Last week, I had the opportunity to speak at LendIt, an annual gathering which brings together venture capital and fintech communities for two days of conversations about how new technologies can transform how we save, borrow, build credit, and live our financial lives.
This is the first year that the LendIt conference included a financial inclusion track, and I’m thrilled that they built this new perspective into the event. In the past, LendIt’s attendees might have overlooked just how important fintech is to the financial inclusion movement and its tremendous potential to help the world’s three billion financially underserved.
I was invited to LendIt to address this dynamic and speak to how Accion’s impact investments advance social progress and create scalable, well-regulated, and profitable businesses. There, I joined Fortune’s Robert Hackett, who served as the panel’s moderator, as well as Quona Capital’s Monica Brand Engel, Omidyar Network’s Tilman Ehrbeck, and Prudential’s Miljana Vujosevic for a panel discussion about how our organizations pursue profits and purpose, the frameworks that we use to make sustainable impact investments, and the emerging technologies that we think have the most potential.
During the panel:
- Miljana noted that financial service leader Prudential doesn’t see a tradeoff when it comes to impact investing. After investing in impact-oriented private equity firms for 15 years and committing roughly $2 billion in those businesses to-date, the firm believes that social and economic returns go hand-in-hand. She did underscore the increasing need for credible, sector-specific partners that understood the cause and socially-oriented mission of the impact
- Monica discussed the due diligence, decision-making, and investment thesis that Quona Capital uses to evaluate innovative, yet established, financial service providers that have a proven solution which promotes financial inclusion. Quona Capital needs to see that a company has demonstrated product-market fit and significant, month-on-month revenue growth in order to invest.
- Tilman discussed the importance of impact investments to advance financial inclusion. Some challenges, he said, require creative solutions that don’t necessarily lend themselves to fully risk-adjusted capital returns, and charity funding alone can’t solve a problem like closing the small and medium enterprise (SME) funding gap. He also highlighted the different challenges he has seen in emerging markets – where financial inclusion needs often center on access to quality financial services – and developed markets like the United States – where financial inclusion needs often center on financial health.
I put these investing themes into the context of the broader financial inclusion movement. When nearly half the planet struggles to seize opportunities, endure shocks, and build better lives, the capital markets represent an essential resource that can help address a solvable problem by scaling profitable solutions and ultimately build a formal financial system that works for everyone.
The Accion Frontier Inclusion Fund
One of the most timely and important examples of fintech’s potential to realize both profits and purpose is the Accion Frontier Inclusion Fund, managed by Quona Capital. Monica and I were both excited to publicly announce the Fund at LendIt. Quona is a venture firm focused on inclusive financial technology in emerging markets. The Quona founding team has decades of experience as investors and entrepreneurs in financial services and technology in both emerging and developed markets and is passionate about making a lasting impact through its investments.
Accion is the sponsor, general partner, and anchor investor in the Fund, which represents commitments from an array of leading institutional investors that include global insurance companies, investment banks and asset managers, a university endowment, development finance institutions, and prominent foundations and family offices.
We believe the Fund can catalyze fintech innovations that can radically improve the quality and availability of financial services for the underserved. The Fund will focus on both social impact and financial returns – and will demonstrate the importance of harnessing the capital markets to solve society’s most challenging problems.
A framework for making impact investments in financial inclusion
Accion expects our fintech investments to generate both financial and social returns, and that focus has helped us develop profitable businesses. For instance, Accion’s seed-stage investment initiative, Accion Venture Lab, has deployed over $10 million across 30 startups that work in over 20 countries around the world. Recently, Venture Lab recorded two successful exits from Varthana and Clip that both generated financial returns.
How to evaluate social impact, on the other hand, is still unresolved. In fact, this is the million-dollar question for the impact investing community; while the finance is clear about how it appraises economic performance, that wasn’t always the case: it took us nearly a hundred years to develop the measurements that we use to evaluate businesses – return on investment, return on equity, etc.
So while it’s important to continue pressing on an effective framework that measures impact, we also need to be patient.
The emerging technologies powering financial inclusion
It is difficult to single out a few examples of new technologies that could provide high-quality financial services to the financially underserved and power thriving, profitable businesses. In truth, there are just so many: the rapid rise of mobile phones and high-speed internet in emerging markets has led to a surge in innovation.
After a decade of making impact investments and after reviewing thousands of possible fintech companies, we’ve seen solutions using every trend – from social media to biometrics and more – to promote financial inclusion.
That said, Accion believes that alternative data credit analysis, payments, (SME) finance, and insurtech are the most developed technologies that we can use to help the world’s three billion financially underserved.
What success looks like
Whether it’s our investments through Venture Lab or our work with the Accion Frontier Inclusion Fund and Quona Capital, we hope that our impact investing work yields market-rate returns and catalyzes the most effective solutions to radically improving the quality and access to financial services to the underserved.
Ultimately, our success should inspire others to get involved. Doing so will bring more resources to a problem that affects half of the planet and help even more businesses, families, and communities finally benefit from the world’s formal economy.