Perspective # 27 – Social Innovations:

Social Innovations: To start with let us define 'Social Innovation'. It is easy to get entangled in a debate over meaning and nuance of Social Innovation, as there are many definitions! As per Wikipedia Social innovation refers to new strategies, concepts, ideas and organizations that meet social needs of all kinds - from working conditions and education to community development and health - and that extend and strengthen civil society. As per the Centre for Social Innovation it refers to new ideas that resolve existing social, cultural, economic and environmental challenges for the benefit of people and planet. A true social innovation is systems changing – it permanently alters the perceptions, behaviors and structures that previously gave rise to these challenges. Many business schools like Center for Social Innovation of Stanford Graduate School of Business and INSEAD teach Social Innovation. As per INSEAD Social Innovation Centre Social innovation is the introduction of new business models and market-based mechanisms that deliver sustainable economic, environmental and social prosperity.

There are many global examples - "Mr. Condom", Mechai Viravaidya the activist in Thailand who has popularized condoms in that country. Restaurant Lentil as Anything where the customer decides what they want to donate for the food they've eaten, they decide what it's worth and give as they feel… The fashion store Clothing exchange where the currency is clothes where they replace shopping with the joys of swapping! ! Many many interesting examples.

'Hrudaya Post' offered jointly by the Postal Department and Narayana Hrudayalaya hospital is a great example back home - Under the scheme, first of its kind in the history of health care, heart patients in small towns and villages can go to any of the Post office and send their entire medical reports by scanning and uploading to Narayana Hrudayalaya. Checkout Ecomove cycle transportation catering to the crying need for people to adopt a travel solution that is ecological and economical.

Another amazing example is the LifeDream™ lifeskills training program. LifeDream™ addresses the needs of youth (18-25 years) who are constrained by low-income levels, inadequate skills, irregular employment, absence of opportunities for training and development, family indebtedness and little bargaining power at the economic or social level. They expect students to be successfully placed after the 3 month training and in return (Gurudakshina) they will work on environment and sustainability of their society. This novel experiment thus kills two birds with one stone. The pilot project is done at a Bangalore slum where all students got jobs plus there is a visible improvement in the environment.

Perspective # 26 – End of Financial Innovations?

End of Financial Innovations? : You almost get beaten when one talks well about Financial Innovations nowadays ☺ Newspapers are full of economic columnists and gurus – they explore in detail the jargons like statistical arbitraging, vanilla CDO’s, Synthetic CDOs etc. Revelations after revelations follows – they ‘now’ talk about how rating agencies doled out AAA ratings in return of higher fees (S&P charges as much as 12 basis points of the total value of a CDO issue compared with 4.25 basis points for rating a corporate bond) Now the experts are finding the real reason why shares of Moodys, have more than tripled to $68.60 on May 9 from $20.65 at the beginning of 2003! One wonders where these ‘know-alls’ were all these days! Many risk averse lazy fat bankers are also ‘seizing the opportunity’ and proclaim that it was their ‘water tight strategy’, which helped them survive. More disheartening is that they blindly tar Financial Innovations as it is fashionable nowadays, though the fact is that it was a combination of bonus greed plus home loans available zero money down (who realize the gains if the price goes up, and walk away unscathed if the price turns downward as the loans are non-recourse.) which created this mess.

Though there were ‘financial innovations’ like NINJA loans (No Income No Asset) the misuse and lack of regulations led the downfall. Also the 'cool financial innovation’ of slicing bad loans and mixing with good ones and distributing the losses all over the world was theoretically okay, as one even in wildest of dreams will not imagine a global total crisis as we are faced now!

Some of the innovations are scary !! Death bonds may be the most macabre investment scheme ever devised by Wall Street . As per Businessweek - "Death bond is shorthand for a gentler term the industry prefers: life settlement-backed security. Whatever the name, it's as macabre an investing concept as Wall Street has ever cooked up. Some 90 million Americans own life insurance, but many of them find the premiums too expensive; others would simply prefer to cash in early. "Life settlements" are arrangements that offer people the chance to sell their policies to investors, who keep paying the premiums until the sellers die and then collect the payout. For the investors it's a ghoulish actuarial gamble: The quicker the death, the more profit is reaped." :) :)

Hopefully better sense will prevail and ‘Financial Innovations ‘ will make a comeback soon!! ‘C’mon the show should go on!! Maybe it is also a good time to reread the award winner book - The Origins of Value: The Financial Innovations that Created Modern Capital Markets by William N. Goetzmann and Geert Rouwenhorst in which they beautifully portray Financial Innovations of good old days - Babylonian loan contracts, invention of interest in Mesopotamia, origin of paper money in China and continue with new innovations like mutual funds, inflation-indexed bonds, and global financial securities.