Large numbers of people (1.7 billion) and micro, small and medium enterprises (200 million in emerging economies alone) lack adequate access to safe, reliable, coercion-free credit and financing. These populations have traditionally been underserved by market solutions because they offer a poor risk:return ratio. Yet increased individual, household and micro, small and medium enterprise (MSME) access to regular and safe finance, free from coercion, can help prevent modern slavery and human trafficking, and unlock the potential we are all missing out on as a result. Financial inclusion fosters financial resilience, encourages capital formation, and promotes investment and business growth.
Prevailing investment models – such as Modern Portfolio Theory, which focuses on optimizing portfolio returns at a given risk level – can optimize efficient investments based on existing options, but may lead to under-investment in certain market segments or economic sectors and under-investment in innovation in new options. This may explain why we have seen under-investment in the provision of safe, reliable and coercion-free financial services to the poor and to other groups that are highly vulnerable to modern slavery and human trafficking, such as forcibly displaced people. Intentional investment prioritizing ‘additionality’ will help grow the addressable market and unlock significant financial potential.
Social finance, such as microfinance and cooperative insurance models, can help fill this gap, because it focuses on discharging a social mandate rather than maximizing profit. There is evidence that microfinance can reduce vulnerability to debt bondage. Microfinance is a scalable solution. But we should be careful that in scaling it we do not create new coercive dynamics in debt markets. There have been negative experiences in some places where the securitization of microdebts has led to coercion and even suicide. Social impact, not profit maximization, must be central.
Emerging technologies can also play an important role, because they change the risk:return calculus for providing services to these populations. Growth opportunities seem especially high in countries with high modern slavery and human trafficking risk exposure.
Promising investment strategies in digital finance include:
- Investing in rapid roll-out of digital payment systems to displaced populations.
- Extending digital payroll and payments systems to business in areas with high modern slavery and human trafficking risks.
- Investment in portable digital ID.
- Using artificial intelligence (AI) and digital chatbots to encourage responsible savings and investment and to grow entrepreneurialism and markets.
- Using microinsurance and risk mutualization to extend coverage to vulnerable populations.
The FAST Vulnerable Populations Initiative will explore ways to mobilize capital for these investments in innovation. It will address the high coincidence between lack of access to financial products – especially cross-border payments, credit and insurance – and vulnerability to modern slavery and human trafficking. The Initiative works with governments, financial institutions and fintech leaders to identify and promote new financial products and services that can reduce this vulnerability, such as payment systems for displaced populations, blockchain-based microinsurance for rural smallholder farmers, and next-generation remittance technology. This work started with a bootcamp for African fintech entrepreneurs in 2020.
New investment modalities, such as performance contracting and social impact bonds, also hold out promise for mobilizing capital to deploy in these ways, to help prevent modern slavery and human trafficking. There is promising evidence emerging on the utility of both modalities for addressing social risks, including the issuance of five-year ‘SDG bonds’ by the World Bank, in Singapore and Hong Kong. Modern slavery-related performance outcomes could also be embedded in ESG performance loans, like a recent USD 500 million green club loan issued in Singapore.
Finally, mobilizing capital for anti-slavery investment will prove easier if anti-slavery leaders are better able to articulate the ‘cost’ of ending modern slavery – the costs of effective prevention and remedial measures – modelling how that money could be effectively and efficiently spent. Similarly, there is a need for stronger evidence on the return on investment that can be expected from different anti-slavery investments, whether at the firm, community or national level. At present the field lacks these basic facts and figures, and until they are available it may prove difficult to effectively mobilize finance against slavery and trafficking.
