The Politics and Culture of Social Finance: Big Society Bank

London is the home to a small but growing ‘social finance’ community. It’s an imprecise term, but in general social finance is seen to encompass finance for social causes, finance for public services, finance for social enterprises, and finance for vulnerable communities. That covers a pretty wide scope, ranging from crackpot schemes to move back to a barter economy, all the way to mainstream debates about alternative finance sources for public services.

On Wednesday I attended PopSe!, a ‘popup think-tank’ on social enterprise. The theme of the day was social finance, and in particular, the issues around the UK government’s plans to set up the ‘Big Society Bank’.

That’s a pretty politicised name for a bank, and gives rise to interpretations of it being the thin edge of a wedge the government is promoting to take the slack from its public service pull-back. To be accurate though, the Big Society Bank is not really a bank. It’s more like an investment fund, and it will start with £100 million, to be used for the purpose of providing wholesale finance to other social finance organisations. In other words, it’s supposed to be a financier for social financiers.

In the grand scheme of things, a hundred million pounds is pretty tiny, but a handful of mainstream banks have pledged to put cash in as well. All this raises fears of it becoming a window-dressing operation for banks’ CSR departments, as well as the government. The murky political undertones, and it’s potential to be used as a means to change in the culture of social services, means there’s a fair amount of skepticism about this new ‘social investment bank’.

At Wednesday’s discussion session, participants expressed concern at the lack of specific detail on what the bank’s remit was. It’s supposed to support social financiers, but will that include credit unions and community development finance institutions – CDFIs? Would it really support existing social finance institutions, or would it actually compete with them, as some fear. We wondered who would get employed there – would it be staffed by jaded ex-public sector employees, or ex-investment bankers carrying sad tales of emptiness in the fast-lane, in search of something meaningful?

All these details will be ironed out in due course. What I’m more worried about is the culture of social finance: The problem is that it’s still so bloody un-sexy, bogged down in public sector buzzword speak, phrases like ‘enhanced service delivery’ and ‘outcomes-based commissioning’. There’s little in the way of hard technology and cowboy venture capitalists. Instead, there’s abstract concepts and social metrics designed by people with concerned looks on their faces. It’s self-conscious, and that makes me suspicious to its potential for overhyping itself.

My last question at the meeting remained unanswered: What relevance does the Big Society Bank have to large-scale housing, health and education needs in the country? A one hundred million fund ain’t even going to come close to touching those issues. Social finance needs to be upscaled beyond being an add-on to the small-scale social enterprise sector. It needs to move beyond Bono sunglasses and Apple Macs. It needs serious realism.

On the trail of the Living Wage: Suitpossum does Centrica

Last week Boris Johnson announced the Living Wage to be £8.30 for London. The Living Wage campaign, started by Citizens UK, recently celebrated its tenth year of trying to boost the incomes of those on the lowest rungs of enterprise. One way to speed up the campaign is through shareholder activism, buying a share and attending the annual general meeting of a company to raise the issue.

On Monday, I attended the Centrica AGM on behalf of advocacy group FairPensions, to see if the board would be willing to commit to the Living Wage. Centrica are the guys that run British Gas, and they have a large number of employees in lower salary brackets, for example, all the call-centre staff.

You’re playing to a tough crowd when you do shareholder activism. Think about who actually attends a three hour meeting starting at mid-day: Most are loyal supporters of the company and many are former employees, now retired. They have a slightly sycophantic edge, especially considering part of their self-identity is wrapped up in their years of service to the company. It’s easy for the chairman to turn them against anyone raining on the parade.

THE GUYS WHO RUN BRITISH GAS

So my strategy was as follows: 1) Wear a smart suit, 2) drop in Boris Johnson’s name to deflect suspicions of left-wing status, 3) suggest the Living Wage is becoming recognised as an important mark of commitment to Corporate Social Responsibility, and that, as such, it’s an important business decision, and 4) that as a shareholder, I believe it to be an issue which needs to be carefully assessed by the board.

