Thematic focus: Access to finance

Our portfolio companies reach more than 70 million customers in markets lacking access to financial services.

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

Our portfolio companies reach more than 70 million customers in markets lacking access to financial services. Given the potential for financial inclusion to increase the economic opportunities and lives of low-income communities, we see companies’ activities in this space as closely aligned with SDG1 – Zero Poverty.

Background

We see responsible finance as the offering of financial products and services in an accountable, transparent, ethical and sustainable way. In this context, responsible finance can mean protecting customers and treating them fairly; increasing access to finance; having effective ethics and compliance programmes; contributing to open and stable financial markets; or incorporating ESG considerations in lending activities. Given the breadth of responsible finance as a topic, it is very challenging to illustrate the impact of our holdings across all areas. For the purposes of this report we decided to focus on financial inclusion, an area with clear links to poverty alleviation and where impact measurement, while still nascent, is relatively more advanced.

We share the belief that financial inclusion is one of the most important factors in ending global poverty. Increasingly, evidence shows that providing people with the ability to save and borrow efficiently and securely can improve well-being, gender equality and household consumption, and encourage enterprise.

Whilst great strides have been made towards achieving financial inclusion, approximately 1.7 billion adults worldwide, most of them in Asia, remain unbanked1
.

Our strategy

We seek to invest in financial institutions for which securing access to finance for underbanked communities is a strategic imperative. Most of our holdings have developed different approaches to drive further improvements in financial inclusion in the countries in which they operate. These include:

  • Customising product offerings to meet the needs of underbanked communities. Credicorp, through its Mibanco subsidiary, runs a programme to finance water and sewage connections in households lacking those.
  • Running wide-ranging financial literacy programmes. Bank Rakyat has partnered up with third parties to assess the effectiveness of its financial education programme that spans across the Indonesian archipelago. We estimate our companies’ financial literacy programmes to have reached at least 9 million people.
  • Using technology-enabled innovation to provide access. Kasikornbank and Guaranty Trust Bank, for instance, have introduced savings accounts that customers can apply for themselves via their mobile phones without minimum deposit amounts, the need to travel to a bank branch or submit any documents.

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. 

Views and opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

We support our banks’ digital transformation efforts. These position them well to benefit from government policies to drive financial inclusion.

Empowering women: HDFC Bank

HDFC Bank, one of India’s largest private banks, has a number of initiatives to promote financial literacy and inclusion across the country. Under its Sustainable Livelihood Initiative (SLI), the bank has provided access to financial services to over 8 million rural households across India in the past five years. SLI is based upon a holistic model aimed at empowering women at the bottom of the pyramid in rural India. It involves offering training and enhancing occupation skills, as well as providing credit counselling, financial literacy and market linkages to empower them financially. SLI is a reflection of the bank’s board mandated objective to empower 10 million families. Other financial inclusion programmes by HDFC Bank include Digidhan, through which 5.9 million households have been educated about the risks of borrowing from the informal sector and the benefits of digital banking.

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(Above) Our new holding BTPN Syariah serves customers through products specifically designed to empower productive under-privileged customers. Photo source: PT BTPN Syariah Tbk.

Understanding impact

Most financial institutions use supply-side metrics to showcase the impacts of their financial inclusion efforts, with a focus on access and financial literacy, e.g. the number of bank accounts opened and the number of people reached through financial education programmes. We find these metrics to provide valuable insights into the scale of our holdings’ financial inclusion efforts, although we would like companies to aim to go further by attempting to capture the ultimate real-life outcomes, such as the impact on people’s financial resilience.

Examples of impact Example metrics

Who
– whether underserved people are being targeted

  • Number of people provided with access to financial services (by gender, income group, location)
  • Number of first-time insurance policies approved (by gender, demographic, income group)
  • Access points in low-populated or economically disadvantaged areas by type
  • Number of people reached through financial literacy programmes
  • Percent of loan portfolio and average loan balance by gender

What
– the type of financial product or service provided

  • Number of savings accounts opened
  • Number of loans disbursed
  • Average loan size, by client group
  • Average annualised interest rates for loans
  • % of transactions initiated through digital channels

How much
– quantifying impact outcomes

  • Needs met through deployment of financial service/product
  • Improved financial resilience (e.g. adults with savings for retirement)
  • Businesses created/grown (by gender, demographic)
  • Percentage of loans repaid

Financial inclusion helps lift people out of poverty and can help speed economic development. It can draw more women into the mainstream of economic activity, harnessing their contributions to society.

Sri Mulyani Indrawati, Minister of Finance of Indonesia, former head of the World Bank

1Global Findex Report 2017, World Bank

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