Financial innovation and the Poor: A Place in Society
Monday, October 5, 2009
Many nodded when Lord Turner, the City of London’s chief regulator, said recently that the financial industry had grown “beyond its socially useful size”. The idea that devices such as collateralised debt obligations and credit-default swaps have been a blessing, not least by allowing the less well-off to buy houses, is in tatters: lots of those new homeowners have lost their houses as well as their jobs. It is remarkable, then, that the crisis should have given fresh impetus to “social finance”, a movement based on the belief that financial innovation can be used directly to help society’s neediest people.
Two events this month should give believers in social finance a lift. On September 1st nearly 900 people, from institutional investors to social entrepreneurs, gathered in San Francisco for SoCap09, a conference dedicated to building “social capital markets”. The event was abuzz with novel ideas such as a “social stock exchange” and “sustainable hedge funds”.
And on September 25th, at the meeting of the Clinton Global Initiative in New York, the Global Impact Investing Network (GIIN) was due to be launched. This is, in effect, a commitment to create a new asset class-impact investing-yielding a financial return alongside a social or environmental benefit. The network’s 20 or so members include big banks (Citigroup, Deutsche Bank, JPMorgan), philanthropic institutions (such as the Bill & Melinda Gates Foundation and the Rockefeller Foundation), the Acumen Fund, which invests charitable donations in firms supplying health care, clean water and so forth in Africa and India, and Generation Investment Management, a green-tinged fund manager co-founded by Al Gore.