Those should prevent you from being seen as a raving radical quack, and forces a serious response from the board. Unfortunately, it doesn’t guarantee you anything of substance: In his response to my question, Chairman Sir Roger Carr gave a true politician’s answer, asserting that the company paid more than the minimum* wage, whilst avoiding direct mention of commitment to the Living Wage.

There was a tea afterwards, in which the directors mingled with the shareholders. I used it to chat to three of the directors, including the head of the American business. Treat them with respect and they’re forced to do the same back. He assured me the Living Wage issue would be brought up at their next CSR meeting.

Shareholder activism is but one method of getting yourself heard, and it has its limitations, but it can be a surprisingly effective way to get up close and personal with senior management of the world’s largest companies.

*(the minimum wage is considerably lower than the LivingWage)

Minjian jiedai på svenska?

Gillian Tett, journalist på Financial Times, skrev en intressant artikel om ett kinesiskt fenomen kallat minjian jiedai för ett år sedan, Grey areas in Chinese loans give pause for thought.

Minjian jiedai är tydligen någon sorts förbjuden ”under-bordet” långivning från förmögna kineser till små och medelstora kinesiska företag. Mestadels är det tydligen kortfristiga lån och själva transaktionen mäklas av en mäklare över mobiltelefon. Anledningen till att denna typ av utlåning florerar (frodas?) i Kina, är de välkända problemen för kinesiska företag att få tag på kapital.

Jag har skrivit om relaterade frågor för mikroentreprenörer i min artikel Structured Microfinance in China Min tanke här och nu, handlar ej om mina strukturerade mikrolån (MiCDOs) utan snarare om de tigerlån jag tjatat om här på bloggen vid tidigare tillfällen, se Är ni trötta på låga bankräntor?

Det finns uppenbarligen en koppling mellan de (hypotetiska) svenska tigerlånen och de kinesiska minjian jiedai lånen i att de båda två undergräver bankernas ”monopol” på utlåning till mindre företag. Tigerlånen fokuserar inte på förmögna investerare utan på vem som helst med sparbehov men det skulle i alla fall vara spännande att få veta om förmögna svenskar i någon större utsträckning lånar ut till mindre företag. D.v.s. existerar minjian jiedai i Sverige?

(Enligt min kinesiska doktorand ska det vara jiedai, inte jeidai som Tett skrev i FT, dvs ”lån bland folk”, men det spelar kanske mindre roll……)

Insurance: New Bank Negara ruling to impact claims ratio? (10 May 2011)

Now, every cars can get covered...

RHB Research:

Bank Negara Malaysia (BNM) announced last week that effective immediately, members of the public will be able to obtain motor cover from all general insurers and their branches as well as at Pos Malaysia and its branches nationwide. All general insurers are committed to provide motor cover to all motorists including the "displaced vehicles" which generally comprise private vehicles exceeding 10 years old and motorcycles currently underwritten by the Malaysian Motor Insurance Pool (MMIP).

Obligation to provide cover with NO excessive loading

Based on this new ruling, general insurance players are obligated to provide cover to all insurance seekers, without excessive loading and cross selling of other classes of insurance to mitigate the risk. Although, general insurance players could still load the policies, albeit at a more reasonable amount and not 200-300% as previously charged by the MMIP for the so-called high-risk "displaced vehicles" or vehicles which are aged 10 years and above.

Finance Malaysia: Good to car owners, Sorry to insurers...

According to analysts, as a whole, this new ruling is negative for the industry. Although, this is good to owners of old cars, insurers is at the losing side. Insurers are facing with a probability of higher claims, coupled with a lower premiums charged. Of course, this would be underscoring the bottom line of insurance companies. According to RHB reseach, they are forecasting a higher claim ratios on insurers as follows.

RHB research: Changes in claims ratio and earnings

Short-term pain, Long-term gain

However, Finance Malaysia believes this is just a short-term disadvantages to insurers only. Do you still remember the new motor framework which will allow insurance companies starting 2012? That will allow insurance companies to increase the motor policy premiums in the long term according to the claims experience of the industry. More or less, this will balanced out the current negative implications once the gradual liberalizations begins next year.

