Financial inclusion sector brief

SECTOR
BRIEF
Financial
Inclusion

2ALL USE, REPRODUCTION AND DISTRIBUTION OF THIS WORK IS SUBJECT TO A CC-BY-NC-ND LICENSE.
1. Introduction to the Financial Inclusion Sector Brief
++ Supporting Student Innovators Around the Globe
++ How to Use this Sector Brief
2. Understanding Financial Inclusion and
the Role of Social Entrepreneurs
++ How can social entrepreneurs support financial inclusion?
++ Why is it important that everyone can achieve financial health?
3. Understanding the Financial Inclusion
Market and Potential Customers
++ What is the market opportunity for innovative financial services?
++ What customers are underserved by financial services?
++ How have inclusive financial products, services, and platforms
changed customers’ lives?
4. Evaluating Opportunities for Innovation
in the Financial Inclusion Sector
++ Create financial tools that are designed for low-income consumers
++ Create financial tools that serve micro, small, and medium enterprises (MSMEs)
++ Help financial institutions more effectively serve low-income customers
5. Building Partnerships in the Financial Inclusion Sector
6. Final Advice from Experts in the Financial Inclusion Sector
Reading List
TABLEOFCONTENTS

Welcome! You’ve likely picked up this
sector brief because you’re curious
about entrepreneurship and you want
to learn how to build a business that
can change the world for the better.
The Rockefeller Foundation and
Acumen want to support you.
We designed this sector brief for student
innovators who want to create a social
enterprise that helps more people around
the world achieve financial health.
It will help you understand where
business model innovation is needed to
advance the financial inclusion sector.
As funders and investors, The Rockefeller
Foundation and Acumen have supported
many social enterprises that provide
inclusive financial services to low-income
customers. Along the way, we have seen
social entrepreneurs learn important lessons
and encounter common pitfalls. This sector
brief is designed to package critical lessons
1 . I N T R O D U C T I O N T O T H E F I N A N C I A L
I N C L U S I O N S E C T O R B R I E F
Supporting Student Innovators Around the Globe

so that you can build upon the work done by
other entrepreneurs across geographies. It
features advice from a variety of investors,
entrepreneurs, and other experts across the
workforce development sector including:
++ Amon Anderson, Director
at Acumen America
++ Evelyn Stark, Assistant Vice
President and Financial Health
Lead at the MetLife Foundation
++ Maha Khan, Research and Insights
Director for Mobile for Humanitarian
Innovation at GSMA
++ Mike McCaffrey, Financial
Technology Adviser at Ulana Insights
++ Nicole Van Der Tuin,
Co-Founder & CEO at First Access
++ Lorenzo Bernasconi, Managing
Director for Innovative Finance
at The Rockefeller Foundation
++ Rahil Rangwala, Director, Programs at
the Michael & Susan Dell Foundation
++ Tahira Dosani, Managing
Director at Accion Venture Lab
Supporting Student Innovators Around the Globe
IMAGE CREDIT: FLEXWAGE

How to Use this Sector Brief
Whether you have an idea for a business
already or are just looking for inspiration,
we hope the lessons contained in this brief
help on your journey of entrepreneurship.
This sector brief will give you an overview
of the key trends and opportunities in the
financial inclusion sector that we think
can be most effectively tackled by social
entrepreneurs. It is designed as a workbook
so that, as you go through it, you can actively
take notes and apply the information to the
business model you’re developing. Then, as
you begin to create a pitch deck for your new
enterprise, you may find it helpful to go back
and reference some of the statistics and
insights in this sector brief.
Here’s what you can expect to walk away
with after having gone through this sector
brief and workbook:
++ Understand the challenges
to accessing and utilizing
financial services and the
types of customers who could
most significantly benefit from
innovative solutions
++ Identify the unique market
opportunities where social
enterprises can make a significant
difference in expanding access to
and use of financial services
++ Gain best practices from other real
and innovative social enterprises
in the financial inclusion sector
++ Glean practical tips from experts
about how to build impactful
business models that help low-
income adults achieve financial
health through tools that help
manage day-to-day finances,
withstand shock and risk, and
achieve upward economic mobility
Do you have a pen and paper ready?

Take a minute to reflect on your own experience with financial services. Whether you are
just getting started or you have been working on financial inclusion challenges for many
years, it can be helpful to reflect on your passions and motivations for getting involved.
This can be a critical part of eventually telling the story of your social enterprise and
pitching it to investors. Ground yourself in your authentic reasons for wanting to tackle this
issue and answer the following questions:
++ How have you used formal financial services, such as savings accounts,
loans, or insurance products? How easy or challenging was it to access
and use formal financial services?
++ What are the informal ways you save, spend, borrow and plan
for your financial future?
++ What is your understanding of the challenges low-income adults
face when accessing and using financial services?
++ Why do you care about helping others access and use inclusive
financial services?
++ What past experiences might have prepared you to work on
addressing this challenge?
Lastly, write down any critical questions you hope to have answered by this sector
brief to guide your reading.
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2 . U N D E R S T A N D I N G F I N A N C I A L I N C L U S I O N
A N D T H E R O L E O F S O C I A L E N T R E P R E N E U R S
If you needed to come up with
one month’s income to pay for an
unexpected bill, could you?1
The 2017 Global Findex, the world’s
most comprehensive data set on how
adults manage their money, asked
over 150,000 adults from 140 countries
this question as a measure of financial
health. They found2
:
++ In high-income countries,
80% of respondents could
come up with the funds, but
less than half could do so
with their current savings.
++ In developing countries, less
than 50% of respondents
could come up with funds,
and only about 15% could do
so with their current savings.
For adults who couldn’t couldn’t cover
the bill with savings, most would need
to borrow money, pick up a new job, or
1
In a high-income economy, like the United States, an
average income for one month is $3,000. In a lower-
middle income economy, like India, you would need to
cover 6240 rupees or $90. In a low-income country, like
Rwanda, you would need to cover 32,760 francs or $36.
These numbers are calculated by estimating 5% of the
gross national income (GNI) per capita
2
The World Bank, The Global Findex Database 2017;
Accion, Sobering news on financial inclusion

sell assets. For adults who couldn’t pay for
the bill—which is more than half of adults
in the developing world—an unexpected bill
could mean spiraling into a dangerous place
of financial insecurity or getting trapped in a
cycle of poverty.
Financial insecurity is having difficulty
paying bills and experiencing mounting
expenses disproportionate to net income.
Anyone, regardless of their income level, can
experience financial insecurity.3
For example,
in the United States, 67% of people making
between $50,000 and $100,000 would have
trouble coming up with $1000 to cover an
unexpected bill.4
Financial insecurity plagues billions
of people around the world: nearly half
the world’s population struggles to meet
their basic needs.5
3
The Center for Financial Inclusion, Does Greater
Inclusion Lead to Financial Health?
4
The Associated Press; Two-thirds of US would struggle
to cover $1,000 crisis
5
The World Bank, Nearly Half the World Lives on
Less than $5.50 a Day
Financial health is when people have
the ability to manage day-to-day finances,
withstand financial shocks and risk,
and use financial tools to have upward
mobility and plan for their futures.6
The financial inclusion sector aims to
help people achieve financial health
through affordable, accessible, customer-
centered financial tools.
As a social entrepreneur working in the
financial inclusion sector, you have an
exciting opportunity to help people achieve
financial health by developing flexible,
convenient, and safe financial tools. There
is a particularly urgent need to develop
tools for the billions of people who live
below the poverty line, for whom the
stress that comes from living paycheck
to paycheck is especially acute.7
6
The Center for Financial Services Innovation,
Four ways to Measure Financial Health
7
In upper-middle income economies, living on less than
$5.50 a day reflects the poverty line, while $3.20 a day
reflects the poverty line in lower-middle income countries
(The World Bank, Piecing Together the Poverty Puzzle)

What is a social enterprise?
If you’re thinking about starting a non-profit and are worried that the lessons in this brief won’t
apply to you, you should know that Acumen defines social enterprises as any enterprise that
prioritizes transformative social impact while striving for financial sustainability. Note that
this definition does not specify the type of governance structure that a social enterprise needs
to have (non-profit, for-profit, hybrid). All of the companies Acumen invests in have a for-profit
structure, but we believe that a social enterprise can be incorporated as a non-profit if it strives
to be financially sustainable and support its own operating costs.
Amar Inamdar, Managing Director of and energy impact investing fund called KawiSafi
Ventures, describes social enterprises this way:
“Social enterprises work where it’s quite hard for a market to function in
the way that we all associate commoditized goods markets functioning.
They deal with intangibles, like social values, strongly held rights
and beliefs, and with absolutely essential goods like water. Social
entrepreneurship is asking the question: How do we engage with people
and communities to enable access to essential goods through a business
model that is profoundly humanizing, that builds dignity, and that
generates outcomes that we can be proud of?’”

