It’s Time To Act On Financial Inclusion For A Sustainable Future

Rural family in Haiti

This article was originally published on Forbes.

Interestingly, when Larry Fink, the chairman and CEO of BlackRock, released a letter earlier this year calling for CEOs to start accounting for the social impact of their companies, his call for a better version of capitalism was met with support and skepticism. Some have reacted positively while others have taken issue with his comments.

An old aphorism tells us that “Money doesn’t buy happiness.” Easy to say when you have it — and in abundance. As someone who has fought for the democratization of capital for those living in poverty across the developing world for four decades, I am encouraged by the progress we’ve made but am also troubled by the thought that time is running out. And though I can’t stress enough the importance of influential people such as Larry coming out in support of a more empathetic and sustainable future, ultimately, our collective actions will speak louder than our words.

A Bottom-Up Approach To Financial Prosperity

To create lasting change, I have always held to the conviction that investment and financial prosperity must come from the bottom-up, not the top-down. By this, I mean it must be created and controlled by those who actually suffer from poverty and inequality, not simply dispensed by well-meaning hands at the top of the pyramid, either through taxation, charity or both. One could wait a lifetime for it to trickle down in quantities adequate to address the problem. While charity and redistribution should be part of the solution, many of us in this trade believe the real hope lies in market-based solutions.

When FINCA helped to pioneer the microfinance movement in the 1980s, for example, we combined small amounts of capital with huge pools of underutilized labor to enable the poor to solve their own problems. In many cases, it worked — or it was at least powerful enough to begin to move the needle.

Today, we understand that to adequately address the myriad of challenges the poor face, we need solutions in other sectors that more directly tackle the problems of energy, sanitation, education, health and agriculture. The good news is a plethora of new social enterprises have sprung up to fill these voids with ingenious products and services that are both affordable — even for the very poor — and really work. Solar home systems for off-grid families are among the most compelling examples, in my opinion.

But for any of these to reach the poorest, end-user financing solutions need to exist to provide them with the means to purchase these products on terms they can manage. For less than $100, the poor can literally move from darkness to light, from inhumane living conditions to vast improvements.

Creating Impact Pathways

To enact this level of change, we must alter the prevailing paradigm that governs investment behavior. Pioneering actors — and actions — are needed to promote bottom-up solutions. Fortunately, industry partners are coming together to help make this a reality. For example, a recent report by the Global Impact Investing Network (GIIN), an organization FINCA International is a member of, presents a vision for building more inclusive and sustainable financial markets. This “roadmap” asserts that changes in behaviors and expectations are needed to shift the role of finance in society.

In this sense, finance is not only about the allocation of investments, but also the availability and accessibility of financial services for those who need it most. Financial inclusion of those at the so-called bottom of the pyramid becomes a key driver for a bottom-up approach. By pairing access to finance with access to basic services, like energy, poor families can raise their own standard of living.

There are some who would argue the limits of financial inclusion on poverty alleviation. However, and as pointed out by Daryl Collins and Amolo Ng’weno of BFA, to think about financial inclusion as only involving one-to-one impact is to do it a disservice. A study on the use of the mobile money system, M-PESA, showed that by looking at financial inclusion in this way, it is easy to extrapolate a weak return on investment in comparison to, for example, health or education. But this ignores the way money is used.

The impact pathways that come from financial inclusion don’t end simply with savings in your pocket or on a mobile device. The financial and social impacts reach out in ever-widening circles. For example, financial services enable and facilitate financial management, savings and education. Financial services also strengthen social networks and enable pay-as-you-go energy schemes which have far-reaching effects.

To prompt this way of thinking — that financial inclusion can spark a bottom-up approach to create more inclusive and sustainable markets — we need more voices of influence, like Larry Fink and the GIIN, championing lasting social impact. Combined with a cross-sector collaboration of funders and investors, there is a real opportunity to level the playing field for those who have been left behind by the world’s progress.