Innovative FinTech Solutions Promoting Financial Inclusion In Developing Countries

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What are our Future FinTech Champions learning at the moment? And what are their thoughts on the current development of FinTech? Read through this submission from one of our FFCs, Deekshita Bhantooa currently studying Banking and Finance @ Curtin Mauritius.  


As per the most recent report from the World Bank Group, around 1.7 billion adults are  unbanked globally, which means adults who do not use banking institutions in any capacity  make up roughly 25% of the global population. There is broad consensus that access to a  transaction account can help families and businesses plan for everything from long-term goals  to unexpected emergencies. The lack of access to mainstream financial services impairs the  ability of people to translate the income they earn into wealth and be financially secure. It is  vital for everyone to be part of the formal financial system and have access to a transaction  account to store money, send and receive payments, have access to loans and credit to  manage their financial lives. As financial inclusion is a building block for poverty reduction and  boosts prosperity by increasing the economic opportunities of the poor, it is by default critical  to achieve inclusive growth which is a sine qua non for sustainable economic growth and  development. 

The majority of individuals without a basic transaction account cite the lack of funds as the  primary reason, which indicates that financial services are unaffordable to poverty-stricken  people. Geographical distance is also a major barrier as financial institutions usually set up  their operations in urban areas while most of the unbanked individuals live in remote rural  areas. Other reasons include the lack of personal identification documents as well as the lack  of trust in financial service providers arising from a lack of understanding about how financial  products and services work. Thanks to FinTech innovations most of the aforementioned  barriers to financial inclusion can be eliminated.  

What is FinTech and how can it spur financial inclusion?  

FinTech is finance and technology coming together to offer new, innovative solutions to  businesses to enhance their business operations or to help financial institutions better serve  their customers by improving and automating the delivery and use of financial services using  technologies such as artificial intelligence, machine learning, blockchain, smart contracts,  biometrics, and data analytics to name a few. FinTech is revolutionizing the financial industry  as the integration of the aforementioned technologies into the traditional financial sectors  renders financial processes cheaper, faster, and more efficient. FinTech is set to disrupt and  reshape the financial services industry by bettering the quality of financial services, slashing  costs, and building inclusive financial sectors.  

The positive contribution of the FinTech industry to financial inclusion is immense. While  FinTech services in developed economies are focused on online customers, start-ups in  developing economies are dealing with a wider market: mobile phone users. As per the  International Telecommunications Union, an agency of the United Nations, around 95.5% of  the world’s population have access to a mobile phone – which gives SMS a more considerable  impact than the internet.

How is mobile money changing people’s lives? 

Several phone-based peer-to-peer money transfer services have contributed enormously to  positively alter the economic situation of unbanked and underbanked populations in various  countries. M-Pesa, Africa’s most successful mobile money transfer service established in 2007  in Kenya by Vodafone’s Kenyan associate – Safaricom, offers a full suite of financial services  to millions of Africans who possess a mobile phone, including those who are unbanked or  underbanked. Today it is the financial service of choice for over 42 million people in 7 African  countries -the Democratic Republic of Congo, Egypt, Ghana, Kenya, Lesotho, Mozambique,  and Tanzania. M-Pesa provides people with a safe, secure, and affordable way to send and  receive money, top-up airtime, make bill payments, receive salaries, and obtain short-term  loans to name a few.  

Real-time money transfer helps individuals to circumvent several difficult situations.  Originally, urban dwellers had to travel for hours to give money to their parents or relatives  who live in remote areas that are hundreds of kilometres away. Alternatively, they would  choose to send neighbours or a public vehicle driver plying the route to deliver the cash.  Thanks to M-Pesa, real-time domestic and international money transfers have been made  possible. Consequently, urban residents can both save time and money as they no longer have  to travel. M-Pesa also provides a secure alternative to traveling with relatively large amounts  of cash. Furthermore, utility bills can be settled within seconds instead of commuting to a  distant office with a fistful of cash and waiting in a long queue. Taxi drivers can operate their  businesses in a safer way as electronic payments from their customers means that they do  not have to carry fiat money. Shop owners no longer have to close their shop to travel to the  bank, often based in urban areas to deposit cash, instead they can use M-Shwari which is a  paperless banking service offered through M-Pesa. They just have to convert the cash into e money at the nearest M-Pesa agent and then move the e-money to their M-Shwari savings  account where interest will be earned on the savings balance. Hence, innovative mobile  money solutions allow small enterprises to operate efficiently which can in turn help local  economies to prosper. 

