The gap between the wealthy and the poor around world continues to grow. According to one theory, this gap is caused by the lack of access to some fundamental inputs required to create value. Social impact investing is a tool which could reverse this trend. Howard Thomas and Yuva Hedrick-Wong Have conducted a multi-year research project to explore the effect of social impact investing on socio-economic inequality and present their findings in this book.
The research project was carried out at the Singapore Management University (SMU), where Dr. Thomas served as the Dean of the business school. Co-author Dr. Wong is a former Chief Economist at MasterCard Inc. which contributed the majority of the funding for this study.
A central concept of the book is that Inclusive Growth consists of two components; Financial Inclusion and Social Inclusion. For these two factors to be in place there needs to be access to basic inputs (such as electricity, healthcare, and education- these enable inputs such as IT networks, financial services and property rights) and complementary asset inputs (such as social capital, professional networks and skill networks.)
Inclusive growth should be a basic right for all. It is a matter of having access to the necessary resources to be able to participate in modern economic value creation processes.
This comes down to financial inclusion as well as social inclusion. The premise of the book is uncovering what are the main routes to breaking down the barriers to inclusion.
The four most critical means of increasing inclusion explored here are:
More interaction and trust-building
Effective adoption of mobile telephony, making inclusion easier and less expensive
More effective training
Empowerment of women - who seem to be key in cracking the inclusion conundrum
So how can we define financial inclusion? The authors do not come up with a clear definition but rather indicate what financial inclusion might entail. This indirect way of defining it is adequate: they discuss opening up the various ways of digitalization – payments, credit, saving and insurance, and of course the mobile phone, which is a key enabler of all of this. Financial exclusion in these areas results in a lack of access to formal financial services - a particular problem when it comes to developing economies in Asia and Africa.
How do the authors define this social inclusion then? Here too, an indirect approach is made, with the key ideas being:
Financial literacy
Digital capabilities
Trust with regards to financial institutions
The book clarifies the often-used term social capital. Here it argues that the word capital might be misleading. Instead we are perhaps talking about capabilities in society, especially to stimulate various forms of entrepreneurship. Are the networks in a particular society effective? Only then will the social capital be sufficient to spark entrepreneurship. The three key characteristics of an effective network, the authors claim, are:
Bonding: are the various networks and sub-networks interwoven?
Bridging: tying together different social network components, such as acquaintances and interest groups.
Linking: ties to people or organizations with power, social clout or influence.
The authors then develop this one step further, outlining how social entrepreneurship can take place within an effective social capital context. Social entrepreneurship is what happens in the overlap between profitability and social goals, i.e. entrepreneurship and the effort to change the negative aspects of a society. Social entrepreneurship, often labelled social impact investing, is thus the key to ameliorating differences in wealth, among countries as well as among smaller groups of individuals.
In the book’s final chapter, the authors discuss what seems to be the key role of women, specifically female entrepreneurs. They make the point that women are often excluded from becoming effective members of economic growth-enhancing and productivity-enhancing efforts in many societies. This phenomenon (exclusion of women) is often a key indicator that a particular society in general may be suffering from low financial and/or social inclusion.
In a postscript, the authors reiterate the importance of access to three categories of critical resources to improve productivity:
Networks for basic inputs: electricity, water supply, transportation, health systems and education
Networks for enabling inputs: logistics, information (communication networks, financial services networks, legal systems and intellectual property frameworks)
Networks of complementary inputs: social capital, knowledge and professional networks
This three-dimensional approach for considering what infrastructure is required to make inclusive growth happen (basic, enabling, complementary) is revisited at several points in the book, and might be seen as one of the two key findings of this research project. The other key finding is the all-important role of entrepreneurship, and that entrepreneurs can only be effective when a solid basis of social capital is in place.
This research project evaluated ten case studies to illustrate various aspects of furthering inclusive growth, summarized in appropriate sections of the book. They add weight and context to the research findings. A few which I found particularly illustrative include:
Veriown (India), which is an enabling platform in the areas of solar energy and microfinance - the two work well together!
iCare (Vietnam), which is an electronic payment system for digital financial services.
Fullerton Financial Holding (Myanmar), which is an innovative lending solution with administrative structures.
This book addresses a single core topic, namely how to lessen the difference between wealthy and less wealthy countries, societal groups, and individuals. The authors see this as primarily being a challenge of inclusion. More effective financial inclusion as well as social inclusion lie at the heart of tackling this challenge. Many of us are keenly interested in how to preserve wealth but it is useful to be reminded that more effective inclusion can lead to more stable societies, with fewer differences between the “haves” and the “have nots”; in itself a key condition for realistic preservation of wealth. This approach is clearly much more appealing than various forms of societal revolutions - totalitarianism is clearly not the only, or the preferred, way!
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