Where to Invest When There Is Nowhere to Hide

Global capital markets are navigating one of the most unpredictable environments in decades. Nearly 40% of the S&P 500’s market capitalization is concentrated in just ten companies. The AI revolution could result in a sharp market correction or in broader economic disruption, both with significant effects on the global economy. Traditional safe havens are losing their reliability and even developed-market sovereign debt is exhibiting unusual volatility.

In this context, institutional investors are looking for resilient and genuinely diversifying alternatives – investments that can offer stability and performance even amid uncertainty.

Drawing on insights from responsAbility’s latest white paper, this article explores why investing in financial inclusion, particularly through short-term private debt, offers a compelling opportunity, especially now. Such investments provide access to a segment deeply rooted in the real economy, strengthening financial institutions in emerging markets. These institutions, in turn, provide entrepreneurs with loans to expand their businesses, create jobs, and invest in productive assets.

Key reasons to consider financial inclusion investments

Resilient performance Financial inclusion strategies have delivered stable returns for more than two decades, even during crises such as the Global Financial Crisis and the COVID-19 pandemic. Returns are generated through ongoing interest payments from financial institutions that extend loans to local entrepreneurs and small businesses. These loans typically finance productive activities such as trade, agriculture, or services, creating diversified and stable income streams that are less exposed to external shocks and global capital markets.

Diversification and low correlation Investments in financial institutions that serve micro and small businesses in emerging markets show very low correlation with traditional asset classes. This is because they are not affected by mark-to-market fluctuations and their performance depends on local lending and repayment activities, not on global market sentiment. As a result, they tend to respond to real economic conditions rather than short-term capital market fluctuations.

Downside protection through structure and fundamentals Short-term, privately originated loans offer natural downside protection, as they usually mature within two years and are repaid on a rolling basis. Changes in interest rates are reflected gradually, which helps preserve returns even in volatile environments. Broad geographic and institutional diversification further limits concentration risk and keeps default rates low.

Liquidity and stability Financial inclusion portfolios consist of numerous smaller loan positions with short maturities. As these loans are repaid continuously, liquidity is naturally replenished. Valuations are based on actual cash flows from interest and principal repayments rather than on daily market pricing, which keeps volatility consistently low – even when public markets experience turbulence.

Why now?

Today’s investment landscape is marked by uncertainty, geopolitical tension, and structural risk. In this environment, financial inclusion investments combine stability, diversification, and real economic relevance. They not only contribute to economic development in emerging markets but also provide access to an asset class that has proven crisis-resilient and performance-oriented over many years.