Financial Inclusion Compass 2019 published, revealing an inclusive finance sector at a crossroads
During the recent European Microfinance Week, the European Microfinance Platform (e-MFP) launched the Financial Inclusion Compass 2019 on emerging short, medium and long-term trends in the financial inclusion sector, with digital transformation of FSPs, client protection, client-side technology innovations and agri-finance among the most significant trends identified by a broad array of sector stakeholders.
Launched for the first time in 2018, the Compass leverages e-MFP’s multi-stakeholder membership and position in the inclusive finance community, giving practitioners, investors, donors, academics and support service providers the opportunity to assess and describe the importance of various Trends, evaluate and give opinions on New Areas of Focus, and provide open-comment qualitative input on the expected (and hoped-for) direction of financial inclusion progress.
Like in 2018, the survey behind the 2019 Compass was mixed-methodology, asking for scoring of selected trends in terms of their current importance and ratings of ‘Areas of Focus’ in the coming 5-10 years, as well as providing comments on each. Finally, respondents were asked to give open comments on a series of questions that looked at challenges, opportunities, opportunities for different FSPs, the role of new entrants, and forecasts for the medium-term future. An outstanding response was received from practitioners, investors, researchers, support service providers and infrastructure organisation representatives – working in areas all over the world.
In terms of the Importance of Trends, Digital Transformation (institutional-side) came in clear first place, followed by Client Protection, Digital Innovations (client-side), Regulatory Environment and Social Performance and/or Impact Measurement. Other significant upward movers included New Categories of FSP and New Focus Areas – WASH, green, housing, education, etc. Significant downward movers were Expanding to New Client Segments and Governance.
Looking over the horizon to New Areas of Focus (NAF), Agri-Finance (52.0 in the new 0-100 ‘NAF Index’) was top by a considerable margin again. Climate Change Adaptation/Mitigation (43.3) and SME Finance (40.0) again round out the Top Three – although in reverse order this year. Finance for Refugees/Displaced Populations is rated highly. Energy and Housing Microfinance have both dropped, and Education is up from 12th to 9th place.
Various themes emerged from the research, including challenges, both external (such as politics, financing, climate change and regulation) and internal (notably product development, mission drift, client education, overindebtedness, digital transformation and sustain- ability of business models); and the tense pursuit of equilibrium between maintenance of client-centricity and outreach to the poor on the one hand and the drive for profitability and sustainability on the other – a drive catalysed by the proliferation of new entrants. There is much progress underway too, with respondents seeing myriad opportunities to be grasped, including on product innovation, leveraging of data and efficiency gains that allow sustainable outreach to excluded segments.
Overall, the 2019 Compass reveals a sector at an inflection point – or a crossroads – comprising an aggregate body of stakeholders with individual interests, passions and projects, but a collective soul-searching for financial inclusion’s purpose. In this sense, the Compass is appropriately named, as a new paper in a series conceived to take the pulse of the sector and help those working within it work out where they are, and where they’re trying to go.
Compass lead author and Financial Inclusion Specialist at e-MFP Sam Mendelson says the Compass “was not conceived with an editorial agenda in mind – e-MFP is trend-agnostic. Rather, the paper is a response to a genuine need we’ve seen to objectively capture what people working in inclusive finance see coming down the track – a longitudinal snapshot of industry attitudes, ideas, concerns and aspirations from all corners of the sector, and which will help practitioners, observers, investors, researchers and teachers alike”.
Download the report here