image-for-printing

M&G Investments – Financial inclusion: Driving a cycle of positive change?

pi partnership with:

ESG Hub

Web Share

pi partnership with:

Many micro and small entrepreneurs and low-income households in developing countries often lack access to conventional finance or banking resources. Expanding access to finance for underserved borrowers could drive lasting, positive change by helping to stimulate growth, create jobs and reduce poverty.

Expanding access to finance for underserved borrowers

Access to formal sources of finance is often a significant barrier to growth for micro and small enterprises (MSEs), who need financing to advance their business- es and allow small business owners to create employment opportunities for others – with increasing labour income critical for the very poorest in society. Microfinance – which involves the provi- sion of loans and other responsible finan- cial products and services, typically through microfinance institutions (MFIs) – can play an important role in enabling financial inclusion globally for under- served groups of society and low-income borrowers. Many MSEs are women-led and owned, so providing them with better financial options can improve women’s livelihoods and incomes, reduce inequality and help to break the cycle of poverty through economic empowerment.

Breaking the cycle of poverty

As microfinance enables self-employ- ment and create jobs for others, it is often seen as a tool for tackling poverty.
The Covid-19 pandemic has, however, reversed two decades of progress in tack- ling global extreme poverty – measured as the share of the world’s population living below the poverty line of $1.90 per day – putting the UN’s SDG target to eradicate extreme poverty by 2030 into sharper focus.

According to figures contained in the UN’s The Sustainable Development Goals Report 2021, between 119 million and 124 million people were pushed back into extreme poverty globally in 2020 (of which two-thirds are in Southern Asia) and 255 million full-time jobs were lost from the pandemic – four times the num- ber of jobs lost during the global financial crisis during 2007 and 2009.

The numbers of people living in poverty across the globe are forecast to rise, even as economies start to recover post-pan- demic. In the absence of immediate and significant action to tackle poverty, cur- rent projections suggest that the global poverty rate will be 7% in 2030, equiva- lent to around 600 million people1. There is a growing body of research that suggests the livelihoods of women have been disproportionately affected by the Covid-19 pandemic. An International Trade Centre survey on Covid-19 impact among businesses in 136 countries has shown that nearly 62% of women-led small businesses have been strongly affected by the crisis, compared to just over half of firms led by men2. Address- ing the need for financing at a time when its urgently required could help to strengthen global economic prospects, promote social development, and main- tain a strong foundation for micro and small entrepreneurs to contribute to an inclusive and sustainable recovery.

The importance of microfinance in a post-pandemic world

The Microfinance Enhancement Facility (MEF) is a global microfinance debt fund established in early 2009 to provide finance to MFIs in a wide range of devel- oping countries when capital markets largely closed to these institutions in the wake of the global financial crisis. MEF re-asserted its role as a crisis response vehicle in 2020 by providing finance to MFIs whose access to finance greatly diminished during the Covid-19 pandemic.

MEF seeks to support economic develop- ment and prosperity globally, by provid- ing short and medium-term funding to MFIs, which in turn, provide loans and financial services to thousands of MSEs and low-income households. The activi- ties of MEF and its partner MFIs also have a strong developmental profile, with most of the loans provided to women and to borrowers in rural areas that tend to lack access to conventional finance.

1) United Nations, “The Sustainable Development Goals Report 2021.”
2) United Nations, “Micro-, Small and Medium-sized Enterprises Day, 27 June”

3) Impact metrics are intended to provide an indication of ex- pected outcome. Source: MEF, figures as at end 2020.
4) According to the size of the M&G transaction of US$90 million and based on an average loan size of $1,439 to final borrowers. 5) While we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.

More Articles by M&G Investments View all >

Subscribe

Subscribe to Our Newsletter and Magazine

Sign up to the portfolio institutional newsletter to receive a weekly update with our latest features, interviews, ESG content, opinion, roundtables and event invites. Institutional investors also qualify for a free-of-charge magazine subscription.

×