Financial innovation and philanthropy: The latest cocktail to build assets

Shweta Banerjee — Wed, 30 Sep 2009 20:56:00 -0400

This week's Economist has an interesting article on the recent trend of mixing philanthropy with innovative "impact investing".

The Clinton Global Initiative launched the Global Impact Investing Network (GIIN), comprising of twenty members representing big banks (including Citigroup and Deutsche Bank), donors (Gates, Rockefeller), the Acumen Fund and Generation Investment Management (which is Al Gore's green company). If this group succeeds in agreeing on a common language for social investing and lobbying for helpful laws and regulations, impact investing could grow to $500 billion, which accounts for around 1% of the world's total assets under management in 2008.

Social investment is not new in itself. But the success of ideas like microfinance, which combines do-good with profit, has inspired mainstream financial institutions and investors to become interested.

For example, Social Finance, a social investment firm in Britain, has introduced the "social impact bond," where funds raised by bond purchases contribute toward organizations with social missions. Social Finance plans to try out this bond for several public services like rehabilitating released prisoners and improving community health services.

The Gates Foundation has set aside $400 million to see if various fledgling innovations can attract larger amounts from government and private investors. For example, Gates guarantees charter schools that are issuing bonds so that other investors can feel less worried about risk.

There is a need to evaluate the impact of these ideas, specifically on how they can effectively be used to create assets. But since neither Government spending nor grants are enough to meet the needs of the bottom billion, its time to marry them with private capital and skills.

There are many opportunities created by this marriage. For example, can a cluster of village banks in Tanzania, where the poor deposit their money be guaranteed by a social investment firm?

The Global Assets Project in collaboration with the World Council for Credit Unions (WOCCU) will be hosting an event to talk about another innovation. Using its network of credit unions, WOCCU's new program matchsavings.org provides much needed savings-led financial services to the poorest in remote regions of Mexico.

Mark your calendars for October 15 at 12.15 pm, for lunch and some fresh discussion on the details of this new model and its relevance outside mexico in other countries around the world.

Shweta Banerjee is a consultant with the Global Assets Project at the New America Foundation.

Banerjee@newamerica.net

Microfinance and Your IPod: Just When I Thought Microfinance Couldn't Get Any 'Cooler'

Jamie Zimmerman — Fri, 25 Apr 2008 14:19:00 -0400

You know a concept has hit the big time when it gets applied to the global music industry.

Now, microfinance - the technique that has been reducing poverty amongst women from Bangladesh to Bolivia - is available to struggling musicians around the world.

Through the power of social networking and a recent surge in the popularity of peer-to-peer lending, Calabash Music, a popular music download site internationally and the world's first "fair trade music" site, has launched a new initiative "Tune Your World" in which fans can "microfinance" the start up costs and recording activities of their favorite new and emerging artists' around the world.

Here's how it works:

"You can microfinance an artist on our Tune Your World social network, download a copy of their latest recording and help the world's working musicians make great strides towards economic independence: 1) pick an artist and make a minimum $25 sponsorship via PayPal; 2) Calabash transfers funds to musician when artist's goal is reached, and; 3) receive news and download advance copies of artist's recording."

From what I can gather, Calabash operates on a people-to-people model similar to the uber-successful Kiva.org . Musicians obtain funding for their recordings from fans, who contribute a minimum amount toward a larger funding goal. Similar to the Kiva model, these "social investors" are able to feel a personal connection with the borrower (the musician) and can get progress updates from them. And, just as Kiva-givers enjoy knowing that their money is directly impacting the life of a poor micro-entrepreneur in the developing world, Tune Your World-givers know that their small dollar lending is directly providing individuals with an opportunity for success in the most competitive and entrepreneurial sector of all: art.

I agree with Kiva founder and other commentators at IdeaBlob that this idea is cool. Small dollar peer-to-peer lending and making microfinance investments are certainly "in" these days. Peer-to-peer lending sites like Kiva and Prosper are hugely popular. You can even now invest, literally, in microfinance via eBay's MicroPlace . And you know something is cutting-edge if Richard Branson is doing it too (see Virgin Money USA). And among industries in which emerging entrants lack opportunity and face adversity and marginalization of success, music (and art) is certainly toward the top of the list. So if a good system (microfinance) can equal more good music, then I applaud it.

At the same time, I am still cautiously optimistic. I have to question the sustainability of the model. I didn't see anything on the website explaining the repayment policy for the artist. And even my extremely limited understanding of the global music industry tells me that it's competitive enough that a substantial chunk (if not a majority) of musicians will not make it a hugely successful recording artists. Needless to say, I wouldn't be surprised if Tune Your World didn't see the 97% repayment rates touted by Kiva.

Regardless of its challenges, I'm encouraged to see that Generation X (or is it W now?) is increasingly catching on to (and innovating in) strategies akin to social investment. Providing opportunities for financial success of the under-served, marginalized, and excluded is core to the work of us in the asset-building field. It through this kind of thinking, and these kinds of approaches, that we will make progress toward equity within our societies. And while not the central goal of Calabash Music - making social investment even more "hip" is still a sweet contribution.

Social Investment

Financial innovation and philanthropy: The latest cocktail to build assets

Microfinance and Your IPod: Just When I Thought Microfinance Couldn't Get Any 'Cooler'