Innovative Finance is not sexy
This might sound counter intuitive. Why would I want to imply that Innovative Finance is boring? Clearly my objective should be the opposite. Perhaps it is my intend to go beyond the hype that is surrounding Innovative Finance.
On the surface Innovative Finance has been made very attractive by all the buzzwords we are throwing in. We are working all day on sustainability, delivering impact, scaling, closing the social gap, social entrepreneurs, impact investors, collaboration, building bridges, breaking out of silos, partnerships, blending, mixing, stacking, transitions. It sounds like a Millennial’s wet dream come true. On top of that come the ‘from the field’ testimonies, personal stories from beneficiaries, and countless lives touched according to the latest sustainability report. The big pink future has arrived. Don’t get me wrong, this is also what moves people to action. The promise of feeling good by doing good.
Now say you want to be part of this Innovative Finance world. Like any tribe there is some sort of initiation ritual. The acronym initiation. If you really want to be part of the tribe you better understand how the members communicate. Do any of these abbreviations ring a bell? MDG, SDG, GRI, ESG, PRI, EIA, FSC, IIRC, GIIRS, SASB, SRI (the list goes on). By the way, if you use another language then English, you would need to do this letter soup all over again. It is actually amusing to see that in a world where we need to collaborate in order to reach scale, we (I’m including myself here) throw up a wall of words. What happened to SDG 17 (Partnerships)? We have to face the fact that the actors in Innovative Finance are mere humans and demonstrate all the traits that come with this peculiar species. Our expressed urgency to collaborate is morphing into a ‘them’ and ‘us’. And what better way to exemplify this by developing a linguistic construct that ‘us’ understands and by default keeps ‘them’ out.
Now I want to explore with you another dimension of Innovative Finance. We leave behind the brightly colored meadows of hype, buzzwords and acronyms. We are now arriving at a level where the reality of lawyers, accountants and money managers lives. Suddenly we need to convert this impact and sustainability into tangible goals, measurable indicators, financial forecasts, legal documentation, due diligence, reporting. Still awake?
As much as the social entrepreneurs are seeing the impact of their work in the eyes of the kids that are in the project. As much as this feels real. It isn’t for them. Remember ‘us’ and ‘them’ profiling works both ways. Those investors state they are committed to impact. The way to convince them is showing them. At least that is how the social entrepreneur is experiencing it. If investor could just see it with their own eyes.
Meanwhile, on this other side, the impact investor is waiting for this perfect project that fits the carefully designed and debated investment profile. When they set up that profile, everybody on the investment committee agreed that it is nicely balanced on both financial and social return considering the risk appetite of the committed impact investors. Now, 24 months later, not a single project came through. Perhaps the market is not ready of us. Maybe we are riding a wave that’s not actually there. Ahead of our time. All we have done is listening to moving stories, and looking at nicely edited videos from the field.
So how can we bring ‘us’ and ‘them’ together. How to put everybody on the same operating system? Is there a universal reality everybody can agree to? Actually, that question is not to answer. Sir Ronald Cohen is a strong believer that the financial world will, over time, include impact (next to risk and return). Jeremy Rifkin is convinced that we are moving away from geopolitical consciousness to a form of biosphere consciousness. Both gentlemen refer to enormous tectonic plates that moving right under our very feet. What have been leading principles in the for-profit and the non-profit sectors for the past 100 years, is suddenly called into question. It’s more, they are actually converging.
So both the hard-nosed finance guys and gals need to share the table with the touchy feely social development boys and girls. Let me be honest here. I never ever thought that would happen in my lifetime.
Now we are getting to the boring part. Somebody has to write the universal code that puts ‘us’ and ‘them’ on the same page. Who’s doing the social value evaluation? Who’s doing the focus groups? Who’s measuring baselines? Who’s designing and implementing interventions? Who’s drafting the legal documentation? Who’s doing the corporate structuring? Who’s checking up on jurisdictional risk? FX exposure on the loan facility anyone? What guarantees do we have? How do we blend public and private funding? What is the legal standing of a foreign direct investor? What is our tax exposure? Do I need to report income? Ugh.
We either wait for the world to give us a cross between Warren Buffett and Mother Theresa or we better start working together. Clearly what’s boring to many is sexy to some. Apparently we are not all wired the same way. Who lives in this middle world? ‘Them’ and ‘us’ obviously! We have to get in the grind (for lack of a better buzzword) with people we don’t understand.
This is my little call to action. If you live on high street go work with someone in the community. If you live in the global south, get to understand the people from the global north. Maybe jump on a course together?
First published on LinkedIn on January 26, 2019