How can social entrepreneurs
support financial inclusion?
While everyone could benefit from improved
financial inclusion, there is a particularly
urgent need to support people experiencing
consistent financial insecurity.
When you think of ways to support people
who are financially insecure, what do you
envision? You probably imagine financial
tools like a low-interest loan or a savings
account. That makes sense. Well-designed
financial tools for individuals can be
catalytic to increasing financial health.
At the same time, you can also support
people who are financially insecure by
creating financial tools for micro, small,
and medium enterprises (MSMEs) and
for financial institutions.
MSMEs need financial tools to help them
grow, and when MSMEs grow, it can improve
access to economic mobility for business
owners and employees. For financial
institutions, new financial platforms and
technology can make their existing financial
services more accessible, affordable, and
relevant for low-income customers.
Acumen and the experts we interviewed for
this brief believe social entrepreneurs are best
positioned to accelerate financial inclusion by
developing financials tools for three stakeholders:
1. people experiencing consistent
financial insecurity
2. micro, small and medium
businesses (MSMEs)
3. financial institutions that serve
low-income customers
Here are a few examples to demonstrate
what we mean by “financial tools”:
++ Arifu creates chatbots that allow
customers to learn about savings
and investments through learning
modules delivered by SMS messages,
empowering customers to make
informed decisions about which
financial products are right for
their needs.
++ First Access works with financial
institutions in emerging markets to
digitize and automate their processes.
First Access helps financial institutions
use their own data and external data
sources more effectively so they can
grow faster and offer credit to more
underserved customers.

++ Juhudi Kilimo provides microfinance
loan products that allow Kenyan
smallholder farmers to access high-
quality agricultural assets that enhance
the productivity of their farms.
++ Angaza creates technology platforms
that help solar energy providers sell
products and collect payments on
affordable pay-as-you-go financing
plans to low-income, rural customers.
Many financial tools already exist, but as
you’ll learn throughout this brief, most tools
from traditional financial institutions—like
banks—are inaccessible for low-income
people and MSMEs. This is why social
entrepreneurs have a unique role to play
in pushing the financial services sector to
create more inclusive tools.
“Startups have the ability to innovate quickly
and cost effectively, especially compared to
traditional financial institutions. Startups
are often best positioned to drive and
leverage innovation,” said Tahira Dosani, a
Managing Director at Accion Venture Lab,
which invests in and supports innovative
financial inclusion startups for underserved
customers. New social entrepreneurs have
the opportunity to change the way financial
tools are created for, delivered to, and used
by low-income customers, thus drastically
improving their quality of life.
IMAGE CREDIT: FLEX WAGE

The Role of Technology
in Financial Inclusion
“Without new developments in technology, there would be no
financial inclusion movement today,”
declared the authors of the Global Findex, which has tracked progress in the financial
inclusion sector since 2011.
Technology has pushed forward the financial inclusion sector in three critical ways:
1. by lowering the cost of reaching customers, delivering services, and processing
financial transactions
2. by using data analytics to pioneer new methods for evaluating creditworthiness
3. by changing the ways that financial services providers interact with clients8
Mobile phones and growing internet access present a particularly exciting opportunity to reach
customers that are still underserved by financial inclusion efforts. Basic financial services—like making
payments or monitoring account transactions—can be delivered through simple SMS phones, without
any internet access, and nearly two-thirds of the 1.1 billion unbanked adults have a mobile phone.
8
The Center for Financial Inclusion, The Financial Inclusion 2020 Progress Report

However, it’s important to recognize the current shortcomings of technology in reaching
the most underserved groups.
“Digital finance and mobile money took us to the next level in terms
of reaching tens of millions of people at a low cost, but it still hasn’t
reached the last mile—like rural villages, farming communities, or
refugee camps—by any means,”
said Mike McCaffrey, who advises companies that create financial services for low-income
and poor customers across Africa.
“In the developing world, economies are still cash-based. Even when
we can digitize part of the financial system, like with mobile money,
the digital systems still have to interface with cash that will be used
at the market, for school fees, or in other daily interactions.”
Mobile phone penetration also has a gender bias in many developing economies: on average,
84% of men compared to 74% of women own a mobile phone in developing economies. We must
ensure that financial technology increases financial health for all customers, not just a privileged few.
Technology alone will not increase financial inclusion for low-income adults. There needs to be
a strong enabling environment—like mobile infrastructure, regulations, and consumer protections—
as well as efforts to create trust and expand the financial capabilities of underserved groups.
The creation of this infrastructure must come through long-term, thoughtful partnerships between
different stakeholders in the public and private sector and must be designed to serve disadvantaged
groups who either have trouble accessing services or are, rightfully, skeptical of financial institutions.
While Acumen and the experts we interviewed believe that technology is a critical component
of financial inclusion, this brief will focus on solutions that combine innovative technological
solutions with deeply human solutions.
Check out the Global Financial Inclusion Index, to learn more about specific opportunities in
digital finance, such as
1. digitizing payments from government to people
2. digitizing payments from businesses to people
3. digitizing payments for agricultural products
4. digitizing domestic remittances and formalizing saving
You’ll see these ideas, and more, incorporated in this sector brief.

Why is it important that everyone
can achieve financial health?
Financial health is critical for poverty
reduction, economic security, and
economic mobility. In fact, financial
health is so foundational to development,
that financial inclusion has been named
as an enabler for 7 of the 17 Sustainable
Development Goals.9
How do inclusive financial tools promote
financial health? When women-headed
households in Kenya had access to mobile
9
The World Bank, Financial Inclusion Overview;
Accion, We can’t meet UN Goals without financial inclusion
money services, household savings were
increased by more than 20% and 185,000
women developed their own businesses.
Moreover, extreme poverty in women-
headed households was reduced by 22%.10
This is just one example of the power
of financial tools.
Financial health is also foundational to
physical health and well-being, safety,
and education. Every day, people
experiencing financial insecurity have
to make challenging trade-offs about
how to spend their money.
10
The World Bank, The Global Findex Database 2017

The Commonwealth Fund, a foundation
that supports research on healthcare in the
United States, spoke with more than one
hundred patients and heard an intimate
connection between financial health and
physical health. Here is a sampling:
++ “Do you want your teeth or do
you want your heart to continue
beating? You’ve got to figure out
which one and balance it out.
Sometimes I’ve had to omit the
eyes and the teeth.”
++ “A consultation costs between
$200 to $500. You don’t have any
money and you get very stressed
if you have to pay for it. It is better
to get used to the pains you have.”
Access to financial services can alleviate
the need to make such challenging trade-
offs. For example, when women in Nepal
received free savings accounts, they spent
15% more on nutritious foods and 20% more
on education for their families.11
Financial inclusion is good for business
too. “No great feat of entrepreneurship has
been successful without some capital, but
all that is available to micro-entrepreneurs
11
is debt financing, like microfinancing or a
loan,” explained Rishi Razdan, the Program
Lead for Workforce Development at Acumen
India. Financial services that are designed
for micro, small, and medium enterprises
(MSMEs) are needed to help businesses
grow and provide quality jobs with good
benefits for employees.12
Financial inclusion is also critical to
economic development for countries.
When people feel financially insecure,
they spend less money on goods and
services, which can negatively impact the
economy. They stop making investments
for the future, like in housing or education,
which can make it harder to break
intergenerational cycles of poverty.13
Financial health is critical for personal,
business, and economic growth, but nearly
half the world still struggles to meet their
basic financial needs. Social entrepreneurs
have urgent opportunities to develop
financial tools that make financial
health achievable for everyone.
12
The World Bank, Small and Medium Enterprise Finance:
New Findings, Trends and G-20/Global Partnership for
Financial Inclusion Progress
13
United Way, ALICE: The Consequences of Insufficient
Household Income

Based on what you’ve read, what part of the financial inclusion challenge are you most
excited to address? Jot down a few ideas below.
++ What dimension of the financial inclusion challenge are you most excited
to address, and why? (direct-to-consumer products, platforms for financial
institutions, savings products, etc.)
++ Who do you think your target customer might be?
++ What problem do you want to solve for customers?
++ How do you want to incorporate technology into your eventual solution?
++ How do you hope to build trust and deeply human connections through
your eventual solution?
++ What geographic market do you think you will start in?
These themes can form the foundation of your business: the problem you want to solve
and the customers you want to serve. These themes should eventually be incorporated
into your business model, theory of change, and final pitch deck.
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3 . U N D E R S T A N D I N G T H E F I N A N C I A L I N C L U S I O N
M A R K E T A N D P O T E N T I A L C U S T O M E R S
What is the market opportunity for
innovative financial services?
“What is the size of your target market?”
is a question that most investors will ask.
So, how should you start to wrap your head
around the number of people who could
benefit from improved financial tools? This
is also called your “market opportunity.”
Remember that people, businesses, and
financial institutions could all be customers
of your eventual business innovation. We’ll
examine the global market opportunity for
each customer group in this section.
First though, you should understand two
important metrics used to evaluate the
progress of the financial inclusion sector:
++ Access to financial tools: How
many people can access financial
tools that support financial
health? For example, according
to the Global Financial Inclusion
Index, about 1.7 billion adults are
unbanked, meaning they do not
have an account at a financial
institution or a mobile money
provider. Nearly half of the
world’s unbanked live in seven
countries: Bangladesh, China,
India, Indonesia, Mexico, Nigeria,
and Pakistan.14
However, “access”
as a metric only tells part of the
financial inclusion story.
++ Usage of financial tools:
How many people are using
financial tools actively? While
69% of adults worldwide have
access to an account, only 55%
of adults are actually using those
accounts actively.15
Account usage
is an important metric because
if people aren’t actively using
their accounts, the financial tool
likely isn’t meeting their needs,
nor are they experiencing the
benefits of that tool.
The difference between the number of
people accessing your financial tool and the
number of people actively using your tool is
called an “access-usage” gap.16
Investors will
want to understand the “access-usage gap”
of your financial tool, and evaluating this
gap for other financial tools can help you
identify opportunities for innovation in the
financial inclusion sector.
14
15
The Center for Financial Inclusion, Financial Inclusion Hype
vs. Reality: Deconstructing the 2017 Findex Results
16
Note that this is a simplified definition of the access-usage
gap, and a full gap analysis can be performed. To learn more,
explore this white paper by The World Economic Forum on
Advancing Financial Inclusion Metrics

