SOURCE: GreenMoney JournalDESCRIPTION:
by Nikishka Iyengar Founder and CEO, The Guild
Growing up in Mumbai, India’s financial hub, it was hard to escape the pervasive Slumdog Millionaire-esque wealth disparities. Coupled with other issues like gender-based violence, Mumbai served as my primer for recognizing that socioeconomic issues like poverty are a systems issue involving multiple, interdependent systems, and can’t be solved by one or two interventions alone. It also lit a fire in me to use a justice-based lens to dismantle the intersecting systems of oppression that create outcomes where a small percentage of people at the top thrive at the expense — and severe detriment — of the majority at the bottom. That fire stayed with me as I moved across continents in 2007 to pursue a dual degree in Finance and Economics at The University of Texas at Austin. It was an interesting time to be studying those topics. Amid the global financial meltdown, I found myself having more questions than answers about our current economic system of capitalism. I decided to shift my energy to grassroots international development and student organizing instead. As part of an interdisciplinary research study on Microfinance and Sustainable Development in Developing Countries, I spent several summers and winters in South Asia researching grassroots development — including an internship with the Nobel Laureate Grameen Bank in Bangladesh. When back on campus during the fall and spring semesters, I spent time organizing with student-led movements around anti-poverty and climate action campaigns.
At the time, microfinance (specifically microcredit) was being touted as a panacea of sorts to ending extreme poverty. It involved giving small, uncollateralized micro-loans to the poorest of women so they could start businesses and help pull their families out of poverty. Women were the primary targets of these loans for two key reasons: the data showed that women spent a higher percentage of their earnings on the well-being of their families than men did, and empowering women economically meant empowering them socially as well — which was of particular significance for communities with rampant gender-based violence. In theory, this seemed to work well for a few years. Women that were previously left out of the formal economy entirely were able to start micro-businesses and contribute financially to sustaining their households.
However, as microfinance started to scale, questions around its true impact surfaced, and the industry experienced a bubble and crash of its own. One of the main critiques of microfinance was its high interest rate, which often climbed over 35 percent and as high as 80 percent in some markets. Theoretically, the risk/return trade off that institutional finance hinges on justified such high interest rates. The borrowers were the poorest of the poor—often unbanked, without any formal identification, and without collateral to back the loan—thereby making them the most risky investment. But it is important to question who bears the true risk in interventions like this — the lender with wealth or the borrower that is already struggling below the poverty line — and whether there is another trade off at play between scale at “market rate” and real impact. The dark side of microfinance that I bore witness to as part of my research was that borrowers who defaulted on their payments were often left worse off than they were before accepting the loan. The lessons from microfinance, and what I learned subsequently in my career after graduating college, have given me a renewed focus in how I approach my work in this industry of Sustainable Business and Impact Investing.
When it was time to think about life after college, I had the choice to either go back home to India and work on grassroots economic development, or stay and find a job in the U.S. I chose the latter with the understanding that so much of what I identified as the root causes of global problems (i.e., capitalism) had its basis and stronghold in the U.S. So after graduating, I went to work at a management consulting firm — one of the few companies that hired international students who required work visas — where I worked my way to our newly minted social impact and sustainability consulting practice. There, I worked with Fortune 500 clients on their sustainability strategies, helping them transition to renewable energy, implement community impact initiatives, and reduce carbon emissions. Much like my experience with microfinance, what soon became apparent and frustrating — millennials are nothing if not impatient, right? — was that all of our work in corporate responsibility was only having an incremental impact at best. But the severity of the problem demanded exponential and transformative change. As businesses continue their pursuit of relentless growth, wealth continues to accumulate at the top while climate change continues to accelerate at a truly apocalyptic pace. And, increasingly, more middle and low-income communities are stripped of their autonomy and power.
What impact is Sustainable Business and Impact Investing having on a net basis? As impact investing moves from niche to mainstream, it is critical we ask these questions.
For answer to these questions and much more iread Nikishka's full article here - https://greenmoneyjournal.com/on-impact-investing-and-building-the-next-economyContact Info:
Cliff Feigenbaum, founder and managing editor
GreenMoney Journal and GreenMoney.com
+1 (505) 577-1563
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