Page 208 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

1 Introduction

It is widely agreed that digital liquidity is an important goal for developing markets. Digital liquidity enables the
Bottom of the Pyramid (BoP) to receive, retain, and pay with e-money, which provides safety, greater access to
credit (and ease of access to related information), income growth, and other documented benefits. This paper
explores the hypothesis that BoP merchants may be more prone to accept e-money transactions, and thus
help the e-money system achieve “digital liquidity” if doing so would make credit more available/accessible.
The approach employed to inform and test this hypothesis focused on studying the global use of “alternative
credit underwriting” methodologies that often leverage one or more of the following factors:

• Mobile device characteristics (make/model, OS installed, etc.)
• Mobile usage data (e.g., data/voice usage, top up behaviour, etc.)
• E-money transactions made and received

• Social media profiles and network activity
• Big data.
This paper specifically explores whether data generated by BoP businesses accepting e-money can be helpful
in achieving digital liquidity, which may in turn provide additional incentive for BoP merchants to accept digital
payments.
This report is divided into three sections:

1
• Survey of in-market alternative credit data (ACD) programs to demonstrate diverse approaches and
successes of using e-money activity and other alternative credit data.
• Analysis to identify common and best practices, lessons learned, feasibility, as well as impact on BoP
e-money acceptance.
• Recommendations on how to further assess these opportunities and how to move forward.
As noted, programs like these, if effective and scalable, could encourage more micro and small businesses
to accept e-money payments from their customers with the expectation that it could help these businesses
obtain small loans to grow and sustain their businesses.

1.1 Situation

Micro, small, and medium-sized merchants (MSMEs) form the backbone of developing economies. In much
2
of the developing world, however, growth of MSMEs are stifled by lack of access to capital. It is estimated that
50-60 per cent of small businesses around the world are underserved by traditional banks and do not have
access to credit. Nearly 70 per cent of the estimated 445 million formal and informal MSMEs in the developing
3
world do not use financing from financial institutions. 4
Many MSMEs are unbanked, have no collateral, and do not have the requisite credit histories or audited
financial statements that traditional lenders use to assess credit risk . Accordingly, it is not surprising that in
5
most emerging and frontier markets, fewer than 1 in 5 MSMEs have access to mainstream and affordable
credit. These businesses are sometimes referred to as “credit invisibles”. For example, there are an estimated
6

1 Most notably, ACD does not rely on traditional credit bureaus or bank account data.
2 The World Bank estimates that micro-businesses and SMEs account for an average 47.2 per cent and 15.6 per cent of GDP,
respectively, in low income countries.
3 MSME database, IFC/World Bank, 2011.
4 “Two Trillion and Counting”, IFC and McKinsey & Company, October 2010.
5 In some regions, such as the Philippines, there are no centralized credit bureaus. In others, very few people have credit histories.
For example, in India, only 25 per cent of the population has a credit history. Source: Lenddo.
6 Source: PERC.

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