The role of the financial services sector in expanding economic opportunity

The role of the financial services sector in expanding economic opportunity

Published Jan 2007

Authors

C.N. Sutton, B. Jenkins

Publisher

Focus themes

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Why should large commercial financial institutions care about expanding economic opportunity in developing countries?

This report is part of a series exploring the connections between international development, business, and corporate social responsibility (CSR) communities in order to establish links between private sector development and poverty alleviation. It focuses on large domestic and multinational commercial banks. These firms have the expertise, reputation and geographic reach to have significant direct impact and change the way entire markets operate.

Banks are proactive in devising strategies to expand economic opportunities through business models that serve poor individuals and SME clients. They run initiatives to develop human and institutional capacity and use their influence to shape policy. Despite this, the authors argue that their impact to date has remained limited in the developing world, where a vicious cycle of insufficient information, inappropriate products and inadequate infrastructure has kept costs, and therefore prices, high, limiting companies’ markets to rich clients.

This report explores four key strategies financial enterprises can use to expand economic opportunity:

  • creating inclusive business models
  • developing human capital
  • building institutional capacity
  • helping to optimise the “Rules of the Game”.

It presents case profiles of large commercial financial institutions in different areas and suggests a number of opportunities for these firms to enhance the impact of their efforts:

  • engage in multi-prolonged strategies for expanding economic opportunity: because financial services are both the core business of commercial financial institutions and a critical ingredient in economic opportunity, firms’ primary focus should be to develop inclusive business models that make the services widely available
  • be creative in financing economic opportunity strategies: assembling the funding for their economic opportunity strategies from a mix of commercial, corporate philanthropy, and public or individual donor sources
  • collaborate: a key a feature of nearly all the examples and recommendation in this report - collaboration allows partners to focus on their comparative advantages to increase impact, share risk, and increase the credibility of the efforts with other important stakeholders.

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