You should also consider the
physical and technological
infrastructure that exists
when evaluating the market
opportunity for a new financial
tool. For example, neary two-
thirds of the 1.1 billion unbanked
adults have a mobile phone,
which represents an incredible
opportunity to increase access
to financial services through
mobile technology. However,
according to GMSA, one of the
world’s largest mobile money
providers, 68% of its mobile
wallets accounts are not actively
used in a 90 day period.17
This
underscores the access-usage
gap: while access is growing,
low usage rates suggest
that financial tools are not
adequately meeting the needs of
low-income customers.
Let’s explore the global market
opportunities for serving
individuals, MSMEs, and
financial institutions, keeping
access, usage, and infrastructure
for financial tools in mind.
17
https://www.gsma.com/
mobilefordevelopment/wp-content/
uploads/2015/03/SOTIR_2014.pdf
IMAGE CREDIT: FIRST ACCESS

FINANCIAL TOOLS FOR INDIVIDUALS
There are five main practices we use
to manage our money: savings, credit,
payments, insurance, and investments. You
can design financial tools to support people
with each money management practice, and
these tools are typically called “direct-to-
consumer” financial tools.
Below is a scan of the global market
opportunity for direct-to-consumer
financial tools across savings, credit,
payments, insurance, and investments.
You should understand how people engage
with these money management practices
formally and informally—and the access
to and usage of existing financial tools—
in your local market.18
++ Savings: We save money to pay for
expenses on time and without stress.
In high-income economies, 71% of
adults reported saving, compared
to 43% of adults in developing
economies. In high-income
economies, more than three-quarters
of adults who save do so formally,
while in developing economies, less
than half of adults save formally.
18
Unless otherwise stated, the following statistics can be found
in the 2017 Global Findex, the world’s most comprehensive data
set on how adults manage their money
++ Credit: We use credit when we need
to borrow money for expenses that
put a strain on our savings, like
buying a home, paying a medical bill,
or accessing education. Roughly 65%
of adults in high-income economies
reported borrowing money,
compared to roughly 45% of adults
in developing economies. Borrowing
money can also happen formally
or informally. In high-income
economies, over 80% of borrowers
receive credit through a formal
financial institution, while less than
30% of borrowers in developing
economies receive credit formally;
they are more likely to turn to family
and friends for money.
++ Payments: Payments are used to
purchase goods, pay bills, and send
or receive money from friends,
family, or employers. In high-income
economies, 80% of adults used a
debit or credit card to make at least
one payment in 12 months, while
only 22% of adults in developing
economies used debit or credit cards
for payments. Payments using a
mobile phone or the internet are
growing in popularity, but there are
drastic differences in usage across
countries. For example, 88% of adults

in Kenya reported using a mobile
phone to make at least one payment
in 12 months compared to less than
10% of account owners in India. If
adults are unbanked, with no access
to a savings account or a mobile
money account, their payments are
mainly made in cash.
++ Insurance: We purchase
insurance to protect ourselves
against future financial losses or
anticipated financial needs. Data on
“microinsurance”—smaller, lower
cost insurance products designed
for low-income individuals—is
sparse, but the Organization
for Economic Co-operation and
Development (OECD) reports that
usage of traditional insurance
products ranges from 2% to 13% of
the population in most countries.19
Health insurance is one of the most
popular forms of insurance, but
low-income consumers could benefit
from more affordable, targeted
insurance products. For example,
Toffee is a company that offers
commuter insurance, insurance for
19
The Center for Financial Inclusion, The Financial Inclusion
2020 Progress Report, Organization for Economic Co-operation
and Development, Insurance Indicators
broken mobile phones, and insurance
for specific, common diseases like
Dengue for customers in India.
++ Investments: We invest with the
hopes of growing our money over
time. There’s very little data on global
investment trends of low-income
adults; however, micro-investment
companies that allow customers
to invest small dollar amounts are
growing in developing countries (for
example, Betterment, Acorns, and
Robinhood in the United States).
Informal investments are common
and may take the form of buying gold
or raising livestock with the goal of
eventually selling assets for a profit.
Note that each money management
practice can happen formally—with a bank
or mobile money provider—or informally.
While formalizing money management
practices can have benefits like improved
safety, decreased corruption, or increased
efficiency, many existing financial tools are
less flexible, affordable, and accessible than
informal practices. To learn more about
informal money management, check out our
call out box after this section.

FINANCIAL TOOLS FOR BUSINESSES
Businesses are also important customers
of financial tools. There are between 420
and 510 million micro, small, and medium
enterprises (MSMEs) in the world, and
the number one pain point for these
businesses is access to capital.20
Over 85%
of MSMEs are in emerging markets, and
it’s estimated that more than $2 trillion
dollars in new credit is needed to
adequately serve these businesses—
and that’s just in emerging markets.21
Beyond access to credit, there are
20
Global Partnership for Financial Inclusion,
G20 Financial Inclusion Indicators
21
The World Bank, Small and Medium Enterprise
Finance: New Findings, Trends and G-20/Global
Partnership for Financial Inclusion Progress
opportunities to improve payment and
insurance tools for MSMEs, the benefits
of which would be felt by employees. For
example, 80% of unbanked working adults
have a mobile phone, which means that
helping employers digitize their payments
could increase the efficiency of paying
employees while growing mobile account
access for adults.22
Finally, business can offer benefits to
employees that significantly impact
financial health, such as offering health
insurance, pay advances, or small-dollar
loans. We’ll explore these ideas and more in
our “Opportunities for Innovation” section.
22

FINANCIAL TOOLS FOR FINANCIAL INSTITUTIONS
There is an incredible opportunity to provide
software to financial institutions that lowers
the cost of serving their customers. The
hope is that, in turn, this will lower the cost
of financial tools for individuals and help
banks reach new customers.
It’s estimated that there are roughly
30,000 public and private banks globally,
nearly 1,000 of which are microfinance
institutions.23
Small banks and microfinance
institutions are particularly prime
customers for new financial tools for a few
reasons. First, small banks and microfinance
institutions typically have less money than
large banks to invest in creating their own
software, so they are more open-minded to
purchasing a third-party software.24
Second,
large banks tend to have legacy technology
in place that makes it difficult to quickly
adopt new technology.
23
Wharton University of Pennsylvania, Overview of
Bankscope Data; BNP PARIBAS; Microfinance Barometer
24
Grameen Foundation, Going Digital: How
microfinance institutions can better serve their clients
using mobile technology
In order to evaluate the market opportunity
for serving financial institutions, you must
understand how banks currently interact
with customers. Amon Anderson, head of
Acumen America, advised, “Look for where
the system is opaque or costly, ask ‘why.’
There is opportunity in disrupting these
inefficient and extractive models.”
Customer needs will vary based on the
market you’re operating in and the customer
segment you want to serve. You’ll need to do
the research to determine what consumers
need, understand the regulations that can
help or hurt your innovation, and evaluate
the investment capital that exists to support
you in your local market in order to create
a successful business in the financial
inclusion sector.

