The last week saw yet another volatile ride in the markets. Crippling debt levels, looming austerity measures, waves of social unrest and stagnating incomes stifle any hopes for sustainable economic growth. It is during turbulent times like these that paradigm shifts happen. Do we need to re-evaluate our approach to fighting poverty and stimulating economic development?

I am not advocating the idea of giving away a bigger chunk of your paycheck to philanthropy. Meaningful social development is only possible when local communities are enabled to work and progress themselves. Impact investing empowers people helping them realize their full potential, and creates jobs, boosting local economy. But what if funding a good cause not only generated a positive social change but also a financial return? That capital could be recycled and committed to another venture, stretching the invested dollar far beyond the value of the charitable donation.

This is how Acumen Fund, one of the world's most high-profile impact investors, works. Acumen supports start-ups capable of improving access to healthcare, alternative energy, agriculture and housing in low-income areas of the world. This “patient capital’, with its higher risk tolerance, flexible investment horizon, and a focus on social rather than solely financial returns, fills in the void left by traditional market-based investments. Over the past ten years, Acumen has approved investments of more than $72 million in 65 companies, with plans to more than double these figures over the next decade. Now that Acumen has proved that this model works, its focus is on “taking the idea mainstream” by sharing the knowledge and establishing more community groups like the Toronto chapter.

But social investment funds are just one piece of the puzzle. To qualify for Acumen’s investment, a successful business plan needs to hold the potential for significant social impact, be able to become financially sustainable within five to seven years and reach a wide base of end-users. There has to be a deep pipeline of social ventures that meet these investment criteria. That is where intermediaries like MaRS, with its mission to identify and promote innovative ideas, and develop them into social enterprises, play an important role.

It’s estimated that over the next decade, impact investing could reach 1% of total managed assets in the U.S., and while still a small fraction, it represents double-digit growth in areas that fall under that umbrella. There is no reason Canada can’t keep up with the growth projected south of the border. For impact investing to gain momentum, the infrastructure enabling private capital to flow into the industry needs to be developed. Some initiatives will have to be implemented top-down, like tax incentives and regulations supportive of social investment. Others, like a young generation of leaders thinking outside of the box, will have be born among us.

Note: Toronto for Acumen has partnered with SocialFinance.ca to produce a series of posts following on from the Dignity in Focus photo fundraiser held earlier this month. This series introduces a host of new faces to social finance, placing their thoughts about Dignity in Focus in the context of impact investing.   

Photo credit: http://www.flickr.com/photos/acumenfund/5697370974/in/set-72157626671866332/

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