“If you pay peanuts, you get monkeys…”

The Founder of Modern Singapore, Lee Kuan Yew, famously said, “If you pay peanuts, you get monkeys,” meaning that only stupid people will work for you if you do not pay very much. Or in the words of HKS Jonah Evans, if you pay peanuts, you get unemployed grad students.

Well, sometimes when you inspire people to join you in something meaningful, peanuts are just fine.

“And, when you want something, all the universe conspires in helping you to achieve it.”
(The Alchemist by Paulo Coelho)

One woman’s vision becomes the battle cry of an army of volunteers

What is so incredible about IIX’s own founding history, is that it’s a story of how one innovator took a concept, got key partners on board, and got to this point of launching the first private placement platform in Asia dedicated to connecting social enterprises with impact investors...all in 2 years time.

IIX’s founder, Prof. Durreen Shahnaz, is a former investment banker and social entrepreneur from Bangladesh. Her brainchild, the creation of a capital marketplace for social good, comes from two decades of experience at Morgan Stanley and Grameen Bank, where market connectivity was lacking. Her experience founding and building OneNest, an online global wholesale marketplace for handmade goods, led her to realize a need for a marketplace where investors can play a role in helping to grow companies with a social and environmental mission. After selling OneNest, Durreen began teaching Social Innovation at LKY School at National University of Singapore, and it is at this time when one article written and one phone call later changed the course of her, and many other people’s, course in life. The Rockefeller Foundation came across Durreen’s editorial on the topic of social stock exchanges and became the first organization to support the creation of Asia’s first social stock exchange. This was two years ago.

Since the early days, the team has turned into an army of ex-i-bankers, ex-lawyers, ex-marketers, who have all traded in annual bonus for the possibility to creating something truly amazing; and it is that possibility that continues to attract top talent willing to work for peanuts...

Why Singapore?

The second question, I often get is “why Singapore”? I believe this question requires a much deeper understanding of how things work around here, so I hope to be able to answer this at a later point in time. I understand that the location for the IIX exchange has been of much debate, and considerable analysis was conducted to identify the most attractive location.

One compelling piece of information that I have learnt so far involves the desire and commitment of the Singapore government to make Singapore the hub for the social sector in Asia-Pacific. Operating with a U.S. mindset, this commitment of the government would not weigh in as heavily into decision-making, but in the local context where social enterprise really does require the support of the three legged stool (private sector, government, and citizens), the Singapore government’s strategic commitment to become the hub for the social sector in Asia as well as their powerful banking infrastructure makes a good sell.

What is a social stock exchange?

When I mention social stock exchange, I am often met with blank looks. Adding the term “social” to financial terms tends to cause some confusion in general. In terms of the vision held here at IIX, I tend to describe it as a traditional capital markets except that issuers (social enterprises) must meet social and environmental listing criteria to be on the exchange, and the investors tend to seek social and environmental returns in addition to financial returns (hence impact investors). In the IIX vision, it is a “stock exchange where impact investors can invest in and trade shares and bonds issued by social enterprises in a liquid and transparent environment”.

Actually, there have been a number of similar initiatives around the world to create social stock exchanges, such as the developments in Brazil (the Social and Environmental Stock Exchange, connected with the Bovespa Index), in South Africa (South African Social Investment Exchange), in the U.K. (London Social Stock Exchange), in the U.S. (Mission Markets), and in other cities. These range from the philanthropic exchanges in Brazil and South Africa where “investing” actually means donating to the more commercially oriented exchanges tailored to social enterprises. It will be interesting to learn more about the lessons learnt from these context-specific developments, especially from the social stock exchanges that have received considerable media buzz but have been slow to develop or scale.

Defining the lingo: what is impact investing?

Impact investing is defined as investments intended to create positive impact beyond financial return in the J.P Morgan Global Research Report (Impact Investment: An Emerging Asset Class, November 2010).

Impact investing is considered a subset of socially responsible investing, which historically, has meant the screening of investments to exclude what the investor perceives as “bad” such as cigarettes, gambling, etc. Impact investing may fit into this larger pool of “good” investments, but impact investors tend to take a more active role, purposefully placing capital in investments that are designed with intent to make a positive impact. The impact investor does not seek investments that may happen to have unintentional positive social consequences. The social and environmental impact is a core part of the social enterprise’s business strategy, and is how the business measures success.