Why do people go unbanked?
Formal vs. informal money management
The 2017 Global Financial Inclusion Index surveyed customers on why they are not banking with a
formal financial institution. Here are some reasons why adults go unbanked25
:
++ 66% said not having enough money to open an account was a reason for remaining
unbanked and 20% report not having enough money as the primary reason
++ 25% report prohibitive cost or distance to accessing a financial institution
++ 25% chose not to open an account because a family member already has one
++ 20% cited a lack of documentation, such as identification
++ 20% said they distrust the financial system
++ 6% cited religious concerns
Even if adults aren’t banking with a formal financial institution, there are many informal or semi-formal
ways in which people actively manage their money. For example, a Rotating Credit and Savings
Association (ROSCA) is when a group of people pool their money into one (formal or informal)
savings account and take turns drawing from the account.26
Each ROSCA will create its own rules,
but imagine if 10 people shared a savings account and everyone contributed $50 a month for
a total of $500 savings a month. Then, each member of the ROSCA takes turns drawing down
from the total savings. Informal financial management could take the form of buying gold,
raising livestock, or creating a dowry.
“For people living on a few dollars a day, a formal savings account is often not the best use of extra
money,” explained Mike McCaffrey who works for Ulana Insights, an international consulting firm
that supports the development and distribution of financial services to people across the developing
world. “It can be difficult to track money in a savings account and often there are fees to withdraw
money. Instead, it would make more sense to buy a chicken. In a sense, a chicken is a far more
sophisticated financial tool than a savings account. A chicken can act as a savings mechanism,
an insurance mechanism, and an investment if you resell it. When we’re thinking about flexibility in
financial products, a chicken is our competition.”
So, ask yourself, can your financial tool compete with a chicken?
If you want to better understand informal savings habits, check out this study of financial
services providers in India: Accelerating Financial Inclusion in India by Brookings India.
In the report, the authors diagram a spectrum of informal to formal savings practices
and explore the benefits and drawbacks of each.
25
26
Investopedia, Rotating Credit and Savings Association (ROSCA)

What customers are underserved
by financial services?
While financial insecurity and stress
can impact anyone, there are certain
groups of people who have historically
been underserved by or excluded from
financial services.
Below are characteristics of stakeholders
who have been excluded from traditional
financial services. No group we describe
below will be a monolith, so it’s important
that you consistently interview and consult
your different customer segments to design
truly relevant financial tools for each:
++ Gender: Globally, fewer women
than men have access to financial
services—65% of women have a bank
or mobile money account, while
72% of men have an account. While
there’s been progress in closing the
gender gap over decades of financial
inclusion efforts, the gender gap has
remained largely unchanged since
2011.27
The largest gender gap exists
in the Middle East and North Africa,
where 52% of men, compared to 35%
of women, have an account.28
27
28
++ Education level: Adults with lower
educational attainment are more
likely to be unbanked. According
to the Findex, “56% of adults with
a primary education or less have
an account, compared with 76%
of those who have completed
secondary school and 92% of
those with higher education.”29
++ Income level: While even people
with a high income can experience
financial insecurity, across the world,
people living in extreme poverty
make up the largest segment of
those excluded from financial
services.30
Even though trends in
being unbanked based on income
level vary country to country, it’s
often easier to be approved for
financial services when you have
a higher income. The lowest income
workers face the most irregular
work schedules, making it even
more difficult to plan, pay regular
expenses, save, or pay down
debt, and making them “risky”
customers in the eyes of
traditional financial institutions.
29
30

++ Age: We experience shifting financial
responsibilities throughout the
course of our lifetimes, and each
age presents unique financial
challenges.31
Students bear the cost
of education programs. Parents must
manage expenses for child rearing.
The elderly often need to pay bills
without an ongoing source of
income, and after the age of 55,
it’s especially challenging to access
credit because many financial
institutions put an age cap on credit
lending.32
Financial tools are not
adequately designed for different
financial needs by customer age.33
++ Geography: According to the Global
Findex, while account ownership in
rural areas of developing countries
tends to be lower than urban
areas, precisely quantifying the
gap between access in urban and
rural regions is challenging. In
part, this is because of inconsistent
global definitions of “rural” and
imprecise survey measurement of
“urban” account ownership. India is
31
The Center for Financial Inclusion, Through the
demographic window infographic
32
Center for Financial Inclusion, How to Be Disability
Inclusive and Age Friendly
33
Center for Financial Inclusion, Lessons on Age-Based Client
Segmentation and Aging and Financial Inclusion
one country that has consistently
measured access to financial
services, and the country has made
concerted efforts to increase access
to financial services in rural regions.
In 2011, only 33% of people living
in rural communities had a formal
financial account, and with concerted
efforts to make services more
inclusive, rural account ownership
was up to 79% in 2017.34
There’s still
a lot of work to be done to make sure
that financial services reach people
in remote regions in a cost effective,
timely manner.
Micro, small, and medium businesses
(MSMEs) have been an underserved
customer of financial services too.
According to the International Finance
Corporation, about half of all formal small
and medium enterprises in emerging
markets do not have access to loans or
overdrafts from financial institutions.35
It’s estimated that between 65-72% of the
approximately 300 million micro, small,
and medium enterprises in emerging
countries lack access to credit.36
34
35
International Finance Corporation, Scaling-Up SME Access to
Financial Services in the Developing World
36
International Finance Corporation, Scaling-Up SME Access to
Financial Services in the Developing World

You may notice a common theme:
anyone who might be perceived as “too
hard to reach,” “too expensive to cover,”
or “too risky” tends to have a harder
time accessing financial services. Other
historically marginalized communities—
such as people with physical, mental,
or intellectual disabilities, refugees, and
immigrants—experience challenges
when trying to find accessible, affordable,
relevant financial services. While financial
inclusion is growing, change is not
happening fast enough, and communities
with the most need are still underserved
by financial services. If you can develop
breakthrough innovations that promote
financial health, you can significantly
improve the lives of customers who have
been historically excluded by the existing
financial system.
How have inclusive financial
products, services, and platforms
changed customer’s lives?
The best way to understand your
customers is to gather qualitative insights
from people directly affected by the issues
you want to address. As you begin to develop
your new innovation and business model,
push yourself to “get out of the building”
and speak directly with potential customers
who are experiencing the challenges of the
financial inclusion sector firsthand.
For example, here’s one story from Simon
Mburu about how access to financial
services helped him grow his small business
while supporting his family. These are
the kinds of impact testimonials that
you will eventually want to collect from
your customers, both to make sure you
are creating solutions that meaningfully
improve their lives and to make the case
to impact investors that your solution is
making a difference.

SIMON
MBURU
a Juhudi Kilimo
customer from Kenya
Juhudi Kilimo
provides microfinance
loan products that
allows Kenyan
smallholder farmers to
access high-quality
agricultural assets
that enhance the
productivity of
their farms.
“I used to work as a
casual laborer, taking
small, odd jobs on
different people’s farms.
Business was not exactly
great, so it was a struggle
to get money to maintain
my family and send my
kids to school. I would
take the little I earned
and put it into coffee
and tea farming. Slowly,
slowly, I saw that what I
was putting into farming
was bringing more than

I was making from the labor jobs so I decided
to concentrate on farming. I became part of a
group that included farmers and some business
people, and everyone would contribute a small
amount of money and take turns giving to each
other. I found it to be really meaningful because
it allowed us to get more money than we were
able to make just by ourselves. It was through
this group that I learned about Juhudi Kilimo.
I took out a loan of 20,000 shillings ($194),
using it to purchase a calf and feed. I had never
owned a cow before and I could never afford one
without this loan. My plan is to rear the calf and
then sell it down the road. I am looking forward
to it because I am sure I will be able to get twice
as much as I had paid for it. Now, I am also
getting manure from the cow, which I’m using
on my farm. I used to have to buy it, so it’s
allowing me to save some money.
I want to get another cow soon because I feel
there’s potential in buying, raising and selling
cows. I have this desire to do more but, without
having as much as I’d like, is challenging.
I want to have a good business so, even if
my daughters didn’t get married or have
someone to provide for them, they’d be able
to be independent. That’s my biggest dream.
I want my girls to have a good life.”
How has access to a microloan from Juhudi
Kilimo improved Simon’s quality of life and
financial health? With access to a loan,
Simon was able to kick-start his growing
microenterprise, and he was able to do so
without having to make trade-offs that
impacted his daughters’ futures. Access
to a formal loan has also helped Simon
save in informal ways: he saves money on
buying manure from owning a cow, and
eventually, he hopes to sell the fully-grown
cow for a profit. All of this has been in
service of helping his children have a better
life and get access to opportunities that
will allow them to have economic mobility.
Who are your customers and how will
your business model serve their needs?

