Wide-ranging social and environmental challenges across Asia are offering substantial potential for impact investments in at least 11 countries in the region.
From mainland states such as Myanmar, Thailand, Laos, Cambodia and Vietnam, to island nations such as Sri Lanka, Indonesia, the Philippines, Brunei and East Timor, the number of societal issues that need immediate attention is massive.
While growth in the impact investing industry has been robust across all geographies and sectors, East and Southeast Asia have recorded some of the fastest growth rates, an annual survey by the Global Impact Investing Network (GIIN) has indicated.
In Southeast Asia, since 2007, private impact investors (PIIs) have deployed about $904 million through 225 direct deals, and development finance institutions (DFIs) have deployed about $11.3 billion through 289 direct deals, according to GIIN.
The top countries for impact investment in Southeast Asia are Indonesia, the Philippines and Vietnam. GIIN said that it expected these countries to continue to experience robust growth because of mild regulatory environments and emerging entrepreneurial scenes there.
‘Cambodia also has a strong climate for private investment,’ said GIIN’s research director Abhilash Mudaliar.
‘Over the past decade, entrepreneurship has gained momentum across most of Southeast Asia, in part due to increased government support for private sector growth, integration with the global economy, a rising consumer base and a young, educated population,’ he said.
The largest DFI investing in Southeast Asia is the International Finance Corporation. DFIs currently account for more than 90% of all impact capital invested in the region.
In terms of expectations for returns, GIIN’s study found that most investors in the region seek risk-adjusted, market-rate returns. Some, however, will accept lower financial returns if the cause has potential for high social impact.
In poorer Southeast Asian countries, the study revealed that a major impact focus is on the provision of basic services. In more developed countries, however, the focus is on more advanced societal issues, such as income inequality and population ageing.
Mudaliar said that, to date, investors have primarily deployed capital to sectors that promote financial inclusion, expand access to basic services and improve livelihoods – primarily, financial services, energy and manufacturing. Together, these three sectors account for 82% of the total capital deployed in the region and 63% of all deals.
In Singapore and Vietnam, the study showed that the information technology and communication (ICT) sector is the single largest recipient of PII capital, while in Malaysia only consumer goods and financial services have received impact investment.
Singapore has also attracted investment in its healthcare sector, due in part to the rise in its ageing population. The number of citizens aged 65 and above is expected to double to more than 900,000 by 2030. Healthcare is also an upcoming impact investment sector in Vietnam.
In Thailand, the energy sector is leading in impact investments, followed by the financial services sector, which has primarily attracted investments in insurance providers. Similarly, energy is the top sector in Laos, while all impact investments in East Timor have been in microfinance.
Meanwhile, a trend of DFIs investing in equity in many different sectors in the Philippines, Vietnam and Indonesia also indicated that investors were interested in investing beyond the traditionally common sectors of financial services and energy.
Mudaliar said factors driving interest in impact investing in Southeast Asia include the wide variety of environmental and social challenges present in the region – from climate change and deforestation to poverty and lack of access to basic services – and growing evidence that shows competitive returns in the space are achievable.
South Asian countries such as Bangladesh, India, Myanmar, Nepal, Pakistan and Sri Lanka are also popular among impact investors. India, for example, is the largest and most active impact investing market in the region.
To date, DFIs have deployed $5 billion, while other impact investors have deployed $437 million. The sectors receiving the most impact capital are manufacturing, energy, financial services and agriculture business.
In Pakistan and Bangladesh, the energy sector received the most impact capital from DFIs, while in Sri Lanka, financial services, microfinance, tourism, hospitality and high-end hospitality were the most popular sectors among investors.
Lending a hand
According to Mudaliar, there are currently many private funds across all asset classes offering opportunities to a variety of investors, including family offices, high-net-worth individuals, banks, foundations and institutional investors.
‘There is substantial opportunity in the region to invest in micro, small and medium-sized enterprises that have established track records,’ he said. ‘Investors have already begun to do so in Indonesia and Vietnam.
‘The region also has many start-up social enterprises, small and growing businesses, and large corporations that incorporate impact-investing strategies, such as sourcing from low-income farmers.
‘We’re also seeing good strides in gender-equality-based investments within the region. For example, the Overseas Private Investment Corporation (Opic) launched its 2X Women’s Initiative, a women’s investment project supported by the Australian government, Sasakawa Peace Foundation and private fund managers such as SEAF and Patamar Capital,’ he explained.
Opic’s initiative was designed to raise more than $1 billion for projects that support women in developing countries. As part of the initiative, Opic will invest $350 million in projects that lend to women-owned businesses and private equity funds.
The firm has already committed to financing two banks in India – Yes Bank and Induslnd Bank – to expand lending to women-owned businesses in the country.
Another initiative, aimed at empowering one million women across Asia, is the Women’s Livelihood Bond program. The collaboration between DBS Bank and the Impact Investment Exchange includes a series of bonds targeting a total of $100 million. Issuances of the new scheme is listed on the Singapore Exchange and sold to investors globally.
The first Women’s Livelihood bond that was introduced had garnered $8 million in investment by the time it closed in July. Sixty percent of the investment capital was from Asian investors, with the majority being high-net-worth customers of DBS Private Bank.
Meanwhile, Incofin Investment Management, an international private equity and debt fund manager, manages seven impact investment funds. Its Incofin India Progress fund is a private equity fund focused on the technology, food and agriculture value chain.
In some cases, PIIs have also launched their own funds, GIIN’s study found. The Angin Women fund is one such example. Established by 15 super-rich Indonesian women, the fund invests in women-owned businesses that support women.
‘Activity in key sectors and geographies has grown considerably, and investors have plans to continue this growth,’ Mudaliar said.
‘Ultimately, we believe impact investing is at the forefront of a much broader movement that seeks to ensure that all investors assess their impact and integrate this information into their financial decision-making,’ he added.
This article was published in the October issue of the Citywire Private Wealth magazine.