To exist financially is to exist socially. What are the potential investment opportunities?
Financial inclusion: Significant developments in emerging countries
Access to basic financial services - such as a current account, credit, insurance or a savings product - is a key global issue for economic and social development. Financial inclusion is an essential foundation for being part of a community. However, there were an estimated 1.7 billion adults worldwide without a basic bank account in 2018, according to the World Bank1 . But the range of basic financial and banking services on offer in developing countries is increasing, for example through microfinance or digital access via a mobile phone.
Financial exclusion also affects people in developed countries, often those in precarious and low-income jobs. In our view, financial inclusion represents a huge need and an obvious catalyst for social progress, but it also has attractive potential for investors seeking returns while aiming to incorporate an impact dimension into their portfolios.
Some of the companies we have invested in to address this double financial and non-financial objective include Indonesian bank PT Bank Rakyat Indonesia. In Indonesia, the world’s fourth most populous country2 , the financial inclusion needs are colossal. Bank Rakyat is the main domestic micro-loan body, and has provided micro loans to nearly 12 million people3 in Indonesia.
We also hold HDFC Bank, an Indian financial services company that focuses on rural areas and small and micro businesses, helping to increase access to banking services in the country – therefore potentially contributing to India’s economic development.
Technology as a facilitator of digital inclusion
Digital inclusion means making technology accessible to everyone, as well as teaching digital skills, enabling people to use these tools to improve their social and economic integration. Digital technology has been transformative, particularly in the past few decades, with new innovations significantly changing our lives. In developing countries, growth in digital services is allowing new players to innovate and offer low-cost solutions, helping expand access to underserved populations.
For example, PagSeguro Digital is a Brazilian company offering digital payment services to micro-entrepreneurs. Initially launched as an online payment platform, the group has grown to offer new services, such as PagBank, a digital bank that operates via a smartphone app, targeting people with little access to banking services.
The development of these digital services would not be possible without a solid infrastructure. Thus, we have invested in companies in this area including Helios Towers, which builds and operates telecommunications towers in several African countries. These towers help meet the needs of large telecommunication companies that provide voice and data services to consumers and businesses, in areas with little or no fixed line infrastructure. In this way, the services it provides are vital for communities – including giving them access to digital banking.
Social improvement and greater inclusion
Access to banking services represents progress, and is a lever for social improvement that also allows individuals to be part of a more sustainable community. Meanwhile technology facilitates and improves access to banking services in both developed and emerging countries, fostering greater inclusion. We see continued potential investment opportunities in both the financial services providers and the technology companies that allow them to reach customers in these underserved markets.
The companies are named as an illustration only and do not constitute investment advice or a recommendation from AXA IM.
- source: World Bank Universal Financial Access report, October 2018
- Source: Indonesia Overview: Development news, research, data | World Bank
- Source: Bank Rakyat Indonesia, Full-year financial presentation, 2020.