This article first appeared in The Edge Malaysia Weekly on November 6, 2023 – November 12, 2023

Jorge Rubio, global head of Citi Social Finance, is not a regular banker. He often has to switch out of his suit and tie to more comfortable attire so he can visit entrepreneurs providing innovative solutions that address pressing social issues around the world.

Rubio transitioned from his corporate banker role to social finance in the early 2000s, after a visit to the south of Mexico. He saw for the first time how group lending and microfinance made a difference to the indigenous communities in the country.

“It was fascinating to see how the mostly women borrowers were getting access to working capital loans for the first time. Their portfolio quality was really good, meaning that they repay their loans. They just didn’t have access [to financing],” says Rubio, who has been working with Citi for 26 years.

The women were using the capital to expand their businesses, whether it’s a small saloon or a food stall. “When I saw that, I realised that personally, I want to dedicate my career to development finance. Citi has provided me with that opportunity because, with its very unique global footprint, we can take those experiences and replicate them across the world.”

In 2005, Citi started its microfinance team to support underserved communities, and Rubio was part of the efforts to expand this business to over 40 countries.

Three years ago, the unit was renamed Citi Social Finance to reflect the bank’s expanded focus on a wider set of social issues, which has become particularly relevant with the popularity of environment, social and governance (ESG) in the private sector.

The broader scope includes financing for solutions that address financial inclusion, access to basic services like connectivity, water and sanitation, education, healthcare and food security.

“Citi Microfinance was a business unit with different products that worked across the bank and in many geographies to expand access to financial services. In 2005, around 2.5 billion people in the world did not have access to financial services. Today, it’s around 1.7 billion [people], which means in the last couple of decades, as an industry, we have come a long way,” says Rubio.

But there is still a lot to do. “Today, there are around 3.6 billion people — that’s nearly 50% of the population — that do not have access to running water at home or sanitation. If you look at the different basic needs, the gap continues to be big and challenging across emerging markets.”

The rising awareness of ESG is helpful, as a wider pool of investors is now interested in social financing. Back then, it was mostly development finance institutions (DFI) that partnered with Citi to share risks and originate transactions on a larger scale, says Rubio.

“If you look at the picture today, it’s not only the DFIs. It’s impact investors, more traditional asset managers and, very importantly, the institutional clients of Citi that are looking at social finance as a valid asset class. This means it can have financial returns and, at the same time, achieve social impact.”

In 2022, Citi Social Finance mobilised over US$3 billion across the world, which Rubio says was their best year. Over US$600 million of these funds were allocated to Asia, which he identifies as one of the key regions for growth.

India, where microfinance institutions have a strong presence, is an important market. Indonesia and the Philippines, which have growing populations, are also interesting markets that can enable scale, he points out.

Another factor that is creating opportunities for social finance is technology, which is making access to the internet, digital payments and other basic services more direct, scalable and commercially viable.

For instance, in Kenya, Citi closed a securitisation transaction in May with Sun King, a company that finances home solar systems. It runs a pay-as-you-go model, where users make small, regular payments to access electricity. “That can help their children study at night and give them more hours of light, so that many of them who operate their businesses from home can open for more hours and generate more income,” says Rubio.

“When I was in Nairobi [Kenya] reviewing the due diligence on this transaction, a user of this service was telling us that it used to take him two hours every day to reach a place where he could charge his phone. These are life-changing solutions that we can help finance with our clients.”

Other deals that Citi Social Finance has done include funding for affordable housing loans in Indonesia, access to the digital economy in the Philippines and financing for small and medium enterprises as well as traditional microfinance in China, India and Bangladesh. Last year, it facilitated the development of a cookstove and water purifier carbon reduction project in Vietnam with several partners.

Rubio says the team is currently developing some transactions in Malaysia and is keen to do more in the country.

Citi has committed US$1 trillion (RM4.72 trillion) to sustainable finance by 2030, and social finance in emerging markets will be one of the key focuses. The funds are deployed using various methods, whether via securitisation, bilateral loans, loan syndication, bonds or trade finance.

“At the end of the day, we are a relationship bank. We like to offer our clients a suite of products that are appropriate to the phase they are in,” says Rubio.

Citi began its social finance journey by helping microfinance institutions that struggled to obtain capital in local currencies, which was what the global bank was able to offer. Its footprint around the world also helps the bank expand on social financing, Rubio believes.

This is even as financing for environmental initiatives tends to take the limelight now. “The growth in green [financing] sort of precedes the ‘S’ (social financing). For example, green bonds and the global frameworks were developed first. Now, social [bonds] are catching up and I think there are enormous opportunities. At the end of the day, the ‘E’ (environment) does not work without the ‘S’. The whole [low-carbon] transition has to make sense socially as well,” says Rubio.

Citi issued a US$1 billion bond in 2021 to finance social projects in emerging markets.

“We have a public framework in place with a second-party opinion. It’s audited and we report back to investors where the money is going and the impact we’re having,” says Rubio.

He hopes that social finance will continue to grow and become a valid asset class for investors. Citi Social Finance is a commercial unit, Rubio stresses, which means “everything we do needs to meet or exceed the return requirements of the bank”.

He hopes that with more private capital flowing into these areas, coupled with innovation, new technologies and disruptive business models, access to basic services can be scaled. Ultimately, this will result in a more equitable world.

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