This sector profile focuses on gender-based opportunities and gender-smart investing as an investment strategy. It aims to support investors and fund managers to identify existing and future opportunities for gender-smart investing in the financial institutions sector. See CDC’s full Gender Sector Brief for the evaluation of financial institutions investments, including screening and due diligence questionnaires and quick facts.
Gender-smart investing and financial inclusion are smart business. We know financial institutions that perform well on gender inclusivity return greater profit. We also know that women’s demand for financial services is increasing, yet often unmet. This presents a significant business and impact opportunity.
Adopting gender as an investment strategy can also help investors catalyse their impact on the United Nations Sustainable Development Goals (SDGs). There is significant potential for investors to shape gender outcomes in line with SDG 5 on gender equality, SDG 8 on decent growth and economic growth, SDG 10 on reduced inequalities. In addition, financial inclusion is an enabler of other SDGs, featured in 8 of the 17 SDGs. These include SDG 1, SDG 2, SDG 3, SDG 5, SDG 8, SDG 9, SDG 10, and SDG 17.
Guidance on ESG issues and opportunities linked to the financial institutions sector, including gender-based environmental and social risks, is provided in the CDC ESG Toolkit for Fund Managers.
Why take a gender lens to financial institutions investments?
- Business case
- Improving financial and organisational performance. A number of cross-regional studies observe a positive correlation between greater levels of gender diversity at the executive level and higher likelihood of financial and organisational outperformance. A 2014 McKinsey study of 210 African companies showed that, for organisations with 30 per cent of board positions occupied by women, EBIT margins tended to be 20 per cent higher than the industry average. Comparatively, companies with no female representation on their board had an average EBIT margin of -17 per cent relative to the industry average. Around the world banks with a higher share of women on boards tend to have a significantly higher return on assets and lower non-performing loan rates.
- Tapping into the women’s financial market. There is a clear case to serve female clients with relevant and accessible financial products and services. Women-owned enterprises account for 30-37 per cent of all SMEs in emerging markets and face a $320 billion credit access gap worldwide. Women are often their household’s ‘money managers’ and women customers are also creditworthy (tending to have lower nonperforming loans), save at a higher rate than men and have a higher net promoter score and rate of product cross-selling.
- Impact case
- Increasing financial inclusion for women. Only 73 per cent of women in sub-Saharan Africa and 36 per cent in South Asia do not have access to an account at a financial institution, compared to 62 per cent and 27 per cent of men respectively. The gender gap is driven by a combination of demand and supply side factors. Demand side barriers include sociocultural norms (e.g., mobility constraints) restricting women’s access and usage. Supply side barriers include high collateral requirements, traditional Know Your Customer (KYC) requirements and limited innovation to develop relevant products and services for women. For example, low-cost structured savings solutions support women to save effectively and manage their daily and often competing needs.
Gender-smart investment process
- 2X ScreeningThe investor should answer 2X-aligned screening questions before the deal is submitted for approval. The questions below explore gender-based opportunities and focus on the company’s smart inclusion of women across its workforce and supply chain, and its efforts to serve female customers. Screening questions will help determine: (1) If the deal meets thresholds and/or qualifies under the 2X Challenge; (2) if there are potential gender-based opportunities to be explored further in due diligence.
See the Gender 2X Screening Questionnaire for this sector.
- Due diligenceGender due diligence is the process of gathering gender-related data and information from the potential investee company for analysis to determine whether gender gaps present opportunities that may impact performance and affect an investee company’s operations and financials. Deal teams can integrate these questions into existing due diligence workstreams (e.g. E&S, impact, commercial). The investor will collect the due diligence information and proceed to confirm 2X qualification; (2) confirm gender-based opportunities to determine whether to take forward compared to other impact investing themes. Selected sector-specific documents can also be requested to guide due diligence further.
See the Gender Due Diligence Questionnaire for this sector.
For gender-smart investors, due diligence on gender-based risks and negative impacts is an important aspect of ESG due diligence. Improper screening and poor management of gender-based risks can prevent effective gender-smart investing and have a detrimental impact on a company’s performance in terms of operational costs, reputational damage, stakeholder engagement, employee productivity and loss of confidence.
- Digital identitiesDigital IDs can help solve the critical barrier of lack of documentation. An estimated 45 percent+ of women do not have a formal ID, as compared with 30 percent of men, often driven by low levels of literacy. Countries such as India and Pakistan have successfully rolled out national digital identity programs – using biometric data to eliminate literacy as a barrier. Digital ID is a potential catalyst to improve women’s financial inclusion – opening a bank account, linking to government subsidies and developing a digital record to build a credit base that improves access to credit.
- Shifting financial systemsIncreasing regulatory focus on improving financial inclusion and addressing the gender gap. Recognising the need to improve the level of financial inclusion, regulators are increasingly developing national financial inclusion strategies and Financial Inclusion Secretariats, tasked with a broad range of coordinated interventions to drive financial inclusion. This includes setting specific financial inclusion targets, including for SMEs and women; facilitating partnerships with non-traditional actors, like mobile network operators (MNOs), to overcome structural and demand side barriers to financial inclusion; and designing enabling regulations that facilitate innovation (e.g. Payment Banks). This presents a huge opportunity to facilitate new models, including fintech, to develop new/hybrid products to expand cost-effectively and secure reach to new customers.
The following resources from CDC’s strategic partner, the Financial Alliance for Women, should help investors and fund managers further develop their gender-smart investing approach in the sector. Some of their latest tools include:
- FAFW, in partnership with CDC, How to Become an Employer of Choice for Women (2020)
- FAFW, The Economics of Banking on Women (2019)
- FAFW, The Power of Gender Data: Gender-Inclusive Digital Financial Services (2020)
- FAFW, Driving Change: Achieving Gender-Balanced Leadership in Financial Services (2020)
- FAFW, The Growing Opportunity of Women of Wealth: Defining Strategies for Success
Other industry resources include:
- Mercer, Gender Diversity in the Financial Services Industry (2020)
- IFC, Gender Intelligence for Banks: Moving the Needle on Gender Inequality (2017)
- GPFI and IFC, Strengthening Access to Finance for Women-Owned SMEs in Developing Countries (2011)