Finance with a positive social impact
Impact investment is a growing trend that aims to increase financial flows into social and environmental initiatives across the world. Impact investors look for projects that offer both financial returns and positive social outcomes, in areas such as education and healthcare.
"These investments can have greater social impact than mainstream financial attempts at integrating environmental and social concerns into portfolio management because this type of investment strategy focuses directly on areas of real social need," states Professor Mehrpouya.
However, the fundamental challenge is the difficulty in measuring the positive and constructive social impact of these investments on the communities receiving the capital. Considerable care also has to be taken to ensure that imposing financial obligations on organizations, which provide public goods, does not compromise their core values and focus.
Another very promising development is the rise of decentralized financial services – such as crowdfunding platforms and peer-to-peer mobile banking in remote and poor communities. B-Kash in Bangladesh is just one inspiring example. When the company was founded in 2010, 90% of Bangladeshis had never used a bank. By capitalizing on rapidly expanding mobile phone use among the poorest pockets of the population, BKash quickly expanded its peer-to-peer financial services. It now has over 24 million users - about one in three adults old enough to have an account. This type of financial service enables poor, rural communities to access markets, trade their products without have to use middlemen, and keep more of the returns.
Kiva is another example of a highly successful decentralized finance initiative. This peer-to-peer lending platform has now facilitated loans to over 2.5 million borrowers, who would not normally be able to borrow from traditional banks. In Kenya, M-Pesa uses microfinancing to bring the tradition of financially supporting the extended family into the 21st century, by increasing its reach and facilitating financial aid from family and friends overseas.
By integrating financial services into communities and their social relationships, these peer-to-peer services are more likely to support the long-term needs of local communities than distant investors, and help finance to become a driver of social good.
Afshin Mehrpouya is an Associate Professor of Accounting and Management Control Systems at HEC Paris. He qualified as a doctor in Iran and holds an MBA and PhD in management. His research focuses primarily on performance measurement in transnational governance, the construction of rankings and ratings and socially responsible investments.
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