Breaking the Pattern

Getting Digital Financial Services Entrepreneurs to Scale in East Africa & India

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Hundreds of millions of families and small businesses in East Africa and India are not connected to banks or formal financial institutions.


Lack Access to Basic Financial Services

If you’ve been reading The Economist or the New York Times, you might think we’re in a golden age for digital financial services (DFS) in India and East Africa: with a mobile phone, everyone could have an entire bank in their hand.

In fact, very few FinTech startups in these countries have reached meaningful scale. We're only at the beginning.

We'll need hundreds of DFS companies to reach scale to truly improve financial health in India and East Africa. Yet, despite a few success stories, the vast majority have trouble reaching more than a few thousand people.

Village Capital, with funding from the Bill & Melinda Gates Foundation, sought out the first-person voices of DFS entrepreneurs in India and East Africa to learn why.

The Opportunity... and the Challenge

Startups in India and East Africa are using technology to meet the needs of the financially excluded. Yet investors are leaving too many great deals on the table.

East Africa

Mobile phones and mobile money have revolutionized how East Africans connect to the economy and to each other.

Over the past five years, entrepreneurs in East Africa have built tech solutions around credit, savings and insurance. They have also developed innovations in mobile payment technology for essential needs like energy and healthcare.

“We’re trying to replicate Silicon Valley, and it doesn’t work right now in Africa.”

Yet in 2015 and 2016, 72% of all startup investment in East Africa went to only 3 companies. (Source: Disrupt Africa)

72% went to 3 companies
East African companies receiving 72% of startup investment


Financial inclusion is a policy priority for the Indian government, and this attention has spurred activity from entrepreneurs and investors: today there are more than 1,500 DFS startups in India.

Despite an active investment landscape, in 2015 and 2016 only five companies that raised follow on investment were focused on improving the financial health of the underbanked.

"There are really two Indias: One, I call India [where there are rich people] and one I call Bharat [the local name for the country]. Most of the money is going to India and much of it doesn't extend to Bharat.”

Only 5 Indian DFS companies that raised a Series B or greater in 2015 and 2016 were focused on improving financial health. (Source: Traxn)

5 companies focused on improving financial health
East African companies receiving 72% of startup investment

Why do investors leave deals on the table? It's all about risk.

Through interviews, we heard entrepreneurs identify four main hurdles to getting the investment they need:


The Human Capital Trap

There’s a chicken-or-egg dynamic: companies can’t raise money without the right team, but can’t afford the right team without raising money.

graph Created with Sketch. (Source: Interviews from Breaking the Pattern: Getting Digital Financial Services Entrepreneurs to Scale Study ) Ability to Attract Specific Skills/Talent Less Difficult Skills & Expertise Computer Science & Engineering Data Science Financial Services Customer Service & Sales Management Design India Regulatory More Difficult East Africa

“[Human Capital] is miles and miles above everything else. It is without a doubt, the biggest binding constraint to growth. There’s human capital, and then there’s everything else.”

PAUL BRELOFF, CO-FOUNDER & CEO, SHORTLIST (Source: The Human Capital Crisis: How Social Enterprises Can Find the Talent to Scale, Redwood City: Rippleworks Foundation, 2016)

“I can’t find people who can manage. I have great technical talent but the lack of people who can communicate and manage effectively is hurting the business as we grow.”

Indian Entrepreneur

“It’s hard to find mid-level career financial services people that have been trained to think creatively. At banks, the products are vanilla and rinse and repeat. It’s hard to find people that want to get ahead of the curve on a new product.”

East African Entrepreneur

Business Model Constraints

Another chicken-or-egg: investors want to see proof of a profitable business model, but building a DFS business in East Africa and India means moving the markets from an analog to a digital economy. The cash and paper-based nature of the two markets requires time, capital, and agility to overcome - in other words, investment.

High customer acquisition costs

The foundation of a digital payments infrastructure are the following:

Digital Connectivity, which is necessary to reach end users (e.g.: mobile phone networks);

Cash In/Cash Out Networks that allow end users to exchange cash for digital value, and vice versa (e.g.: banks, ATMS, agents);

Digital Account, which stores digital value of cash (e.g. mobile wallet).

High customer acquisition costs

Due to the mistrust and lack of adoption of key products in the digital economy, such as digital payments and savings, DFS companies in India and East Africa face higher costs of customer acquisition.

“I would be very hesitant to invest in a fintech company that had to integrate with a mobile network operator as their primary distribution channel.”

East African Investor

“Mobile money is a completely new concept in many parts of India.”

Indian Entrepreneur

“The odds that you’re willing to buy something online without meeting someone is slim to none.”

East African Entrepreneur

“The traditional Silicon Valley model of building a product so viral that you don't need a sales force cannot be applied to India.”

