The Business Case for Gender Intentional Investing: Insights from #FinEquity2024

Financial inclusion remains a crucial step toward the economic empowerment of women, and to that end, gender lens investing has emerged as a powerful strategy to uplift women-led micro, small and medium enterprises (MSMEs). The #FinEquity2024 Annual Convening brought this conversation to the forefront, exploring how gender lens investing can not only empower women but also drive sustainable economic growth. For Impact Investors and financial service providers (FSPs) keen on making a tangible impact, this approach offers a pathway to combine financial returns with social progress.

There is a business case for investing in women

As financial inclusion stakeholders, we often discuss the importance of investing in women and serving women entrepreneurs.  Mary-Ellen Iskanderian from Women's World Banking underscored the transformative power of financial inclusion, detailing how Women’s World Banking Asset Management (WAM), a pioneer in gender lens investing, has strategically deployed USD 153 million through investment in financial institutions to realize impact for women as customers, suppliers, leaders, employees, and full participants in the economy. WAM’s approach to gender lens investing goes beyond mere capital allocation, embedding gender considerations into portfolio selection, due diligence processes, board roles, and capital rounds.

As a result, Women's World Banking has seen a clear correlation between portfolio companies having more women in leadership positions and serving more women clients. Additionally, companies with over 50% women clients demonstrate faster portfolio growth (up to 38% higher revenue growth), better portfolio quality (30% lower non-performing loans), and stronger key financial metrics as outlined in WAM’s recent impact report.

A gender intentional approach is key to realizing the business case

Rachel Murphy from Deetken Impact shared insights from the ILU Women’s Empowerment Fund, a joint effort between Deetken Impact and Pro Mujer. Similar to WAM, the ILU fund has a comprehensive approach to integrating gender considerations across the investment lifecycle. Using a gender scorecard (part of their Gender Lens Investing toolbox), the ILU Fund establishes three to five specific, actionable gender objectives upfront in all investment contracts aligned with company growth plans. Objectives span adding women leaders, designing products for women entrepreneurs, or offering complementary services. The fund then provides technical assistance, capacity building, data tools, and hands-on support to their investees so they can achieve their gender objectives. Their initial portfolio monitoring found that over a two-year period 50% of gender objectives have already been fully achieved and 25% were in progress.

Highlighting a novel approach, Natasha Dinham from Roots of Impact discussed the Impact-Linked Finance Fund for Gender-Inclusive FinTech. The fund’s innovative approach focuses on providing "impact incentive" payments to fintech companies after achieving pre-defined gender impact metrics. This outcomes-based model leverages social impact incentives to encourage fintechs in emerging markets to be intentional in their gender goals and pursue deeper gender impacts, going beyond surface-level metrics to foster real socio-economic change.

Insights from Rachel Freeman on Tyme Group banks in South Africa and the Philippines, which serve over 11 million customers, showcased gender intentional user-centric models that drive strong outreach. In its fourth year of operation in South Africa, 54% of Tyme Bank’s 8.7 million customers are women, and 76% are low-income. The bank’s merchant cash advance MSME product underwrites using only three months of transaction data, avoiding potential gender bias. This has enabled an increase in women-owned business lending from 39% to over 65% in just one year.

Data emerged as a critical enabler for realizing the business case

The discussion also shed light on the importance of data and measurement in gender lens investing. Mary Ellen highlighted how access to portfolio data definitively proved correlations between having more women in leadership roles and better service of women clients. However, a systemic lack of quality gender-disaggregated data remains a persistent challenge across the industry. Natasha stressed that rigorously verifying impact achievement requires robust outcomes-level gender data, which is often unavailable. Roots of Impact’s innovative impact incentives model attempts to create virtuous cycles generating this valuable gender data. Rachel from Deetken emphasized the importance of robust data management systems and processes. Simply having the raw data is insufficient if it cannot be easily accessed, analyzed, and applied to inform investment decisions. Deetken Impact utilizes comprehensive tools like their gender scorecard analyzing over 150 gender considerations.

Rachel from Tyme highlighted how their robust data analytics capabilities allow them to quickly generate gender-disaggregated metrics on their customer portfolios across markets. They have developed algorithms and processes to dynamically analyze and report on breakdowns like gender, youth, and other segments whenever needed with fast turnaround times. Tyme’s data analytics capabilities position them well to measure impact and make informed choices as they expand digital financial services for women across regions.

All the speakers emphasized that key metrics to gauge the depth of impact on women's lives and livelihoods should extend beyond quantitative measures. Beyond quantifying the number of women reached, it is crucial for investors and investees to assess changes in women entrepreneurs’ socio-economic status, such as income and savings increases. This nuanced approach avoids assumptions and seeks to understand the real effect on women's lives and businesses. This outcome-oriented approach, coupled with the flexibility to adjust strategies based on actual learnings, underscores the evolving nature of gender lens investing.

Considering the role of enabling policy

From a policy perspective, Audrey Hove of the Alliance for Financial Inclusion echoed some of the panelists’ views and stressed that "understanding and meeting the unique needs of women-led businesses requires business definitions, rigorous data, and intentionality”.  She acknowledged that while gender disaggregated data is a key enabler for increasing access to finance for women entrepreneurs, it is still a challenge. 95% of regulators now have national financial inclusion strategies with targets for women, only 31% of low-income economies have demand-side gender data available and even fewer have supply side gender-disaggregated data. Recognizing that regulators need to do more, she emphasized that the need to create an enabling environment, potentially through technologies for regulatory compliance (RegTech), for financial service providers to supply quality gender data. She also recommended collaborative data governance models like "data committees" with national statistics offices, regulators and providers to agree on the data required, ensure it flows, gets analyzed meaningfully, and can inform evidence-based policies.

Looking forward

For financial services providers and impact investors in emerging economies, the call to action is clear: adopt and refine gender lens investing strategies to unlock the full potential of women-led MSMEs. This requires a commitment to a gender intentional approach, continuous learning, adaptation of metrics based on real-world outcomes, and collaborative effort to gather and analyze data. Widespread, quality gender-disaggregated data is foundational to inform product/service design, growth, and agile adaptation based on outcomes.

For impact investors who are pivotal players in the GLI landscape, by embedding gender considerations into every stage of the investment process and setting clear gender objectives, investors can ensure that their capital contributes to a more equitable and inclusive financial ecosystem. Tools such as the ILU Fund’s gender scorecard fund enable investors to monitor progress and adapt strategies, ensuring investments genuinely empower women entrepreneurs.

To support impact investors and FSPs in this journey of defining and operationalizing a gender lens, FinEquity will be publishing a peer-reviewed curated list of tools and resources as a part of a forthcoming Knowledge Guide. If you would like to share your own tools, publications, and case studies on this topic, please reach out to us by April 26th, 2024 via e-mail (nsingh8@worldbank.org) or through the FinEquity DGroups or Linkedin group.