Impact Finance: Is it time to stop innovating and just get on with it?

Impact Finance: Is it time to stop innovating and just get on with it?

A cynic’s view on why we should keep improving the wheel

Innovation – a word used so often it has lost all meaning. For the most bought-in among us the word may conjure visions of biophilic design or futuristic gadgets made of sharp angles in shining chrome. For the cynics, myself included, it might invoke late night/early morning infomercials promising “innovative solutions” to highly dramatized problems that don’t exist.

Many people who work in inclusive finance recognize the need for innovation, but as the sector becomes larger and the world’s problems more urgent, plenty of us are right to question whether launching pilot after pilot is doing as much good as replicating what already works. Having heard this debate play out between colleagues and clients for years, I was pleased to participate in the debate that launched this year’s Impact Finance Innovations course at Oxford Säid Business School. Despite my aforementioned cynicism, I had a strong pro-innovation stance.

As my debate team argued, innovation is not a technology but a process. The best innovation recognizes systemic problems and reconstructs the system to fix them. In impact finance, innovation can be new mindsets, new methods to mobilize capital, deal structures that are utilitarian – doing the most good for the most people instead of mainly benefiting funders, changes to the way we think about data and unlocking insights that can guide us to create exponential impact[i].

Innovating for Ego

An overview of innovation motivations would be woefully incomplete without the largest one (aside from money, which I’ve conveniently left out of this post). It feels good to be the first – to have your name on a building, to give a Ted Talk with pauses and graphs in all the right places that receives a standing ovation, to say that you founded the world’s only blended gender-lens climate-adaptive agriculture and food tech fund domiciled in North Korea, denominated in Dogecoin. Ego-driven innovation is a tremendous source of innovation for innovation’s sake – where we host a “hackathon” a day to re-invent wheels that ought to be skis.

Many may argue that continuous innovation is mostly driven by self-interest. I do not argue against this, but I do argue that it’s not as bad as it sounds. Most of you reading would probably agree that greed isn’t good after all, but I propose impact greed might be. Is ego-driven innovation ideal? No. You need only google “ego and innovation” to find a host of articles on why this is problematic but narcissistic altruism has created a plethora of social good through philanthropy and infrastructure investment. Railing against impure intention is a sure way to alienate great minds and impactful solutions before they can even get started. Good innovation does not sacrifice good for perfection. Perfect is the enemy of good and only divinity is perfect.

Innovating to Break-down Barriers

Finance is full of barriers no matter from which angle you look at it. Would-be investors are blocked by liquidity constraints and institutional reticence. Companies with real potential to drive impact are blocked from access to affordable finance and a lack of relevant coaching. End beneficiaries are blocked from improved lives by the confines of the system at-large.

A critical barrier for inclusive finance is the financial system’s exclusionary nature. The financial system is already overly complex – why make it worse with constant innovation? This argument incorrectly assumes that innovation always complicates but ‘innovate’ and ‘complicate’ are not synonyms. Innovation can and should simplify things, enabling sustainability and democratizing access to finance. Good innovation is simple. Finance is complicated and eschewing change ensures it stays that way.

Innovating for Inclusion

Gender Equality and Social Inclusion (GESI) themes are more en vogue than ever with record-numbers of fund managers joining the 2x Collaborative, disability and mental-health focused funds becoming impact-mainstream, and a profusion of racial-lens funds being set-up in the wake of Black Lives Matter (especially in North America). This focus is long overdue and the first of these funds were truly innovative. However, pushing for inclusion will always require us to reach higher to achieve our lofty no-person-left-behind goals. Replicated first-generation funds with low-hanging KPIs will not continue to see the same inclusivity returns on investment that their predecessors did. It’s hard to harvest low-hanging fruit when it has all already been picked. Replication has its place. To insert an egregiously first-world metaphor into a manifesto on impact, it might be worth having two robot vacuums if you have a two-floor home. Having twenty vacuums competing for the same dust? Not so much.

Using gender-lens investing as an example, we can see the impact that a focus on gender equality has had, with more financing being extended to women and businesses that support them in recent years. However, making an exponential impact on gender equality will require thinking far bigger than employment parity in light manufacturing. One of my favorite books on gender-equity is Invisible Women by Caroline Criado Pérez which posits that bias and discrimination have been baked into our systems (including the financial system) by treating men as the default and women as atypical. The barriers to gender equity are so systemic that often we cannot even see them. Solving this problem will require innovation at a scale far larger than policies of leadership quotas and preferential lending rates. Good innovation thinks big.

Innovating for Results

Innovation is worthless if it doesn’t achieve net-positive results. This requires intentionality, clear missions, and careful consideration. As equally critical as good intentions, innovators need to manage another oft-cited detriment of innovation – unintended consequences. Passionate impact innovators are unwavering in their visions but this tends to result in myopic KPIs that ignore externalities and lose sight of the forest for the trees. Good innovation is well-considered. If change-makers do not monitor their adverse impacts as well as their positive impact, the negative effects may very well outweigh the positive.

In addition to being net-positive, big results require scale. Innovation’s opponents often note that innovation is an impediment to scale. This can be true, but innovation can also develop pathways to scale the seemingly unscalable. My debate opponents appealed to my love of metaphor and proposed that innovation be pushed aside in favor of scale. Instead of forming more footpaths, we need to build a superhighway that can put more cars on the road, reaching their destinations faster. This makes sense at face value, but studies show that highways don’t really alleviate traffic.  Instead, they create air pollution, promote greenhouse gas emissions, degrade forests and wetlands, and induce the demand that contributes to these problems. There are several solutions to traffic better than superhighways (carpool lanes, public transportation, redirecting truck traffic) but the best solution is reorganizing our cities in innovative ways that don’t exclude people without cars from participating in society and make cars obsolete for those that have them. The best innovation recognizes systemic problems and reconstructs the system to fix them.

Yay or Nay?

So, is it time to stop innovating and just get on with it? My answer is “no, but…” If we look at innovation as a process by which we pursue continuous improvement, then innovating is a necessary part of getting on with it.  The problem isn’t innovation – it’s the way we think of it.

Good innovation is:

  • Utilitarian,
  • Not sacrificing the good for perfection,
  • Simple,
  • Big, and
  • Well-considered.

The best innovation creates exponential impact. It is paradigm-shifting for good and though it is uncomfortable in the moment, we can all benefit long-term.

[i] For more on exponential impact you’ll have to read my next blog post

This article was written by Morgana Bourggraff who received an scholarship to follow the executive training, Oxford Impact Finance Innvoations programme.