• Erin Gunanto, Impact & Outreach Intern
  • October, 2021

Urban impact investing: Financial Resilience and Inclusion for Vulnerable and Marginalised Communities in Unbanked and Underbanked Neighbourhoods

The COVID-19 pandemic has exacerbated social and economic inequalities across countries and demographics. As the world grapples with the socio-economic repercussions of the health crisis, the need for impact investing, investments made with the intention to generate positive social and environmental impacts, is greater than ever. Already existing structural problems such as inequitable access to government funding schemes, and the persistent discrimination and marginalisation of society’s most vulnerable populations have worsened. Consequently, challenges in accessing financial resources and services are greater than ever for these communities. Their financial resilience - the ability to withstand external shocks to income, has declined. Hence, the number of low-income households to remain in or drop further into a state of poverty, is expected to increase. Impact investments targeted at promoting financial inclusion has largely focused on individuals in underdeveloped un-urbanised areas. However, the pandemic has highlighted the need to expand the focus of impact investing within unbanked, underbanked, and low-income populations in urban areas and cities.

Global Trends

Since 2020, urban areas in the United States have seen a surge in employment losses, higher than that in rural areas (Figure 1). In emerging economies such as India (Figure 2), the same trend is observed, unemployment rates rise to even higher percentages, peaking at 31% in urban centres in March 2021. Indonesia, the hardest hit Southeast Asian country in terms of COVID cases and deaths, has witnessed large-scale disruption to livelihoods of those in urban areas. Table 1 depicts Indonesia’s most impacted sectors, with four out of top five being located largely within urban centres. As UNESCO highlights, greater job loss has occurred in urban areas rather than rural areas, a trend common across the globe.


The Impacts of COVID-19 : Indonesia’s Hardest Hit Sectors
Table 1: Source : UNESCO(2020)
Sector of Employment # Hardest Hit Share of GDP (%) Share of Employment
Wholesale and Retail Trade; Repair of Motor, vehicles and Motorcycles 1 13.7 18.9
Financial and Insurance Activities 2 4.2 1.4
Real Estate Activities 3 3.0 0.3
Accomodation and Food Service Activities 4 3.2 6.7
Agriculture, Forestry, Fishery 5 12.9 27.5

Disproportionate impacts

Many emerging economies in Southeast Asia, and worldwide, are dominated by a large informal sector. In these ‘informal economies’ workers and businesses are neither taxed nor monitored by the government, and often lack any formal arrangements/contracts to recognise their employment. These workers are those most vulnerable to contracting the virus as their sectors are often deemed essential work, where work from home is not possible. As their chances of getting infected with the virus increases, they are also exposed to greater financial insecurity, as they are physically unable to work. In addition, informal workers often depend on mass people traffic to sustain a living, for example those working in wholesale and retail trade, or small business owners such as those who run their own kiosks or street-food. As such, country-wide lockdowns, and restrictions to social movements in attempts to curb the infection rate of the virus has disproportionately affected these individuals, as they lose customers and therefore revenue. As such, these individuals find it difficult to access government relief schemes. Furthermore, as inequality is intersectional, minority groups and women in the most underserved communities are even more vulnerable. A study by UNESCO highlights that Indonesian women are those most likely to work as self-employed or as unpaid workers in the economy’s hardest hit sectors (2020). Furthermore, the social impacts of school closures have seen a reduction in women’s economic participation as they take on “traditional caretaker” roles of the family, reducing the already low and stagnant women’s labour force participation rate in Indonesia.

The SDGs and the role of impact investments

As the impacts of the virus spreads throughout the most vulnerable and socio-economically marginalised communities, progress made towards many United Nations Sustainable Development Goals have suffered setbacks. While this is true across all 17 of the SDGs, goals related to poverty and social wellbeing have been particularly impacted (Figure 3). These negative socio-economic consequences have highlighted the imperative to a) generate more impact investments in the urban sector in addition to rural areas and b) direct institutional capital flow towards underbanked/unbanked and marginalised populations in urban centres across the most-affected economies in the Global South. Through these mechanisms, investments create greater opportunities directly related to SDG 9, Industry, Innovation, and Infrastructure. The literature surrounding urban economic development cite that the common challenges to financial inclusion and SME entrepreneurship include: lack of access to capital and other resources to support business operations, high cost of operations and issues with building capacity and skills, such as access to formal training (Trillo and Naatus, 2015). Hence, the impact investments sectors’ role in directing the flow of capital towards investments that can promote urban revitalisation is critical.

Figure 3

Urban revitalisation refers to impact investments poured into basic and large-scale infrastructural developments and key institutions, including education and financial services. Basic infrastructural goods and services refer to those that allow the urban poor to live under conditions that is able to facilitate their income-generating activities, so as to have a quality standard of living. While rural poverty often stems from the lack of infrastructural development, urban revitalisation is important in improving the livelihoods of urban dwellers who still lack access to quality basic goods and services. Despite higher levels of income across urban areas and in general greater infrastructural capacities, urban dwellers still lack financial inclusion, hindering them from being able to access these basic goods and services. In addition, overcrowded spaces, underdeveloped housing options and poor living conditions have been brought to light with the pandemic, as the virus is more likely to spread in overcrowded, poorly maintained and poorly sanitised communes. A report by the BBC reveals that, “more than half of Mumbai slum-dwellers had Covid-19” in the initial outbreak of the virus (Biswas, 2020), highlighting the speed in which the virus spreads throughout communities via overcrowded living spaces and facilities. Hence, urban revitalisation ensures their access to basic infrastructure goods and services, and in turn promotes higher standards of living.