Rich or poor? …Did you mean assets or flows?

A seminal presentation by Nandan Nilekani in 2016 has been an eye opener for many of us since then.

As digitalization makes daily life convenient and provides more options to buy, pay, save and invest for the top 10% population in emerging countries, primarily in and around their capital sprawls, it is the 10X potential of digitalization of payments, better banks for the unbanked and smarter use of data flows from the other 90% first time users that will become the game changer.  

Data suggests that failure rate of women micro-entrepreneurs in frontier countries is 2X that of their male counterparts. Yet they are the ones forming the majority. It’s no fault of theirs, for the number one reason is being worse off in access to credit.

Decisions on their borrowing are asset driven, not flows based. Even if you do manage to borrow from microfinance institutes, there is a big gulf in the middle above MFIs, before being considered seriously by established banks. The ratio of medium businesses to small and of small businesses to micro businesses is disproportionately skewed with limited upward mobility.

The combination of merchant lending against flows, modernization of corner shops, push from global payment brands on softPOS aka payments acceptance with mobile phones, increasing availability of data connectivity, over multiple networks and at reducing unit cost, will enable the same ecosystem that we take for granted for the top 10% to get formed for the remaining 90% with profitable unit economics.

But this will need to flow with the grain. Not by challenging traditions and habits in the beginning, but by reducing friction in established flows.  For example, table savings/chit funds, social gatherings and clever mix of digital marketing and on-ground activation. Not by supplanting with a brand new retail distribution but by modernizing the kiranas and warungs having much higher revenue to rental ratios, for example.  

Nandan Nilekani calls it community created livelihood platforms.

If the industry can get its act together on individual and micro-business digital identity, privacy-enhanced data analytics and data exchanges, seeding 50$ smartphones in every family, digitalizing dominant last mile points of retail distribution and create fluidity with digital assets & tokenized utility flows between ‘poor’ infrastructure and ‘rich’ data flows of consumption and savings, we may witness the biggest poverty alleviation phenomenon over next twenty years.