Now that you understand the size of the financial inclusion market and have a sense
of potential customers to address, it’s time to calculate the size of your target market.
Understanding the size of your target market isn’t just important for conversations with
investors or pitching your business—your target market is the foundation of your financial
model. The following exercise will help you estimate the size of your target market:
++ First, identify the total addressable market: Everyone that could
theoretically be interested in your product or service.
++ Then, identify your served available market: Who will your business
actually be able to reach through sales channels?
++ Finally, identify your serviceable obtainable market: Who can you
realistically service in the short term?
R E F L E C TSTOP+
Here’s an example from Funding U, a company that provides college
loans to students based on their performance at school, not based on their
income level or credit score of a co-signer.
Total addressable market: According to the US Department of Education,
roughly 12 million students are enrolled in 4-year colleges in the US and 8.15
million of these students will use federal loans to pay for college. 3 million
students who are already using federal loans will seek an additional student
loan from a private lender, usually a bank, at an average amount of $11,500.
Roughly 62% of applicants will be denied bank loans due to low FICO scores
or a lack of a loan co-signer. Therefore, there are 1.86 million students who
could benefit from an additional student loan.
Served available market: Funding U estimates that through existing
relationships with loan aggregators, scholarship aggregators, and financial
aid offices at US colleges and universities, it can eventually reach about
25% of the ‘unbankable’ student loan market, which is roughly 465,000
students annually.
Serviceable obtainable market: Funding U has already screened over 45,000
student borrowers and will lend to nearly 600 student borrowers by the end of
2019. By the end of 2020, Funding U projects to lend to 1400 student borrowers.
IMAGE CREDIT: FUNDING U

You can gain a tremendous amount of insight and save valuable time and
resources if you “get out of the building” and talk to potential customers early in
your idea generation process. Customer discovery is particularly valuable for social
enterprises, where you might be working with populations that are not typically
polled in marketing surveys or asked what they really want or need. You should
consult your customers early and often. If you don’t, you run the risk of creating
a well-intentioned company that doesn’t actually serve your customers needs.
Here are a few other tips for your interviews, grounded in
Giff Constable’s book Talking to Humans:
++ SET CLEAR AND FAIR EXPECTATIONS: Be clear about who you are,
what you’re doing, and what the outcomes will be. Don’t over promise
a product that may never come to market.
++ TALK TO ONE PERSON AT A TIME: Talking to people one-on-one
avoids potential “group think” and allows you to better understand
the particular experiences of one individual. Remember to be
mindful of the gender and cultural norms of your interviewees.
++ MAKE PEOPLE COMFORTABLE ENOUGH TO CRITICIZE YOUR IDEA:
Sometimes, the least helpful thing you can hear is: “Yes, your idea sounds
great.” Tell interviewees you’re looking for critical feedback upfront, ask
interviewees to ground their feedback in their lived experiences, and
ask open-ended follow-up questions. To the extent that it’s possible,
put a prototype in the hands of interviewees.
GETOUTOF
THEBUILDING
IMAGE CREDIT: LABOURNET

What are the concrete ways social enterprises can improve financial health for
low-income customers?
In this section, we will introduce opportunities for business model innovation in the
financial inclusion sector. Each opportunity is accompanied by examples of social
enterprises that are working to address these opportunities.
What do we mean by “business model innovation”? A business model describes how
an organization creates, delivers, and captures value.
++ A business creates value by solving customer needs through products,
platforms, and services.
++ It delivers value by creating efficiencies and solving problems at one
or more stages of the value chain.
++ It captures value through generating revenue and managing costs.
Innovation could be in how a business creates, delivers, or captures value.
As you read through the opportunities for innovation, ask yourself how your enterprise will
capitalize upon some of these opportunities. This will determine how you distinguish your
enterprise from competitors and ensure that you are addressing a meaningful problem.
4. Evaluating Opportunities
for Innovation in the
Financial Inclusion Sector

THE OPPORTUNITY
While access to financial services is growing,
many existing products have fallen short
of truly meeting the needs of low-income
customers. “If we don’t design financial
products for what customers need and
instead design products for what we think
customers should do, then we’ll create
products that nobody uses,” explained
Evelyn Stark, who leads the global Financial
Health efforts at the MetLife Foundation.
“We need to better understand informal
financial habits of low-income customers,
so that we can understand how and where
financial products can be helpful.”
We need social entrepreneurs to design
customer-centric financial tools that are
relevant, flexible, accessible, affordable, and
easy to use for low-income customers.
CHALLENGES TO ADDRESS
Existing financial tools for low-income
customers share common shortcomings:
they lack flexibility, accessibility, and
affordability. Beyond that, entrepreneurs
who work with low-income customers
tend to underestimate the time that it
takes to build trust and a customer base,
EVALUATING OPPORTUNITIES FOR INNOVATION
IN THE FINANCIAL INCLUSION SECTOR
Create financial tools that are
designed for low-income consumers.
which puts pressure on their business
model. Finally, social entrepreneurs have
a responsibility to protect their customers.
Below is a more in-depth explanation of
why you need to address these challenges
through your eventual business model:
++ Flexibility: Flexibility will take on
different meanings for different
customer segments. Flexibility could
mean designing a product that gives
customers a choice in how they
use their money or it could mean
designing smaller, targeted financial
tools. Goalsetter is one example of a
company that gives customers choice:
Goalsetter allows parents to round
debit card purchases to the nearest
dollar, and transfer the spare change
towards a specific savings goal that
they set with their children. Goals
could be as large as saving for college
or a small as saving for a concert, but
customers get to choose those goals.
Toffee is an example of a company
that designs targeted financial
tools for customers: Toffee sells
microinsurance so that customers can
buy insurance for the most common

health challenges that they experience,
like Dengue, rather than having to
buy full health insurance, which
may not be affordable.
A good rule of thumb is to ask if your
financial tool provides the same (if not
more) options than informal financial
habits. Remember how flexible buying
a chicken is: a chicken can give you
eggs, which you can sell or give to a
neighbor for social capital. You can
resell a chicken or you can eat it.
If you want to design truly flexible
tools, you need to understand your
customers’ financial needs and
existing financial habits.
++ Accessibility: We need to find more
effective ways to bring financial
products to rural and remote
communities. This is often called
last-mile distribution. “Last-mile
distribution is the million dollar
question,” said Tahira Dosani, Managing
Director at Accion Venture Lab. “No
matter how perfectly designed and
affordable your product is, if you can’t
get it to customers, it doesn’t matter.”
However, distribution isn’t the only
accessibility challenge. Even if you can
reach customers with products, how
will you ensure customers are eligible
for products? Proof of identification is
often a requirement to access financial
services, and 20% of the world would
have trouble proving their identity. Even
if someone can prove their identity,
lack of financial history makes it
difficult to evaluate the risk of newly
banked clients. Finally, accessibility
also means that tools are easy and
IMAGE CREDIT: GOALSETTER

intuitive to use. You’ll need to figure
out how you reach customers, how to
help customers sign up for financial
services, and how to help customers
maximize the value of financial tools.
++ Affordability: It’s important that
financial tools are affordable, both
for your customers and for your
business. Remote, rural areas often
lack the infrastructure, such as road
networks or mobile technology, to
support sales and service at scale.
Since population density is low in rural
areas, companies have struggled to
ensure revenues outweigh costs when
traveling to remote regions.37
Using
technology across different stages of
your value chain—from distribution
to customer service—can significantly
lower your costs, but you likely won’t
be able to completely automate your
financial tool. Why not? Trust.
++ Establishing trust: “It’s really hard
to trust someone you can’t see,”
explained Tahira Dosani. “You need to
strike the right balance between high
tech and high touch.” Spending time
in person with customers may cost
your business more money, but it is
an important element to establishing
trust. When customers trust you, they
are more likely to recommend your
financial tool to their peers, and word
of mouth is a powerful way to grow
your business. Trust won’t simply
come from spending time in person
with customers though. You need to
37
The International Finance Corporation,
Financial Inclusion in the Digital Age
listen to their needs and understand
that low-income customers have good
reasons not to trust financial services.
++ Customer acquisition: “Customer
acquisition will be harder than you
think. You need to plan for it to take
time, and you need to figure how to
acquire customers without burning
cash,” advised Lorenzo Bernasconi,
who supports financial technology
startups around the world through the
Rockefeller Foundation’s Innovative
Finance efforts. “We’ve seen financial
technology companies create exciting
products with fancy algorithms, but
then they struggle to get customers
and burn through cash at an
unsustainable rate,” said Lorenzo. You
will need to figure out how to explain
your unique value proposition to
customers in a cost effective way.
++ Data protection and transparency:
There’s a challenging tension that
exists with innovative financial tools:
you need to protect sensitive customer
information, while at the same time
making sure that customers’ financial
activity with you opens doors to new
financial tools. “The digital footprints
we’re creating for customers get
into data silos. How do you get data
to talk across organizations while
maintaining customer privacy?” Rahil
Rangwala, Director at the Michael
& Susan Dell Foundation, asked
of entrepreneurs. For resources on
consumer protection, check out the
Center for Financial Inclusion’s Smart
Campaign for consumer protection.

