Fintech for Impact : How Can Financial Innovation Advance Inclusion?

Over the past decade, the financial sector has been an engine of innovation with new financial instruments, such as green bonds or social impact bonds, and new business models, enabled by technology. Fintech refers to business models that provide financial services and are mostly enabled by technology. The rising Fintech sector creates a major disruption and brings the promise of enhanced financial inclusion. Inclusion of individuals and small enterprises has made considerable progress over the past two decades. Yet more than 1.6 billion adults globally still do not have access to financial services. This chapter reviews the main benefits of financial inclusion and the contribution of Fintech to this policy agenda. This chapter then emphasizes the quality dimension of financial inclusion, on top of access. Financial inclusion is the largest recipient of Impact Investing capital, either in the form of equity – public or private – or debt, from a wide range of investors, both institutional and retail. By combining the latest academic research and case studies, this chapter analyzes how Fintech – including peer-to-peer payments in China, transfers in Kenya, digital banking in Brazil, e-commerce in Argentina, and other examples of financial innovation – can expand inclusion. The intent and metrics pursued by Fintech are focused on access and customer satisfaction and can meaningfully help fight poverty, reduce inequalities, and accelerate the attainment of Sustainable Development Goal (SDG) 1 (no poverty) and SDG-10 (reduced inequalities). There are still challenges to overcome, particularly high levels of informality, subpar quality in financial services, regulatory challenges, and low levels of financial education