Over the past two years, there has been lots of press coverage on social enterprise and impact investing, especially in developing countries. They have been touted as a means out of poverty for these countries’ citizens, as well as an opportunity for companies to make profits while still doing good.
Impact investing refers to investments made into companies, organizations, and funds that not only have financial returns in mind, but also the social and environmental impacts that happen as they go about their operations, and as their products or services are consumed. This is the ultimate combination of financial returns and social returns. These investments produce a return of principal capital (capital preservation) and offer market-rate or even higher financial returns.
These types of companies or organizations are called social enterprises, that is, enterprises that aim to maximize the improvement of human or environmental wellbeing, as opposed to the traditional view of maximizing profit for stakeholders. They make social investments, and their primary purpose is common good.
Milaap, for example, is a social enterprise, and anyone that invests in Milaap can be considered an impact investor, including the lenders on our platforms who make loans to ensure that our borrowers get access to clean water, sanitation facilities, solar energy, vocational training and opportunities for small enterprise.
The impact of these loans is not only on the person who receives the money, but also other people around him/her, especially the family. For example, every $1 invested in improved access yields an average of $12 in economic returns, while every $1 invested in sanitation yields $9. In the case of Milaap, over 900 families have benefited from our loans, and 4,500 lives have been impacted. This leads to an increase in social capital, which is the value created from relationships, both those between people and those between people and institutions.
As you can see, the whole family, society and eventually, the country, benefits when people are lifted out of poverty through impact investments.