India’s fintech lending industry has grown rapidly since 2014, with the evolution of new models and approaches to lending. This rapid growth offers the potential for many upsides in the form of <a href="https://www.cgap.org/blog/indian-start-for-digital-credit" target="_blank" rel="noopener noreferrer">easier access to much needed credit and including hitherto excluded consumer segments</a> who may not have the ability to prove their ‘creditworthiness’. In India, as in other parts of the world, the growth in digital lending has been accompanied by a variety of risks. Some of these risks – such as over-indebtedness, poor market practices of aggressive marketing and collection, and pricing – have long been associated with lenders and need to be addressed as a market conduct issue. However, the digital nature of fintech lending poses several new risks that, combined with traditionally known risks, create an environment of poor consumer outcomes and mistrust of the industry.
<h1>Fintech Risk Barometer Study</h1>
While there has been extensive media coverage around several of the fintech lending risks, these cases tend to be anecdotal and do not provide a sense of which risks are highest priority as the industry evolves. To better understand the multitude of risks the Indian fintech lending industry faces, the <a href="https://faceofindia.org/" target="_blank" rel="noopener noreferrer">Fintech Association for Consumer Empowerment</a> (FACE) and CFI partnered to conduct a risk barometer study. The resulting <a href="https://www.centerforfinancialinclusion.org/fintech-lending-risk-barometer-2022-2023">fintech lending barometer report</a> is the first attempt at identifying how risks are perceived by various stakeholders associated with the fintech lending industry in India and is a crucial first step to documenting how risks evolve.

For fintech lenders, this report presents an opportunity to understand the landscape, identify the opportunities and dangers, and plan or correct their course of action. For regulators, supervisors, and policymakers, the survey findings signal what areas within the Indian fintech industry need to be more closely examined and addressed with urgency.

The fintech lending barometer study followed a mixed methods approach. First, a survey was used to gather initial perceptions of risks, which then was followed by a series of qualitative interviews with select respondents to further understand how emerging risks impact consumer lives. For each risk, the survey asked participants to rank 23 risks on a scale of 1-7, with one being the lowest severity risk and seven being the highest. The survey also captured comments and feedback from survey participants on these risks and the top three opportunities.

Top 10 Risks Identified by Survey Respondents

<img class="alignnone wp-image-45643" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2023/01/Screenshot-2023-01-13-at-2.02.11-PM.png" alt="" width="666" height="775" />

The top three risks identified were unscrupulous fintech lenders, rising cyber fraud and crime, and issues around data privacy. The report is being released at the <a href="https://inclusivefinanceindia.org/" target="_blank" rel="noopener noreferrer">Inclusive Finance India Forum 2023</a> and can be accessed <a href="https://www.centerforfinancialinclusion.org/fintech-lending-risk-barometer-2022-2023">here</a>.
<h1>Consumer Protection Implications</h1>
<blockquote class="pullquote--right">Industry associations have an inherent advantage in gathering early insights on consumer complaints and experiences from their members and in getting inputs on market trends.</blockquote>
Kate McKee, former senior policy advisor at CGAP, who pioneered thinking on consumer protection for inclusive finance, often referred to the three legs of the ‘<a href="https://www.mfw4a.org/sites/default/files/resources/Kate_McKee_english.pdf" target="_blank" rel="noopener noreferrer">consumer protection stool’</a> –  regulation, market monitoring and self-regulation, and building consumer awareness – where each of the three legs must be stable in order to responsibly and reliably provide for consumers. While the Reserve Bank of India has been proactive as a regulator in issuing guidelines on digital lending, there is a role to be played by industry associations like FACE and others in enabling market monitoring. Industry associations have an inherent advantage in gathering early insights on consumer complaints and experiences from their members and in getting inputs on market trends. For instance, they may hear about specific instances of fraud from their members which can erode the reputation of the industry in general. This provides associations with a unique opportunity to identify emerging risks and either escalate them to supervisors or establish responsible market conduct. This in turn can boost trust in businesses and offer long term value. For supervisors, this interaction with industry associations can help them stay abreast of market developments and assists with considerations for investing in appropriate suptech tools depending on the nature of risk identified.

A host of market monitoring tools exist and several are summarized in <a href="https://www.cgap.org/topics/collections/market-monitoring-tools" target="_blank" rel="noopener noreferrer">this toolkit</a> by CGAP. However, effective market conduct supervision depends on timely identification of market risks and reviewing how these risks evolve with market growth. CFI’s consumer protection strategy focuses on strengthening market conduct supervision by researching emerging risks and working with partners who can elevate these risks to supervisors. This partnership with FACE is a step towards this goal and offers insights for industry associations of digital lenders in other markets.

Matters of Urgency: Insights From a Fintech Risk Barometer Study

India has seen a rapid rise in fintech lending since 2014 and the industry continues to evolve with the launch of new models and approaches to lending. Yet, as the industry has scaled and diversified, so have the risks.

The Center for Financial Inclusion (CFI) and the Fintech Association for Consumer Empowerment (FACE) are pleased to partner on this risk barometer study that aims to create a systematic baseline of emerging risks in order to help observe how risks change as the industry matures. The study is part of a market monitoring exercise to understand the range of risks and how they are perceived by multiple stakeholders in the Indian fintech lending sector and this report intends to contribute to the fintech lending industry as it evolves to maturity, combining innovation, inclusion, and impact.

Fintech Lending Risk Barometer 2022-2023

This report and infographic examine data from the 250+ eligible fintech applicants from the fourth Inclusive Fintech 50 competition to better understand the state of early-stage fintechs. CFI analyzes all applications to identify trends and to find innovations with disruptive potential. The massive scale that is only possible with digitalization matters greatly to the financial inclusion agenda, and this year’s IF50 applicants are already collectively reaching 54 million people, many of whom were previously underserved, across 101 countries of operation. The fintechs are young and small now, but as we’ve seen in past years, they grow to reach millions more people and raise millions more in investment. However, despite this tremendous outreach and potential, there are also areas that require attention: funding and gender gaps, inconsistent practices around data privacy and consent, and limited data collection for outcomes management.

Insights from the 2022 Inclusive Fintech 50 Applicant Pool

WASHINGTON, D.C., October 17, 2022 – The Center for Financial Inclusion (CFI) announced today the fourth cohort of the global Inclusive Fintech 50 (IF50) competition, which recognizes 50 early-stage, inclusive fintechs that aim to advance financial inclusion. IF50 is sponsored by Visa, MetLife Foundation, and Jersey Overseas Aid &amp; Comic Relief, with support from Accion and IFC. The 2022 winners exemplify the power of fintech to reach underserved individuals and businesses with products and services designed to meet consumers’ needs, preferences, and resources.

The 2022 winners were selected from a pool of 257 eligible applicants with headquarters in 79 countries, with Sub-Saharan Africa representing 40 percent of candidates. The winning startups represent a range of product categories, including credit, digital financial infrastructure, insurance, savings and personal financial management, and payments and remittances. Credit remains the most common type of product offering, with 32 percent of applicants offering a credit solution. The digital financial services infrastructure category displayed the most growth, increasing from 16 percent of applicants in 2021 to 23 percent in 2022.

An independent panel of 35 expert judges with expertise in venture capital, technology, and financial services evaluated the applicants based on their inclusivity, innovation, traction, and scale potential.

The IF50 competition offers winning startup fintechs exposure among investors and media, and provides access to exclusive networking activities, the opportunity to pitch their innovations, and connections to expert support and training provided by IF50 sponsors and supporters. IF50 winners from the past three years have collectively increased their funding by $620 million in the year following their win. This year’s IF50 winners will also gain exposure during CFI’s <a href="https://financialinclusionweek.org/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> event, running virtually October 17-20. Winners will be announced by category throughout the week, culminating in a global plenary session discussing insights from this year’s competition.

Visa, an IF50 sponsor, provides winners access to <a href="https://practicalmoneyskills.com/" target="_blank" rel="noopener noreferrer">Practical Money Skills</a> and <a href="https://www.practicalbusinessskills.com/resources/about" target="_blank" rel="noopener noreferrer">Practical Business Skills</a>, digital platforms created by Visa to empower individuals and micro and small businesses with financial and business knowledge needed to manage and grow. These tools, together with the networking and publicity that IF50 provides, serve as an invaluable opportunity for startups at the earliest stages of their journeys.

The winners are listed below by main operating region. Full profiles of the 2022 winning fintechs can be viewed at <a href="http://www.inclusivefintech50.com/2022-cohort" target="_blank" rel="noopener noreferrer">www.inclusivefintech50.com/2022-cohort</a>.
<h3></h3>
<h3>East Asia &amp; the Pacific</h3>
Brick

Digicro

LTS Ventures

Salary Hero

SentBe Inc.

wagely

&nbsp;
<h3>Latin America &amp; the Caribbean</h3>
AkinTec

Finaktiva

Imix Latam

Paisa

Prestamype

Quipu Bank

Sofi

Yapu Solutions

Zenda.la

 
<h3>Middle East and North Africa</h3>
Cassbana

 
<h3>North America</h3>
Kaoshi Network

Restart Financial

Sunny Day Fund

 
<h3>South Asia</h3>
Aloi

ARTH

Bimaplan

KarmaLife

Probus

Revfin Services Private Limited

Vitto – Microfinance.AI

Yuva Pay

 
<h3>Sub-Saharan Africa</h3>
BezoMoney

Boost

Crop2Cash

DMA Limited

Ensibuuko

FIC Exchange Plc (Financial Inclusion Centers)

FlexPay LLC

Flow Global

FX Kudi

Infibranches

Jamii.one

Joovlin

Lipa Later Limited

Malipo Circles Limited

MarketForce

Moja Ride

SATIS FINTECH SA

Shecluded

SuiTch SAS

Touch and Pay Technologies Inc

Ukheshe

Umoja Labs

Umojalands Private Limited

Inclusive Fintech 50 Announces the 2022 Winners

WASHINGTON, D.C., USA – The Center for Financial Inclusion (CFI) today announced the launch of the fourth annual Inclusive Fintech 50 (IF50) Competition, a global initiative that competitively selects 50 early-stage, inclusive fintechs with innovative business models that aim to advance financial inclusion.

The theme of the 2022 IF50 competition is “Making Digitalization Count.” Rapid advances in the digital economy, further accelerated by COVID-19, are changing the financial services landscape and creating opportunities to drive further inclusion and impact for underserved populations. Early-stage, inclusive fintechs are leading the way by leveraging data and digital infrastructure to deliver valuable products and services to low-income consumers, especially women. “As digitization rapidly increases, underserved individuals and businesses are at risk of being left behind. Visa’s purpose is to help create access and inclusion for all, and we are proud to support Inclusive Fintech 50 and the companies that help ensure everyone, everywhere is brought along the digital transformation journey,” said Beth Hurvitz, Global Head of Social Impact, Visa.

