Inclusive Fintech 50 (IF50) is a global innovation competition that aims to identify and elevate cutting-edge emerging inclusive fintechs that have the potential to drive financial inclusion. IF50 uncovers high-potential start-up fintechs addressing limitations in financial services delivery for unserved or underserved customers. Over the last three competitions, IF50 has attracted over 1,000 eligible applicants. Past winners have collectively increased their funding by $620 million in the year following their win. Winners benefit from access to zero-cost tools such as Visa’s Practical Business Skills and Practical Money Skills.
We are looking for early-stage fintechs in advanced or emerging markets that offer a solution among credit, insurance, payments &amp; remittances, savings &amp; personal financial management, or infrastructure addressing special challenges of underserved customer segments.
<h2>The 2022 application period is now open! <a href="https://www.inclusivefintech50.com" target="_blank" rel="noopener">Apply today</a>.</h2>

This report and infographic examine application data from nearly 300 eligible fintech applicants from the 2021 Inclusive Fintech 50 competition to better understand the state of early-stage fintechs and identify opportunities for further exploration.

Report

The <a href="https://www.inclusivefintech50.com" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> application data from the third year signals continued progress on innovations to onboard low-income customers, despite the challenges posed by the pandemic:
<ul>
 	<li>Inclusive fintechs are using creative approaches to serve new customers. From retail partnerships that help drive customer acquisition, to insurance platforms offering micro-coverage, to native language chatbots, to enhanced biometric identity verification solutions, early-stage inclusive fintechs are pursuing outside-the-box solutions to reach un/underbanked people around the world.</li>
</ul>
Nevertheless, there are two areas of concern:
<ul>
 	<li>Funding concentration persists. While fintech investments across emerging markets have been increasing, early-stage inclusive fintechs continue to face disparities based on geography, funding status, and gender.</li>
 	<li>Potential customer risks persist around data usage. Although data is central to the business models of inclusive fintechs, some applicants require customer consent related to data, and some still do not.</li>
</ul>

Insights from the 2021 Inclusive Fintech 50 Applicant Pool

Data from IF50 Applicants

Visit inclusivefintech50.com for key dates, past winners, the Investors' Network, and much more.

