Impact investor Durreen Shahnaz: ‘we must go beyond social bonds’
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Impact investor Durreen Shahnaz: ‘we must go beyond social bonds’


Durreen Shahnaz is founder and chief executive of Impact Investment Exchange (IIX), which says it created the world's first social stock exchange. She tells GlobalCapital about how we can rebuild a better economy, with the help of capital markets, after coronavirus.

Shahnaz grew up in Bangladesh and the Philippines, and started her career as the first Bangladeshi woman investment banker on Wall Street, according to IIX’s website.

The company she established and runs, which is based in Singapore, has developed a crowdfunding platform for impact investing, called Impact Partners, and a debt issuance programme called the Women’s Livelihood Bond Series. It has issued two bonds from this series and plans a third later this year.

Last week she signed a letter under the title “Build Back Better Business”. The letter was signed by past winners of the Oslo Business for Peace Award, including entrepreneur Sir Richard Branson, Nobel Peace Prize winner Ouided Bouchamaoui and former Unilever chief executive Paul Polman. The letter called for five actions:

1.            Immediate debt cancellation and increased investment linked to a green and socially equitable recovery.

2.            Increased global co-ordination, especially avoiding export barriers on personal protective equipment and maintaining fair and efficient markets for both the Global North and South. 

3.            Investment in and support for SMEs, ensuring employment especially for underserved communities.

4.            Global co-ordination on strategies for financial investment and income transfer to strengthen the participation of women in the economy and the job market.

5.            Increased attention to racial harmony, integration and inclusion.

GlobalCapital: Your letter calls for immediate debt cancellation. I was interested in what the details of this would be. Should debt be wiped out completely or simply deferred? Does this refer to debt that is maturing soon or all debt? Should this apply just to government debt, or to corporate debt as well?

Durreen Shahnaz: Cancellation of debt or fair and effective restructuring of the debt for the Global South is a key part of “Building Back Better”.

However, Covid is not a government or national problem, it is a society-wide problem and debt cancellation will only be effective if it goes beyond national debt, and really impacts the last mile — the SMEs who are responsible for supporting the livelihoods of the world’s poorest, who deal with the brunt of climate change, the Covid pandemic, and existing systemic inequalities. 

Even before Covid, SMEs in emerging markets were responsible for creating seven out of 10 formal jobs, yet faced a $5.2tr annual financing gap*. Unfortunately, with the latest SME financing initiatives announced by donors, multilaterals, and companies, we’re seeing development and capitalism failing us in a big way, and we are still a far cry from truly financing the 'backbone' of our economies.

As multilateral organisations look to forgive debt or shoulder more risk for their client countries and financial institutions, it is critical to remember that shouldering risk for financial institutions is not the same as shouldering risk for SMEs. As business leaders it’s our responsibility to be accountable for the 99% and the SMEs who support their livelihoods. 

Furthermore, we need the tools to make sure that women, climate and underserved communities are accounted for in the how to “Build Back Better” with effective business leadership.

GlobalCapital: What arguments would you make to persuade private creditors to support debt cancellation?

Durreen Shahnaz: The Covid pandemic has made clear that we cannot recover and rebuild our economies if the Global South, women, and people of colour continue to be left behind. Inclusivity and our mutual obligation to each other are the conditions for future economic growth.

Furthermore, we have the unprecedented opportunity to reposition the Global South as solutions to post-Covid green growth. There is no better time than now to reboot our systems, overcome systemic racism, sexism, and other injustices, so that we are empowering the 99% to drive future growth.

GlobalCapital: What do you think of the response to the crisis from the World Bank and the International Monetary Fund?

Durreen Shahnaz: Sadly, what we are seeing from multilateral organisations is in fact old habits and top down practices repackaged into the Covid response. What we are seeing is in fact traditionally risk-averse institutions directing funding primarily to their clients, be it financial institutions or countries, with little transparency as to its impact on the last mile and the 99%.

If the same top down, business as usual development methods weren’t getting us through to the [United Nations] Sustainable Development Goals (SDGs), then they certainly are not going to help us “Build Back Better” post-Covid.

GlobalCapital: How can capital markets help the recovery in the Global South be green and socially equitable?

Durreen Shahnaz: Even before Covid, blended and innovative finance held the greatest potential to close the $2.5tr annual SDG financing gap**. More and more stakeholders were opening up to innovative finance, yet there was increasing concern for impact washing.

[In relation to social bond issuance increasing] But where is the money going? Is it going the last mile for truly inclusive recovery? What we found instead, is that multilaterals are moving the same money to the same usual suspects, the same SMEs who already access commercial capital, rather than lending to SMEs who really cannot access financing. On the corporate side, we are seeing similar behaviours, with billion dollar bonds raised just for commercial clients.

It is time we think bigger and bolder so that the 99% are not treated as victims, but solutions to green, inclusive Covid recovery. Innovative finance has the potential to truly unlock large scale capital, but we must learn to go beyond social bonds. 

What will be key to unlocking more private sector capital to fill the financing gap is to embrace risk, innovate solutions to mitigate risk, and build bottom-up solutions using data and impact measurement so that we are truly addressing the root causes of injustices for women, people of colour, and the Global South.

GlobalCapital: Could you explain how IIX’s exchange for impact investing companies works?

Durreen Shahnaz: One of IIX’s first innovations was the world’s first social stock exchange. In 2009, when I launched the world’s first SSE with the Mauritius government, the Impact Exchange, I did so with the vision that it would become a beacon for impact investing — the symbol of a perfect financial system, where everyone could participate and have a voice. The experience was a humbling one because it soon became clear that building inclusive markets would require much more than a platform. 

That is why over the past decade, IIX had to step back and build an entire highway of support for businesses across their stages of growth, effectively connecting them to capital markets through Impact Partners — the world’s most successful debt and equity crowdfunding platform for impact investing, and eventually through the Women’s Livelihood Bond.

Through Impact Partners, IIX effectively bridges the gap between the supply and demand of impact capital by helping investors understand the RRI profile of investments, and to move beyond traditional venture capital and private equity approaches to looking at short and mid-term investment strategies.

With investors reeling from the market meltdown, RRI strategies will become the new norm. Investors who can assess opportunities through the lens of risk-return-impact can look to make modest returns while investing in Covid-resilient businesses.

*According to the World Bank’s International Finance Corporation

** According to the United Nations

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