6 min read 29 Apr 20
Summary: In the words of Nobel Prize winning economist Amartya Sen, “poverty is the deprivation of opportunity”.
Alongside access to education and healthcare, the availability of basic financial services is a fundamental ingredient to giving people the means of escaping poverty and leading better lives.
Yet according to the United Nations, 2.5 billion people – more than half of the world’s adults – are excluded from financial services. Among the poorest in global society, the overwhelming majority do not have a safe place to save money or means of borrowing for the long-term.
Advancing financial inclusion should be a priority for those of us looking to deliver a positive impact through our investments. As well as helping to address one of global society’s greatest challenges, we can also aim to participate in the growth opportunities that will be unlocked.
The most basic financial services allow each of us to protect ourselves against hardship and invest in our future. Whether or not someone has access to these services will fundamentally shape their chances of improving their economic circumstances.
For the financially weak, access to loans – to build a business or fix their roof – and savings products – to put away money for family or retirement – as well as insurance products – to protect them in hard times – improves their chances of living a full and healthy life.
For developing economies, it can help enable them to break free of the vicious cycle of poverty and enter a virtuous cycle of economic growth.
Levels of extreme poverty are falling in India, but it remains home to an estimated 76 million people living on less than $1.90 a day. The world’s second most populous country is also urbanising rapidly, presenting challenges that are exacerbated by increasing housing demands. The primary goal of an organisation such as the Housing Development Finance Corporation (HDFC), for example, is to promote home ownership in India by providing long-term mortgages to low and middle-income families. As well as loans, which are also offered to companies for building and purchasing commercial property, HDFC offers insurance and asset management services through more than 4,800 branches.
By a key metric of financial inclusion, India is making great progress. Between 2011 and 2017, the share of adults with a financial account soared from 35% to 80%.
Financial inclusion is also rising in Georgia, a society that inherited little financial infrastructure following the end of communism and civil war in the early 1990s. The share of adults with accounts rose from 33% to 61% between 2011 and 2017. As one of the country’s two main retail banks, Bank of Georgia has since played a major role in advancing financial inclusion within low-to-middle income groups.
I believe both companies, by granting millions of people access to basic financial services, and on terms that are not predatory, in my opinion, deliver positive social impact aligned with several of the UN’s Sustainable Development Goals (SDGs), most clearly Goal 8 – “promoting sustained, inclusive and sustainable economic growth”.
Impact investors can aim to generate positive social or environmental impact through our investments. It is the notion of intentionality that, in my opinion, sets impact investing apart from responsible investment approaches more generally.
The companies we invest in should themselves deliberatively set out to deliver a positive impact as part of their mission. Both HDFC and Bank of Georgia, for example, explicitly aim to advance the respective societies they operate in by widening access to financial services.
Where companies can succeed in delivering essential financial services to those excluded from them, I believe they can have a tremendous positive impact for individuals and societies.
Over the long term, this success could translate into sustainable financial returns for their investors, who can therefore aim to do good without compromising on their own aspirations.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.