VISA

MetLife Foundation

Jersey Overseas Aid / Comic Relief

Accion

International Finance Corporation

Sponsors & Partners

Julia Arnold

To further illustrate this point, below are profiles of two Inclusive Fintech 50 winners that both have similar missions to serve underserved, unbanked rural communities with access to payments or financial services. While a majority of their customers are women, neither fintech set out to specifically target them. Were these fintechs to focus further on their female clients’ needs and preferences, they could potentially reach more women and provide them with beneficial services.
<h2>Paycode</h2>
Headquartered in South Africa, Paycode offers last‑mile delivery financial services technology solutions to unbanked populations offline in real‑time. Paycode links government social payments, mobile money, or payments to farmers or rural recipients without a formal bank account. The company addresses three key needs among rural populations: lack of formal identification, little to no connectivity, and high cost of service delivery. To do this, Paycode offers end users a biometric-linked smartcard which can be used at point-of-sale (POS) machines. Since a vast majority of end users live in remote, rural places, Paycode brings the POS to rural villages by putting cash machines on the back of pickup trucks. This branchless banking model is designed to work entirely offline — end users confirm their identity, access their accounts, and withdraw their funds with no internet or mobile connection. Their transaction data is uploaded when the Paycode employee reconnects to the internet.
Several aspects of Paycode’s delivery model and design unintentionally meet some of women’s unique needs. First, introducing a new technology in a rural setting, particularly one involving so many moving parts (fingerprints, smartcards, POS, etc.) can be tricky. Building trust among users can take time. Before going into a community, Paycode scopes the village to understand the needs of potential customers as well as identify and train locals who can act as facilitators on behalf of Paycode. When ready, Paycode provides all the necessary equipment and systems to onboard a customer and issue them with a biometric smart card on the spot. The onboarding process takes a total of seven minutes.
<blockquote class="pullquote--right">Several aspects of Paycode’s delivery model and design unintentionally meet some of women’s unique needs.</blockquote>
Another innovation involves the biometric ID itself. End users are onboarded using their fingerprints — to verify their identity and proof of life. End users select a finger to act as their primary ID. They also select up to three individuals to act as a back-up in case their fingerprint is unreadable (many smallholder farmers have rough hands and fingerprints can be tricky to obtain). In addition to selecting proxies for access, end users also select an “alert” finger — a risk mitigation strategy that silently triggers a false low balance in their e-wallet while simultaneously alerting Paycode’s system of a potential theft. This risk mitigation strategy was designed to mitigate the threat of gun violence, but it also provides safety and control for female end users if their male partner attempts to co-opt their funds.
Both these aspects of Paycode’s business, and particularly the alert finger, meet women’s specific needs, even if they weren’t designed with that intent. Control over income or assets can be particularly challenging for women in light of informal rules that, for example, may expect a woman to hand over her money to her male partner. The alert finger enables her to navigate economic violence that could potentially escalate into physical violence while maintaining control over her assets.
<h2>Extramile Africa</h2>
Extramile Africa targets savings groups in Nigeria by offering increased security of their funds and the ability to earn interest on their savings. <a href="https://mangotree.org/what-are-savings-groups" target="_blank" rel="noopener">Informal savings groups</a> such as rotating savings and loan associations (ROSCAs) are common throughout the world and have mostly female membership. These groups are an informal way for women to save, collect lump sums of savings, and access a form of credit.
Extramile targets two segments of women: smallholder farmers who make up the ROSCAs and women-run microbusinesses who make up two-thirds of their merchant network. The savers receive free and ongoing extension services, including advice at planting, harvest, and selling. The assistance is meant to ensure market linkages for farmers to sell their goods, which can be difficult or unpredictable for many smallholders. The savers transact — make deposits as well as withdrawals — with any Extramile merchants, who tally their savings on a unique ID card and are paid a small sum to take all the cash weekly to a bank, a sometimes two- to four-hour bus ride.
Savers must have a basic feature phone on which they receive SMS confirmation messages about their deposits. The use of technology increases transparency and security among group members, mitigating group infighting around transactions and savings totals, as well as improving financial accountability among savers. Extramile also created an app on which their merchants, who must have smartphones, can provide offline deposit taking and withdrawals. Extramile also uses the app to identify farmers or microbusinesses in each community with whom to invest part of the total savings by analyzing savings transaction data linked to each user. Profits from the investments are shared out every six months, with savers and farmers or businesses receiving 40 percent each, and Extramile receiving 20 percent as part of a sustainability strategy. This investment scheme enhances the economic resilience within communities.
To gain the trust of communities served, Extramile targeted community leaders and held community-wide meetings where they provided food and offered agricultural technical assistance. Extramile banking partners provided POS machines that Extramile brought to the community meetings to familiarize the community as well as train merchants how to use them. Their farmer co-ops and groups are targeted for onboarding as well as for financial management information around their savings behavior — for example, given that their savings are leaving their hands, they are told to keep cash on hand for daily expenses.
<blockquote class="pullquote--right">Extramile addresses the insecurity of women&#8217;s funds through placing some of it in bank accounts</blockquote>
Like Paycode, some of Extramile’s design choices benefit women. Savings groups are primarily made up of women and are a critical, if insecure, means to save cash outside of homes. Extramile addresses the insecurity of their funds through placing some of it in bank accounts, improves group members’ knowledge through financial and agricultural education, and even provides another income source through community investments. Targeting female merchants is similarly beneficial as these are usually lower-resourced businesses than male-run counterparts. Extramile improves female merchants’ technological capacities and adds income sources by paying merchants to make the trek to urban centers and through profit-sharing.
<h2>Adding a Gender Lens</h2>
Both Paycode and Extramile have been successful at embedding a deep understanding of rural livelihoods into their product design. Through mobile cash machines or providing a secure way to save, these two businesses clearly seek to address the informality and related vulnerability of their customers’ lives. They also clearly understand that building trust is foundational to their work, addressing it with community engagement or on-the-spot proof of concept. Given the fact that women make up a majority of both companies’ clients, going further to understand women’s lives, economic needs, and constraints will increase both the impact of their services and the growth opportunities for their businesses. Fintechs are uniquely positioned to take a gender-intelligent approach to design: they are close to their customers, collect all sorts of customer data which they can use to build products for women’s needs, and have the <a href="https://www.centerforfinancialinclusion.org/rapid-innovation-how-fintechs-are-adapting-under-covid-19" target="_blank" rel="noopener">flexibility to pivot and experiment</a> when necessary.
<blockquote class="pullquote--left">Going further to understand women’s lives, economic needs, and constraints will increase both the impact of their services and the growth opportunities for their businesses.</blockquote>
For Paycode, that might look like providing parallel investments in financial and digital capability in ways to enhance their primary business of cash disbursement. Due to the constraints they face, women are often less literate or lack key skills compared with men that are needed to <a href="https://link.springer.com/article/10.1007/s10708-019-10098-y" target="_blank" rel="noopener">increase their incomes or yields from their agricultural labor</a>. Financial capability is critical to women’s and households’ long-term financial health. Partnering with financial experts or training local agents to provide financial information — ideally linked to a financial service — and digital literacy that may encompass uses of technology beyond Paycode’s specific services would greatly increase women’s inclusion and increase their capability to use Paycode’s products. Digital capability may also include designing for the fact that <a href="https://www.pciglobal.org/wp-content/uploads/2020/09/DSG-Study-Brief-Impact-of-gender.pdf" target="_blank" rel="noopener">mobile phones are often a shared resource</a>, and thus any messaging or nudges might be seen by more than just the intended recipient.
Building out organizational partnerships to meet the full range of customer needs is critical, and this has become essential during the <a href="https://www.centerforfinancialinclusion.org/rapid-innovation-how-fintechs-are-adapting-under-covid-19" target="_blank" rel="noopener">COVID-19 pandemic</a> for fintechs and customers alike. Partnering with a microfinance institution or savings association with formal financial linkages may help build healthy behavior and provide a customized experience for Paycode’s end customers. Paycode and Extramile could partner with agricultural small and medium enterprises (agri-SMEs) that often provide training and also financial services (i.e., credit) to farmers. Customer transaction data from both fintechs can be used as an alternative credit score for women to get access to capital they are disproportionately excluded from. Extramile could offer this type of service by leveraging data on savings behavior for lines of credit to be reinvested into the communities. Finally, both fintechs could seek out ways to address some of women’s non-economic constraints, such as the intra-household power dynamics around household budgets and expenditures that often hand control over to male partners. Addressing these dynamics as it pertains to economic decisions takes specific training, and Paycode and Extramile could partner with trained facilitators to have information sessions with customers. These types of <a href="https://www.tandfonline.com/doi/full/10.1080/09614524.2019.1651251" target="_blank" rel="noopener">parallel investments</a> have been known to improve women’s financial inclusion and overall household economic well-being. Women’s financial inclusion is only as deep as women’s ability to <a href="https://www.scribd.com/document/398638800/Kabeer-Gender-Livelihood-Capabilities" target="_blank" rel="noopener">make decisions over their financial assets and see those decisions through to their completion</a>.
<blockquote>Both fintechs could seek out ways to address some of women’s non-economic constraints, such as the intra-household power dynamics around household budgets and expenditures that often hand control over to male partners.</blockquote>
Gender-blind digital financial technology can and does reach women customers. However, <a href="https://www.cgap.org/blog/personas-show-how-social-norms-impact-womens-financial-inclusion" target="_blank" rel="noopener">embedding women’s unique needs and constraints</a> into product design enhances women’s inclusion, ensuring their lived experiences are accounted for, thus making a financial product more meaningful to each customer and more valuable for the business. Fintechs like Paycode and Extramile have already done the difficult work of innovating to reach these last-mile populations — they are in the ideal position to make adjustments to their design that account for their female customers’ wants and needs. By gathering information on their female clients’ financial constraints, habits, and dreams, they can strengthen their impact on individual clients and their communities and take their businesses to new heights.
&nbsp;

Inclusive Fintech 50 Sponsors

Brief

For low-income women, digital financial inclusion offers an opportunity to upend entrenched gender inequalities by entering spheres from which they have been otherwise excluded. Financial services delivered via mobile phone can bridge the last-mile gap, bringing financial tools and services directly to women where they work and live. However, women are underrepresented customers of digital financial providers and platforms. Well-established impediments such as cost, literacy, and normative barriers (that shape the way people behave and expect others to behave) prevent low-income women from using such services at the same rate as men. These demand-side constraints, combined with a dearth of sex-disaggregated customer data, leave most fintech firms without a clear picture of women’s wants and needs for digital financial tools. As such, most mass-market tools are not designed with women in mind.
<blockquote>Demand-side constraints and a dearth of sex-disaggregated customer data leave most fintech firms without a clear picture of women’s wants and needs for digital financial tools.</blockquote>
It’s not just digital financial inclusion: Fewer women than men have access to formal bank accounts and mobile technology. Globally, 65 percent of women, compared with 72 percent of men, have bank accounts, while 197 million fewer women own a phone than men, according to the <a href="https://www.gsma.com/r/gender-gap-2019/" target="_blank" rel="noopener noreferrer">GSMA Mobile Gender Gap Report 2019</a>. Regional variations make these gaps more striking. In Sub-Saharan Africa, for example, home to many promising emerging market fintech innovations, the mobile gender gap is 15 percent, while in South Asia (including Pakistan, India, and Bangladesh) the gap is 28 percent. Further, access to formal bank accounts is extremely low across Africa. For example, the gender gap in account ownership in Kenya, according to the table below, looks to be only about 8 percentage points. However, the gap widens when adults with only a mobile money account are disaggregated from formal bank accounts and mobile money accounts. Around 65 percent of men in Kenya have both a formal bank account and mobile money account, while only 50 percent of women do. Interestingly, the gender gap in adults with only a mobile money account is reversed; more women than men have only a mobile money account, likely because the barriers to entry are lower than for a formal bank account. This trend can be seen throughout Africa.

