Spotlight on International Funders' Commitments to Financial Inclusion in 2013

Although international funders have been longstanding supporters of financial inclusion, their commitments have been put to the test in the past five years. The financial crisis led to a more challenging economic environment and budget cuts at public donor agencies. Results of impact studies made the expectations of microfinance more realistic. Yet, international funding continues to grow. In 2013, international funders committed at least $31 billion to support financial inclusion—an estimated increase of 7 percent on average per year between 2011 and 2013. This Brief analyzes trends in the international funding landscape based on CGAP research.

Overall, public funding for financial inclusion represented approximately 75 percent of the global estimate. Despite continued pressure on public resources, public funders increased their commitments in the past two years by an estimated average of 11 percent annually. Although they approved more new projects during this period compared to 2009–2011 (on average $3.8 billion per year between 2011 and 2013 versus $3.4 billion between 2009 and 2011), growth in commitments is also explained by fewer projects that closed between 2011 and 2013 ($1.6 billion per year on average) compared to 2009–2011 ($2.4 billion per year on average).

In contrast, commitments from private funders decreased by an estimated average of 2 percent per year between 2011 and 2013. Microfinance investment intermediaries (MIIs) channel most of the private funding. Even though microfinance investments vehicles (MIVs) increased their investments in financial services providers (FSPs), the increase was partially driven by drawing on an existing pool of assets that were committed before 2013 (Symbiotics 2014 and 2013). Private commitments to MIIs decreased in the past two years.

Because a wide range of constraints impede financial inclusion, individual funders often choose to address a particular subset of challenges based on their own strategic direction, comparative advantages, budget, and staff capacity. The majority of international funders reported that they prioritize the insufficient range of suitable products and services and the limited institutional capacity of FSPs. In 2013, they committed $1.8 billion toward building the capacity of FSPs. In contrast, funders reported they give less priority to the lack of funding as a barrier to financial inclusion, but most funding was used to finance the growth of FSPs ($17.9 billion, representing 76 percent of commitments). A closer look at the solutions these projects are trying to provide gives a more granular picture of their purpose and what funders are trying to achieve. Excluding financing, funders reported 1,387 projects to enhance FSPs’ capacity, and the majority supported product development (371 projects) and improving the operations of FSPs (351 projects).

Funders committed $0.5 billion to enhance the capabilities of future and existing clients of FSPs. Multilateral organizations and foundations provided most of the funding for this purpose in 2013. The majority of the projects focused on improving the financial capability of poor people (126 projects out of 293 projects focused on enhancing current and future FSP clients’ capabilities).

Inclusive financial markets also require an effective infrastructure and a legal and regulatory environment that can support their development while protecting customers. Funders committed $0.6 billion to support the market infrastructure and $0.5 billion to develop enabling policy environments. While these amounts are small compared to funding for FSPs, projects with these purposes require less funding and more technical expertise. Multilaterals and bilaterals traditionally have been the most active funders in these areas. In the past couple of years though, foundations have stepped up to improve the market infrastructure. Out of 793 market infrastructure projects, the majority focused oncapacity-building services (258 projects), information and transparency (237 projects), and payment systems (195 projects). Funders also reported a total of 480 projects that focus on policy and most aimed at improving the regulation and supervision of FSPs (243 projects) and consumer protection policies (198 projects).