Wokai Adventures

The Stock Market Goes Social

Jessica Lee

Jessica Lee volunteers in her free time with Wokai’s San Francisco Bay Area Chapter as Business Strategy Associate. She recently graduated from Stanford University and now works for a startup company in Mountain View. She likes to think that she is a budding social entrepreneur! Write to her at [email protected].

In just ten minutes, I lost $400,000 dollars, and it hurt. No, I wasn’t on the NASDAQ – I was trading on the Social Stock Exchange, bidding and asking prices for the stocks of social businesses. This one guy managed to walk away with $4 million dollars. I was impressed! But to his dismay and my delight, we were not real social investors yet, and a social stock market was only a figment of our imaginations, thanks to the simulation game we were both players in. I know…phew, right?

The Wharton Social Stock Exchange is a simulation game that was designed for this year’s Net Impact Conference, which took place in November at the Wharton School of the University of Pennsylvania. (The three-day conference drew a diverse group of participants – business school students and professionals from both the private and public sectors – to discuss how to leverage business for good.) The 20 or so players in my session were all placed in front of computers and given stock profiles (including company description and stock ticker), dividend charts, and an initial allocation of stocks and cash. Using an interactive real-time trading platform, investments were valued and trades were made based on a company’s social (not just financial) performance. As popup windows brought social news updates (e.g., ethical sourcing, environmental practices) to us players, the room filled with pauses and then clicks, interrupted with the occasional sighs of frustration and relief. People were getting competitive.

The goal of the simulation exercise is to allow players to test out for themselves Muhammad Yunus’s proposed social stock market theory. In his book Creating a World Without Poverty, Yunus talks about how, as social businesses become more prevalent, financial institutions will open up and adapt to meet their financing needs. We will see more social venture capital funds, social mutual funds…all culminating in the rise of a separate stock market for social businesses only. Definitely hard to believe, given the current state of international markets, but going on a slight tangent now…

(start of tangent)

…What is a social business anyway? A social business is like a profit-maximizing business (PMB) in the sense that it is financially sustainable through the products and/or services that it offers. However, unlike PMBs, a social business’s ultimate goal is to achieve social impact – measured for instance by the lives it touches. Any profits turned are reinvested into the business, as opposed to being passed along to investors (no dividends). Thus, a social business operates on a non-loss and non-dividend basis. Why should social businesses exist? I like Yunus’s explanation and the logic that it represents: free markets are good --> then why have they failed the poor? --> because they are based on a single-track concept of capitalism that assumes that the pursuit of profit maximization leads to happiness --> but this is wrong, humans are multi-dimensional --> not all businesses need to serve profit alone…

(end of tangent)

Back to social stock markets, and why they are so important to the growth and development of social businesses. I’m a firm believer in incentives. As with PMBs, the budding entrepreneurs and CEOs of social businesses will catch onto bigger problems and come up with better solutions only when the financial and investor communities are ready to become more involved. Other benefits Yunus highlights include:

1.      Increased liquidity for shareholders to choose their social investments

2.      Heightened public scrutiny to avoid potential deception and fraud

3.      Greater exposure to social businesses to attract more capital into the new market

Shifting more to Wokai, my reaction to the Wharton Social Stock Exchange simulation game and Yunus’ social stark market idea in terms of Wokai is threefold:

Wokai is not a social business yet. As an early stage nonprofit, Wokai is not yet at the point where it can be called a social business, mainly because it is not making money from the services it is offering. Will this change in the future? I don’t know. Perhaps Wokai may decide to charge a reasonable partnership fee to local microfinance institutions (MFIs) – not a bad idea, since studies show that people value things more when they pay for them. Another potential source of revenue may come from ads. As a web-based solution, Wokai will at some point face the decision of whether or not to monetize its page. There are trade-offs here, and I trust that Wokai will be sensitive to the needs of its users whatever it decides. Then again, maybe Wokai will choose to remain a nonprofit. Every organization has a different role to play. Right now it looks as if Wokai’s is to enable other social businesses (MFIs and microenterprises) as a nonprofit.

Social impact is hard to measure. Seriously, how do you go about putting a number on the impact that a small loan has on a Wokai borrower’s life? One of my borrowers, her name is Wu Ren. She borrowed $450 to purchase 30,000 bushels of animal feed for her cattle and sheep business. In her own words, her goal is to lift herself and her family out of poverty. How do you quantify the return on investment of that loan? Yes, there’s the financial return that can be easily identified, but measuring health improvements, educational opportunities, and human dignity is another story.  If and when the social stock market takes off, social businesses must be ready (numbers and all!) to be evaluated by their social returns.

