But with all the buzz surrounding impact investing, perhaps it is best to go back to the basics and define what we consider to be a powerful mechanism for effectuating sustainable development. What is the definition of impact investing?  And how can we further develop an ecosystem in which it can thrive? These questions are addressed below in our Q&A with Elizabeth Littlefield, President and CEO of the Overseas Private Investment Corporation (OPIC).

Q. There is still debate about the definition of impact investing, with some being concerned that investments with impact (vs. impact investments), will somehow be viewed negatively.  How do you respond to this?

The first category, those with more traditional business models, should never be regarded as a pejorative designation. We want to be emphatic and unequivocal about that. That first category is a necessary core of our portfolio and will remain so.

We are not creating a contest, we are trying out a new lens. We are simply asking the question: if there is a new type of model in development finance, what is a constructive way to think about its scale and performance relative to others?

There are and will be many traditional investments with impact that have profound and far-reaching positive effects. Conversely, there will be some impact investments that do not prove viable. The more patterns we can unearth in that somewhat noisy data, the better our decisions will become over time.

Q. You are co-leading the Development Finance Institution (DFI) Working Group on Social Impact Investment with the IDB’s Executive President, Julie T. Katzman.  How can the members of this group help develop the impact investing ecosystem?

Let me say first and foremost that the working group is very fortunate to benefit from Julie’s leadership. She has been very thoughtful about these issues. There is a phenomenal amount of enthusiasm around impact investing. People want to explore and develop this field, which we should encourage. At the same time, we have to be able to distinguish bona fide impact investment opportunities from those without a bankable business model, which is to say projects still in need of grant support, and from those traditional business models that may just carry an impact investment brand. For these genuine opportunities, we want to ensure that our criteria for qualification are solid, our financial instruments are appropriate, and there are mechanisms to help them collectively establish a credible track record. If we are able to sustain credible growth, the future looks very bright. There are scores of creative, dynamic people who are committed to seeing these investments and businesses become a force for good.

About OPIC: OPIC, an organization that shares the IDB Group’s partnership approach to development, collaborates in the impact investing space with institutions such as Omidyar, Capricorn, Root Capital, Medical Credit Fund, and Citi, with whom it has partnered on 16 risk-sharing frameworks to guarantee $2.8 billion in emerging-market lending over more than a decade of cooperation.

About Elizabeth Littlefield: “Elizabeth L. Littlefield was appointed by President Obama as the President and CEO of OPIC, an Under Secretary level position. OPIC, as the US Government’s Development Finance Institution, manages an $18 bn portfolio of financing and insurance to support private investment in sustainable economic development, especially in the world’s poorest countries. Under Littlefield’s leadership, OPIC’s annual commitments to renewable resources projects grew ten-fold in three years to $1.5 bn, while generating increasing income for the U.S. federal budget. Littlefield has also instituted major reforms of the agency’s policies, systems, and processes, and has introduced new financial innovations to augment the agency’s development impact. 

From 2000 until 2010 Ms. Littlefield was CEO of CGAP (Consultative Group to Assist the Poor), a policy and research center housed at the World Bank dedicated to advancing poor people’s access to financial services. Prior to joining CGAP in 1999, Littlefield was JP Morgan’s Managing Director in charge of capital markets and financing in emerging Europe, Middle East and Africa, among other positions. Littlefield spent 1989-1990 in West and Central Africa consulting several start-up microfinance institutions. She is a graduate of Brown University and also attended Ecole Nationale de Sciences Politiques in Paris.”

This post was originally published on the IDB's Partnership blog.