Even with increasing attention to the promise of inclusive fintech, many early-stage fintech companies struggle to secure funding to help them grow. IF50 aims to address this gap by identifying the 50 most promising inclusive fintechs and providing them with visibility to attract investors and other support. Thanks in part to the visibility from IF50, past winners have jointly increased their funding by $620 million in the year following their win. “MetLife Foundation is committed to expanding economic opportunity in underserved and underrepresented communities,” said Tia Hodges, President and CEO of MetLife Foundation. “We are proud to support IF50, which helps to advance inclusion-minded fintechs that are focused on responsible and cost-effective digital solutions.”

IF50 is sponsored by Visa, MetLife Foundation, and Jersey Overseas Aid &amp; Comic Relief, with support from Accion and IFC, and implemented by CFI. In its first three years, IF50 attracted over 1,000 eligible applicants from around the world. Applications are reviewed by an <a href="https://www.inclusivefintech50.com/2021-judging-panel" target="_blank" rel="noopener noreferrer">independent panel of judges</a> with expertise spanning financial technology, investment, and innovation. The selection of the 50 winners is based on four criteria: inclusivity, innovation, scale potential, and traction. “The rigorous selection process is a key tenet of IF50,” said Simon Boas of Jersey Overseas Aid. “The applicants go through several stages of vetting to select a truly innovative group of 50 winners with the potential to drive real impact.”

In addition to visibility and credibility, IF50 2022 winners will have access to exclusive networking activities, the opportunity to pitch their innovations, and connections to expert support and training provided by our sponsors and supporters. In addition, winners will be invited to participate in CFI’s <a href="http://financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a>, an annual virtual event taking place October 17-20, where inclusive finance stakeholders gather to learn from one another and share key findings.

Other benefits available to this year’s winners include access to <a href="https://practicalmoneyskills.com/" target="_blank" rel="noopener noreferrer">Practical Money Skills</a> and <a href="https://www.practicalbusinessskills.com/resources/about" target="_blank" rel="noopener noreferrer">Practical Business Skills</a>, digital platforms created by Visa to empower individuals and micro and small businesses with financial and business knowledge needed to manage and grow. Winners also have the opportunity to be connected to IF50 sponsors to accelerate their business and social impact.

###
<h3>About IF50</h3>
Inclusive Fintech 50 identifies promising early-stage fintechs driving financial inclusion around the globe through a competitive process led by an independent panel of judges from venture capital, technology, and financial services. Applicants are assessed on the degree to which their target market includes underserved people or businesses, and whether their innovation offers a new value proposition, shows early-stage traction, and can have a noticeable impact on the more than 3 billion financially underserved people globally. Inclusive Fintech 50 is sponsored by Visa, MetLife Foundation, and Jersey Overseas Aid &amp; Comic Relief, with support from Accion and IFC. The initiative is managed by the Center for Financial Inclusion (CFI). Learn more at <a href="http://www.inclusivefintech50.com" target="_blank" rel="noopener noreferrer">www.inclusivefintech50.com</a>.

Inclusive Fintech 50 Launches 2022 Competition to Recognize Fintech Startups Driving Inclusive Finance

There has been a lot of talk in recent years about the promise of fintech to help advance financial inclusion. This has been especially true during the pandemic: acceleration in digital adoption, spurring further growth in the inclusive fintech sector. Much of this growth has taken place in Africa, where fintechs raised <a class="Hyperlink SCXW16100441 BCX0" href="https://thebigdeal.substack.com/" target="_blank" rel="noreferrer noopener">$2.3 billion dollars in 2021, up from $830 million in 2020</a>, helping to catch up with funding levels in South Asia and Latin America.
<blockquote class="pullquote--right">While inclusive fintechs are developing innovative ways to reach new customers, meaningful customer segments remain underserved.</blockquote>
With this growth, there also is more data and insights about fintechs and their customers. Last year, two reports, CFI’s <a class="Hyperlink SCXW14958972 BCX0" href="https://www.centerforfinancialinclusion.org/insights-from-the-2021-if50-applicant-pool" rel="noreferrer noopener">Inclusive Fintech 50: Driving Innovation in an Era of Uncertainty</a> and Catalyst Fund’s <a class="Hyperlink SCXW14958972 BCX0" href="https://bfaglobal.com/catalyst-fund/briter-catalyst-fund-state-of-the-fintech-industry-report/" target="_blank" rel="noreferrer noopener">State of Fintech in Emerging Markets </a>(in collaboration with <a class="Hyperlink SCXW14958972 BCX0" href="https://briterbridges.com/" target="_blank" rel="noreferrer noopener">Briter Bridges</a>), leveraged such data to take stock of the industry’s progress. The reports arrived at similar conclusions: while inclusive fintechs are continuing to develop innovative ways to reach new customers, meaningful customer segments remain underserved and fintech funding remains concentrated.

The truth is that we are still in the early stages of bringing the power of fintech to bear on the challenges that low-income and vulnerable populations face. Advances have certainly been made, but the greatest gains only can be realized through intentional and collective efforts on the fintech frontier. This will help pave the way for strategies to turn these underserved markets into opportunities for growth.
<h1>Outreach to Underserved People</h1>
On the bright side, early-stage fintechs continue to proliferate. Last year, nearly 300 such fintechs applied to <a href="http://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50 (IF50)</a>, an annual competition to showcase early-stage fintechs driving financial inclusion around the world. Expert judges selected 50 winners from this applicant pool based on established criteria of inclusivity, innovation, scale potential, and traction. 

IF50 applicants have shown a continuous drive to innovate, demonstrated by their broad range of product areas, with varied models, partnerships, and customer acquisition strategies. The fintechs also are finding diverse ways to reach underserved people, such as through the provision of in-person digital skills training, use of agents, and product offerings that can be accessed without a smartphone.

Applicants are also designing solutions to address challenges in areas that are fundamental to people’s livelihoods – including climate resilience, health, and support for micro and small enterprises. For example, IF50 2021 winner <a href="https://gotugende.com/" target="_blank" rel="noopener noreferrer">Tugende</a> uses asset finance, technology, and a customer-centric model to help informal sector entrepreneurs in Africa grow their businesses and access value-added services such as medical insurance. Eighty percent of IF50 2021 applicants reported that their solutions helped customers access essential services during the pandemic, such as healthcare, government relief, and clean energy.

&nbsp;

<img class="size-full wp-image-44679 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/06/Tugende-Snapshot-03-e1655994301976.png" alt="" width="1000" height="599" />

&nbsp;
<h1>Gaps in Inclusivity</h1>
Despite this progress, significant gaps in customer outreach remain. For example, only 23 percent of fintechs in the Catalyst Fund sample reported that women constituted more than 50 percent of their customer base. Moreover, 38 percent of the IF50 2021 applicants do not disaggregate client data by gender.

Catalyst Fund and IF50 both also found that most inclusive fintechs do not focus mainly on low-income people. In the IF50 sample, 41 percent of applicants reported primarily targeting low-income customers. More than 70 percent of startups in the Catalyst Fund sample reported that fewer than 25 percent of their customers live under the poverty line, although poverty rates in the countries where these startups operate are closer to 35-45 percent.

The Catalyst Fund data also showed that as startups grow, they tend to move upmarket. Particularly for early-stage startups looking to raise capital, showing strong acquisition numbers is imperative, and middle- and higher-income customers tend to be <a href="https://medium.com/caribou-digital/what-are-the-limits-of-the-private-sector-in-serving-the-poor-3ee9a9a468fc" target="_blank" rel="noopener noreferrer">easier and cheaper</a> to acquire.
<h1>Concentration in Funding and Geographies</h1>
The pressure to acquire more customers may be driven by the underlying scarcity of funding for early-stage fintechs. Although investment flows have grown dramatically in recent years, funding in emerging markets is concentrated among very few startups. Out of 101 Sub-Saharan African startups in the IF50 2021 sample, five accounted for 65 percent of the funding. In Latin America, five of 36 applicants received 83 percent of funding.

Not only is funding concentrated among a few startups, but those startups are also based in a select few countries. Sixty-four percent of total funding reported by IF50 2021 applicants went to fintechs based in five countries: Colombia, India, Mexico, Singapore, and the United States. In Latin America, four countries (Brazil, Mexico, Uruguay, and Colombia) accounted for over 99 percent of funding in the Catalyst Fund sample. Such geographic concentration particularly excludes countries with lower levels of financial inclusion. Of the 16 countries in the IF50 sample that received over $10 million, only three have financial inclusion levels below 40 percent. Similarly, <a href="https://qz.com/africa/2029505/everything-you-need-to-know-about-fintech-financing-in-africa/?utm_source=email&amp;utm_medium=africa-launch-list&amp;utm_content=017e81c9-90b4-11ec-8d42-724a485ab421" target="_blank" rel="noopener noreferrer">fintech funding in Africa is concentrated in Kenya, Nigeria, and South Africa</a> (87.9 percent), all countries with higher levels of financial inclusion and/or more developed fintech ecosystems.
<blockquote>Not only is funding concentrated among a few startups, but those startups are also based in a select few countries.</blockquote>
Deals are also concentrated in certain types of products: those in payments, digital credit, and neo banks, and those that require a smartphone. In contrast, savings and insurance fintechs receive less funding, as do models that leverage USSD or lower-tech accessibility. IF50 data found that funding to fintechs offering services that require smartphones was about 3.5 times greater than those needing only a basic or feature phone. This may be because lower-tech models cost more to operate and users cannot bear higher-margin pricing.

Investment flows continue to favor men, and along all stages of growth, men founders raise more than women founders. According to 2021 IF50 data, women founders, on average, raised one-third the amount raised by men founders.

&nbsp;

<img class="wp-image-44683 size-full aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/06/IF50-blog-post-stacked-graph-1-e1656002022248.png" alt="" width="1000" height="652" />

&nbsp;

Overall, the data demonstrates that the majority of inclusive fintech startups, particularly those servicing more excluded segments, continue to find it difficult to access investment capital.  Being able to prove the business case of untapped markets is difficult, but Okapi Finance, an IF50 2021 winner, aims to demonstrate the potential by focusing on women merchants in Africa’s informal sector.

&nbsp;

<img class="aligncenter wp-image-44681" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/06/Okapi-snapshot-01.png" alt="" width="1000" height="599" />

&nbsp;
<h1>Looking Ahead</h1>
While there are opportunities for early-stage fintechs to build commercially viable businesses that are truly inclusive, more effort is needed from the broader ecosystem to ensure that innovative solutions can take hold. Startups are continuing to emerge on the frontier, but they need access to the visibility, resources, expertise, and networks that support their growth into sustainable and impactful companies.

