The 2X Challenge initiative is aiming to push more investment towards empowering women in the workplace, while a key blended finance microfinance project has switched focus to gender-lens investing.
The drive by international institutions to boost both public and private gender-lens investment has been underscored by the setting of a $20bn target for the 2X Challenge initiative over the next three years, as well as the reorientation of the former Microfinance Enhancement Facility (MEF) to focus on support for women-led business in developing markets.
The new target for the 2X Challenge, which aims to channel more investment towards empowering women as entrepreneurs and within the workforce in developing countries, was included in the communique at the close of a G7 Leaders’ Summit in Italy in June.
The 2024-27 period for which the $20bn target was set will be the first to include investments from the private sector since the initiative was launched in 2018 by G7 development finance institutions (DFIs).
Investments qualify to be included under the 2X Challenge if they meet the so-called 2X Criteria, based on an underlying framework that is now becoming widely used by the global investment industry as a standard for gender lens investing.
The DFIs say that the 2X Challenge is estimated to have mobilised over $33.6bn in gender-lens investments as of 2024. In the 2018-20 period, the DFIs mobilised more than $11bn of investment – comfortably beating an $3bn initial target – and then mobilised a further $16.3bn in 2021-22.
Seven private sector participants have committed to the 2X Challenge so far. They are Deetken Impact, the Global Innovation Fund, I&P Investisseurs & Partenaires, Developing World Markets, Advance Global Capital, and the public/private Global Gender-Smart Fund (GGSF – formerly MEF).
Nearly 20 DFIs have also pledged support for the 2024-27 period, including the Asian Development Bank, British International Investment, Germany’s DEG, the US International Development Finance Corporation, the European Investment Bank, FMO of the Netherlands, the International Finance Corporation (IFC), Japan’s JBIC and JICA and France’s Proparco.
2X Global (formerly 2X Collaborative), which runs the initiative, has been working to promote more involvement by private institutions in its gender-lens activities over recent years.
Jessica Espinoza, 2X Global’s CEO described the inclusion of private investors in the 2X Challenge as a milestone.
“Having both public and private capital providers on board for the challenge represents an extraordinary opportunity to mobilise even more gender-smart capital for women, unlocking their potential and driving economic growth. Combining the resources and expertise from both the public and private sectors means we can amplify our impact as we strive to close the gender gap in finance,” she said.
Among various reports cited by the DFIs to indicate the economic benefits of increased economic participation by women is a 2020 report from the EIB, which estimates that greater gender diversity in the workforce could lead to a potential increase of 26% in annual global GDP and enhance business performance by 15%.
GGSF launches new strategy
The Global Gender-Smart Fund, one of the recent additions to the 2X Challenge signatories list, says it has formally implemented its new blended finance strategy focused on gender-smart financing.
The fund, which is supported by both public and private investors, is the new incarnation of the Microfinance Enhancement Facility, which was initiated in 2009 by the IFC and German development bank KfW in response to the 2008 global financial crisis.
The MEF supported over 320 financial institutions in 65 countries, with an average loan size of $3.5m and a total of $3bn invested by end-2023. Those institutions provided financial services to low-income households and micro-entrepreneurs, including many women and rural populations, with loans with a $1,700 average size.
GGSF, which says it is now the world’s largest gender-lens investment fund, was created in January 2024 with the mission of addressing a $1.7trn gender gap by strengthening the provision of gender-smart and responsible financial services focused on underserved women, and women-owned and women-led businesses in developing markets. It also seeks to improve livelihoods, promote women’s leadership, and enhance gender balance within financial institutions. The Fund aims to build on the 2X criteria and seek 2X certification for its investees.
The fund’s founding shareholders, the Federal German Ministry for Economic Cooperation and Development (BMZ), KfW, the IFC and Austrian DFI OeEB were “instrumental in defining the fund’s new impact focus”, according to Ruurd Brouwer, chairman of the GGSF board.
Tomasz Telma, director & global head of the financial institutions group at IFC said the fund’s move to a gender-lens focus reflected a shift in financial inclusion efforts and the maturing of microfinance institutions.
“The fund’s new strategy to focus on gender-smart financing and to expand focus beyond microfinance to small enterprises as well is adapting to the current environment and also aligns with IFC’s priorities, including the focus on gender finance, which greatly supported IFC’s renewed commitment,” he said.
The fund also has private sector backers, notably M&G Investments which provided $120m in senior notes to support the growth of the portfolio.
The fund is managed by Luxembourg-based alternative investment firm Innpact Fund Management (IFM). Investors Incofin, responsAbility and Triple Jump are handling sourcing, relationship management, and investment decisions.
BMZ, the fund’s largest shareholder, has provided initial funding for a technical assistance (TA) facility to facilitate engagements with partner financial institutions on areas of improvement identified during due diligence. This TA is being provided by a global consortium of Danish-based sustainable engineering firm NIRAS and Women’s World Banking, two organisations with experience in implementation of gender-equality projects.
Patrick Goodman, founding partner at Innpact, said he expected the evolution of the MEF into GSSF to be transformational in addressing gender issues through financial inclusion, due to the wide number of countries and financial institutions the fund invests in.“The strong blended finance structure of the fund, preference for local currency financing, and support from committed DFIs and donors, will enable additional private sector financing, allowing the fund to grow and increase its impact on women in developing markets,” he said.
