When Governments Stimulate Supply and Demand

Abstract

If impact investing wants to hit it big, it has to provide a superior customer experience, master digital disruption and regulation, and accompany the rise of emerging markets. Incentives are the key to lower the hurdle for market development. This chapter asks how to address the barriers that exist for the industry to graduate to a scale where it can make a major contribution. Included are: (1) the lack of a set of meaningful rules governing impact investment; (2) limited availability of capital; (3) a lack of needed skills and expertise and overall investment readiness; and (4) striking the balance between ensuring a level playing field in this new industry in the early phase of an innovation cycle. The chapter discusses how government can support the emergence of impact-oriented content in the investment industry in three primary ways: by stimulating supply, directing capital and regulating demand. It examines the experience of the development of the VC industry, and discusses how successful stimulation policies can be applied to impact investment to enable, as opposed to inhibit, the environment for the growth of the impact investment industry.