{"id":25262,"date":"2018-03-12T12:57:04","date_gmt":"2018-03-12T16:57:04","guid":{"rendered":"http:\/\/cfi-blog.org\/?p=25262"},"modified":"2018-09-05T15:14:18","modified_gmt":"2018-09-05T15:14:18","slug":"solving-the-puzzle-of-responsible-exits-in-impact-investing","status":"publish","type":"post","link":"https:\/\/content.centerforfinancialinclusion.org\/solving-the-puzzle-of-responsible-exits-in-impact-investing\/","title":{"rendered":"Solving the Puzzle of Responsible Exits in Impact Investing"},"content":{"rendered":"
Impact investors are motivated by two primary objectives: to generate a financial return and to create positive social or environmental impact. But how do they balance these dual goals throughout the investment process, and specifically at exit? It\u2019s no easy feat.<\/p>\n
Investors must consider what happens to impact when they exit an investment. For example, if a company received critical capital and resources from an investor, will it still be equipped to succeed and continue its mission when that investor exits? What if an investor sells her shares to a more commercially-minded buyer who deprioritizes the company\u2019s impactful or sustainable practices?<\/p>\n
In financial inclusion investments, the possibility of mission drift after exit can have real implications for impact. For example, if a microfinance institution is acquired by a firm with little experience with underbanked customers, it could increase loan sizes beyond what clients are able to pay back, ultimately leading them into cycles of debt. Impact investors seek to mitigate such risks by exiting their investments responsibly.<\/p>\n
A 2014 paper called The Art of the Responsible Exit in Microfinance Equity Sales<\/em><\/a>, by CFI and the Consultative Group to Assist the Poor (CGAP), explored the topic, outlining four decisions that microfinance equity investors can consider: i) the timing of their equity sale; (ii) buyer selection; (iii) governance and the use of shareholder agreements; and (iv) how to balance social and financial factors across multiple bids for their equity. Later this spring, the authors will publish a follow-on paper with guidance for all financial inclusion investors, beyond just those of microfinance institutions.<\/p>\n This year, the Global Impact Investing Network (GIIN) published Lasting Impact: The Need for Responsible Exits<\/em><\/a>, <\/em>a study that draws insights across sectors and asset classes that can be applied to financial inclusion investments. To produce this report, my colleagues and I interviewed over 30 leading practitioners, and found that investors plan for a responsible exit even before the investment is made. They lay the foundations for long-term impact throughout all stages of the investment process, from due diligence and capital structuring to exit.<\/p>\n During pre-investment due diligence, investors seek out companies or projects that present few risks to mission drift down the line \u2013 such as those with inherently impactful business models and those whose founders have a strong commitment to impact. They note that companies with impact \u2018baked in\u2019 to their business models face few tradeoffs between financial and impact objectives, so are unlikely to deviate from their mission. The question of \u2018whom to exit to\u2019 is key \u2013 echoed in CGAP and CFI\u2019s paper \u2013 and investors note that they consider this during due-diligence, looking at likely exit options, which often depend on companies\u2019 plans for growth. Annie Roberts of Open Capital Advisors noted that \u201cif the planned exit for a given business is to a large strategic [buyer] that might not share the same impact motives, the investor takes this into account when deciding whether to make the investment in the first place.\u201d CGAP and CFI\u2019s paper also notes that investors typically \u201cplan their exits before they enter\u201d.<\/p>\n Once ready to deploy capital, investors can structure investments to help the company grow sustainably, without jeopardizing impact. Return expectations and structuring aspects like repayment timelines or holding periods<\/a> and ownership stake in the company can all form part of a responsible exit strategy. For example, while equity investments can allow for more active involvement, they also tend to have relatively short time horizons (a 3-4 year holding period for a typical 10-year fund, for example) and growth expectations that could lead companies to prioritize expansion over sustainable practices. Debt investments, on the other hand, can be structured with flexible repayment schedules that avoid the pressure for rapid growth. Tying some portion of payments to revenue can free up needed cash for companies with variable cashflows, while also enabling investors to participate in a company\u2019s success.