Last week I came back to Dhaka as the key note speaker for the World Fair Trade Organization meetings. And, there I was, face to face with some of the organizations I worked with ten years ago at my first company oneNest. It was a wonderful reunion with old friends and well wishers. It was also another new beginning with them in getting them ready to enter the world of social capital markets. Today I will share with you excerpts of my speech to the group of Fair Trade Organizations (FTO) from all over Asia and beyond who I believe will play a crucial role in the journey of sustainable development in the world.
“Distinguished guests from far and near, heroes of the fair trade movement and friends, Greetings!
I am honored to be with you today, as a Bangladeshi woman, speaking on behalf of my country and countries like mine across the globe which have benefitted from all of your hard work to promote and practice ‘trade not aid’. I would like to express my gratitude to World Fair Trade Organization and all of you here today for coming together to recognize the role and importance FTO in sustainable development of a country.
As a Social Entrepreneur, I have been asked to share with you my thoughts on what role FTO can play in changing and impacting the social and environmental canvass of Asia and the rest of the world. If we are going to talk about the role of FTO in social and environmental sphere, then we need to talk about the sustainability of FTO themselves in its own operations. In other words, before you go and expand your impact in a country or community we need to take a close look at the health of your organization and what you need to make yourself grow and thus expand your impact.
Therefore, what I hope to do this morning is to briefly discuss sustainability of Social Enterprises (SEs) in Asia, to explore the role of Fair Trade organizations in this movement and lastly, lastly what role I can play in assisting FTO/you to expand and extend your work.
Social Enterprises in Asia
As we are seeing every day, Asia is uniquely positioned to suffer the great global challenges of the 21st century. Containing 60% of the world’s population, its dense populations are vulnerable to economic downturns, social upheaval and environmental degradation.
In response, Asia’s SEs (defined as mission driven for-profit or market driven not for profit entities) sector has grown to be as vast and diverse as the individual countries and challenges it spans. Asia has become the incubator of some of the most innovative approaches to these challenges. Asia’s SEs sector has grown to be as vast and diverse as the individual countries and challenges it spans. Existing SEs address food security, housing shortages, environmental degradation, failing health care and educational systems, and poor sanitation – within and beyond respective national boundaries. In increasing numbers, SEs in both the for-profit and not-for-profit sectors are helping to achieve the region’s socio-economic goals.
However, a large volume of individual activity by itself is not enough. As The Monitor Group states in its recent report: “A great product idea married to a noble mission is rarely enough to make meaningful progress in the face of massive social challenges like improving the lives and livelihoods of billions worldwide living in impoverished conditions.”
This is particularly true in Asia, where there are countless innovative social enterprises making significant impact in their individual communities – but receiving little attention from Asian financial institutions. Investigations in Bangladesh, India, Thailand, and the Philippines – as well as in South Africa, Brazil, Kenya, and other countries – reveal no shortage of market-based approaches that claim to be profitable or financially self-sustaining. On closer inspection, however, many are struggling financially and at most serve a few thousand people – a drop in the ocean given the millions living in extreme poverty. Only a tiny fraction of market-based initiatives reach populations commensurate with the scale of the problems they aim to address.
While media frequently covers the achievements of successful and large SEs such as Grameen Bank or BRAC, these entities are the exception rather than the norm. Over the years, a small handful of very large SEs in Asia (of which Grameen Bank and BRAC are a part) was lucky to receive substantial government and donor support. Not all the SEs in Asia are in the same position. Unfortunately most of the SEs neither have the same unlimited access to capital nor have they attracted the same recognition of their impactful work.
In the universe of Asian SEs, currently there is only a relatively small number of SEs who are able to raise capital in the open market and thus utilize the capital for growth. The remaining SEs need to make improvements in a wide variety of financial, social, sustainability and governance issues before they can raise and utilize capital effectively.
Fair Trade Organizations – the initial SEs
Fair Trade movement has its roots in the 1960s social political movement. This movement is all effect the initial torch bearers of Social Enterprise movement that brought to global attention the need and ability to marry best operational practices with trade activities. Thus, all of you are the SEs that people are talking about now.
As you well know, being a SE yourselves, when market-oriented approaches to social problems were first mooted, there was no capital available for SEs. Entrepreneurs (social or otherwise) either used their own funds or applied for bank loans (requiring collaterals) to start SEs (or in your case FTO). The only other option (one that continues to play a large role) was to receive grants. Grants came from two main sources: foundations and religious organizations. This was not a sustainable source of funding and this funding was limited to not-for-profit organizations..
