A large and growing population, robust market forces, strong rule of law and significant unmet social needs make India a hotbed for impact investing activity. Impact investors have poured $5.2 billion into the country since 2000, $1.1 billion in 2016 alone.
Much of the growth has come from larger average investment sizes, as deal activity has remained steady at about 60 to 80 a year. Traditional private equity investors are investing alongside impact investors in sectors like fintech and clean energy. Maturing business models, profitable exits, and de-risking and coordination among investors are driving larger deals, says McKinsey.
An analysis of 48 exits between 2010 and 2015, for example, showed impact investments in India produced a median internal rate of return of 10% (financial inclusion stands out for profitable exits). Volatility of returns decreased with increase in deal sizes, “an indicator that investors have expertise in seeding, growing, and scaling social enterprises and that they are able to manage risk effectively,” write McKinsey’s Vivek Pandit and Toshan Tamhane.
The authors project the market for impact investments to grow 20 to 24% a year, reaching $8 billion in 2025. Key to that growth are tapping Indian-government-mandated corporate social responsibility funds, strong impact fund managers and better data.