NAIROBI, Kenya, Dec 1 – Investing in socio-economic growth especially in emerging markets is leading to the development of a new asset class for global investors.
According to a report released by the Rockefeller Foundation, investors are putting their money in areas which can have a greater impact on people\’s livelihoods in addition to guaranteeing them good financial returns.
This method is dubbed "impact investment" where traders target emerging assets, which they feel will grow alongside alternative asset classes like hedge funds and commodities rather than more traditional forms.
The report by the Rockefeller Foundation and J.P. Morgan indicates that impact investment offers an alternative to donor funding for projects by ensuring they are self-sustaining.
"Investors pro-actively put money in sectors such as agriculture and housing because they know they will get something out of while at the same time uplifting the lives of many," Rockefeller Foundation Kenya Managing Director James Nyoro said during the launch of the report.
Impact investors charge interest on loans and grants handed out for projects with the money generated ploughed back into the projects continuously.
According to the report, impact investment could offer a $667 billion (Sh53 trillion) profit opportunity to investors making it one of the fastest growing forms of investment in the world.
The report says recognising impact investment as an asset class would also enable asset managers and investors to develop unique skills to make and manage impact investments and develop standards and benchmarks to improve performance.
In some cases, the impact-investing portfolio outperformed traditional emerging market venture capital and private equity ones.
Mr Nyoro said the risks for impact investments are similar to those for venture capital or high yield debt investments, but pointed out that the potential of impact investing to create a pathway out of poverty, combined with the emergence of systems to track and manage social performance, outweigh these risks.
"The report will assist both established and emerging impact investors track sectors where the greatest opportunities for them are which will help them make informed investments," he said.
There has been keen interest in impact investment in East Africa with 15 firms already established within the region.
An example of impact investment in Kenya is the partnership between Equity Bank and the Alliance for a Green Revolution in Africa (AGRA). AGRA set up a $5 million (Sh400 million) "cash guarantee fund" that buffers the bank\’s risk of lending money to farmers and small agricultural businesses with little or no collateral.
So far the project has disbursed over Sh240 million to farmers.
The impact investment market is estimated to be worth $1 trillion dollars.