<\/p>\n Investors can also use shareholder agreements and other structuring documents to solidify the company\u2019s mission. Grassroots Capital\u2019s concept note on \u201c\u2019Hardwiring\u2019 Social Mission in MFIs<\/a>\u201d shows how anti-dilution clauses<\/a>, dual share structures<\/a>, and golden shares<\/a> can help preserve a company\u2019s integrity or keep key decisions in the hands of mission-aligned founders. CGAP and CFI\u2019s paper echoes this, with the example of Aavishkaar-Goodwell\u2019s exit from Equitas. Equitas had a majority independent board (which could reject share sales resulting in over 24 percent ownership), shareholder agreements that set a cap on ROE, and commitments to donate 5 percent of its profits to charity. These governance clauses helped create a \u201cself-selecting pool of potential investors\u201d.<\/p>\n During investment, investors can instill positive practices and corporate governance policies that will last through changes in ownership. For example, investors can work with company management to improve governance policies like adhering to SPI4 standards<\/a>, which assess an institution\u2019s social performance, in the hopes that sound practices will continue through changes in ownership.<\/p>\n The exit itself, of course, is also key. Whether exiting through a strategic sale, to a financial buyer, or through an IPO, investors can seek to exit at a time when the company is at a stable stage in its growth, and can benefit from another investor\u2019s capital or resources. For example, the GIIN\u2019s paper profiles LeapFrog Investments, which felt it was time to exit its investment in a Ghanaian life insurance company called Express Life once it saw the company growing steadily and in need of growth capital beyond what LeapFrog could provide.<\/p>\n When it comes time to exit, though, how do investors know if they\u2019re selling to a follow-on investor that might later take the company in a different direction? CFI and CGAP\u2019s paper highlights the importance of buyer selection, and the GIIN report shows how investors identify buyers that are aligned with the company\u2019s business model or mission. For example, LeapFrog seeks buyers that recognize the commercial value in serving low-income consumers, as well as the impact inherent in these business models. It sold its stake in Express Life to Prudential Plc, which sought to establish a presence in Africa and understood both the value proposition and the impact created by providing critical financial services to low-income consumers.<\/p>\n This research can guide investors \u2013 those focused on financial inclusion and those targeting other themes \u2013 in sourcing, structuring, managing, and exiting investments to optimize for long-term positive outcomes. As the industry continues to mature, investors will further develop strategies for responsible investments and<\/em> responsible exits that result in lasting impact.<\/p>\n Have you read?<\/strong><\/p>\n What Impact Investors Could Learn from Microfinance<\/a><\/p>\n Impact Investing Trends in 2018<\/a><\/p>\n Time to Ditch Impact Investing\u2019s Unproductive Self-Analysis<\/a><\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Impact investors are motivated by two primary objectives: to generate a financial return and to create positive social or environmental impact. But how do they balance these dual goals throughout the investment process, and specifically at exit? It\u2019s no easy feat. Investors must consider what happens to impact when they exit an investment. For example, […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"regions":[],"series":[],"types":[3123],"client":[],"topics":[50],"personas":[],"institutional_partnerships":[],"clients":[],"program_teams":[],"acf":{"authors":[{"ID":26534,"post_author":"1","post_date":"2018-08-20 15:28:09","post_date_gmt":"2018-08-20 15:28:09","post_content":"","post_title":"Hannah Dithrich","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"hannah-dithrich","to_ping":"","pinged":"","post_modified":"2018-09-05 15:11:59","post_modified_gmt":"2018-09-05 15:11:59","post_content_filtered":"","post_parent":0,"guid":"http:\/\/cfi.accion.flywheelsites.com\/people\/hannah-dithrich\/","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":false,"acf":{"title":"Hannah Dithrich, Research Associate, the Global Impact Investing Network (GIIN)","position":"staff","social_media_links":{"email":"","linkedin":"","twitter":""},"body":"","header":{"header_type":"people_aligned","people_aligned":{"description":""}},"blocks":false,"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""},"is_author":true},"url":"hannah-dithrich"}],"types":{"term_id":3123,"name":"Blog Post","slug":"blog-post","term_group":0,"term_taxonomy_id":3123,"taxonomy":"types","description":"","parent":0,"count":2202,"filter":"raw"},"header":{"header_type":"post_aligned","post_cover":{"description":""},"post_aligned":{"description":""},"post_default":{"description":"A responsible exit lays the foundation for long-term impact, and requires considerations