Mark Cheng: from investment banker to social finance
A former investment banker, Mark Cheng is today considered one of the pioneers of social finance. As an investment adviser, he has helped to raise more than 250 M dollars for some of the most notable social enterprises in the world, ranging from solar energy projects in East Africa to eye surgery clinics in India.
Mark Cheng is now director of Ashoka Europe, the largest global network of social entrepreneurs. In light of his background and experience, there was one burning question on our minds when we met him: can finance have a positive social impact?
Mark Cheng, can you please tell us about your professional journey?
I started my career as an economist specialising in development finance. After graduating, I had always wanted to use my skills to serve society but wasn’t sure of the best way. After initially thinking about joining the World Bank, I was offered the chance to join an investment bank. I viewed it as an opportunity to learn practical skills on how to raise finance for social businesses from the best in the financial sector.
In 2005, a friend had lent me Muhammad Yunus’s autobiography, Banker to the Poor. It is the story of an economist who one day lent $27 to 4 illiterate women in a remote village in Bangladesh. To his amazement, they used his loan to create a basket weaving business and paid him back in full the next month. He went on to launch a bank for the poor, and created the micro-credit movement which globally has lifted hundreds of millions out of poverty. For this work, Professor Yunnus was awarded the Nobel Peace Prize in 2009. That story inspired me to explore the emerging world of social finance, where people invest in projects that deliver strong social and environmental impact.
In 2007, the financial crisis put an abrupt end to the financial insurance activity that I was managing. Overnight, we found ourselves without any clients. I took advantage of the situation to take a sabbatical year to educate myself about the links between finance and social entrepreneurship, and start advising social entrepreneurs on how to raise capital.
From investment banking, you are now the voice of social entrepreneurs. Why?
During my sabbatical year I met Bill Drayton, the founder of Ashoka, the largest global network of social entrepreneurs. In the 1980s, while working as a consultant with McKinsey, Bill had been struck by the fact that there was no concept to describe the people who find solutions to social or environmental problems. There was no ecosystem enabling them to be recognised, supported or to access capital as there would be for traditional entrepreneurs. He therefore invented the phrase ‘social entrepreneur’ to describe such people, and created Ashoka to help build that eco-system.
I volunteered to help advise the social entrepreneurs that Ashoka was electing. At that point, I saw that it was possible to create a thriving business while pursuing a social objective. That was a real eye-opener and I decided to stay on to continue that work.
Has the way you look at finance changed since your early days?
Personally, I am relatively disappointed in how the sector has developed. The bad practices from the pre-crisis days are back with a vengeance, and the regulations have only been half implemented. I do not think we have learned our lesson from what happened, and the fundamental issues with finance have not been resolved. However, we are seeing new systems emerging alongside the traditional system: for example mobile banking, a game changer in East Africa, or the potential use of blockchain technology to bring about unprecedented transparency and social advances.
We are also seeing substantial growth in responsible financial asset classes such as impact investing. The financial crisis has demonstrated that it is an acceptable asset class that has a place in the market. Microcredit was, moreover, one of the best-performing assets during this period.
Investors have also changed.
They are starting to question their fund managers
on the social impact of their investments,
and want to see more products with high social impact.
However, bankers often struggle with these requests, or know how to report on impact. It is a huge opportunity for anyone who is able to cater to this demand. The corporate world is also beginning to wake up. Business leaders understand very well that if their business is not ethical, they potentially have a serious problem: loss of consumer trust that could result in them being ousted in a flash. We live in a world where it is so easy to switch that if this is not taken into consideration, the business is at risk.
What will the banker of the future look like, in your opinion?
I am not telling you anything new in mentioning the risk of disintermediation and the risk of other sectors arriving to take market share. In China, one of the biggest provider of payments processing is WeChat, the Chinese equivalent of WhatsApp. The risk of disruption is therefore clearly present.
I also imagine that, in 10-15 years, finance will have changed and the social value of a portfolio will be just as important as its financial value: “Has my capital been used in accordance with the best ethical criteria?”, “Is my portfolio really carbon neutral?”: I imagine these are the sort of questions that will be commonplace, with the ability to verify the information and transparency in an unprecedented manner. I can picture an investor scrutinising his or her ethical report in the same way as the financial report. In my mind, automation of financial analysis via trackers will result in advice being prioritised over performance. And when the banker falls short of these standards, loyalty will no longer trump responsibility.
We are aware that this wave is coming, and I believe that it will be bigger than we think. So yes, I think that when you look at finance in this way, it can have a positive impact on society. Besides, it has enormous power. It is what I define as high value-added finance, in every sense of the word.