Investments in this strategy aim to contribute to income generation and creation of more and better jobs through increasing financial inclusion of MSMEs.  The sections below include an overview of the strategy for achieving desired goals, supporting evidence, core metrics that help measure performance toward goals, and a curated list of resources to support collecting, reporting on, and using data for decision-making.


Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Unemployment affects more than 190 million people worldwide (1). The global economy needs to generate 600 million new jobs over the next 15 years to absorb a growing workforce and begin to tackle current unemployment (2). Additionally, among those employed, many do not have “decent work."* An estimated 1.4 billion people worldwide are in vulnerable jobs (1).

Micro, small, and medium-sized enterprises (MSMEs) form the backbone of economies around the world, contributing vital job creation. Formal small and medium-sized enterprises (SMEs) account for more than half of all worldwide employment and 40% of GDP in emerging economies, where they create four out of every five new jobs (3).** MSMEs also contribute indirectly to employment through their supply chains, although this impact is harder to quantify (4).

Yet despite their many economic, social, and political benefits, MSMEs remain largely underserved by financial institutions. The difficulty MSMEs face in obtaining financing to start, sustain, or grow is one of the biggest constraints to their development (3). 

* As defined by the International Labour Office (ILO), “decent work” is employment that “respects the fundamental rights of the human person as well as the rights of workers in terms of conditions of work safety and remuneration" and also "include[s] respect for the physical and mental integrity of the worker in the exercise of his/her employment.”

** These figures do not include SMEs in the informal sector. SMEs' economic contributions would be larger still if the informal sector were also taken into account.

What is the scale of the problem?

The problem with quality jobs and economic development is twofold: 

  1. Unemployment and vulnerable employment: Globally, 190 million people are unemployed. Among those employed, many are in vulnerable forms of employment. In 2017, an estimated 42% of workers (1.4 billion) worldwide had vulnerable jobs (1).*

  2. Lack of access to formal financial services for MSMEs: In developing countries, 160 to 245 million micro-enterprises and SMEs lack access to financial services. Among both developed and developing economies and both formal and informal MSMEs, the total unmet demand for credit amounts to USD 3.2-3.9 trillion (5).

* Still, vulnerable jobs are not necessarily negative. According to research by Innovations for Poverty Action, women in some developing countries with heavy domestic-care burdens might benefit from the flexibility of self-employment.


Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

Unemployed or Underemployed Individuals: Those without jobs, in vulnerable jobs, or in jobs for which they are overqualified benefit from investments that create quality employment opportunities.

Micro, Small, and Medium-Sized Enterprises: MSMEs that require financial services to start, sustain, or expand benefit from this strategy, as do those employed by MSMEs.

Individuals in Vulnerable Jobs: Such individuals are more likely to have informal employment and less likely to benefit from job security, regular incomes, and access to social protection such as health care and pensions (1).

Youth: The global rate of unemployment for those younger than 25 is three times higher than the adult rate of 13% (1).

Women: On average, the percentage of women participating in the labor market is more than 26 percentage points lower than that of men, and women who are looking for a job are less likely to find one. Once employed, women face segregation by sector, occupation, and type of employment relationship, restricting their access to quality employment (1). Furthermore, of the 31-38% of formal SMEs in developing economies owned fully or partially by women, 63-69% are unserved or underserved by financial institutions (5). While financing is a challenge for all SMEs, these difficulties are amplified for women-owned enterprises, as women are less likely to own assets that can serve as collateral and more likely to suffer exclusion based on unequal property rights or discriminatory regulations, laws, and customs (2). Women-owned SMEs provide important contributions to job creation and productivity growth.

What are the geographic attributes of those who are affected?

While job quality is a global issue, the largest need is in developing economies.

  • Unemployment: 34.1 million people in developed countries, 143 million people in emerging countries, and 15.6 million in developing countries are unemployed (1). Northern Africa has the largest official unemployment rate (11.7%); followed by Central and Western Asia (8.6%); Arab States (8.5%); Northern, Southern, and Western Europe (8.5%); and Latin America and the Caribbean (8.2%).
  • Vulnerable employment: Vulnerable employment affects 1.4 billion people globally: 56.5 million in developed countries, 1.1 billion in developing countries, and 218.5 million in developing countries (1). Sub-Saharan Africa and Southern Asia present the highest rate of vulnerable employment, both at 72.1% (1).