as early as due diligence \r\n"}},"meta_cta":{"download":false,"cta_button_text":"","cta_media":false,"cta_url":"","additional_links":false},"blocks":false,"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""},"related_content":{"cards":[{"ID":46307,"post_author":"87","post_date_gmt":"2023-08-22 13:51:33","post_content":" Artificial intelligence (AI) enables innovations in digital finance that can boost efficiency, cut costs, and expand consumer reach. AI provides scalable ways to determine the creditworthiness of individuals and businesses that historically lacked identification, collateral, and credit history. And by automating processes, AI can enable higher volumes of low-value transactions that make harder-to-reach segments more viable customers. However, while AI presents tremendous opportunities, deploying AI also comes with significant risks \u2013 one being inequitable outcomes for marginalized consumers, especially women. When applied at scale, the harms caused by AI counter the financial inclusion goals of many impact investors and their portfolio companies. While impact investors are well positioned to take a proactive role in supporting companies in building and deploying equitable AI systems in inclusive finance services, they often do not have the tools required to assess and evaluate the fairness of algorithms. Recognizing this gap, the Center for Financial Inclusion (CFI) developed a practical guide for impact investors to help them identify harmful AI gender bias.<\/p>\r\n The Investing in Equitable AI for Inclusive Finance: A Risk Management Guide for Impact Investors<\/em> gives an overview of the use cases of AI in inclusive finance and some of the drivers of harmful AI bias towards women. It also presents a snapshot of the state of practice in bias identification and mitigation and then provides a user-friendly checklist with an actionable set of questions to help impact investors understand the use of AI among their investee companies.<\/p>\r\n The accompanying brief, Prompts for Equitable Artificial Intelligence in Inclusive Finance: Strengthening the Industry<\/em> Conversation,<\/em> presents some of the key challenges with building accountability and transparency for AI in inclusive finance and discusses how CFI\u2019s new guide can help raise awareness around the risks and costs of gender bias in AI. The brief also offers opportunities to strengthen the industry conversation on equitable AI, including advancing research, supporting consumer advocacy and journalism, and operationalizing data rights for consumers.<\/p>\r\n This work is the result of USAID\u2019s Equitable AI Challenge<\/a>. Implemented by DAI\u2019s Digital Frontiers, the challenge aimed to identify innovative approaches to address artificial intelligence inequitable outcomes. The Equitable AI Challenge asked for proposals that critically consider holistic and creative approaches to identify and address gender biases in AI systems within global development contexts. This work is the result of CFI\u2019s winning proposal. Special thanks to USAID for translating the guide into Spanish.<\/em><\/p>","post_title":"Equitable AI for Inclusive Finance","post_excerpt":"","post_status":"publish","comment_status":"open","ping_status":"open","post_password":"","post_name":"equitable-ai-for-inclusive-finance","to_ping":"","pinged":"","post_modified":"2024-01-24 11:10:39","post_modified_gmt":"2024-01-24 15:10:39","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?p=46307","menu_order":0,"post_type":"post","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":"https:\/\/content.centerforfinancialinclusion.org\/wp-content\/uploads\/sites\/2\/2023\/08\/Equitable-AI-web-image-1.png","acf":{"types":{"term_id":27,"name":"Toolkits and Guides","slug":"toolkits-guides","term_group":0,"term_taxonomy_id":27,"taxonomy":"types","description":"","parent":0,"count":5,"filter":"raw"},"header":{"header_type":"post_aligned","post_cover":{"description":""},"post_aligned":{"description":"This guide and accompanying brief consider how to consider gender-inequity issues from the outset when designing algorithms for inclusive finance."},"post_default":{"description":""}},"authors":[{"ID":26330,"post_author":"1","post_date":"2018-08-20 13:50:31","post_date_gmt":"2018-08-20 13:50:31","post_content":"","post_title":"Alexandra (Alex) Rizzi","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"alexandra-alex-rizzi","to_ping":"","pinged":"","post_modified":"2023-05-08 10:13:32","post_modified_gmt":"2023-05-08 14:13:32","post_content_filtered":"","post_parent":0,"guid":"http:\/\/cfi.accion.flywheelsites.com\/people\/alexandra-rizzi\/","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"},{"ID":43949,"post_author":"87","post_date":"2022-02-01 14:13:01","post_date_gmt":"2022-02-01 18:13:01","post_content":"","post_title":"Lucciana Alvarez Ruiz","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"lucciana-alvarez-ruiz","to_ping":"","pinged":"","post_modified":"2022-03-29 