<img class="aligncenter size-full wp-image-41359" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Sample-of-countries-in-Africa-Table-VF2-800.png" alt="table " width="800" height="412" />

Given the gender gaps in bank account ownership and mobile technology, it is not difficult to see why many fintech firms do not have visibility on how to better serve women. With fewer women users, and little to no sex-disaggregated data around how women’s use of and needs for these products differ from men’s, it can be difficult to identify low-income women’s needs and preferences. Excluding women is often unintentional — “gender-blind” design is thought of as an inclusive strategy. If “bias” is not baked into the design, the thinking goes, then anyone who wants to use the product can. Unfortunately, the opposite is true. Gender-blind product and platform design strategies allow products to flow in the way they always have: into the hands of those who are already in the marketplace and who make the decisions about who else can benefit from or access these products. A “gender-intelligent” or “gender-aware” approach, on the other hand, seeks to overcome women’s specific constraints through <a href="https://financialallianceforwomen.org/download/how-fintechs-can-profit-from-the-multi-trillion-dollar-female-economy/" target="_blank" rel="noopener noreferrer">data-driven design based on market research</a> in order to create distinct customer value. And the numbers in the table demonstrate that men disproportionately benefit from bank accounts and mobile technology.
<blockquote class="pullquote--left">We show the potential of gender-aware design, and how to design for specific needs and constraints of women, while accounting for the norms that define their lives.</blockquote>
This brief examines design principles employed by two fintechs, <a href="https://paycode.com/">Paycode</a> and <a href="https://extramileafrica.com/" target="_blank" rel="noopener noreferrer">Extramile</a>, working in Sub-Saharan Africa. We show the potential of gender-aware design, and how to design for specific needs and constraints of women, while accounting for the norms that define their lives. These two examples provide insights into why intentionally focusing on women can bring benefits to this largely untapped market and how fintechs can design products that meet women’s needs. Only by improving women’s meaningful use of financial services through concerted efforts to close the gender gaps will low-income communities and households begin to see potential economic benefits from inclusion, benefits that will also flow back to the providers that serve them. It is vital that fintechs move away from gender-blind or -neutral strategies toward gender-aware <a href="https://www.ifpri.org/publication/beyond-access-gender-transformative-financial-inclusion-agriculture-and-entrepreneurship" target="_blank" rel="noopener noreferrer">and even transformative strategies</a> that bake in access pathways for potential customers with limited knowledge or physical mobility. <a href="https://medium.com/hh-design/the-world-is-designed-for-men-d06640654491" target="_blank" rel="noopener noreferrer">Gender-blind design is not gender-neutral</a>.
<h2>Fintechs in Sub-Saharan Africa and a Gender-Blind Approach</h2>
According to data collected by <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> (IF50) -- a competition founded by MetLife Foundation and Visa, with support from Accion and IFC, and additional funding from Jersey Overseas Aid &amp; Comic Relief -- only six of the 403 fintech applicants claimed women as their target customers. Most applicants selected “rural households,” “MSMEs,” or “low-income individuals” as their target market. This belies the fact that all of these fintechs reach women — for many of the IF50 winners, women make up nearly 50 percent of their customers. Indeed, women make up a large proportion, if not the majority, among those market segments.

This trend continues among the IF50 fintechs focused on the African continent. Of the 2020 winners in Africa, the product and livelihood focus ranged from mobile banking, water and utility payments, mobile-based crop insurance, and a range of credit and savings products directed at low-income populations. For example, OKO secures the income of farmers of unirrigated farms in Mali and Uganda through a mobile-based crop insurance that automatically compensates them if they suffer from adverse weather.

<img class="alignright wp-image-41342" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Social-Norms-Table-VF-1005x1024.png" alt="" width="400" height="407" />Within the profile descriptions of the 15 IF50 winners based in or delivering services in Africa, their customer segments were primarily described as “unbanked,” “underserved,” or “low-income.” A few mentioned women, but most called out their customers by their lack of access to financial services. Only three out of the 15 mention women in their key problem statement, while eight mention “unbanked” populations. Identifying women as their target market is not a requirement, even if women make up nearly half of their customers. But by calling out their target customers in terms of livelihood rather than by gender, these fintechs may assume that every “unbanked” person or MSME has the same level of access to their products. This is rarely, if ever, the case.

If these fintechs do not see women as their target market, how do they reach so many women? Gender-blind product design does not translate into complete exclusion — but it does mean that a product is more likely to reach and work well for certain segments of customers, namely men. Gender-blind design can be seen in mass-market items like car seatbelts and mobile phones as well as digital financial tools such as chatbots with basic financial literacy information or a mobile wallet. In some cases, targeting certain livelihood segments may lead fintechs to see where their design is ill-suited for their women customers and make adjustments. In 2019, <a href="https://www.uncdf.org/article/5171/uncdfs-sprint4women-design-sprint-competition-to-increase-zambian-womens-financial-inclusion-kicks-off" target="_blank" rel="noopener noreferrer">UNCDF hosted a design sprint in Zambia</a> for fintechs seeking to increase their female customers — the finalists all designed and modified their products after interacting with women customers. In other cases, women may in fact be a central target segment, but aspects of a woman’s life, such as normative constraints (like care responsibilities or intra-household decision-making), and thus the product doesn’t achieve desired inclusion or impact.

The Case for a Gender-Intelligent Approach: An Opportunity for Inclusive Fintechs

