Building Bridges toward Economic Inclusion

According to the World Bank, about 1.7 billion adults worldwide do not have access to financial services. On the other hand, 3.6 billion, or about half of the world’s population, lack adequate sanitation services in their homes, and one in three people on the planet do not have access to drinking water. The access gap is equally profound in other essential services such as health, education, decent housing, electricity and telecommunications. 

Fighting social inequities, particularly in emerging markets, remains one of the most important challenges of our time. The UN estimates that achieving the Sustainable Development Goals (SDGs) will require investments in excess of US$5 trillion annually. It is impossible to think that the mere intervention of governments and the channeling of public resources would be sufficient to correct these immense inequalities. Various sources of capital must act in a coordinated manner to achieve inclusive and sustainable development on a scale to match the scope of the challenge we face as a society. That is why we should appreciate the unique and complementary roles played by philanthropy, in its modern sense; the public sector and private capital. 

Philanthropy has undergone significant evolution since those times of traditional charity. Today’s philanthropists are strategic and innovative. They are fully involved in the projects they support. They use their resources to seek solutions to complex social problems, but they do so by acting as catalysts for change with the use of seed capital to fund ventures that would otherwise fail to see the light. Philanthropic capital makes well-informed bets by supporting high-risk, high-return projects in terms of social impact. Large foundations not only provide the resources needed to support social entrepreneurs and test innovative models, but also inspire others to join their causes, creating a ripple effect of positive change. 

While philanthropy acts as a spark, the public sector is the backbone of systemic change. Governments have a responsibility to channel resources equitably and to create public policies that promote social inclusion. Public funding, which is much greater than philanthropic funding, must strive to ensure that essential services such as education, health, and basic infrastructure, reach less privileged communities. Multilateral banks and development institutions are bringing social vocation to the heart of their mission and therefore, by their very nature, have a greater appetite for risk which allows projects to achieve the scale that makes them attractive to stakeholders seeking more commercial returns. Governments, acting as arbitrators, must therefore, introduce regulations that promote innovation and entrepreneurship, and facilitate the flow of different types of capital into historically excluded segments.

Private capital, from a business mindset, plays a critical role in enabling solutions to achieve a considerable scale. By investing in innovative, profitable, for-profit or not-for-profit companies that “connect” to the last mile as either consumers, suppliers or product distributors, while also expanding access to essential services with significant impacts, we can unleash the strength of the market and thus achieve a sustainable transformation. Socially conscious private capital uses the rigor of business by prioritising measurable financial but also social returns, and incorporates metrics of impact on decision-making. The private sector can thus achieve greater efficiencies and drive technological innovations for the benefit of low-income communities in a cost-effective and sustainable manner.

At Citi, as part of our mission to facilitate economic growth and progress, we have been a part of this evolution since the 1970s. Working hand in hand with other international philanthropic organisations and making strategic donations, the Citi Foundation pioneered the development of various financial inclusion initiatives that helped build the microfinance industry, introduce appropriate regulatory frameworks, and develop educational tools and financial capabilities among groups without access to formal financial services.

Based on this experience and since it was clear that a business vision was needed to grow, in 2005 we formed Citi Social Finance as a new specialist business unit, working hand in hand with the various product areas to implement business solutions that enable the bank, our clients and partners and allies to expand financial inclusion, accelerate access to basic services like health, education and water, drive job creation and develop social infrastructure in more than 40 emerging markets where the bank has operations. The team complements Citi’s local presence in all these countries with access to international markets in order to mobilize public and private capital towards socially focused companies, very often in local currencies. In 2022 alone, based on a business model seeking financial and social profitability, this team contributed to the mobilization of around US$3 billion, including funding from other financial institutions and external investors, to finance clients seeking high social impact. We aim to reach 15 million low-income households by 2025, including 10 million women, with our funding. Funded projects range from water and sanitation in marginalized communities in Brazil, school building in Peru, financial technologies (fintech) to offer women-led SME financing in Mexico, affordable housing in Indonesia, microfinance for women in India and the Philippines, access to solar electricity for rural communities in Kenya, among many others. 

As technological advances and the digital revolution enable visionary social entrepreneurs to develop truly inclusive business models, unlike anything ever before in human history, and as the financial industry contributes with more determination to this important task, it is essential to keep in mind the power of collaboration between the various stakeholders. Whatever our position, it will be the depth of these institutions’ commitment and collaborative work that will define success in building a more equitable world for everyone.