14:58:44","post_modified_gmt":"2022-03-29 18:58:44","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?post_type=people&p=43949","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"}],"meta_cta":{"download":true,"cta_button_text":"DOWNLOAD GUIDE","cta_media":"https:\/\/content.centerforfinancialinclusion.org\/wp-content\/uploads\/sites\/2\/2023\/08\/Equitable-AI-Guide.pdf","cta_url":"","additional_links":[{"link_text":"DOWNLOAD GUIDE (SPANISH)","link":"","link_media":"https:\/\/content.centerforfinancialinclusion.org\/wp-content\/uploads\/sites\/2\/2023\/08\/Esp-Eq-AI-Toolkit.pdf"},{"link_text":"DOWNLOAD BRIEF","link":"","link_media":"https:\/\/content.centerforfinancialinclusion.org\/wp-content\/uploads\/sites\/2\/2023\/08\/EqAI-Brief.pdf"}]},"blocks":false,"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""}},"url":"equitable-ai-for-inclusive-finance"},{"ID":46192,"post_author":"87","post_date":"2023-07-24 16:44:53","post_date_gmt":"2023-07-24 20:44:53","post_content":"Over the last few years, the pandemic-induced transformation of the global economy has fueled a rapid expansion of the fintech sector. This evolution has revealed the potential of fintech to eliminate geographical and physical barriers and enable consumers and providers to gain unprecedented access to information, creating a more efficient, inclusive global financial system.<\/span>\r\n\r\nNonetheless, the fintech expansion in low- and middle-income markets faces numerous challenges, and several unanswered questions linger. Will the fintech sector maintain its momentum? How will it evolve in a post-pandemic world? What unforeseen challenges await? These queries spotlight the intriguing unknowns within the sector.<\/span>\r\nWhile inclusive fintechs have expressed their commitment to continue serving low-income and vulnerable segments, their ability to sustain that commitment depends on funding. <\/span><\/blockquote>\r\nEarlier this year, we interviewed 12 winners of the <\/span>Inclusive Fintech 50<\/span><\/a> (IF50) competition and six fintech investors to assess their performance amidst numerous macroeconomic challenges like rising interest rates, decreased food supply, and large price gains. In June 2023, we published the findings of these conversations in a recent report, <\/span>Inclusive Fintech Funding in Times of Uncertainty<\/span><\/a>, which underscored the commitment of inclusive fintechs to serve low-income individuals. To ensure success, these companies are bolstering their emphasis on core business principles, prioritizing customer needs, and actively working toward substantial revenues and profits.<\/span>\r\n\r\nWhile inclusive fintechs have expressed their commitment to continue serving low-income and vulnerable segments, their ability to sustain that commitment depends on funding. To better understand the fintech funding landscape, we analyzed funding data provided by <\/span>Briter Bridges<\/span><\/a> from different periods, regions, and market segments. Nearly 75 percent of the fintechs in this dataset have raised capital up to Series B deals. Our analysis focused on four regions: Latin America & the Caribbean, the Middle East & North Africa, Sub-Saharan Africa, and South Asia. From South Asia, Briter Bridges only collected data for India. From the Briter Bridges data, we examined funding deals from January 2015 to February 2023 and identified four key trends in fintech funding. <\/span>\u00a0<\/span>\r\n
1. Fintech funding is slowing down globally.<\/span><\/b><\/h1>\r\nSince 2015, fintech funding has consistently trended upward \u2013 both in terms of the number of deals and total deal volume \u2013 with a minor slowdown in 2020 during the COVID-19 pandemic and a significant surge in 2021. Notably, the number of overall deals increased from 484 in 2020 to 851 in 2021, while the total deal volume rose by 96 percent \u2013 from USD $5.3 billion in 2020 to $10.4 billion in 2021.<\/span>\r\n\r\nAmong the regions, South Asia (representing data only from India) experienced the highest increase in total deal volume since 2015, followed by Latin America & the Caribbean, the Middle East & North Africa, and Sub-Saharan Africa. The surge across all regions indicates a promising industry landscape and highlights investors\u2019 interest in fintech across geographies.<\/span>\r\n\r\n[caption id=\"attachment_46199\" align=\"aligncenter\" width=\"1239\"] Source: Briter Bridges data for fintech deals from 2015 to 2022, excluding mega-deals over $100M.<\/em>[\/caption]\r\n\r\n \r\n\r\nHowever, in 2022, the growth in both deal volume and the number of deals was more modest, with a 10 percent increase in deal volume and a 2 percent increase in the number of deals. The number of deals declined or remained stagnant in India, the Middle East & North Africa, and Latin America & the Caribbean, while it increased in Sub-Saharan Africa.