ARTICLE · 25 SEPTEMBER 2023

Social Financing Through Impact Bonds

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Impact investments are generally understood as investments made with the intent to generate impact (social and environmental).

IndiaFinance and Banking

Deeksha Gehlot Kyal

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Background

Impact investments are generally understood as investments made with the intent to generate impact (social and environmental). Impact investments may be made in any area where (a) there is a need for social upliftment; and (b) such upliftment matches with the investors' strategic goals.

Impact investments in India have been facilitated through different legal structures like Alternate Investment Funds ("AIFs") regulated by the Securities and Exchange Board of India; Non-Banking Financial Companies ("NBFCs") regulated by the Reserve Bank of India ("RBI"); foreign donations regulated by the Ministry of Home Affairs ("MHA"); and impact bonds ("IBs").

IBs, when backed by Government donations are identified as 'social impact bonds'; and when backed by private donations are identified as 'development impact bonds'. IBs gained popularity due to their potential to facilitate 'outcome-based funding'. This means that the donors are able to identify and fund

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