The 10-Year Challenge: How Has Financial Inclusion Funding Changed?

The “10-Year Challenge” meme spread rapidly across social media networks earlier this year. It quickly went viral as users shared photos of themselves separated by a decade. Inspired by this meme’s ability to highlight what can change over the course of a decade, we applied it to the financial inclusion sector. It has been 10 years since CGAP first started collecting data on international funding for financial inclusion. Looking back, it is clear that funding for the sector has grown, matured and evolved over the past decade. Here are some of the most noteworthy changes we’ve observed when it comes to funding levels and who is providing funding.

Funding has nearly quadrupled as DFIs have increased commitments and private funders have crowded in

Back in 2007, the combined public and private funding commitments totaled $11 billion. Public funders played an outsized role compared to private funders, with public funders accounting for 90 percent of total funding for financial inclusion projects. At the time, attracting private capital to the sector required public funders to play an important role in commercializing microfinance institutions (MFIs). Development finance institutions (DFIs) were the single largest source of funding, while bilateral and multilateral agencies focused on building capacity in the retail sector and on establishing an enabling infrastructure and policy framework. With just $250 million in commitments, foundations and private investors were just beginning to dip their toes into the financial inclusion waters.

Data from 2017 show a much-changed funding landscape. Total funding reached $42 billion, a nearly four-fold increase.

Public funders have increased commitments. Primarily, DFIs have nearly doubled their financing for the loan portfolios of financial services providers (FSPs). Additionally, a few DFIs are expanding their role to promote market development beyond investing in FSPs. For example, some are now supporting regulatory changes and providing advisory or technical assistance on critical market innovations.

On the other hand, private funding reached $12 billion in 2017, a 20-fold increase from 10 years ago. Private funding now exceeds the total funding for financial inclusion in 2007 and accounts for nearly one-third of overall commitments. The efforts of public funders to lower the risks of direct investments in MFIs and create different financing intermediaries, such as microfinance investment vehicles (MIVs), have been successful in attracting private capital. In 2017, private investors accounted for about 82 percent of the funding injected in MIVs. As a result, the number of MIVs has tripled in the past decade, from 40 in 2007 to 120 in 2017.

Private foundations have also contributed to the growth in funding. While these institutions represent only a small portion of total funding, their commitments to financial inclusion grew from $250 million in 2007 to $1 billion in 2017. And because they distribute 85 percent of their funding as grants, a flexible instrument, foundations can play a key role in addressing barriers to financial inclusion beyond capacity building for FSPs and other market actors.

Funding from bilaterals and multilaterals has dropped off

Meanwhile, the share of commitments from bilaterals and multilaterals dropped from 39 percent in 2007 to 16 percent in 2017. These funders are often more heavily influenced by country governments’ shifting priorities, which is likely why they are no longer in the driver’s seat when it comes to capacity building across the various levels of the financial system. In 2007, they represented around 80 percent of the commitments for building the capacity of the end clients, providers, infrastructure builders and policy makers. Today, they represent about 50 percent.

Looking ahead

The expansion of funders’ efforts over the past 10 years demonstrates a continuous focus on financial inclusion as an important enabler of the Sustainable Development Goals. It also indicates the level of sector maturity in terms of sustainability and value proposition with the emergence of private investors, and it pushes funders to think about their evolving roles.

Yet, more funding will not yield better results if it is not supported by a coherent funder strategy. Greater coordination is needed to ensure that funders focus on filling the longstanding gaps in the sector without duplicating efforts and that they build interventions based on their comparative advantage. Efforts like the CGAP Funder Survey, which provides greater transparency on funding for financial inclusion, can provide the data necessary to inform funding strategies and coordination to ensure capital reaches the projects and partners that can create the greatest impact.