Socially Responsible Investing – Benefits and Risks

Social Investment, social welfare

Many of us have the urge to make a difference to society, but either lack the time, resources or may not be able to put enough efforts towards the initiative. Charity or philanthropy sounds nice and good but an average individual who earns a monthly salary can only shell out a few hundred rupees for charity.

“Social investment has been happening for decades, but it is still very much a nascent cottage industry”, said Richter. “So what we’re trying to do is put in place a basic infrastructure that starts to connect information and data in a way that we can present as a capital market, and potentially an asset class.”

Apart from donating, some would be keen on participating in social activities or initiatives depending on their interest and time they are able to devote. Some would be members of religious organizations, charitable institutions, NGOs, etc.

A majority of people may do some charity and leave it there. Social  investment  has historically been based on negative screening – i.e. ruling out investments in certain types of businesses.

Social  investment  is still in its adolescent stage. But its potential impact is enormous. The very nature of the business is changing. No longer will the most successful funds be those that have negative screens, i.e. that assert they do not invest in certain businesses.

Rather, the growth promises to be in those funds that develop new ways to do positive screening, weighing companies not on what business they are in, but more broadly, on how they conduct their business.

Donations – Is it Enough?

The donation route is necessary for social and non-profit causes such as providing education, healthcare, better living conditions, etc. However, there are people in smaller towns and villages who need to move up to the next level and may need funds to fulfill their enterprising ambitions.

For instance there are enterprising people who take up small vocations or businesses such as setting up tea stalls, tailoring unit, grocery shop, cattle rearing, milk products, handcrafts, etc. Although these people may be less educated they have good know how about their trade and local market.

Donations may not be sufficient to meet these needs. Further, some of these initiatives may not fit the strict definition of donations, so it might need funds from sources other than donations.

Social Investment  – An Alternative to Donations

As an alternative to donations, new concepts such as micro credit and social investing have emerged. In case of micro credit you are providing funding at very low cost (to help social causes). Social Investment is the provision and use of finance to generate social as well as economic returns.

Instead of donating you will be able to get back your money invested plus some nominal returns. The interest or returns are nominal so we can even ignore that for time being. However, the satisfaction of being able to cause a social change and provide a life changing opportunity to someone is worth millions.

Social Investment Routes

People based in US would be familiar with which allows people to lend money via internet to other who are in need of funds for small businesses. This concept was well received in US and became a successful role model for others to follow.

Kiva has also developed a similar model for India, which has not seen good traction yet. However, there are other players in India such as RangDe, MicroGraam and others who have customized this concept and their platform for Indian audience and requirements.

I have had some experience with and can explain how it works. In case of other websites or organizations, the processes could be slightly different.


This article is not intended to publicize or advertise any website or organization. I’m just sharing my views and knowledge which I feel would be useful and informative. I’m taking just as one example. You can choose any organization or institution as per your interest.

How it works?

On one hand, there are social investors who lend, donate or provide funds for various micro credit needs. On the other side, we have borrowers who are users of credit.

The borrowers could be involved in some vocation or business such as cow rearing, weaving, tailoring, vegetable vending, carpentry, etc. The social investors would lend to the borrowers through a common channel or website for a specific period say for instance six months or one year.

The borrower uses the funds for his business and repays the funds with nominal interest in installments over the loan period. The investor gets back his funds with nominal interest. The motivation for investors is not the interest but the opportunity to change lives and make a huge difference to an individual, his family and surroundings.

How to get started?

  • You first need to register on the website as a social investor or partner. Based on this you will get a log-in and password.
  • Once you log in you can fill further particulars about personal information, payment information (if applicable).
  • can invest as low as Rs.100 (in case of RangDe)

Selecting Profiles

Once your account is set up you can scan various borrowers across different states engaged in different occupations. Some of the occupations would be as simple as cow rearing, pottery, vegetable vending, etc.

You may also find some interesting vocations such as people setting up salons, electronic repair shops, food stalls, running an auto rickshaw, etc. You can donate as per your budget and preference. The minimum requirement in case of RangDe is Rs.100, and this can be different for other organizations.

Most people setting up these kind of small ventures require an approximate

working capital of Rs.5000 or Rs.7500 or more. Two or more investors start funding one venture. Some of these borrower profiles will get closed in a matter of few weeks.

These small ticket investments received tremendous response from normal middle class people to participate and lend/invest more. Had it been on a pure charity model most middle class people would have refrained from participating.

Although one cannot make good returns, if one can get back their money invested, it provides an opportunity to invest once again to another deserving person with good credentials.

Reliability of the Model

Most people are averse to new concepts because of the fear that it might be another scam or fraud in a new format. These social investment platforms work on a partnership model with non-governmental organizations as well as social investors.

The NGOs provide access to good quality borrowers with necessary documentation and other inputs. The website also does a due diligence and check on the organization. So this ensures that defaults and issues can be addressed at a local level by the NGO partner who has direct access to the borrower.

Some websites also publish the repayment track record. For instance on RangDE it is around 98% or higher, which is commendable. Similarly it also publishes the track record of each of its NGO partners, which provides more clarity and transparency.


The model above followed by RangDe is reliable and funds are utilized for the right end-use. So one can be assured that the money goes to the right hands for the right uses. However, there are few genuine risks or uncertainties such as natural calamities, unforeseen events, business risk, etc which could be unavoidable.

For instance if you are investing in a cow rearing activity a major health issue with cows can result in poor performance. To de-risk one can invest small amounts in different businesses. The most important warning here is not to use this medium for investing.

Don’t compare this with investing in stocks, bonds, etc…because this is meant for a social cause. You can only get back your money with nominal interest, and no other benefit.

Tracking your Investments

This is one of the key features provided, where you can monitor the progress after making investments. For instance you can see the %age of funds raised, disbursal of your investment, repayments and lots of other information.

You will also get a quick view of your overall portfolio indicating %age of investment across states, across occupations, etc.

Benefits of Social Investment

The benefits of or social investment  are numerous.

  • If you were to do this activity yourself you will have to travel, spend a lot of time and do a lot of due diligence, which is now taken care by a specialist in consultation with NGOs.
  • You are able to get back your money unlike charity, so you would not actually lose much. The money lent will also be utilized for the right end use.
  • This causes social change, because if you can help one person become self-sufficient in his own town or village doing his own occupation (say cow rearing), the individual and the family will transform and get a better quality of life – such as better health, education, etc because they have a steady income to take care of their lives.
  • The change will also impact other people in surrounding areas and the community. For instance if a person successfully sets up a breakfast/tiffin center he is able to provide a service which may not have existed in the community earlier. Further, the center may also employ few cooks, waiters and other personnel, creating some employment. This also reduces people migrating to cities and living in poor conditions in city slums for a meager increase in wages.

Conclusion – Social Investment

The whole idea is about making a small contribution towards social change, which can be small but highly impactful. This can give you the satisfaction of being a part of the change to eliminate or at least minimize poverty in our country.

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About the Author

Sridhar is a financial analyst and his work experience spans areas of financial analysis, modeling, valuation and research on companies, specific sectors, etc. Sridhar is an MBA graduate with Finance major from Maharishi Institute of Management.

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