Investing for Financial Inclusion: Four Enablers for Outcomes Measurement and Management

Executive Summary

Impact investors at the impact measurement and management (IMM) frontier are seeking to prioritize the measurement and management of development and intermediate outcomes of financial inclusion investments. Two critical factors are influencing impact investors to focus on these types of outcomes. Firstly, there is a push for impact transparency stemming from the increased awareness of global challenges such as climate change and geopolitical conflicts, and the urgency to achieve the sustainable development goals (SDGs). The market is increasingly asking for clear, verifiable, and comparable data on the social and environmental effects resulting from investments. The bar for impact investing is expected to rise, demanding measurable and intentional outcomes beyond the current focus on sustainable investing and environmental, social and governance (ESG) practices. Secondly, impact investors recognize that failing to address negative outcomes can pose significant reputational, and financial risks. Certain lending practices by financial service providers (FSPs) have drawn criticism for over-indebtedness and exploitative behavior.  Impact investors are also increasingly aware of the dangers of overstating impact performance—referred to as “impact washing” —which can undermine credibility and lead to further scrutiny from both the public and media.

In this context, it is quite timely for financial inclusion impact investors to adapt their IMM practices to focus more explicitly on development and intermediate outcomes, referred to in this paper as “outcomes-focused IMM”. Outcomes-focused IMM is a comprehensive approach that involves measuring, understanding, and reporting on the effects of investments. It specifically focuses on the actual development and intermediate outcomes experienced by customers, including women, which are enabled by financial inclusion investments. This approach integrates outcomes data into the investment decision-making process and helps manage impact risks.

Impact investors who are further along their IMM learning journey —referring to their organizational readiness to collect, interpret, and use outcomes data — have innovated in their approaches to be more outcomes-focused. Initiatives in the financial inclusion ecosystem are also enabling some impact investors and FSPs to measure and manage for outcomes. These include the 60 Decibels’ Clients Survey and Microfinance Index, and Cerise+SPTF and the European Microfinance Platform Investors Action Group’s outcomes framework and questionnaire. 

However, according to CGAP’s research, measuring and managing outcomes performance, including with 60 Decibels and/or Cerise+SPTF integrated into IMM frameworks, is not mainstream practice. The status quo remains largely to measure and manage for outputs and use proxy measures for outcomes. Even among those innovating on outcomes-focused IMM, once-off surveys are typically used to make definitive claims about outcomes performance. A focus on outputs persists because they are more straightforward and quicker to measure than outcomes.

CGAP hypothesizes that better alignment across the capital value chain—from limited partners (LPs) to general partners (GPs) to FSPs—can significantly advance the measurement and management of financial inclusion outcomes. CGAP proposes four key enablers, which if addressed, can significantly align interests and actions across the capital value chain:

Enabler 1: Building a shared understanding of outcomes-focused IMM use cases. A lack of clarity on objectives, deployment timing, and roles, including funding responsibilities, hinders adoption. Stakeholders in the capital value chain need to collaborate to define clear use cases, strategies, and responsibilities. This collaboration is crucial for aligning interests and ensuring that outcomes-focused IMM practices are effectively implemented according to use cases.

Enabler 2: Overcoming methodological and operational constraints. Methodological challenges, such as data reliability and operational inefficiencies, can be addressed by applying innovative technologies like Natural Language Processing, machine learning, and integrated software platforms. The effectiveness of these technologies depends on their alignment with specific use cases, and concerns such as data security, privacy, must be managed.

Enabler 3: Creating conditions for integrating outcomes data into decision-making. To make outcomes data as influential in decision-making as financial metrics, there is an opportunity to create conditions that foster alignment and collaboration among all stakeholders across the capital value chain, starting with LPs. This includes setting clear expectations with LPs during fundraising, enhancing strategic leadership and capacity within GPs and FSPs, and reinforcing governance structures and organizational culture to ensure that outcomes-focused IMM is systematically integrated into all key processes.

Enabler 4: Enhancing transparency in outcomes data. To ensure comprehensive and publicly accessible reporting, it is essential to standardize outcomes indicators, including those measuring developmental outcomes. These indicators can be supported by quality reporting standards that present both positive and negative outcomes, fostering greater accountability and trust. Strengthening impact verification processes to focus not only on alignment with impact management principles but also on the actual outcomes achieved will further enhance the credibility of impact claims. Lastly, improving and integrating existing data infrastructure, both public and private, is critical for facilitating the analysis and sharing of outcomes data. This can enhance transparency, comparability, and trust across the sector.

Building on the key four enablers, this paper offers strategic opportunities for stakeholders to advance outcomes-focused IMM within the financial inclusion sector. These high-level priorities should be viewed as a foundation for future work and are intended to stimulate further dialogue, research, and collaboration among stakeholders as they work to advance outcomes-focused IMM. While some of these efforts are already underway, further commitment and acceleration will be essential for broader sector-wide impact.