\r\n\r\nThen, in January and February 2023, the sector witnessed a significant 54 percent decrease in overall deal volume compared to the same period in 2022. Of the four regions, the Middle East & North Africa was the only region to see an increase in overall deal volume during this period, with all others declining.\r\n\r\nBy Q3 2022, industry stakeholders began experiencing a \u2018fintech funding winter,<\/a>\u2019 a term that references the current state of declining funding opportunities and company valuations across the fintech sector. Since then, there has been a noticeable decrease in funding and deals<\/a> within the global fintech ecosystem during Q2 2023, reaching the lowest level since 2017. In Africa, there was a significant 37 percent year-on-year decline<\/a> in total transaction value for African start-ups between June 2022 and July 2023 compared to the same corresponding period in the prior year.\r\n
2. Funding remains geographically concentrated with a regional disparity in deal sizes.<\/strong><\/h1>\r\nWe also observed significant variation in the median deal sizes across different regions. In 2022, the median deal size in Sub-Saharan Africa was $1 million, reflecting the prevalence of very early-stage fintechs. In contrast, the median deal size in 2022 was $6.5 million for fintechs in Latin America & the Caribbean region and $6.4 million in South Asia. This difference illustrates how regions have distinct funding dynamics and growth trajectories.\r\n\r\nLooking at trends over the past four years, we see that from 2020 to 2021, the median deal size remained unchanged in South Asia while increasing in the other three regions. From 2021 to 2022, the median deal size increased across all regions except the Middle East & North Africa, which stayed constant.\r\n\r\n[caption id=\"attachment_46200\" align=\"aligncenter\" width=\"1276\"] Source: Briter Bridges data for fintech deals from 2019 to 2022, excluding mega-deals over $100M.<\/em>[\/caption]\r\n\r\n \r\n\r\nIn the dynamic world of fintech funding, four countries \u2013 India, Brazil, Israel, and Mexico \u2013 received 80 percent of the overall funding in recent years. India leads with a total funding volume of $22 billion between 2015 and 2023, showcasing its thriving fintech ecosystem and investors\u2019 support. Brazil and Israel both secured $4.5 billion in total funding volume, with Mexico attracting $3.7 billion. Funding to Brazil, Israel, and Mexico captured a considerable share of their region\u2019s funding (40 percent, 65 percent, and 32, respectively).\r\n\r\nExamining the period from 2020 to 2022, we see that the total deal volume increased in all four countries in 2021. However, in 2022, the total deal volume increased in India and Mexico but declined in Brazil and Israel.\r\n
Limited access to formal financial services, combined with rapid digitization in recent years and favorable regulatory frameworks, all contribute to these four countries attracting the majority of regional fintech funding.<\/blockquote>\r\nTwo factors have driven access to funding in these countries. First, consumer demand and unmet needs revealed significant market potential. Second, a conducive enabling environment in the form of regulations and policies encouraged innovation by financial service providers and adoption by consumers. Limited access to formal financial services, particularly credit for low-income individuals and MSMEs, combined with rapid digitization in recent years and favorable regulatory frameworks, all contribute to these four countries attracting the majority of regional fintech funding. For example, in India, initiatives<\/a> like the Jan Dhan-Aadhaar-Mobile (JAM) trinity, the Unified Payments Interface (UPI), and updated regulations and policies accelerated digital adoption during the pandemic. Rapid digitization has benefited emerging fintech players, boosting digital financial solutions and driving financial inclusion.\r\n\r\n[caption id=\"attachment_46196\" align=\"aligncenter\" width=\"1101\"] Source: Briter Bridges data for fintech deals from 2020 to 2022, excluding mega-deals over $100M.<\/em>[\/caption]\r\n\r\n \r\n\r\nWhile no African countries made it to the list of the top four countries with the largest funding in recent years, Nigeria stood out with the highest deal volume among African countries. It received a modest accounting for 40 percent of the region\u2019s overall funding.\r\n