Even with these limitations, the Fair trade movement flourished and you made it happen. You as a group have creating opportunities for the economically disadvantaged producers , transparency and accountability of your work, paid fair price, worked on capacity building of the producers, improved working conditions, took into environmental issues in production practices and forbade child and forced labor.
Through your Faritrade practices, you have made significant contribution to developing second level organizations and increasing opportunity for growth and product diversification. You have also set the standards for such practices as improved food consumption, child mortality and schooling in the production areas. You have also improved social well being through education and skills training.
Fair trade as a movement has also experienced significant sales growth from 2004 to 2009 showing a four fold increase in certified sales to consumers from 832m Euros to 3,400m Euros. This is an average year on year growth of over 30 percent for five years running. All this is fantastic but you could do more, much more if you had the proper support and access to capital.
Rise of Impact Investors
While you were busy saving the world in your own way a silent movement has been taking shape in the investor community. Over the last five years or so, a group of investors globally have come together who are embracing the concept of investing their wealth for more than just financial return. They are interested in triple bottom line return – financial, social and environmental return. The market for this group of investors is estimated to be USD $500 billion. These Impact Investors initially were just focusing on the western market but now they are casting a global net to be involved with the best SEs who are changing the social and environmental landscape of the globe in a sustainable way.
Currently, for Impact Investors interested in Asian SEs, the potential field is vast but daunting. Each investor must carry out his or her own due diligence studies on each potential investee – a lengthy, labor-intensive, and inefficient process. Investors need credible external monitoring, commonly understood standards of quality, access to comparative data and rates of return, and an ability to invest in partnership with others. There does not yet exist a transparent, accountable and efficient transactional platform that reliably facilitates investments that generate real financial and social returns. Further, there is no efficient method by which investors can gauge whether simple injection of their capital will actually ensure sustainability of an enterprise. This need is exacerbated because most SEs have never raised capital from funding sources other than from donor agencies and thus lack the know-how or ability to make their enterprises market ready to raise commercial capital in a structured way from private or public sources.
In a recent round table of Socially Responsible fund managers in the UK, it was noted that SEs are missing out on tens of millions of dollars because they do not have the proper structures in place to receive investment. According to meeting reports, fund managers wanted to put more money into high-impact investments, but were often unable to do so because potential investees lacked corporate governance and legal structures that facilitated investment, and effective mechanisms to measure the value they created. Even though UK social enterprises have gained momentum with the establishment of the UK Third Sector ministry, a ministry dedicated to building the social enterprise sector, these systemic challenges endure. Elsewhere in the world, and especially in Asia, where social enterprises are burgeoning without government support, the need for sector-wide capacity building is even more pronounced.
In order to capitalize on the growing interest and supply of impact investment capital, SEs urgently need to strengthen their operational, managerial, fiscal, and strategic processes – spanning the wide spectrum of internal financial systems, human resources, leadership, governance, social outcomes measurement and accountability, strategic planning, decision-making, and communications. The sector as a whole needs to adapt and apply contemporary private sector and organizational development practices to build up accountability which will enable SEs to access these new funding sources and grow to scale.
My Story
Why am I telling you all this and what makes me an authority in this field of Social Capital Market? Well, allow me to tell you my story --
I was fortunate to have a career that spanned the full spectrum of private to public sector. I began my career as an investment banker at Morgan Stanley in New York. I was young and excited about being at the heart of the capital markets that made the financial system of this world work. However, when I arrived what struck me was what a small developing world played in influencing and defining the capital markets of the world.
During my time at Morgan Stanley I was not only one of the 30 or so women bankers (out of more than couple thousand employees) but I also the only one from Bangladesh. I was often asked if Bangladesh was an island in the Caribbean next to Barbados or something like that. During my time at Morgan Stanley, the hubris of Wall Street amazed me. People (mostly men) playing with financial market that affected lives of millions around the world and yet they were unaware or perhaps wanted to be unaware of it. The potential impact of their single minded pursuit to just make money baffled me. Yet, like a sponge I observed and diligently learned. Back of my mind I knew I would use this knowledge some to do my part to help the world.
I left Wall Street to go the dirt paths of Bangladesh. I left Morgan Stanley to join Grameen Bank. At Grameen I used my financial skills to assist the bank in the first large financing round for the firm. I also spent a large part of my time Grameen in the field where I was inspired on a daily basis by women entrepreneurs who without any education or social support were making a living for their families. It was a humbling experience and I made a promise to myself to assist these incredible women oneday.