Supporters of digital financial inclusion can help by directing greater attention to innovative startups in overlooked markets. Competitions like IF50 and those organized by <a href="https://www.womensworldbanking.org/fintech-innovation-challenge-2021/" target="_blank" rel="noopener noreferrer">Women’s World Banking</a> and the <a href="https://www.afi-global.org/newsroom/news/applications-open-for-the-2022-afi-inclusive-fintech-showcase/" target="_blank" rel="noopener noreferrer">Alliance for Financial Inclusion</a>, and market insights provided by research organizations like Briter Bridges, also help to raise awareness. Incubators and accelerators, such as <a href="https://bfaglobal.com/catalyst-fund/" target="_blank" rel="noopener noreferrer">Catalyst Fund</a>, can assist in de-risking less proven models and making them more market-ready via grant funding, mentorship, and other venture-building services. And finally, greater investment, particularly in the $250K to $1M range, can help to fuel early-stage ventures pioneering innovative solutions.

The application period for the 2022 <a class="Hyperlink SCXW136892565 BCX0" href="https://www.inclusivefintech50.com/" target="_blank" rel="noreferrer noopener">Inclusive Fintech 50</a> competition will open Monday, June 27, and inclusive fintech startups – especially those at the frontier – are strongly encouraged to apply. The 2022 theme is “Making Digitalization Count.” IF50 is sponsored by Visa, MetLife Foundation, and Jersey Overseas Aid &amp; Comic Relief.

Driving Inclusivity on the Fintech Frontier: Let’s Make It Count

Growth of digital financial services has accelerated since the outbreak of COVID-19 as distancing measures forced customers to access financial services remotely. Fintechs have fueled this massive growth by using innovative delivery channels or business models to provide financial services to previously unserved or underserved customer segments.

In 2021, CFI conducted research to understand how early-stage fintechs and their customers coped during the pandemic. Most research on resilience focuses on either fintechs or customers but fails to account for their interplay. Based on this insight, CFI created the <a href="https://www.centerforfinancialinclusion.org/a-pact-to-promote-resilience">PACT framework</a>. PACT stands for Preparedness, Access, Capability, and Ties – four key dimensions that influence one another and contribute to the resilience of both fintechs and their customers.
<blockquote class="pullquote--right">Most research on resilience focuses on either fintechs or customers but fails to account for their interplay.</blockquote>
As part of our research in shaping the PACT framework, we spoke to investors to better understand issues of resilience considering COVID-19. Our conversations revealed that most inclusive fintechs survived the pandemic either by continuing existing business operations or adapting their business models to changing customer needs and to new external conditions, such as extensive lockdown measures. While we spoke with dozens of investors, we closely examined the investment processes of three impact-driven investors that fund fintechs working to expand financial inclusion and promote financial health. To do this deeper dive, CFI worked with a team at <a href="https://tameo.solutions/" target="_blank" rel="noopener noreferrer">Tameo Impact Fund Solutions</a> – an independent consulting firm providing services to impact funds, fund managers, and investors with the aim of promoting accountability and transparency in the impact investing industry.

Our conversations aimed to identify best practices for processes implemented throughout the investment cycle and which indicators should be monitored to support resilience. These discussions provided the basis for our analysis on how investors can help strengthen the resilience of both their investee companies and the fintech customers served.

In this blog post, we discuss inclusive fintechs’ investment process, how investors monitor and evaluate inclusive fintechs, and identify three actions that investors – and other stakeholders – should take to build resilience into their business models.
<h1>Investor Processes and How They Monitor and Evaluate Inclusive Fintechs</h1>
The three investment firms we spoke with invest at various stages in fintechs’ development – from seed stage to Series A. The firms’ investment processes can be broken down into four stages: prospecting, due diligence and investment decision, post-investment and monitoring, and exit.

All firms integrate impact management throughout their investment processes. The indicators monitored by the impact investors vary depending on the type of investment, but largely focus on growth metrics (e.g., number and volume of transactions, loans, accounts, etc.), and ability to reach target customers (e.g., number of customers/MSMEs served). Other indicators point to competitiveness (e.g., product diversity and pricing), and business risk and sustainability (e.g., proportion of non-performing loans, customer satisfaction, and profit metrics). Fintechs must be able to demonstrate clear impact objectives, and investors must be able to affirm these objectives through due diligence and monitoring.

The table below summarizes the four stages of the investment process and includes a few examples of indicators monitored.

Strengthening a PACT for Resilience: A Behind-the-Scenes Look at Investors

Fintechs have been successful by seeking out market gaps and providing customers with easier and better ways to lead their financial lives. In the past, growth and opportunity have been industry bywords. But two years into a global pandemic, another term is driving conversations in both fintech and inclusive finance: resilience.

Fintechs have proven their resilience by surviving the early months of the pandemic and reemerging smarter, with optimism intact, and ready to take on new growth opportunities. In response to COVID-19, many fintechs <a href="https://www.centerforfinancialinclusion.org/rapid-response-for-social-payments-during-covid-19">jumped on the opportunity to deliver government and humanitarian cash transfers</a>, which was also a key input to the resilience of millions of low-income households. The last two years saw millions of people turn to high-tech opportunities to improve their lives: gig work through platforms, digital government-to-person (G2P) payments, and digital commerce platforms. Aside from offering access to products, fintechs also provided information about health and education, which helped people cope with the health and economic shocks brought on by COVID-19.

Concerningly, this <a href="https://www2.deloitte.com/us/en/pages/financial-services/articles/beyond-covid-19-new-opportunities-for-fintech-companies.html" target="_blank" rel="noopener noreferrer">focus on resilience may be difficult to sustain</a>. Because of a rapid increase in fintech investments, there is a chance that fintech’s attention may be drawn away from resilience as they turn towards incentives to move upmarket in search of growth and profit.
<blockquote class="pullquote--right">Inclusive fintechs and impact investors must continue to consider the importance of resilience – both for the fintechs as well as their low-income clients.</blockquote>
CFI believes that mission-driven, inclusive fintechs can better serve their low-income customers and grow their businesses. However, to do so, inclusive fintechs and impact investors must continue to consider the importance of resilience – both for the fintechs as well as their low-income clients.
<h1>Introducing the PACT Framework for Resilience</h1>
To fill what we determined was a gap in our community’s ability to identify and analyze the shared dimensions of resilience, CFI – with support from <a href="https://www.comicrelief.com/partners/jersey-overseas-aid" target="_blank" rel="noopener noreferrer">Jersey Overseas Aid and Comic Relief</a> -- recently unveiled the <a href="https://www.centerforfinancialinclusion.org/a-pact-to-promote-resilience">PACT framework</a>. Adapted from <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2628707" target="_blank" rel="noopener noreferrer">academic</a> and other socio-economic development programs, the framework explains how both fintech resilience and customer resilience are driven by a combination of abilities and access to resources across four non-linear dimensions: Preparedness, Access, Capability, and Ties (Networks).

While researching and developing the PACT framework, CFI explored the COVID-19 experiences and responses of more than 20 winners of the <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50 (IF50) competition</a>. In addition to the IF50 winners, we spoke to investors, accelerators, and industry associations about how they approached inclusive fintech during lockdowns and the aftermath.
The dimensions of the PACT framework are outlined below along with calls to action for the inclusive finance community.
<h1>1   Preparedness</h1>
The pandemic has been a case study on the importance of planning and the consequences of not doing so, and many fintechs were unprepared for the initial shock. All stakeholders in inclusive finance and digital financial services should have in place business continuity plans that consider the risks and responses for both probable and unlikely internal and external events. The plan should outline responses to risks that hurt business – staff turnover, climate-related shocks, wars – and those that spur hard-to-manage growth, such as the pandemic-fueled social protection payments.

Many fintechs do not have comprehensive business continuity plans in place, but they should. It starts by understanding the relationship between fintechs and customer resilience – awareness donors and investors should have to help fintechs achieve both growth and preparedness.
<h1>2   Access</h1>
Access does not equal impact. While we know that many low-income people accessed services during the pandemic, there is still no strong data available on impact. Additionally, there is a lack of data on the impact of access (or lack of access) to financing that enabled some fintechs to get through the pandemic more easily. Inclusive fintechs that had strong ties to accelerators and existing investor networks were able to arrange bridge funds or raise new capital. Others found themselves forced to drastically reduce their services, lay off staff, or change their business models – sometimes moving their business away from the low-income customers they sought to serve.

<blockquote class="pullquote--left">Fintechs have a tremendous opportunity to collect data on customers’ ability to cope with and respond to shocks.</blockquote>
Because of the many different services and business models of fintechs, impact measurement is complicated. But as data-producing and data-driven companies, fintechs have a tremendous opportunity to collect data on customers’ ability to cope with and respond to shocks (in addition to their saving, borrowing, and spending behavior). This data is not only useful for research and sharing with impact investors, but also provides valuable business information to inform product design and growth efforts.

<h1>3   Capability</h1>
Fintechs are known for being agile. Agility is also a characteristic of low-income people. Both are accustomed to pivoting quickly to find solutions to increase income and reduce expenses or adapt their skills to new work. In this framework, capability is focused on advice-seeking behavior, know-how, and the ability to respond quickly in terms of adversity.
In the last year, there have been <a href="https://www.youtube.com/watch?v=lcqVnqH9vHc&amp;list=PL30fMMRd3G_4BUL_Uib6BV-QGR9ipaZTC&amp;index=21" target="_blank" rel="noopener noreferrer">many anecdotes</a> that provide good reason to offer kudos to fintechs for their contributions to customer resilience – but without systematic data on how fintech capability can strengthen customer capability, it is difficult to build on these efforts or understand nuances that could drive greater impact. An investment in measurement and integrating data collection into the customer platform has the potential to be useful to fintechs, impact investors, and donors. We hope that fintechs’ data-driven approaches will soon extend to impact measurement as the sector grows.

<h1>4   Ties</h1>
The value of ties goes beyond personal and business relationships. Fintechs and their users have a unique opportunity to forge community bonds that are stronger than a simple customer-provider relationship.
The pandemic showed this. Many fintechs provided health and education information to their customers or helped their users classify their services as “essential,” so they could continue operating during government shutdowns. Current users, agents, and civil society organizations helped new fintech users sign up for and access government payments or gig platforms. Fintechs also found board members, investors, and accelerator colleagues who could pitch in to respond to the many issues the pandemic threw their way. Finding ties to measurement experts would be a useful next step.