3. Regional variations in the demand for financial products influence funding distribution.<\/strong><\/h1>\r\nThe distribution of funding by fintech product categories has shifted over time. Historically, credit products received the bulk of the funding within the fintech sector. Insurance, which typically receives lower levels of funding, surged in 2020 as the pandemic accelerated the demand for digital transformation<\/a>. Insurance fintechs that were able to innovatively leverage digital and analytics became more attractive to investors. Additionally, we observed an increase in the share between 2018 and 2021, although this category declined in 2022. There is also an upward trend in the popularity of personal financial management products (PFM), as more fintechs and digital banks begin offering PFM products or PFM features<\/a>.\r\n\r\n[caption id=\"attachment_46201\" align=\"aligncenter\" width=\"1197\"] Source: Briter Bridges data for fintech deals from 2015 to 2022, excluding mega-deals over $100M.<\/em>[\/caption]\r\n\r\n \r\n\r\nLooking at the breakdown of regional fintech funding by product category, we see the importance of catering to the unique financial demands of specific markets. For example, funding for credit fintechs dominates overall fintech funding in South Asia and Latin America & the Caribbean, while the Middle East & North Africa focuses on DFS infrastructure and PFM, and Sub-Saharan Africa prioritizes payments and remittances. Despite the ways in which insurance can enhance the resilience of low-income households, insurance products continue to receive minimal investor attention across all regions. Insurance products are typically offered as part of a product bundle and continue to be difficult to market and sell<\/a>.\r\n
4. The funding gap for small deals could contribute to the \u2018death valley curve\u2019.<\/h1>\r\nLooking at the past deals of the top 20 investors, we see a discrepancy among different types of funders\u2019 investment strategies and risk appetites. Accelerators and incubators have a higher number of deals, but their median deal size remains relatively modest \u2013 often below $500,000. On the other hand, private equity, venture capital, and impact investing funds have median deal sizes ranging from $7 to $20 million, reflecting their substantial investment capacity.\r\n\r\nWe also see a dip in the number of deals targeted for early-stage fintechs \u2013 in the amount of $501,000 \u2013 $1 million \u2013 by any investor type. In 2020, despite an overall increase of more than 70 percent in the number of total deals that year, the proportion of deals within the $501,000 \u2013 $1 million range was only 8 percent. The proportion of deals conducted for this size bracket has remained consistently between 7 to 9 percent over the past 4 years, likely contributing to the \u2018death valley curve\u2019<\/u><\/a>\u00a0experienced by start-ups.\r\n\r\n[caption id=\"attachment_46198\" align=\"aligncenter\" width=\"702\"] Source: Briter Bridges data for fintech deals from 2015 to 2022, excluding mega-deals over $100M.[\/caption]\r\n
Winter is Here<\/strong><\/h1>\r\nWhile global trends indicate that we are living in a fintech funding winter, not all hope is lost. The fintech sector continues to be an area of significant opportunity and innovation, attracting attention from investors globally. Recent funding trends highlight the dynamic nature of fintech investments, as fluctuations in deal volume, regional preferences, and investor interests impact the funding fintechs receive. In addition, because fintech funding responds to specific characteristics of national economies and factors that create an enabling environment \u2013 such as the speed of digitalization, level of innovation, regulatory frameworks, and funding gaps for low-income populations \u2013 it is useful to observe trends in the fintech industry to understand the market demand and needs for various financial solutions in different markets.\r\n\r\nFintech investors and other stakeholders should adopt a balanced perspective, draw upon the lessons learned from past successes and failures, and continue supporting inclusive fintechs that offer products to low-income households. By doing so, they can effectively guide inclusive fintechs toward sustained growth and impactful outcomes.","post_title":"Exploring Fintech Funding Dynamics in Recent Years","post_excerpt":"","post_status":"publish","comment_status":"open","ping_status":"open","post_password":"","post_name":"exploring-fintech-funding-dynamics-in-recent-years","to_ping":"","pinged":"","post_modified":"2023-07-24 16:45:55","post_modified_gmt":"2023-07-24 20:45:55","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?p=46192","menu_order":0,"post_type":"post","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":"https:\/\/content.centerforfinancialinclusion.org\/wp-content\/uploads\/sites\/2\/2023\/07\/iStock-1264846810.jpg","acf":{"types":{"term_id":3123,"name":"Blog Post","slug":"blog-post","term_group":0,"term_taxonomy_id":3123,"taxonomy":"types","description":"","parent":0,"count":2202,"filter":"raw"},"header":{"header_type":"post_aligned","post_cover":{"description":""},"post_aligned":{"description":"The fintech expansion in low- and middle-income markets faces numerous challenges, but the sector continues to be an area of significant opportunity and innovation. CFI breaks down four key trends in fintech funding today and urges investors to continue supporting inclusive fintechs toward sustained growth."