According to the World Bank, an estimated two billion working-age adults globally have no access to the types of formal financial services delivered by regulated financial institutions. These financial services form an under-appreciated but vital foundation in the lives of the world’s socio-economic rich, but the scope for social, as well as economic, impact is profoundly heightened for low-income individuals.
The international development community has clocked on: the United Nation’s financial inclusion product (financed by the United Nations Development Programme) cites its core goal as increasing access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance. This clearly has a great impact on the poorest people of the world; as former UN Secretary-General Kofi Annan noted in 2003, ‘we can and must build inclusive financial sectors that help people improve their lives.’
This notion of helping people improve their own lives is at the heart of the benefits of inclusive financial products. Low-income individuals are frequently denied financial services by main stream banks: they are not considered viable clients because they are poor, or they choose not to use formal financial services due to the costs, travel distances or the unattainable requirements involved in opening an account. Within this context, it is almost impossible for bright entrepreneurs to translate ideas into impact, and external ‘western’ organisations with less local expertise or, more cynically, more self-interested motivations in investing in ‘emerging’ or ‘developing’ markets dominate local commerce and subsequently, culture. Altogether, this can create a culture of exported development which is critiqued as unsustainable.
Inclusive financial products - increasingly designed by low income entrepreneurs for low income individuals - can provide an innovative solution to this problem by cultivating entrepreneurial activities from the bottom-up. The Fintech (financial technology) industry is growing rapidly, with global investment in financial technology increasing more than twelvefold from $930 million in 2008 to more than $12 billion in 2014. Fintech innovations hold out hope for major social returns, too.
Take banking, for instance - something we in the UK might consider a staple, rather than a luxury. Africa is home to the largest unbanked population on the planet: four in five adult Africans do not use formal banking services. In Ethiopia, the rate is even lower, with as many as 90% of people without access to formal bank accounts. Addis Ababa-based financial technology firm Kifiya is working to change that. Established in 2010, Kifiya offers a branchless banking service enabling customers to conduct basic transactions. The system, which is accessed via a registered card or biometric data, relies on itinerant agents visiting communities with a specially tailored internet-enabled hardware device. This means that individuals no longer have to make dangerous journeys carrying cash.
This provides insight into the remarkable impact that financially inclusive products created by local, low-income entrepreneurs have on other social entrepreneurs. Through creating innovative products, such as that of Kifiya, local entrepreneurs empower other local entrepreneurs, who were previously excluded from the formal financial system, through offering them either access to capital or, crucially, a safety net for entrepreneurs facing unexpected challenges.
BIMA, for instance, provides insurance distribution and underwriting to millions of low income people via highly innovative partnerships with major mobile network operators and financial services businesses. In just five years, BIMA has achieved over 24 million subscribers across 16 countries, with customer research demonstrating that 75% of their customers did not have access to insurance before. Globally, approximately 40% of customers are from rural areas. Through accessing BIMA’s product, entrepreneurs have a basic precaution for unpreventable events which can be financially catastrophic for enterprises operating under precarious conditions. As BIMA CEO Gustaf Agartson notes, “Mobile technology has the power to transform people’s lives.”
Through bridging the resource gap that low income individuals face, entrepreneurs delivering financially inclusive products hold the potential to empower impoverished communities as well as facilitate future locally-created and executed socially impactful ventures.