Investing in Inclusion

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By: Michael Schlein
, President and CEO of Accion

Modern financial markets exclude billions of the world’s poor. That’s a failure of those markets—and a failure of imagination. A more financially inclusive world would give billions of people living in poverty access to a full range of important financial services, yielding a high rate of return by economic, social, and societal measures. The challenge is how to achieve this in a responsible, sustainable way that provides the greatest number of people with the financial tools they need to improve their lives in the shortest amount of time.

That is precisely the mission of Accion, a global nonprofit dedicated to creating a financially inclusive world. We operate in poor communities throughout Latin America, Africa, Asia, and the U.S. and see firsthand how these services help transform lives, create opportunities, and build stronger, more resilient communities.

As nonprofits, Accion and our peers can take chances that the private sector cannot. Over our 50-year history, we have helped build 66 microfinance institutions in 34 countries that today serve millions. In the last few years alone, we have supported institutions in rural communities such as Myanmar and Inner Mongolia and expanded the array of financial services for the poor beyond credit to savings, insurance, and payments.

One point is clear: philanthropy, though critically important, is insufficient to achieve full financial inclusion. We need to harness the capital markets and create institutions that deliver both social and financial returns. Though we are a nonprofit, we work to build sustainable, scalable, for-profit companies dedicated to serving the financial needs of society’s most vulnerable members: those living in poverty.

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Accion in Manuas, Brazil

Today, traditional lending institutions largely ignore the poor. And some nonprofit organizations discount the for-profit motives of the private sector, seeing them as exploitative and off-mission. Neither view is accurate. In fact, for-profit microfinance is sustainable, scalable, and socially progressive—complementing nonprofit services and creating an entire industry of institutions that can compete for clients, expand access, and accelerate innovation.

Twenty years ago, Accion helped create Bolivia’s BancoSol, which today is one of the world’s best-known microfinance institutions. Its creation as a commercial institution dedicated solely to serving the poor was controversial, unprecedented—and a rousing triumph. As the world’s first for-profit bank dedicated to serving the poor, BancoSol tapped the debt and equity markets, attracting both foreign investment and expertise. It focused on strong management and operations, better governance, innovation, and improved responsiveness to clients. To date, BancoSol has loaned more than $3.3 billion, and has an 89 percent client-retention rate and a 99 percent repayment rate.

Accion in Bolivia working with BancoSol

Accion in Bolivia is working with BancoSol

Mexico’s Compartamos Banco, in which Accion was a major founding investor, is equally impressive. Its operations grew so quickly and efficiently that, in 2007, it launched an initial public offering with a monumental response. Thousands of other microfinance institutions were inspired by Compartamos’ success, which in turn creates more competition and better services for the poor.

Accion is proud to have helped launch and grow these pioneering institutions, which are models for the world and whose collective outreach has brought financial services to millions who would otherwise be left out.

But the future of financial inclusion goes beyond traditional microfinance. We embrace this change, investing venture capital and technical assistance via two vehicles – Frontier Investment Group, which invests early and growth stage funding, and Venture Lab, which provides seed-stage funding to pre-revenue firms – into start-ups with bold, disruptive business models aimed at helping those living in poverty.

For example, Accion is investing in companies such as DemystData, which leverages big data—huge sources of information that can be analyzed to help financial institutions broaden their outreach to poorer clients. Others, like Tiaxa, use mobile technology to make small “nano” loans over the phone, which can help reach people living in remote communities. Tiaxa facilitates over 2 million mobile-loans every day across 15 countries – making it one of the most successful big data companies serving the poor. Still others are pushing the boundaries of inclusion, offering financial products such as life insurance to South Africans living with HIV/AIDS—an idea that was unthinkable just a few years ago.

This new dimension of our work is promising for investors: we expect that a major Wall Street firm will approve one of our funds as the first impact product offered to their clients very soon. And we believe that others will follow.

Accion working with Mexico’s Compartamos Banco

Accion is working with Mexico’s Compartamos Banco

Although it is still too early to determine the impact of these brand-new companies, they have the potential to have a significant impact on the lives of our clients. We need to invest in more fast-moving, innovative ideas like these. Although the financial inclusion movement is rapidly evolving, it remains young and has much to learn. Growing pains are normal, but they must be addressed head on to strengthen the industry and inspire the next generation of institutions that will create greater opportunities for the poor.

Accion’s Center for Financial Inclusion is a good start. It brings together industry players to tackle common challenges and create the conditions to achieve full financial inclusion on a global scale. For example, the center’s Smart Campaign promotes the protection of clients through greater transparency, prevention from over-indebtedness, and the provision of means to address concerns. It’s been endorsed by nearly 1,500 microfinance institutions in 130 countries and represents more than 75 million clients.

By building competitive, commercially viable financial institutions that provide a healthy return on capital and by taking bold risks and investing in innovative ways to expand financial services to the poor, Accion and our partners are spurring new opportunities and sustainable progress throughout the developing world, and helping to bring billions more into the global economy. That is how change happens!

About the Author: Michael Schlein is the President and CEO of Accion, a global nonprofit dedicated to building a financially inclusive world. Mr. Schlein brings nearly 30 years of extensive international banking, management and public service experience to his role as President and CEO of Accion, having previously worked as President of Citigroup’s International Franchise Management, and Chief of Staff at the U.S. Securities and Exchange Commission in the Clinton Administration.

In 2014, New York City Mayor Bill de Blasio appointed Mr. Schlein to serve as the Chairman of the NYC Economic Development Corporation, which encourages economic growth throughout New York’s five boroughs and facilitates investments that build capacity, generate prosperity, and catalyze the economic vibrancy of city life as a whole.

Accion is a world pioneer in microfinance and has helped build 66 microfinance institutions in 34 countries which currently reach millions of clients providing them with the financial tools that can help improve their lives.

 

 

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