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Invest for Equality: Gender Lens Impact Investing
January 22, 2018
By Women’s World Banking
Almost every company, be it in technology, consumer goods or finance, says they want to “do well by doing good.” Investors, who apply that same philosophy, can use a gender lens to deploy capital that advances a social good—gender equality—and earn a financial return simultaneously.
In the 2000s, the microfinance industry came into its own. The idea popularized by Muhammad Yunus with Grameen Bank in Bangladesh 30 years prior—that the poor could be profitably and sustainably served with financial services—had proven its case and the small non-profits and grass roots organizations that modeled themselves after his group lending model had achieved sustainability and commercial viability. Many institutions across the world were transforming into formal, commercial enterprises that were now able to offer much more than a group loan. As the industry grew, it also evolved, from simple microlending to a fuller suite of financial services that truly met the definition of financial inclusion for the poor and low-income people previously excluded from the sector.
Why focus on women as clients
More than half of the unbanked people in the world are women. Even as 700 million more people became financially included between 2011 and 2014, the gender gap was a persistent 7% across the globe, 9% among the emerging markets. This represents an untapped market opportunity for financial institutions, one that offers good returns for the institution. A 2010 study we commissioned found a positive correlation between the percent women clients and institutional growth, return and credit quality. The study showed that as the percent of women clients goes up, ROA goes up and non-performing loans go down. And as more and more institutions serve women with financial services, the industry simultaneously unlocks the positive impact women’s access can have on development outcomes such as health, education, food security, and water and sanitation.
This development however, came at a cost. An industry founded to bring financial access to low-income women was experiencing mission drift: as institutions transformed, they began serving less and less women. Perhaps more tellingly, the number of women in senior leadership at these institutions also declined significantly… troubling, since many of the founders and early leaders of the founding nonprofits were women.
A gender lens impact investor is born
Women’s World Banking watched these developments with concern. We knew we could slow this trend with our technical assistance and our gender diversity programs but even more powerful could be our role as an investor. Having an ownership stake in the companies at risk for or currently experiencing mission drift would provide us access to management and, more importantly the voting power to influence these companies to staying focused on women. And so in 2012, WWB Asset Management (WAM) was born and we launched the Capital Partners Fund, the only women-focused, women-managed microfinance equity fund in the impact investing space.
Gender lens investing belongs to a subset of Socially Responsible Investing (SRI) called Impact Investing. As opposed to SRI investments that mainly achieve social responsibility by selecting investments that meet an environmental, social or governance standard, impact investing actively seeks, in the deployment of private capital, a specific and quantifiable social return as well as a financial return. Investors that use a gender lens investment strategy aim to advance gender equality by investing in one of three ways: 1) in women-led businesses; 2) in institutions with gender-diverse staff and leadership; or 3) in companies that advance gender equality through their products and services.
By investing in women-focused financial inclusion companies, WAM combines all three approaches of gender-lens investing:
• WAM prioritizes financial inclusion companies that meet the definition of “women-owned”;
• It targets financial inclusion companies that are achieving standards of gender diversity at staff, management and board levels, and
• Its investees promote gender equality through the financial products and services they provide to women clients.
The Capital Partners Fund currently has US$50 million under management with 8 investments in 7 countries. Collectively, these portfolio companies serve more than 4 million low-income people, 82% of whom are women. Beyond the standard financial performance indicators, investees report on a set of gender performance indicators that track gender-disaggregated data on client and institutional gender diversity metrics.
As of 2016, Capital Partners’ portfolio companies consistently outperform their country peers on both client and diversity gender metrics: they have more female borrowers, staff, managers and board members. WAM also completed its first successful exit in 2016 when it divested from Ujjivan Financial Services at 2.4x return on investment capital in the biggest microfinance IPO in India’s history.
Enabling superior performance with Women’s World Banking
Why focus on women as talent
Portfolio companies benefit from the Fund’s relationship to Women’s World Banking, with its nearly 40 years’ experience serving the low-income women’s market. Capital Partners, through Women’s World Banking, is able to provide portfolio companies with added value—from market insight, expertise in women-centric product design or leadership training—to increase shareholder value. Among the programs available to portfolio companies is the Credit Suisse- supported Leadership and Diversity for Innovation Program (LDIP), a one-year program that partners a senior executive in a women-focused inclusive finance company with a high-performing woman leader, developing their skills to successfully serve low-income women while charting a path for more diverse leadership within the institution. Through leadership programs such as LDIP, Capital Partners and Women’s World Banking help advance portfolio companies’ double bottom-line.
Gender lens investing is not about pursuing gender equality as a social good for its own sake… it is also a strategy for financial outperformance. Investing in women as clients and as talent leads to stronger institutions, better returns and a more equitable world and we hope to see more investors apply an active gender lens investing methodology to their portfolios.