A few years ago, following a meeting at the Rockefeller Foundation on creating better alignment between the newly emerging impact investing sector and the traditional economic development sector, I found myself ruminating about the challenges faced. In my mind, I sorted the challenges this way:
We need each other, but we irritate and exasperate each other…
The hyperbole that existed a few years ago moderates. We learn from each other…but we still exasperate each other.
We make real progress on the ground and in the sky by cross pollination.
I am happy to report we are making progress, if slowly, and may be dropping the curtain on Act Two and raising it on Act Three. Idealism, intelligence, hard work, stick-to- it-iveness and more abound on both sides, but I believe the most successful niche may be the hybrid group emerging in the middle.
Below is what I see as the cultural norms of the actors involved that might continue to get in the way of a more aligned relationship:
|Impact Investing||Development Finance|
|Poverty is a market opportunity||Poverty is a market failure|
|Ivy-centric alum clubs, MBAs and McKinsey grads, attendees at CGI, WEF, Skoll Oxford confabs||Church basements, CDFI heads, bank crossovers, women religious and community organizers, attendees at Federal Reserve, OFN, HPN confabs|
|Draws on global investment banking and consulting||Draws on community banking, social activism and urban real-politik|
|The market = global finance, info tech||The market = homes, real estate and manufacturing jobs|
|Think Global||Act Local|
|“we’re educated, financially privileged, want to give back and have big ideas and great connections…”||“…we’re street smart, battle scarred and have a track record of putting $$ on the street successfully….”|
|Global capital markets and products will eradicate poverty||Global capital markets and products have accelerated poverty|
|Geographic footprint: virtual and global||Geographic footprint: place-based and local|
|We are financing a growing private sector…||We are financing government receivables…|
|Top-down investment (capital market products seeking exposures)||Bottom-up investment (financing needs seeking appropriate financing tools)|
|Deadly Perils: Arrogance and condescension||Deadly Perils: Sanctimoniousness and low expectations|
|Market focus on large market opportunities (i.e., micro-lending growing to fill retail banking needs of growing unbanked middle class) in developing economy||Market focus on large market failures (i.e., CDFIs providing banking where bank economics make lending problematic and regulatory pressure is high)|
|Average age: 40+||Average age: 50+|
|Private Banking||Retail Banking|
|Asset classes define the market (top down)||Real “deals” in aggregate define the market (bottom up)|
|Financial Product Innovation||Track Record|
|The ship’s bridge||The ship’s engine room|
|Era: Venture Capital, tech bubble, Private Equity, Hedge Funds||Era: The Great Society, place-based organizing, CRA and the CDFI Fund|
|Data and “what works” (with stories…)||Experience and stories (with data…)|
|Capital from: HNW Individuals, Foundations, Government||Capital from: Banks, SBA, Pension Funds, U.S. Treasury|
Read more reflections from Heron on aspects of our work and the many reasons we do it.