Can Fintech Bank the Unbanked? Evidence from a Developing Country

Laurence Go, Universitat Autònoma de Barcelona

Abstract: Access to credit remains central to development. In the past two decades, microfinance institutions experienced rapid expansion in developing countries. Despite this, 2 billion people around the world remain unbanked. In response, the World Bank launched a global program called the Universal Financial Access 2020 whose main goal is for “adults globally [to] have financial access … where individuals can use savings, payments, credit and insurance.” In the Philippines, 75% of Filipinos still do not have bank accounts and 40% of municipalities do not have physical access to a bank. Unsurprisingly, the main source of loans is informal: family or friends (61.9%) and informal lenders (10.1%). This credit constraint is compounded by the fact that monthly interest rates of informal lenders are 20%, further increasing the barrier to credit. With the advances in mobile technology, financial inclusion seems to be more attainable, especially since the Philippines enjoys a 117% mobile penetration rate with 44% of its population considered active internet users. The advent of financial technology provides an opportunity for unbanked and underbanked individuals to be incorporated to formal financial institutions. Whether this leads to financial access in developing countries remains a mystery, one which this research hopes to address.