Impact investing for financial inclusion and social returns

IFC
IFC
Apr 4 · 3 min read

Putting clients at the center of every decision is a critical management style geared towards advancing a double-win on social and financial performance for impact management. Investors seeking financial and social returns can achieve greater financial inclusion and change how financial risks are managed in a rapidly evolving digital financial landscape.

On April 03, 2019, IFC and the SPTF Social Investor Working Group collaborated for the first Investor Forum: “Responsible Finance for Digital Inclusion: Investing for Impact.” The Forum highlighted investment lessons in social performance and impact management, recent strategies for digital transformation, and latest developments in the larger impact space — critical to achieving the UN’s Sustainable Development Goals (SDGs). The SPTF is a global membership organization that works to advance social performance management.

Opening the meetings, Karin Finkelston, IFC’s Vice President for Partnerships, Communications and Outreach, said: “We need to re-think how we as a diverse group of investors can further invest, given the opportunities and risks that innovation brings for financial inclusion. The ubiquity and velocity of technological change is forcing all of us outside of our comfort zones as investors, investees, innovators, and industry players.”

The potential that we have as investors can perhaps shape a more sustainable digital future — through strategic partnerships with our traditional investees, or with tech players offering financial services through mobile and payments systems. Such systems can provide not just access to credit, but also potential savings and insurance products. Other investments can result in novel solutions that promote financial well-being or address basic energy consumption needs through off-grid solar systems in more remote places in emerging markets.

A common thread that perhaps brought all investors to IFC this week is an enduring belief in the promise of technology and innovation. This is driving all our investments, and yet it is also making us re-think how we should invest given the pace of technology changes. We’re also considering how we can better manage inherent and unforeseen risks when embarking on a digital transformation or forging a new partnership with inclusive fintechs.

At IFC, we are also seeing how technology has rapidly shifted the economics of delivery for the unbanked and the underserved. Advances in connectivity and digitization are helping to lower transaction costs and creating new opportunities for innovation in financial inclusion. Disruptive technologies and new entrants are radically changing the financial services industry, forcing traditional microfinance business models to adapt.

Why does it matter?

The potential growth and impact are great, but it will take work to truly achieve them. We need to break traditional mindsets, with digitization permeating all sectors beyond finance — particularly in emerging markets, where 1.7 billion adults are still without formal access to basic financial services. This gap highlights the need for us to think more creatively about how to reach the traditionally underbanked and hard to reach: women, the poor, and those living in remote rural areas. Financial inclusion is one of the World Bank Group’s corporate priorities and encompasses a large part of IFC’s business. Financial inclusion is foundational to achieving the WBG’s Twin Goals of ending poverty and boosting shared prosperity and many of the Sustainable Development Goals (SDGs).

These are some of the thoughts on the minds of the co-founding signatories of the Investor Guidelines for Responsible Investing in Digital Financial Services, many of whom are also members of SPTF. In less than a year, the group has grown to represent more than 100 signatories from both developed and emerging markets. The Responsible Finance Forum launched the Investor Guidelines on its global platform in June 2018 in Amsterdam with co-founding signatories.

We invite new investors to join us in this journey going forward. It will take a solid group, a critical mass of like-minded thinkers, learning and testing ideas openly together. A diversity of investors will be best suited to tackle the risks we are seeing not just for ourselves, our investees, and our investment portfolio, but ultimately for the users of digital finance — the underserved in the world’s most difficult markets.

IFC

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IFC

IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets.