Financial Inclusion


In the 1970s disco era, there was a successful all-ladies German pop group called Silver Convention. One of their top 10 hits was ‘Everybody’s Talking ‘Bout Love.’ Whenever I hear the term financial inclusion, I often think of the lyrics to this song:

“You know, everybody’s talking about love these days
It’s just an everyday word
Turn on the radio and you hear it
Buy a magazine and you read it
Why isn’t then so hard to find love in real life?

Everybody’s talking ’bout love
But nobody seems to hear it
Everybody’s talking ’bout love
But nobody seems to give it
Everybody’s talking ’bout love
But nobody seems to mean it
Everybody’s talking ’bout love
But nobody seems to hear it

Isn’t it strange?”

This article aims to examine what is financial inclusion, what is its impact on credit risk management and lastly, what can lenders do to increase financial inclusion?


Wikipedia defines financial inclusion as:

“… the availability and equality of opportunities to access financial services.[1] It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products.[2][3] Financial inclusion efforts typically target those who are unbanked and underbanked, and directs sustainable financial services to them.[2] Financial inclusion is understood to go beyond merely opening a bank account. It is possible for banked individuals to be excluded from financial services.[4] Having more inclusive financial systems has been linked to stronger and more sustainable economic growth and development and thus achieving financial inclusion has become a priority for many countries across the globe.[5]

In 2018, it was estimated that about 1.7 billion adults lacked a bank account.[6] Among those who are un-banked a significant number were women and poor people in rural areas and often those who are excluded from financial institutions, face discrimination and belong to vulnerable or marginalized populations.

Due to the lack of financial infrastructure many under-served and low-income communities suffer. Specifically, the lack of proper information can be detrimental to low-income communities and expose them to financial risks. For instance, payday loans target low-income persons who are not adequately informed about interest rates and compound interest. They become trapped and indebted to these predatory institutions.”

Credit Risk Management Considerations

For me, the key 3 terms that impact lenders and credit risk managers the most are:

  • Appropriate
  • Affordable
  • Timely financial products and services


Appropriate Financial Products

As the mainstream banks have not provided appropriate products and services for the unbanked and underbanked, the sub-prime market has mainly been served by microlenders offering:

  • Payday loans – these have a term of up to 30 days maximum and the objective is to provide funds until the borrowers next ‘payday’.
  • Short Term loans – these are typically 1-3 months in duration.


Unfortunately, a number of unscrupulous lenders have taken advantage of the often desperate borrowers and abuses have been frequent. In addition to the registered lenders there is a parallel underground industry of loan ‘sharks’ who charge exorbitant rates of interest.

FinTechs and telcos have stepped in to address the gap in the market for accessible and appropriate financial products which do not cost an ‘arm and a leg’.

The 4 products that these alternative lenders have created and offer to the under-served are referred to Alternative Payment Methods (APM) and include:

  • Instant payments
  • Account based transfers
  • Digital wallets
  • Buy Now Pay Later (BNPL)

These 4 alternative products are fuelling the growth in mobile financial services, which is often also referred to as ‘MoMo’ (mobile money) as the transactions are typically conducted on smartphone handsets.

Due to the dependency on smartphones, the growth of mobile financial services and APM will be limited. Interestingly the percentage of smartphones per global adult population has remained static at around 68% since 2018, indicating that there is still an affordability barrier to access.

Affordable Financial Products
Clearly financial inclusion means products that the subprime market can afford. Many countries have now passed affordability regulations to attempt to avoid the poorer members of society becoming over-indebted.

Affordability calculations are now a key component of responsible credit risk management, and reputable lenders have to prove that the loans they have provided conform to the calculations.

As subprime lending tends to be high volume and low value, the costs of granting the loans has to be managed very carefully. This is why APMs typically do not use credit bureau data and many FinTech products are not even reported to the respective credit bureaux.

Interestingly, the costs of credit bureau data in emerging markets are often exorbitant, and as much as 10-15 times more costly than in established markets. Until credit bureau coverage is improved, and costs are reduced significantly in many emerging markets, the use of credit bureaux by FinTechs providing APMs will be very limited.

Another barrier to the take-up of APMs is the relatively high cost of data in many emerging markets. One way of addressing this is for lenders to provide free data services to their customers, such as MoyaApp from Datafree.

Timely Financial Products
APM products by definition need to have a fast turnaround time (TAT) as the application process is conducted on mobile phones.

The concept of waiting for weeks for an approval, whilst a bank requires a mountain of paperwork is alien to FinTechs and their products. Digital lending has grown exponentially in the past 5 years and one of the few benefits of the Covid-19 pandemic is that it spurred on the development of this application channel.

Digital lending typically involves low documentation requirements and light KYC procedures. In fact in a number of countries, KYC requirements have been waived for loans below a small threshold.


Wikipedia sums up the positive impact of FinTechs and telcos on the global challenge of financial inclusion:

“Technology-enabled innovations represent an opportunity to promote financial inclusion. Inclusive digital financial services refer to mobile money, online accounts, electronic payments, insurance and credit, combinations of them and newer financial technology (fintech) apps, which can reach people who were formerly excluded. For example, digital financial services can provide low-income households with access to affordable and convenient tools that can help increase their economic opportunities or access to credit.[73]

There is evidence that digital financial services can empower women to earn more and build assets, helping address that 35% of women worldwide—approximately 980 million—remain excluded from the formal financial system.[74] Digital financial services have been shown to help give women greater control over their own finances, including safe, convenient, and discreet access to banking accounts.[75] This greater financial power can increase gender equality and economic growth.[76]”

Unfortunately, there are still many barriers to financial inclusion, which have been identified in this article. The good news is that the paradigm is changing and at ADEPT Decisions we like to believe we are playing a small part in expanding financial exclusion in the MoMo space across Africa.

About the Author
Stephen Leonard is the founder of ADEPT Decisions and has held a wide range of roles in the banking and risk industry since 1985.