Page 209 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

30 million MSMEs in India, with only 1.6 million of these having received loans from financial institutions. The
remainder have little to no access to formal financing. 7

Often, these businesses are started with few resources, and their earnings keep the business, their owners,
and families, afloat on a day-to-day basis. These BoP businesses typically serve the poor and their owners are
usually poor as well.

In many emerging markets, traditional banking institutions have branches in highly populated areas but few-
to-none in rural and poor areas, leaving businesses in more remote or poor areas without traditional brick
and mortar banking services.
Without history, collateral, or even reasonable access, these businesses have little hope of borrowing funds
to grow their businesses or manage cash flow during demand spikes or to sustain them during down cycles.
Without access to traditional credit, these businesses often turn to alternatives such as borrowing from friends
and family, payday lenders, and shylocks. These alternatives are not universally available, are risky, and are
more expensive than traditional lending. Access to finance in emerging markets is believed to be one of the
top three obstacles to growth in all emerging markets (except for the Middle East). 8

1.2 Emerging model

There may be hope for MSMEs in emerging alternatives. While many of these MSMEs do not have traditional
credit histories, they are not completely off the digital grid. Most of these merchants possess feature or smart
phones capable of transacting on digital payment networks and may already do so for their business or as
consumers. 9

Research ICT Africa surveys revealed that more than 83 per cent of business operators owned a phone. A
10
2015 Pew Research Center report shows similar penetration of mobile phones and fast growth of smart phone
ownership, with 34 per cent of South Africans, 27 per cent of Nigerians and 15 per cent of Kenyans already
owning a smartphone.
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Data residing on mobile phones, as well as phone use data made available through mobile network operators
(MNOs) can yield telling information about their owners’ identity, financial health, habits, relationships,
and even their personality, all of which are beginning to help traditional and non-traditional lenders assess
creditworthiness.

More and more, small business staff are using phones to conduct commerce through mobile payment and
person to person (P2P) schemes, such as M-Pesa and Airtel Money. Still others participate in e-commerce
marketplaces, such as Flipkart and Snapdeal. These platforms carry with them rich data that show, for example,
a business’ sales over time. For digital-centric companies, e-commerce marketplace data can also be used.

Smartphone penetration, which will continue to grow, provides additional data opportunities. Through smart
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phones, ACD programs can collect web browser, mobile app usage, and other activity. Smartphone usage is
also contributing to significant increases in social network usage. There are a myriad of both emerging and
established global and regional social network platforms, and while adoption is not saturated, usage is growing
quickly in emerging markets. Social network data can be used to help traditional and non-traditional lenders

7 “With $10M In New Funding, Lendingkart Helps Small Businesses In India Get Loans”, TechCrunch, July 2015.
8 IFC/World Bank Enterprise Survey 2006–10 and World Bank GDP 2008–10.
9 With a digital or mobile-centric model, a business’ remoteness may no longer be an impediment, so long as the business phone
can connect to a cellular or WiFi network. Business owners can apply any day of the week, day or night, without having to visit a
physical location.
10 “Towards Evidence-based ICT Policy and Regulation”, Research ICT Africa, 2008.
11 Spring 2014 Global Attitudes Survey, Pew Research Center, 2015.
12 “The number of smartphones in Kenya is small today, but it is doubling every year. All the best indications say in 2017 most Ken-
yans will have smartphones.” – Matt Flannery, CEO Branch, “Kiva founder discusses his new for-profit mobile lending business”,
How We Made It In Africa, December 2015.

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