About 50% of world adult population lack access to financial services such as bank accounts, insurance and credit facilities.
Finance is essential for innovation, business development and job creation. Loans and saving facilities can also facilitate entrepreneurship and reduce vulnerability of individual households.
One of the targets of the eight Sustainable Development Goal set by the United Nations is "Strengthening the capacity of domestic financial institutions to encourage and expand access for all to banking, insurance and financial services".
Economic growth and job creation
Financial institutions contribute to economic growth by promoting the entry of new firms, encouraging enterprise growth, encouraging innovation and reducing risk. However, 200 million micro to medium businesses in developing countries lack access to affordable financial services and credit. Investing in financial institutions that have SMEs and unbanked as their main target group and provide them with the capital they need to serve their customers is therefore a focus area for Norfund.
In Sub-Saharan Africa, only 6% of adults have borrowed from a financial institution. Increased accessability and effective tools for saving, sending and borrowing money can help to reduce peoples vulnerability in times of crisis such as illness and poor harvests. Financially excluded individuals are forced to use cash, physical assets or informal providers to meet their financial needs. Such informal mechanisms can be insecure, expensive and complex.
12% of adults in Africa have a mobile money account compared to 2% of adults worldwide.
Travel distance is a major barrier to financial inclusion. Digital financial services, such as mobile money accounts contribute to connect poor people more easily to the formal financial sector.
A well-functioning financial system can promote gener equality. Female entrepreneurs and emplyers often face disproportionaly large barriers when trying to access finance. This prevents them from participating fully in the economy and from improving their lives. Digital financial services is one tool that has enabled more women in poor countries to use formal financial services. This has in turn provided them with more financial authority within the familiy.
Products and services for SMEs
SMEs are diverse in terms of size, sector and financial needs. Therefore are a broad range of financial products and services needed. Additionally, SMEs often find themselves squeezed between micro and large enterprise finance, "the missing middle": While microfinance institutions may not be able to provide large enough loans, commercial banks often perceive the costs and risks of serving SMEs too high.
Norfund therefore invests in financial institutions that are willing to focus on delivering financial services to SMEs and to previously unbanked people.