Tess Johnson

<h2>Providing a Lifeline to Mobile Money Agents</h2>
Mobile money agents serve as the infrastructural backbone of the mobile money system and are brand ambassadors of digital finance providers. They are often a community’s <a href="https://centerforfinancialinclusion.org/uniting-tech-and-touch-why-centaur-products-are-better-for-consumers-and-providers-evidence-from-kenya/" target="_blank" rel="noopener">human touch point</a> to mobile money, helping build their communities’ capabilities in mobile money services and products. Agents provide essential services to individuals and businesses in rural and other difficult to reach areas not served by traditional financial institutions, but are limited by their own liquidity. Many agents tend to have a limited amount of cash on hand — approximately two months’ worth in Kenya, for instance — to be able to buffer against any emergency or shock, founder and CEO Andrew Matua said in a December 2020 interview.
In serving a network of more than 7,600 mobile money agents across Kenya (and soon Tanzania), the majority of whom run microbusinesses of their own in addition to their mobile money businesses, PesaKit has a deep understanding of the links between financial resilience and financial health, and crucially the interconnectedness between the microentrepreneurs’ household finances and the businesses themselves. PesaKit’s goal is to strengthen their agents’ defenses against emergencies or shocks by building a safety net of Ksh 15,000 to Ksh 60,000 so that agents and their families can sustain themselves for a period of one to four months without any income.
<img class="aligncenter size-large wp-image-41299" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/PesaKit-Overview-V3-929x1024.png" alt="pesakit overview" width="929" height="1024" srcset="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/PesaKit-Overview-V3-929x1024.png 929w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/PesaKit-Overview-V3-272x300.png 272w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/PesaKit-Overview-V3-768x846.png 768w" sizes="(max-width: 929px) 100vw, 929px" />
To accomplish this, after completing a simple onboarding process, PesaKit equips agents with liquidity management tools, which are crucial to agents’ ability to build and maintain trust with their customers. Liquidity management remains a notoriously difficult challenge in operating mobile money agent networks, and as noted by PesaKit founder and CEO Andrew Mutua, liquidity is “actually what they [agents] are in business for. If they have enough float or enough cash, they are able to serve customers. If you don’t have that [as an agent], you are losing income and you are also losing your reputation and the community trust.”
<blockquote>Liquidity management remains a notoriously difficult challenge in operating mobile money agent networks.</blockquote>
Leveraging data generated through agents’ interactions with PesaKit’s app and predictive analytics, its cash flow insights tool provides agents with the granular information agents need to effectively manage their liquidity, such as how much cash they need, how much float they need, how many customers they might serve, and how much they might earn in commissions.
The biggest challenge for PesaKit has been getting enough robust and consistent data to provide agents with accurate and relevant business insights. While M-Pesa’s continued domination of the Kenyan mobile money market impedes PesaKit’s ability to directly access some mobile money transaction data, PesaKit collects other data through agents’ interaction with its app that reveals key information about agents’ businesses (e.g., demand, business operations, footfall). This information helps agents access small loans that will then generate a credit history and afford them the opportunity to access larger value loans over time.
<h3><img class="alignright wp-image-41236 size-medium" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/komesha-corona-wait-here-feet-pesakit-sign-300x212.png" alt="corona social distancing kenya sign" width="300" height="212" srcset="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/komesha-corona-wait-here-feet-pesakit-sign-300x212.png 300w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/komesha-corona-wait-here-feet-pesakit-sign.png 585w" sizes="(max-width: 300px) 100vw, 300px" />Protecting Agents from the Pandemic’s Worst Economic Impacts</h3>
The pandemic reinforced the important role of PesaKit’s data-driven model, as COVID-19 presented significant challenges to business as usual. At the height of the pandemic, starting in March 2020, the Kenyan government imposed a strict 7 p.m. curfew, which curtailed agents’ hours of operation, restricted the movement of cash, and placed a heavier financial burden on agents overall. PesaKit agents faced increased costs to rebalance their cash flows, as customers were making more deposits than withdrawals, coupled with having to equip their locations with the personal protective equipment, hand sanitizers, cleaning products, and masks they needed to be able to serve their customers safely while observing social distancing guidelines.
To strengthen agents’ social safety net in this time of immense need, PesaKit introduced a 12-month hospital cash insurance cover to provide agents with greater financial security if they tested positive, were quarantined, or were hospitalized due to COVID-19. Again, PesaKit’s proximity to clients enabled them to move quickly and provide appropriate services to help their customers navigate these difficult times.

<h2>Leveraging Community Trust to Expand Access to Healthcare</h2>
reach52 seeks to shield low-income, underserved households in rural areas from the disruptive financial burden of out-of-pocket (OOP) health expenditures and protect their livelihoods by providing access to affordable and comprehensive health insurance and healthcare services.
<a href="https://www.cgap.org/blog/financial-services-health-treating-cause" target="_blank" rel="noopener">Research by CGAP</a> found that those living in low- and middle-income countries pay as much as 60 percent of their health expenditures out of pocket. An unexpected health crisis can force a family to make one of two nearly impossible choices: borrow from an informal moneylender at great expense or sell a household asset to make ends meet. If neither of these are options, families have to suffer poor, if not catastrophic, health outcomes by rationing necessary medical treatment or forgoing it entirely.
<img class="aligncenter size-large wp-image-41318" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/reach52-Overview-V3-763x1024.png" alt="" width="763" height="1024" srcset="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/reach52-Overview-V3-763x1024.png 763w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/reach52-Overview-V3-224x300.png 224w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/reach52-Overview-V3-768x1030.png 768w" sizes="(max-width: 763px) 100vw, 763px" />
Insurance products are meant to help households avoid facing any of those decisions, yet providers often find that<a href="https://www.centerforfinancialinclusion.org/inclusive-insurance-closing-the-protection-gap-for-emerging-customers-2" target="_blank" rel="noopener"> insurance is a difficult product to sell to low-income, underserved households</a>. Consumers with less experience or comfort with the formal financial system don’t always understand the basics of how insurance works, how it benefits them, what adverse events it protects or mitigates against, and how claims on their policies are paid. Rather than focusing on the intangible nature of insurance and the functional details of their plans and policies, reach52 taps into the emotional and practical benefits of insurance. “Nobody really wants to buy insurance,” notes Rich Bryson, Chief Strategy and Marketing Officer at reach52. “But everybody does want to protect their families and look after them. That is a universal trait and that is absolutely the case in the communities that we’re operating in.”
<blockquote class="pullquote--right">“Nobody really wants to buy insurance. But everybody does want to protect their families and look after them.”</blockquote>
reach52 builds on communities’ trust of local leaders, fellow residents, and community-based nongovernmental organizations that are already locally embedded to drive adoption of its insurance products and to scale its solutions more widely. “Trust is absolutely huge,” continues Bryson. “There can be distrust of external organizations in communities where information is less available and quite a lot of scamming goes on. Partnering with NGOs and individuals in the communities to run the services helps to overcome this. You can then build trust obviously as more people use the service and by sharing positive claims stories, showing how community members have benefited from insurance when they needed it most.”
reach52 recruits and equips Marketplace Area Managers (MAMs) from these aforementioned groups to lead its outreach and onboarding efforts, either in sites directly managed by reach52, or those run by reach52’s on-the-ground partners such as NGOs. MAMs serve as the bridge that connects low-income and rural clients with established insurance providers, using the reach52 marketplace mobile app to help clients find affordable health coverage, as well as prescription and over-the-counter medicines to meet their unique needs.
<h2>Expanding Service Offerings and Forging New Partnerships</h2>
reach52 drew from a wealth of guidance from its local teams and partners to understand how it could operate safely given travel restrictions and social distancing protocols. With its teams not able to travel, the fintech shifted to focus on its strategy, response, and the development of remote services that could help healthcare workers and the local community. For instance, they developed Facebook Messenger-enabled health chatbot services — used by more than 100,000 people — for sharing information on topics such as COVID-19 and its symptoms.
Specifically, reach52 has focused its recent efforts on combatting COVID-19, addressing barriers to healthcare access the pandemic has created for rural and low-income populations, and examining the adverse economic impacts it has had on livelihoods. In <a href="https://reach52.com/leading-the-fight-against-covid-19-in-partnership-with-johnson-johnson/" target="_blank" rel="noopener">partnership with Johnson &amp; Johnson</a>, reach52 has provided upskilling and remote learning opportunities for nearly 2,000 of its community health workers in the Philippines and Cambodia through its mediconnect platform. It has also expanded the range of healthcare products and services available through the reach52 marketplace, including reach52’s launch into <a href="https://reach52.com/reach52-launches-health-services-on-the-ground-in-india/" target="_blank" rel="noopener">India</a> and <a href="https://reach52.com/expansion-of-reach52s-insurance-services-into-cambodia/">Cambodia</a>.
<blockquote>reach52 has focused its recent efforts on combatting COVID-19, addressing barriers to healthcare access the pandemic has created for rural and low-income populations</blockquote>
More broadly, the increased focus on global health and health access issues has accelerated reach52’s partnerships with public and private sector health actors and other key stakeholders, including Pfizer, Biocon, Allianz, and UNICEF Innovation, among others. These new initiatives have ranged from exploring new models of care to address both communicable and chronic health conditions (e.g., dengue fever, diabetes, and hypertension) to new insurance plans and mobile wallet services for low-income communities.

