Abbie Llewellyn-Waters, Fund Manager, Jupiter Asset Management Limited
Given the growing importance of ESG matters for DC schemes and their members – we look at one of the key social growth themes in the world today and how that growth can be harnessed within an active equity strategy – that of “financial inclusion”.
Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services – transactions, payments, savings, credit and insurance – that are delivered in a responsible and sustainable way.1 It has been deemed as critical in reducing poverty, hunger, gender inequality and achieving inclusive economic growth. The key fundamental benefits we believe should ultimately support the long-term trajectory of this investment opportunity include lower costs, greater transparency, more products, greater female economic empowerment and proven poverty reduction impact.
Digitalisation is at the core of enabling financial inclusion and providing basic financial services:2
- Cost savings through increased efficiency and speed: When Mexico digitised and centralised payments, the cost to distribute wages, pensions, and social welfare dropped by 3.3%—or nearly US $1.27 billion.
- Better transparency and security, which reduces corruption and theft as a result.
- Advancing access to a much wider range of financial services: In Malawi, farmers who were offered digital direct deposits for cash crops invested 13% more in their farms than those who received their crop sale proceeds in cash.
- Women’s economic empowerment increases by giving women more control over their financial lives: A recent IMF study showed increased female participation in the global economy for the bottom half of countries in terms of gender inequality, could increase GDP by an average of 35%.3
- Socially inclusive growth is enabled through building a more accessible, cost effective, transparent digitalised platform. This is critical in reducing poverty and achieving inclusive economic growth.
Digital infrastructure takes time to roll out. Nonetheless, Kenya stands out as the success story in mobile money penetration, with over 70% of adults having used mobile money in 2017, a figure larger than those who hold traditional bank accounts (only about 55% of adults).The widespread use of digital financial services in Kenya helped lift around 1 million people out of extreme poverty between 2008 and 2014. Farmers are managing risks and making investments that result in higher yields and incomes, supporting increased food supply and addressing limited access to food. Women are gaining more control over their finances, leading to less dependency and ultimately greater economic opportunities; thus, supporting gender equality and more broadly reducing inequalities. There is also the overarching job creation, facilitated by a modernised payment system, which acts as a social impact multiplier.4
To conclude, financial inclusion is a long-term structural growth opportunity with wide social benefits. We encourage investors to consider an investment strategy with exposure to companies that supply products or services addressing this broader social issue.
Important information: This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Issued by Jupiter Asset Management International S.A. registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. For investors in Switzerland and the UK: Issued by Jupiter Asset Management Limited which is authorised and regulated by the Financial Conduct Authority, registered address is The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ. No part of this content may be reproduced in any manner without the prior permission of Jupiter Asset Management Limited or Jupiter Asset Management