Doing good & doing well can go hand-in-hand: Financial inclusion & profitability

Everyone deserves access to useful, affordable financial products and services that meet their needs and help them achieve their goals.

That’s the guiding principle behind financial inclusion, a social impact initiative that’s no longer just a moral imperative for financial institutions but also a reputational and emerging regulatory imperative, as noted in a 2023 report from Boston Consulting Group (BCG).

It’s also crucial for long-term profitability—a statement that can sometimes cause financial institutions to bristle. After all, McKinsey & Company found that financial inclusion’s profitability does tend to rely on the scale at which it’s implemented.

But that’s not all McKinsey found: When put in the context of addressing disparities between access to financial products among Black and White Americans, the firm noted “that financial institutions could realize up to approximately $2 billion in incremental, additional revenue.” It goes on to state that if these two demographics were to achieve total wealth parity, institutions could see up to $60 billion in additional annual revenue.

Similarly, the 2023 BCG report mentioned earlier found that, on a global scale, financial institutions that perform strongly on ESG metrics—especially within the “Social” category—tend to generate a higher total shareholder return and lower cost of capital. The findings show significantly better results in these two categories among institutions leading the way in social initiatives. The firm also goes on to explain how this is just one part of the larger case for integrating these initiatives into core business, with other reasons including:

1. Access to growing markets: Again, there is a multi-billion-dollar opportunity within the rapidly growing multicultural market. In fact, the market for global social and sustainably linked bonds breached $1 trillion in 2021 and 2023.
2. Better talent attraction & retention: According to BCG’s 2022 Global Diversity & Inclusion Assessment for Leadership (DIAL) survey, over 32% of financial institution employee respondents between the ages of 25 and 34 decided not to apply for or declined a position due to an organization’s DEI culture. Practices such as financial inclusion are crucial to attracting and retaining today’s talent, which in turn can reduce hiring and training costs and avoid slowed productivity.
3. Risk management:As social regulations continue to be established and refined it’s important for institutions to keep up with them. But beyond regulatory demands, there’s also the reputational demand. In addition to facing regulatory penalties, institutions linked to questionable activities or discriminatory practices are also increasingly being held accountable by those they serve. That consumer demand for a focus on social initiatives can also work the other way, as positive opinions of institutions’ impact efforts can foster increased trust, loyalty, and, ultimately, retention.

These are just a few examples of how financial inclusion could lead to major organizational gains.

Now, let’s consider the mortgage lending market. In 2023, J. Tony Thompson III, founder and CEO of the National Association of Minority Mortgage Bankers of America (NAMMBA), projected a $2.9 trillion opportunity for purchase originations and residential sales in the multicultural market over the next five years.

Tapping this potential requires building goodwill within this historically underserved, high-growth market—including, but not limited to, communities of color, LGBTQ+ communities, and single women—through social impact initiatives like NAMMBA’s Certified Community Lender (CCL) Designation. These initiatives are vital first steps to engaging these borrowers and nurturing longstanding, trusting relationships where, previously, trust was often in short supply.

The results of those efforts can be well worth it, too. The 2021 State of Hispanic Homeownership Report from the National Association of Hispanic Real Estate Professionals^® (NAHREP) reported that the number of Hispanic households that own their home more than doubled from 2000 to 2021, from 4.2 million to 8.8 million. (In 2023, that figure grew to 9.5 million.) Responding to the 2021 figures in Scotsman Guide, NAHREP member and President of Alterra Home Loans Marc Hernandez attributes that growth to two factors: an increase in the total U.S. Hispanic population and, crucially, an increase in the number of Hispanic mortgage professionals.

Why does that second factor matter? Hernandez explains: “You have to specifically target Hispanic consumers if you want to be in the Hispanic market. Doing that requires cultural competency, an understanding of cultural nuances. The best way to do that is to bring in new mortgage professionals from communities of color.”

Lenders who take the time to understand these nuances will generally have more successful results. Hernandez gives an example in which he notes how understanding the ways that certain economic situations—such as borrowers with multiple sources of income—fit into traditional credit parameters and federal lending agency guidelines can significantly impact outcomes. “We all know [the borrower has] the capacity to repay the loan. It’s how you put that together and package it that matters,” Hernandez states.

That’s financial inclusion at work—increasing the number of lenders equipped to address the needs of individuals from underserved demographics with tailored solutions through a deep understanding of their economic situations and cultural backgrounds.

And how does that tie into profitability? Remember: the multicultural market is underserved and growing. These individuals are the future of homeownership. Meeting them where they are and helping them achieve their goals while fostering long-term borrower relationships will only continue to pay off as they continue to make up more of the real estate market.

While the case for financial inclusion’s profitability is strong, there are still challenges that will need to be addressed. For example, it will be necessary for financial institutions to adopt digital banking and lending infrastructure to better reach communities with limited or no access to a physical branch. (Fortunately, creating digital-first experiences is already a priority for many financial institutions.) When it comes to loans, institutions will need to have systems in place to properly vet potential borrowers with nontraditional circumstances.

With the proper solutions, from omnichannel account opening processes to debt optimization strategies, financial inclusion can be an incredibly powerful practice that uplifts communities while promoting long-term organizational growth.

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