Source: OSK and BNM

Source: OSK and BNM

OSK Stock Picks for May 2011

The KLCI lagged the region in April as it suffered from the fallout ahead of the Sarawak state elections. With that behind us, OSK see the market recovering in May as they believe the 1Q2011 will at least meet downbeat expectations after the past 4 quarters of disappointments. With the potential for reasonable results, we believe the market will shift back to fundamentals and look back at Big Caps.

KLCI was a laggard

With the KLCI recording a total return of -0.25% in April, Malaysia's standing YTD slipped significantly to being the 4th worst performing market from being the 4th best. As mentioned earlier, the key drag on the Malaysian market was the Sarawak state elections. While the market had put in some gains ahead of the Invest Malaysia conference on 12 and 13 March, by these dates concerns that the incumbent Barisan Nasional would fare below expectations in the state elections led to significant profit taking in the Malaysian market. Towards month end, with the BN retaining its two thirds majority in Sarawak, there was a modest recovery given continued strength in global markets.

OSK: Total Returns year-to-date

For April, no sector strongly outperformed or underperformed with the biggest gainers being the Gaming and Consumer sectors driven by Genting and F&N, while the biggest losers were the sectors hardest hit by the Japanese calamities namely Autos and Technology with drops seen in UMW Holdings and JCY International.

OSK: FBM100 gainers and losers in April 2011

Strategy - BUY Big Caps, Trade property

After October 2010 which saw a jump in investors sentiment on property counters spurred by the 3 M&A proposals of UEM Land-Sunrise, IJM Land-MRCB and Sunway-Suncity, news flow on property counters has generally tapered down. We believe this is set to change soon with the likelihood of more announcements on Government land developments around the Klang Valley such as Sungai Buloh land, the Sungai Besi airport and others as well as annoucements relating to developments in Iskandar Malaysia. As such, we would advise investors consider trading in property counters with good Government ties such as SP Setia, UEM Land and Glomac.

OSK: Top Picks for May 2011

Inline with the view that Big Caps could do better in May with the focus back on earnings, we shift our Top Buy calls for May all on Big Caps. We pick our Top 2 banking buys CIMB and Maybank coupled with our Top Telco Buy Axiata. We include our Top Transport buy call AirAsia which just completed an analyst corporate visit in Bangkok and Jakarta in preparation for the upcoming listing of its Thai and Indonesia associates. And round it all off with UEM Land which is an excellent proxy to the upcoming potential news flow in the property sector and also as recognition to its likely inclusion into the FBM KLCI in June. Do note that aside from AirAsia, all the other 4 stocks have been laggards or market performers over the past 3 months.

Source: OSK Research report

Financing climate innovation: WRI and the bounty system

Last week the World Resources Institute (WRI) posted a challenge on Innocentive, the online innovation reward website, offering cash prizes to individuals for solutions to climate change adaption issues. There is a total of $10 000 up for grabs if you can articulate a clear and actionable vision for climate change communication strategies in vulnerable communities.

WRI’s approach adds to the broader debate on how you finance climate innovation. There’s much discussion concerning how to deploy money into existing technologies and ideas, but how do you best put money into creating new technologies and ideas?

In issues of strategic concern, governments have frequently used grants, for example, to support universities and research institutes to develop new ideas and technologies. That has the advantage of giving innovators space to develop ideas without an immediate need for commercialisation. On the other hand, government grants risk being too prescriptive: What if the government chooses the wrong initiatives to support, and sinks money into non-starting technologies and concepts?

An alternative strategy has been to encourage private sector involvement in research and development through establishing intellectual property rights regimes and legal patents. These do protect innovators that sink time and resources into R&D from the prospect of others freeriding on the products of that labour. On the other hand, they only do so at the cost of creating artificial monopolies, which can have very detrimental side-effects when it comes to crucial issues of welfare, for example, in pharmaceuticals.

