How investors can drive financial inclusion

Premier's Duncan Goodwin analyses four areas where financial inclusivity is improving

Financial inclusion is a core building block for delivering economic growth and lifting people out of poverty. Whether that is opening a first bank account or taking out a first insurance policy for a business or personal health, the drive for greater access to financial and risk mitigating products provides structural, sustainable growth.

There is considerable evidence linking a country’s GDP to its level of access to financial services, and financial inclusion is therefore indelibly tied to a population’s social and economic wellbeing.

To provide a recent example, a 2021 working paper from the International Monetary Fund (IMF) found that there is a strong correlation between digital financial inclusion and GDP growth, particularly in lower-income countries. It becomes a virtuous circle; as countries become more financially inclusive, economic growth receives a resounding boost, which in turn leads to greater investment in financial services, and so on.

In a macroeconomic environment where prospects of a global recession, higher interest rates and an increased cost of living present significant challenges to households, businesses and communities, financial inclusion becomes all the more important for investors to pay attention to.

Within the overarching theme of financial inclusion, we analyse four areas:

  • Accessing online banking in emerging markets

Nowhere is the relationship between financial inclusion and economic growth more prevalent than in emerging markets. There is opportunity in a variety of regions which are poised for change, and industries which can help facilitate access to crucial products and services.

Economic growth in India and the emergence of a growing middle class have led to a rise in demand for financial services that have previously been out of reach for all but a relatively small percentage of the population. This growth offers the potential for good returns to shareholders, whilst doing a huge amount of good for society.

HDFC Life insurance company is a top ten life insurance provider in the growing Indian market, offering traditional insurance, annuities and the domestically popular unit linked insurance plans (ULIPs). These products unlike traditional term insurance, carry an investment value which provides customers with both life cover and an investment value, linked to the performance of the financial markets. HDFC Life are an omnichannel insurer with both an online presence and access to bancassurance customers through HDFC bank’s significant branch network. This provides a steady stream of bank clients and enables the company to broaden its reach within the market.

  • Driving efficient pricing

Developments in the insurance sector should have the knock-on effect of helping underwriters better identify risk and drive more accurate pricing. As the effects of climate change continue to be felt across the globe, companies which develop more sophisticated technology can run better modelling to insure homes and businesses against the risks of fires and floods. Satellite imagery and artificial intelligence enables a far more granular assessment which should lead insurers to price risk more efficiently and improves the cost of reinsurance – eventually bringing down costs for households.

  • Providing capital to genuinely sustainable companies

In developed markets, data-driven exchanges, such as the MSCI or the London Stock Exchange, are making significant strides in terms of developing products which can facilitate investment to companies which have a positive impact. The access to clean and comparable data they provide makes for more efficient allocation of capital towards a more sustainable economy: the leading companies will naturally receive more investment than the laggards. A more accurate market mechanism therefore incentivises companies to operate in a genuinely sustainable way, which will have a clear benefit for wider society.

  • Identifying the relationship between food productivity and food security

One unignorable development from the past year has been food price inflation, as supply chains have been severely disrupted by the war in Ukraine. In the longer-term, sourcing sufficient food to feed the global population in a way that does not have a detrimental impact on the environment is one of the key challenges for the global economy over the next 15-20 years.

Deere & Co. for example, has pioneered the use of ‘see and spray’ fertilisers, which are able to cut fertiliser use by around 70%. This has a dual impact upon agricultural yields. On the one hand, lower use of fertilisers reduces costs for food producers – thereby keeping prices down for consumers – while also limiting the detrimental impact of heavy fertiliser use upon topsoil, thereby ensuring that land is more fertile. The yield increases relative to land use, prices remain affordable, and the result is a greater food supply at a lower cost to households and the environment.

Food productivity is a theme indelibly tied to so many elements of a sustainable society. Without being guided by these sorts of megatrends, it is arguably difficult for investors to recognise structural growth opportunities which can have a profound impact on returns. It is also far more difficult to ensure that capital within an agricultural value chain is being directed in a way which can benefit society more broadly.

Taking a thematic, growth-centred approach to investment forces you to consider what shape the world will take over the next few decades – and where the opportunities lie in those companies doing incredible work, and as a result we have an ever-growing set of causes for optimism.


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...