Of the 2.6 billion people worldwide living on less than US$ 2 dollars a day, about 90% are not financially included. In other words, they lack access to any kind of formal financial form of services. Quite simply, this means that they use cash and other physical assets (like livestock, jewellery, etc.) for just about everything from receiving wage remittances, to saving up to buy fertilizer, to insuring against illness. If cash or personal possessions fall short, they must approach informal money lenders and payment couriers who often charge an interest rate that in many cases can be called exploitive. Moreover, for these underserved who in this way live on the border of survival, unexpected medical circumstances or natural calamities are crippling economic shocks, against which they are largely uninsured, and due to which they slip into poverty. Using their own traditional methods of livelihood, it is then impossible for them to rise out of poverty at all.

The FSP Team (Financial Services for the Poor) in the Bill and Melinda Gates Foundation has identified the use of digital devices as the way to break the circle of poverty for the world’s poorest. The facts state that mobile phone usage in Africa grew from 25 million in 2001 to nearly 650 million in 2011, and it is expected to reach 925 million by 2015. Furthermore, by 2012, the number of unbanked people who possess mobile phones is expected to increase to 1.7 billion worldwide. Mobile Payment Networks (take the example of the famous Kenyan M-PESA) have evolved to form a strong foothold in East Africa and South Asia and are strategically placed to further their services of digital payment services to large numbers of poor households in just a few years.

FSP has also recognized the suitability of digital payment services to almost exclusively cater to the needs of the underserved: disaggregation of transactions to enable the delivery of services that are right sized for the cash flow needs of poor households, record of transactions to help product makers, enabling the poor to control expenses and more.

Keeping these factors in mind, FSP has now come around to recognizing its strategic financial inclusion goals as following:

1. Expanding access to financial services by enhancing the reach of digital payment services in poor and rural areas
2. Expanding the range of financial services that poor people can access over these platforms
3. Supporting research and product design experiments to better understand which product design features, price incentives, and marketing messages work best to encourage poor people to adopt and actively use financial services over these platforms

The Foundation plans to work on several levels – narrowing the digital divide in rural areas of the poorest of economies, researching to enhance the kind of financial services for the poor, form global partnerships so as to look for innovative ways to maximize impacts through products, services and policies, and finally, working on digital and technological innovations.

Read the report here.