When “Developing” Countries Lead: How the Global South Outpaces Canada and the EU on Banking Access for Entrepreneurs

Banking Access Blog Post

When “Developing” Countries Lead: How the Global South Outpaces Canada and the EU on Banking Access for Entrepreneurs

A legal policy analysis revealing how supposed “third world” nations have built better financial inclusion frameworks than their wealthy counterparts

The regulatory geography of financial inclusion reveals an uncomfortable truth for wealthy nations: when it comes to ensuring banking access for low-income entrepreneurs and micro-enterprises, countries like India, Kenya, and Brazil have implemented more innovative, effective, and comprehensive solutions than Canada and the European Union.

The Innovation Gap

While Canada and the EU have focused primarily on consumer banking rights—leaving micro-enterprises in regulatory limbo between consumer protections and full commercial banking requirements—countries traditionally labeled as “developing” have built entirely new regulatory frameworks specifically designed for financial inclusion.

India’s Revolutionary Scale

India’s Business Correspondent model, launched in 2006, now serves almost 600,000 village habitations through 24,329 individual agents deployed across the country.1,2 This isn’t just policy—it’s a complete transformation of banking infrastructure that brings services directly to entrepreneurs’ doorsteps.

Compare this to Canada, where banking protections explicitly exclude business accounts6 and FINTRAC’s stringent KYC requirements impose uniform burdens on all businesses with no micro-enterprise relief. The result? Low-income entrepreneurs face the same regulatory obstacles as multinational corporations, while unreasonable credit bureau score requirements exclude those with thin credit files or past financial difficulties from basic banking access.

Kenya’s Mobile Money Revolution

Kenya’s M-Pesa serves over 40 million people with transaction volumes exceeding $100 billion in 2024—nearly transforming the entire economy.3 By 2014, M-Pesa transactions already represented almost half of Kenya’s GDP.

This wasn’t achieved through incremental reform but bold regulatory innovation. M-Pesa obtained a “special” license from regulators, despite concerns about non-branch banking adding to financial instability.4 Kenyan regulators chose inclusion over caution—and created a global model that bypassed traditional credit scoring entirely.

Meanwhile, the EU’s Payment Accounts Directive, while comprehensive for consumers, excludes businesses from basic account rights, leaving micro-enterprises exposed to excessive de-risking practices that create documentation barriers beyond legal requirements7,8—including impossible credit bureau thresholds for people whose economic activity doesn’t fit traditional employment patterns.

Brazil’s Correspondent Banking Success

Brazil’s banking agent network facilitated 12.4 million new bank accounts within just five years and now comprises 56% of all points of sale in the Brazilian financial system, reaching all 5,561 municipalities.5

This comprehensive approach stands in stark contrast to Canada’s fragmented system, where micro-enterprises fall through the cracks between consumer protections that don’t apply to them and commercial banking requirements they can’t meet—compounded by credit bureau systems that penalize irregular income patterns typical of small-scale entrepreneurship.

Why the Global South Succeeded

The success of these “developing” nations stems from three key factors that wealthy countries have largely ignored:

1. NECESSITY-DRIVEN INNOVATION BEYOND TRADITIONAL BANKING

Countries with massive unbanked populations couldn’t afford to exclude anyone from financial services. Rather than creating separate tiers for “consumers” versus “businesses,” they built inclusive frameworks that serve everyone—without requiring perfect credit histories or traditional employment verification.

India’s BC model specifically helps financial institutions extend microloans and credit facilities to the underserved by completing detailed assessments and using digital records2—treating micro-entrepreneurs as legitimate financial participants rather than regulatory afterthoughts, and focusing on actual economic activity rather than historical credit scores.

Kenya’s M-Pesa allows farmers and informal workers in remote rural areas to receive payments for goods or services directly into their phones, eliminating cash requirements and reducing theft risks.3 No distinction between “personal” and “business” use, no credit checks for basic access—just financial inclusion for economic activity.

Brazil’s correspondent banking reaches everyone through retail outlets ranging from supermarkets to lottery outlets, where clients can receive social payments AND access banking services5—recognizing that low-income individuals often blend personal and micro-enterprise activities, and that traditional credit scoring systems systematically exclude those most in need of basic financial services.

2. REGULATORY BOLDNESS THAT TRANSCENDS TRADITIONAL CATEGORIES

These countries didn’t ask whether someone had an acceptable credit score or fit standard “consumer” versus “business” categories—they asked whether they needed financial services and built frameworks accordingly.

Kenya’s government owns 35% of Safaricom, which assisted in establishing a strong relationship with the Central Bank and getting M-Pesa deposits insured under the Deposit Protection Fund4—treating mobile money users as citizens deserving protection regardless of credit history or use case.

India expanded Business Correspondent eligibility from just NGOs and MFIs to include individuals, local grocery shops, and for-profit companies2—recognizing that inclusion requires diverse service providers, not institutional gatekeepers applying rigid creditworthiness standards.

