Investors are looking at ways to contribute to economic development and entrepreneurial activity by investing in inclusive finance. As with all investments, these can also carry potential financial and reputational risks. To mitigate such risks, a group of institutional investors launched the Principles for Investors in Inclusive Finance (PIIF) in 2011. The PIIF are housed within the PRI Initiative and provide investors with specific guidance on responsible investment in inclusive finance.
The inclusive finance modules in the PRI Reporting Framework are based on the PIIF. 52 PRI signatories reported to these modules in 2013-2014, making this the largest data gathering exercise on responsible investment in inclusive finance. It is a significant step for the industry, providing a unique body of data and insight into some of the most important inclusive finance investors’ responsible investment beliefs and practices.
Their responses show that investors are actively addressing the issues covered in the PIIF. There is strong consensus on how to address client protection, how to measure and integrate social performance factors and on the importance of expanding the range of financial services. There is a high level of transparency, both at the level of the investor and the retail institution. There is less consensus, however, on how to address governance issues at the retail institution level and how to ensure that retail institutions are being fairly treated by their investors.
Overall, the responses are encouraging and show that investors in inclusive finance are interested in the impact they have on the ultimate clients of inclusive finance. Yet work needs be done to maximise this impact. More indirect investors (pension funds and other investors who use external managers to invest on their behalf) should include consideration of PIIF in their selection, appointment and monitoring of fund managers and other intermediaries. Direct investors could do more to engage and support the retail institutions in which they invest. While many say they are doing something, few report they have formalised policies and processes or have training or incentive schemes in place. The full impact of their intentions may therefore remain unrealised.
Investors in inclusive finance will find this report useful in understanding what their clients and peers are doing and how they can improve their own practices. Many of the issues covered in PIIF are likely to be relevant for other types of investments that target financially excluded groups. I hope that the results will be used by the broader impact investment industry and we can say the industry follows good investment practice and assume that includes the implementation of the PIIF as a given.