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Grows Up

The global industry that serves low-income borrowers has become large, profitable, and diversified. Investors who want to help reduce income inequality must identify which parts of the industry are still making an impact.


Access to financial services is key to human development. Since 2011, bank account ownership worldwide has increased by 50%, to 76% of adults, according to the World Bank. As hundreds of millions of people have gained access to the financial system for the first time, the microfinance industry that serves low-income borrowers has grown from a niche not-for-profit provider of small business loans into a large, diversified commercial banking industry serving 200 million people.


Investors who want to make an impact on reducing global inequalities can use impact metrics to measure a company’s revenue involvement in activities aligned to that sustainability goal. Morningstar Sustainalytics tracks three revenue metrics aligned to reducing inequalities: the provision of credit to low-income or disadvantaged borrowers; the provision of financial services to low-income or disadvantaged borrowers; and the provision of mortgages to the same customers.


Sustainalytics counts 13 publicly held financial institutions with revenue involvement in one or more of these categories. All 13 companies champion financial inclusion as core to their mission and purpose. According to Sustainalytics, four of them derive less than 5% of their revenue from low-income or disadvantaged customers; three derive between 10% and 24.99%; four derive between 25% and 49.99%; and two (Aavas Financiers, an Indian housing finance company, and Spandana Sphoorty Financial, an Indian rural lender) derive over 50% of their revenue.


Aavas Financiers reports on a single business segment: lending to borrowers. It also reports that 63.4% of its gross loan assets are from low-income customers. By contrast, Bank Rakyat Indonesia reports many different business segments, including financial services, treasury, and cash-management services. The company says it focuses on lending to low-income borrowers but does not disclose revenue. When a company’s mission is aligned with a sustainability goal, but it does not disclose segment revenue derived from that goal, Sustainalytics assigns a 1% alignment.


Some of the 13 financial institutions with revenue alignment to reducing inequality have their roots in microfinance but have since diversified. For example, India’s Bandhan Bank got its start lending to the unbanked in Kolkata but has since transformed itself into a universal bank serving all Indian customers. Others, like Bank Rakyat Indonesia and Banco del Estado de Chile, are large, established national banks that have operated since long before the emergence of microfinance in the 1990s but have put a focus on low-income borrowers.
percentage revenue involvement in reducing income equality

Data Source: Morningstar Sustainalytics


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