The Invisible Borrowers: Opening the Door to Credit with the Mobile Phone

Individuals living in less developed parts of the world often engage in an informal economy where financial identities and credit scores are not commonly used. Little is done to keep records of financial histories, unlike the measures taken in the formal economy. In this installment of Digital Diversity, Rachel Itwaru, an intern for InVenture, explains how their organisation is pioneering a standardised credit scoring system for the unbanked to help them qualify for financing.

Digital-DiversityDigital Diversity is a series of blog posts from featuring the many ways mobile phones and other appropriate technologies are being used throughout the world to improve, enrich, and empower billions of lives. This article was curated by Gabrielle LePore, our Media and Research Assistant. You can follow Gabrielle on Twitter at @GabrielleLePore and at @kiwanja

By Rachel Itwaru

Vijayalakshmi Ramamoorthi lives in a world entirely of cash. She operates a small kirana, a humble shop that sells groceries and other sundries in the Indian municipality of Vandavasi, Tamil Nadu. She has no home title or financial history; her only trail is paper. Her expenses, scribbled haphazardly on torn sheets of paper and organised in no particular fashion, provide no conclusive affirmation of her financial responsibility. What if she wanted more working capital to expand her small enterprise, or tuition money for her son’s education? How can she realise her aspirations without significant upfront capital?


Vijayalakshmi and her husband stand inside their shop in Tamil Nadu, India. (Photo by Thomas Schumacher)
Vijayalakshmi and her husband stand inside their shop in Tamil Nadu, India. (Photo by Thomas Schumacher)


The absence of verifiable data thickens the line between the formal and informal economies, and prevents the population at the bottom of the pyramid (BoP) from any clear opportunities to prove creditworthiness.

For participants in the formal economy, individual financial activity is methodologically evaluated to develop a credit score. This simple numeric summary is the most critical part of our financial identity. It provides recipients with access to a variety of opportunities for affordable financial services, opportunities that are provided with dignity. However, for participants in the informal economy such as Vijayalakshmi, there are no opportunities to develop an accredited financial identity that would be recognised by any formal financial service institutions.

Although Vijayalakshmi lacks a traditional financial identity defined by the formal economy, her life is rich with data points. She completes frequent transactions and exercises simple but savvy financial management.

At InVenture we have developed a solution based on the belief that financial inclusion requires both a mechanism for borrowers to prove his or her creditworthiness, and the education necessary to prove it. Our mobile tool, InSight, uses text messages (SMS) and voice to help individuals and businesses in the informal economy perform daily accounting and cash management. Because of this ease of access it does not exclude the billions of people at the bottom of the pyramid who lack access to smartphones and the Internet.

InSight was developed in seven Indian languages. In 2013, we released a voice version of the software that allows users to input their data over the phone through the keypad, which makes it free and easier for individuals who are not accustomed to using SMS. InSight facilitates increased awareness of personal financial activity and favorable modifications in spending behavior by encouraging users to report expenses by category.


Vijayalakshmi uses her mobile phone to access InSight, the tool created by InVenture that uses SMS and voice technology to help participants in the informal economy to manage their money and daily transactions. (Photo by Thomas Schumacher)


However, we also understand that building the bridge to financial inclusion requires more than a single tool and an impressive algorithm. Financial literacy classes are an integral part of the training for new users. The majority of micro-business owners in developing communities have very low levels of financial literacy and are ill-prepared in making informed business decisions that relate to borrowing money, investing responsibly, and participating in the formal financial system. The curriculum is tailored to the attendants specific needs and includes essential financial vocabulary, methods for differentiating between personal and business expenses, ways of categorising expenses, and how to calculate revenue, loss, and profit.

After financial literacy training and her own adoption of InSight, Vijayalakshmi was able to keep a verifiable record of her daily expenses – sales, food, rent, labor, transportation and inventory – through a simple text message or call to our system. After one month of use, her data was analysed and a credit score produced that reflected her capability and willingness to repay loans. Our system allowed us to turn Vijayalakshmi from someone who lacked a credit score – an individual often misperceived by formal financial institutions as an economically disenfranchised member of society – to someone who is a consumer with real buying power and a strong repayment ability.

InVenture uses the financial data captured by InSight to address a systemic difficulty faced by formal financial institutions. Often, imperfect due diligence and a lack of established credit histories for micro-borrowers means that lending to people at the bottom of the pyramid is a risk. InSight allows lenders to monitor their borrowers’ spending patterns by logging into a special web dashboard.

The system helped Vijayalakshmi receive a US$2,000 loan for her store through a bank that accepts our calculated credit scores. She was able to buy bulk inventory – such as school supplies, drinks and bangles – rather than traveling 120 kilometers to Chennai every two weeks. As a result, she increased her sales by 35% and reinvests US$25 per month back into her business.

The ubiquity of simple feature phones in the developing world provides an exciting landscape for replication of our system and the opportunity to construct a financial identity for far more individuals. InSight is not just a tool but a voice. It is helping build a data platform for the base of the pyramid that allows us to see all of the little data points behind each person. We are able to quantify and aggregate InSight users’ demands to create a real market-based economy that puts equal power into everyone’s hands, and, ultimately, creates a fair and transparent marketplace.

ItwaruRachel has been an intern for InVenture since March 2013. She works full time at a middle-market private equity firm in Los Angeles. She graduated from Harvard in 2012 where she earned a degree in social anthropology, focusing on the qualitative effects of international development projects and economic inequity. She contributed to the Harvard Political Review and cultivated her interest in social enterprise through participation in the Harvard College Social Innovation Collaborative (HCSIC) – an organisation designed to facilitate student dialogue on social entrepreneurship and meaningful, sustainable social change. She also took part in HCSIC’s two-week Social Innovator Incubator, which fostered experimentation with creating mixed-profit business models.

Digital Diversity is produced by Ken Banks, innovator, mentor, anthropologist, National Geographic Emerging Explorer and Founder of, FrontlineSMS and Means of Exchange. He shares exciting stories in Digital Diversity about how mobile phones and appropriate technologies are being used throughout the world to improve, enrich, and empower billions of lives. You can follow him on Twitter @kiwanja

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Meet the Author
Ken Banks is an innovator, mentor, anthropologist and National Geographic Emerging Explorer. Founder of and now Head of Social Impact at Yoti, he spends his time applying Yoti's digital identity solutions to humanitarian problems around the world. His earlier research resulted in the development of FrontlineSMS, an award-winning text messaging-based field communication system designed to empower grassroots non-profit organisations. He shares exciting stories in "Digital Diversity" about how mobile phones and other appropriate technologies are being used around the world to improve, enrich, and empower billions of lives.