When Georgia Levenson Keohane rides the New York City subway, she uses a monthly MetroCard that costs $121. Meanwhile, a New Yorker who can’t afford the monthly pass, but still needs to take two subway or bus rides a day, pays $165 overall. For thousands of students in the City University of New York (CUNY) system living at the poverty line, the cost of transportation is a prohibitive barrier to pursuing their education. Altogether, residents who can’t afford the monthly pass overpay by $500,000. To help New Yorkers build credit while buying monthly MetroCards, a company called Alice created a layaway system for public transport that allows them to pay monthly.
In her Social Impact Lab talk, Keohane discussed models like Alice that apply conventional financial instruments in service of the public good. Keohane, who until recently was the Executive Director of the Pershing Square Foundation, discovered the importance of innovative finance while conducting research for her book, Social Entrepreneurship for the 21st Century (2013). She believes the most compelling uses of finance aren’t just about “more capital” but rather about “smarter capital” – combining access to financial resources with insights from behavioral science to design incentives that enable better decision-making. Keohane draws a distinction between financial innovation—which involves engineering for efficiency or profitability’s sake—and innovative finance, which applies traditional instruments to market failure, political failure, or unmet needs (such as healthcare, financial inclusion, or climate change).
Globally, these examples include M-Kopa, a Kenyan company that installs solar panels and allows people to pay for them in installments, and Angaza, a Skoll Prize-winning company that is moving people out of energy poverty by offering pay-as-you-go pricing. In addition to the immediate quality-of-life benefits of accessing electricity, these services also enable families to document payment capacity and develop a demonstrable credit history. This means they can finance homes, business expenses, or education in order to “move up the finance ladder in a very powerful way.” In the United States, Keohane cited Justine Zinkin of the Neighborhood Trust as a pioneer of innovative finance. Zinkin became the leader of what was a “sleepy” credit union and turned it into an innovative financial institution for the poor and underserved through products like a socially responsible credit card that allowed people to pay down debt and payroll technology that supported on-demand payment for hours already worked.
While many of these services rely on technology, Keohane stresses that this isn’t simply “a technology story.” Innovative finance “quickly reaches the limits of what technology can do,” and requires deep investment in interpersonal relationships in order to be truly transformative. Trust is the true barrier to the kind of financial relationships that can accelerate someone on the path to financial inclusion. Trust is also key to understanding stakeholders well enough to develop services that meet their spoken and unspoken needs. Keohane shared a tragic story of a woman who took out loans collateralized by gold jewelry from an Indian organization that offered a sophisticated array of products. However, because she repaid regularly and only expressed a need for this kind of loan, this was the only product she was offered. After she was killed in a traffic accident, the organization discovered that she was supporting two children, her parents, and a sibling. The woman’s unmet need had been life insurance. Since then, the organization has launched a life insurance product and enlisted community financial health workers who go door-to-door with a tablet and collect information about people and their needs.
Keohane concluded by discussing some open questions about emerging financial instruments like virtual currency. As finance and technology continue to evolve in an increasingly interwoven way, she and others in the community are hopeful that some of these innovations can be harnessed for the public good. For Keohane and other leaders in the philanthropic and impact investment communities, the key is to stay attuned to these opportunities through a sustained focus on innovative financial inclusion.
By Alex Kasavin, MBA '19