Elizabeth Funk works at the intersection of profit and purpose: harnessing the power of capitalism to solve the world’s most pressing problems. She believes that capitalism and entrepreneurial spirit are incredibly powerful forces that can be harnessed to create impact with magnitude. Funk was there at the very beginning of the impact investing movement. In 2004 she started the Dignity Fund, one of the first for-profit funds investing in high potential microfinance institutions. With very small loans of $500-$1,000 they enabled over 35,000 aspiring poor entrepreneurs in developing countries to start businesses and build their own way out of poverty.
These are 10 of our favorite quotes from this week’s interview.
- “The thing that really caught my attention was microfinance. I loved the idea of helping people build their own way out of poverty, and having been from Silicon Valley seeing the power of entrepreneurship and how incredible and how passionate people can be when they are running their own business.”
- “The vast majority of microfinance organizations were 2,000 borrowers or fewer. They were tiny, no economies of scale, no professional management, and because of that, they had to charge really high interest rates. The big ones (there were very few) had economies of scale and could actually afford to charge lower interest rates. So I started thinking, why are we doing this with nonprofit dollars? I could get a donation of $100, but I might get a million dollars by telling the investor that they’re going to get their money back with some sort of return.”
- “We’ve more or less eradicated what the UN would call extreme poverty in the world. Microfinance has been a big part of that. I got smitten by this idea that you can do good while investing. Even charitable causes, if they can find a for-profit model, can scale much quicker and more powerfully.”
- “Impact companies are very different in the sense that they’ve got two missions. They’re trying to try to grow and make money, but they’re investors, but they’re also trying to do good. It takes a lot more vigilance in terms of the board and the management to be very, very clear about what the company’s objectives are. Because those two objectives are sometimes in conflict, it’s important that the company is clear upfront about what they are trying to accomplish and have really clear agreement with the board and with investors, frankly, about maximizing impact or maximizing returns or somewhere in between and be sure that we’ve agreed on those lines.”
- “I named it the Dignity Fund because it really is about dignity. People don’t want handouts, they want to build their own solutions, but they need access. They need help. They’re not allowed to go into banks. There are guards with machine guns to keep people like them out. Building inclusive financial systems is important, and I’ve seen the power of it. Micro finance is one of the many tools that we have in our arsenal to really make a big dent in poverty and suffering.”
- “Loans are one tool of financial inclusion for the poor, but they’re not necessarily the most important or the right one for a lot of people. The other thing that is really missing in a lot of these developing countries is a vehicle for savings. And it’s tricky, because a lot of these countries don’t have the equivalent of an FDIC. It’s very hard to allow these micro finance banks to take savings but the ones that have figured out how to do that regulatory wise are really valuable. There’s also a huge need for insurance. You find that the poor save disproportionately because they have to. Lack of insurance is causing people to not invest all the money that they have in what they’re doing, and micro insurance is super important.”
- “Impact investing is not all one flavor. There are some (investors) that are specifically impacted first that are trying to accomplish the impact, and using a financial model seems to be the sharpest tool. That was certainly what it was in micro finance. I wanted to expand the microfinance industry, the goal was to get more loans to poor people. If I could do that best with philanthropy, I would have used philanthropy, but I believe that the sharpest tool was for-profit investing.”
- “There’s not going to be anything other than ESG (Environmental, Social, and Governance) investing. You’re ridiculous if you’re not looking at ESG factors, because they are going to be important to evaluating investments and companies (whether they’re going to be regulatory risk.) Certainly, you’re seeing that as the millennials start to move in, they are controlling more of the investment bonds but also purchasing decisions. They’re demanding that companies are environmentally responsible, socially responsible, and that they have diverse boards.”
- “Impact investing has also really moved forward in the last 20 years. It’s no longer angel investing and these cute little companies. There are professional funds that are investing in impact and these funds are second, third, and even fourth generation. You’re starting to see track records, and they’re big funds. They know what they’re doing and the impact investing side has really matured and it’s grown quickly. It’s going to be its own asset class that folks will invest in with different thinking than they would invest in a venture capital fund in Silicon Valley. I think that different thinking is where the millennials who are taking over a lot more of the money and the investment world….that’s what they’re prioritizing.”
- “I really feel passionately about the idea that investing with your values is great for the investor, but also it’s going to help scale the solutions to the world’s problems. I always say if somebody can get rich solving this world’s problem, the problem will get solved. Harnessing the power of capitalism (or to be blunt, you could call it greed), but it’s a powerful force and we need to harness it and put it in the right direction. And that’s how we’re going to solve the really big problems. Not with philanthropy.”
