There are two revolutions shaking the foundations of the financial sector in a positive way, but with relatively limited interaction between the two. Responsible investment and FinTech (financial technology) are each a response to the failure of the financial sector to fully play its expected role in society. Instead of being primarily a catalyst for supporting economic activity that is inclusive and sustainable, the financial sector ended up with a reputation for caring only about short-term profit, mainly due to the combined result of the financial crisis, LIBOR scandals and the massive fines that ended up being levied.
The reaction began before the financial crisis with the launch of the Principles for Responsible Investment, an investor organisation with over 1,500 signatories managing a collective $68 trillion in assets, which is bigger
than the GDP of the top ten biggest economies put together. However, the growth in PRI assets and, in parallel, the development of FinTech, did not begin to pick up steam until after the financial crisis. This came about when regulators provided the opportunity for an alternative, with new regulations passed in response to the crisis. According to KPMG, over $132 billion has been invested cumulatively in the FinTech sector since 2010.
The growth and the siloed nature of much of the development has to do with the challenges of disrupting the established incumbents with a new way of doing business. Even where the growth has become widespread, as in responsible investment, it is still viewed with skepticism by some large investors (despite the preponderance of the data suggesting this skepticism is misplaced). Now that both responsible investment and FinTech have become accepted as a good thing by most, but not all
, within the mainstream, it is time for them to start working more collaboratively and the green economy is an ideal place to start.
Where should responsible finance (which includes banking alongside investment) and FinTech start their collaboration?
One area where there are strong complementarities is in the area of getting new green innovations
distributed at scale. Examples include projects such as solar-powered drip irrigation pump from SunCulture, which can have quick repayment of the investment needed to make them bankable. Despite the bankability of these types of innovations, they will be difficult for large responsible finance institutions to finance because the costs start at under $400. An interesting showcase of the latest green innovative solutions is taking place at the World Green Economy Summit 2017
(WGES 2017) on 24-25 October in Dubai.
Even simple SMS-based FinTech solutions, connected into financing systems such as M-Shwari can deploy financing on behalf of responsible finance institutions to the end users. Pairing the two areas of responsible finance and FinTech can ultimately deliver benefits for both by expanding available finance for FinTech companies and helping responsible finance shift from integrating environmental, social and governance (ESG) factors to delivering impact..
Any opinions expressed here are the author’s own.