<h2>Beyond COVID</h2>
reach52 and PesaKit credit their success to placing their end users at the center of everything they do. By focusing on developing solutions that address customer pain points and working to provide additional opportunities for agents to generate income, PesaKit stakes its success on the success of its agents, which it believes will build and maintain customer loyalty and is key to the sustainability of its business over time.
Emphasizing the importance of community and global health, Bryson of reach52 argues that “no one is protected until everyone is protected […] it is critical that we look at global health and by nature the global economy” as being interconnected in this way.
As the world continues to grapple with the health and economic fallout from the COVID-19 pandemic, the financial needs of customers will continue to evolve. Inclusive fintechs must remain agile and continue adapting to the ever-changing context and evolving needs of their customers. Doing so can help customers manage their immediate needs while also building their financial resilience to mitigate against future crises.

The severe economic impacts of COVID-19 on low-income households and small businesses have underscored the need for innovative solutions that can build greater financial resilience. Findings from <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">surveys of MSMEs</a> conducted by the Center for Financial Inclusion (CFI) show that since COVID-19 struck, many small businesses in Indonesia, Colombia, and Nigeria have either had to close or found their profits significantly decreased. At the same time, the pandemic has provided opportunities for inclusive fintechs to <a href="https://centerforfinancialinclusion.org/rapid-innovation-how-fintechs-are-adapting-under-covid-19/" target="_blank" rel="noopener noreferrer">leverage their agility and adaptability</a> to strengthen and support the financial resilience of low-income, financially underserved customers.

Financial resilience is the ability to mitigate, adapt to, and recover from shocks and stresses in a manner that reduces chronic vulnerability and facilitates inclusive growth. Individuals must deftly navigate a delicate balancing act to stay afloat and may be thrown off course by a whole host of shocks, ranging from unexpected health crises to weather-related disasters that can disrupt otherwise appropriate financial plans. The nuances associated with financial resilience can complicate the financial service industry’s ability to develop and design comprehensive solutions for low-income customers.
<blockquote class="pullquote--right">PesaKit and reach52, two winners of the 2020 Inclusive Fintech 50, have responded to the extraordinary challenges posed by the COVID-19 pandemic by continuing to innovate to meet their customers’ needs.</blockquote>
PesaKit and reach52, two winners of the 2020 <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> -- a competition founded by MetLife Foundation and Visa, with support from Accion and IFC, and additional funding from BlackRock and Jersey Overseas Aid &amp; Comic Relief -- have responded to the extraordinary challenges posed by the COVID-19 pandemic by continuing to innovate to meet their customers’ needs. In this paper, we share insights on how these two fintechs have adapted to a challenging economic landscape to serve as early examples of how fintechs have leveraged their agility and innovation during crisis. These findings build on the 2020 Inclusive Fintech 50 <a href="https://www.inclusivefintech50.com/white-paper-2020" target="_blank" rel="noopener noreferrer">white paper</a> that draws on the data submitted by the 2020 cohort of applicants and highlights how fintechs are continuing to advance financial inclusion and resilience for the estimated 3 billion financially underserved people worldwide.

Agility Breeds Resilience: A Tale of Two Fintechs Innovating in the Face of a Pandemic

Spotlight on 2020 Winners

Blog Post

On August 10, the Reserve Bank of India (RBI) released their <a class="Hyperlink SCXW9814176 BCX0" href="https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54187" target="_blank" rel="noreferrer noopener">recommendations on digital lending</a>. This is a significant moment, especially since the Indian government recently withdrew the data protection bill that aimed to protect consumers from the risks of digitalization and data proliferation. The bill, launched in 2019, was designed in light of concerns about data misuse by private players. A new bill is proposed as an alternative. However, while India awaits this, data regulation depends on sectoral regulations. These new recommendations on digital lending will help to regulate the multitude of digital lending apps that have exploded across India, and how they use consumer data.
<h1>Background on India’s Digital Lending Regulations</h1>
In this age of rapid digitalization, innovation opportunities grow as fast as the risks they pose to consumers, making it challenging for regulators to keep abreast of the changes. The RBI Working Group on digital lending reported that the <a class="Hyperlink SCXW115547155 BCX0" href="https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&amp;ID=1189#S24" target="_blank" rel="noreferrer noopener">volume of digital credit has grown twelve-fold</a> between 2017 and 2020. <a class="Hyperlink SCXW115547155 BCX0" href="https://www.cgap.org/blog/evolving-nature-and-scale-consumer-risks-digital-finance#:~:text=These%20risks%20include%20mobile%20app,may%20result%20in%20over%2Dindebtedness." target="_blank" rel="noreferrer noopener">CGAP’s research on risks</a> in digital financial services (DFS) reveals that as of 2021 there are over 60 identified consumer risks, compared to only seven risks identified in 2015; and this list only continues to evolve.
<blockquote class="pullquote--left">India has been at the epicenter of DFS growth, but this growth has been accompanied by growing concerns about consumer risks.</blockquote>
India has been at the epicenter of <a href="https://www.imf.org/external/pubs/ft/fandd/2021/07/india-stack-financial-access-and-digital-inclusion.htm" target="_blank" rel="noopener noreferrer">DFS growth</a>, driven by extensive investments by the government in digital infrastructure, <a href="https://indiastack.org/" target="_blank" rel="noopener noreferrer">India Stack</a> – a comprehensive digital identity, payments and data management system, and investments. The <a href="https://www.investindia.gov.in/sector/bfsi-fintech-financial-services#:~:text=The%20digital%20investment%20market%20is,to%20%2410%20tn%20by%202026." target="_blank" rel="noopener noreferrer">digital investment market</a> in India is projected to be worth $14.3 billion in 2025, growing at a 5-year CAGR of 22.4 percent. This growth in DFS has been accompanied by growing concerns about consumer risks, such as <a href="https://themorningcontext.com/internet/why-does-upi-fail-so-often-for-banks-like-sbi" target="_blank" rel="noopener noreferrer">high failure rates in digital payments</a>, fraud, and poor redressal, among other challenges. Digital lending has been leading the charge on both innovations and rising consumer risks and, in response, the Reserve Bank of India (RBI) <a href="https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&amp;ID=1189#S1" target="_blank" rel="noopener noreferrer">constituted a working group</a> on digital lending in 2021.

This is not the first time the RBI has needed to formulate regulations to protect consumers. The RBI’s past interventions in <a href="https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=20377" target="_blank" rel="noopener noreferrer">microfinance</a> and <a href="https://www.rbi.org.in/Scripts/FS_report.aspx" target="_blank" rel="noopener noreferrer">digital payments</a> have allowed them to balance their conflicting goals of inclusion, consumer protection, stability, and growth-led innovation.

