Four Ways to Integrate Gender in Financial Inclusion Investments

A growing number of financial inclusion investors want to be more intentional about achieving positive gender outcomes through their investments in financial services providers (FSPs). They recognize that improving women’s financial inclusion outcomes can contribute to achieving women’s empowerment and gender equality. However, to achieve this, they need to move beyond simply counting the number of women who can access and use financial services. 

CGAP has long argued that how funders work is fundamental in shaping their ability to achieve long-lasting financial inclusion impact, including contributing to improvements in women’s economic empowerment (WEE) and gender equality. This also applies for impact investors, and begs the question: How can impact investors focused on financial inclusion be more intentional about integrating gender throughout the investment cycle to improve women’s financial inclusion and contribute to WEE and gender equality?

This year, CGAP engaged with a range of financial inclusion investors and found that several are more intentionally integrating gender into various stages of the investment process. While still early on, we’d like to highlight four emerging practices that some investors are using. 

1. Embedding gender in investment approaches

An investment approach, including the investment thesis and follow-on strategy, that explicitly incorporates gender helps ensure that all investment decisions contribute to a larger goal of achieving women's financial inclusion and can serve to align investment decisions with the investor's objectives, risk tolerance, and values. These guiding documents should be based on robust gender analysis, including consideration of gender norms. Bringing in-house gender expertise or collaborating with external organizations who have in-depth knowledge of local gender dynamics can inform and shape these processes. By analyzing and understanding gender dynamics early in the process, the investment thesis and strategy can be better tailored to address women’s financial inclusion and potentially contribute to WEE and gender equality.  

The ARISE program, funded by the Government of Canada and implemented by Criterion Institute, 2X Global, and ANDE, is driving this point home by establishing standards for gender analysis to ensure they reflect deep analysis of gender and power dynamics and leverage the knowledge of gender experts. In addition, FinEquity recently published a resource guide that provides a starting point for understanding what data is available and how to analyze sex-disaggregated data to measure women’s financial inclusion.  

The Ilu Women’s Empowerment Fund is an example of embedding gender in the investment approach. Drawing on one of its founding partners, Pro Mujer’s extensive knowledge of the local context the fund incorporates gender considerations into every stage of its investment life cycle, ensuring each investment advances gender equality in the companies invested in and their communities of influence.   

“Having women clients does not necessarily mean that their needs are actually being met. Having one additional female board member does not necessarily mean that women’s voices are truly heard more. We need to go beyond the mere measurements to understand the intentionality behind these indicators to contribute to continued progress in gender equality.”

Noemie Renier, Head of Debt for Financial Institutions, Incofin

2. Establishing and measuring gender outcomes 

With a stronger gender focus in their investment approach, investors are well-positioned to translate their commitments into gender-related goals and targets. While the 2X Criteria are an excellent starting point, additional indicators are needed to measure more meaningful gender outcomes. For example, the Impact-Linked Fund for Gender Inclusive Fintech managed by Roots of Impact seeks to measure gender outcomes such as livelihood improvements for female clients, improved financial health of female clients, or increased asset ownership for female customers. In addition, FinEquity has developed core indicators to measure WEE in financial inclusion that will be tested with FSPs and might also be relevant for investors.

It is common practice among investors to use a co-creation process for customized metrics reflecting the specifics of each transaction. This not only ensures that metrics are realistic but also increases buy-in from the FSP or investor and ensures alignment with their commercial objectives. For example, when developing gender outcomes with fintechs, Roots of Impact uses a collaborative, in-depth process with each firm to select metrics that work best for their business model and boost additionally. 

Measurement and management systems are equally important to the development of metrics, with regular check-ins to evaluate processes and adjust indicators as needed. Many investors provide technical assistance to strengthen FSPs’ impact measurement and management systems.

3. Managing investments in customer-centric FSPs 

To enhance the value proposition of financial services for women, impact investors can encourage investees to become more customer-centric. The experience of Athena Global, an impact finance and advisory firm, shows that a deep commitment to customer-centricity in the FSP’s business model will allow them to continue serving their clients in the long term. Such an approach puts customers — in this case, women — at the heart of solutions, builds on insights about their lives, and creates institutional culture, capacity, and processes that provide long-term value for both female and male customers. 

This starts from data collection and analysis, product design, and the staff FSPs hire, retain, and promote.  Athena’s lending platform in Indonesia, works closely with business owners, especially those led by women, and offers them unsecured, flexible financial products that are customized to the needs of each business. As indicated by founder Kaylene Alvarez, “We meet our clients where they are, not where we want them to be.”  CGAP’s assessment to gauge an FSP’s level of customer-centricity and other customer-centricity resources could be adapted for investors’ due diligence questions and portfolio management tools. 

"We meet our clients where they are, not where we want them to be.”

Kaylene Alvarez, Founder, Athena Global

Sex-disaggregated data is integral in understanding women’s needs and behaviors, which thereafter informs the nature of solutions, products, and services that meet their needs. It also requires an understanding of gender norms and the root causes of gender inequalities for the end customer. Given this level of analysis is often beyond the capacity of FSPs, technical assistance providers are increasingly being brought in to offer this support. Investors can carefully identify investees who are willing to explore the use of data to achieve this goal. 

For example, Developing World Markets (DWM) co-developed an assessment tool with Criterion Institute to support its portfolio management and analyze how gendered power dynamics are integrated into core business processes of some of its FSP investees. This allowed for increased awareness among FSPs of gendered social norms and any unconscious biases they have, as well as opportunities to integrate gender considerations into business processes, such as product design.

Investors with technical assistance and active governance roles can use these levers to drive organizational change management and provide capacity building to FSPs to transform into more customer-centric institutions. 

4. Integrating gender outcomes into deal structuring

There is growing recognition that gender should be intentionally integrated into deal structures to create a clear path for achieving gender outcomes. For example, Roots of Impact and IDB Invest are using impact-linked approaches to financially reward gender outcomes by deliberately “baking” gender outcomes into deal structures. Such approaches create financial incentives for FSPs to achieve gender targets in the form of reduced interest rates, for example. Incentives can promote the transformation of FSPs to internalize impact and ensure a deep commitment to customer-centricity.  

These approaches to impact investing are still nascent and more evidence is needed in terms of their effectiveness. Nonetheless, they seem to play a promising role in supporting more effective women’s financial inclusion by incentivizing impact in a very concrete way.  

Where do we go from here?

While CGAP is encouraged to see investors taking the lead on more deeply integrating gender, we recognize that there is still work to be done. Gender must be more deliberately included in the investment thesis to ensure that gender is reflected in the entire investment process and thereby increase opportunities for impacts on WEE. It is imperative to also have buy-in from senior leaders who can champion gender integration.  

More examples, benchmarks, and peer learning that showcase the benefits are needed to accelerate this level of integration. Advocacy for policy changes and partnerships with limited partners/shareholders to encourage and prioritize gender integration are also key avenues to further explore. Finally, to ensure investments accelerate WEE, investors must invite gender experts to the table to ensure knowledge of local gender dynamics are woven into the investment approach. 

Many of the themes reflected above will be further explored as part of CGAP’s new five-year strategy (2023 – 2028), which includes a focus on impact investing and the mobilization of financial services for women and MSEs to capture economic opportunities. We hope these initial insights will spark continued dialogue on opportunities and challenges.

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