A Development Mechanism where Traditional Aid Fails
- Traditional development aid and philanthropy often falls short of its goals due to the “Samaritan’s Dilemma” – receipts stating to rely on charity as a means of survival
- Development projects often fail after the sponsor withdraws, as there is no economic incentive or skilled management to sustain operations
- Aid has an irreplaceable role in extreme situations such as famine or disaster relief, but is not enough to foster long-term economic and social development in frontier markets
The benefits of investment over traditional aid:
- Impact investment solves the problem of sustainability by focusing on creating self-sustaining enterprises that deliver a positive economic, social, and environmental impact.
- Impact businesses are profit-generating and do not require continuous capital inflow after initial investments
- Targeting market-rate or above market-rate returns, impact investment incentivizes capital allocation. Investors can utilize recuperated principal and returns from one investment to fund new impact projects.