Credit: Andre Francois McKenzie
With one eye on the future, new and emerging technology around digital currencies has the potential to completely transform the impact investing industry. For those without access to traditional financial institutions, the current system can be extremely limiting, and this is no clearer than in the developing world where many impact investors and funds are focussed.
At present, impact funds and asset managers are limited to receiving investments from qualified institutional investors (defined as those that have at least USD 150,000 to invest). This is not only limiting from the perspective of where investors get their funds, but perhaps more importantly, limits potential investors who may not hit the qualifying mark and must rely on writing cheques to NGOs with uncertain results.
However, I believe that with the right regulation and systems in place, crypto assets, blockchain, and distributed ledger technology have the potential to completely democratise access to liquid markets.
From Tokens to Transparency
One of the first means of this market revolution is the tokenisation of assets, or the process of purchasing a blockchain token that represents a real tradable asset. These tokens offer the promise of improving the transparency and traceability of impact investing by giving investors a full view into exactly how and where their assets are being invested. Full transparency means the possibility of eradicating ‘greenwashing’ or inflating the impact returns of investments.
Tokenisation would allow anyone to invest any amount directly into a fund or investee company and the underlying distributed ledger technology enables a complete, transparent circle. For example, an individual would invest USD 100.00 to get 100 tokens. They would then see how the fund or investee company uses the tokens and receive a granular picture of the impact and financial returns generated from the initial 100 token investment.
As we look towards a regulated market, it’s safe to say that this will open up the world of impact investing to those who may want to use tokens to invest more manageable amounts and see exactly where it’s being spent.
Technology provides access and affordability to marginalised populations, and cryptocurrencies and blockchain provide democratisation and full transparency to ensure that investments are completely traceable.
But without the right technology in place, this isn’t possible.
Impact in the Palm of Your Hand
Technologies have the potential to unlock access to goods and services while transforming societies and leapfrogging years of development. The mobile phone revolution is one example. Cell phones and smart phones triggered the mobile money revolution, and now everyone can hold a bank in the palm of their hand. Access to digital wallets has provided a level playing field to access banking without relying on hard currency or converting currency in marginalised countries.
For many around the world, access to affordable digital financial products like credit cards and bank accounts is limited, if not impossible. But the open nature of Bitcoin and cryptocurrencies can provide full access to the digital financial world. This isn’t without risk, of course, and being one’s own ‘bank’ without the support of an institution can come with challenges and frustrations. But the reward, for many, is worth it.
Already we’re seeing the effects of what some call the ‘digital divide’ – the assumption that only rich or developed countries have access to technology. I don’t believe this is the case. Mobile phones have proven that it’s not a divide – it’s digital inclusion. If anything, COVID-19 has only accelerated a positive transformation of technology in reaching and boosting the most marginalised communities around the world.
Technological transformation has enabled entire communities to leapfrog decades of traditional infrastructure and form the building blocks of a thriving digital economy at affordable price points. We’ve seen how access to mobile money has enabled innovations in other sectors, such as clean and distributed energy, in which pay-as-you-go models enable faster adoption by complementing grid expansion with mini-grids and home-scale systems.
This is just the beginning. Crypto assets are one more example of digital inclusion connecting communities to the developed world, changing lives, and creating greater impact. There’s an opportunity here to channel more capital into impact investments, provide more transparent investment vehicles and a larger, diverse base of funding thanks to a fully democratised system.
At the moment, this remains a vision for what could be the near future of the industry. It won’t happen overnight and will require the support of regulators around the world. But it is a stark reminder that just as technology has been integral to the evolution of impact investing, it will continue to play a fundamental role moving forward.
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