Financial institutions sector

€1.4 billion

Invested towards decent work and sustainable economic growth

€819 million

Invested towards reducing inequalities by providing access to finance

€341 million

Invested towards climate change mitigation and adaptation

Creating inclusive, resilient and sustainable financial sectors

A healthy financial sector and access to finance are cornerstones of a strong economy and a private sector that is capable of fostering entrepreneurship, stimulating economic growth and creating jobs. Providing access to financial products and services plays a crucial role in alleviating poverty, increasing income and promoting economic development.

In emerging markets, MSMEs contribute up to 45 percent of total employment and 33 percent of GDP. However, in our target markets, 40 percent of formal MSMEs face an unmet financing need of US$5.2 trillion per year. Through our investments in financial intermediaries, we facilitate MSMEs to gain access to capital, support business growth and channel finance to businesses and end-beneficiaries that we cannot directly finance efficiently.

Towards 2030

In line with our Strategy 2030, we aim to reduce inequalities by increasing access to finance for people within the bottom 40 percent of the income distribution. This includes MSMEs, women, youth and rural entrepreneurs. In addition, we invest in activities in LDCs and fragile states. We seek to grow the number of jobs supported and increase the decency of jobs at our customers.

Towards 2030, we will increase finance for financial institutions (FIs) targeting climate mitigation, climate adaptation and resilience, biodiversity and other environmental footprint reductions. We will engage with FI customers to help build their climate strategies and capacity and decarbonize their portfolios.

We use product propositions, such as the NASIRA guarantee program, alongside capabilities like ESG and Client Protection Principles, and related financing to achieve these ambitions. Our focus extends to supporting fintechs, facilitating customers’ digitalization, and assisting (SME) banks and non-bank financial institutions in developing green propositions. In addition, we increasingly take on our customers’ credit risk exposure to help them reach people within the bottom 40 percent of the income distribution. Furthermore, we aim to cater to large FIs with Green bond tickets, expand existing investable assets, and help our customers develop climate governance and climate risk frameworks.

Achievements in 2023

Sustainable economic growth

In 2023, FMO invested €1.4 billion in the FI sector, of which €1.1 billion consisted of debt, €89 million of guarantees and €147 million of equity investments. Results are in line with last year, where we were able to leverage established relationships with our FI customers and successfully (re-)enter new countries and market segments. However, there was lower overall demand for financing primarily due to the high interest and inflation rates. This led to lower-than-expected transaction sizes in the market, affecting our ability to mobilize third party capital.

In 2023, we were challenged by numerous conflicts in Africa and the Middle East, higher interest (base) rates reducing funding demand, and disruptions in energy and food markets resulting from the war in Ukraine. Although inflation decreased from its peak at the start of the year, it remained above target levels, also in emerging markets. Despite these headwinds, the global economy proved resilient, with emerging markets outperforming expectations.33

Jobs supported, including for women

Through our investments in FI customers, we support jobs. These are primarily derived from the broader economy as a result of lending to businesses and individuals. The increased volume of capital provided by our FI customers empowers companies to increase output, creating employment opportunities and demand for intermediary inputs. This, in turn, fosters growth among both existing and new suppliers.

In 2023, FMO’s FI customers supported an estimated 579 thousand jobs. This was mostly due to new FI customers we invested in and an increase of jobs supported through existing FI customers. Some 571 thousand jobs were indirect stemming from finance-enabling effects that relate to economy-wide jobs supported by lending to businesses and individuals. The remaining eight thousand were people directly employed by our FI customers. A total of 37 percent of the direct jobs supported were held by women.

Reducing inequalities through access to finance

In 2023, RI-labelled new investments in the FI sector amounted to €819 million, of which €223 million was invested in LDCs and €621 million in inclusive business. We continued our collaboration with FI customers to identify, target and reach underserved segments of the population, including youth, women and other marginalized customer groups. The success of the NASIRA guarantee program, which largely targets economically marginalized groups, further helped increase FMO’s contribution to reducing inequalities. Finally, our investment volume in LDCs saw an increase driven by a rise in investments in Asia and Africa. As a result, 60 percent of our total investment in the FI sector are expected to contribute to reducing inequalities.

Climate action

In 2023, Green-labelled total new investments in the FI sector amounted to €341 million in line with last year’s results. Unlike 2022, which was primarily driven by a few large deals, 2023 was characterized by a broader distribution of green credit lines, including a greater number of average sized deals, involving customers across different countries.

In 2023, our FI investment portfolio resulted in 4,424 ktCO2e in financed absolute GHG emissions. Similar to FMO, scope 1 and 2 emissions are limited as these mainly pertain to the energy use by the investee banks’ office buildings. Most emissions stem from the banks’ loan portfolios (scope 3 emissions) in sectors such as agriculture, manufacturing and energy. Within the banks’ loan portfolios, the JIM-based estimates show that 56 percent come from their customers’ scope 1 and 2 emissions and 44 percent from emissions related to their customers’ scope 3 emissions from purchased goods and services. Specific use of proceeds, such as green credit lines, cannot yet be taken into account in emission estimations due to a lack of data.

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