The banking sector – including banks, credit unions and microfinance institutions – can contribute to decent work. To achieve this social objective, these financial service providers (FSPs) need to do something different, something unusual.
Combining financial and non-financial services
It is indeed uncommon for a bank to offer training to its clients, but perhaps it should do so. FSPs can enhance their impact with clients by combining financial services with non-financial services. These combinations can include, for example, loans bundled with business skills training or recordkeeping. The idea is that when clients receive such a service, their businesses will perform better than they would have with credit alone.
Using financial technology to advance decent work
Financial technologies are becoming more common these days. The COVID-19 pandemic has also highlighted the importance of financial technologies to make and receive payments, and to access and use other financial services in a safe and efficient way. However, we need to be vigilant to ensure that consumers are protected and over-indebtedness is avoided. The ILO’s Global Centre on Digital Wages for Decent Work provides an excellent example of fintech for good, using technology to contribute to the formalization of enterprises and employment contracts and the financial inclusion of workers.
Integrating financial services to enhance risk management
While most enterprise lending focuses on productive purposes, the ILO promotes a balanced approach that gives equal attention to the protective and productive roles of finance. Insurance can be useful for managing risks that result in large losses. To be even more effective, insurance should be part of a broader menu of financial services that includes savings, credit and money transfers. Our collaboration with FSPs in Asia to test integrated risk management solutions illustrates this approach.
Reaching under-served market segments
Social justice in the financial markets means that all people and enterprises have access to appropriate and affordable financial services. We believe that this is actually a business opportunity for the financial sector, because there are many under-served market segments. Over the years, Social Finance has enabled FSPs to serve a range of new target groups, including microenterprises, migrants, young people and women. For example, the ILO is exploring how to finance social enterprises, collaborating with trade unions to advance the financial inclusion of workers, and enabling forcibly displaced persons and host communities to rebuild their livelihoods.
Promoting informed use of financial services
Effective financial markets require an efficient connection between supply and demand. However, the social impact of financial services cannot be achieved if customers are ill-informed about savings, credit and insurance and are not empowered to use them effectively. The ILO’s financial education programme has developed a suite of financial education tools and courses for beneficiaries all around the world.