• Microfinance 1.0: The Gameen Foundation proves that default rates can be low when lending to the very poor. Microfinance is born. This was possibly the most important financial innovation in the last 50 years.

• Microfinance 2.0: Fast money rushes in and interest rates go to a level that is still better than loan sharks, but not the low rates that billions need in order to escape from poverty. Microfinance may not be a suitable market for the VC to IPO high velocity startup model. This almost killed Microfinance by giving it a bad reputation.

• Microfinance 3.0. This is emerging at the moment and is characterized by three innovations.

• Free payment wallet with low cost micro payments and simple ways to save money. Look at Ffrees to see how to do this well.

• Impact investing and philanthropy. Kiva made this accessible and compelling for millions.

• Poor lending to the poor via a platform. The closest I have found to this is Zidisha. It is peer-to-peer micro lending. Conceptually, the beauty of this model is it “kills two birds with one stone”. The poor get both a saving account (they lend their excess cash) and a lending account (they borrow when they need extra cash).

This is financial inclusion in action and is key to lifting billions out of poverty into a global middle class (and that will be key to global growth). More innovation is needed and is coming in the form of:

• Digital Identity via mobile devices

• Asset recording and exchange via Blockchain technology.

Most bankers and most entrepreneurs fight over the Overbanked in the West (spoilt for choice and very rarely switch suppliers) and ignore the massive Underbanked blue ocean market where demand is strong and supply is weak.

By Bernard Lunn