Justus Ortlepp, Product Manager LexTego

In the first of two posts, Justus reflects on defining financial inclusion and why we should continue to be optimistic

Two recent events gave me an opportunity to reflect on our journey over the last two years. Both were conferences, but each with startlingly different audiences with almost diametrically opposed perspectives on the drivers behind “financial inclusion”.

Financial inclusion is up there in quotes for a reason. It means something very different to the people who are desperate for financial inclusion to make the difference between living, surviving, and, yes, dying. It means something else yet again to the people who currently hold the keys to the kingdom, and something different altogether to the altruists who are trying to mediate an alternative financial balance.

I borrowed a decent definition of “Financial Inclusion” from a World Council of Credit Unions presentation to the United Nations in 2019 (standing on the shoulders of giants here…) who in turn borrowed it from Accion International who coined the following in a report in 2009:

“Full financial inclusion is a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, and reach everyone who can use them, including disabled, poor, rural, and other excluded populations.”

In the same presentation they offered an alternative definition by the Rangarajan Committee from 2008 that described financial inclusion as a “process”, though the outcome of the process is largely to achieve the state that Accion described above.

I like the inherent optimism of the Accion definition, but it would seem that we are still very much “in the process”. You, like me, might be surprised at the recent date of a definition quote. Did financial inclusion only recently become a “thing”?

I think the answer to this question could be found in a mission statement from The Bill & Melinda Gates Foundation:

“We believe that high-quality financial services are crucial to fighting poverty. More than 1.7 billion people worldwide live outside the formal financial sector. Increasing their access to affordable financial services will improve the well-being of their households, communities, and economies. One of the most promising ways to deliver these financial services to the poor is by using digital payment platforms.”

Digital financial services as an alternative, or supplement, to traditional, formal financial services is relatively new. I found an interesting infographic that catalogues the journey from the first online payment in 1994 through the launch of Alipay in 2003 in China and Safaricom’s launch of M-Pesa in Kenya in 2007. And then followed WeChat Pay, Apple Pay and Google Wallet-Android-Pay (2011 through 2018). Today, there are countless digital payment options that have all, in some way lowered the traditional barrier to entry for access to financial services by excluded people. Traditional banks needed presence to provide services – digital financial service providers (DFSPs) merely need to provide access. And it doesn’t even have to be fancy. Kumaran Selverajalu from the Banking Association South Africa, one of the speakers at FinnoVex Southern Africa suggested that the most important technology in providing access to digital financial services is… USSD. No internet, data or smartphone required.

Digital financial services across the world grew beyond expectations. From the GSMA’s 2021 State of the Industry Report on Mobile Money: “In 2020, the number of registered accounts grew by 12.7 per cent globally to 1.21 billion accounts – double the forecasted growth rate.”

One of the remaining challenges was interoperability. Individual DFSP networks did not always seamlessly or cost-effectively integrate with others and often used traditional banking facilities as a backhaul network to pre-fund and ultimately clear inter-network transfers.

The Bill & Melinda Gates Foundation weighed in on this challenge in 2017 and funded the development of an open source software (OSS) platform called Mojaloop that will connect multiple DFSPs together into a competitive and interoperable network.

And here LexTego’s origin story begins.

Next week, Justus talks about LexTego’s experience working with the Bill & Melinda Gates Foundation