Financial Inclusion as an Impact Investment Strategy
Financial inclusion is at the heart of our impact investment strategy. Properly structured access to working capital has tremendous potential to build trust and sustain the momentum of small business growth, building a foundation for economic stability in vulnerable communities.
Advance Global Capital (AGC) promotes financial inclusion through invoice discounting for small and medium-sized enterprises (SMEs) in emerging and underserved markets. We target regions where we can have a lasting impact because the SME community is underserved by financial services and shows potential for growth. By working with local partners to establish rigorous lending practices and offer competitively priced funding, we develop local capacity, lasting financial inclusion, and a more stable financial ecosystem.
Targeting the Missing Middle
The middle of the market drives economic growth and job creation. In developed countries, small and medium-sized enterprises (SMEs) represent 50% of the GDP and 60% of employment. In developing countries, SMEs only account for 17% of GDP and 30% of employment. Developed economies are powered by a large number of SMEs and a healthy distribution of medium to large firms. Developing countries show a sharp spike in microenterprises and a slight bump in large firms with a lack SMEs in the middle to drive job creation and economic growth.
Source: Entrepreneurial Finance Lab Research Initiative, Center for International Development at Harvard University.
Virtuous Circle of Growth
Providing working capital to SMEs at the right time enables them to grow and expand the middle market, creating a virtuous circle of financial inclusion. As businesses expand they employ more people and generate more economic activity in their community, resulting in increased wages and market demand. When more small businesses can say “yes” to opportunity, they become engines of job creation, economic growth, and social stability.
A stable financial ecosystem develops from the prudent allocation of capital by financial institutions and investors—particularly when it’s directed to the unmet needs of SMEs. AGC funds independent financial institutions that focus on building their book by offering invoice discounting to the missing middle of the market. We help our partners refine legal, know-your-customer, and better operational practices to ‘up their game’. They build customer relationships, evaluate the risks and rewards of allocating capital, and help their customers grow and thrive. No one knows better how to unlock the potential of a small business than the local financial institutions that serve it.
Impact Results to Date
To make lasting social change takes time. In our first years, AGC has focused on calculating success based on our ability to establish financial relationships. We have built awareness of invoice discounting as an alternative to expensive overdrafts, slowing growth or closing their doors (what SMEs do when capital is not available).
Alignment to Global Sustainability Standards
As we grow, we will report on key social metrics defined by Impact Reporting and Investment Standards (IRIS) with a particular focus on job growth and financial inclusion for women. Our investment process follows the World Bank’s International Finance Corporation’s sustainability guidelines for environmental, social and corporate governance, and applies fossil fuel free criteria.
We also align to goals 8 and 9 of the United Nations Sustainable Development Goals: