Financial Inclusion

Sep 5, 2023

Four Challenges Of Financial Inclusion: Diving Into Solutions For Success

Dive into a comprehensive guide to navigate four financial inclusion challenges. Explore solutions to succeed in creating a more inclusive financial landscape.

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Four Challenges Of Financial Inclusion: Diving Into Solutions For Success

Financial inclusion is vital in providing and increasing access to affordable and reliable financial products and services. This is especially true for underserved or excluded individuals and businesses from the traditional banking system, who face barriers to traditionally accessing these essential needs. Despite the widespread achievement of financial inclusion, it is hindered by several challenges. 

In this listicle, we delve into four key challenges and propose possible solutions to address the increasing demand for digital financial services, financial education programs, microfinance and peer-to-peer (P2P) lending, and leveraging alternative data.

1. Lack of Access to Financial Services

A primary challenge of financial inclusion is a limited or lack of access to financial services, where 1.7 billion adults do not have access to financial services, and 1.4 billion adults remain unbanked and lack a bank account.

Numerous factors can contribute to this lack of access, including:

  • High cost of financial services
  • Physical distance from financial service providers
  • Lack of proper identification documents to secure traditional financial services

How the increasing need for digital financial services is important

To address this challenge, it is imperative to utilise the emergence and demand of digital financial services. These solutions include:

I. Embrace digital financial services like mobile banking and digital payment systems to reach underserved populations.

The role of mobile banking and digital payments has revolutionised access to finance by offering alternative, affordable and convenient solutions. With high smartphone penetration and ownership worldwide, as reported by Statista in 2023, approximately 86% of the world’s population now owns a smartphone. This correlation between smartphone usage and financial access has significantly transformed how people engage with financial services.  

In regions like Latin America (LATAM) and Asia-Pacific (APAC), where many individuals remain unbanked, smartphones' prevalence has been instrumental in expanding financial access over the past decade. Our previous blog, 2023 Expert Guide: The Importance of Financial Inclusion Strategies and Policies, highlights this trend. 

By leveraging the ubiquity of digital financial services, primarily through smartphone and mobile devices, financial institutions can extend their services to individuals with limited access, thereby increasing access to financial services. 

II. Promote the adoption of financial technologies (Fintechs), microfinance institutions (MFIs), and peer-to-peer (P2P) lending products and services.

Adopting Fintechs, MFIs, and P2P lending products and services offers alternative and inclusive options for gaining financial access, particularly through digitisation and targeted support for low-income and unbanked individuals who may lack proper identification documents to access financial services traditionally. 

Fintechs are vital in improving financial accessibility and affordability for the underserved population. Forbes highlights how digitising financial services helps fintech companies reduce costs and extend their reach to a wider audience. MFIs and P2P lending products and services also contribute significantly to financial inclusion. 

These innovative solutions provide accessible and tailored financial services, reaching individuals and businesses that were previously excluded. Institutions can significantly enhance and foster financial inclusion efforts globally by leveraging such technologies and their efficient and low-cost distribution channels.

2. Low Financial Education and Literacy

Another challenge of financial inclusion is low financial education and literacy. Financial education and literacy are crucial for equipping individuals with the knowledge and skills to make informed financial decisions and effectively utilise financial services. This is also one of the leading forces affecting people's ability to access financial services in rural areas.

Financial education and literacy rates differ in important ways when it comes to characteristics such as education levels, income, and age. Financially illiterate people lack the ability to make informed financial choices regarding saving, investing, and borrowing, especially in times when financial products are getting increasingly complex to understand. 

How the increasing need for financial education programs is important

To address this challenge, creating and maximising financial education and literacy programs is imperative. These programs and initiatives should:

I. Tailor to different demographic groups, such as students, young adults, and adults.

The role these demographic-focused programs should cover essential and a wide variety of topics, including but not limited to:

  • Knowing how to budget and save, and its importance
  • Managing debt with ease 
  • Understanding how to invest and its importance 
  • Knowing how one’s smartphone and web metadata can help financial inclusion
  • Recognising and being aware of consumer protection laws

Targeted programs for specific demographics, like young adults, can equip them with essential financial knowledge, such as creating budgets and saving for long-term goals like retirement. Moreover, comprehensive and long-term education initiatives in rural areas will significantly contribute to fostering financial inclusion, a key driver in poverty reduction and economic prosperity. 

Empowering individuals with financial knowledge, from the basics to more advanced concepts, enables them to make informed decisions that positively impact their financial well-being and livelihoods. Ultimately, this cultivates sustainability in personal financial management for individuals and communities.

II. Foster collaborations between financial institutions, governments, and community organisations in improving financial education and literacy.

In order to improve financial education, financial institutions, governments, and community organisations should work together. Collaborations like these can develop and deliver more impactful financial literacy programs and reach a wider audience by combining expertise and resources. For example, the government could partner with banks to provide financial literacy courses to their customers or work with non-profits to offer financial literacy classes to low-income households. 

Collaborating with these entities allows governments to leverage their expertise, resources and networks to reach an even wider audience and provide targeted financial education initiatives, empowering a wider range of individuals to be equipped with better financial literacy and education, especially in personal financial management.

III. Employ creative approaches such as gamification to enhance engagement and effectiveness of financial education initiatives.

Gamification is a powerful tool that adds an element of fun and engagement to the learning process, making it more enjoyable and interactive for individuals. This creative approach successfully overcomes the challenges of motivating individuals to study, especially regarding financial literacy and education topics.

Gamification tactics, such as interactive visuals and infographics, can enhance information retention up to three times compared to traditional learning methods. By incorporating elements of play and interactivity, financial literacy programs become more engaging and increase motivation. In a survey assessing students' perceptions, 67.7% of participants reported that gamified courses enhanced their motivation compared to traditional courses. Moreover, higher engagement in financial literacy learning leads to better knowledge retention and practical application of financial concepts. Furthermore, gamification provides pacing that allows students to process information in their own individual and comfortable way.

Some successful examples of gamification in financial literacy and education by Smartico include:

  • Visa’s ‘Financial Football’, which merges financial education with interactive gaming, creates an engaging platform for users to learn about budgeting and money management. 
  • Educational institutions like MIT develop games like ‘The Uber Game’ that provide insights into personal finances and economic principles.

3. Lack of Financial Instability Policies

Financial instability can significantly impact access to affordable financial services, particularly for those excluded from traditional banking systems. 

Numerous factors contribute to this lack of financial instability policies, specifically affecting those who are excluded, including:

  • Limited government focus and resources
  • Lack of awareness and understanding 
  • Inadequate coordination among stakeholders

How the increasing need for microfinance and P2P lending is important

To address this challenge, it is hence imperative to maximise the emergence and popularity of microfinance, microinsurance and P2P lending:

I. Promote microfinance and microinsurance services to increase awareness and provide affordable financial products and services.

These services provide affordable financial products tailored to the needs of small businesses and individuals. By extending credit, providing risk mitigation measures, and offering access to insurance coverage, microfinance and microinsurance contribute to a more inclusive financial landscape. With microfinance and P2P lending, individuals can access financial services and even address inequality issues, such as creating a microcredit line for women in Brazil or building up P2P lending platforms in Indonesia to bring a new digital experience

Promoting these services through policies can raise awareness about the significance of financial stability and provide essential credit and risk mitigation measures, along with microinsurance coverage for emergencies, natural disasters and economic downturns.

Ultimately, by leveraging these services, individuals and businesses can access financial tools that were previously out of reach and ensure financial stability for all. 

II. Encourage government interventions and public-private partnerships to support inclusive financial stability policies.

To ensure the enactment and maintenance of financial stability policies can be enacted and maintained, active promotion and support from the government, in collaboration with public-private partnerships, are essential. Effective collaborations and information sharing between stakeholders are vital in developing and implementing comprehensive financial stability policies, preventing fragmented efforts and ensuring a more significant impact. 

Governments can implement initiatives to support financial inclusion and address systemic barriers by collaborating with non-profits, financial institutions, and private companies. Furthermore, by involving the government with public-private partnerships, the government can provide the appropriate regulatory framework and incentives to service providers and private operators, increasing their institutional outreach and range of services. This multi-stakeholder approach ensures that financial tools and services are accessible to all, complemented by education and training on responsible usage. This empowers people to make informed decisions about their financial health and fosters financial independence and capacity-building.

Moreover, through collaboration with banks and non-profits, governments can establish a robust support network that lays the foundations for inclusive financial stability policies. 

4. Lack of Traditional Credit Data

Many individuals and businesses in emerging markets and underserved communities lack access to formal financial services. They are prevented from accessing financial services due to the absence of traditional credit data, such as credit scores and credit histories. This data gap creates barriers to obtaining credit, insurance, and other essential financial services by perpetuating financial exclusion and limiting economic opportunities. 

Numerous factors can contribute to this lack of traditional credit data, including:

  • Limited access to formal financial systems
  • Thin credit files 
  • Limited credit reporting infrastructure
  • Preference for debit rather than credit

Leveraging alternative data helps financial institutions reduce this information asymmetry and close the gap. Through the use of various types of alternative data, financial companies can generate a comprehensive assessment of creditworthiness even for those with no traditional credit history. Examples of alternative data include those obtained through smartphone metadata, digital transactions, employment information, payment behaviours, and data obtained from social networks and even satellites. The reliability of these alternative data sources allows companies to reach out to marginalised segments, thereby increasing their client base and promoting financial inclusion.

How the increasing need to leverage alternative data is important

To address this challenge, it is hence imperative to fully utilise alternative data for those in emerging markets or underserved communities who lack access to formal financial systems. These solutions should:

I. Leverage alternative data sources like mobile device data and digital footprints to assess creditworthiness.

Mobile device data, digital footprints, and online behavioural patterns can serve as valuable indicators of creditworthiness. Financial institutions can utilise these alternative data sources to assess individuals' and businesses' creditworthiness, providing them with access to financial services that were previously out of reach.