Games are fun. They just are. For example, people can hunt mice for hours. It’s the escape that they bring, catapulting you into another sphere of experience. The Wharton simulation game inspired me to begin thinking of ways that Wokai can create its own simulation game to educate people on what the heck microfinance is. I know whenever I tell my friends and family about Wokai and microfinance, I get bombarded with questions. And rightly so! In microfinance, there are so many players involved in the value chain, including the government as is the case with China. Why not create a game where players can interact with each other as contributors and borrowers, as well as with MFIs and governments? The game could also introduce a virtual credit system as the trading currency. These are just thoughts, but based on the Wharton game, I’ve come to realize that games can be fun and intellectually enlightening.

          

So, as Yunus predicts, heads up that you might start seeing The Social Wall Street Journal reporting that so and so social business did such and such, increasing its share price from 10.00 to 12.50. Or that two complementary social businesses merged, increasing their share values in the eyes of social investors. And don’t be surprised if you see the Social Dow Jones Index alongside the other indexes. I’m telling you, it may seem like a far-fetched vision, but it’s only a matter of time. I think I’ll change my Facebook status to, Jessica is waiting for the stock market to go social. 

Online Giving Marketplaces Conference at Stanford

Leslie Forman

Leslie is Wokai's Online Social Media Director.  She lives in San Francisco. 

This week Casey and I had the great fortune to spend four days at Stanford, learning about online giving marketplaces.  This has been such an amazing opportunity to learn from other organizations, in a very personal way. 

For the first three days, we met with the leaders of 16 different marketplaces from India, Colombia, South Africa, Argentina, Germany, Canada, and the U.S.  As the youngest organization (and youngest participants) in the group, we felt especially honored to be included.   A huge thank you to the Omidyar Network for making this possible!

The organizers brought in professional illustrator named Susan Kelly to transform these discussions into clear and colorful pictures.  Here is her record of our presentation on Wokai's chapter network, part of a session in which each marketplace shared a best practice.

Over the next few weeks, we'll post more here to share what we learned about diaspora, trust, technology, communities, and so much more. 

The final day the Stanford Social Innovation Review hosted a larger public conference  on the same topic. 

I had never heard the term Online Giving Marketplaces before this week.  It's a term that can be defined in many ways, and I really like this list of common characteristics by Lucy Bernholz, who hosted one of the sessions and is writing a book on the topic:

1:1 transactions between donor/lender and NGO/entrepreneur
Transparency
Feedback loops
Donor choice
Aggregating individual transactions (sometimes for intelligence)
Two flows in the markets - financial resources and information
Financial transactions are based on trusted information

In other words, online giving marketplaces transform philanthropy, making it more accessible and more like online shopping. 

And I sure hope that Dean Takahashi from VentureBeat is right when he says that "Social start-ups may prosper in downturn." 

Post-Quake: The Dawning of a Socially Responsible China

Casey

Courtney's past blog entry brought up a lot of thoughts about major changes that I have seen in China since the recent earthquake in Sichuan. A month ago, I would have said that the level of maturity, or immaturity, of social responsibility in China that Courtney described was point-on. About a year ago, when we were starting Wokai, every time I would talk to strangers about my starting a non-profit, they would scrunch their faces up and reply that I must be trying to steal their money (note the fact that I clearly told them that we were planning on raising funds in the US and using those funds to support loans of borrowers in China).

Last month's earthquake in Wenchuan, Sichuan was an absolute disaster. As of May 29th, Xinhua reported that there had been 68,516 deaths, 365,399 injuries, and 19,350 people were still missing (likely dead). While this has been one of the greatest tragedies in recent history, it has been inspiring to see the entire country mobilizing around the quake releif and showing a level of civic action that is so far beyond what has existed here since, at least, the beginning Open Door reforms in '89 and, more likely, far before Mao came into power in '49.

In the days proceeding the quake, the entire country immediately mobilized into action. Almost every building had a collection box for relief donations and banners expressing support for earthquake victims and compeling people to give. Every Chinese person that I know gave a substantial portion of their salary to the Red Cross or similar earth-quake releif funds. The general feeling here was that anyone that didn't give had a total lack of empathy and love for their fellow country-men. When I was going up the elevator yesterday, my building had posted a fotocopied receipt of their Red Cross donation. All in all, over $1,000 had been donated in the collection box over the past few weeks. On a larger scale, the New York Times reports that Hong Kong Millionaire, Run Run Shaw, contributed $14 million to quake relief.

