NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Two stories have got me thinking about capital markets and their interaction with the BoP.

The first one involves a State Minister of an industrialized country announcing funding for a project to create a “social stock market”. The second one features 12,500(!) new shareholders of a Colombian corporation, packing the room during the first annual review meeting since it went public.Both are exciting news and I wanted to share a few thoughts on how capital markets may serve as either bridges or gateways for the BoP into the formal economy.

Let’s see.

Markets as bridges

Phil Hope is England’s Minister for the Third Sector, a very forward-thinking position all by itself. Just as interesting was his announcement at the Skoll World Forum 2008 of a project to study the feasibility of a social stock market, supported by a $500,000 grant from the Rockefeller Foundation. The story was featured by the featured by the Financial Times last week.

There’s no need to elaborate much on the benefits that such a market would bring to this sector. In fact, the idea is not completely new; for example, Muhammad Yunus explained his vision of a social stock market in his Nobel Peace Prize Lecture and has further elaborated it in his newest book Creating a World Without Poverty.

What is most exciting about last week’s announcement is seeing this idea turn into action through a project that will signal the concrete actions needed for the market to get up and running. This will surely heat up the discussion on the elements needed to make it efficient and transparent, which relate to the issues we discuss here in NextBillion. Citing Professor Yunus again:

… “to enable a social stock-exchange to perform properly, we will need to create rating agencies, standardization of terminology, definitions, impact measurement tools, reporting formats, and new financial publications such as ?The Social Wall Street Journal’”…

I believe that the BoP/Social Enterprise movement is moving in the right direction towards reaching the maturity needed to run a stock market, which will serve as an effective and transparent bridge between the sources of capital and BoP ventures/social enterprises around the world.

Such a market would also serve “…a new class of rich people unhappy with the old binary system of making money with one hand and giving it away with the other” as pointed out by Rockefeller Foundation’s managing director.

Markets as gateways

While the Skoll Forum listened to Mr. Hope, my second story was taking place in the other end of the ocean.

Last week, Ecopetrol (Colombia’s national oil company) hosted its first annual review meeting after its IPO. 12,500 people (more than the average attendance to a local soccer game!) showed in the up to hear the company’s executives discuss its performance and investment plans for the coming year.

Ecopetrol’s wasn’t your usual IPO at all. It successfully achieved the goal of truly bringing part of the company to the hands of the Colombian people, rather than just a few institutional investors. To do so, the company used various marketing and distribution mechanisms that allowed people to make a rather unconventional investment in a country like Colombia.

For example, stock was made available for purchase at places like grocery stores and pharmacies, which, combined with flexible financing alternatives, enabled the access to stock by large segments of the population, including the BoP. In fact, the 12,500 attendees are only a small fraction of more than 450,000 individual shareholders reached by the massive campaign.

This is a simple example of how capital markets may serve as a gateway for larger segments of the population to step into in the formal economy, which is key in the purpose of making emerging markets increasingly efficient and inclusive.

We’ll keep an eye on how this trend unfolds, so stay tuned!