Upon completing my graduate degree, I entered the second most power sector in the world – media (the first being financial institutions). I learned the role of media in shaping and influencing the social landscape. I did my part in promoting social causes to readers who knew nothing more than their little world.
Then the entrepreneurial bug bit me and like many of you I decided to create a company to assist those women I spend hundreds of hours with in the field. I created oneNest, a market place to connect the artisans and ethical products from the developing world to the western market. The company was based in New York City. The journey of oneNest was not an easy one. As a minority women in the US creating a business with social purpose did not go well with the investor community. However, I persevered and managed to gather enough investment to grow the business. Sadly, my investors never understood the mission of the business and monthly board meetings became an ordeal to convince them over and over again that the point was not for me to make the products in a factory in China.
As I was growing the company (and fighting with the board to keep the mission of oneNest alive) I had the good fortune to work with many of you. You helped me make my dream to work with the ethical products and bring them to market. After all these years. I have to thank you for that.
However, all the time I was growing oneNest I also saw the incredible need for capital for the social sector and as well as the companies such as yours who were working directly in the field. I remember using portions of my investment capital to trade finance many of you – something I was suppose to do.
After 5 years of growing and running oneNest, I sold it. I hate to admit it but in some ways it a relief for me as I saw my biggest contribution in not creating a market place for artisanal products but in a bigger scale where I could connect potential and investors to the right SEs.
Creating a Social Stock Exchange
The opportunity for me to do something in a larger scale with more impact came to me when I moved to Asia, started teaching at the National University of Singapore. On the side, I also began writing about the need for a social capital market space. My words stroke a cord with many and I received endorsement and support for my work initially from the Rockefeller Foundation and then the Singapore Government and Asian Development Bank.
So, what exactly did I do? In response to the need to connect the growing number of Impact Investors to support the work of Social Enterprises and assist them in growing their impact, I founded Impact Investment Exchange (IIX), a social stock exchange for SEs in Asia. I was audacious enough to think that we can make investors care about more than just a financial return for their investment. And we did. I have been receiving resounding support from the financial sector and the public in creating this exchange, which will in essence assist SEs to increase their social impact and in effect assist millions of women and disadvantaged across the globe.
So, what exactly is IIX? IIX will be Asia’s first social stock exchange, providing a trading platform and an efficient capital raising mechanism for Asian Social Enterprises (SEs), including both for-profit and not-for-profit entities with a social mission. IIX will connect these SEs with Impact Investors seeking to achieve both a social return and an economic return on their investment while providing capital to fund innovative social businesses.
As I started putting the building blocks of IIX, I quickly realized the need to get SEs ready for the investors. Thus, I created a sister entity of IIX called Impact Investment Shujog. Shujog is a Bengali word for opportunity. Shujog was created to give opportunity to the SEs to join the capital markets to raise capital.
Shujog fosters growth, maturity, innovation and market readiness in the SEs and impact investment sectors in Asia which have the potential to address urgent social needs and environmental problems in the region. Through research, training, workshops, advocacy, strategic consulting and third party technical expertise, Shujog fosters the social enterprise ecosystem and provides SEs with the knowledge and systems required to raise commercial capital in order to magnify their social and environmental impact.
Your role in Social Capital Markets
Now why is all this relevant to you? It is because you each have an important role to play in continuing to bring about this positive social change to Asia and more importantly, it is about time capital markets worked with you, provided you with capital to expand your work. After years of keeping the SE torch blazing through all the pains of operating companies with anemic capital infusion, you deserve to have your work be recognized and rewarded.
Social Entrepreneurs in the audience: you have the power to change the world for the better…each in your own way – as a business owner; as a change maker; as one who influences government policy; as a leader and as an example. Everyone in the audience: we each need to support the entrepreneurs in our society; and, we need to support the entities that support these entrepreneurs…entrepreneurship is the key to the future of our nations.
Fair Trade Heros, thank you for supporting a just society, with opportunities for all –
I am proud to working with all you again –
Thank you for giving me this opportunity to try to bring about sustainable development through fair trade –“
Prof Durreen Shahnaz is the Founder of Impact Investment Exchange and Impact Investment Shujog. She is also Adj Associate Professor at Lee Kuan Yew School of Public Policy at National University of Singapore.
This
sounded so romantic, and I was tempted. But as a middle-aged woman, I
was a little skeptical. What kind of settlement would I get if I break
up with my bank? Who will take care of my banking and investment needs?
How can I show my love for the 99 percent, and will they love me back?