How can investors use equity funding instruments to achieve sustainable impact?
Equity as a funding instrument is particularly important for the responsible development of financial markets. Through purchasing shares in financial services providers (FSPs) and other types of institutions, development finance institutions (DFIs) and social investors have three distinct opportunities to shape market players at each of these leverage points:
Entry: decision to invest in a company;
Governance: shaping direction and growth of company;
Exit: decision to sell shares.
In turn, they are able to influence how markets develop by driving competition, promoting innovation, improving market efficiencies, and providing an example to crowd-in others and ultimately better serve customers.
This Focus Note explores how DFIs and social investors can use their equity funding instrument to contribute further to the development of financially inclusive markets and achieve sustainable impact.