In recent years we have witnessed the ever-growing demands in creating inclusive financial products in a drive to lift low-income earners from poverty. The recommended initiatives are not only required to provide financial services to low-earning and excluded populations but consider environmental impact as well. All these efforts in place are delivering on what we call “Responsible inclusive finance.”

In this month’s tips we highlight important concepts in responsible inclusive financing and other related issues to provide insights to stakeholders.

Responsible inclusive finance (RIF)

Responsible inclusive finance is defined as financial services that protect and benefit low-income and excluded customers, employees, and the environment. Responsible inclusive finance means implementing social performance management, putting the client at the center of institutional decision making, and ensuring that products and services create value for clients.

This practice includes consumer protection by ensuring responsibility toward customers through appropriate products, transparency, data privacy, fair treatment, prevention of over-indebtedness, responsible pricing, and communication channels to handle complaints.

Few examples of responsible inclusive finance and the ways financial service providers can create value for low-income and excluded customers while also having a positive impact on society and the environment include: –

Microfinance

Microfinance institutions provide small loans to low-income individuals who do not have access to traditional banking services. These loans can be used to start or expand a business, pay for education, or cover unexpected expenses.

Mobile banking

Mobile banking allows customers to access financial services through their mobile phones. This technology has made it easier for people in remote areas to access financial services.

Socially responsible investing

Socially responsible investing (SRI) is an investment strategy that considers both financial return and social/environmental impact. SRI investors seek to invest in companies that have a positive impact on society and the environment.

In order to achieve financial inclusion and contribute to positive changes in the lives of customers it is important to have customer-centered management. There is no single formula to achieve strong customer-centered management; however, the microfinance sector has recognized a set of essential management practices that constitute “solid” responsible inclusive financial management.

RIF incorporates important elements of:

-Social Performance Management (SPM)

-Consumer protection

-The Sustainable Development Goals (SDGs)

-Customer empowerment

-Environmental sustainability

-Customer centricity

Responsible inclusive providers will:

-Protect customers from risk

-Create real value for customers

-Care for employees

-Respect and conserve natural resources

RIF includes elements of the following:

• Social performance which includes the effective translation of an institution’s mission into practice.
• Social performance management (SPM) which is defined as the implementation of management practices that translate the institution’s social mission into practice.
• Client-centered management, which is putting the well-being of clients at the center of all operational and strategic decisions.

At the international level, microfinance has been replaced with a responsible inclusive finance sector and SPM is being replaced with RIF.

For institutions that have a social mission, social performance is also relevant. In other words, it is about making an organization’s social mission a reality, whatever that social mission is. This is on top of the basic tenet that an institution should make sure it is not harming clients.

Commonly, accepted social values include providing financial and/or nonfinancial services to greater numbers of poor and excluded people, improving the quality and relevance of services offered, reducing poverty, creating certain benefits for clients (e.g., increased revenue from their businesses, greater sense of empowerment, decreased vulnerability), and improving an institution’s impact on the environment or the community, among others.

The goal of RIF is strong social and financial performance. Financial institutions that have a double-bottom line cannot know whether they are meeting the social goals set out in their missions without deliberately assessing their social performance. Doing these things has positive effects on the institution’s financial bottom line as well as the social outcomes it generates for clients.

There is a correlation between SPM and some improved business outcomes. For example, tracking and using social performance information to tailor products and services to clients’ needs and preferences cannot only improve the usefulness of those products and services for clients, but it also can increase client retention rates for the institution. Improving SPM scores has been shown to lower PAR. Putting clients at the center yields improved customer satisfaction.

A balanced approach allows the institution to pursue financial goals while also benefiting clients. This includes setting clear goals for social performance, incorporating those goals into your business plan, training employees on social performance and creating positive incentive structures to promote social outcomes.