s social enterprises would benefit millions more poor people as well as generate strong returns.

“The findings from the McKinsey report validate our belief that India has the potential to emerge as the world's No. 1 emerging market for impact investing,” said Amit Bhatia, CEO of Impact Investors Council, an industry body.