From Blueprint to Scale: The Case for Philanthropy in Impact Investing

At the beginning of 2012, there is no end in sight for the economic malaise and fiscal crisis that is gripping many parts of the developed world. Global growth is slowing, even in emerging economic powerhouses like India, billions of people remain trapped in poverty. As politicians debate the best way to reform the financial system to prevent future collapses, protestors around the world are questioning the moral foundations of the capitalist system itself.

Despite the crisis, shifting attitudes, new technologies and the promise shown by the microfinance revolution have led to new opportunities for market-based innovations to serve the global poor. These are being pioneered by ambitious entrepreneurs who are taking great risks for little potential financial reward, but for tremendous potential social value. Such ideas have elicited a rush to the new field of ‘impact investing’. Hundreds of funds have been set up in just a few years and billions of dollars are to be invested in the next year alone.

But the field is young and doubts are creeping in as many investors report that they are struggling to find good opportunities in which to invest forimpact. Why is that? And can impact investors take the pioneers of ‘the next microfinance revolution’ all the way from idea to scale?

These are important questions, not just for these new investors but for the private philanthropists and aid donorswho have been working on these issues for decades. If market-based solutions hold real promise for impact, how should funders in development engage to catalyze its full potential? If impact investing capital is the key to scaling these solutions, what is the role of philanthropy?