Chapter 5: The emergence of impact investments: The case of microfinance

This chapter sketches a new development in responsible investing, namely impact investing. Impact investing, which we define as the entire spectrum of investments deliberately aiming to create shared value, can be seen as an integrative approach to wealth creation through investments. The case of microfinance is used to illustrate this new development.

The chapter combines a viewpoint and a case study that serves to illustrate the practical relevance of the viewpoint.

The chapter starts with a brief overview of the origin and rise of responsible investments, followed by a description of mission-related investments and impact investing as its latest development. Microfinance is presented as a special case, thereby focusing on the investors, the asset allocation and the meaning – and application – of the notion of impact.

The chapter shows that a focus on social and financial returns can be combined without having to make serious financial sacrifices. It also demonstrates that investments can come from investors as diverse as pension funds, foundations or high net-worth individuals.

If impact investing really takes off – particularly supported by institutional money – there will be much more opportunity to tackle social and environmental innovation than without those investments.

The chapter challenges (institutional) investors to evaluate their responsible investment strategy and to rethink their asset allocation. Impact investing can become an important addition to the responsible investment landscape.