TIPS FOR ASPIRING ENTREPRENEURS
If you want to create financial tools
for low-income customers, here are
a few additional tips to consider:
You don’t need to reinvent the wheel.
Lorenzo Bernasconi at the Rockefeller
Foundation advised students, “Look to
other markets for inspiration. Learn
what financial tools have worked, and
ask yourself: why doesn’t this tool exist
in my market, and what changes—
to the business model, the regulatory
environment, or other factors—need
to happen to make it viable in my market?”
Remember that innovation could mean
accelerating the reach of existing financial
tools. If you want to learn more about
innovative customer acquisition and
distribution channels, check out this
webinar on The Power of Non-Traditional
Financial Health Distribution Channels
by the Financial Health Network, which
explores how to accelerate financial
inclusion through employers, educational
institutions, and community organizations.
As you look for opportunities for innovation,
it’s important that you understand the
regulations for any financial tools you want
to introduce into the market. The financial
services sector is heavily regulated, and your
innovation needs to be up to date
with regulations to be successful.
Finally, it’s important to elevate that
financial literacy is a valuable component
of any financial tool, but alone it is
insufficient. Amon Anderson, Director
of Acumen America explains: “There’s a
belief that, if only low-income customers
had more financial knowledge, financial
insecurity would be solved, but the reality
is that, when you’re living on the razor’s
edge barely making ends meet, you have to
be incredibly financially savvy. Rather than
focusing on financial literacy alone, we need
to deliver better customer engagement,
information, and choice at the point of
decision-making.”
IMAGE CREDIT: FLEX WAGE

eMoneyPool is a great example of a financial
tool that builds on informal money habits.
The company digitized Rotating Credit and
Savings Associations (ROSCAs): customers from
around the United States can form ROSCAs
online based on how much money they want
to contribute each month. Customers choose
an order in the ROSCA to receive money, and
continue payments until everyone in the online
ROSCA has withdrawn money.
These digitized ROSCAs have the same
benefits as analog ROSCAs and more.
Customers have more options for ROSCAs
because thousands of people from all over
the United States form hundreds of ROSCAs
examples for
inspiration
online. eMoneyPool verifies each ROSCA
member so you can count on their ability to
contribute money every month. In the event
that someone stops paying, eMoneyPool
guarantees to contribute money to the
ROSCA. eMoneyPool also reports payment
history to Experian, a large credit bureau in the
United States, so users can build their credit
through ROSCA payments.
EarnUp is an example of a company that
customizes money management for customers
at scale. EarnUp has an online platform that
helps customers seamlessly save money to
manage and pay down debt. Its platform
monitors income of customers, automatically

pulls money into a special savings account,
and uses money from the savings account
to make micropayments on loans. EarnUp
creates value for customers by helping them
budget to pay off debt and by ensuring
that loan payments are made on time.
EarnUp also lets customers know when there
are opportunities to make more than a
micropayment on a loan, which has helped
customers save an average of $22,000 in
interest over the life of a mortgage and over
$4,000 on student loans.38
When it first launched, EarnUp was free to
customers—loan servicers would pay EarnUp
because it reduced the likelihood of late and
missed payments, saving loan servicers money.
Now, EarnUp charges customers a flat fee of
$9.95 to manage all of their loans.
It’s just as important to learn from failed
financial tools as it is to learn from successful
ones. First Microinsurance Agency (FMiA)
was launched in 2005 with the goal of offering
microinsurance products to the poor in
Pakistan. It ultimately shut down operations
in 2011, but its initial microinsurance covered
two common risks: the death of a family
breadwinner and hospitalization due to severe
illness or maternity complications.
FMiA started out strong: it raised a significant
amount of equity and start up capital, and
it created a promising pipeline to customers
through partnerships with microfinance
institutions. By 2009, FMiA had insured
nearly 21,000 customers.
38
Forbes, The FinTech 2016
However, FMiA faced two significant
challenges. First, FMiA had a high claims ratio,
meaning they weren’t making enough money
from premium payments to cover the costs of
claims. FMiA had initially offered discounted
premium prices to try to grow their customer
base, but it was unable to raise prices back to
a sustainable rate once the market adjusted
to lower prices. Second, FMiA’s claims
management system was susceptible to
distortion. Even though FMiA tried to address
the challenges and had grown to 400,000
customers, by 2011, the company had no
path to financial sustainability and chose
to shut down operations.
What can be learned from FMiA’s story? First,
FMiA didn’t take enough time to validate
their product in the market. It was unable
to quickly pilot and pivot because it grew
too big, too quickly. Second, FMiA did not
truly understand their unit economies: they
underestimated the ramifications of lowering
premium prices to garner new customers, and
could not sustainably raise prices over time.
Third, FMiA did display leadership in piloting
a new product in a challenging market,
and it inspired new companies to move
into the market. Even though FMiA closed
its operations, its staff and customers were
acquired by a large, traditional insurance
provider that wanted to move into the
microinsurance market, New Jubilee Life
Insurance. Even if FMiA did not succeed as
a company, they pioneered a new business
concept which led to more low-income and
poor customers getting access to quality,
targeted health insurance.
To learn more about FMiA, check out the
article: Fail better: First microinsurance
agency proves the point of ‘failure.’

Create financial tools that
serve micro, small, and
medium enterprises (MSMEs).
THE OPPORTUNITY
Micro, small, and medium enterprises (MSMEs)
play a critical role in economic development:
studies suggest that formal small and
medium businesses alone contribute to 45%
of employment and 33% of GDP in developing
countries.39
Running a microenterprise
can also be a powerful economic mobility
opportunity for people living in rural regions.
However, most MSMEs lack access to relevant
financial tools that will help them grow, create
more jobs, and provide important services to
low-income communities.40
Social entrepreneurs can enable MSMEs,
especially those operating in the development
sphere, to grow with quality financial tools.
Financial tools could help businesses get
access to credit and insurance or they could
make employee-employer relationships
smoother. Supporting MSMEs can be a
powerful way to grow financial inclusion.
39
International Finance Corporation, Scaling-Up SME
Access to Financial Services in the Developing World
40
Financial tools for MSMEs need to share
many of the same qualities of financial tools
for individuals: they must be affordable,
accessible, easy to use, and flexible. If you
want to create financial tools for MSMEs, your
business innovation will also need to address
the following challenges:
++ Establishing trust: Trust is an
incredibly important factor in
acquiring business customers for
financial tools. Recall the story
of Simon Mburu, a Juhudi Kilimo
customer from Kenya. He learned
about Juhudi Kilimo through a
group of small business owners
that formed a ROSCA, and he
trusted that if his peers were
using the financial tool, it would
be beneficial for him as well.
Similar to direct-to-consumer
products, you will need to strike
a balance between high technology
and high touch solutions to
ensure you can establish
trust with business clients.

++ Lending to informal MSMEs:
While approximately 70% of formal
small and medium enterprises
have a banking relationship with
a financial institution, it is far less
common for informal small and
medium enterprises to have an
existing relationship with a financial
institution.41
Informal MSMEs are
still important contributors to the
economy and many microenterprises
are informal companies; however, lack
of formal business documentation
can make it difficult to serve informal
MSMEs. According to the International
Finance Corporation, microfinance
approaches are likely the best way to
support informal MSMEs at present
day, but there’s still opportunity
to seek innovative ways to support
informal MSMEs.42
++ Ethical lending: While there is a
nearly $4 trillion need to extend
credit to global MSMEs, it is critical
that ethical lending practices are
used to evaluate the risk of business
clients.43
For small business owners,
their business is their livelihood.
Lending to a business that can’t
repay a loan is bad for your business
too. If you choose to build a lending
business model, the tool you use to
evaluate the risk of your loans will be
foundational to your financial success.
41
42
43

If you want to create financial tools for
MSMEs, here are a few tips to consider:
Understanding the non-financial constraints
of MSMEs can help you develop more
customized, holistic financial tools.44
For
example, TMSS, a micro-credit organization
in Bangladesh, realized that rural farmers
had different cash flows than other business
clients, given the cyclical nature of farming
seasons. TMSS worked with farmers to
design financial programs that combined
loan products with savings products that
sync up with growing seasons.45
According
to the International Finance Corporation,
major non-financial constraints of small
and medium enterprises are access to
energy, navigating taxes, competition from
the informal sector and access to mentors.
44
45
The Center for Financial Inclusion, Addressing
the needs of the most financially excluded
It’s also important that you understand the
enabling environment for MSME financial
tools. The World Bank defines the enabling
environment as
1. the legal and regulatory environment
for financial institutions and their tools
2. the financial infrastructure for
MSMEs, like credit registries and
auditing standards
3. the ways in which existing financial
institutions serve MSMEs46
The existing enabling environment might
make working with MSMEs challenging, for
example, accurate credit information for
MSMEs might not exist or might be difficult
to acquire. If you can identify weaknesses
in the enabling environment, it might present
opportunities for innovative financial tools.
To better understand the components of an
enabling environment, you should read The
World Bank’s report: Scaling-Up SME Access
to Financial Services in the Developing World.
46

