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A high-level business case for financial inclusion constructed using data on the impact of M-PESA on poverty in Kenya

> Posted by Ethan Loufield, Director of Strategy and Operations, CFI

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In making the case for financial inclusion, advocates often try to appeal to our business sense, rather than just speak to how it can improve people’s lives. In so doing, they often refer to the “business case,” which in some ways feels like an attempt to convince the disinterested or the skeptics. It’s an acknowledgement that in order to muster the resources needed to make the financial system work better for lower income market segments, there has to be a payoff for those who provide the services. The fact is that the future of financial inclusion depends greatly on there being a payoff. And when you stop and think about it, it shouldn’t be that hard to show that there is one.

As the title to this post suggests, the value that financial inclusion can help to unlock could very well be measured in the trillions of dollars. So, what we see is an enormous asset (arguably with the potential to surpass the value of all the gold in the world, for example), and it behooves those of us in the financial inclusion community to capitalize on this to expand our influence in the market.

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> Posted by Rishabh Khosla, Tahira Dosani, and Vikas Raj, Accion Venture Lab

Small businesses are the engine of employment, contributing up to 85 percent of new full-time jobs in low-income countries, and two out of three new jobs in countries like the U.S. The IFC finds a strong correlation between the health of the small business community, economic growth, and poverty alleviation.

Despite these Herculean responsibilities, micro, small, and medium enterprises (MSMEs) the world over struggle to access the financing they need to maintain cash flow, hire new employees, purchase new inventory or equipment, and grow their businesses. The IFC estimates that the unmet demand for MSME finance in emerging markets is $2.1-2.6 trillion (around 1/3 of outstanding loan balances to this segment). Unlike larger firms that can access capital markets, MSMEs must seek financing from banks or non-bank finance companies (NBFCs). Yet traditional lending approaches often fail to address this “missing middle” because the cost of diligence and underwriting is too high relative to the potential revenues from the smaller loans that MSMEs need. This situation is worse in emerging markets because of a lack of reliable financial data and high levels of informality. According to the Harvard Business Review, the financial crisis only exacerbated the situation: borrower balance sheets are still recovering, and banks, faced with new regulatory requirements, have reduced the share of lending to MSMEs in 9 out of 13 OECD countries.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.