The global challenges confronting us ― climate change, poverty, inequality, and many others ― can feel overwhelming. Those of us who believe in market-based solutions to these challenges get even more disheartened when we regularly see our existing capitalist system failing us, often causing more harm than good. Many examples show how the capitalist tools of finance and investment can and make real, positive impact. Approaches like blended finance and impact investing can help accelerate progress against the world’s biggest remaining collective challenges. Yet use of these improved capitalist approaches remains far too subscale. Blended finance and impact investing remain 15 to 200 times smaller than traditional approaches to finance and investment. How can we continue to make capitalism work better by scaling these approaches and others? This book looks at how we can start making these necessary changes using strategies, structures, and practices that take advantage of capitalism's strengths. Its goal is to demonstrate how a reimagined financial system can be more inclusive and accountable to all. By shifting away from extractive, short-term practices in the name of shareholder primacy, we can move toward a system that values the role of all stakeholders.
Author(s): Kusisami Hornberger
Publisher: Palgrave Macmillan
Year: 2023
Language: English
Pages: 268
City: Cham
About the Author
Acknowledgements
Preface
Contents
List of Figures
1 Introduction
The global challenges we confront daily can feel overwhelming
Is capitalism failing us? Does it need to be reimagined?
Yet real and measurable progress is being made
Example of progress: Expanding energy access to improve livelihoods in emerging markets
Impact investing is still far too subscale
Systems can change
Capitalism is still the best solution, but we can do better
Notes
Part I Seek Financial Health, Not Financial Access
2 Reassess the Financial Inclusion Revolution
Hypothesis 1: Fintech serves a large total addressable market (TAM) in emerging markets
Hypothesis 2: Fintechs are growing faster than traditional financial services segments
Hypothesis 3: Fintechs attract even greater investor interest due to their dynamic growth
Hypothesis 4: Fintechs serve base-of-pyramid populations and small businesses
Hypothesis 5: Fintech products are superior to those of traditional finance providers
Hypothesis 6: Fintechs demonstrate impact on customers’ lives
Summary of key messages from this chapter
Notes
3 Design Services That Build Financial Health
Segment to understand customer value
Prioritize underserved segments, such as female clients
Be holistic
Create pathways for customer growth
Listen to customer voices to assess performance
Measuring financial health
Summary of key messages from this chapter
Notes
4 “Measure Impact with Client Voices”—An Interview with Sasha Dichter
Notes
Part II Provide Patient Capital, Not Venture Capital
5 Better Understand the Diverse Needs of Enterprises
The growth and limits of the Silicon Valley venture capital model
The Missing Middles
A new way of segmenting enterprises to better understand their financial needs
Four families of small and growing businesses12
High-Growth Ventures
Niche Ventures
Dynamic Enterprises
Livelihood-Sustaining Enterprises
Differentiating the four families
Lens 1: Product Innovation vs. Market Scale Matrix
Lens 2: Growth Curves
Lens 3: Entrepreneur Behavioral Profiles
Summary of key messages from this chapter
Notes
6 Explore Alternative Approaches to Better Serve Enterprise Needs
A new paradigm of enterprise financing
Five alternative approaches to closing financing gaps2
Open-ended capital vehicles
Blended capital structures
Customized financing products
Post-investment technical assistance
Responsible exits
Limitations
Summary of key messages from this chapter
Notes
7 “Reimagine Approaches to Provide Capital”—An Interview with Chris Jurgens
Question 8: What are you focusing on now with respect to reimagining capitalism?
Notes
Part III Be an Impact-First Investor, Not an ESG Investor
8 The Difference Between ESG and Impact Investing and Why It Matters
The ABCs of ESG versus Impact Investing
Avoiding “impact washing”
ESG and impact on a spectrum
Achieving impact alpha
Putting it into practice
Step 1: Define impact thesis and identify associated performance metrics and targets
Step 2: Develop an impact rating tool to classify and diligence investments
Step 3: Drive value through performance improvement plans
Step 4: Design relevant impact monitoring and reporting frameworks
Step 5: Evaluate and reinforce impact at exit
Is it working?
Summary of key messages from this chapter
Notes
9 Raising the Bar on Impact Management and Measurement
Redefine value
Incorporate broader stakeholder perspectives
Increase standardization of impact measurement
Improve transparency and rigor of measurement where standardization is not appropriate
Integrate financial and nonfinancial performance
Make high-quality impact reporting mandatory
Summary of key messages from this chapter
Notes
10 “Mainstream Impact Management”—An Interview with Olivia Prentice
Notes
Part IV Offer Catalytic Finance, Not Just Blended Finance
11 Unleashing Private Capital for Global Development
The opportunities and challenges of financing SDGs
Potential to mobilize private capital
Making blended finance more “catalytic”
#1: Demonstrate the potential of a new investment thesis
#2: De-risk to better serve the needs of difficult to serve social ventures
#3: Enhance the impact potential of investments with technical assistance
Summary of key messages from this chapter
Notes
12 Scaling Blended Finance Effectively
Overview of blended finance
Blended finance in practice
Archetypes of blended finance
When to Use blended finance
Determining the right blending archetype(s)
Choosing how to structure a blended finance vehicle
Defining the level of concessionality
Understanding financial and nonfinancial additionality
Summary of key messages from this chapter
Notes
13 “Challenge the Development Finance Status Quo”—An Interview with Joan Larrea
Part V Measure Success Based on Results, Not Activities
14 The Unrealized Potential of Results-Based Finance
Charting a new path forward
The rise of results-based financing
A menu of results-based financing options
Impact Bond: Social and Developmental
Social Success Note (SSN)
Outcomes-based contracts
Outcomes-linked pricing
Social Impact Incentives (SIINC)
Challenge funds
Awards and prizes
Auctions
Mainstreaming results-based financing
Summary of key messages from this chapter
Notes
15 When, How, and Why to Use Impact Bonds
A hammer looking for a nail
How do impact bonds work?
Five myths about impact bonds
Impact bonds are not bonds
Impact bonds do not crowd in new money
Impact bonds are not the only type of results-based finance
Impact bonds are not suited to all organizations
Impact bonds can work even when external risks are large and hard to manage
An impact bond success story
Summary of key messages from this chapter
Notes
16 “Link Financial Incentives to Impact”—An Interview with Bjoern Struewer
Part VI Provide Capacity Building, Not Just Capital
17 Enhancing Impact with Capacity-Building Services
Making the case for capacity-building support
Not all capacity-building support is equal
Types of capacity-building services
Capacity-building delivery models
Digitalization21 of capacity building
Summary of key messages from this chapter
Notes
18 Fulfilling the Potential of Capacity-Building Services
Select the right enterprise to support
Charge enterprises to improve performance
Address problems: focus on group-based problem-solving approaches to learning
Learn by evaluating enterprise performance
Lead by example
Summary of key messages from this chapter
Notes
19 “Scale Based on Evidence of Effectiveness”—An Interview with Nicholas Colloff
20 Conclusion—What We Can Do to Scale Impact
Glossary
Selected Bibliography