Developing countries are home to 65-70% of formal SMEs (25-30 million SMEs).

  • An estimated 55–68% of formal SMEs in developing countries are unserved or underserved by the formal financial sector.
  • Around 16% of formal SMEs in developed countries are unserved or underserved by financial products and services.
  • Within emerging markets, East Asia and the Pacific has the largest number of SMEs (11.2–13.7 million), while the Middle East and North Africa has the fewest SMEs (1.9–2.3 million). Perhaps for this reason, the unemployment rate in the Middle East and North Africa is about three times that in East Asia and the Pacific.


Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Productive employment and decent work are keys to reducing inequalities and poverty. MSMEs create jobs, diversify an economy, enhance productivity, promote innovation, help to deliver goods and services to the bottom of the social pyramid, and can greatly help to integrate women and youth into the economic mainstream.

Improving MSMEs' access to formal financial products and services that are tailored to their needs, as well as the provision of entrepreneurship training, can increase jobs, job quality, and incomes, especially when provided as a package (6).

Delivery channels, such as agent networks, can help increase reach and drive down costs of delivering financial products and services, thus also contributing to job creation.

The extent to which this strategy will successfully support the creation of quality jobs and improve the broader of the economic environment depends on several aspects including, at the enterprise level:

  • the design of innovative customer-centric financial products and services and their delivery channels designed to meet the needs and preferences of MSMEs;*
  • the implementation of practices that treat employees fairly:** and 
  • the provision of non-financial services to support business creation and growth (e.g. entrepreneurship training and consulting.

At the policy level, this strategy's success depends, among other aspects, on:

  • a consensus definition of MSMEs shared among governments and banks;
  • the development of polices and interventions that support financing MSMEs while being flexible enough to adapt to differences among small enterprises;
  • the development of interventions to improve working conditions and productivity at MSMEs;
  • the creation of, or reform of existing  polices to lower barriers to starting and registering MSMEs (e.g., simplified tax regimes), as well as policies to help informal MSMEs formalize over the long run; and
  • recognition of the positive direct impact in terms of job creation and financial inclusion that alternative delivery channels and agent banking can provide.


*At the level of the financial service provider, the design of customer-centric products and services can be informed by the Universal Standards for Social Performance Management; the development of viable branchless banking agents can be informed by CGAP’s Agent Management Toolkit.

**At the level of the financial service provider, treatment of employees can be measured against the Universal Standards for Social Performance Management. At the SME level investors can require the use of “exclusion lists” to ensure that as a minimum, SME employees are protected from abusive, harmful, or dangerous practices.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

As noted above, 190 million people worldwide are unemployed, and 1.4 billion have vulnerable jobs. In developing countries, around 55–68% of formal SMEs, or 13.8 to 20.4 million firms, are unserved or underserved by the formal financial sector. In developed economies, around 16% of formal SMEs are unserved or underserved by the financial sector.

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

The amount of change end users derive from this strategy depends on whether the offered products or services are customer-centric and tailored to MSMEs; whether the non-financial services such as training in entrepreneurship and business skills are provided, and whether an enabling environment in the country or region promotes the creation and growth of MSMEs and the improvement of working conditions and productivity at MSMEs.

Examples of change aligned with this strategy from studies using rigorous research methodologies include the following:

  • In an innovation in Tajikistan, a financial service provider (IMON) offered a combination of a financial service (start-up loan) and a non-financial service (women-oriented entrepreneurship training). An impact evaluation found a strongly positive effect for women who received both the training and the loan (48% increase in self-employment and 31% increase in business expansion) compared to those who received only the training (8).
  • A financial service provider in India (ESAF) offered a program to raise awareness of the benefits of formalization and to offer business-development services. An impact evaluation showed a 93% increase in awareness of formalization, 70% increase in the registration of businesses, and 15% improvement in consistent bookkeeping for clients who received the services compared to those who did not (8).


Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

Risk factors include the following (categorized according to the IMP Impact Risk Framework):

  1. External Risk: Lack of strong social and regulatory frameworks—as well as complicated tax procedures and high tax rates—can hinder the start-up, expansion, and formalization of MSMEs.*
  2. Execution Risk: Lack of strong social and environmental practices at the MSME level that protect employees—including dangerous exposures to chemicals, inappropriate disposal of byproducts, presence of abusive practices (child labor), or other harmful practices—would not contribute to positive effects on people and planet. Further, unsophisticated business practices and skills can hinder the business performance of MSMEs.
  3. Stakeholder Participation Risk: Lack of proper attention to client protection, appropriate tailoring of products, financial literacy, understanding of the objectives and experience of those affected by the investment, and/or lack trust in financial and technology service providers could result in comparatively lower positive impact on clients.
  4. Contribution Risk: Oversaturation of markets could result in overindebtedness of clients (refer to MIMOSA Index). While MSMEs play an important role in providing incomes and livelihoods especially where there is a lack of sufficient wage employment, many microenterprises create jobs that are neither productive nor decent (8). For example, financing of MSMEs with harmful practices or work environments as well as non-fair treatment of employees could result in significant negative effects.

Other categories of risks included in the IMP framework were not seen to be significant. Diversification of investments across countries and regions, together with a generally strong commitment to the principles of expanding responsible access, putting client interests first, integrating the voice of those significantly affected (refer to Engaging All Affected Stakeholders), and a focus on environmental screening and monitoring means that on a global level, such risks are well-mitigated.

The inclusive finance community engages in direct discussions with external parties including regulators to strengthen the sector, proactively addressing issues such as client protection (refer to Client Protection Principles), environmental standards, management standards, mobile money provider principles (refer to GSMA Code of Conduct for Mobile Money Providers), and best practices to put clients at the center of financial service providers' decisions (refer to Universal Standards for Social Performance Management). The inclusive financial sector also has third party assessments, certifications, and ratings that allow investors to better understand whether and how the practices of financial service providers (investees) align with global principles and standards (e.g., Client Protection Assessment and Certification, SPI4 Assessment, Social Rating, Mobile Money Certification).


 *Refer to EIU Global Microscope rankings.

What are likely consequences of these impact risk factors?

Such risks could lead to client inability to use the services provided effectively and could result in negative impacts on clients who carry excessive debt burdens or suffer opportunity costs from the use of products and services that are not effectively tailored to meet their needs. In cases where there are harmful social and environmental practices (e.g., unhealthy work environments, child labor, practices that damage the environment), considerable negative effects on employees and planet could take place.

Illustrative Investment

The Women Entrepreneurship Development Project (WEDP) is a USD 50 million individual development account (IDA) investment lending operation designed to address key constraints for growth-oriented women entrepreneurs in Ethiopia. WEDP’s objective is to increase earnings and employment for women-owned businesses. To this end, it created Ethiopia's first-ever line of credit focused on women entrepreneurs, and the program offers an entrepreneurship training program that teaches business skills and the ability to “think like an entrepreneur." As of June 2016, the program had provided loans to more than 4,000 and delivered entrepreneurship training to more than 7,500 women entrepreneurs. Seventy-six percent of WEDB clients had never taken a loan before. For repeat borrowers, loan sizes increased by 870% on average, showing the program could meet the demands of enterprises that MFIs could not serve. Loan repayment stood at 99.6% (2).

Smoke Open Fire is a catering business in California, United States. Thanks to the support of a local community development finance institution (CDFI) that provided a USD 150,000 loan and pro bono business advisory, the business was able to open a brick-and-mortar location and grow from five employees in 2015 to 22 employees at the end of 2017. Smoke Open Fire supports employees' career- and wealth-building opportunities by providing retirement plans, offering paid time off for both full- and part-time employees, reimbursing employees for the cost of obtaining career-related credentials, and promoting from within. Based on its performance, Smoke Open Fire received a second loan of USD 500,000 from the CDFI in 2017 to expand its restaurant, and expects to create more quality jobs in its community.

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

Microfinance for Decent Work - Enhancing the Impact of Microfinance: Evidence from an Action Research Programme

ILO. “Microfinance for Decent Work: Enhancing the Impact of Microfinance–Evidence from an Action Research Programme.” (2015).

Impact of Microfinance on Rural Households in the Philippines

Kondo, Toshio, “Impact of microfinance on rural households in the Philippines.” Asian Development Bank, 2007

The Impacts of Microcredit: A Case Study From Peru

Arbuckle, J. G., and Elizabeth Dunn. “The Impacts of Microcredit: A case study from Perú.” Assessing the Impact of Microenterprise Services (AIMS) (2001).

The Impact of Microcredit 2016

The Impact of Microcredit report, Microbank, 2016

The Impact of Microcredit 2012

The Impact of Microcredit report, Microbank, 2012

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.