Financial inclusion can drive economic growth, reduce poverty, and smooth inequalities. Corporate debt issuers can be active players in that process. In this paper, we explain how emerging markets (EM) debt investors can gain exposure to financial inclusion via companies with diverse geographies, business operations, and risk profiles—particularly in Mexico, Sub-Saharan Africa, and Indonesia.
Financial inclusion can drive economic growth, reduce poverty, and smooth inequalities. As such, it’s a pillar of eight of the 17 United Nations sustainable development goals.
In emerging markets, there is significant room for improvement in financial inclusion. Estimates show there are 1.7 billion unbanked individuals in the world and virtually all of them come from developing countries.
The need for better financial inclusion offers significant business opportunities for financial institutions operating in emerging markets.
And investors can also benefit from the theme. The emerging markets corporate debt universe allows investors to gain exposure to some of these companies whose businesses models seek to address the challenges of financial inclusion in markets where it is especially low. In particular, we see opportunities in Mexico, Sub-Saharan African, and Indonesia.
Naturally, business models focused on financial inclusion often expose issuers to more risks than does traditional banking. This risk can include asset quality, funding, and regulatory risks, among others.
We assess this risk using a robust analytical framework which was designed to help us find issuers with solid credit profiles and strong risk management.