Use of Finance for Social Good: 'How best can we harness markets for social good?'
- Norman CHAN Chief Executive, Hong Kong Monetary Authority
- Tracy PUN PALANDJIAN CEO and Co-founder, Social Finance
- Yana KAKAR Global Managing Partner, Dalberg Global Development Advisors
This session focused on the need to use finance to solve pressing social issues. Short presentations were delivered by each speaker.
Mr Norman Chan noted that the Hong Kong population was ageing, putting stress both on citizens, who wanted to ensure they had the financial wherewithal to meet their old age needs, and on the Government, which needed to pay for the increasing social costs of an ageing population.
Analysing the problem, he divided the Hong Kong population into three broad buckets:
- The relatively wealthy, who were able to provide for their own old age needs
- The underprivileged, whom the government would need to support
- Those in between, who did not qualify for social support, but might not have significant savings of their own
One interesting aspect of Hongkongers, Mr Chan said, was the prevalence of home ownership. About 70% of residential units were owner occupied, and of those, 65% had paid off their mortgages. Thus, many of those who fell in the “in between” bucket were asset rich, but cash poor.
The Hong Kong Monetary Authority had created a programme to address the needs of this last bucket of Hongkongers. This approach was run by the Hong Kong Mortgage Corporation (HKMC), and included the Reverse Mortgage Programme, whereby private financial institutions (FIs) provided loans leveraged against the value of an individual’s home. The FI would agree to lend the homeowner a set amount on a monthly basis, but did not require any repayment of either principal or interest until the homeowner passed away. At that time the home would be liquidated and the proceeds used to pay off the loan, with the balance of remaining funds provided to the estate of the homeowner. The HKMC catalysed this solution by providing insurance to protect the FI against increases in interest rates, extension of the loan due to longer life expectancy than envisioned, and/or decreases in the value of the property. Mr Chan also discussed the concept of Life Annuities, where the HKMA converted an upfront payment into a stream of fixed monthly payments guaranteed for as long as the person was alive.
Combined, Mr Chan observed, these two products delivered social value by providing a way for Hongkongers to create their own pensions.
Ms Tracy Pun Palandjian said Hong Kong had a spirit of entrepreneurship that could be tapped for creating social good. This was needed, because while Hong Kong had created considerable wealth, it had also risen in inequality. Significant funds had already been committed to addressing this issue, but there was scope to do more.
Impact investing might be a source of the required additional finance, she believed. One interesting source of impact investing, as mentioned by HK’s Chief Executive Mrs Carrie Lam earlier in the morning, was the use of social impact bonds. Social impact bonds (SIBs) were a type of financial instrument that adopted a tri-sector model to bring together the government, investors and NGOs to serve a common goal. The parties jointly defined what they wanted to achieve and how success would be measured. Investors provided upfront capital, the bond collected a lot of data, and if and only if the outcome was achieved, the government paid investors a return.
This sounded like a triple win, as the governments gained accountability, impact investors achieved a double bottom line, and NGOs received much needed capital. It was possible because an SIB monetised the benefit of paying for prevention, rather than paying to address symptoms when they arose much later.
Ms Palandjian believed that we were in an opportune time to make use of SIBs in Hong Kong as they were the type of instrument that resonated with Hong Kong’s ethos – addressing impact while also fuelling economic growth.