Now encapsulating a focus on societal impact and the environment, the term ‘fintech for good’ has evolved from its initial meaning of charity. But it doesn’t stop there. This July, we are on the hunt to find out how the fintech industry is doing ‘good’ for local communities and the world, revealing current and future plans to make change.
A lack of access to credit and finance can cause issues for people worldwide, regardless of the countries they live in. Where the problem is felt most acutely, however, is generally in developing countries – so, now, we’re shining a spotlight on them, to see how they are approaching improving access to finance.
In many ways, developing countries don’t face the same barriers to doing this as developed countries, meaning it may even be easier to make positive changes, explains Nicky Senyard, CEO at Fintel Connect.
Nicky Senyard, CEO and founder of Fintel Connect
“Developing countries are actually great places for new ideas because they often don’t have traditional banks. In a lot of African countries, most folks use their phones to get on the internet instead of having a regular home connection. This shift has led to a bunch of great advancements in mobile banking and money apps, making it possible for financial services to reach even the most remote areas.
“For example, in Kenya, mobile banking solution M-Pesa has totally changed how people access financial services by giving them a safe and convenient way to save, transfer, and receive money without needing a bank account.
“In Brazil, there’s Nu, a shining example of fintech innovation. Since a lot of Brazilians don’t have access to traditional banks, Nu used digital tech to offer no-fee credit cards and a completely digital banking experience. This has really caught on and now millions of Brazilians have an easy and efficient way to handle their money.
“Nu’s success shows how developing markets can come up with financial solutions that deal with local problems and bring more people into the financial system.”
Solving data issues
According to Nick Maynard, VP of fintech market research at Juniper Research, a lack of certain data sources has made improving access to finance an issue in developing countries.
Nick Maynard, VP of fintech market research at Juniper Research
“Within developing countries, the typical challenge for access to finance has been a lack of credit scoring and other third-party data that makes lending easy in developed markets. As such, it has been difficult for banks and mobile money services to offer credit.
“One major development we are seeing is that other data is being leveraged to make up the shortfall. For example, where mobile money services are delivered by telecom companies, these services use AI models to use existing data they hold to expand their lending operations. These kinds of initiatives, as well as formal schemes by governments to improve access, will go a long way to improving this situation.”
Bettering financial inclusion
Mitchell DiRaimondo, founder and lead project manager of SteelWave Digital at SteelWave
Mitchell DiRaimondo, founder and lead project manager of SteelWave Digital at SteelWave, explains how developing countries are hoping to reach the unbanked: “Developing countries are adopting a multi-faceted approach to enhance financial inclusion. Governments are promoting digital payment systems and mobile banking to reach unbanked populations.
“Regulatory frameworks are being adjusted to support fintech innovations and foster a conducive environment for financial technology growth. Public-private partnerships are crucial, with initiatives like digital identification systems (e.g. India’s Aadhaar) enabling easier access to financial services.
“Microfinance institutions and digital lending platforms are gaining traction, providing credit to small businesses and individuals who lack traditional collateral.”
Utilising mobile applications
“Developing countries are making significant strides to improve access to finance,” says Mila Khrapchenko, co-founder and co-CEO at Ameetee.
Mila Khrapchenko, co-founder and co-CEO at Ameetee
“They often progress faster in financial inclusion than developed nations due to more acute financial accessibility issues, lower living standards, and lower market entry barriers. As a result, mobile applications and various payment methods are more widespread and rapidly growing.
“For example, mobile banking penetration is notably high in countries like China, Kenya, and Tanzania. These nations adopt financial technologies to fill market gaps, leading to flexible and adaptive regulatory frameworks, unlike the rigid systems in developed countries.
“Additionally, developing countries sometimes see substantial growth in microfinance services. Traditional banks struggle with high-risk borrowers, so microfinance companies step in, providing credit to individuals and small businesses. These institutions thrive in less regulated environments with a high demand for financial services, addressing critical gaps in the banking system.”
Innovative solutions
Naeem Siddiqi, senior risk advisor at SAS, also says that developing countries are improving access to finance in several ways:
Naeem Siddiqi, senior risk advisor at SAS
“1. Creating less regulated fintech playpens that allow fintechs to lend money with fewer restrictions than larger financial institutions. Because these fintechs tend not to be deposit-taking institutions, the systemic risk is seen as lower. They also tend to be micro and nano lenders, which cater to the lower-income segments who are most in need of financial inclusion.
“2. Encouraging the inclusion of nontraditional data into credit bureaus. This includes data from BNPL, rent payments, utility bills, online streaming services – any service or product that involves making regular payments. Lenders can see a history of meeting payment obligations and are therefore more comfortable making small loans. This is not just happening in developing countries – in the US, the inclusion of utility and rental payments will help millions of unbanked and underbanked people access credit.
“3. The use of nontraditional data for lending. Micro and nano lenders often deal with borrowers who have no bank accounts or credit bureau records. In such cases, many micro-lenders use mobile phone data to inform lending decisions. For example, variables such as screen resolution, the presence of banking apps, and the number and length of calls have all been shown to be predictive of credit risk. There is also the use of ‘social capital’ – i.e, the endorsements of friends and neighbours – for making microentrepreneur loans.
“4. Opening branches and installing ATMs in remote locations and lower-income neighbourhoods can improve access to credit for the underserved residents in those areas.”
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