In recent years, governments and financial institutions across developing economies have made significant strides in expanding access to credit. Digital lending platforms, mobile-based loans and state-backed financing programs have brought millions into the formal financial system. On paper, this marks a major success for financial inclusion. In practice, however, a different story is unfolding, one where access does not necessarily translate into usage.
A growing pattern is emerging: individuals and small businesses, particularly in agriculture and the informal sector, continue to rely heavily on informal sources of credit such as SACCOs, and personal networks. This is not due to a lack of awareness or access to formal credit, but rather a mismatch between how financial products are designed and how people actually operate.
At the core of this issue is a fundamental disconnect between financial policy and practical economic realities. Many formal credit solutions are built around standardized structures such as fixed repayment periods, rigid qualification criteria, and automated disbursement systems. While efficient, these models often fail to account for the irregular and seasonal nature of income in sectors like agriculture or small-scale trade.
For example, a farmer’s income is tied to harvest cycles, not monthly cash flows. A small trader’s earnings may fluctuate daily based on market conditions. Yet, many loan products demand consistent, short-term repayments. This misalignment creates pressure on borrowers and reduces the attractiveness of formal credit, regardless of how accessible or affordable it may appear.
Trust and flexibility also play a critical role. Informal lending systems, though less structured, offer a level of adaptability that formal institutions struggle to replicate. Repayment terms can be negotiated, deadlines extended, and conditions adjusted based on individual circumstances. More importantly, these systems are built on relationships and social trust which are factors that remain central in many economies.
This does not mean formal financial systems are failing; rather, it highlights the need for evolution. The next phase of financial inclusion must move beyond access and focus on usability. Credit products must be designed with the end user in mind, incorporating flexibility, context, and behavioral insights.
Policymakers and financial institutions can start by aligning loan structures with real income patterns. Seasonal repayment schedules, grace periods, and hybrid credit models that blend formal and informal elements could significantly improve adoption. Additionally, engaging directly with target users during product design can ensure solutions are grounded in lived realities, not just theoretical models.
Ultimately, bridging the gap between financial policy and practical use requires a shift in perspective. It is not enough to ask whether people can access credit, we must ask whether that credit works for them. True financial inclusion will not be measured by the number of accounts opened or loans disbursed, but by the extent to which financial systems integrate seamlessly into everyday economic life.