<blockquote>With a continued focus on resilience and using the PACT Framework as a guide, we can embed resilience in inclusive fintech to support their preparation for inevitable future storms.</blockquote>
With a continued focus on resilience and using the PACT Framework as a guide, we can embed resilience in inclusive fintech to support their preparation for inevitable future storms. We can also improve customers’ preparedness and increase their capability to manage through adversity. The PACT framework is a first step towards understanding the interplay between fintech resilience and customer resilience – an area worthy of further investigation. Together we can help low-income households and businesses benefit from inclusive fintech.
For more details and examples of these four points in practice, we encourage you to read the <a href="https://www.centerforfinancialinclusion.org/a-pact-to-promote-resilience">full publication</a>.

For Inclusive Fintechs, Resilience Is Growth’s Much-Needed Companion

Two years into the COVID-19 pandemic, the role of digital financial services in providing access to essential services is undeniable. Digital financial services have enabled governments and nonprofits to deliver timely social protection payments and aided families and friends of those in need to quickly share financial resources. The rise of platforms and small business fintechs allowed for new forms of commerce that have kept people employed and grown gig work opportunities, which helped customers in small villages and large cities alike to purchase goods needed for their households.
<blockquote class="pullquote--right">We need data, metrics, and measurement standards to better understand and move the needle on measuring resilience.</blockquote>
The role fintechs have played over the last two years is clear. We have data about the growth of fintechs during the pandemic, on how much capital they have attracted from investors, and many anecdotal stories about how individuals and firms using fintechs have experienced direct benefits from moving to digital solutions. But while there are many stories of the positive relationships between fintechs and their customers during the pandemic, we need data, metrics, and measurement standards to better understand and move the needle on measuring resilience.

With the support of <a href="https://www.accion.org/institutional_partnerships/jersey-overseas-aid-comic-relief">Jersey Overseas Aid and Comic Relief</a>, CFI conducted research to better understand fintechs, their resilience, and the impact they have on the livelihoods of low-income customers. CFI’s research on fintech resilience is the first attempt to set forth a framework and call to action to understand the interconnectedness between progress at the provider level and the implications for users. Through our research, we found that, by and large, fintechs are operationally resilient, although many early-stage fintechs did have to resort to layoffs and salary cuts, or to slowing growth plans. However, measuring resilience — whether at the level of financial institutions or customers, as well as how they influence each other — is at an early stage of research.
<blockquote>PACT measures resilience as a combination of abilities and access to resources across four dimensions: Preparedness, Access, Capability, and Ties (Networks).</blockquote>
To support our work in understanding how to measure and quantify fintech’s resilience and impact, CFI developed the PACT framework. This helps us analyze the resilience of both fintechs and low-income customers, and see where and how there are direct connections between the two. PACT measures resilience as a combination of abilities and access to resources across four dimensions: Preparedness, Access, Capability, and Ties (Networks). This framework can inform investors and donors who are looking to support low-income customers.

A PACT to Promote Resilience

About a month ago, I participated in a webinar on the <a href="https://www.wri.org/research/state-climate-action-2021" target="_blank" rel="noopener noreferrer">State of the Climate Action Report</a> produced by the World Resource Institute. I was distressed by the magnitude of what needs to be done to delay the rapid warming of our planet which, unless halted, will soon make the world uninhabitable for the majority of people, and the speed of change necessary to reach some climate goals.

In particular, discussions related to diffusion theory – the non-linear progression of change when adopting new technologies typically depicted as an S-curve – were eye-openers. Adoption is expensive and limited to the few die-hard believers when a new technology is launched. But over time, as costs decline, there is an exponential growth in adoption, which eventually flattens out as adoption becomes universal. The adoption of electric vehicles is an apt case in point.
<img class="alignnone wp-image-43700 size-full aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/12/Screen-Shot-2021-12-15-at-11.26.07-AM-e1639593107845.png" alt="" width="2282" height="1511" />(Credit: <a class="c-link" tabindex="-1" href="https://www.business-planning-for-managers.com/Worpress/wp-content/uploads/2012/01/adoption_curve.jpg" target="_blank" rel="noopener noreferrer" data-stringify-link="https://www.business-planning-for-managers.com/Worpress/wp-content/uploads/2012/01/adoption_curve.jpg" data-sk="tooltip_parent" data-remove-tab-index="true">Investaura Ltd</a>.)
However, diffusion theory seems to apply to more than just technological adoption. In fact, to me, it’s also an explanation of how change happens in society: for example, how certain songs become popular, public health practices are adopted, and languages evolve.
<blockquote class="pullquote--right">A clear shift is happening in inclusive finance that resembles the latter stages of the S-curve.</blockquote>
As I reflect on this past year and where we are in inclusive finance, it is evident that a clear shift is happening that resembles the latter stages of the S-curve. Perhaps “mainstreaming” is the appropriate nomenclature in this case. While in its early days, the inclusive finance space comprised a closed group of select stakeholders who believed that the financial system needed to go beyond serving corporations and high-net-worth individuals, today there is near-universal consensus that financial and all systems – be it transportation, food, or financial services – need to be inclusive.

I see four trends in inclusive finance that are symbolic of this shift:
<h2>1. Customer adoption of DFS is accelerating at an exponential pace.
</h2>
Country-focused research initiatives by various agencies have reported a clear acceleration of the rate of adoption of digital financial services, which is often the first step in onboarding a customer to the formal financial system. We hope that the next edition of the <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">Findex</a>, to be released in the first half of 2022, will provide representative and comparable data to substantiate this trend. The pandemic was a clear mobilizer, but government transfers of social payments using mobile money and other digital channels were pivotal in spurring the uptake of DFS among low-income marginalized communities.

GSMA’s <a href="https://www.gsma.com/sotir/" target="_blank" rel="noopener noreferrer">State of the Industry</a> report noted the marked global expansion of mobile money. There are now more than 1.2 billion registered mobile money accounts, with growth in 2020 twice as high as originally predicted. In other words, adoption is happening at an accelerated pace. Concurrently, the number of active users also increased exponentially. While it took a decade to reach the first 100 million active users, the next five years saw an increase to over 300 million active users – a milestone worth celebrating.
<h2>2. Large companies are adopting inclusive finance as a core business.</h2>
When Dan Schulman went to PayPal in 2014, he was one of the early adopters of financial inclusion, later announcing a shift to financial health in 2019 for PayPal’s overall vision. For most other large financial services companies, inclusive finance was at most a part of their corporate social responsibility (CSR) function.
<blockquote class="pullquote--left">Today, most financial services companies have inclusive finance as their core business.</blockquote>
Today, most financial services companies have inclusive finance as their core business. I recently met with AXA’s Emerging Customers team, a core business team solving real-life risks with creatively-structured insurance products designed, priced, and distributed in ways that directly meet the needs of low-income consumers. Garance Wattez-Richard, Head of AXA Emerging Customers, said, “it’s not about making the same products miniature, it’s about completely redesigning insurance for new population segments.”

Similarly, Mastercard’s core business is about serving small businesses everywhere. To achieve this lofty goal, they are structuring partnerships, testing new models, and solving pre-system-level problems through their institute, the <a href="https://www.mastercardcenter.org/" target="_blank" rel="noopener noreferrer">Center for Inclusive Growth</a>. But these partnerships go well beyond financial services companies. Corporations like Walmart, Cargill, Syngenta, and many others are re-imagining their value chains and embedding financial services in ways that allow them to reach previously excluded customers.
<h2>3. More startups are adopting inclusive finance as a core business.</h2>
It’s not just the large corporations. Inclusion is top of mind for early-stage fintechs, too. <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">The Inclusive Fintech 50</a> (IF50), an initiative implemented by CFI and sponsored by Visa, MetLife Foundation, and Comic Relief/Jersey Overseas Aid in partnership with IFC and Accion, was launched in 2019. Each year thousands of fintechs globally submit their data to be considered for the competition. Even as the process has become more rigorous each year, with requirements to provide evidence and substantiate approaches that reach underserved segments, the sheer number of early-stage fintechs that participate gives a glimpse of what’s <a href="https://bfaglobal.com/catalyst-fund/briter-catalyst-fund-state-of-the-fintech-industry-report/" target="_blank" rel="noopener noreferrer">happening in the broader fintech space</a>. The 2021 competition uncovered incredible fintechs providing an array of services to underserved populations, many of which directly supported low-income customers to survive and recover from the pandemic.

For instance, during the pandemic, the Mexican neo-bank <a href="https://bankaya.com.mx/" target="_blank" rel="noopener noreferrer">Bankaya</a> deployed agents at retail points such as supermarkets to educate potential customers on Bankaya's digital savings products. Within nine months of their launch, Bankaya reached over 132,000 customers, 52 percent of whom are women. Colombian fintech <a href="https://avista.co/" target="_blank" rel="noopener noreferrer">Avista</a> has been leveraging its AI-driven, internal credit scoring algorithm to provide credit to financially underserved pensioners. Others such as <a href="https://www.thriveagric.com/" target="_blank" rel="noopener noreferrer">ThriveAgric</a> in Nigeria and <a href="https://www.sasa.solutions/" target="_blank" rel="noopener noreferrer">SASA Solutions</a> in South Africa are helping smallholder farmers gain access to information and financial services via their platform, while <a href="https://gotugende.com/" target="_blank" rel="noopener noreferrer">Tugende</a> is providing asset financing and helping Ugandan micro-entrepreneurs build credit scores, digital profiles and avail other services like life insurance and safe riding training.
<h2>4. Even tangential businesses are staking claims to inclusive finance.</h2>
Perhaps not as clear-cut as the previously cited examples is the emergence of complex financial products, like cryptocurrencies, using inclusion as their raison d’etre. While these solutions may eventually solve an inclusion problem by allowing someone to transfer money between jurisdictions at relatively low rates, they still have a long way to go. Many of the reasons that prevent low-income people from joining the digital economy – lack of identification, limited access to smartphones, cost of data, to name a few – are not addressed by cryptocurrencies. Yet, these companies see it as important to support their work by adopting the language of inclusion.

&nbsp;
<h2>Still Early on the Curve</h2>
The diffusion of things that are good for people and society is undeniably desirable. A large number of people today are benefitting from increased access to financial services. But how do we guarantee the benefits received are improving the livelihoods of consumers? A decade of asking people to report on their practices and validating them through independent certifications has not done enough to diffuse good practices. We still see <a href="https://www.centerforfinancialinclusion.org/trust-of-data-usage-sources-and-decisioning-perspectives-from-rwandan-mobile-money-users">sub-standard practices</a> that are harmful to low-income clients, even among institutions that are thought to have sound policies.
<blockquote class="pullquote--right">If inclusion is everything, then it’s no longer anything.</blockquote>
We need to ensure that consumers are protected. We need to guarantee that financial services address consumers’ livelihood needs and do not create a vicious cycle of indebtedness or hide costs in a convoluted pricing model where consumers are unable to understand or compare services. We need to go beyond payments services and prioritize financial services that enable investments in livelihoods and create opportunities to increase income. We need transparency and more data that helps investors, researchers, and consumers differentiate the charlatans peddling snake oil from those offering quality services.