Perhaps the most underused method for promoting innovation though, has been the bounty system – offering prizes to induce people to solve something. Back in the 1700s, the bounty system was used to induce the creation of the first accurate maritime clock that revolutionised ocean navigation. Prizes needn’t be purely monetary though: Academic prizes like the Nobel Prizes have done much to inspire much cutting edge research, providing innovators with goals to work towards.

CREATED BY BOUNTY

Innocentive is an interesting example of the bounty system. Private companies and institutions post challenges, and offer to pay individuals who can solve the challenges. A lot of the challenges to date have been scientific – how to synthesise a chemical component, or how to make fizzy drinks that don’t go flat. It’s a quick and efficient way to hone in on people who are carrying necessary skills and to harness those skills without having to directly hire them. They can be anywhere in the world, but many come from developing countries, providing a potential source of income for bright PhD students.

The obvious shortcoming of any bounty system is that if a problem seems too complex, individuals might not feel it worthwhile to put in time and effort. Many people simply do not have the luxury to commit large energy to something without any guarantee of being paid, so the bounty system probably works best for relatively less complex puzzles.

The World Resources Institute puzzle seems complex enough, but seeks ideas rather than finished technologies. They want bright ideas for “communication platforms that will connect information about local community needs to public and private sector organizations that can provide solutions and support”, so as to improve community resilience in the face of changes brought on by global warming.

At the time of writing, there were about 200 people working on the challenge, with a deadline in June. That theoretically gives you a roughly 0.5% chance of winning, assuming all were equal in their abilities. If you think you have what it takes to turn the odds in your favour, why not join up? Even if you don’t win, it gives you a chance to develop and professionalise your ideas. And, yeah, I get to take a small commission from anybody who wins after reading this blog post.

After Obama K.O Osama...

In fact, this year's Labor's Day is marred with some terrorist-related news. First, UN successfully bombarded a key area of Libya's dictator Qaddafi, killing his son and injuring scores of his followers and relatives. Then, US troops was successfully and secretly raid the most notorious terrorist leader, Osama bin Laden. The whole raiding process was witnessed by Obama and his key personnel in white house. After several minutes of heart-beating attempts, Obama made an historic announcement on Labor's Day: "Today and finally, we defeated Osama bin Laden, the mastermind behind the 9/11 terrorist attack. We had done the DNA on the body, and it was Osama."

Why Obama, and not Bush?

Through 10 years of hunting Osama, ex-US president George W.Bush launched several military efforts. This led to the Afghanistan war and the Iraq war. When Obama took over, all had been settled down until the Libya attack lately. If you ask me, I think it bodes well for Obama's next election campaign not by winning the war, but in winning the heart of people, rejuvenate the spirit of US citizen, and regain the trust and confidence of the world. Obama is the man, simply because his name is almost same with Osama. Even news reporters sometimes wrongly spell out the name and read: "Obama is dead in the latest raid by US". You see?

Life goes on...

As spoken by Obama himself, the war against terrorists doesn't stop here. We will continue our job to assure the safety of the world, and to safeguard the interest of the world population. Share market rose initially after the news, but succumbed to losing ground later. The victory doesn't bring much joy to the share market. Instead, it spurred up the revenge spirit of fellow Osama's followers. Actually, we are now in a very watchful days. Security alerts are at all-time high, especially for US embassies globally.

Economy sense...

US government now can cut down on its budget deficit, by lowering the military expenses. USD may gain some lost ground, after sliding for weeks. A technical rebound on USD could again ignite the flames of currency trading volatility. Locally, it is likely to be downward biased due to lacking of positive news. Traders are waiting for the upcoming reporting season to gauge the entry level. Coupled with some bad news on several financial distressed counters like Sumatec, DBE, Viztel... and skeptical result for Fitters and Ramunia, everyone is staying sideline.

Finance Malaysia opines that we need another victory to boost the market sentiment. How about the victory against Qaddafi?

All these years, Osama is very famous, below is some arts dedicated to him.