Fintechs - enabler or disrupter of development finance? How digitalisation can help close the loop

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Fintechs - enabler or disrupter of development finance? How digitalisation can help close the loop

Fintech adoption is driven by efficiency needs

One objective of Development Finance is to make accessible useful and affordable financial products and services to the under-served, as financial inclusion is a key enabler to reducing poverty. This goal is traditionally achieved through microcredits and loans to SMEs. With the growing appetite of impact investors, the industry is under fire to improve efficiency and standards. Microfinance structures can take the turn by turning themselves into fintechs able to serve more people in lesser time. Fintech solutions lower costs of local financial systems implementation – on the ground, facilitating transfers and investments and on investors’ standpoint, making data more accessible and the universe more investable.

Fintech solutions lower costs of local financial systems implementation – on the ground, facilitating transfers and investments and on investors’ standpoint, making data more accessible and the universe more investable

 

On the ground, Digitalisation speeds up inclusion

In the field of Development Finance, Fintech is considered more as an enabler than as a disruptor. Adoption of these technologies in emerging countries will favour entrepreneurship, eliminate cash handling and improve credit analytics to reduce risks and improve customer convenience. Microfinancing institutions are able to use numerous new digital payment models to carry out transactions and put online loan submission forms, which multiply the replication potential of the industry. For now, the basic use of digital delivery channels, like mobile banking and mobile money, are mostly in use or in progress. The intermediate level of digitising or automating workflows is on the rise.

Adoption of these technologies in emerging countries will favour entrepreneurship, eliminate cash handling and improve credit analytics to reduce risks and improve customer convenience

For Investors, fintechs improve impact measurability

From the investor point of view, fintech innovations are emerging as key drivers in the Impact space by answering the need to track and report on investment. The blockchain technology is one of them, with auto-verify tamper-proof data that make the resulting positive impact of the investment tangible at the moment it is physically achieved. In practice, high-trust tokens that represent a quantified unit of impact related to one or more Sustainable Development Goals (SDGs) could be used for the design of results-based finance schemes. Altogether, by enabling data collection and ensuring transparency and immediate traceability, fintech solutions close the loop of the Impact investment framework.

…fintech innovations are emerging as key drivers in the Impact space by answering the need to track and report on investment

Digitalisation will have a positive impact on the investment universe

Digitalisation will open new perspectives to the microfinance industry, scaling up the impact and improving reporting standards. We are very optimistic on the opportunities that digitalisation will create for us as investors. In particular, within the Impact investment space, we expect these developments to contribute to better transparency and reportability, which ultimately will enlarge our universe. As we cannot manage what we cannot measure, we also expect these developments to attract new investors.

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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