Perhaps one place to start is coming up with a new name. If inclusion is everything, then it’s no longer anything. What should the next chapter of inclusive finance be called? Send us your creative solutions, and together let’s start the work on the diffusion of positive impact together.

Diffusion Theory, the S-Curve, and Why We Need to Go Beyond Inclusion

Sugandh Saxena

Jayshree Venkatesan

Ethan Loufield

Safeya Zeitoun

Evelyn Stark

Mayada El-Zoghbi

Maria Gabriela Coloma Ponce de Leon

Malika Anand

Alex Kessler

Jacobo Menajovsky

Julia Arnold

Tess Johnson

India

South Asia

Kenya

Sub-Saharan Africa

Cambodia

East Asia and Pacific

Philippines

Tanzania

Client Treatment

Consumer Protection

Enabling Environment

Financial Service Providers

Fintechs

Fraud

Privacy

Delivery Channels

Digital Financial Services

Policy, Regulation and Government Initiatives

Alternative Data

Credit

Data Analytics

Financial Technology

Insurance

Payments

Remittances

Underserved Groups

Financial Health

Impact Investing

Resilience

Challenges and Crises

Blockchain and Cryptocurrency

Human Centered Design

Credit Provision

Digital Credit

Interest Rates

Over-indebtedness

Responsible Digital Finance

Underwriting

Agent Banking

Mobile Banking

Partnerships

Saving

Women

Health Insurance

Inclusive insurance

Blog Post

Report

Press Release

Brief

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

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

WASHINGTON, D.C., October 27, 2021 – The Center for Financial Inclusion (CFI) announced today the Inclusive Fintech 50 (IF50) competition’s 2021 cohort, recognizing 50 fintech startups that are leading the way in helping low-income customers and micro, small and medium enterprises (MSMEs) to rebuild from the COVID-19 pandemic. IF50 is sponsored by Visa, MetLife Foundation, and Jersey Overseas Aid &amp; Comic Relief, with support from Accion and IFC. The winners of this year’s competition join winners from previous years in representing a range of impactful ways in which fintech startups are helping vulnerable, underserved users improve their financial lives.

The 2021 winners were selected from a pool of 377 applicants, representing 77 countries, with Sub-Saharan Africa representing 44 percent of all candidates. The winning startups represent a range of product offerings, from credit solutions to payments providers and fintech infrastructure. An independent panel of 22 expert judges selected the fintechs through a rigorous process that evaluated their inclusivity, innovation, traction, and scale potential.

Participation in the competition provides startups with visibility and credibility among investors, as well as media and partnership exposure. Nineteen winners from the 2019 cohort have since raised a collective $182.5 million in investment.

IF50 winners will further benefit from introductions to investors, including the <a href="https://bfaglobal.com/catalyst-fund/circle-of-investors/" target="_blank" rel="noopener noreferrer">Catalyst Fund Circle of Investors</a>, and exposure during CFI’s <a href="https://financialinclusionweek.org/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a>, November 1-4, 2021. Visa, an IF50 sponsor, will also provide winners access to <a href="https://www.practicalbusinessskills.com/" target="_blank" rel="noopener noreferrer">Practical Business Skills</a>, a global digital platform created by Visa to deliver free educational resources to help small and micro business owners make confident, informed decisions to run and grow their businesses. IF50 winners will also automatically pre-qualify for <a href="https://partner.visa.com/site/programs/fintech-program.html" target="_blank" rel="noopener noreferrer">Visa Fintech Fast Track</a>, a program that advances the process of integration with Visa and its network of partners, helping fintechs enhance and introduce new, innovative payment experiences. These tools, together with the networking and platform that IF50 provides, deliver invaluable opportunities for startups at the earliest stages of their journeys.

The IF50 application process revealed some key facts about how fintech startups have adapted to support the COVID-19 pandemic recovery.

Most applicants report a growth year despite difficult COVID lockdowns. This growth reflects growing confidence in the use of digital financial services, accelerated by a desire to limit social contact during the pandemic, as well as fintech startups’ ability to adapt to meet users’ needs.

The pandemic may have caused setbacks for some startups, requiring measures to support users such as extending credit tenures, providing grace periods, or even waiving fees. Even those that experienced setbacks, however, are now optimistic as they predict increased demand for their services.

The fintechs that raised investment funds this year reported larger deal sizes than those in the year previous.

Applications from women-led fintechs accounted for 27 percent of the pool but constituted 36 percent of the winners.

Full profiles of the fintechs can be viewed at <a href="https://bit.ly/IF50winners21" target="_blank" rel="noopener noreferrer">www.inclusivefintech50.com/2021-cohort</a>.
<h2>Key Quotes:</h2>

Inclusive Fintech 50 Announces 2021 Winners

WASHINGTON, D.C., USA, June 28, 2021 - The Center for Financial Inclusion (CFI) has launched the third year of Inclusive Fintech 50 (IF50), a competition to recognize the most promising inclusive fintech startups pushing the frontiers of innovation. This year, the competition seeks to recognize early-stage fintechs that are helping low-income customers and micro- and small enterprises not just respond to the pandemic, but rebound, rebuild, and recover after the past year’s devastation.

IF50 is sponsored by Visa, MetLife Foundation, and Jersey Overseas Aid &amp; Comic Relief, with support from Accion and IFC. In its first two years, IF50 attracted applications from over 700 startups across 162 countries, cumulatively reaching almost 175 million customers. Each year, an independent judging panel of global fintech experts reviews the applicants to select 50 winners based on four criteria: inclusivity, innovation, scale potential, and traction.

Participation in the competition provides startups with visibility and credibility among investors as well as media and partnership exposure; 19 winners from the 2019 cohort have since raised a collective $182.5 million in investment. In addition, this year’s winners will be featured in early November during Financial Inclusion Week, an annual virtual event organized by CFI for the inclusive finance community to discuss the latest developments and key issues facing the sector. Winners will also be featured in this year’s research findings and media coverage. For example, <a href="https://www.inclusivefintech50.com/briefs" target="_blank" rel="noopener noreferrer">several publications from the past two years</a> prominently featured IF50 winners.

For the 2021 competition, new benefits to IF50 winners include access to <a href="https://www.practicalbusinessskills.com/" target="_blank" rel="noopener noreferrer">Practical Business Skills</a>, a global digital platform created by Visa to deliver free educational resources to help small and micro business owners make confident, informed decisions to grow their businesses. Winners will be able to customize and co-brand this turn-key solution to support the local recovery efforts of the small and micro businesses they serve. Eligible winners will automatically pre-qualify for <a href="https://partner.visa.com/site/programs/fintech-program.html" target="_blank" rel="noopener noreferrer">Visa Fintech Fast Track</a>, a program that aims to speed up the process of integrating with Visa and its ecosystem partners and helps fintechs enhance and introduce new and innovative payment experiences. These tools, together with the networking and platform that IF50 provides, serve as an invaluable platform for startups at the earliest stages of their journey.

As the COVID pandemic continues to rage in many parts of the world, fintech startups and services have proven to be an invaluable lifeline for vulnerable people, facilitating remittances, digital payments, and payments associated with government safety nets. Higher rates of fintech acceptance present new opportunities for startups to go beyond traditional offerings to deliver valuable financial services that will ensure the financial health and resilience of underserved people.

Expert judges include a diverse group of independent fintech experts, investors, and founders, including:
<ul>
 	<li>Nejoud Al Mulaik, Director, Fintech Saudi</li>
 	<li>Tarek Assad, Managing Partner, Algebra Ventures</li>
 	<li>Sarah Austrin-Willis, Senior Director, Financial Solutions Lab, Financial Health Network</li>
 	<li>Ginger Baker, Head of Financial Access, Plaid</li>
 	<li>Anne-Marie Chidzero, Chief Investment Officer, FSD Africa Investments</li>
 	<li>Bernhard Eikenberg, Managing Partner, Emerging Markets, Community Investment Management</li>
 	<li>Brad Jones, CEO, Wave Money</li>
 	<li>Buhle Goslar, Africa CEO, Jumo</li>
 	<li>Jojo Malolos, CEO, JG Digital Equity Ventures and Data Analytics Ventures</li>
 	<li>Kunal Upadhyay, Advisor, ADB Ventures</li>
 	<li>Shwetank Verma, Co-Founder and General Partner, Leo Capital</li>
 	<li>Gabriela Zapata Alvarez, Independent Consultant (Financial Inclusion)</li>
</ul>
The application window opens today, and interested startups are encouraged to apply by July 23 via the <a href="https://www.inclusivefintech50.com/apply">IF50 website</a>.

