Session 4 (1): Responsible Investments, Big Sharks & Village Sharks

Finally on Saturday afternoon,  more applicable concepts and ideas were discussed. From Socially Responsible Investments over Microfinance to Social Entrepreneurship the speaker were diverse and deeply involved in their areas of expertise.

Antoinette Hunziker-Ebneter, MBA started with the work of Forma Futura Invest, an independent asset management company aiming for responsible investments and sustainability:

She began with emphasizing that a transformation of financial systems towards more sustainable is of crucial importance when it comes to avoiding the bubbles created in the current system as well as the purely greed-fueled speculations leading to the harm of masses of unemployed.  The values of the current system she listed as material/profit/short-term/invidual/linear thinking and altogether little concern for human beings with it. These all have to be transformed oftentimes in their exact opposites. She furthermore spoke in favor of higher own equity quotas for banks, to prevent speculation through leveraging of other’s capital. Despite some banks having increased such quotas, she judged these as too few and too little.

Mrs Hunziker-Ebneter advocated a change in the way that investment companies serve their clients, a shift from profit to profit with a purpose. There lies great potential in investment as means of shaping the future, visualized in an investment pyramid starting at the bottom with

basic needs -> financial security -> recreation -> making profit -> AWARENESS OF INVESTMENT IMPACT -> taking responsibility with investments -> shaping the future -> fostering a sustainable future

This needs to be recognized and implemented by both companies and investors.

Forma Future itself checks potential investments for more than 180 sustainability criteria and only then proceeds to a conventional financial analysis, and recent results have shown that the returns are as good or sometimes even better than conventional ones. 2009 was the first year in which sustainable companies had access to cheaper captial on the market than conventional ones: so there is hope.

In regard to the market size, responsible investments have only a share of 3% in Europe, compared to already 10% in the US. She emphasized the need for CEOs to recognize the need to integrate sustainability to extend these numbers. Another crucial aspect is that of trust within corporate structures: where there is fear, there is little room for creativity and therefore long-term profitability of companies in both human and monetary terms.

The apt comment of the Dalai Lama in reaction to her talk was that these are all good examples for the material perspective, but that the mental well-being should not be forgotten or neglected, something more difficult to measure and therefore oftentimes likely to be ignored when financial analysis dominates decision-making.

The second speaker was Arthur Vayloyan, PhD, MBA from Credit Suisse, focusing on microfinance:

Dr. Vayloyan began with the clarification that even in banks there are human beings who care about reducing poverty in the world.  He put this into the context of an attempt to bring this topic up to the Boards of the bank and was first coming across opinions like : “this is not our job” , while in the end access to financial services does play a great role in the reduction of poverty.

Despite a general decrease in the numbers of extremely poor people on the planet (down to 1.1 billion out of 7.5 in 2015), he emphasized that much remains to be done, especially because it will be the younger generations suffering most, as right now only 10% of young people are part of the first world and oftentimes existing aid is ineffective.

The proposed role that microfinance and banks can play in this, not only through microcredit but also payments, savings and insurance, are all part of classical financial services and therefore very much the job of banks.

He however also repeatedly emphasize that microfinance is by no means the ultimate solution, but that it could very well be a potential catalyst.

After naming some examples of successful microentrepreneurs from Cambodia, he also warned not to be too romantic about it: it still is mostly groups (and mostly of women) that have to form themselves before qualifying for credits.

He went on to draw a picture of the potential lying in this field, where today 155 mio are microfinance clients, this is only a small part tapped out of a total of potentially 1,5 billion people. More on these numbers here.

The way to do this best is to link the “top of the pyramid” [ToP] with the “bottom of the pyramid” [BoP], to close the gap of the top 10 million people with vast monetary resources to the bottom 4,5 billion people with less than 4$/ day (PPP).

The microfinance system to do so looks like the following:

The interest that is lastly paid by the recipient of the microloan is of course higher than a usual loan we would take out, but it is still significantly lower than the alternatives offered by so-called “credit sharks” in the villages.  This is obviously a point of contention, as the question arises of how much of a percentage is appropriate or fair to charge along the way.

The large growth of the CreditSuisse MIF fund exemplified the increasing amounts of money invested into it, with a growth from 4 mio in 2004 over  195 mio in 2006 and almost 1 billion in 2009, with no visible damages taken from the crisis.

The following discussion was also rather interesting, as Matthieu Ricard asked whether these are just some little well-meant attempts or whether the “big sharks” get involved in this as well? Would there be the potential for a wallstreet of prosocial businesses?

Dr. Vayloyan responded to this that the “big shots” (either he did not acoustically understand Matthieu Ricard or was not completely agreeing on calling big banks “sharks”, an interesting misunderstanding that remains a mystery) very well do get involved, they just don’t join the existing funds but take some $100 million dollar and create their own fund and then maybe come to the existing ones for advice.

To this Antoinette Hunziker-Ebneter had the valid criticism that too fast growth of microfinance is problematic as well, the large funds are eager to invest large sums, a concept that has proven to fail rapidly, as it attracts more males which then fail to repay in more than 90% of the cases.

So far we had a interesting overview of the financial applications of more responsible ways of dealing with money, yet the best part in my opinion was the following talk by Sanjit Bunker Roy on Barefoot College and his solar-panel-grandmas. But more on that in the next post!