Indian Entrepreneur

Debt Capital Gap

As a final chicken-or-egg: Investors want to see proof of traction and scalability, but DFS companies in India and East Africa need innovative and risk tolerant financing to pilot their products and show traction.

“Once you prove the concept, it becomes a concept, the problem is in accessing the capital to prove the concept to begin with.”

East African Entrepreneur

“It’s not easy to get institutions aligned and to understand that there will be some product loss in the beginning, but a potentially high upside downstream once the algorithm is perfected”

East African Entrepreneur

“Banks are the big pools of capital, but getting them to actually supply the capital has not been an easy process."

Indian Entrepreneur

The “Pattern Recognition Problem”

Most DFS companies don’t fit patterns that investors recognize. Many investors in India and East Africa fall back on pattern recognition to find companies and make investment decisions – relying on networks and indicators like prestigious universities or accelerator programs. If you’re not part of a well-connected elite, it’s difficult to build trust and relationships with investors, advisors, and other partners.

The Pattern Recognition Problem In East Africa, 90% of disclosed investments in 2015 and 2016 went to startups with one or more European or North American Founder. In India, 78% of companies that raised a series B and greater in in 2015 and 2016 had a founder that attended a prestigious university. 90% East Africa 78% India

“How does a Kenyan entrepreneur cut through the noise of other companies that are emailing me cold, or through people in my network that have no particular insight into what makes a good or bad company? I need a filter.”

Fintech Investor

“There’s a bandwagon effect: investors will say, ‘We’ll invest if you find a lead investor’ or ask ‘Who else is in the deal?’ All these guys talk to each other, so it’s difficult to get more than one term sheet. It’s difficult to drive any competition.”

East African Entrepreneur
FarmDrive Founders Rita Kimani and Peris Bosire

Case Study

There is an estimated $50 billion funding gap for smallholder farmers in Africa. The result is that smallholder farmers are unable to invest in the quality inputs, seed and fertilizer they need to improve their yields.

Rita Kimani and Peris Bosire launched FarmDrive to solve this problem. Born out of their firsthand experiences growing up in farming communities in rural Kenya, they built an agricultural data analytics company that uses alternative sources of information to build credit profiles for smallholder farmers in East Africa.

To realize their potential and continue to attract investment, FarmDrive must overcome each of the four hurdles.

The Human Capital Trap: For FarmDrive, this means overcoming challenges in finding experienced data scientists. “Everyone is recruiting from a small pool of data scientists,” Rita says, which means they are expensive and hard to find.

Business Model Constraints: FarmDrive is operating in a data-scarce environment, which means they don’t have access to readily available digital information that can inform a credit algorithm, such as cash flow, sales cycles, or even weather data. FarmDrive sees this as an opportunity and is seeking strategic partnerships to build these data sets.

Debt Capital Gap: It’s difficult to partner with financial institutions to test new customer lending products. Rita noted, “it’s not easy to get financial institutions to understand that yes, there will be some product loss in the beginning, but there will also be a potentially high upside downstream, once our algorithm is perfected. We need time to gather enough data first."

Pattern Recognition Problem: FarmDrive spoke about how it was initially difficult to get through to investors. Eventually, they participated in accelerator programs to help them build their network and credibility with potential investors - one of our recommendations for getting past the pattern recognition problem. “The relationships we developed from these programs were vital to our fundraising efforts” Rita highlighted.

Breaking the Pattern

Too many DFS companies are unable to attract the investment they need to grow.

This is bad for everyone: the investors who are missing out on good deals; the DFS companies who can’t attract the capital they need to grow. Most of all, it’s bad for the hundreds of millions of people lacking access to formal financial services in these markets.

What can we do to support entrepreneurs improving financial inclusion? Here are a few ideas. We invite investors, foundations, governments, and entrepreneur support organizations to build on these recommendations and help us develop more.

Look for your icon to learn more about what you can do:



Entrepreneur Support


Human Capital

We need to break the “chicken-and-egg” stalemate of companies needing cash to hire talent, but not being able to raise money without the right team. What if we build an integrated talent management network, to strengthen the human capital infrastructure, to start to overcome the human capital trap? What if investors and foundations fund strategic human capital hires?

Business Model

We need to help facilitate partnerships between entrepreneurs and the owners of the digital payments infrastructure to enable companies to make faster traction in proving their business model. What if we develop programs to facilitate strategic partnerships with financial institutions and mobile network operators, to improve the development of profitable business models?

Financial Capital

We need to move past the “one size fits all” nature of venture capital, by developing other tools. What if we increase the availability and subsidies for different types of venture and debt capital, and innovative financing models, to encourage more investments?

Pattern Recognition

We need to move past pattern recognition fallbacks as a proxy for potential. What happens if a startup founder doesn’t follow a specific pattern? What if we support initiatives to bring more transparency and build more in-country networks?