# # #

Key quotes:
<ul>
 	<li>Managing Director of CFI, <a href="https://centerforfinancialinclusion.org/people/mayada-el-zoghbi/" target="_blank" rel="noopener noreferrer">Mayada El-Zoghbi</a>, highlighted the timeliness of the theme noting, “As the world continues to wrestle with the challenges presented by the pandemic, fintechs can play an important role in helping those most impacted move towards recovery. For example, by supporting micro- and small enterprises, which have been devastated by the pandemic but will be ground zero for eventual economic recoveries across the developing world. As difficult as this crisis has been, it has prompted a surge in fintech innovation and an openness to new ideas, the benefits of which could be applied to other challenges beyond the pandemic. We need to be intentional about how we can use this as a springboard for making advances elsewhere, such as with women’s financial inclusion, the responsible use of data, and in navigating the impacts of climate change.”</li>
 	<li>Beth Hurvitz, Global Head of Social Impact, Visa Inc. noted, “Digital payments are an onramp for financial inclusion, helping people and businesses meet their needs and stay afloat in the current context. Fintechs are key to enhancing access and the benefits of digital adoption for the underserved. Visa is committed to work with the payments ecosystem on initiatives such as Inclusive Fintech 50, to support SMB owners to become digitally enabled and rebuild stronger, more competitive and resilient businesses for the recovery of our communities.”</li>
 	<li>Krishna Thacker, Director, MetLife Foundation, noted, “At MetLife Foundation, we recognize the ability of tech to reach low-income people further and faster, but we’re also focused on engaging the customer and changing their financial outcomes. Through Inclusive Fintech 50, we want to identify, recognize and support organizations that are going beyond inclusion to build resilience and financial health for low-income customers – a need highlighted by the pandemic.”</li>
</ul>
# # #
<h3>About IF50</h3>
Inclusive Fintech 50 identifies promising early-stage fintechs driving financial inclusion around the globe through a competitive process led by an independent panel of judges from venture capital, technology, and financial services. Applicants are assessed on the degree to which their target market includes underserved people or businesses, and whether their innovation offers a new value proposition, shows early-stage traction, and can have a noticeable impact on the more than 3 billion financially underserved people globally. Inclusive Fintech 50 is sponsored by Visa, MetLife Foundation, and Jersey Overseas Aid &amp; Comic Relief, with support from Accion and IFC. The initiative is managed by the Center for Financial Inclusion (CFI). Learn more at <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">www.inclusivefintech50.com</a>.
<h3>About The Center for Financial Inclusion</h3>
The Center for Financial Inclusion (CFI) works to advance inclusive financial services for the billions of people who currently lack the financial tools needed to improve their lives and prosper. We leverage partnerships to conduct rigorous research and test promising solutions, and then advocate for evidence-based change. CFI was founded by Accion in 2008 to serve as an independent think tank on inclusive finance.
<h3>About Visa</h3>
Visa Inc. (NYSE: V) is the world’s leader in digital payments. Our mission is to connect the world through the most innovative, reliable and secure payment network – enabling individuals, businesses and economies to thrive. Our advanced global processing network, VisaNet, provides secure and reliable payments around the world, and is capable of handling more than 65,000 transaction messages a second. The company’s relentless focus on innovation is a catalyst for the rapid growth of connected commerce on any device, and a driving force behind the dream of a cashless future for everyone, everywhere. As the world moves from analog to digital, Visa is applying our brand, products, people, network and scale to reshape the future of commerce. For more information visit About Visa and @VisaNews.
<h3>About MetLife Foundation</h3>
At MetLife Foundation, we are committed to expanding opportunities for low- and moderate-income people around the world. We partner with nonprofit organizations and social enterprises to create financial health solutions and build stronger communities, while engaging MetLife employee volunteers to help drive impact. MetLife Foundation was established in 1976 to continue MetLife’s long tradition of corporate contributions and community involvement. From its founding through the end of 2019, MetLife Foundation provided more than $900 million in grants and $87 million in program-related investments to make a positive impact in the communities where MetLife operates. Our financial health work has reached more than 17.3 million low- and moderate-income individuals in 42 countries. To learn more about MetLife Foundation, visit metlife.org.
<h3>About Jersey Overseas Aid &amp; Comic Relief</h3>
In 2018, Comic Relief and Jersey Overseas Aid announced a four-year £8 million partnership called ‘Branching Out: Financial Inclusion at the Margins’ to improve access to affordable financial services for those at the margins of society in Sierra Leone, Rwanda, and Zambia. Comic Relief and Jersey Overseas Aid believe that one of the best ways to do this is by transferring knowledge to build responsible and inclusive financial systems, incubating FinTech, and focusing on service delivery to increase bottom-of-the-pyramid access to financial services including bank accounts, savings, insurance and credit, providing low-income households with the means to plan for the future as well as unexpected events. The partnership grants support a diverse set of organizations, made up of international and local NGOs, with each grantee delivering programs designed to meet different community and national needs in addressing financial inclusion.
<h3>About Accion</h3>
Accion is a global nonprofit committed to creating a financially inclusive world, with a pioneering legacy in microfinance and fintech impact investing. We catalyze financial service providers to deliver high-quality, affordable solutions at scale for the three billion people who are left out of — or poorly served by — the financial sector. For 60 years, Accion has helped tens of millions of people through our work with more than 160 partners in 55 countries. More at http://www.accion.org.
<h3>About IFC</h3>
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2020, we invested $22 billion in private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org.

Media contacts: Lauren Braniff, Vice President, Strategy and Communications
Center for Financial Inclusion: lbraniff@accion.org

Inclusive Fintech 50 Launches 2021 Competition to Recognize Early-Stage Fintechs Driving Innovation in an Era of Uncertainty

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

In April 2021, a <a href="http://kenyalaw.org/kl/fileadmin/pdfdownloads/bills/2021/TheCentralBankofKenya_Amendment_Bill_2021.pdf" target="_blank" rel="noopener noreferrer">bill</a> that proposed licensing digital lenders was passed by the Kenyan parliament and is now pending approval from the national assembly. Among other things, this bill would require all digital lenders to submit product pricing to the Central Bank of Kenya for approval before launching, a move that seeks to lower predatory interest rates. Further, non-performing loans would be capped at <a href="https://www.businessdailyafrica.com/bd/economy/mobile-phone-lenders-risk-closure-in-cbk-bill-3376538" target="_blank" rel="noopener noreferrer">twice the amount of the initial loan defaulted</a>, which means lenders won’t be able to perpetually increase the amount to be paid back through late-payment fees.

Much has been <a href="https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans" target="_blank" rel="noopener noreferrer">written</a> on the fintechs that have flooded the Kenyan market since 2016. FSD and CGAP published alarming <a href="https://www.cgap.org/blog/kenyas-digital-credit-revolution-five-years">evidence</a> in 2018 showing that in addition to a saturated digital lending market, an increasing number of digital borrowers in Kenya became over-indebted, which furthered them into <a href="https://www.microsave.net/2019/09/18/11310/" target="_blank" rel="noopener noreferrer">poverty traps</a>. Digital lenders such as OKash and Branch reportedly publicly shamed debtors by <a href="https://restofworld.org/2020/okash-microlending-public-shaming/" target="_blank" rel="noopener noreferrer">texting their friends, family, and colleagues</a>. Further, high-interest rates and non-transparent fees resulted in APR’s above <a href="https://qz.com/africa/1975202/kenya-prepares-to-crack-down-on-high-interest-loan-apps/" target="_blank" rel="noopener noreferrer">400 percent</a>, making it more difficult for some low-income borrowers to repay. In some instances, repayment was possible, yet it meant sacrificing other payments like food, medicine, or school fees. And finally, millions of borrowers were reported to credit bureaus for <a href="https://www.cgap.org/research/publication/consumer-protection-digital-credit" target="_blank" rel="noopener noreferrer">loans smaller than $10</a>.

During the COVID crisis, the Kenyan Central Bank issued a number of measures to ease the debt burden on borrowers, such as <a href="https://www.centralbank.go.ke/uploads/press_releases/850440997_Press%20Release%20-%20Credit%20Reference%20Bureau%20Regulations%20-%20April%202020.pdf" target="_blank" rel="noopener noreferrer">forbidding</a> unregulated mobile-based and credit-only digital lenders from reporting any late borrowers to credit bureaus. Although this helped ease debt stress on consumers during the crisis, this drove many digital lenders out of the market as levels of default skyrocketed, leaving <a href="https://www.theelephant.info/data-stories/2020/09/18/covid-19-regulatory-measures-could-widen-kenyas-financial-access-gap/" target="_blank" rel="noopener noreferrer">many Kenyan borrowers underserved</a>. The entire loan market in Kenya shrank due to COVID-19; today, these platforms lend around <a href="https://www.businessdailyafrica.com/bd/opinion-analysis/editorials/cbk-regulation-of-digital-lenders-is-long-overdue--3378386" target="_blank" rel="noopener noreferrer">2 billion shillings a month</a>, compared to 4 billion shillings in early 2020.

The proposed bill by the Central Bank of Kenya unfortunately will not address the issue of making digital credit both safe and accessible. The bill focuses on product pricing only, and it doesn’t address the underlying challenge of digital lending platforms: a weak credit assessment model. Such a model <a href="https://www.ted.com/talks/shivani_siroya_a_smart_loan_for_people_with_no_credit_history_yet?language=en" target="_blank" rel="noopener noreferrer">extracts large amounts of data from the borrower’s phone</a> and runs it through algorithms that approve or deny the loan. Many digital lenders mitigate the risk of a light-touch credit assessment with above-market APRs and hidden late payment fees, thus being able to generate profit and returns to their investors.

The primary problem is digital lenders do not measure the capacity of someone to repay, but their willingness to repay, and these are drastically different concepts. Willingness refers to the genuine disposition of a person to pay back their loan. Capacity, on the other hand, refers to the person’s ability to generate enough money in the future to pay back the loan without having to forgo essential expenses.
<blockquote class="pullquote--left">Digital lenders do not measure the capacity of someone to repay, but their willingness to repay and these are drastically different concepts.</blockquote>
For example, I might score very well on a digital risk assessment. My geo-trace shows I go to work every day, my call log shows I call my mom regularly, and my browsing history shows I do not engage in sports bets. These measurements indicate I am a responsible citizen who complies with her duties, suggesting that I have a high willingness to repay a loan. However, I might have astronomical medical expenses that the digital lender is unable to detect. Or I might be sending significant remittances to my family. Both of these relate to my repayment capacity and are measures that digital lending apps tend to ignore in favor of automated decision-making based on more readily available data.

By comparison, traditional banks run thorough credit risk assessments, sometimes so thorough that they are slow and expensive. These banks have credit committees and risk analysis departments that challenge relationship managers on the loan proposals they present. The result is that most people granted a loan have the means to pay it back. This method excludes the majority of the world’s population from the financial system, however, it also ensures that most people who are granted a consumer loan actually have the capacity to repay.

So where do we draw the line? How do we expand access to credit to low-income people and informal workers and also protect them from default? How can we measure their capacity to repay in a cheap, digital, and rapid manner? Should we prohibit alternative, digital, phone-based metrics that only assess someone’s willingness to repay?
<h2>A Possible Solution</h2>
The answer could be a measure in between. One idea is that the Central Bank of Kenya could only grant a license to digital lenders that incorporate the borrower’s capacity to repay in their credit assessment algorithms. This means, finding a way to measure, prove and integrate the person’s real income and expenses. Another option could be asking lenders to integrate proxies for repayment capacity. For example, mobile money records could be matched with the borrower's geolocation to determine where and why they are being paid and predict how stable his or her income is. Coupled with strong data protection measures, this and similar metrics could help curb the high default rate and loan-stacking among digital borrowers in Kenya without causing financial exclusion.

Further, as suggested in a <a href="https://centerforfinancialinclusion.org/making-digital-credit-truly-responsible/" target="_blank" rel="noopener noreferrer">publication produced by CFI</a>, the Central Bank of Kenya should withdraw a digital lender’s license upon surpassing a threshold percentage of non-performing loans as a share of the total loan portfolio. This would force the lenders to improve their algorithms and creatively design more capacity-measuring metrics. And finally, the CBK should explicitly require licensed digital lenders to cross-check an individual’s loan performance with each other before issuing further credit to prevent loan-stacking. Although the Digital Lenders Association of Kenya (DLAK) advocates for digital lenders to be able to receive and submit borrower information to credit bureaus, this practice has not addressed loan stacking in the past and only served to blacklist millions of borrowers for small amounts. Therefore, digital lenders should be allowed to view and report outstanding loans, yet with very limited power to blacklist a late borrower.
<blockquote class="blockquote">The CBK should explicitly require licensed digital lenders to cross-check an individual’s loan performance with each other before issuing further credit to prevent loan-stacking.</blockquote>
Kenya cannot go back to the old bank-driven model which financially excluded most of the population, yet Kenyans cannot keep paying the price for the financial experimentation of tech startups. Digital credit should be responsible, affordable, and inclusive. With this new bill, the Central Bank of Kenya is getting closer to achieving it. However, the root cause of the problem is the evaluation algorithm and the business model that stems from it. Without addressing this, little will change for Kenyan borrowers.

