Financial revolution? Yes we can.

“The revolution today is taking place in banks: Imagine that you go to the bank of your village and withdraw all your savings. If 20 million people do the same, the entire system collapses. No weapons, no blood, nothing.”—Eric Cantona, former international footballer

At the same time that Cantona made this observation, European countries such as Greece or Spain were living through a violent sovereign-debt and banking crisis. This crisis unleashed political, economic, and social turmoil, perhaps best illustrated by skyrocketing unemployment rates—now higher than 27 percent in Greece. Numerous protest movements, such as Spain’s “Indignant” movement, pointed fingers at globalized finance—the all-mighty evil.

But finance follows consumer demand, and individuals play an important role in the financial regulation process. Given a favorable legal environment, consumer demand can drive banking supply to foster what we call solidarity-based—or social—investments. And intermediaries, such as impact investing funds, are available to scale up consumer actions to impact the whole economic system.

Finance allocates savings to enterprises and organizes a risk-based market

Finance is not evil; it is necessary—it allocates savings to enterprises and organizes a risk-based market. At the core of this process is the individual; he places his savings in a bank, the bank lends funds to enterprises, and the funds finance the enterprise and create jobs. Finance is necessary because different individuals have different risk aversions—some are risk averse, others risk takers—and the financial system provides different types of investments that can satisfy a wide range of needs.

Finance is designed to answer consumer expectations—including the support of social investments. In France, the social economy accounts for 10 percent of the GDP and total employment. Social investments in France have achieved a very high level of development and represent models that can—and, we believe, should—be replicated abroad. Individuals can finance this sector in three different ways: 1) through direct investments in social enterprises, 2) though investment in banking products such as solidarity-based savings plans, or 3) through subscription to a solidarity-based employee savings schemes.

This last mechanism, set up inside companies, now represents more than half of the total outstanding French social finance, which has grown substantially over the past few years (for example, the growth rate was 17.9 percent between 2010 and 2011). Simple government regulations that went into effect in 2001 and 2008 encouraged individuals to use this tool, and now all companies that offer employee saving schemes must offer at least one that is solidarity-based. With these so-called Fonds Commun de Placement d'Entreprise Solidaire (FCPES), 90 percent of the capital is invested in standard, listed companies, and around 10 percent of the capital is invested in social enterprises (directly or through impact investing funds). This adds up to €2.6 billion ($3.5 billion) for the sector.

A consumer’s act

Savers are consumers—they can exert their purchasing power to a designed purpose, and awareness of this power has emerged already around social issues such as fair trade, organic agriculture, or sustainable development. Instead of running away from banks, these consumers can opt to place their savings into activities that sustain social projects. What’s more, such investments have measurable impacts in the real economy; they are mainly directed to housing (37 percent), the environment (39 percent), work integration social enterprises (WISE) (18 percent), and development in emerging countries (6 percent). Since 2002 in France, social finance has supported 100,000 enterprises, provided decent housing to 38,000 individuals, and created or maintained more than 200,000 local jobs (36,000 in 2012 alone).

But while these numbers are impressive, there are challenges to scaling the sector—currently, solidarity-based savings accounts for only 0.1 percent of household wealth. How can we do this? To start, we could make this savings opportunity more readily available to consumers—for example, by building it into other, more popular products such as life insurance, which makes up 40 percent of total French savings. Europe passed a regulation last March to create a European Social Entrepreneurship Fund (EuSEF), which increases the visibility and transparency of investment products—and therefore reach—among retail investors. The challenge now will be to implement it in member countries.

Demand for solidarity-based products

But to really answer the savers’ needs, we need to introduce more transparency and more accountability for them through intermediaries—like my own impact investing fund, Le Comptoir de l’Innovation (CDI)—that can help individuals and public authorities organize this new financial risk-based market and manage the risks of investing in social enterprises. Intermediaries have a crucial role to play in scaling the impact initiated by consumers. Impact investing is a new class of assets and requires dedicated intermediaries—we must ensure that financial products effectively combine return on investment and a positive social impact. This, combined with increasing consumer demand for social investment savings schemes, can drive the financial revolution forward.

Read more stories by Nicolas Hazard.