http://orcid.org/0000-0002-4457-5098
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Abstract
This article argues that impact investing is a means to promote shadow banking. This is reflected in the rise of impact investing in Pakistan, particularly its predilection for inclusive finance. Two contentions are made: one, that impact investors fill the void in enterprise finance created by regulatory constraints on banks, and two, that impact investors accommodate the demand for yield by shepherding global capital into poor countries. These contentions augment the finance and development literature which critiques the financialized development associated with the Finance for Development (FfD) agenda construed by global institutions ostensibly for the Millennium Development Goals, or MDGs, of 2015 and subsequently the Sustainable Development Goals, or SDGs, of 2030. More recently, the narrative of slogans such as Billions to Trillions and the World Bank’s Maximizing Finance for Development agenda, have drawn criticism because they advance shadow banking. The case of Pakistan exemplifies the traction gained by impact investing as an asset class and the related imperative to measure and evaluate outcomes. The resultant focus on base-of-pyramid initiatives such as inclusive finance is thus a corollary of the financialization of development and the shifts and transformations in development initiatives that incorporate private and philanthropic or ‘patient’ capital.
Notes
Acknowledgments
The author is grateful to Anastasia Nesvetailova, Sandy Brian Hager, Sabine Dörry, Manuel Aalbers, participants at the BISA 2018 Annual Conference, and three anonymous reviewers for helpful comments and feedback on earlier versions of this article.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes on contributor
Juvaria Jafri is a PhD Candidate at the Department of International Politics, City, University of London. Her research interests include finance, development, and the international political economy of the global south.
Notes
1 The Global Impact Investing Network is a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing particularly through research and building infrastructure such as measurement and evaluation tools. See https://thegiin.org/.
4 Millenium Development Goals (MDGs), and Sustainable Development Goals (SDGs): http://www.sdgfund.org/mdgs-sdgs.
5 See Eurodad (2017).
6 See Mustapha, Prizzon, and Gavas (Citation2014).
7 See OECD (Citation2017).
8 Here the description of shadow banking by Pozsar, Adrian, Ashcraft, and Boesky (Citation2010) of shadow banking as consisting of financial intermediaries that conduct maturity, credit, and liquidity transformation without explicit access to central bank liquidity or public sector credit guarantees, is relevant.
9 Other alternative classes may be found under the headers of private equity, energy, infrastructure, real estate and credit.
10 This concept, of a risk-return spectrum or trade-off, is central to Modern Portfolio Theory and is attributed to the American economist Harry Markowitz who was awarded a Nobel Prize in Economics in 1990.
11 This characterization is used by the Acumen (Citation2018).
12 Examples of this include observations by Susanne Soederberg (2013) on the G20, Ananya Roy (2010) on the World Bank, and Philip Mader (2018) on the CGAP.
14 See Mawdsley (Citation2018).
15 See World Bank (Citation2017).
16 Including Islamic banks.
17 In Pakistan, DFI refers to a bilateral institution established to promote investment into Pakistan and to enhance trade flows between Pakistan and the sponsoring country.
18 Another category of financial institution regulated by the central bank or SBP is that of specialized banks which are permitted to lend to specific types of borrowers such as agriculturalists but not permitted to carry out other banking activities such as deposit taking. Other financial institutions such as leasing companies, mutual funds, and microfinance providers which are non deposit taking institutions are regulated by the Securities and Exchange Commission of Pakistan (SECP).
19 This terminology is associated with McKinnon (1973).
20 Companies in Pakistan that wish to be registered as nonprofit or non-governmental oraganisatiaons may do so under Section 42 of the 1984 Companies Ordinance: this is the status under which Karandaaz operates.
21 The SPV structure typically used for development programs is based on creating “not–for–profit” legal entities, into which development programs can place often large amounts of money to implement projects/ objectives (KPMG, Citation2017).
22 Some lenders could use the funds of depositors for on lending but this option was not widely available because of (1) low numbers of depositors/ savers and (2) licensing restrictions on which institutions were permitted to accept client deposits.
23 A number of social enterprises in Pakistan are categorized as NGOs despite operating with commercial models. One instance is the Pakistani branch of Hamdard, which became an Islamic trust or ‘waqf’ in 1953 and now runs a wide range of organizations and businesses, including a university and several laboratories that produce and distribute a wide range of pharmaceuticals at highly affordable prices: another instance is the organization known as The Citizen’s Foundation, which is a low-cost education provider that has been running schools in various poor neighborhoods across Pakistan since the mid-1990s (Ali and Darko, Citation2015).
25 Acumen (Citation2018).
27 This is the same organization mentioned earlier in this article for its work in Africa, Central Asia,and Afghanistan.
32 This occurrence is presented as an ‘exogenous’ explanation for the role of shadow banking in the global financial crisis of 2007-9 (Lysandrou and Nesvetailova, Citation2015).
33 Dots denote non-zero values that have been withheld due to the IRIS anonymity policy. The total column does not include these non-zero values.
34 Includes other instruments, mainly guarantees.