In terms of returns, impact investments are expected to return at least nominal principal (meaning you invest $10K, you should at least get $10K back at end of term). And the expected returns range from attractive private equity-like financial returns of 20-25% (e.g., Ignia Fund in Latin America) to below market rates.

Defining the lingo: What is a social enterprise?

A social enterprise is defined by Wikipedia as “any for-profit or non-profit organization that applies capitalistic strategies to achieving philanthropic goals.” I tend to think about a social enterprise as an entity with a social and/or environmental mission coupled with a focus on financial sustainability. While traditional enterprises typically measure performance in profit and financial return, social enterprises focus on creating social good (perhaps via performance in profit and social return.)

Social enterprises fit into a larger umbrella of businesses with social responsibility (as most commercial businesses have social objectives), but social enterprises are distinct in that their social and/or environmental mission is central to what they do. So whether they are structured as mission-oriented for-profits or business-oriented not-for-profits, it is their mission and financial sustainability (and not their tax code) that distinguish them from non-profits with some earned income and businesses with social responsibility.

It is important to understand this distinction, in a world of confusing vocabulary, misaligned incentives and “spin” marketing, where the terms green and organic are tossed around like buy and sell on trading floors.

Launching Asia’s first Social Stock Exchange

This summer, I am privileged and thrilled to work with Impact Investment Exchange Asia (IIX), a start-up social enterprise based in Singapore. Only two years old, IIX has recently launched Asia’ first private placement platform for social enterprises this past March (known as Impact Partners), where impact investors are introduced to carefully screened social enterprise investment opportunities. And early next year, IIX will be launching Asia’s first Social Stock Exchange (known as Impact Exchange). IIX’s goal is to “create a liquid and transparent trading platform and an efficient capital raising platform for social enterprises in Asia" where investors will evaluate businesses in a new way, placing as much importance on the social and environmental impact of the enterprise as on its financial returns.

These two platforms, Impact Partners and Impact Exchange, will provide access to capital to social enterprises at varying stages of development, ranging from early stage companies accessing venture funding to mature companies seeking full-fledged public listings. The common thread, and the point that differentiates these platforms from traditional capital markets, is their emphasis on the social and/or environmental impact. To this end, these platforms are exclusive to “social enterprises” as investment opportunities.

As someone who has followed this space (meaning social enterprises and impact investing) quite intensely over the past few years, the development of a capital markets for social good strikes me as quite a meaningful achievement in the impact investing industry. This might just be the tipping point that will allow for social enterprises to truly take off and for the proven models to be scaled as part of a country’s sustainable development policies. This will certainly contribute to making Singapore a social enterprise hub in Asia.

Disclaimer and Setting Expectations

If you are interested in social enterprises, impact investing, start-ups, Asia, empowerment, leadership, and stories of unreasonable people committed to make the world a better place, then you may find this blog interesting.

I will explore the intersection of many different worlds that typically don’t intersect. At this emerging intersection where traditional finance meets non-profit, start-up meets government, Silicon Valley meets Dhaka, there is a new type of ecosystem being built to support the development of a capital markets for social good. At this intersection, I have found beauty in such contrasts, where in one conference room, the lady to my left may be a Goldman Sachs executive, to my right, an Indian market weaver, across the table, a member of the Singapore ministry.

This fellowship is made possible by the Women and Public Policy Program (WAPPP) at Harvard Kennedy School and the Roy Family Internship Program. Changing the world, one gender-focused internship at a time, the WAPPP has enabled a small group of us to go forth this summer to “tackle” some of the world’s most pressing social and environmental challenges. As part of my own work this summer with Impact Investment Exchange Asia (IIX), I will be identifying potential areas of influence where IIX can play a role in improving gender equality, whether it be by increasing the number of women entrepreneurs and managers at social enterprises, improving the measurement of gender-related impact metrics, or engaging more capital focused on gender issues.

And finally, I will also try to shed some light on my new home and our headquarters, a city called Singapore, which I have found to be quite a surprising intersection of many different worlds itself. Often referred to as a “benevolent dictatorship”, one might wonder whether Singapore might just be the ideal place to build a seemingly “benevolent capital markets”, a capital markets organized for the purpose of doing good.