Digital Lending in Kenya: Willingness vs. Capacity to Repay

Last year, the 2020 <a href="https://www.inclusivefintech50.com/white-paper-2020" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50 competition</a> recognized 50 fintech startups that were adapting to the COVID pandemic in remarkable ways, continuing to deliver valuable services to excluded communities in a time of acute need.

This year, the 2021 IF50 competition seeks to recognize early-stage, inclusive fintech startups that are continuing to push the frontier of financial inclusion, driving innovation in an era of uncertainty. The competition seeks to spotlight startup teams that are helping low-income customers and micro and small enterprises not just respond to the emergency, but rebound, rebuild, and recover after the past year’s devastation. Managing Director of CFI, <a href="https://www.centerforfinancialinclusion.org/bio/mayada-el-zoghbi" target="_blank" rel="noopener noreferrer">Mayada El-Zoghbi</a>, highlighted the timeliness of the theme noting, “As the world continues to wrestle with the challenges presented by the pandemic, fintechs can play an important role in helping those most impacted move towards recovery. For example, by supporting micro and small enterprises, which have been devastated by the pandemic but will be ground zero for eventual economic recoveries across the developing world.”

As the COVID pandemic continues to rage in many parts of the world, fintech startups and services have proven to be an invaluable lifeline for vulnerable people, enabling <a href="https://www.worldbank.org/en/news/press-release/2021/05/12/defying-predictions-remittance-flows-remain-strong-during-covid-19-crisis" target="_blank" rel="noopener noreferrer">remittances</a>, <a href="https://www.womensworldbanking.org/insights-and-impact/focus-on-colombia-g2p-payments-in-response-to-covid-19/" target="_blank" rel="noopener noreferrer">G2P payments</a>, and <a href="https://m-kopa.com/covid-19-response/" target="_blank" rel="noopener noreferrer">emergency hospicash</a>. Their value has not been limited to emerging markets, <a href="https://www.thebusinessresearchcompany.com/press-release/digital-payments-market-size" target="_blank" rel="noopener noreferrer">digital payments have almost doubled in volume</a> globally, and the <a href="https://www.adjust.com/blog/fintech-and-mobile-finance-usage-surges-in-2020/" target="_blank" rel="noopener noreferrer">use of fintech apps has soared</a> in developed markets. In both developed and emerging markets, we have seen remarkable growth in mobile money <a href="https://qz.com/africa/2010332/mobile-money-helps-airtel-africa-safaricom-mtn-after-covid-19/?utm_source=email&amp;utm_medium=africa-weekly-brief&amp;utm_content=81c2dab1-b98a-11eb-b2fa-128a8124fc78" target="_blank" rel="noopener noreferrer">uptake</a>, the <a href="https://www.worldbank.org/en/news/press-release/2020/12/03/fintech-market-reports-rapid-growth-during-covid-19-pandemic" target="_blank" rel="noopener noreferrer">volume</a> of fintech transactions, and even <a href="https://finance.yahoo.com/news/vc-investment-fintech-more-doubles-050100463.html" target="_blank" rel="noopener noreferrer">investment</a> in fintech.

These higher rates of fintech acceptance present new opportunities for startups to deliver effective financial services to underserved people. As <a href="https://centerforfinancialinclusion.org/people/mark-pickens/" target="_blank" rel="noopener noreferrer">Mark Pickens</a>, Senior Director of Social Impact, Visa Inc., a founding sponsor of the competition, noted, “Digital payments are an onramp for financial inclusion, helping people and businesses meet their needs and stay afloat in the current context.”
<blockquote class="pullquote--left">Digital payments are an onramp for financial inclusion, helping people and businesses meet their needs and stay afloat.</blockquote>
Not only are more people using fintech solutions more frequently and for more use cases, but their financial needs and habits are also already changing in lasting ways. <a href="https://qz.com/india/2006292/the-pandemic-has-made-savings-a-priority-for-indian%5B%E2%80%A6%5Ddium=daily-brief&amp;utm_content=99a00a1f-b22e-11eb-8e49-fe521f7ceeec" target="_blank" rel="noopener noreferrer">Savings rates have increased in India</a>, even as unemployment has increased and salaries have decreased. Demand for insurance has also increased, in developed markets like the <a href="https://www.actuarialpost.co.uk/article/increased-demand-for-private-medical-insurance-after-covid19-18468.htm" target="_blank" rel="noopener noreferrer">UK</a>, but also in emerging markets like <a href="https://www.business-standard.com/article/finance/high-demand-for-comprehensive-health-policies-as-covid-cases-soar-again-121042200061_1.html" target="_blank" rel="noopener noreferrer">India</a> and across the continent of <a href="https://www.brookings.edu/blog/africa-in-focus/2021/03/03/figures-of-the-week-african-insurance-market-poised-for-growth/" target="_blank" rel="noopener noreferrer">Africa</a>.

These changes mean that fintech startups have the opportunity to go beyond short-term fixes, like <a href="https://centerforfinancialinclusion.org/rapid-innovation-how-fintechs-are-adapting-under-covid-19/" target="_blank" rel="noopener noreferrer">emergency savings, repayment flexibility</a>, and <a href="http://www3.weforum.org/docs/WEF_The_Global_Covid19_FinTech_Market_Rapid_Assessment_Study_2020.pdf" target="_blank" rel="noopener noreferrer">fee waivers and reductions</a>, which many implemented in response to the pandemic last year. Fintech startups can rise to meet new needs and habits of underserved people, to enable the rebuilding that is needed going forward. <a href="https://bfaglobal.com/bio/maelis-carraro/" target="_blank" rel="noopener noreferrer">Maelis Carraro</a>, Director of <a href="https://bfaglobal.com/catalyst-fund/" target="_blank" rel="noopener noreferrer">Catalyst Fund</a> and an IF50 judge, observed, “Throughout the pandemic, fintech startups demonstrated their ability to adapt to meet their users’ needs and have seized the opportunity to do so. Now more than ever, users need their agility, creativity, and innovation to enable an inclusive recovery.”

To innovate during these difficult times and deliver solutions for recovery and rebuilding, startups will need to shift their focus to longer-term financial health and resilience. <a href="https://www.linkedin.com/in/krishnathacker/?originalSubdomain=sg" target="_blank" rel="noopener noreferrer">Krishna Thacker</a> of <a href="https://www.metlife.com/sustainability/MetLife-sustainability/MetLife-Foundation/" target="_blank" rel="noopener noreferrer">Metlife Foundation</a>, co-founding sponsor of IF50 noted that, “At MetLife Foundation, we recognize the ability of tech to reach low-income people further and faster, but we’re also focused on engaging the customer and changing their financial outcomes. Through Inclusive Fintech 50, we want to identify, recognize and support organizations that are going beyond inclusion to build resilience and financial health for low-income customers – a need highlighted by the pandemic.”
<blockquote class="pullquote--right">We want to identify, recognize and support organizations that are going beyond inclusion to build resilience and financial health for low-income customers.</blockquote>
Fintech startups are already recognizing this opportunity:

<a href="http://dinarak.com/" target="_blank" rel="noopener noreferrer">Dinarak</a>, a fintech startup that won the 2019 IF50 competition, helped the Government of Jordan deliver social transfers digitally soon after the pandemic broke out. In doing so, recipients were registered for a Dinarak wallet, and the startup became known as the bank for poor people. With the customer acquisition and trust challenges largely addressed, the startup can now turn its attention to designing products and services that can help these users rebuild their lives and livelihoods.
<ul>
 	<li>In Ghana, last year’s IF50 winner <a href="https://www.oze.guru/" target="_blank" rel="noopener noreferrer">OZE</a> was able to leverage data from small businesses using their management app to offer them emergency credit precisely when they needed it most.</li>
 	<li>South Africa’s <a href="http://www.a2pay.co.za/" target="_blank" rel="noopener noreferrer">A2Pay</a> was able to make a <a href="https://bfaglobal.com/insights/fintech-innovations-to-enable-mse-recovery-in-south-africas-townships/" target="_blank" rel="noopener noreferrer">similar adaptation</a>, offering spazas (informal convenience shops in townships) working capital to stock inventory precisely when they lacked the liquidity to do so.</li>
 	<li>Finally, <a href="https://www.awantunai.co.id/" target="_blank" rel="noopener noreferrer">AwanTunai</a>, a 2019 IF50 winner, has helped hundreds of SMEs digitize payments, invoicing, and purchasing, which has enabled them to survive COVID lockdowns.</li>
</ul>
However, these opportunities are not guaranteed. Pickens noted that, “Fintechs are key to enhancing access and the benefits of digital adoption for the underserved. Visa is committed to work with the payments ecosystem on initiatives such as Inclusive Fintech 50, to support small and micro business owners to become digitally enabled and rebuild stronger, more competitive and resilient businesses for the recovery of our communities.”

To encourage and spotlight startup efforts that go above and beyond, this year’s <a href="https://www.inclusivefintech50.com/2020-judging-panel" target="_blank" rel="noopener noreferrer">IF50 judging panel</a> is looking for startups, like those mentioned above, that are helping to rebuild economies, communities, and households in ways that are more inclusive, resilient, and empowering. El-Zogbhi notes, “As difficult as this crisis has been, it has prompted a surge in fintech innovation and an openness to new ideas, the benefits of which could be applied to other challenges beyond the pandemic. We need to be intentional about how we can use this as a springboard for making advances elsewhere, such as with women’s financial inclusion, the responsible use of data, and in navigating the impacts of climate change.”

The <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">IF50 competition</a> brings together leaders in the inclusive fintech community, including startups, investors, and experts. The judging panel consists of leading investors, startup founders, and other stakeholders, each with a unique ability to identify models, features, and channels that can truly transform people’s lives.

