Since the 1980s, many economies in Asia have done relatively well compared to those in the West. Financial crises and occasional government volatility have spooked investors occasionally, but overall, economic growth has lifted many in Asia out of poverty. Nevertheless, developing countries in Southeast Asia and the Indian Subcontinent face issues maintaining growth that is socially equitable, providing transparency to stakeholders, and being environmentally sustainable.
Social entrepreneurship has taken off in these regions, but enterprises tackling challenges from health care to microfinance struggle because they do not have the access to capital to expand their operations. The Impact Investment Exchange (IIX), based in Singapore, will try to change that, offering a hand up, not a hand out, to organizations who need funding.
Like a traditional stock exchange, IIX will provide investors access to opportunities by listing, trading, and clearing securities, whether they are shares or bonds. The difference from the stock exchanges with which most of us are familiar, however, are striking. IIX will only list securities for social enterprises. In turn, “impact investors” can choose to buy shares in organizations that feature business models focusing on social and environmental returns. The investment platform, if all goes to plan, will feature both for-profit companies and non-profit organizations, which in turn must provided audited financial and ESG (environmental, social, and governance) reports that the IIX will list on its site—similar to how the Hong Kong Exchange functions—as a securities marketplace and regulator.
Through the purchase of shares, investors have the possibility of gaining dividends, or benefit from capital appreciation. The same investors can also buy bonds, which would provide an income stream through interest payments. Both offer social entrepreneurs new sources of capital at lower cost than other financing sources; both means of investment also promise social and environmental benefits—though quantifying what they mean to an investor will prove challenging, since investors have different expectations from philanthropists.
Durreen Shahnaz, a native of Bangladesh, founded IIX. Her career took her from a leading Bangladeshi bank to the World Bank in Washington, DC. She later worked as an investment banker in Morgan Stanley’s New York office and then for in Merrill Lynch in Hong Kong.
IIX should launch within several months, and has the backing of Singapore’s and Bangladesh’s governments, the Rockefeller Foundation, and the Asian Development Bank.