Digitalization and modularization of financial services create new regulatory challenges. Three challenges that stand out in the Indian context are lower entry barriers, India’s complex legal regime, and the absence of guidelines about what consumer data apps can collect.

To allow innovation, entry barriers are low, a concern raised in the<a href="https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&amp;ID=1189" target="_blank" rel="noopener noreferrer"> working group’s report</a> especially as the market matures – a <a href="https://www.tuko.co.ke/378517-digital-lending-fixing-credit-access-barriers-fostering-growth-smes.html#:~:text=Digital%20lending%20is%20uniquely%20positioned%20to%20fix%20credit,poverty%20reduction%20and%20boosting%20national%20wealth%20and%20development." target="_blank" rel="noopener noreferrer">problem that previously has been seen and addressed</a> by regulators in Kenya. In India, this led to the <a href="https://www.centerforfinancialinclusion.org/combating-the-rise-in-fraudulent-fintech-apps">creation of lending apps, several of which were fraudulent and predatory</a>, and were launched during the pandemic when demand was high due to consumers’ loss or drop in income, loss of jobs, and health shocks.

India’s <a href="https://prsindia.org/files/policy/policy_committee_reports/1370600640_FSLRC%20Report%20Summary.pdf" target="_blank" rel="noopener noreferrer">complex and fragmented regulatory and legal regime</a> has been written about extensively in the past, and was acknowledged as a challenge by the RBI Working Group on digital lending in their recent report. In an era of modularization, where efficiency in delivery of digital credit is driven by partnerships with banks and non-bank finance companies, call centers, collection agents, and others, not all entities are directly regulated by RBI. This adds a layer of complexity to India’s already complex legal system that governs lending.

Earlier this month, India’s government <a href="https://themorningcontext.com/internet/india-withdraws-personal-data-protection-bill?type=short" target="_blank" rel="noopener noreferrer">withdrew the data protection bill</a>, which sought to empower citizens with rights related to their data. The removal of this bill now creates challenges for consumers in India, especially women and minority groups who can be targeted and don’t have control over how their data is used. Recent research in India showed that the very act of going online can <a href="https://www.dai.com/fi-cyber-user-trust.pdf" target="_blank" rel="noopener noreferrer">violate societal expectations of women</a>. Besides the obstacle this creates in narrowing the gender gap in India, the lack of laws and guidelines has led digital lending apps to seek <a href="https://www.cgap.org/blog/digital-consumer-credit-india-time-take-closer-look#:~:text=While%20there%20is%20no%20official%20count%20of%20the,least%20157%20apps%20operating%20as%20of%20July%202021." target="_blank" rel="noopener noreferrer">disproportionate permissions</a>, and then use consumer data to <a href="https://www.ft.com/content/16c86479-e88d-4a28-8fa4-cd72bace5104" target="_blank" rel="noopener noreferrer">“debt shame”</a> consumers who delay repayments. The prospect of social censure can be a powerful barrier for women in adopting DFS.
<blockquote class="pullquote--right">Digital environments exacerbate financial services risks that have existed for a long time.</blockquote>
It is worth repeating that digital environments exacerbate financial services risks that have existed for a long time. There are several ways that we see risks evolve in a digital era. Digital lenders in India communicate about prices in different ways, making it harder for consumers to compare and choose. Digital lenders requested processing fees upfront, regardless of whether or not a loan would be disbursed – a scheme profitable for lenders, but detrimental to consumers. Complaint channels in a digital environment are often non-existent or dehumanized, causing many consumers <a href="https://www.cgap.org/blog/analyzing-social-media-spot-digital-consumer-credit-risks-india" target="_blank" rel="noopener noreferrer">to resort to social media</a> to air their complaints. The absence of well-designed complaint channels can be a barrier to consistent use and can contribute to a lack of trust, especially among women. Finally, credit reporting during the pandemic took a backseat due to loan moratoria, and the modularized nature of digital lending meant that fintech lenders would often not report to credit bureaus, weakening existing credit reporting mechanisms even as the digital lending space evolved.
<h1>Positives of the New Recommendations</h1>
Not all digital lending is bad. We know that <a href="https://www.imf.org/-/media/Files/Publications/covid19-special-notes/en-special-series-on-covid-19-digital-financial-services-and-the-pandemic.ashx" target="_blank" rel="noopener noreferrer">timely access to affordable loans can help smooth cash flows, address emergency liquidity requirements, and offer consumers greater choice</a>. Therefore, the RBI’s recommendations based on the working group’s report are an encouraging first step to addressing consumer risks before trust in digital lending is eroded.

The <a href="https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=54187" target="_blank" rel="noopener noreferrer">recommendations for implementation</a> made by the RBI on August 10, include direct execution of loans, mandates to reveal the annualized percentage rate (APR), and a cooling off period that allows consumers to change their minds.

Now with these recommendations in place, regulated entities – institutions that are directly regulated by the RBI – must disburse directly to borrowers’ bank accounts, except in a narrow set of cases of co-lending transactions. This is a positive step that reduces the bargaining power of intermediaries that may be involved and clearly positions that the risk of lending lies with banks and non-banks and not the originators of loans. Therefore, the onus of consumer protection lies with the institution taking on the risk of lending.

The mandate to reveal the APR creates a standard playing field for all lenders and allows consumers to compare rates – a crucial step. Finally, the cooling off period with loans is an excellent move and sets a positive precedent for regulators in other jurisdictions. While this feature is normally associated with insurance products, the extension to loans provides consumers with choice and the ability to change their minds without facing financial losses. However, the operationalization of this recommendation will require consultation with market players, since it does impact lenders’ cash flows.
<blockquote>Even though these guidelines are not a perfect replacement for a comprehensive data protection bill, they do protect against misuse of consumer data gathered through digital lending apps.</blockquote>
While India awaits a new data protection bill and eventually a new law, individual regulators must safeguard consumers’ data privacy interests. Even though these guidelines are not a perfect replacement for a comprehensive data protection bill, they do protect against misuse of consumer data gathered through digital lending apps. They prevent disproportionate permissions from being sought by lending apps, allow access to camera, microphone, and location data as a one-time event during onboarding or checking KYC, and outline standards to be achieved in case of a security breach.
<h1>Gaps That Still Need to Be Filled</h1>
More is needed to establish a common understanding of consumer protection risks and redress mechanisms among all regulated entities and institutions involved in the delivery of loans.

While being transparent about APR is a positive first step, in a market with hundreds of lending apps and several more that launch daily, consumers must be able to compare lenders. This need presents a market opportunity: while price comparison sites exist for insurance products, it is time to have them for digital loans. Ideally, lenders would compete to provide the best terms to borrowers but we likely will need to wait some time for this advancement.

Complaint channels need to be redesigned to be consumer-friendly and regulators need to use <a href="https://www.cgap.org/topics/collections/market-monitoring/tools">appropriate market monitoring tools</a> to analyze and identify early warnings. This also presents an opportunity to test and evaluate consumer complaint mechanisms that exist – an area of emerging research interest for CFI.