Aye Finance is a lender in India that uses
alternative data to evaluate the risk of
lending to microenterprises, many of which
are informal businesses. Since most Aye
customers use informal accounting methods
and minimal financial documentation,
Aye uses a combination of financial and
nonfinancial measures to evaluate the
risk of microenterprises.
Aye evaluates the financial health
of microenterprises by asking for
documentation—such as productivity
estimates, machinery counts, employee
headcount, and bills—to estimate businesses’
cash flow. Aye also evaluates and studies the
health of the industries that microenterprises
operate in, so that it can benchmark
potential clients to industry averages for
profit margins and productivity. Studying
the industries of customers also helps Aye
develop customized lending products
based on the cash cycles and common
challenges that businesses experience.
examples for
inspiration
Aye has disbursed over 100,000 loans totaling
over $190M, and Aye’s evaluation method has
helped them maintain a lower delinquency
level than other microenterprise lending
institutions in India.
FlexWage is a great example of how you can
create financial tools that reduce financial
stress for employees and employers. One of
its products, OnDemand Pay, lets employees
access earned wages before payday. If an
employee experiences a financial emergency,
they can request advanced wages that are
deposited onto a FlexWage pay card. With
OnDemand Pay, employees can access their
earned wages when they need them, and
employers don’t have to worry about issuing
pay advances for employees.
FlexWage developed a proprietary software
that interfaces with employers’ existing payroll
software, so that implementing a new benefit
like OnDemand Pay is simple for employers.
FlexWage also offers paycards for employees,
so that companies no longer have to issue
IMAGE CREDIT: FLEXWAGE

checks to employees that don’t have a bank
account. Employees can use paycards at
most vendors or can cash paycards at ATMs.
Apollo Agriculture is a company that
creates flexible, customized financial tools
for smallholder farmers across Africa. Apollo
recognized that many smallholder farmers
struggle to pay for high quality farming inputs
(like seeds, fertilizers, and topsoil), and as a
result, farmers experience decreased crop
yields. Apollo lends money to farmers to
purchase quality inputs, and they offer farmers
advice on agriculture best practices
to increase their yields. Helping farmers
improve their crop yields is also good for
Apollo—it ensures that farmers will have
enough money to pay back loans.
Apollo has a team of agents that visits farmers
on their land during sales and loan evaluation
cycles. This helps establish a strong, trusting
relationship with farmers. When agents visit
farmers, agents also use their smartphones
to geo-tag the boundaries of farmers’ land,
which allows Apollo to monitor the land with
satellite imagery throughout the growing
season. Monitoring the land through satellite
helps Apollo provide agriculture advice to
farmers and helps Apollo evaluate the risk of
lending to farmers based on the health of their
land. Apollo uses a combination of innovative
technology and deeply human strategies to
deliver value to customers.
Want more inspiration? Check out the
winners of the SME Finance Challenge, an
initiative hosted by the G20 to identify pioneer
companies that provide financial tools for
small businesses across the globe.
IMAGE CREDIT: APOLLO AGRICULTURE

THE OPPORTUNITY
Financial institutions that serve low-
income customers play a critical role in
expanding financial inclusion. However,
microfinance institutions and banks
experience common barriers that
prevent them from effectively serving
low-income customers.47
You can have a systemic impact on
expanding financial inclusion if you can
help financial institutions more effectively
serve low-income customers.
Nicole Van Der Tuin is the CEO of
First Access, a company that provides
software as a service to microfinance
institutions, and she explained, “We
want to address different challenges that
financial institutions face with software
and technology solutions. I get asked
all the time why we don’t start our own
microfinance institution. For me, it’s not
fast enough change. Selling software to
47
microfinance institutions can better serve their
clients using mobile technology
Help financial institutions
more effectively serve
low-income customers.
companies that are providing
direct services will help us have
a much more systemic impact.”
If you want to support financial institutions
to more effectively serve low-income
customers, there are a few challenges
that are important to understand:
++ Change management: In 2015, the
Bill & Melinda Gates Foundation
partnered with Grameen Foundation,
a pioneer in the microfinance
industry, to launch a Mobile
Financial Services Accelerator
program that would help small
financial institutions connect to offer
digital financial tools. What they
learned is that “going digital is not
a technology exercise—it required
full buy-in from management and
must be seen as a strategic priority.”48
This is because utilizing new
48
microfinance institutions can better serve their
clients using mobile technology

digital channels requires financial
institutions to create a new model
of engaging with customers and new
mechanisms to market their services
to customers. You will need to help
financial institutions navigate these
changes if you hope to be successful
in selling and implementing a
software solution.
++ Customer acquisition and customer
service: Given that introducing
new software and new operating
practices can require such significant
change management, acquiring
customers will take time and you
must plan for long sales cycles,
particularly if you want to work
with medium or larger financial
institutions. “Traditional financial
institutions aren’t necessarily
early adopters,” explained Tahira
Dosani, who advises innovative
financial technology companies
through Accion Venture Lab. “These
institutions likely have legacy
systems in place, and integrating and
adapting to new technology is hard.”
Throughout your sales process,
you’ll want to demonstrate how your
technology or new procedures will
improve operations, be easy to use,
and seamless to implement.
Creating a sales and support team
that can reach different geographic
regions can also be challenging and
expensive, as Nicole Van Der Tuin
explained: “One major challenge has
been the distributed nature of the
clients we’re serving. While we could
sell to and service clients remotely,
the process is so much faster when
we have a local presence. However,
this problem [of access to financial
tools] is distributed across so many
different countries in so many
geographies that addressing sales
and support in a distributed way
has been a challenge.”
++ Customization: If you want to
create technology for financial
institutions, the ability to customize
your software to different customers’
needs will be a key element of
success. However, beware of over-
customizing for one customer.
“Having one client that represents
the majority of your revenue can
be challenging. That client has
so much leverage that you may
create features for them that are
so customized and specific that
they don’t scale well in the broader
market. It may also distort your
incentives in terms of how you
want to grow,” cautioned Nicole
Van Der Tuin.

In a study that examined the role of
banks in driving financial inclusion,
The Center for Financial Inclusion
discovered seven major barriers that
banks face, many of which show
opportunities to help banks more
effectively serve low-income customers.
For example, banks need support49
:
1. Building, equipping, and ensuring
quality of agent networks: Agent
networks are networks of on-the-
ground banking agents that support
customers in local communities.
While these networks are critical
for customer acquisition, banks
report challenges training agents
on financial capabilities and
managing agent networks. If you
can develop software that supports
the management of agents,
you could significantly improve
customer trust in, satisfaction
with, and usage of financial tools.
2. Increasing financial capabilities
and digital literacy of customers: In
order to increase usage of financial
tools, banks need to empower
customers with the knowledge and
confidence to understand how to
maximize financial tools. There’s a
need to teach everything from basic
digital literacy skills to more
advanced financial management
skills so that customers use
financial tools effectively.
49
The Center for Financial Inclusion, The Business of
Financial Inclusion: Insights from Banks in Emerging Markets
3. Data privacy, security, and
sharing: In order to build
successful partnerships that
offer a suite of financial tools to
customers, banks need data to talk
across different organizations and
different platforms in a private,
secure way. Software will need to
provide solutions for responsible
data sharing in a way that builds
trust among organizations and
adheres to strict financial data
privacy regulations.
IMAGE CREDIT: FIRST ACCESS

First Access sells technology to financial
institutions that lend to underserved and
unserved customers in Africa. Nicole Van Der
Tuin, co-founder and CEO of First Access,
shared how the company was created to
solve a specific problem for microfinance
institutions and low-income borrowers. “We
understood the problem before we had a
way to solve it,” she said, which is incredibly
important for you to emulate with your
business model.
“I had been working with microfinance
institutions that were lending to underserved
customers across China, Madagascar, and
Senegal, and even though the countries were
very different, I was surprised by how similar
the challenges were. No one knew how to
effectively and efficiently evaluate how much
low-income customers could safely borrow
without doing everything by hand. The high
touch process that was being used by loan
officers was wasting time, it was ripe for
corruption, and I saw that the labor cost
and inefficiencies were leading to higher
interest rates for customers. I realized if that
you could make the loan evaluation process
more efficient, you could lower the interest
for high-risk borrowers,” shared Nicole. In 2011,
Nicole co-founded First Access to address
these challenges.
examples for
inspiration

First Access offers a flexible software platform
that allows financial institutions in emerging
markets to reach underserved customers
faster. Working with companies ranging from
commercial banks to microfinance institutions
to fintechs, First Access offers software that helps
with both digital transformation and digital
innovation. First, the company helps lenders
with a high-touch, manual process migrate their
paper loan files to mobile devices. Once lenders
have “gone digital,” they can grow in a data-
driven way and easily add new data sources
that are customized to their risk appetite and
local context. First Access estimates that their
lenders have saved customers over 322 years of
cumulative wait time on loans.
Bridge is a company that advises banks that
serve low-income customers and MSMEs in the
Philippines. The Philippines lags behind many
other South and Southeast Asian countries
with regard to the percentage of adults with
bank accounts and the amount of lending to
MSMEs.50
Bridge believes that it can increase
50
http://www.bridge.sg/ourApproach_WhereWeWork.html
financial inclusion by supporting banks
to improve on their “4C’s”:
1. Central services: Bridge helps banks
improve their data analytics for
lending, loan collection operations,
and technology use.
2. Capabilities: Bridge also helps banks
improve their internal strategy and
planning processes, which ranges
from helping banks improve their
agent management process to
supporting banks to manage their
own balance sheets effectively.
3. Consolidation: If banks are looking to
acquire other banks or merge, Bridge
provides consulting support through
the sales and integration of banks.
4. Capital: Bridge helps banks raise
funds so that they can manage risks,
expand operations, and invest in
operational improvements.

