Financial intermediaries in particular can apply their influence and creativity to increasing the flow of capital into business models that serve society’s interests.
In recent decades financial intermediaries, such as banks, have demonstrated incredible creativity in extracting financial value from business and society, to the point where many stakeholders now regard them as an economy in their own right, serving their own purposes rather than the underlying needs of the 'real' economy that others inhabit.
It is critical that this same powerful instinct for innovation is now underpinned by social purpose. Business models that address society's essential needs are emerging all the time. In many instances, the companies that invent them struggle to access mainstream capital because the risks are perceived by financial intermediaries to be too high or the scale of their operation too small – take off-grid renewable energy in Africa. They find themselves reliant on government or donor capital, or turn to unconventional sources, which can make their growth more costly, slow or even not possible – yet they are almost certainly bright prospects for the future.
More work is required by institutions across the financial value chain, governments and businesses to understand how innovative financial services, including public-private financing structures, could be deployed to support and scale up sustainable business models. Patient capital, risk-sharing mechanisms, innovation support and capability building are all part of a rich picture of financial services that will fuel a new generation of businesses that contribute to global challenges such as poverty, inequality and climate change. It will also help the incumbents to grow in new, socially relevant, ways.
Could an improved understanding of this transition enable financial intermediaries to better support their clients?