An interview with Durreen Shahnaz, WG’95 Founder and Chairperson, Impact Investment Exchange Asia and Shujog.
Durreen Shahnaz has led a lucky life, as many of us have. Her greatest luck may be in knowing how to ask the right people the right questions, and to keep at it. She learned by asking for help to make her own way in the world.
Today, she is asking on behalf of others, in Asia. To solve Asia’s pressing problems, Durreen seeks to harness the power and scale of capital markets, with the social consciousness of philanthropy. Based in Singapore, her company Impact Investment Exchange Asia (IIX) seeks to accomplish these goals by running a social impact stock exchange and private placement platform. Her second company, Shujog, helps social enterprises to become more professional and, thereby, more attractive to investors.
What was your path to Wharton?
It was a long path! Until the age of 14, my language of instruction was Bengali. Then I attended school in the Philippines, where I switched to English. I memorized the Reader’s Digest Word Power exercises every morning. In the evening, I would test myself. I set out to improve my English to the degree that I could become editor of the school newspaper, which I did in my senior year.
For college, no woman from my family had come out from the subcontinent — it was always the men. I had three older sisters, and they were not allowed to leave outside India or Bangladesh. I wanted to go to school in the U.S. My parents and I fought and fought. Finally, they consented that I could go if I promised to attend a women’s college, cover my tuition with financial aid and not bring home an American. My father had life savings of $50,000. He gave me and my siblings each $10,000, and said, “That’s it.” The $10,000 I handed over to Smith College, which offered me a scholarship for the balance of the $60,000 tuition.
From the time my plane arrived in New York, I was on my own. It was not only being in a new country, culture and university, but also being responsible for myself. It cost over $5 a minute to call home. I used to call home for 10 minutes once every six weeks when I had enough money saved up. I worked 20 hours a week washing dishes, babysitting and working in the library — but I had that freedom. This was a country that allowed me to be myself and to speak freely, and that allowed me to focus on my capabilities. And I kept my promises to my parents, except for bringing home an American.
What did you do after college?
I started my career in Morgan Stanley in 1989. This week, I walked by the Morgan Stanley building, and I was thinking of my many all-nighters there. Although I formed wonderful friendships that I have to this day, Morgan Stanley was very intense. There were so few women and only two South Asian women bankers in the whole place. I was surprised that, while people were very smart and intense, they were also quite rude. And that sadly, rudeness was applauded! There was a huge attrition rate, especially among women. But coming from the other side of the world, I felt I had to finish my two years there. It was an incredible opportunity, for which I’m grateful, to learn finance — the most powerful force in the world.
At the end of my two years, the HR person called and said, “You were the only one who didn’t ask for recommendations to business school. Do you want to continue here for a third year? What are you going to do?” I told her that I was going to go back home to Bangladesh. She responded, “Where is that?” I thought, “That’s the problem. This is the reason why I need to go back.” My associates were happily anticipating business school, but I felt that, after 10 years away, it was time to go home and give back my learnings to my country.
You did not proceed to business school?
No. I returned to Dhaka, the capital of Bangladesh, and began looking for some place where I could put my finance training to use. Dhaka had a Standard Chartered and Citibank, global players; however, I decided to work with a small bank, a development bank that was giving loans to women. This was Grameen Bank, which would later receive the Nobel Peace Prize. Among other tasks, I worked on Grameen’s first big financing round, which was $5 million. It was fascinating to me that I could use my finance skills for development.
How did you end up at Wharton?
I would have stayed at Grameen; however, my future husband, who I had met my first day at Morgan Stanley, was writing me letters every day. He was American, and he was the big reason for me to come back to the States. I applied to public policy schools. The School of Advanced International Studies at Johns Hopkins gave me the most money, so I went there. It sounds horrible, but for me, money was the deciding factor as I had only assistance from the university and my savings. Hopkins was a great school, but I realized the degree was very focused on global issues, rather than practical solutions. Fortunately, Hopkins had a joint program with Wharton.
