A critique of impact investing : where does it work?
“Leading social entrepreneurs are people who are single-mindedly passionate about solving a social problem, but how they get there is influenced by the funding available,” he began. “So funders have a great responsibility.” However, he continued, the promise of channeling vast funds to social causes through impact investing actually does more damage than good. Oldenburg went on to craft a radical critique of the current hype surrounding impact investing.
First of all, impact investors need their investees to repay debt or equity, which requires a business model that can create profit surpluses. Many assume that the impact investing craze coincides with a strategy shift toward the social business model over the nonprofit model, as social entrepreneurs adjust to the demands of the funding marketplace. This, Oldenburg argues, is a myth. In fact, he finds that entrepreneurs are not moving toward models that create surpluses and believes they should not. “Great social entrepreneurs look for the fastest way to change the system with the cheapest form of funding available - not for the safest way to produce surpluses to pay back expensive loans or mezzanine capital.” This exposes the weakness of the impact investing movement, which is predicated on the ability, and willingness, of social ventures to generate income.
The entire interview is worth reading.
The key is to understand that in some cases, there is earned income, however, in other cases there is a need for a NFP model. However, there are scenarios where government will save money, which is the earned income. Does government need new money to pay return on it? Well, in some cases yes, but in most cases it is about performance management and focus on outcomes that most government programs are not good at measuring.