What is Alternative Finance?

3
Jun

Microfinance has sought out the customers that banks ignored, making financial services available to people at the ‘Bottom of the Pyramid’ (BOP). Microfinance is now widening to Alternative Finance, including the essential credit, savings, insurance and payment services needed by Micro, Small and Medium Enterprises (MSMEs).

The ‘Bottom of the Pyramid’  (Tier 4 in the diagram below) includes the nearly 3 billion people in the market for microfinance, whereas the owners of MSMEs not served by banks could be in any Tier.

Alternative Finance targets the bottom of the Economic Pyramid

Over 3 billion people are at the Bottom of the Pyramid, and they are now gaining access to financial services through Alternative Finance.

Alternative Finance is increasingly finding ways to combine the best of technology with personal support to help both individuals and businesses.

In short, Alternative Finance refers to non-banking financial services that fill the gaps left by traditional institutions, offering greater variety, more flexibility and easier access. This serves populations that don’t have access to finance, which could include the poor, women’s groups, minority groups, those with no credit history, and more.

Alternative Finance has revolutionized the distribution and access to financial services through technology, and offers simpler products at lower prices to appeal to all tiers of the pyramid.

Key branches of Alternative Finance for underserved markets

Credit

Credit services are loans and credit offered to MSMEs or individuals, often giving capital to those who could not get loans from commercial banks.

Read more- Alternative Finance: Credit

Savings

A common problem in underserved markets is lack of access to savings, caused by distance and inefficiency.  Saving money is essential for businesses and individuals that want to expand and develop.  A secure way for saving money enables people to improve their lives with their own resources.

Read more- Alternative Finance: Savings

Microinsurance

People at the bottom of the pyramid are more susceptible to the long-term impacts of emergencies and life crises due to the lack of low-cost insurance coverage.  In response to these needs, several new insurance products for the poor and uninsured have developed.

Read more- Alternative Finance: Microinsurance

Payment systems

Many of the greatest technological advances in Alternative Finance have been seen in payment systems, allowing people to access and send their money from anywhere to anywhere, reducing the need for trips to the bank.

Read more- Alternative Finance: Payment Systems