By Laura Quinn and Gauri Sharma
With hundreds of millions of unbanked customers, leapfrogging growth in digital access, high economic growth, and multiple underserved financial markets including agriculture, SMEs and affordable housing, emerging markets are increasingly proving a tremendous growth opportunity for the financial services sector. This is true particularly for India, as under Priority Sector Lending (PSL), all scheduled commercial banks have to disburse 40% of their loans (adjusted net bank credit) to defined priority sectors, such as agriculture and allied activities, micro enterprises and weaker sections of society. However, as competition in existing commercial sectors increases, banks are no longer looking at these sectors as mandates, but more as opportunities and future growth drivers. They are innovating around provision of socially-inclusive, sector-specific products and investing in delivery models that ensure that these products and services reach the bottom of the pyramid.
But simply providing unbanked or underbanked consumers with financial products and services is no silver bullet, either for the industry or for customers themselves. Without the knowledge, understanding, and financial capacity to use those products and services effectively, customers will struggle to become financially sustainable in the long term and companies will, in turn, struggle to build truly sustainable customer bases.
It’s within this fast-paced atmosphere of growth and opportunity that financial services companies in India can leverage smart Corporate Social Responsibility (CSR) strategies to create game-changing “shared value”, enabling and empowering underserved consumers and communities on their journey to financial sustainability while building a pipeline of future customers for the financial sector.
In our work with DHFL, one of India’s largest housing finance companies catering mainly to low- and middle-income consumers, we have been able to leverage CSR as part of a holistic capacity-building programme for consumers. The company’s already socially-inclusive business model is being supplemented with a financial literacy and facilitation programme that assists EWS consumers to transition from informal to formal housing. The programme has been designed to tackle challenges faced by EWS consumers to transition into formal housing – financial awareness, understanding complex financial systems and products, assistance with paperwork, legal formalities etc. The programme is being undertaken in partnership with a national NGO, SAATH, to build a holistic communications and facilitation campaign that will reach around 7,000 people in this financial year.
In this way, socially-inclusive products and services can be combined with tailored, capacity-building interventions to ensure business growth that is both inclusive and sustainable – and through such interventions improve the quality of life and economic capacity of consumers and entire communities. In turn, as consumers become more financially capable, financial services companies can gain access to a growing base of loyal customers, each using an increasing number of products as they move up the financial value chain. Additionally, responsible companies build positive reputation as the “institution of choice” among beneficiary communities.
Such interventions can be implemented across multiple verticals depending on business priorities and the needs of customers and target communities. For example, financing for agriculture has proven to be more effective when coupled with non-financial services such as livelihood-enhancement interventions to improve yield, increase access to markets, or acquire better prices for produce*. Similarly, the SMEs can benefit more when financial services are packaged with business toolkits, workshops and advisory for SME customers. Barclays Africa’s Business Club provides non-financial services to SMEs such as business seminars, trainings and opportunities to expand their network beyond Africa. The bank has found that, on average, its Business Club members generate twice as much income as non-member clients**.
By combining smart CSR strategy, effective partnerships and strong programme management, financial services companies can create a virtuous circle that marries social impact with business benefit across almost any sector.
With the fast pace of development across emerging markets, a surge of consumers and communities are entering the purview of formal financial services for the first time and it’s becoming increasingly evident that a “beyond business” approach is not just a responsibility for the financial services industry but a valuable business opportunity. The question is no longer whether the financial services sector should go “beyond business” to create social impact, the question is whether it can afford not to.
*Innovative Agricultural SME Finance Models, International Finance Corporation, World Bank, November 2012
**Why Banks in Emerging Markets are Increasingly Providing Non-Financial Services to Small and Medium Enterprises, , International Finance Corporation, World Bank, May 2012
A version of this article was originally written for Outsized Group