While technology opens the way to huge growth in the provision of financial services, it is expensive and complex, and contains risks of its own. Chief among these is the risk that providers will fail to understand it effectively and place themselves at risk. It could lead to irresponsible borrowing and debt difficulties as tech helps avail credit to more people. Technology may also attract providers who are more interested in commercial gain than in the social goals of financial inclusion, or those who are unable or unwilling to design products specifically for the excluded.

In addition to technology, the survey also identifies risks that are seen to be rising in this market. Chief among these is political risk, such as interference by government in the form of interest rate caps on loans, debt waivers and subsidized competition. The risk of bad debts is also seen to be growing as the problem of indebtedness among low-income populations persists. Weakness in the governance and management of service suppliers continues to be a concern. The risk of crime, particularly fraud, cybercrime and money laundering, is a growing worry.

On a more positive note, risks that are seen to be receding include the state of the global economy thanks to growing signs of recovery, and the availability of funding for financial inclusion services, particularly in the form of impact investing.

This is the latest survey in a series going back to 2008 and previously titled Microfinance Banana Skins. The new title reflects the evolution of the microfinance business into a wider market for the provision of financial services to the world’s financially excluded, with the participation of a greater range of suppliers, including commercial banks, technology companies and telcos. The survey was conducted by the Centre for the Study of Financial Innovation (CSFI), an independent London think tank, and supported by CFI and the Citi Foundation.

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