Income inequality in Asia is a hot button issue in 2023. Despite growing pressure to close the gulf, the gap in income distribution between the wealthiest and poorest 10% of the population is still twice as large as the economic gap present in OECD countries.
The standard of living for lower socioeconomic groups in Asia must be raised. The SFi’s Inaugural Impact Investment Summit, held this May, proposed impact investment as an effective and socially responsible way to address this significant economic disparity.
Impact investment refers to an investment strategy in which philanthropic wealth owners take on projects which are as concerned with achieving measurable social and environmental outcomes as they are financial ones.
Here are four simple ways impact investing can combat financial and environmental stresses in Asia to raise the overall health, wealth, and happiness of the continent:
1) Introduction of Basis Services
While much of Asia has been modernised, some regions are struggling to catch up. People living in rural areas, indigenous communities, and urban slums often lack access to much needed support services. Through impact investment, these individuals can gain access to healthcare, education, and clean drinking facilities. An example of this would be Doc Hendley’s Wine to Water initiative. Hendley’s organisation has spearheaded water access initiatives throughout Nepal and Cambodia and continues to support local communities to build long-term water solutions.
2) Microfinancing
Another application of impact investment is the introduction of microfinancing for individuals and small businesses. For example, a rural farmer struggling to break even can apply for a microloan to purchase a tractor to cut his harvesting time in half and lead to a greater yield. While a traditional bank loan might be out of reach or come with impractically high interest rates, an impact investor will be happy to wait for his investment to mature.
Unlike regular finance options, impact investors can also offer coaching and mentoring to help would-be company owners to create business plans and strategies. For instance, providing education to the same farmer around how he can improve infrastructure and eventually hire staff to scale his business. By arming individuals with access to funding and knowledge, impact investors can help to lift families and communities out of intergenerational poverty.
3) Housing Infrastructure Development
The rapid urbanisation of many Asian cities has given way to poor infrastructure, including overloaded power grids and poor sanitation. While some dwellings are up to code, slums are still commonplace even in major urban centres. There’s a golden opportunity for impact investors to back affordable housing initiatives and the implementation of renewable energy sources in this region. This can be achieved through partnership with government agencies and non-profit organisations to maximise both financial resources and expertise.
Traditional investors have steered clear of the 20 million home shortage because of potentially low margins and high risks, leaving impact investors, who understand the intrinsic social value of the initiative, to lead the charge. Philanthropic business Tata Sons is a perfect example. Through their charity, Tata Trusts, they have offered a sizeable grant to the Black Eagle Foundation to create a blueprint for cost-effective, commercially viable and sustainable housing solutions in India. This project is set to hit both its financial and social outcomes and pave the way for future initiatives.
4) Job Creation
Unemployment and underemployment are a leading cause of poverty around the globe. In some parts of Asia, less stringent labour laws and low wages also strongly contribute. Impact investors, through their financing of infrastructure and supporting small businesses, can help to create new jobs and better working conditions. Multinational company Unilever is one such example.
In India and Indonesia, Unilever’s brand of water filter provides more affordable access to clean drinking water than the ongoing costs associated with boiling it on a kerosene stove or purchasing packaged water. Individuals and families who can’t afford the $24 installation cost up front are provided with access to NGOs that offer microfinance options to increase accessibility. Not only does this initiative provide much needed access to clean water, but the installation and ongoing administration of this service has created hundreds of new jobs throughout Asia.
As we continue to see the positive social, financial and environment outcomes that impact investment can produce, this investment style will continue to gain sweeping popularity, not only in Asia, but around the globe in 2023 and beyond.
