Not long after the discovery of the book Social Enterpreneurship for the 21st Century by Georgia Levenson-Kehoane, I decided to read more of her research and recently got her latest release Capital and the Common Good. Based on the first one I had written some notes (link here) incorporating much of the internet links to the resources and organizations discussed in the book. And I summarized my understanding of the main teachings.
For this new release I will do a bit differently. Its content is more structured around four main topics than the first one and covers a wider range of the world´s problems (in contrast to the somewhat narrower focus of Social Enterpreneurship…). I will summarize the main chapters with some comments on them.
Underpinning the book is the discussion of the concepts of alignment of incentives, risk and time management, trust building, and how they relate in order to device financial structures that help to solve relevant problems.
This is revealed through the case studies described in each chapter, both of successful and failing initiatives and projects. The four main chapters cover following themes: Environment, Health, Financial Inclusion and Disaster Relief. A final chapter overarches with different examples the situations in the US related to the mentioned topics.
Review of chapters
Environment: The chapter discusses the value of the environment as a public good to be preserved, the negative externalities (i.e. those agents not bearing the costs of polluting/harming it…) and discusses cases of projects to protect it. For example the Pay-for-success approach within the REDD initiative, aimed at reducing the emissions from deforestation, and where norwegian funds managed by local brazilian institutions helped successful conservation projects in the Amazon area.
Further financial mechanisms are discussed in the chapter, in particular the so-called green bonds, where the interest is repaid from revenues generated by environmental projects. Such bonds in theory offer hedging against climate problems.
Cap-and-trade redistribution strategies are also commented, in which externalities are put a price that can be traded by actors in the filed. The examples of fishing industry or building development, where high rise buildings generate tradeable revenue to invest in compensating infrastructures around them.
Health: mechanisms are discussed to help the building of trust, the exchange of information and the sharing and lowering of risks to finance the costs of health needs. Again the pay-for-success scheme is shown, with the case of Global Fund, where the interest is paid out of the avoidance of future health costs.. Other strategies are mentioned such as the use of taxes and levies, for instance, those applied to some operations in a country such as selling of flight tickets, where an fraction of the price is destined to cover health costs.
Further examples are the “sin” taxes imposed on products such as tobacco, in order to alleviate the budgetary burden that they impose on the health system of a country.
Two more axis of actions are presented. The use of Advance Market Commitments is one, as in the case of GAVI initiative for the procurement of vaccines, that helps secure and stabilize future revenues for the manufacturers, thus reducing risk and cost. Other line of action is the management of debt relief for countries that pledge prevention programs. One example would be the case of the IFFIm, or International Financing Facility for Immunization, where upfront and immediate costs to purchase health resources are made available backed by the securitization of the mentioned pledges.
Smaller projects are also mentioned such us MedStartr, for funding of medical projects, Kangu, especialized in birth assistance or Healthfundr, similar to Medstartr but focused on venture capital that provides impact.
Most of the schemes and structures discussed in the chapter revolve around the concepts of pooling risks of individual initiatives, stabilization of revenue streams, and building trust to lower the concerns of mismanagement, corruption, governance of problems of scale.
Financial inclusion: This chapter discusses cases around the world of access to capital and financial services in developing countries and regions. Technology enables there financial services via cell phones, and progressively the provision of insurance which, in such regions is sometimes even more important that the finance itself. The application cases of M-Pesa money transfer system are discussed for Kenya, where it is a success, and Indonesia, where the results are not that satisfactory. Regulation aspects are factored in the discussion.
Beyond the money transfer, the Pay-as-you-go services, also backed by technology and cell phones, has helped to bundle the banking and payment of utilities, the monitoring of usage and follow up of local problematic thanks of a network of local vendors and retailers. In addition to bridging local currencies to international ones, these projects capitalized on the mentioned effect of trust building. This “bundling” effect is quoted by Brian Cox of MFX Solutions, one the operators in the field:
“it´s like shipping cargo: the most efficient way to carry a small load across the ocean is to find a big ship going the same direction”
Comment is made that, even if not all cases and projects work as well as intended, the successful ones serve as demonstrators to attract and unlock international funds into underdeveloped areas.
Disaster Relief: The chapter discusses from natural disasters (rainfall, droughts,…) and the impact at local level to wars and refugee crisis. At local level again the examples of micro-insurance are mentioned (M-Pesa), where the technology-enabled systems helps with the early pay-outs for the recovery as well as the acquisition of on-site data and the measurement of the natural phenomena (floods, etc…).
The disaster relief discussion jumps to the regional and national levels with the cases of the Cat-bonds (for catastrophe bonds) used after the Sandy storm in New York city or the Katrina hurricane in Louisiana in the US. Other example, at transnational level is the African Risk Capacity, which helps by pooling non-correlated risks across different countries, lowering costs and focusing on preparedness and early warning and payments.
Most of the cases discussed around disaster relief again revolve around accurate measuring and data gathering to help with response time and upfront money availability.
The chapter closes with discussion of the blending of development initiatives with humanitarian efforts to help refugees and migrants. That is, man-made disasters such as wars. Mention is made to some solutions to avoid the influence of mafias in the money transfers to refugees, i.e. by means of vouchers. The case of Lebanon is discussed as an example of the blend of development and humanitarian effort and Al-Majmoua micro-finance services as one local operator in that field.
The final chapter is a summary of initiatives and solutions with focus on the United States. The concepts developed along the book (tech enabled solutions, pooling of risks, measurement, trust,…) are reviewed with more examples. These concepts help to deal with problems of discrimination in communities, to develop local based (i.e. housing, education) and people based solutions (i.e. transport, jobs), again with examples, such as The Social Entrepreneurs Fund, or the NYC MTA ticket vouchers just to name a few.
A broader discussion in that chapter is focused on the Social Impact Bonds. A financial mechanism already mentioned in the previous book, now pros and cons are brought up. The main problems of execution and complexity of its set up are described with the example of the Rikers Island Correctional facility, in New York, where the rehabilitation projects financed via SIBs were not successful. The Rikers project tried to replicate another SIB project for correctional institutions in Peterborough, UK, but cultural and demographic differences, the judicial system and a slow set-up and implementation revealed that often there is no one-fits-all solution.
I have to say the same as in the previous notes to social innovation in finance, which is that the book is rich in material to be reviewed, including the large notes sections at the end. It has almost text book quality. For my engineering mind, though, I would have liked some more structure among and within the chapters and sections. In fact, these notes are, as many posts in this blog, a personal exercise to structure and better learn what I have read. Also in this sense, some more visuals and graphics would round the book up.
Anyhow, I found another door-opener in Capital and The Common Good. It has helped me a lot to deepen in the understanding and discovery of social finance and innovation, to discover new names and institutions active in every field, and nurtured my interest on the possibilities of financial instruments to help solve the problems of the world. I encourage every reader to go beyond these notes and explore the two books from which they derive.
Photo credits to: Karsten Würth, Petter rudvall, Drew Hays and Jesus in Taiwan on unsplash.com, Times of India and Afritorial.