MICROFINANCE PAPER WRAP-UP: “Perspectives on Progress: The Impact Investor Survey;” by Yasemin Saltuk; published by JP Morgan and the Global Impact Investing Network (GIIN)

By Yasemin Saltuk; published by JP Morgan and the Global Impact Investing Network (GIIN); January 2013; 28 pages; available at: http://www.thegiin.org/cgi-bin/iowa/download?row=489&field=gated_download_1

This report is the third annual survey by US-based investing firm J.P. Morgan and US-based nonprofit Global Impact Investing Network (GIIN) that attempts to shed light on the condition and future prospects of the impact investment market by surveying a sample of investors in the field. The report defines impact investments as those made with the purpose of producing social or environmental impact in addition to financial returns.

The 99 respondents reported that their organizations had invested a cumulative total of USD 36 billion since their organizations began making impact investments, USD 8 billion of which was disbursed in 2012. Approximately 83 percent of the investors were headquartered in developed countries, and the geographic region in which the largest number of investors was active was sub-Saharan Africa, with investments made by 34 percent of respondents in that region, followed by 32 percent in Latin America and the Caribbean and 32 percent in the US and Canada.

The survey found that 86 percent of respondents invest in multiple sectors. In emerging markets, the most popular sector for investment was healthcare, with investments from 63 percent of respondents; 59 percent of respondents reported investing in financial services other than microfinance, and 59 percent invested in the microfinance sector itself.

When asked to select the preferred development stage of companies in which to invest, 78 percent of respondents chose “growth-stage” businesses, compared with 51 percent which indicated “venture-stage” companies and 18 percent which chose start-ups. 83 percent of respondents reported using private-equity instruments to make investments, 66 percent use private debt, 44 percent use equity-like debt structures and 18 percent use guarantees.

The respondents noted relatively even progress across market growth indicators in 2012, including availability of research and data, collaboration among investors and number of intermediaries with a successful track record. The challenges identified as being the most difficult now being faced by the impact investing industry were a “Lack of appropriate capital across the risk/return spectrum” and a “shortage of high quality investment opportunities with track record.” Despite the fact that the geographic region with the largest investment focus was sub-Saharan Africa, the pipeline of investment opportunities from this region appears to be less robust that that of South Asia or Latin America, with fewer investment opportunities passing investors’ initial screenings. Opportunities in South Asia and Eastern Europe are more likely to pass the initial screenings of early-stage investors than late stage investors, while in Latin America there is minimal difference between the two.

Regarding expectations and performance, 65 percent of investors expected market-rate returns, while the remaining 35 percent expected lower returns. 84 percent of respondents reported that the impact of their portfolios met expectations, while just 68 percent reported financial performance in-line with expectations. The three biggest reported risks in impact investment portfolios were “business model execution and management risk,” “country and currency risks” and “macroeconomic risk.”

96 percent of respondents stated that they use metrics to evaluate the environmental and social impacts of their investments. 70 percent indicated that standardized metrics were “important” or “very important” for industry development.

Analysis of investors’ motivations revealed that the primary reasons for allocating capital to impact investments were – in descending order – to fulfill responsibility as an investor, efficiency in achieving impact goals and financial attractiveness compared to other investment options.

The respondents reported plans to invest a cumulative total of USD 9 billion in impact investments in 2013.

By Nicole Boyd, Research Associate

Sources and Additional Resources

JP Morgan, Global Impact Investing Network. “Perspectives on Progress: The Impact Investor Survey,” http://www.thegiin.org/cgi-bin/iowa/download?row=489&field=gated_download_1

MicroCapital. March 8, 2013, “MICROFINANCE EVENT: Microfinance and Impact Investing Initiative (MI3) to Host Symposium “US Poverty, Microentrepreneurs and Microfinance: Needs, Responses and Prospects,” March 28-29, 2013, Haverford, Pennsylvania, US,” https://www.microcapital.org/microfinance-event-microfinance-and-impact-investing-initiative-mi3-to-host-symposium-us-poverty-microentrepreneurs-and-microfinance-needs-responses-and-prospects-march-28-29/

MicroCapital. August 19, 2011, “MICROFINANCE PAPER WRAP-UP: Discovering Limits: Global Microfinance Valuation Survey 2011; By Frederic de Mariz, Xavier Reille, Daniel Rozas; Published by JP Morgan, CGAP (Consultative Group to Assist the Poor),” https://www.microcapital.org/microfinance-paper-wrap-up-discovering-limits-global-microfinance-valuation-survey-2011-by-frederic-de-mariz-xavier-reille-daniel-rozas-published-by-jp-morgan-cgap-consultative-group-to-assist/

MicroCapital. April 13, 2011, “MICROCAPITAL BRIEF: “Principles for Investors in Inclusive Finance” (PIIF) Created as Separate Work Stream Within United Nations’ Principles for Responsible Investment (PRI); CGAP (Consultative Group to Assist the Poor), Global Impact Investing Network (GIIN) Standards Observed,” https://www.microcapital.org/microcapital-brief-“principles-for-investors-in-inclusive-finance”-piif-created-as-separate-work-stream-within-united-nations’-principles-for-responsible-investment-pri-c/

MicroCapital Universe Profile: JP Morgan https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=J.P.+Morgan

MicroCapital Universe Profile: Global Impact Investing Network (GIIN) https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Global+Impact+Investing+Network+%28GIIN%29

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/

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