Three new areas of focus for significant financial inclusion development

Small and medium scale enterprise (SME) finance, climate change and agri-finance are the three new areas of focus expected to see the most significant developments in the financial inclusion sector in the next five to ten years, according to the Financial Inclusion Compass 2021.

The recent report by the European Microfinance Platform (e-MFP), a leading network of European organisations and individuals active in the financial inclusion sector in developing countries arrived at the projection after it interviewed 125 respondents from 39 countries.

According to the report, the top three new areas of focus are the same as in both 2018 and 2019, the last times the section was included.

While the result of the survey showed there were increases in the rankings for green finance it stated that there were decreases for housing and energy.

Financial literacy (including digital literacy), a new entrant, was in a high position in 4th, but the overall rankings are broadly consistent with those of previous years, the report said.

“FSPs are extremely positive on the future significance of SME finance, but Consultants and infrastructure organisations much less so. By contrast, FSPs rate Climate change adaptation/mitigation much less important in the future than other respondent groups, especially consultants and funders,” Sam Mendelson, financial inclusion specialist at European Microfinance Platform, the firm behind the report, said.

Analysis of the survey report revealed that there were fewer consensuses than last time, with many more areas of focus bunched closely together.

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“With support from the distribution and tone of the comments, this possibly reflects increasing complexity, uncertainty and change within the financial inclusion sector, with more areas of focus for stakeholders to devote resources to, and which are increasingly inter-related,” the report said.

While the three areas of focus are expected to see significant development because of their relevance, the e-MFP report said there was one challenge that looms above all others, and comprises of many parts.

“Covid-19 has had implications on clients’ cash flows and financial needs, institutional liquidity, regulation, sector resilience and reputation, human resources – the list is long,” the report cited.

Beyond the challenge, the survey looked at the prospects for areas of focus beyond the provision of ‘core’ microfinance products in the medium-long term horizon and the following areas were cited as those likely to see the most significant developments in the financial inclusion sector in the next 5-10 years.

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SME Finance

Second in 2018, third in 2019 and first place in the 2021 compass result, SME finance according to e-MFP has consistently shown to be among the most dynamic and important growth areas in the coming years, a consequence of a bifurcation of the sector between socially-focused providers and supporters seeking outreach to vulnerable and poorer segments and more formal institutions like banks serving larger companies – leaving the proverbial ‘missing middle’ under-served.

It’s a future area of focus because respondents believe it’s both hugely important and will become yet more so: “SME finance assumes importance as people are graduating from livelihood finance … (it is) necessary to enhance incomes, says the head of an Asian MFI network.”

According to the report, respondents believed that adjusting for national income and wealth have pervasive gaps everywhere.

“Missed class in financing by MFIs and banks, however, this sector is microeconomy catalyst”, according to the SPM Section Head at an MFI in Sub-Saharan Africa.

Serving this missed class is “a logical area for expansion in many MFIs and very significant for developing economies”, says a Europe-based funder.

Indeed, SMEs are responsible for “the creation of the added value that would (increase) the wealth of a country”, says an MFI director in East Africa.

For MFIs, serving SMEs is critical, otherwise “their client base might be left out in the age of global digitization”, says the Managing Director of a TA provider working in MENA.

But better reaching under-served SMEs won’t just happen by itself, it needs concerted effort and strategic vision, and the pandemic, with its devastating effects on SMEs across the low-income world, has made it more important than ever, the report said.

“SME finance will require much attention in the medium term to build economic recovery paths at a global scale and community resilience after the devastating shocks to the global economy”, says a Senior Policy Manager at a global infrastructure organisation.

Furthermore, the report explained that despite the founding claims of microfinance, not everyone is an entrepreneur-in-waiting; “serving SMEs well needs more than access to finance.”

The Managing Director of a support provider in Sub-Saharan Africa puts it well: “There are still too few links between entrepreneurial coaching/business development services on the one hand and access to finance/financial inclusion on the other…the two are complementary.”


Climate change adaptation/mitigation, the topic of the European Microfinance Award in 2019, was third in 2018, second in 2019 and second again in this year’s report.

“Arguably, it would be the top New Area of Focus but for the fact that the scoring in this section is zero-sum (respondents only have 5 votes to give) and this Area of Focus overlaps significantly with energy, agri-finance, green finance, disaster resilience and even WASH – an observation made by several respondents,” research analyst at e-MFP said.

According to the report, the tone of the comments provided by respondents shows that while the pandemic has sucked up so much attention and resources over the last year, COVID-19 will eventually pass (or at least become manageably endemic) – but meeting the challenge of climate change remains the sine qua non for everyone working in financial inclusion.

Respondents variously point to “increasing natural disasters”, “climate stresses”, “access to food security” as the underpinnings of this long-term challenge.

Davide Forcella, a researcher and head of green inclusive finance and business development at a specialised TA provider argues for “a focus on climate change adaptation through implementation and expansion of Nature-Based Solutions and Climate Smart Technologies”.

But an iterative or piecemeal approach will not be enough; there must be wholesale transformation ahead, and perhaps there have been insights from dealing with the COVID crisis that will be transferable, the report said.

A data specialist at a global infrastructure organisation was quoted to have said that “the world has changed, and the pandemic has also highlighted the huge actions needed to transform the economic and financial paradigm into a greener and more adaptive one.”


Agri-finance is in the third spot, down from first place in the last two surveys, including in 2019 when it was a runaway top choice. In this report, many of the scores and comments headed elsewhere, to green finance and climate change – and possibly because of a perception that the impact of the pandemic has been higher in urban than rural areas, the report said.

Whatever the evidence for that, respondents increasingly see agri-finance, in an era of new obstacles to trade and movement of goods and people, through the prism of food security, the report explained.

Agri-finance is “a base for food sustainability and the maintenance of national sovereignty – and needs [support] to feed the fasting growing populations”, writes Kassahun Gonfa, the Marketing and SPM Section Head at an Ethiopian MFI.

There has to be “continuing credit support to agriculture and allied activities to ensure food security of growing populations”, says P. Satish, Executive Director of a South Asian association.

Addressing food insecurity, closely intertwined with climate and disaster resilience, means the strengthening of value chains, according to several respondents, and must be approached in parallel with “client resilience, climate change adaptation and biodiversity conservation”, according to a Europe-based TA provider.

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