Forbes India 15th Anniversary Special

India is a thriving market for impact investing: Durreen Shahnaz

She was the first Bangladeshi woman on Wall Street and built one of the early stock exchanges for social enterprises in the world. The founder of Singapore's Impact Investment Exchange talks about her new book and lessons India can take from her career about measuring social impact in financial markets

Divya J Shekhar
Published: Jul 21, 2023 02:47:54 PM IST
Updated: Jul 21, 2023 03:01:09 PM IST

India is a thriving market for impact investing: Durreen ShahnazDurreen Shahnaz, founder and CEO of Singapore’s Impact Investment Exchange
Durreen Shahnaz calls herself a defiant optimist.   
Defiance and optimism are not two words one would think about putting together, in the same way that one would never really think about taking on traditional financial systems and making them work for the 99 percent people instead of the one percent wealthy. But that’s exactly what Shahnaz, founder and CEO of Singapore’s Impact Investment Exchange, went about doing in her life. She had the stubborn belief that systems that enrich the few can be transformed for the good of the many. “Defiant is something that goes against the status quo, but there’s also a lot of courage. And optimism is when you know you are doing something that is beyond just for yourself. It’s your North Star, in a way, to make the world more inclusive,” she says, in an interaction on Forbes India's From the Bookshelves podcast.   

Shahnaz was the first Bangladeshi woman to work on Wall Street when she joined Morgan Stanley in 1989. She then left the lucrative job in the US to work with Grameen on microfinance in rural Bangladesh. A couple of years later, back in the US, she launched her own online marketplace, oneNest, to connect artisans and their handcrafted products with buyers. Then, finally, in the 2000s, she launched one of the world’s first stock exchanges for social enterprises, the Impact Investment Exchange (IIX), out of Singapore. Her new book, The Defiant Optimist, traces how she went from Dhaka, Bangladesh, to US and Singapore, to find an answer to whether capital markets can have a conscience and if social impact can be measured.   

Edited excerpts:  

Q. In all these years, have you managed to find a perfect answer for how to make financial markets work for social good? Because even today I feel, you know, companies and investors worldwide still perhaps value profit over purpose.  
Well, I think I definitely have and that's why I could write the book, because if I didn't, I wouldn't have written the book. The book covers the journey in terms of what it took me to get there, to make that linkage between social good, societal equity and justice and financial markets. And how you can actually measure social impact and correlate that with financial returns. So, my answer is a resounding yes.   

We have been able to get investors to equate profits with purpose. We have now put out over $300 million in the market, about one-third of that, close to $100 million is in India. And we haven’t had a single cent, single rupee of default. And I think the reason is because we have made a very deep impact with our work, and we have been able to quantify that [impact], which means the risk of the investment goes down. That’s why our investments have given both social returns as well as financial returns.   
Q. Could you talk a little more about your experience on Wall Street, and if there were any learnings from Wall Street that help you today with IIX?  
I think one of the biggest things I learned from Wall Street was that the financial system is about people making money. There’s nothing wrong with making money, but for me it was trying to learn how to make that system more inclusive. Wall Street was an incredible learning in terms of the power of finance. I was very young, and along with peers of my age, we were dealing with hundreds of millions of dollars. And it showed me that if you are smart about how you structure financial products, you can actually be smart about convincing investors that this is something that’s good for them. I also took away an incredible work ethic. I am in my mid-50s, and even now I work 14-16 hours a day. So I took away this incredible work ethic that to make something happen, you have to work hard.  

Also read: Can India's social stock exchange flourish where others have failed?

Q. Could you tell us about how you went about building a social stock exchange?  
We created the world’s first public social stock exchange with the Mauritius government. We worked with the government to create the whole structure. And what it taught us is that you just can’t create an exchange without actually having an ecosystem around it and bring in many more stakeholders around it. The Mauritian government was not willing to put the resources behind creating an ecosystem, so we said, ‘We’ll create our own’.  So for us, creating that ecosystem meant making sure every stakeholder actually knew what they were getting into. It meant having accountants, lawyers, researchers, academics being able to educate themselves about what a social stock exchange actually means and how they can use it to make investments and raise capital with an impact side to it, and how to measure that impact. The IIX Institute has courses around this and to date we have over 9,000 people who have gone through it. We also did a lot of research in different countries to really figure out how the ecosystem is different in every single country. Having an ecosystem in place meant we were ready to have a platform and an exchange where buyers and sellers could come together. In this case, the buyers and sellers being the investors and [social] enterprises, respectively.   
There are a lot of accelerators out there, but if they can’t help entities raise capital, they are just useless. So for us, it was also about hand-holding enterprises and bringing in the investors. Ours is a private placement platform. You can call it a stock exchange or whatever. It’s set in Singapore, which has extremely strict financial regulations. So we could only work with accredited investors whose net worth is over $2 million, who can take the risk and [for whom] it doesn’t matter if they lost money.   
On one hand, we vet the investors and on the other, we also had to vet the enterprises to make sure they could absorb the capital and could actually turn the investment for us. The biggest thing for us was the fact that we can actually measure the impact that was being created. We were able to show that the foundation of impact measurement is actually correlated with the financial and operational goals of a company.   
Q. Could you talk about your presence in India and your association with social enterprises here?
It’s wonderful that India is now looking to create a social stock exchange. So, when people from the [Indian] government reached out to us, we were happy to help because we have been doing this for 12 years. A lot of Indian entities are raising capital from us, and they’re able to access not only Indian investors but also global investors from across the globe.
In India, we have had an enterprise that was a mobile eye clinic in Assam. We had an enterprise that was making medicine out of marigold. We have had enterprises that were doing deliveries on e-bikes, but we insisted the bike drivers be women so they had to make an investment on that. We have had enterprises focused on waste management. And these are not massively big investments. These are million, or maybe little more over several rounds.   

One of our big success stories is Kinara, which gives small loans to corner stores and I personally invested in them when they were in their first round. They were listed on our exchange. They grew, did several rounds [of funding]. Now, they’re in our bonds and it’s one of the large mid-sized finance entities in India.  
Q. Is India ready for a social stock exchange? What’s in it for investors and what should they look out for?  
I’m actually not too sure how the exchange is being formed. Again, as I said, we did offer to help out several times because we are doing it and there are Indian entities on our exchange. But without knowing much, I cannot comment on what they are doing and what it will be. I’ve been hearing about it for a while but I don’t think it has launched yet. Because the reality is if you’re going to put something together and it doesn’t work, or if it leaves investors with a bad taste, I think it will set things back a lot for India because I do feel that India is a thriving market for impact investing and a lot of people played a role in making it such. There are great players in the market, but I do think that sometimes when the government comes in with the right intention, if they are not doing it the right way, it may set things back.