},"post_default":{"description":""}},"authors":[{"ID":38913,"post_author":"62","post_date":"2020-06-11 12:49:40","post_date_gmt":"2020-06-11 16:49:40","post_content":"","post_title":"Eda Dokle","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"eda-dokle","to_ping":"","pinged":"","post_modified":"2022-07-15 10:27:43","post_modified_gmt":"2022-07-15 14:27:43","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?post_type=people&p=38913","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"},{"ID":46139,"post_author":"87","post_date":"2023-06-22 14:34:33","post_date_gmt":"2023-06-22 18:34:33","post_content":"","post_title":"Chantelle Macey","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"chantelle-macey","to_ping":"","pinged":"","post_modified":"2023-06-27 14:29:32","post_modified_gmt":"2023-06-27 18:29:32","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?post_type=people&p=46139","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"}],"meta_cta":{"download":false,"cta_button_text":"","cta_media":false,"cta_url":"","additional_links":false},"blocks":false,"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""}},"url":"exploring-fintech-funding-dynamics-in-recent-years"},{"ID":46002,"post_author":"87","post_date":"2023-05-01 16:02:40","post_date_gmt":"2023-05-01 20:02:40","post_content":"The COVID-19 pandemic threatened gender equality globally, leaving women more vulnerable to the health and economic crisis. However, new research published by the Global Impact Investing Network (GIIN)<\/a> found that impact investments in financial inclusion reacted to COVID-19 by including more women as end-client stakeholders. Perhaps unsurprisingly \u2013 given the precarious economic conditions of the pandemic \u2013 the GIIN\u2019s research also found a decreased number of active clients served by financial inclusion portfolio companies. Additionally, the number of decent jobs supported at or above a living wage at these companies decreased during COVID-19, with disproportionate decreases among female employees. Nonetheless, greater participation by women as financial inclusion clients is powerful. This one small but meaningful bright spot amid a devastating crisis offers hope that the power of impact investing can enhance gender equality even during the most challenging times.\r\n\r\nThe GIIN defines impact investments as \u201cinvestments that seek measurable social and\/or environmental impact along with financial returns<\/a>.\u201d They are critical to the financial inclusion landscape. With the impact investing industry surpassing one trillion U.S. dollars<\/a> for the first time in 2021, investors increasingly see the potential for capital to achieve more than making additional profit. Especially during times of crisis, impact investors hold tremendous power to use their capital and investment strategies to deepen their positive social and environmental impact.\r\n\r\nTo better understand how the COVID-19 pandemic affected financial inclusion impact investments and the role that impact investors play during crises, the GIIN conducted the first known quantitative regression analysis on the relationship between the pandemic and impact performance. Here are two of the key findings we discovered:\r\n
1. Financial inclusion impact investments served a greater proportion of women during and because of the COVID-19 pandemic.<\/h1>\r\nWomen often face disproportionate burdens during times of crisis, and the pandemic proved no different<\/a>, with women\u2019s access to financial services decreasing across the traditional financial market. In fact, the Financial Access Survey<\/a> from the International Monetary Fund indicated that the percentage of female loan recipients decreased in a majority of markets during COVID-19. After years of progress documented by this survey -- comprised primarily of emerging markets -- the proportion of women clients served regressed during the pandemic. Unfortunately, reports of women\u2019s financial hardship continue to fill the headlines in publications by McKinsey<\/a>, World Economic Forum<\/a>, and the ILO<\/a>, among others.\r\n\r\nHowever, interestingly, impact investments in financial inclusion tell a different story. The investments included in our recent research demonstrated improvements in gender equality, bucking the global trend. In this case, we measured improvements in gender equality by assessing the proportion of women who were clients of financial inclusion companies. Impact investments enabled expanded access to responsible financial services for women clients during the pandemic, both in number and as a percentage of total clients served by financial inclusion companies. This shift occurred not despite the pandemic -- but because of it.\r\n\r\nOur regression analysis finds that the COVID-19 pandemic led to a 5 percent increase in the proportion of women served. Compared to the broader financial services market, where women represent only 44 percent of clients, women comprised 52 percent of the clients at financial inclusion companies capitalized by impact investments during the pandemic.