I applied for the joint program, was accepted, and did a year and a half at Wharton. For the last semester, I was supposed to return to Hopkins to finish up there, but the school’s administration told me that they didn’t have the promised financial assistance for me. They just said, “Sorry, we don’t have any more money. Why don’t you work and come back next year?” But I couldn’t work because of my visa. So I went back to Wharton and asked them, “Can I finish up my final semester at Wharton, because I don’t have the funding to complete my degree at Hopkins?” Wharton authorities explained that they couldn’t have me finish at Wharton, because it was a joint program. I remember that I then broke down in their office, saying, “What can I do? I am one semester from two degrees, and I can’t complete it for just a few thousand dollars.” So they said, “We don’t think we can do anything, but come back tomorrow.” The next day, I came back. They told me, “Well, we had an internal discussion, and we’re going to pay your tuition at Hopkins.”
Wharton paid your tuition to Johns Hopkins?
What an amazing school, right? To this day, I can’t believe it. Fast-forward years later when I started IIX, Dr. Judith Rodin was in Singapore. So, after all these years, I meet this woman who was the President of the University when I was at Wharton. I had the privilege of introducing her for this big talk she was giving, and related this story. I said that I had never had the chance to say, “Thank you.” Because of your leadership, the folks at Wharton could make a decision like this. She started crying — she couldn’t talk.
Wharton has been incredible. I just wanted to learn everything about finance. I was always that pesky, irritating student asking questions on how this can be linked to development. The professor who could pull all this learning together for me was Professor Jamshed Gandhi, a very interesting, eclectic man. Since then, my life has straddled the developed world and developing world, and my studies and career straddled finance and development finance. It is one world, and to be able to pull it together is important to me.
What is it like being back in New York?
I love New York, but I could not have done what I am doing, here. There is a lot more noise here in the city and culture, which arise from good things: competition, movement, interaction. But the downside is that it does not allow for more than a few to rise up. I feel a lot of things I do, with our business opening, is to get other people to be a part of it. For example, the impact assessment — this is something that I researched in the university, but I have opened it up to more people. I can train people and can say, “You can do this.”
Recently, I spoke In New York, at the Clinton Global Initiative. My area, social impact, is a hot topic. You cannot imagine how endlessly people were coming up to me who knew about me and were giving their pitch. They are so excited about getting into the space, but don’t have the experience. There is nothing wrong with competition, but the intensity of so many efficient and aggressive people kind of hits you.
It must say something about Wharton that you and D. Wayne Silby, W’70, attended (Silby received the 2013 Joseph Wharton Award for Social Impact). Wayne, as you know, was inherently geared toward finance, gained the tools at Wharton to build a hugely profitable money market fund, and then pursued his dream in creating Calvert Investments.
Yes! Exactly! The University probably allowed him and me, and people like us, to retain what made us us, and be able to take the best parts and enhance that. The administration looked at the role of the school in a holistic way. Having people like me, with eclectic backgrounds, helps to maximize the business world’s output and outcomes. I feel, though, that the school’s messaging does not position itself as a holistic school that cares as much about the outcomes of this world, as the output of the world. I think it would be a huge benefit for the University to say that boldly. I hope the new dean can do that. Combining efficiency with effectiveness and output with outcomes — I think there is a vacuum for Wharton to fill.
Tell us about Impact Investment Exchange Asia. What is the difference between it and philanthropy?
The difference between this and just giving money to charity is that this enables you to have a more sustainable effect. For example, my goal is to bring electricity to the world’s poor, but I am going to do this in a financially sustainable way. Whoever is providing capital, it is in the form of an actual investment, not a donation, and they will expect a financial return. Impact investing allows you to work toward financial stability. We are the intermediaries of making this happen. In any kind of a structure, you need the intermediaries, platform and financial structure for it to work. In terms of impact assessments, which are done by Shujog, my other company, there is now a mechanism in place to calculate the social impact. That social impact allows you as an investor to see the financial returns.
