Closing plenary: Digital finance: Full inclusion or empty promise?

  • Greta BULL, CGAP
  • Vicki ESCARRA, Opportunity International
  • Dave VAN NIEKERK, MyBucks
  • Graham WRIGHT, MicroSave


Moderator Greta BULL opened the final plenary session by introducing the topic and panellists. It was established that two of the panellists, Vicki ESCARRA and Dave VAN NIEKERK, would be arguing for digital finance as an instrument to reach full inclusion, whereas Graham WRIGHT would counter this as an empty promise. 

Bull started the debate by asking the panel whether by 2030 there will still be a role for traditional microfinance in providing meaningful financial services for poor people, or do digital financial services represent an existential threat to microfinance?

Escarra responded that digital services can offer access to people that currently do not have access, on which Wright commented that it is still a confusing world out there. Even in Kenya 54% of mobile money transactions are agent assisted, because the user interfaces are not intuitive. But with the advent of Java-based systems we can present interfaces that reflect users’ mental models on digital devices such as tablets at agent outlets to encourage self-use. MFIs will have to develop digital strategies as digital financial services offer both an opportunity but also a threat. 

According to Van Niekerk, digital innovations will cause a massive revolution in the world of MFIs and put them to rest; they made a great impact while they lasted. Clients are going to interact through mobile technology, we don’t have a choice. However, still 50% of transactions are done through branches and agents. Digital services will in first instance add to the current portfolio, and only slowly evolve into something else. 

Wright added that in remote areas there is indeed still a lot of human involvement needed, also in response to someone in the audience who spoke of hybridisation. However, said Escarra, reaching clients in remote areas is also a matter of cost-effectiveness. When asked why a digital provider would care about the marginalised, she responded that they are in fact the clients of the future. Van Niekerk commented that you need to understand clients’ needs and be responsive in adapting technologies accordingly. Wright remarked in this respect that it is possible to get digital services out in rural areas through agents, like for example in the case of India. Escarra referred to a case in Uganda, where analysis based on big data revealed that in many cases faster and more effort should have been made concerning education.

Bull then posed a second question to the panel: ‘Aren’t digital financial services just jumped up payments and automated loan sharking?’ This is absolutely the case according to Wright. 72% of electronic payments are person-to-person, and most of the rest are bill-pay. We can hardly pretend that is financial inclusion. Furthermore, in Kenya, most digital loans are offered for just a month at annualized rates of 49% to over 640%. These high rates are driven by the need to price in risk because most digital credit is not based on big data at all, but rather on the wafer-thin data from use of mobile phone. Poor people often only buy two Ksh10 scratch cards a month which is hardly a wealth of data on which to base a lending decision. With 400,000 people already blacklisted at the Kenya Credit Bureau for loans outstanding of USD 2 or less, it is clear that digital credit is creating financial exclusion.

Van Niekerk responded by saying that digital services are increasingly creating more transparency through quick, real-time data. In addition, digital services are not only about credits, but involve an MFI space for insurance, small businesses, agriculture, housing and the like. There is also increasing global collaboration, on which he presented some slides. Fintech is changing the landscape of microfinance drastically, and also the poorest of the poor will be using these technologies. Fintech is not just one side of the coin but rather leads to financial inclusion and change in the world.

A participant from the audience contributed that the financial sector and banks are forging new partnerships, and Fintech is as good as people make use of it. He referred to an example in Kenya, where social media data from customers is used to synchronise with financial services in order to build the credibility for buying goods. Such credits are charged with a 46% interest rate; according to him therefore the disruption is more in the ‘first world‘ than in the poor regions. Wright countered saying that poor people do not have a digital footprint, and that we should not celebrate crazy expensive small loans; this will create a digital divide. Escarra responded to Wright by mentioning that digital services will slowly integrate in the services on the ground. In this process, you have to take the full package of digital services into account. Besides credit products, clients are increasingly making use of savings and insurance products. There is not a ‘one size fits all’ solution; it is a set of services provided digitally and by people on the ground. 

On an earlier comment made by Van Niekerk regarding bad players in digital finance who will likely wash out over the course of time, a member of the audience stated that these bad players are not likely to be shaken out. Moreover, they are more likely to pull down the good players as well, comparing the situation with the subprime crisis in the US. Another participant asked Wright whether the pricing of the loans is not simply unsustainable. According to Wright the evidence shows that, with the exception of the good practice of Equity Bank, interest rates of most MFIs offering digital finance solutions are not dropping – despite the expectations of a reduction in costs arising from digitising loan repayments. Escarra referred in this respect to the need for transparency in data, which should lead to fair interest rates, services of real use to customers and avoiding over-indebtedness. This could be guided through a good housekeeping seal. Van Niekerk added that you would want to avoid regulators intervening, by building an ecosystem with repercussions for either suppliers or users not meeting the standard.

With respect to using biometric and social media data, some participants expressed serious concerns, in particular also when using data concerning poor people. Van Niekerk responded that, even when understanding these concerns, how do you connect to poorer segments in the population in remote areas, and help them get access, if there are no means of verification or validation? The irony is that the first thing poor people do when getting access to internet, is create social media accounts like Facebook to communicate. While Wright agrees that smart phones will enhance a digital footprint, we will have to be very careful in the coming 5 to 10 years to manage the potential risks and ensure consumer protection.

Finally, Greta Bull asked the participants to vote on the question whether Digital Finance will lead to full inclusion or prove to be an empty promise; the vast majority of the audience voted with ‘full inclusion’.