\r\n\r\n[caption id=\"attachment_46005\" align=\"aligncenter\" width=\"858\"] Source: Global Impact Investing Network (GIIN), 2023 and International Monetary Fund (IMF), 2021[\/caption]\r\n\r\n \r\n\r\nThe encouraging progress of financial inclusion impact investments in increasing women\u2019s access to finance coincides with the impact investing industry\u2019s focus on mitigating the social impacts of COVID-19. However, we recognize that <\/span>increased access to finance often doesn\u2019t benefit all women equitably<\/span><\/a>. While standardized gender-based impact data reflecting racial equity and socioeconomic status was not available for this research, this type of nuanced data would offer critical insights into how the pandemic affected women differentially based on their identity. We encourage impact investors to continue to expand their demographic data collection, which will deepen the resulting insights and inform inclusive impact strategies accordingly.<\/span>\u00a0<\/span>\r\n\r\nWe have always known that impact investors can play a critical role in combatting global inequities, especially when there is a heightened need for basic services. So it was encouraging to see that during the pandemic, some impact investors targeted gender equality explicitly, perhaps recognizing the inherent toll COVID-19 would take on women globally. The following examples \u2013 a small handful of many \u2013 demonstrate how some investors catalyzed change during COVID-19:<\/span>\r\n
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2. During the pandemic, women <\/span>bore the brunt of<\/span> job loss at <\/span>financial <\/span>inclusion<\/span> companies<\/span>.<\/span><\/span><\/h1>\r\nDespite progress <\/span>on <\/span>gender <\/span>equality<\/span> for the end<\/span>-<\/span>client<\/span>s of financial inclusion companies, <\/span>COVID-<\/span>19-<\/span>related job loss disproportionately affected women <\/span>working at<\/span> financial inclusion<\/span> companies<\/span> in impact investors\u2019 portfolios<\/span>. <\/span>In 2019, <\/span>women <\/span>accounted for<\/span> only <\/span>27 percent <\/span>of jobs held at<\/span> these companies<\/span>, <\/span>yet <\/span>they <\/span>represented<\/span> 60 percent<\/span> of jobs lost due to the COVID-19 pandemic<\/span><\/span> in 2020 and 2021<\/span><\/span><\/span>. <\/span><\/span>Unfortunately, this mirrors <\/span>broader<\/span> global trends <\/span>indicating<\/span> that <\/span>women lost significantly<\/span> <\/span>more<\/span> jobs<\/span> than men due to COVID-19<\/span><\/span><\/a>.<\/span><\/span>\r\n\r\n[caption id=\"attachment_46009\" align=\"aligncenter\" width=\"938\"] Source: The Global Impact Investing Network (GIIN), 2023[\/caption]\r\n\r\n \r\n\r\nLosing employment, especially during a crisis, can deeply affect women and their households. Not only does job loss increase the risk of women and the families they support <\/span>falling into hunger and poverty<\/span><\/a>, but it also leads to <\/span>long-term negative developmental effects<\/span><\/a> on children in the household. Conversely, holding a job during a crisis can give women the tools to help themselves and others <\/span>by providing income to pay for food, education, and healthcare<\/span><\/a> costs<\/span>. With a greater focus on gender equality, financial inclusion companies can provide steady employment \u2013 and therefore support -- for women, especially during crises.<\/span>\u00a0<\/span>\r\n\r\nThere are indications that impact investments contributed to greater gender equality among their clients served but not for employees at financial inclusion companies. This paradox offers both hope and caution. On the one hand, greater female representation in a company\u2019s client base demonstrates that companies can achieve impact even when global crises heighten the needs of the most vulnerable. On the other hand, more significant gender disparity in employee retention reflects the importance of looking at internal policies along with external ones.\u00a0<\/span>\u00a0<\/span>\r\n
The takeaway: impact investors have an opportunity to use their privilege and power to support gender equality in times of crisis and beyond.<\/span><\/b>\u00a0<\/span><\/h1>\r\n
Impact investments hold transformative power, even \u2013 and perhaps especially \u2014 in times of crises.<\/blockquote>\r\nInvestors carry tremendous power by the mere virtue of the capital allocation and management decisions they can make. In addition to providing capital, impact investors are responsible for influencing impact results and can do so through deeper engagement mechanisms and by incorporating impact into investment terms. Some examples might include the following:<\/span>\u00a0<\/span>\r\n
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