The amount of electronic data generated by computerization—digital data—is growing at unprecedented rates. In a 30-minute span, the internet combined with devices such as phones, personal computers, and sensors will generate digital data equal to all written works in human history (Inc. Magazine 2012). This trend is accelerating, with digital data storage requirements projected to rise 10-fold by 2020 (Economist 2012). Financial services are an information business—can this growing wealth of data be harnessed to advance financial inclusion?
Robert Kirkpatrick, the director of the United Nations (UN) Global Pulse, an initiative of the Secretary General’s office formed to explore the use of new sources of digital data, calls this a “new natural resource” that can be cultivated for society’s benefit. A growing number of applications in development demonstrate this view. The UN Global Pulse has researched correlations between mobile phone airtime purchases and food consumption to track food security in East Africa (www.http://unglobalpulse.org/mobile-CDRs-food-security). Researchers from the University of California, San Francisco, use weather records to predict concentrations of malaria to help prevention and treatment efforts (Guardian 2014). And following the Ebola outbreak in 2014 some have called for more use of mobile phone data to combat the spread of disease (Economist 2014b and de Montjoye, Kendall, and Kerry 2014).
The use of digital data is playing a growing role in the area of financial services in low-income countries. CGAP signaled this development in “Can Digital Footprints Lead to Greater Financial Inclusion?” (Kumar and Muhota 2012). Since then M-Shwari in Kenya, a savings-and-loan product launched by the Commercial Bank of Africa together with mobile operator Safaricom, has expanded rapidly. M-Shwari relies on mobile phone records to set initial credit limits and their subsequent savings and borrowing to adjust credit limits. M-Shwari reached 7 million Kenyans in its first 22 months. Another high-profile case is Alibaba—the Chinese commerce website that links buyers and sellers and uses commerce data to extend credit to small businesses (Shrader 2013).
M-Shwari and Alibaba are rather high-profile cases, but there are many other efforts underway. A global scan by CGAP found at least 36 new start-up companies or products focused on harnessing digital data for financial services (CGAP 2015). While many of these models are in trial phases, they signal opportunities to advance financial inclusion. One opportunity is exploring the possibility of assessing credit risk of people for whom no information or formal records exist, allowing many to establish a formal credit history and to eventually engage more broadly with formal financial service providers (FSPs). Another is exploring the potential to improve providers’ insights about customers’ needs leading to products that better suit poor people’s needs.
The opportunities are too big to ignore, but the use cases are still new. This Focus Note asks how far emerging new sources of digital data can improve business model economics, reach more people, and enable greater customization. What can this trend contribute to advancing financial inclusion?