Not only will participating startups benefit from the exposure and networking among the judging panel, but winners of the competition will also be globally recognized as leading the way in inclusive fintech. This year’s winners will be featured along with leading investors and industry experts during <a href="https://centerforfinancialinclusion.org/about/what-we-do/financial-inclusion-week/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a>, an annual series of digital events organized by CFI to bring together the inclusive finance community to exchange on the latest developments and key issues facing the sector, in early November. Such exposure and networking improve startup visibility and credibility among investors; 19 winners from the 2019 cohort have since raised $182.5 million. Winners will also be featured in <a href="https://www.inclusivefintech50.com/briefs" target="_blank" rel="noopener noreferrer">research and insights work</a> at the Center for Financial Inclusion.
<blockquote class="pullquote--left">Winners of the competition will be globally recognized as leading the way in inclusive fintech.</blockquote>
Moreover, this year’s award package includes new support tools from Visa. Winners will be able to take advantage of Practical Business Skills, a global digital platform created by Visa to deliver free educational resources to help small and micro business owners make confident, informed decisions to grow their businesses. Winners will be able to customize and co-brand this turn-key solution to support the local recovery efforts of the small and micro-businesses they serve. Winners who are <a href="https://partner.visa.com/homepage.html" target="_blank" rel="noopener noreferrer">eligible</a> for Fintech Fast Track will be automatically pre-qualified for the program, which provides access to Visa’s ecosystem partners, online licensing and APIs to help fintechs enhance and introduce new and innovative payment experiences. These tools, together with the networking and platform that IF50 provides, serve as an invaluable platform for startups at the earliest stages of their journey.

Inclusive Fintech 50 is sponsored by MetLife Foundation, Visa, and Jersey Overseas Aid &amp; Comic Relief, with support from Accion and IFC. There is no fee to apply, and we encourage all interested fintechs to submit their applications within four weeks of the competition launch on June 28. Applications will be accepted in English, Spanish, and French. The 2021 winners will be announced in October.

Inclusive Fintech 50 Launches 2021 Competition: Driving Innovation in an Era of Uncertainty

When Goldman Sachs came under fire for offering women lower lines of credit than men on the now <a href="https://www.nytimes.com/2019/11/10/business/Apple-credit-card-investigation.html" target="_blank" rel="noopener noreferrer">infamous Apple Card</a>, they defended the product against charges of sexism by explaining that gender had not been an input to the credit scoring model. If an applicant’s gender was never fed into the algorithm, how did credit decisions end up discriminating against women who had similar credit histories as men?

Gender-blind credit scoring is an example of what many AI bias researchers call “fairness through unawareness,” an approach that intentionally excludes data on sensitive attributes like race, ethnicity, religion, or sex with the goal of reducing discriminatory outcomes. Behind this approach is the idea that eliminating markers of different group identities will prevent basing decisions on those characteristics. This has led to failures in the past, notably <a href="https://cpb-us-e1.wpmucdn.com/sites.suffolk.edu/dist/3/1172/files/2014/01/Rice-Swesnik_Lead.pdf" target="_blank" rel="noopener noreferrer">redlining</a>. Recent research has shown it can also make <a href="https://arxiv.org/abs/2009.06251" target="_blank" rel="noopener noreferrer">discrimination harder to detect and address</a> in the era of algorithmic decisions.
<blockquote class="pullquote--right">“Fairness through unawareness” intentionally excludes data on sensitive attributes like race, ethnicity, religion, or sex with the goal of reducing discriminatory outcomes.</blockquote>
As algorithms <a href="https://www.centerforfinancialinclusion.org/the-stories-algorithms-tell-bias-and-financial-inclusion-at-the-data-margins" target="_blank" rel="noopener noreferrer">transform the financial sector</a>, we need a better understanding of how to mitigate against discriminatory outcomes to ensure that those left out of the digital ecosystem today do not face further financial exclusion. Otherwise, we may not know how many Apple Card equivalents exist in inclusive finance.

This post explores the challenges and tradeoffs of using sensitive attribute data for detecting discrimination in the context of evolving data protection norms and regulations.
<h2>The Perils of Fairness through Unawareness</h2>
The idea may seem counterintuitive: if you remove gender from the data inputs of a credit model, how does the algorithm consistently assign a lower limit to women? The reason is that credit scoring algorithms are crunching larger amounts and new sources of data, which means that the model can inadvertently use proxies for sensitive attribute data in decisions, even if that was not the intention of the model developers. For instance, the <a href="https://journalofbigdata.springeropen.com/articles/10.1186/s40537-019-0180-9" target="_blank" rel="noopener noreferrer">type of phone</a> someone uses or the <a href="https://dl.acm.org/doi/10.1145/2721896.2721908" target="_blank" rel="noopener noreferrer">apps a person installs on their phone</a> can act as proxies for gender, age, or other characteristics.
<blockquote class="pullquote--left">Models can inadvertently use proxies for sensitive attribute data in decisions, even if that was not the intention.</blockquote>
A very simple method for testing algorithmic bias within a credit scoring model requires only a few variables like the actual default rate, the actual score of the individual when approved, and the variable you want to test with your algorithm, such as gender or race.
<h2>Data Tensions: Privacy vs. Anti-Discrimination</h2>
So, why isn’t this done? The answer lies in data limitations, sometimes based on very legitimate concerns about histories of injustice. It illustrates one of the challenges of detecting and monitoring for bias in algorithmic systems without infringing on privacy rights.

Many countries around the world prohibit collecting sensitive data or basing credit decisions on protected categories either under their banking regulations or under new data privacy legislation. In India, lenders are prohibited from discriminating on the <a href="https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=764" target="_blank" rel="noopener noreferrer">grounds of sex, caste, or religion</a>. In the U.S., the Equal Credit Opportunity Act (ECOA) made it illegal for credit providers to discriminate based on sex, race, national origin, and other protected characteristics in response to widespread denials of credit to women and people of color. ECOA prohibits lenders from collecting this data in the first place, even for the purpose of detecting discrimination, because of fears it will be used improperly to further perpetuate bias in consumer lending. Research in the US shows that discriminatory trends have been <a href="https://arxiv.org/pdf/1912.06171.pdf" target="_blank" rel="noopener noreferrer">hard to detect in consumer lending</a> and that a lack of sensitive attribute data has also created enforcement challenges.

While not all lending regulations prohibit the collection of sensitive data, data privacy legislation introduces new limits on this data. The General Data Protection Regulation (GDPR), which has become the model for legislation in many developing markets, bars certain sensitive data from being collected or processed -- including data on race and ethnic origin, political opinions, philosophical beliefs, sexual orientation, and biometrics -- without individual consent.
<blockquote class="pullquote--right">Concerns about safely and properly using sensitive attribute data are valid given histories of discrimination and surveillance of minority groups in both wealthy and developing countries.</blockquote>
On top of GDPR, the European Commission has recently put forward <a href="https://digital-strategy.ec.europa.eu/en/library/proposal-regulation-laying-down-harmonised-rules-artificial-intelligence" target="_blank" rel="noopener noreferrer">draft legislation to regulate artificial intelligence</a>, with specific provisions for AI systems classified as high risk, which includes credit scoring. The draft legislation suggests that AI providers should process “special categories of personal data” to monitor and correct for bias in the public interest, but does not clarify collection practices or consent processes for such data. Concerns about safely and properly using sensitive attribute data are valid given histories of discrimination and surveillance of minority groups in both wealthy and developing countries. Changes in regulatory frameworks to allow for use of this data to mitigate against further discrimination require public trust bolstered by technical solutions that protect against misuse. Depending on a country’s history or in places experiencing active or simmering conflict, technical solutions may not be enough. For example, in a country like Rwanda where <a href="https://www.nytimes.com/2004/04/09/world/a-decade-after-massacres-rwanda-outlaws-ethnicity.html" target="_blank" rel="noopener noreferrer">ethnic distinctions are banned</a>, the tensions around sensitive identities make it difficult to fathom collecting and using such information, especially by the government.
<h2>Data Ecosystems in Emerging Markets: It’s Complicated</h2>
This tension between privacy and anti-discrimination may be exacerbated in developing markets by the <a href="https://centerforfinancialinclusion.org/rethinking-financial-inclusion-at-the-data-margins/" target="_blank" rel="noopener noreferrer">limited digital footprints</a> of customers at the data margins, as well as paltry knowledge on how data trails and protected groups intersect.

Sex-disaggregated data is still <a href="https://data2x.org/wp-content/uploads/2020/03/MappingGenderDataGaps_Economic.pdf" target="_blank" rel="noopener noreferrer">largely unavailable</a> in the financial sector and for many economic indicators in developing markets. Beyond availability, there is less understanding of how women’s lives and the barriers that shape their economic behaviors are reflected in data used for credit decisions. The reality is that gender, ethnic, or religious identities interact with other indicators (like income, asset accumulation, or technology use) and will impact individuals’ data trails in ways that may misrepresent individuals’ potential and result in disparate outcomes (i.e. access to a financial product). Fairness through unawareness approaches are blind to this intersectionality.
<h2>Where Do We Go From Here?</h2>
As an industry, we can do more to understand the data inputs for digital financial services and how socioeconomic realities present in these datasets, especially for traditionally excluded groups. There will still be tradeoffs between privacy and anti-discrimination, but managing those tradeoffs requires a conversation between providers, regulators, donors, and the public to identify what is possible and explore the right balance.

These conversations can start with the many open questions that exist from a technical perspective. For instance, can <a href="https://ieeexplore.ieee.org/document/8970908" target="_blank" rel="noopener noreferrer">third parties</a> play a role in securely storing sensitive data, or are there options to use <a href="http://proceedings.mlr.press/v80/kilbertus18a/kilbertus18a.pdf" target="_blank" rel="noopener noreferrer">encryption</a> or <a href="https://spectrum.ieee.org/artificial-intelligence/machine-learning/engineering-bias-out-of-ai" target="_blank" rel="noopener noreferrer">synthetic data</a> techniques? Can regulators develop tools that allow them to estimate the demographic characteristics of a dataset, like the <a href="https://www.consumerfinance.gov/data-research/research-reports/using-publicly-available-information-to-proxy-for-unidentified-race-and-ethnicity/" target="_blank" rel="noopener noreferrer">Consumer Financial Protection Bureau has done</a> in the U.S.? Can investors encourage investees to design monitoring and evaluation indicators to help answer questions about how their algorithms perform on inclusion?

While the road ahead may be complex, starting these conversations and bringing the public into them, especially those whose lives will be affected by algorithmic decisions, will be crucial for building trust. We need to engage with emerging research on possible solutions to see what might be appropriate in developing markets. At the very least, financial inclusion stakeholders should know enough to respond to any gender-blind or fairness through unawareness approaches in digital finance with healthy skepticism.
<blockquote>Starting these conversations and bringing the public into them, especially those whose lives will be affected by algorithmic decisions, will be crucial for building trust.</blockquote>

Reducing Bias in Algorithmic Decisions Cannot Rely on “Blind” Approaches

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

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.