And finally, the RBI proposes that underwriting algorithms used by lenders should be subject to audits. The RBI noted that while this recommendation was accepted in principle, it would require further examination prior to implementation. This is an important first step to ensure that high-stakes algorithms aren’t <a href="https://www.centerforfinancialinclusion.org/digital-credit-algorithms-in-india-expanding-access-or-cementing-exclusion">further cementing</a> financial exclusion. At the same time, algorithmic auditing, particularly by regulators of private sector algorithms, is a nascent field and must balance accountability with a company’s proprietary intellectual property. <a href="https://dai-global-digital.com/how-four-awardees-are-paving-the-way-for-a-more-equitable-ai-powered-future.html">Global research on this topic</a> is just beginning and partnerships with regulators would enable practical action.

It Is the Best of Times, and the Worst of Times: India’s New Digital Lending Recommendations

In June 2022, RFF convened for the first time since the pandemic began and since CFI became the convenor. The event brought speakers together from across the sector to address the question: Is innovation in financial services on a responsible path? This event report out highlights key takeaways from the June 2022 RFF convening and provides recommendations for stakeholders interested in shaping the future of responsible finance.

The Responsible Finance Forum (RFF) Begins a New Chapter

“Essentially all models are wrong, but some are useful,” British statistician George E. P. Box declared. Despite progress made in machine learning and artificial intelligence, digital credit models risk being considered “wrong, but useful” – useful for certain groups such as urban salaried workers, but wrong as they leave behind large segments of the economy whose data trails are too faint or complex for a credit scoring algorithm.  

CFI recently explored how automated decision-making tools for digital credit are playing out for one demographic in India – <a href="https://www.habitat.org/sites/default/files/documents/Leaving-the-City-Behind_Rapid-assessment-with-migrant-workers-Maharashtra.pdf" target="_blank" rel="noopener noreferrer">the more than 54 million</a> interstate migrants – and what this might teach us about the ways data inputs and algorithms intersect with the digital lives of those at the margins.
<h1>Digital Credit in India is Booming, Yet Leaving Behind Large (and Possibly Viable) Segments of the Economy</h1>
The fintech ecosystem has ballooned in India in recent years, with an estimated 2,000 fintech startups and 300 digital lenders, including Buy-Now-Pay-Later (BNPL) players, operating by the end of 2020. Digital lending alone is expected to reach <a href="https://www.reuters.com/article/india-tech-financing-idUSL5N2NK4XL" target="_blank" rel="noopener noreferrer">$1 trillion by 2023</a>. While digital lenders existed prior to the pandemic, they have boomed over the last two years in the rush to conduct business and daily tasks remotely.

Earlier this year, CFI conducted desk research and interviews across the digital finance ecosystem in India and learned that most digital lenders are focused on serving urban, young, and employed consumers. With higher and more predictable income streams, this customer segment creates large volumes of digital data that can be mined to determine creditworthiness. And given the overall size of the Indian market, there is still room to grow before even this segment is saturated. But where does that leave the rest of consumers, including migrants?

While migrants have propelled the growth of vital industries such as <a href="https://cprindia.org/wp-content/uploads/2022/04/Push-the-policy-needle-forward-on-migrant-support.pdf" target="_blank" rel="noopener noreferrer">construction, hospitality, and commercial agriculture</a>, they historically have faced hurdles in accessing formal financial services and government benefits. And now with the increasing reliance on digital data to allocate benefits and make credit decisions, migrants potentially could be further marginalized.
<blockquote class="pullquote--right">A migrant's data trails do not fit the mold built for the urban, young, employed segment digital lenders were designed to serve.</blockquote>
Take the case of Mohan Kumar, an archetypal migrant whose data trails systematically exclude him from financial services. Mohan works in Surat, India in a garment factory, but is originally from a village near Ganjam, Odisha where his family still lives. Recently married, he visits his wife, who now lives with his parents back in Ganjam, for two weeks twice a year. On his last visit home, Mohan and his wife decided to open a stationary store. When seeking advice from friends, Mohan learned about digital loans available through the phone. Although small, these loans helped a few of his peers with fledgling, entrepreneurial ventures. Despite having a steady, full-time job in Surat for the last four years, Mohan is rejected again and again from numerous digital lenders. Simply put, his data trails do not fit the mold built for the urban, young, employed segment they were designed to serve.

Millions of migrants face similar challenges as Mohan. In general, migrants have fainter data trails due to lower levels of digital activity. Many low-income migrants have limited financial and digital capability and do not possess smartphones. And those who do have a smartphone typically only use mobile data when necessary due to the high cost. Additionally, migrants often rely on agents, such as kirana store owners, to assist them with digital transactions, and these transactions may not be directly associated with their identity.

Furthermore, digital lending algorithms do not understand the data trails of migrants very well. Migrants’ mobility causes multiple barriers. Some migrants change phones and phone numbers between their destination and home, which can impede the verification of transactions or authorizing identity via one-time-passwords (OTP), leading to KYC failures. Additionally, a mismatch between the location of the cell tower where a potential borrower applies for a loan and the location where the phone’s SIM is registered could cause the applicant to be rejected. While providers rationalize that the geographic mismatch might imply that a customer would be hard to reliably reach, unfortunately, this can unintentionally screen out viable borrowers who are inherently on the move, such as migrants.
<blockquote class="pullquote--left">Migrants' payment patterns are not well-understood or formalized, organized, or digitized.</blockquote>
When it comes to assessing cashflows to determine repayment capacity, migrants’ digital data trails make it difficult to see the full picture of their economic lives. For example, even if a migrant has established a stable income over multiple years, as is the case with Mohan, often their payment patterns are not well-understood or formalized, organized, or digitized. For example, some contractors provide an advance payment while others pay weekly or monthly, and some cover living expenses for migrants but deduct the costs from their salaries. In addition, migrants’ data trails might show varied consumption patterns in their two locations – for instance, in Surat, Mohan spends his money on accommodations and food, while back in Odisha he spends on household expenses and children’s education. Such variations in earning and spending tend not to fit within lending models’ range of what makes a viable borrower.

Finally, there is the issue of accessibility. Examining the top 30 downloaded digital credit apps in India (15 on the App Store and 15 on the Google Play Store), we found that 28 out of 30 worked only in English, with just 2 offering Hindi. Such limitations favor highly educated segments and inherently exclude vast numbers of potential clients.
<h1>More Effort is Needed to Ensure Digital Credit Does Not Further Exclude Marginalized Groups</h1>
The Reserve Bank of India (RBI) has taken an interest in digital lending and consumer protection issues over the last two years, asking Google to <a href="https://economictimes.indiatimes.com/tech/technology/google-removes-personal-loan-apps-violating-user-safety-policies-from-play-store/articleshow/80267043.cms?from=mdr" target="_blank" rel="noopener noreferrer">remove at least 30 lending apps from the Play store</a> that did not comply with local laws, <a href="https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52589" target="_blank" rel="noopener noreferrer">convening a working group</a> under the chairmanship of executive director Jayant Kumar Dash, and empowering <a href="https://faceofindia.org/index.html" target="_blank" rel="noopener noreferrer">FACE</a> to become a self-regulatory organization (SRO). The working group focused on a range of consumer protection issues including transparency and disclosure, aggressive sales, consent, and algorithmic design. For instance, one of the group’s recommendations suggests that providers have verifiable audit trails for their algorithms and models should be documented to ensure transparency. While a promising direction, little is understood about what this will look like in practice and how it will balance accountability with the proprietary nature of the models.

