The Role of Impact Investing: How can Financial Inequality and Innovation be addressed in Underserved Communities

Programs like LISC’s Building Sustainable Communities strategy are proving that focused investments in low-income communities yield measurable outcomes. By concentrating on employment and income improvements, LISC has shown a clear correlation between increased investments and enhanced quality of life. 

These efforts highlight a critical insight: progress is possible, albeit slow and uneven. Nonetheless, such investments provide hope that struggling neighborhoods can transform into thriving hubs for living, working, and entrepreneurship.

Financial inequality remains a pressing issue, exacerbated by systemic barriers in traditional financial systems. Innovative approaches like those adopted by Liz Luckett and her Social Entrepreneurs Fund (TSEF) illustrate how impact investing can provide scalable, technology-driven solutions for these challenges.

Luckett’s fund focuses on empowering underserved populations through technology. Examples include:

• Alternative Credit Scoring: Companies like Petal base credit decisions on cash flow rather than traditional credit scores, offering fairer access to financial tools.

• Reducing Overdraft Fees: Automated bots negotiate overdraft fees on behalf of consumers, saving individuals significant sums and limiting exploitative practices.

• Optimized Remittance Systems: Solutions that facilitate direct bill payments in lieu of cash transfers reduce transaction costs and maximize the value of remittances sent by immigrants.

These examples show that financial innovation doesn’t just alleviate immediate financial pressures—it builds long-term economic stability by enabling individuals to gain greater control over their finances.

Impact investing is increasingly about using small data—focused, actionable insights—to create transformative change. Unlike big data that often reinforces inequality, small data empowers individuals and small businesses to thrive. For instance, TSEF’s initiatives in Mexico provide inventory management tools for small shop owners, helping them optimize operations, access loans, and scale their businesses.

This kind of intervention demonstrates how thoughtful application of data can drive inclusive growth while offering significant returns for investors.

The business case for investing in underserved areas is compelling. A third of the U.S. population—and many more globally—remains excluded from traditional financial systems. This exclusion creates inefficiencies and limits market potential. By adopting an impact-first approach, financial firms can tap into these markets while addressing social inequities.

Moreover, widening financial inequality is unsustainable for long-term economic stability. As Luckett aptly notes:

Widening inequality is not going to work forever. It’s not going to end well.

The private sector has a pivotal role in ensuring a more equitable distribution of opportunities, creating value not just for shareholders but also for society.

To maximize the benefits of financial innovation, policymakers, developers, and foundations must collaborate to scale these efforts. Measuring outcomes—whether through improved employment rates, reduced financial penalties, or enhanced credit access—is crucial to building best practices that other communities and investors can replicate.

The intersection of finance, technology, and community development is transforming the way we approach inequality. By focusing on comprehensive strategies and leveraging innovative financial tools, we can bridge the gap and create lasting change. Here, the message is clear: 

Investing in underserved communities is not only morally imperative but also economically smart.

It’s time to rethink how we use finance—not just as a tool for profit but as a driver for equality.