Financial Ingenuity
Ingenious financial solutions to the world’s social and environmental challenges are becoming a global force for change.
The microfinance movement started in the ’70s in Bangladesh. By 2007, the microfinance industry provided $15 billion in microloans to 106 million of the world’s poorest families, according to the Microcredit Summit Campaign. The campaign was to reach 100 million of the world’s poorest families, especially the women of those families, with credit for self-employment and other financial and business services by the year 2005. That goal was very nearly reached and in November of 2006 the Campaign was extended to 2015 with two new goals: reach 175 million of the world’s poorest people and ensure that 100 million families rise above earning $1 a day.
Financial Ingenuity Continues
Impact investing – making investments that generate social and environmental value as well as financial return – has the potential to complement philanthropy and government intervention. It’s a potent force for addressing global challenges on a large scale. Impact investors want to move beyond “socially responsible investment” (SRI) which focuses on avoiding investments in “harmful” companies or on encouraging good corporate practices related to the environment, social performance, or governance.
SRI has been around for a long time but really took off in the ’80s. As of 2007, one of every nine dollars, a total of $2.71 trillion, was invested in businesses whose practices support environmental sustainability, human rights, and consumer protection, according to Social Investment Forum, a firm that advances the practice and growth of socially responsible investing.
What Will Grow Impact Investing?
If Durreen Shahnaz, Founder and Chairman, of Impact Investment Exchange (IIX) has anything to do with it, the growth of the impact investment industry will be steeper than the growth of microfinance and SRI. She is launching the first regulated trading platform for securities issued by sustainable for-profit and not profit Social Enterprises in Asia.
Several weeks ago I had the good fortune to hear her speak about her vision at an NYU Social Enterprise conference. If her resume is any indication of wherewithal, she’s got the right stuff to make it happen. Durreen is also Head of the Program in Social Innovation and Change, and Adjunct Associate Professor at the Lee Kuan Yew School of Public Policy. She has been a successful social entrepreneur and media executive, and worked at banks throughout the world from the Grameen Bank to the World Bank.
IIX will give social enterprises access to a larger and more accessible pool of money, and increase their visibility to investors who understand the concept of double and triple bottom lines, such as:
- charitable endowments
- family offices
- institutions
- high-net-worth individuals
- retail investors
The social enterprises would report not only their financial results but also their social and environmental returns. Measuring such returns is a work in progress, but recent efforts have made considerable progress in creating a systematic approach. IIX is pulling together the entire ecosystem – regulators, research companies, rating agencies, brokerage firms, investors and social enterprises – required to launch an effective exchange.
What’s your investment philosophy? Do you invest in SRI? Have you experimented with impact investing? Would you be interested in impact investing? Do you have suggestions for measuring social and environmental returns?