How Impact Investing Could End Global Poverty

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WASHINGTON, D.C. — Omidyar Network is making a case for the sector-based approach of “impact investing” and microfinance to help millions of people worldwide.

The Omidyar Network began their work with impact investing in 2004. In the past five years, the network has seen an exponential growth of interest in their industry and much of it is focused on individual firms.

According to the Omidyar Network, the primary goal of impact investing and impact investors is finding and investing in enterprises that yield strong financial and social returns. This focus may be too much of a singular approach and could end up costing investors on “the next big thing.” Thus the Omidyar Network created an online series in which they argue for a shift in focus away from just individual firms and toward the goal of scaling entire industry sectors, in addition to individual firms.

The experience this team has gotten from the past eight years is that impact investors can increase the number of lives they touch by concentrating investments in specific industry sectors and in specific geographies. The need for investment in this project is very important at the earliest stages of innovation because it can provide a foundation where entirely new sectors can emerge and grow rapidly by tapping commercial markets. Creating and scaling entire sectors of a market can make a huge difference.

For example, supporting just one solar lantern company that can provide lights to thousands of children who otherwise can’t study for school at night can accelerate an entire solar lighting industry. That same industry could then provide these lanterns to millions, if not hundreds of millions, of students and people in need.

Many of these projects, especially bringing people together to support and aid others, may be easier said than done. Many industry sectors, especially those serving disadvantaged populations and with weak infrastructures, can take decades to develop.

This is where the term microfinance, one of the most heralded innovations for the poor, comes into play. This innovation first emerged in the 1970s and despite strong growth, is still available to only a minority of the world’s poor.

However, if the Omidyar Network gains support they could potentially accelerate the development of the microfinance sector by three or four years. This means they could extend critical financial services to tens of millions of people, which is well above the scale that any one single firm could reach.

The dream of the Omidyar Network is more than just a long proposal outlined in a document. This network wants to support companies who could change the world for the better. Their support could begin with the solar lighting industry and move on to other industries in the market that provide clean water, sturdy shoes or mosquito nets to help prevent the spread of malaria, and so on.

All of this and more could be achieved by just one network pulling several different businesses together and supporting them in the aid of one cause: to put an end to global poverty.

Sources: Omidyar Netowrk, Standford Social Innovation
Photo: Omidyar.com

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