As Southeast Asian nations develop, impact investing has become a vital part of their growth. This funding method is implemented globally in developed and developing economies, positively influencing social and environmental issues. We explore what impact investing is, and the impact investing trends within the region.
What is impact investing?
When investors direct their capital’s outcome towards social and environmental benefits accompanied by financial return, it is called impact investment. They usually focus on emerging as well as developing markets.
Previously, many believed that only philanthropic donations were appropriate for addressing social and environmental issues, and that the investment market should only focus on gaining financial returns. However, the developing impact investment market has provided capital to tackle the world’s most pressing challenges in the fields such as renewable energy, conservation, sustainable agriculture, microfinance, and accessible, affordable essential services involving housing, healthcare, and education.
Many investors are now entering this growing market, including banks, pension funds, financial advisors, wealth managers, institutional, family foundations, government investors, and development finance institutions. Each one has its specific motivation, such as providing client investment opportunities, leveraging significantly greater assets, providing proof of financial viability.
The current impact investing trends in Southeast Asia
In Vietnam, the Kim An Group has helped many MSMEs (micro, small and medium-sized enterprises) obtain affordable, formal loans at market rates and overcome barriers in business development.
Many MSMEs, which make up the mainstays of the Vietnamese economy, cannot access the capital for expansion because they do not qualify for the banks’ strict lending prerequisites. The Kim An Group responded to this challenge by signing agreements with credit institutes to co-develop adjusted loans that offer MSMEs flexible and simple payment schedules, relying on the business’s cash flow. It made loans of over $60 million USD possible for more than 26,000 borrowers, and by focusing on customer-centric solutions, assisted many entrepreneurs achieve their dreams of debuting a business.
The Indonesian platform Mapan aims to revolutionise the country’s digital payment ecosystem by bringing mobile banking to the underserved people countrywide. Acquired by Gojek in 2017, it has scaled and reached over 1.5 million low-income individuals and households in Indonesia.
Instead of being a high-interest lender generating quick profits from customer loan repayments, Mapan offers affordable products allowing families to grow their savings and become financially self-sufficient. By aligning the impact culture of the investor and the enterprises, it improves Indonesians’ lives while expanding and remaining profitable.
Growth of impact investment in ASEAN
According to the Global Impact Investing Network (GIIN) report, regionally, there has been a significant increase in impact investment from 2007 to 2017. Around 60 PIIs (private impact investors) have invested around $904 million USD through 225 direct deals, and a dozen DFIs (Development Finance Institutions) deployed around $11.3 billion USD in 289 direct deals. The invested capital’s amount varies extensively by country.
Currently, most DFIs focus on investing in the enterprises and projects improving social and economic outcomes and account for over 90% of all impact capital invested in Southeast Asia.
PIIs have increased investment activity since 2013, focusing primarily on entrepreneurship and developing a young, well-networked, hi-tech generation seeking to advance technology to create positive socio-economic or environmental impacts.
Despite overall regional growth, Southeast Asia’s impact investing landscape remains incredibly fragmented. The different stages of economic development and political structures in the region contribute to this issue requiring investors to develop country-specific strategies.
The region’s impact investment market revolves mainly around sectors including financial services, energy, and manufacturing. Together, these sectors take 82% of the total capital deployed in the region and 63% of all deals.
Indonesia, the Philippines, and Vietnam have relatively mature impact investing ecosystems attracting increasing attention and interest from PIIs.
In Indonesia, agriculture and financial services have the highest number of deals, while labour force development, education, fisheries, and healthcare are promising fields evolving as deals increase.
Clean energy and financial services receive the most significant share of impact capital in the Philippines, but, recently, agriculture and workforce development are showing potential too.
In Vietnam, most investment is pouring into banking-related and healthcare products. Even though microfinance has attracted some investment, this field is largely government-controlled in Vietnam, but the other up-and-coming sectors are education and healthcare.
Over the last three years, impact investing trends in Southeast Asia have seen PIIs deploy about $432 million USD through 159 direct deals, while DFIs have invested $6.23 billion USD through 141 direct deals. Interestingly, the number of DFI deals is lower than the number of PII deals during this period, but the total value is much higher.
As businesses in the region understand what is impact investing and how it can provide extensive opportunities for solutions and investing capital to address social and environmental challenges, the sector will likely continue to grow and evolve.