The over-night switch in mentality from of aide and social welfare, not being something that citizens should have to worry about, but a matter for the government, to the overwhelming sense of civil responsibility and philanthropy is both heartening and fascinating. The depth to which everyone here has internalized the obligation to help those effected by the earthquake makes me think that this is not just a one-time reaction, but a perminant shift in Chinese society. Courtney optomistically predicted that it would take 5 years for China to embrace the important of social responsibility and philanthropy on a large scale. It looks like it took more like 5 hours.

Who said its too soon for a socially responsible China?

Courtney

Social entrepreneur Sherry Poon did in her most recent interview on Responsible China. Sherry started Wobabybasics - a retail outlet located in Shanghai that specializes in organic baby clothes -after the birth of her first child. Unfortunately, Sherry's original plan of producing in and for the Chinese market fell through. On the supply side, companies would lie about the organic authenticity of their cotton fabrics. And on the demand side, Sherry was having a hard time finding local consumers for her goods. In the end, Sherry decided to found her company in Canada and maintain a retail location in Shanghai.

Sherry is not the only one who has faced the demand side problem. Marie So and Carol Chyau, co-founders of Ventures in Development, also did when they founded Mei Xiang Cheese Factory, offering yak milk cheese from Tibet. When I first met these two women during a Yale event in early 2006, they were excited about the possibility of bringing the home-made organic products to the Chinese market. Unfortunately, we have yet to see a ton of their cheeses in supermarkets around China. Mei Xiang Cheese has made it into a few western grocery stores, but has failed to penetrate the maintstream Chinese market.

Regardless of these outcomes, Speth Delk - former Nike CSR regional director - with husband Jeff Delkin have decided to carry the torch forward. They recently founded NEST, a retail collective aimed at uniting intelligent design with responisble manufacturing through collaboration among eight different brands selling sustainable products. NEST focuses on natural, renewable, or recyclabe materials; a low impact manufactring process; and the provision of social benefits to Chinese workers. The ultimate goal at NEST is to create a more responsible China marketplace where consumers are conscious of how goods came from the ground through the manufacturing plant into their home.

So will NEST be successful in penetrating the Chinese market? And if not, when will they be?

The truth is, we don't know. In May 2007 when Casey I first came up with Wokai, we originally wanted to make Wokai a "China helps China" model. We didn't like how the Kiva Model exacerbated the problems of past poverty alleviation models - keeping developing countries reliant on the developed world. Instead, we wanted to create a peice of technology that could be used in-country by Chinese for Chinese, so that China would not need to rely on the US to solve its poverty and income gap woes.

But, in the end, we structured Wokai similar to Kiva with funding coming from the US into China. Nearly everyone we spoke to in both the US and China told us that we would not be able to mobilize funds for charity from your everyday Joe in China.  The  social awarness - that prompts me to pop on Kiva and give $25 dollars to someone in Nicaragua I have never met - is lacking in China. Not by fault of the Chinese, but instead due to timing.  The middle class is still growing in China. People expect it will be a good ten years before China hosts a flourishing middle class like its equivalent in the States - with social societies, community organizations, and interest groups all advancing social initiatives.

Or will it? China's development is unlike ours in the States. It is fast-paced and foreign-influenced. As such, we are seeing crazy first-world and third-world combinations: mobile banking and traditional banking, solar energy and coal energy, organic food and traditionally-farmed foods, socially responisble and un-socially responsible. China is putting to work Western innovations and technologies that have come out of 50 plus years of research and investment.

But more than this top down movement, there is a viral one too. Foreigners in China are picking up and moving to China. There are over 300,000 foreigners now in China and that number is growing. That means that number of Sherrys, Maries, Carols, Jeffs and Speths in China is also growing. And, to fund their innovations, so are Western companies like Ogilvy, Nike, GE, and Lexus with CSR departments that are mandated to give x% of their revenues back to the local market in the form of grants and education.

So where some may say it is too soon for a socially responisble China, I say not so fast. My guess is that in five years in China we will see organic food in local markets, socially responisble products at local furnisher stores, and fundraising for Wokai amongst upper middle-class Chinese in Shanghai and Beijing.