Inclusive finance has proven to be a successful approach to support social and business entrepreneurs, empower families and provide financial services to those that do not have access to regular banking services.
In this progress report, we analyse data provided to us by both indirect investors who invest through fund managers and other intermediaries, and direct investors, who invest directly into retail institutions which provide financial products and services to the end client. The aim of this analysis is to highlight where improvements have been made towards the implementation of the PIIF’s seven principles, and where there may be room for improvement.
This report may therefore be of use to all investors interested in responsible investment in inclusive finance, and in using this framework to drive responsible investment practices in the industry. Overall, we observe that signatories have a genuine interest in being part of the PIIF. However, problem areas and weaknesses seem to follow the same pattern as in previous years.
Implementation of the PIIF principles among indirect investors increased in all areas and indicators, mainly with regards to ESG integration. The PIIF data shows that two thirds of all the indirect investors include the PIIF principles when signing contracts and mandates with external managers.
Overall, the 2016 PIIF data on direct investors demonstrate minor improvements and an investor understanding of the importance of implementing the seven PIIF principles.
- Around 70% of all the direct investors that reported to the PIIF framework mentioned that they support the provision of financial services beyond credit, including compulsory savings and/or compulsory insurance.
- Minor developments were identified towards the implementation of the Client Protection Principles. For instance, 24 direct investors mentioned to publicly endorse the Client Protection Principles, while 13 direct investors members and/or non-members of PIIF did not mention nor endorse the principles above.
- Based on the 2016 data, there was an increase of about 20% of direct investors providing financing in local currency from the previous year. In addition, more than 70% reported to provide financing with an adequate tenor.
- About 70% of direct investors indicated to have procedures to integrate the consideration of environmental issues in investment decisions, and about 60% request that their investees comply with an environmental exclusion list.
- The data indicates that more than 80% of all direct investors demonstrate high commitment to promote transparency for their shareholders, stakeholders and clients. And 70% of investors provide information aligned with industry standards to their clients and the public.
- The PIIF data shows that 93% of investors reported to collect data regarding the social outcomes of their investees’ work; 94% of investors reported that the social performance of investees affects their investment decision making, which 81% their portfolio management.
- Similarly to the previous year, investors demonstrate a growing interest to set common standards that support the development of inclusive finance, and to engage in collaborative initiatives and organisations in this field. About 86% of all direct investors are members of one or more collaborative initiative and/or organisation, and about half of these investors have reported to have a very active role in one or more initiatives/organisations.
It would be beneficial for signatories to review their approach towards their PIIF performances, and adopt different strategies for implementation. Two of the main areas for improvements are a) improving communication with investees to better monitor financial and social performance and b) invest in social performance standardisation/indicators along the investment chain.
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Principles for Investors in Inclusive Finance (PIIF): Report on Progress 2016