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Innovation and creating purposeful change for communities is at the very heart of what social impact finance is all about. Such impact investments have never shied away from embracing that latest technological innovation or challenging the status quo. In this vein, FinTech initiatives such as blockchain have the potential to prove that they can be the catalyst for democratising data and opening new worlds of possibility to users and stakeholders around the globe. A recent Harvard Business Review research project backs up these claims, and believes that there is strong evidence that blockchain can not only transform businesses and governments, but also have a profound impact on society as a whole.
Socially responsible and ethical investing is not a new endeavour. After all, one of the most famous social investment programmes, the Grameen Bank in Bangladesh, was founded all the way back in 1976. However, what underpins the FinTech trend is the use of an innovative, digital and often app-based skill set to address these social and economic challenges. Digital take-up of FinTech has been phenomenal. The EY FinTech Adoption Survey 2019 states that, on average, 75 per cent of the world’s population are using FinTech products. In the global markets of China and India, that figure is as high as 87 per cent.
One area where FinTech is already having a tremendous impact is access to banking, especially in countries like India and other emerging markets where access to banking facilities is still limited, but uptake of mobile technology is high. Blockchain – a chain of data held by its user community – has the potential to revolutionise operational systems and record keeping. In short, it acts as a record or ledger of events (or transactions) that occur digitally, which is shared between its users. Applications of the blockchain algorithm have much to offer the more than two billion adults worldwide who currently lack a bank account. For example, BitPesa (part of AZA Group) focuses on converting Bitcoins into Kenyan or Tanzanian shillings, depositing that local currency to a mobile money number. Since it relies on a pre-existing mobile money wallet system commonly used by many Kenyans and Tanzanians, BitPesa avoids the quagmire of the complex international money transfer system which has made a Bitcoin-based remittance system so elusive.
Tracking the need
Another easy-to-imagine use for blockchain is as the framework that could provide accessible and even real-time data tracking social or environmental need, or data on the impact of products such as development impact bonds. So why use blockchain to record such data? The benefits are clear – the distributable nature of the blockchain community enables the reconciliation of information entered by multiple parties. Using a shared infrastructure means that the data is timestamped and therefore is significantly less susceptible to manipulation and fraud.
Another company using blockchain for social impact is Everex, secured using Ethereum technology. Everex’s aim is to provide cross-border blockchain micro-finance. The products built by the company allow for the storing and sending of funds on the Ethereum network. This allows all transactions to be monitored, securely registered, and easily and instantly verifiable.
Predicting the impact?
Using blockchain also opens up an intriguing possibility, one which goes a step further than simply tracking social impact finance need. What if blockchain could be harnessed to help predict trends and the impact of new initiatives? Predictive markets (albeit those that don’t rely on blockchain) already exist, so this could be achievable in the near future. In principle, people would be able to select an outcome or set of outcomes on an app or other platform and then invest based on the likelihood that a particular approach will achieve the set outcome. Those whose predictions are accurate would receive a financial reward. Over time, this model could be used to predict the likelihood of certain social needs and how best they can be improved by social impact initiatives.
The future is ripe for innovation and progress
FinTech in general and blockchain in particular have seemingly endless possibilities to revolutionise the way we do business, including within the sphere of social impact investing. This could liberate markets, opening up millions to better and more consistent access to finance in until now marginalised communities. By tracking and recording social need and the effect of social investments, products and strategies can be more easily streamlined and developed, all within an environment less susceptible to fraud. In short, when matched with a positive social impact, blockchain seems to have found the perfect partner to re-energise impact financial markets and drive the next generation of such programmes.
Ranajoy Basu is a partner and Nathan Menon a senior associate in the Financial Industry Group at Reed Smith’s London office.