Now that you understand the opportunities for innovation and the challenges within
the financial inclusion sector, which of the innovation areas are you most interested
in building a business model to address or incorporating into your business model?
Remember, you can address more than one!
Create financial tools that are designed for low-income consumers
Create financial tools that serve MSMEs in industries that promote development
Help financial institutions more effectively serve low-income customers
For each opportunity that you selected, jot down a few notes about:
++ What excites you about this opportunity?
++ What facts or tips do you want to be sure to remember?
++ What models or case studies were you particularly inspired by in this
reading and want to learn more about?
R E F L E C TSTOP+

Each of the companies we mentioned in the
previous section have strong partnerships.
Partnerships can help simplify your business
model, lower your costs, increase your
revenue, and build trust with customers.
Here are a few key stakeholders you
should consider partnering with:
Governments, policymakers, and regulators:
These stakeholders are responsible for
creating an enabling environment that
governs how financial tools are created and
distributed to customers. It’s important to
understand the enabling environment in your
local region, and “Clever business models will
take advantage of policy opportunities that
exist,” advised Lorenzo Bernasconi. At the
5 . B U I L D I N G P A R T N E R S H I P S I N T H E
F I N A N C I A L I N C L U S I O N S E C T O R
same time, Amon Anderson asked students
to not be complacent with existing policy and
to advocate for better policies: “Build bridges
to policymakers so that you can change
policy responsibly,” he advised.
Governments can also be clients and
collaborators. Governments are major
employers and distributors of social services,
which means they could benefit from new
digital technologies that facilitate payments
to low-income customers.51
Governments
can also be critical distribution partners
through campaigns and programs that
help reach customers in rural regions.
51

Finally, governments can be a place of
financial innovation. Governments in
India and Brazil have pioneered the use
of biometric identification, which uses
fingerprints and iris scans to help people
prove their identity.52
Biometric identification
has allowed millions of people to access
financial services for the first time. You’ll
want to stay up to date on financial
innovations from the government so that
you can incorporate them into your
eventual business model.
Investors and philanthropists: Global
investment in financial inclusion has grown
rapidly over the past 5 years, and you’ll likely
search for investment capital to grow your
business.53
“There are many types of capital
available, and you should make sure you’re
seeking the right kind of capital for the
stage of your business today,” advised Amon
Anderson, Director of Acumen America.
“Institutional investors write larger checks
and expect greater sophistication and
traction, so if you’re in the prototyping stage,
you’ll likely find a better fit with sources
like award funding from competitions or
grants. When you’re ready for an institutional
investor, make sure you know who your
52
The Center for Financial Inclusion, The Business of
Financial Inclusion: Insights from Banks in Emerging Markets
53
The Center for Financial Inclusion, The Financial
Inclusion 2020 Progress Report
investor is and what they value. Different
investors will value different things, so
make sure you tailor your pitch accordingly.”
If you choose to seek funding from
philanthropic partnership, Lorenzo Bernasconi
at the Rockefeller Foundation advised, “You
need to show that you’ve got impact integrity
and a clear strategy to become financially
sustainable over time. You can’t forever be
dependent on philanthropic support.”
Microfinance institutions, credit unions, and
local banks: Local financial providers are
critical supporters of low-income customers
and MSMEs. The governance structure and
services will vary, but the goal of these
smaller, local financial institutions is typically
to provide lower cost, more accessible
financial tools to customers. Microfinance
institutions, credit unions, and local banks
will likely have established relationships
with local customers, so they can also serve
as collaborators to bundle financial services
to existing customers. How you can amplify
the impact of good actors that have a history
of serving low-income customers with
quality financial tools?
Traditional financial institutions and
large banks: “Having inroads into the
biggest banks will be important for any social
entrepreneur that works in the financial

inclusion sector,” said Amon Anderson.
“Whether they’re a lender, negotiating a debt
settlement, or a referral platform, big banks
and traditional financial institutions will
likely be a key stakeholder for you business
somewhere along the way. Find internal
champions and cultivate those relationships.”
International Finance Institutions and
Development Finance Institutions:
International banks and development
institutions have played an important role
in financing initiatives that support small
and medium enterprises, according to the
International Finance Corporation. These
institutions can serve as funding partners for
your innovation and they can also provide
important technical assistance
for non-financial challenges that small
and medium enterprises may face.54
You should have an understanding of
who the main development and international
banks are in your region, and evaluate
opportunities to align your innovation
with their funding initiatives.
Telecommunications providers: Mobile
services providers are incredibly important
stakeholders for digital finance solutions.
While it may be challenging to partner
54
The International Finance Corporation, Scaling-Up
SME Access to Financial Services in the Developing World
with telecommunications companies
when you’re first getting started, you
should think about how you would eventually
partner with providers as your venture grows.
Many telecommunications providers also
conduct and publish important research on
how their customers engage with financial
technology so be sure to check out the
research provided by some of the largest
telecommunications providers in
developing countries, such as GSMA,
M-PESA, and Safaricom.

Employers: Receiving wages from employers
is a major financial transaction for every
worker, and companies pay wages in cash to
roughly 230 million unbanked adults around
the world.55
At the same time, it’s estimated
that nearly 80% of these wage earners own
a mobile phone.56
There’s a huge opportunity
for employers to adopt new digital
technology that transforms the way wage
earners engage with financial tools.
Employers are also important providers of
benefits that support the financial health
of employees, like retirement savings
funds and health insurance. There’s an
opportunity for employers to take on more
responsibility for employee financial health
by providing new benefits. For example,
Spring Bank, a credit union in the United
States, works with employers to offer
“Employee Opportunity Loans,” which are
lower interest, small dollar loans offered
to employees based on tenure and good
standing at a company, as opposed to
credit score. Consider how you can
partner with employers to expand the
reach of your financial tools.
55
56
Individuals and Communities: Your entire
business model should be built on solving
a true customer need so you must take a
customer-centric approach to everything
you do. Customers should be seen as
advisors, thought partners, and foundational
stakeholders to your innovation.”You don’t
have to be the first or the fastest to create a
financial tool, but in financial services, what
will make a difference is if you’re the most
consumer focused,” said Mike McCaffrey,
consultant at Ulana Insights.
Customer engagement is important at every
stage of your business, especially in the early
stages. “If you haven’t left the classroom, if
you haven’t drawn your idea on a piece of
paper in front of a potential customer,
you’re not doing it right,” said Amon
Anderson. Real change is possible when
you take a customer-centric approach to
everything you do.
It will be up to you to decide how you
partner and with whom, but regardless
of the specific stakeholders, partnerships
should be a part of your business model.
“You don’t need to do go it alone,” said
Lorenzo Bernasconi. “Now, more than ever,
there’s a willingness from experts and
traditional players to partner to support the
financial inclusion ecosystem.”

You’ve heard it a few times: Partnerships are a powerful way to simplify your business
model. Who do you want to partner with and how will those partnerships support your
business model? Remember, partnership is a two-way street. For each partner that you
select below, articulate their value to you and your value to them.
Governments, policy makers, and regulators
Investors and philanthropists
Microfinance institutions, credit unions, and local banks:
Traditional financial institutions and large banks
Telecommunications providers
Employers
Individuals and communities
Partnerships also take time and energy to manage successfully. Jot down 2-3 quantitative
and qualitative metrics for how you will measure the success of your partnerships. For
example, if you hope to partner with microfinance institutions to implement new digital
technology, one success metric might be the number of times that customers engage
with a financial tool over the course of a year.
R E F L E C TSTOP+

AMON ANDERSON
Director at Acumen America
“We have not seen a lot of peer to peer savings
models that work [in the United States]. Savings
is a critical part of financial health, but in
our experience, savings products need to be
integrated with other financial tools to be
compelling. I would encourage innovators to prove
me wrong though. Just because we haven’t seen
a successful model doesn’t mean it can’t work.”
MIKE MCCAFFREY
Financial Technology Adviser at Ulana Insights
“Financial education was initially built on the
[false] premise that people were not saving
because they didn’t understand that it was
important to save, and therefore we had to
educate people. The reality is that low-income
people know it’s important to save, it’s just
more difficult, because there are more places
where their dollars need to go. Financial
education has to be tailored to a financial
solution. Generic financial education and
hypothetical advice is not very relevant or
useful. Financial education has to be
specific to people’s lives and understand
the complexity of financial decisions.”
F I N A L A D V I C E from
E X P E R T S in the F I N A N C I A L
I N C L U S I O N S E C T O R
RAHIL RANGWALA
Director, Programs at the Michael &
Susan Dell Foundation
“You have to figure out what value proposition
you have in the ecosystem of a sector. This first
requires that you recognize that you’re part of
an ecosystem, not a standalone entity. Once you
understand that you’re a part of an ecosystem,
then you can identify the different roles that make
the ecosystem function and the ancillary functions
that help the ecosystem run—like technology,
the internet, data, and analytics.Then, you can
identify partners. Ask yourself, what roles do you
play in the ecosystem, who else plays those roles,
and who plays those roles better than you can?
Be clear about your value proposition to those
partners. What will make them want to share their
knowledge, resources, and expertise with you?
That’s how you should approach partnership:
make people want to grow with you instead of
grow against you, because you’re all part of the
same ecosystem.”
As you refine your business model, consider this advice from leading financial inclusion experts, investors, and
entrepreneurs. Together, they’ve coached, invested in, and run hundreds of financial inclusion companies.
These are some of the lessons they learned on building successful business models that improve financial health.

Financial inclusion sector brief

Financial inclusion sector brief

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