Moving forward, digital lenders should find ways to understand and assess the unique activities of groups like migrants through more nuanced models and data inputs that give a more complete picture of a migrant’s economic life. For example, do workers travel back to the same destination each working cycle? How many trips home do they make? How have income patterns shifted within their employment – is it consistent or is it varied?
<blockquote>Digital lenders should find ways to understand and assess the unique activities of groups like migrants through more nuanced models and data inputs that give a more complete picture of a migrant’s economic life.</blockquote>
Providers could draw inspiration from the work of <a href="https://indiamigrationnow.org/" target="_blank" rel="noopener noreferrer">India Migration Now</a> (IMN), which is working to understand the nuances of the data trails of migrants. They are preparing to launch a pilot for a customized, digital lending product for migrants that will leverage both traditional and non-traditional indicators to determine creditworthiness. IMN’s scoring model will leverage data inputs such as frequency of travel, place of origin, destination for migration, frequency of remittance transfer, length of stay at migration location, GPS, and mobile top-up amounts. IMN’s focus on migrants requires commitment, research, time, and resources, which may be less attractive to other digital lenders when there are still potential customers with more robust data trails who are easier to reach.
<h1>What Can Be Done to Maximize the Inclusivity of Algorithms?</h1>
Research: We must do more to understand <a href="https://escholarship.org/content/qt3gt9x28k/qt3gt9x28k.pdf?t=qx7nai" target="_blank" rel="noopener noreferrer">whether specific segments that are already at risk for exclusion</a> are further included or excluded by algorithmic decisions. Researchers could help by leveraging context-specific research about specific segments – for instance, migrants or <a href="https://ncst.nic.in/" target="_blank" rel="noopener noreferrer">scheduled tribes</a> in India – to help data scientists better understand the data trails of these groups and incorporate insights into models.

Guidance and Incentives for Providers: While advancements in auditing and disparate impact testing can measure models' results across a set of sensitive characteristics (e.g. gender, race, religion, ethnic group), providers may not prioritize the inclusivity of their algorithms. In markets like India, for instance, financial service providers continue to focus on growth among customer segments with more “intuitive” data trails and on keeping customer acquisition costs low. In our view, stakeholders such as impact investors and industry associations can engage with providers to provide guidance and/or incentives for inclusive algorithms. CFI <a href="https://dai-global-digital.com/how-four-awardees-are-paving-the-way-for-a-more-equitable-ai-powered-future.html" target="_blank" rel="noopener noreferrer">recently launched a project</a> to help impact investors engage with fintechs on their algorithms during their due diligence processes.

Government Engagement: Because this is a very nascent field, more work is needed to test regulatory approaches and efforts to build the public sector’s capacity for supervision. Government entities, such as the Reserve Bank of India, have begun to think <a href="https://www.centerforfinancialinclusion.org/accountability-for-algorithms-a-balancing-act-for-governments">more strategically about the supervision</a> of high-stakes algorithmic decisions. Ongoing work is needed to understand and advance data protection regulation, national AI strategies, and sector-specific initiatives, such as the RBI working group or Project Veritas in Singapore, to name a few.

Digital Credit Algorithms in India: Expanding Access or Cementing Exclusion?

Global Findex 2021: Growth, Stagnation, and (Relative) Decline in Global Financial Inclusion

We Are All in This Together

COVID-19 has reinforced the importance of financial services in helping people navigate the effects of the pandemic and lay the foundations for recovery. The rapidly changing context presents a unique opportunity for fintechs and other digitally driven business models to step in and onboard new customers to meet this evolving demand.

The 2020 iteration of the Inclusive Fintech 50 competition maintained the core value proposition of the 2019 initiative — a transparent methodology, independent judging panels comprised of industry experts, and a strong focus on inclusion — while iterating to ensure relevance in a particularly challenging year. The 2020 competition attracted 403 qualified applicants operating in 111 countries and reaching 116 million customers.

Drawing on the data submitted by the 2020 cohort of applicants, this paper provides insights as to how early-stage fintechs are adapting to the current economic uncertainty and continuing to advance financial inclusion and resilience for the estimated 3 billion financially underserved people worldwide.

Follow CFI and #InclusiveFintech50 for updates on Inclusive Fintech 50. For more information about the competition, insights from previous cohorts, and more, visit <a href="http://www.inclusivefintech50.com">InclusiveFintech50.com</a>.

Inclusive Fintech 50 White Paper [2020]

Fintech investment is booming. In 2018, a record USD 111.8 billion was invested in fintech, and the sector garnered extensive media coverage and interest. But despite fintech’s growing profile—and even though it can help unlock trillions of dollars in value by reaching financially underserved households and businesses—fintech solutions have yet to reach the majority of the financially excluded.
It is against this backdrop that we at MIX worked with MetLife Foundation, Visa Inc., Accion, and IFC to launch the Inclusive Fintech 50, the first global effort to spotlight early- stage fintechs driving financial inclusion. Four key findings emerged from our analysis of applicant data. We believe these findings can help funders, investors, and fintechs in their financial inclusion efforts. The Inclusive Fintech 50 applicant pool provides new insights into inclusion-focused fintech, itself a subset of the fintech universe. By highlighting these high-potential companies, we hope to support the efforts of investors, banking partners, and other fintechs working towards a financially inclusive world.

Inclusive Fintech 50 White Paper [2019]

Investment capital is flowing into fintech startups, yet it is still challenging to get capital to many fintechs addressing last-mile challenges. Evidence suggests this is driven in large part by a lack of information. Using data collected to test an initial set of Data Standards for Inclusive Fintech, this report presents insights into what we can learn about fintechs as businesses and how they address challenges of inclusion. This report was made possible by generous support from MetLife Foundation.

Results of the Fintech Benchmarks Proof-of-Concept

Previous IF50 Insights

Recognizing Early-Stage Fintechs Driving Financial Inclusion

Alexandra (Alex) Rizzi

Jayshree Venkatesan

Amid a rapidly evolving financial landscape, RFF is an opportunity to foster dialogue and action among inclusive finance stakeholders. This report highlights the key takeaways and recommendations from the RFF event in June 2022.

Devina Srivastava

CFI explores how automated decision-making tools for digital credit are playing out for one demographic in India: interstate migrants.

Lucciana Alvarez Ruiz

Edoardo Totolo

RFF convenes this week for the first time since 2020, and the rapid pace of change in financial services, and the external world at large, supplies stakeholders with a plethora of issues to discuss regarding emerging risks to consumers.

Inclusive Fintech 50

What is IF50?

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IF50 leverages a competitive process to identify 50 early-stage fintechs driving financial inclusion and resilience.

The 2022 application period is now open! Apply today.