International Capital Flows

Background

The field of development arose during a time when countries focusing on progress and innovation thought to share this modernization with the rest of the world. This resulted in the dynamic we see today between the first world, modern and developed countries, and the third world, struggling and underdeveloped countries. Whatever the stated objectives of an agency, the underlying goal of all development initiatives is to alleviate global poverty; to help people have better lives.

 THe un released the sdgs in 2015

THe un released the sdgs in 2015

As the sector evolves, global strategies such as the UN’s Sustainable Development Goals are emerging to create a collective discussion about sustainability. The Goals are specific enough to be clear and accessible across sectors and countries, but not so specific as to reinforce neocolonial dialogues that perpetuate inequitable power dynamics. This gives us an opportunity to look at community strategies within the specific frameworks of their respective contexts, but also to look at local challenges as part of a global strategy.

Inevitably, asset owners sit at the top of the decision making chain and without the right tools or the right questions, they tend to overestimate their understandings of impact. Despite all the “right intentions” to help people have better lives, the impact sector’s shortcomings have rested in the processes by which “better” is defined. Without considering what communities know about their needs, investors will make assumptions based on a predetermined standard of living and tailor their investments to those standards. But, what if a community without power doesn’t want 24-hours of power that they have to pay for? What if all they want is enough to power their devices and keep their food fresh?

Our approach

At Transform Finance, we believe that capital can be a force of change in the world but only if it is mindful of the three principles of investing: community engagement, non-extractiveness, and a fair balance of risk and return.

 in 2016, transform finance presented principles of impact investing to entrepreneurs in port-au-prince, Haiti.

in 2016, transform finance presented principles of impact investing to entrepreneurs in port-au-prince, Haiti.

Community centered because communities are best equipped to not only communicate what their needs are, but also what their strengths are. These considerations allow for more targeted and context appropriate interventions that allow communities to participate and mitigate a lot of implementation hurdles, such as identifying the best sites for a project or determining the best source of labor.

Non-extractiveness is a particularly mindful principle because it assigns more significance to the true value of an investment to a community, rather than to just the investor. It directly opposes “it’s better than nothing” rhetoric that assumes that because a community has so little, any added value is better than what they had before and looks at what is truly the best outcome for a community.

Risk is a very complicated concept, specifically as it pertains to impact capital that assumes some form of return. Impact motivated capital naturally assumes higher risks, however, unlike the traditional finance sector, it has no benchmarks and standard performance indicators to regulate its portfolios. As a result, funds rely on very wide varieties of metrics and performance monitoring tools that sometimes result in low impact outcomes because they dismiss the inherent value of certain outcomes to the affected communities. A fair balance of risk and return assumes that whatever value is added by the investment is not concentrated at the investor level and that whatever risks are absorbed are not disproportionately allocated where communities stand to lose the most.

Our Work

Transform Finance is working with players moving capital internationally at a variety of levels.

United Nations Development Program

UNDP Logo.png

With the UNDP, we are looking at international capital flows as a part of the UN’s goal to supplement their aid with private capital. Serving in an advisory position, we have advised UN DOCO in analyzing their approach along the three principles of transformative finance. Our first engagement culminated in a field visit to Somalia, using our capital gap assessment tool to highlight potential avenues for private capital to enter into the country in a beneficial manner, considering the post-drought crisis the country is experiencing.

 

Buen Vivir Fund

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Transform Finance also serves an advisory role for the Buen Vivir Fund, a new financial vehicle in which the investment terms are co-determined by both investors and investees. Consisting of leaders from the global south as well as mission-aligned investors, we believe Buen Vivir is the premier example of radical community inclusion in the international context.

 

Post-conflict Financing

Transform Finance is planning on a new series of projects that looks at post-conflict financing in the global south. When communities are displaced as the result of civil war, international conflicts, and natural disasters, in what ways can private capital kickstart a recovery process that places those affected at the center of decision-making? By conceptualizing such capital flows, Transform Finance hopes to present new models of international aid that can be implemented by movers of capital into developing nations. The first in this series of Transform Finance projects is being piloted in Colombia.


Interested in learning more about Transform Finance's work in international capital flows? Email us at info@transformfinance.org.