Moreover, mobile lending apps are now an easy source of credit for the unbanked who have  no formal borrowing history. The applicant’s mobile phone use and in-app behavioural data are analysed to decide whether the latter is eligible for the loan. This includes viewing the  SMS receipts by utility companies for bills paid in cash, noting the length and number of calls  to estimate phone bills, and checking whether applicants scroll quickly or slowly through the  loan’s terms and conditions. Using this data, the company’s machine-learning algorithms  calculate individual risk. The application takes only minutes and money is either sent to the  borrower’s mobile money account or other cash out options. Some FinTech start-ups  providing microcredit in low-income countries using alternative credit scoring include  LenddoEFL, Tala, Jumo and Branch. Microcredit enables poverty-stricken people to engage in  self-employment projects which lowers the chances of the world missing out on countless new ideas, businesses, and innovations. It also supports the working capital needs of  entrepreneurs without easy access to institutional finance. Consequently, microcredit  promotes entrepreneurship and alleviates poverty. 

Mobile Money – Statistics and Facts 

In 2020, the number of registered mobile money accounts grew by 12.7% globally to 1.21  billion accounts – twice the predicted growth rate. This is no small feat for an industry that is  just over a decade old. With 310 live services in 96 countries and over 300 million monthly  active mobile money accounts, mobile money is entering the mainstream and becoming the  route to financial inclusion in various developing countries. However, what these figures do  not capture is the empowerment that comes with having a mobile money account. More  women are using financial services, low-income households are accessing essential utility  services and smallholder farmers are getting paid more quickly and conveniently. Meanwhile,  millions of migrants and their families are experiencing the life-changing benefits of faster,  safer, and cheaper international remittances and humanitarian cash assistance is being  delivered more thoughtfully to those in crisis situations. All of this is unlocking new solutions  to some of the world’s most intractable development challenges and highlighting the catalytic  role that mobile money is playing in achieving the Sustainable Development Goals (State of  the Industry Report on Mobile Money 2020). Successful mobile money deployments such as  Telesom ZAAD in Somaliland, Dialog eZ Cash in Sri Lanka, Econet EcoCash in Zimbabwe,  SMART Communications SMART Money in the Philippines, Globe Telecom GCASH in the  Philippines and MTN Mobile Money in Rwanda opened a connection to the financial system  for a large swath of the previously excluded.  

People have different life goals and access to financial services can play a significant role in  attaining them. This is the essence of building a financial system that works for everyone. The  goal of financial inclusion is to have a financial system that drives the use of financial solutions so that economic opportunities are increased following which people will be better able to manage risks, step out of poverty and build a better life. It is undeniable that the ubiquity of  mobile money and the ability to make immediate transactions are changing lives by  facilitating inclusive growth, economic development and financial deepening.  

Wrapping it up with an anecdote from the International Monetary Fund’s 2020 External  Sector Report, “Somewhere remote in a low-income country, in the early hours of the  morning, a woman wakes up and dials her cell phone. She is borrowing a very small amount  of money digitally to buy vegetables in the local market. During the day, she will sell her  inventory in her shop located in the outskirts of the town. Some customers will pay her using  their mobile wallet, others with cash. She will transfer the cash onto her phone at the shop  next door, where the merchant is also a mobile money agent. At the end of the day, she will  be able to pay back her loan and keep her profit in her mobile wallet. She can use this mobile  money to pay for the gas she uses to cook dinner, as the utility company has recently connected its payment system to the mobile money infrastructure. In her daily life, this is  huge progress.” 

The future is FinTech, cheers! 

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The FinTech Book: The Financial Technology Handbook for Investors by Janos Barberis