How do private placements fit into IIX’s strategy?
A private placement platform allows accredited investors to directly invest into these organizations. For example, Sun-eee, an organization that was on Impact Partners, our private placement platform, was supporting independent power plants in Cambodia to convert diesel usage into biofuel and take the electricity to off-the-grid rural areas. Over 80% of Cambodia does not have electricity. The company is for-profit, but is making a social impact. We raised over $2 million for Sun-eee and worked closely with Sun-eee. Now Sun-eee is bringing electricity to 20,000 households. Impact Partners, the private placement platform, has no liquidity, so in the near future, it needs the exchange. This is where Impact Exchange, our social stock exchange, comes in.
Why does capitalism work so well in America? Because you have capital available at every stage of growth. We don’t have that in Asia. If you don’t have the connection to powerful families in Asia, then forget it. So how do we use capital markets for doing social good and, in the process, democratize capital markets? We start by creating these accelerators (Impact Accelerators) that nurture at the early stage of the social enterprises, with the hope that they can then graduate to the private placement platform. We have an accelerator in the Philippines and are in the process of creating one in every country we operate in Asia.
To date, Impact Partners has raised almost $12 million. You cannot have the exchange if you do not have this earlier-stage capital coming into the system. We did not have it in Asia or Africa. Over the past five years, we had to create the infrastructure, as well as the financial products — for example, interesting structures and bonds — similar to what Wayne Silby did with Calvert.
How did IIX get funded?
After Wharton, I stayed in the U.S. and worked at the World Bank, and then at Hearst Magazines. Later, I started a company, OneNest, which was to provide a market for women making ethical and handmade goods all over the globe. I ran it for five years and eventually sold it, because the investors did not have patience for the social mission. When I sold the company, it was with a lot of relief and reflection. I moved back to Asia and began writing. I wrote about how this space should be looked at, and how difficult it is to survive in a world that is so myopic about being driven just by profit, instead of asking if we can make profit and do good at the same time. My writing got picked up by the Rockefeller Foundation. It invited me to a gathering in Bellagio, Italy, to look at how it could change the financial system in a more holistic way. This was in 2009 and in the aftermath of the 2008 global financial crisis. It was after this gathering that Rockefeller Foundation Managing Director, Antony Bugg-Levine, encouraged me to start IIX and funded me to do so.
It is worth noting that, in 2008 when the financial markets were melting, microfinance as an asset class continued to give 14% returns in interest. This is a very important piece of information. Impact investing is happening on the shoulder of microfinance. Microfinance could happen, because a lot of support went behind it from both the donor side and the private-sector side. We are beginning to see similar patterns for impact investing in general. This is good news.
What are the steps of setting up a social stock exchange?
We established Impact Exchange in 2013. The first step in setting up the world’s first social stock exchange was an enormous amount of regulatory work, approaching bodies like the SEC in various countries. We managed to get the government of Mauritius to accommodate the exchange. Mauritius, east of Madagascar, has business in Asia and close ties with India — the population is mostly Indian, and they speak French.
The process was not only setting up the exchange but also everything leading up to the exchange. We needed the infrastructure and capital for growth-stage organizations, and capital for the startup. So, for me, as I was doing the exchange, I knew it would take a while.
It was an enormous amount of work to create a separate board that looks at the social side. All of that work is done; Impact Exchange is live. What we need to do, now, is to start populating the exchange, and for people to come and use the exchange. The message is that there is an exchange for organizations to raise capital and achieve social impact.
We are also now in the process of structuring some financial products and putting it up on the exchange for people to buy and sell. For example, we are now creating a women’s impact bond, which is a brilliant way for the Wharton community to get involved. Already, a number of global investment banks and law firms are getting involved with it. The bond will be ready soon, but in the meantime, you can sign up on Impact Exchange (www.impactexchange.asiaiix.com) to express your interest in the bond, or you can sign up on Impact Partners as an investor and start investing directly into smaller growth companies that are impacting the lives of millions in Asia and Africa.