For example, leverage behavioural data through a behavioural analytics platform like credolab, which builds the future of behavioural analytics and provides businesses with powerful insights to assess creditworthiness. By leveraging credolab's behavioural analytics solutions, make more informed decisions, unlock financial services, and gain valuable insights into fraud detection and risk assessment.

II. Utilise advanced technologies such as Artificial Intelligence (AI) and Machine Learning (ML) to develop predictive creditworthiness models.

AI and ML provide powerful tools for developing predictive models which enable accurate and fair credit assessments by analysing vast amounts of traditional and alternative credit data combined. These advanced technologies can complement and supplement traditional credit data with alternative data sources depending on data availability. For example, businesses can use credolab’s behavioural data to complement existing traditional data and other alternative data like telco data and psychometric data or rely on it in the absence of other forms of data.

By leveraging AI and ML in credit assessments, businesses can reach a broader and more diverse customer base, including thin-file customers and those traditionally underserved by mainstream financial institutions. This facilitates more informed decision-making and allows for more accurate risk assessment, benefiting businesses and customers.

III. Collaborate with telecom operators, utility companies and e-commerce platforms to gather supplementary data points for affordability assessments.

Collaborating with various technology providers can lead to the creation of a framework that leverages multiple data points for affordability assessments, identity verification, and overall fraud prevention. However, even alternative data quality differs since not all alternative data sources are created equal. Establishing collaborations with these entities allows financial institutions to gather comprehensive insights that reduce information asymmetry and enrich the overall credit assessment. Some examples of alternative data sources include telecom operators, utility companies and e-commerce platforms. 

Telecom operators can provide data, including:

  • Mobile phone usage 
  • Call and SMS records
  • Network status
  • Server logs, including SIM card swap 
  • Billing and top-ups 
  • Roaming data 

Utility companies provide utility bill data from historical payment data, including:

  • Name 
  • Address 
  • Statement date, due date and amount due
  • Recent payment amount and recent payment date 

E-commerce platforms provide e-commerce data, including

  • Purchase patterns 
  • Products shopped
  • Pricing
  • Sales performance and other data about buyers and sellers

Gathering data from a combination of these alternative sources can create many useful customer insights that build up credit reporting infrastructure. When analysed accordingly, this data can help reduce credit risk, prevent fraud, increase approval rates, and improve the overall customer experience and satisfaction.


The main challenges to financial inclusion, as identified and elaborated in this listicle, include a lack of access to financial services, low financial education and literacy, financial instability policies and the lack of traditional credit data.  

These challenges can be addressed by maximising the usage of:

  1. Digital financial services to increase access and foster financial inclusion
  2. Financial literacy and education programs to teach personal financial management
  3. Microfinance and P2P lending provide access to affordable financial services and credit
  4. Leveraging alternative data that complement each other and traditional data

In order to overcome barriers to financial inclusion, different stakeholders must work together. Our financial landscape can be more inclusive by embracing digital financial services, improving financial education, promoting financial stability policies, and leveraging alternative data sources. Together, we can empower individuals and businesses, unlocking their potential for economic growth and improving their overall financial well-being.


  • Alternative data: The set of information on behaviours, habits, interests and transactions carried out by a person and obtained from non-traditional sources.
  • Digital financial services: Financial services accessed through digital channels, such as mobile phones or the Internet.
  • Credit assessment: A lender's process to determine one’s ability to repay the loan and how risky it is for them.
  • Digital footprints: The information about a particular person that exists online due to their online activity.
  • Embedded finance: Integrates financial services into products or services provided by non-financial businesses and offers all businesses the platform to innovate beyond prior systems while simultaneously making quicker, simpler, more delightful experiences.
  • Financial literacy: The knowledge and skills needed to make informed and effective financial decisions.
  • Financial inclusion: The provision of affordable and accessible financial services to all individuals and businesses regardless of their financial situation or geographical location
  • Financial technology (Fintech): The use of technology to provide financial services, often using innovative approaches to reach underserved populations.
  • Microfinance: Providing financial services such as credit and savings to low-income individuals or small businesses.
  • Microinsurance: A low-cost insurance product explicitly designed for assets with lower value, microinsurance can help mitigate financial instability by providing compensation for illnesses, injuries, or deaths. It offers coverage to low-income individuals and businesses.
  • Mobile banking: Using mobile devices to access financial services like banking and payments.
  • P2P lending: A form of financial technology that allows people to lend or borrow money from one another without going through a bank.
  • Smartphone and web metadata: A set of data that describes and gives information about other data and key facts about an individual's data file from smartphone and web data, used for various analytical purposes.
  • Traditional credit data: Focuses on existing data already being used, such as credit scores, payment behaviour, and basic financial information, commonly used for credit assessment and risk analysis.
  • New-to-Credit (NTC): Refers to an individual's credit report of someone with no credit history. 
  • Thin-file customers: Refers to customers who are just starting and may have yet to take out a loan or have a credit card.
  • Unbanked: People who do not have access to financial services.
  • Underbanked: People with limited access, often in the form of informal financial services (e.g. illegal loans, relatives/family member loans, etc.).

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