From Microfinance to inclusive finance

One third of the world’s population is excluded from the traditional banking system

Although the figures are difficult to consolidate, the World Bank estimates that 2 billion adults do not have a bank account. A number of reasons may explain this phenomenon. Low income, random income and no guarantee are among the most numerous. These findings are supplemented in specialist studies by the cost of financial services and the incompatibility of relational business models targeting solvent populations and ignoring the "bottom of the social pyramid". Women, poor rural communities and remote populations are among the most affected by this situation.

From microcredit to inclusive finance

The first objective of microfinance is to fill this gap by offering small loans to these populations to finance income-generating activities and thus enter the virtuous cycle of social integration through economic dynamics.

Since the beginning, the method based on a loan with the joint guarantee of the group remains the most frequently used. On the other hand, the sector has evolved considerably, thanks to the experience of great successes and some remarkable failures.

In recent years, the most remarkable development has been the measurement of Microfinance Institutions social performance using indicators drawing on the notion of responsibility, respect and ethics.

Microfinance practitioners, grouped in associations and supported by organisations specialised in objective measurement have developed widely tested standards. They are now included in the investment policies of some financing institutions, including the Grameen Crédit Agricole Foundation.

In 2013, the World Bank set a universal access to financial services for all working-age adults by 2020, as part of a dedicated report. In this report, the World Bank urges policy makers to focus on products that benefit poor communities, women and other vulnerable groups first. While in the 1990s microfinance represented the entire offer to excluded people, technological innovations have played a major role in promoting the financial inclusion of low-income populations in Kenya, the Philippines and Tanzania.

Inclusive finance, including standard offer and new low-cost technologies, has become the generic term for actions aimed at low-income populations.

At the Grameen Crédit Agricole Foundation, we define inclusive finance by its ability to provide access to useful and appropriate financial products or services (transactions, payments, savings, credit and insurance, etc.) at an affordable cost. This finance is responsible because it records its profit over the long term by seeking to converge the interests of the lender, the final beneficiaries and the ecosystem.

Traditionally, two criteria are used by classical finance to evaluate the expected performance: the financial performance sought and the risk of not achieving that performance. In the area of inclusive finance, a third criterion is taken into account: the impact. It can be social and / or environmental. Alongside the other two criteria, the impact supplements the analysis.

Inclusive finance is a three-dimensional finance: performance, risk and impact.

Inclusive finance promotes community spirit

One of the strengths of inclusive finance is that it takes into account the common good. Take due account of the impact, along with the return or the risk enables it to be integrated from the beginning. Inclusive finance promotes the harmonious development of territories, social inclusion and sustainable development, the development of the economy in its social and solidarity dimensions as well as entrepreneurship. This dimension generates by itself a virtuous circle of utility. It is also committed to transparently reporting on its use, context and impact.

However, the concept of impact should be approached in an objective manner. In this respect, experience on the concept of social performance on which practitioners have managed to define standards and methods will be extremely valuable.

An alarming problem in Europe

In Europe, a recent study produced by Mastercard estimates that 138 million people are cut off from society financially speaking, i.e. without neither a bank account nor means of payment. As for the French, 25% of them say they have difficulties accessing financial products and services. Among them, one-third is under the age of 34 and 21% has a full-time job

Inclusive finance, a bias for the future

Inclusive finance is an emerging topic driven by major societal challenges (inequalities, migration, exhaustion of resources, concerns over climate change, etc.). It benefits from high visibility thanks to the power of digital and collaborative networks.

In France, this particular finance responds to growing demand from the public. Several surveys show that a large majority of French people want their savings to be useful to the economy and want to know what their money is used for.

Disappointed by the impact of public action, they expect companies (especially banks) to act effectively for a future that is respectful of people and the environment. This feeling has increased markedly since the financial crisis of 2008, as evidenced by the forward march of socially responsible investment funds (SRI: € 746 billion in outstanding amounts in 2015, according to Novethic, that is an increase of 29%). An increase mainly due to employee savings and that would undoubtedly be even greater if the investor had more confidence in the promises from banking institutions.