The Wind of Change Blows in Finance. But Why Are We Building Walls?

responsAbility was founded in 2003 to use the power of financial markets to alleviate poverty. The company finances the solutions to problems common to poor households. Investee companies offer relevant and affordable services to millions of underserved households and grow accordingly. Investors earn a financial return as well as a sense of purpose through investment in targeted entrepreneurship.

Starting from almost nothing, responsAbility today has 2.6bn USD assets under management deployed as development investments. This is more than the annual budget of the Swiss Agency for Development and Cooperation (SDC). The amount is substantial, but may appear small, for instance if compared to the 250bn Euro transferred for the reconstruction of Eastern Germany during the 1990s.

The financing demand in developing countries remains vast. It is also increasing steadily, as the 100 countries attracting development investments experience annual GDP growth of 5% on average. Formalization and growth of businesses – helped by technological progress as well as the steadily improving business environment in a majority of countries – open new opportunities which need financing. This financing demand is neither sufficiently met by short-term oriented local financiers nor by inflexible public development finance, so the opportunity is largely left to private actors capable of mobilizing the capital needed and able to manage the Investments.

Fortunately, broad accumulation of wealth has materialized over passed decades in rich countries like Switzerland, in the form of household savings and company pension schemes. A trend in society towards the sustainability of all aspects of life has only started to encompass the financial sector and its offering – despite many savers’ and investors’ disposition to long term thinking. Today, more than a dozen traditional Swiss banks engage in development investments. They do so because it works, making their clients happy.

Unfortunately, the relentless increase in regulation in the financial sector, in Switzerland as in the EU, paired with counterproductive tax rules and onerous product registration cost, make the small group of World-leading Switzerland-based development investment pioneers look like a one-hit wonder. Much needed innovation in the Swiss financial sector is discouraged and stifled by a deteriorating regulatory environment. This will not stop responsAbility, today’s market leader, or its peers. But it inhibits start-up competitors with similar or new ideas around how to deploy capital to where it is most needed, most productive, and hence generating very respectable returns.