Brazil pioneered branchless banking through distribution partnerships between banks, retailers, and technology providers, allowing unprecedented growth in bank outreach5—focusing on access outcomes rather than regulatory purity or traditional risk assessment metrics that systematically exclude the economically vulnerable.

3. TECHNOLOGY-FIRST INFRASTRUCTURE THAT IGNORES TRADITIONAL BOUNDARIES

Rather than retrofitting old systems designed around branch banking, account categories, and credit bureau gatekeeping, these countries built new digital-native infrastructure designed for universal inclusion.

India’s government now provides social welfare benefits digitally via direct benefit transfer, with bank accounts linked to biometric identification (Aadhaar) and cellphone numbers9—creating seamless integration between identity, payments, and economic activity without requiring traditional credit verification.

M-Pesa enables users to send and receive money, pay bills, save, and even access credit and insurance, all through a mobile phone3—treating financial services as basic utilities rather than privileged products requiring complex account structures and creditworthiness assessments.

Brazil’s correspondent banking model involves partnerships between banks, several kinds of retailers, and technology providers5—recognizing that inclusion requires ecosystem thinking, not institutional silos that exclude based on imperfect credit histories or non-traditional income patterns.

The Wealthy World’s Blind Spot

Canada and the EU have fallen into the trap of assuming that robust consumer protections automatically translate to inclusive access for entrepreneurs. This assumption fails catastrophically for micro-enterprises, which face business-level compliance costs, onerous KYC documentation requirements, and unreasonable credit bureau score thresholds—all without the resources to meet such demands.

Even the EU’s comprehensive Payment Accounts Directive has resulted in “persistent barriers due to affordability, excessive de-risking, and implementation gaps”7 despite years of implementation. Canada’s situation is worse—there’s no equivalent framework even attempting to address micro-enterprise banking access, leaving low-income entrepreneurs trapped by credit scoring systems designed for traditional employment patterns they don’t fit.

The Path Forward

The lesson isn’t that Canada and the EU should copy these models wholesale, but that they must abandon incremental thinking. The Global South succeeded because they:

  • Created new regulatory categories for micro-enterprises rather than forcing them into consumer or commercial boxes
  • Embraced technology-enabled solutions rather than defending traditional banking models
  • Prioritized inclusion outcomes over institutional risk aversion and credit bureau gatekeeping
  • Built agent-based distribution networks to reach underserved populations
  • Abandoned credit score requirements for basic financial access in favor of alternative assessment methods

Conclusion: Leadership from Unexpected Places

When a Kenyan farmer can receive payments instantly via mobile phone while a Canadian sole proprietor struggles with onerous documentation requirements and unreasonable credit score thresholds just to access basic banking, we must question our assumptions about where financial innovation truly flourishes.

The Global South’s success in financial inclusion isn’t despite their “developing” status—it’s because necessity forced them to build better systems from scratch, unencumbered by legacy credit bureau systems that systematically exclude the economically vulnerable. Meanwhile, wealthy nations remain trapped by institutional inertia and risk-averse thinking that prioritizes perfect information over basic inclusion.

It’s time for Canada and the EU to learn from their supposed pupils. In financial inclusion, the teachers have become the students.

The evidence is clear: regulatory innovation, not just regulatory sophistication, determines inclusion outcomes. Countries that dared to reimagine banking infrastructure—free from the tyranny of traditional credit scoring—have delivered transformative results that put wealthy nations’ incremental reforms to shame.

References

1 Union Bank of India. “Business Correspondent Model.” https://www.unionbankofindia.co.in/en/Details/business-correspondent-bc-model

2 Federal Reserve Bank of Minneapolis. “Business Correspondent model boosts financial inclusion in India.” https://www.minneapolisfed.org/article/2012/business-correspondent-model-boosts-financial-inclusion-in-india

3 Conduit Blog. “What is M-Pesa? A Revolutionary Change in Africa’s Digital Economy.” https://conduitpay.com/blog/what-is-m-pesa-a-revolutionary-change-in-africas-digital-economy

4 Centre for Public Impact. “Mobile currency in Kenya: the M-Pesa.” https://centreforpublicimpact.org/public-impact-fundamentals/mobile-currency-in-kenya-the-m-pesa/

5 Wikipedia. “Banking agent.” https://en.wikipedia.org/wiki/Banking_agent

6 Canada Gazette. “Financial Consumer Protection Framework Regulations.” https://gazette.gc.ca/rp-pr/p2/2021/2021-08-18/html/sor-dors181-eng.html

7 Finance Watch. “Report: Breaking down barriers to basic payment accounts in the EU.” https://www.finance-watch.org/policy-portal/retail-inclusion/report-breaking-down-barriers-to-basic-payment-accounts-in-the-eu/

8 EUR-Lex. “Directive 2014/92/EU on payment accounts.” https://eur-lex.europa.eu/eli/dir/2014/92/oj/eng

9 Nature. “Digital financial inclusion in micro enterprises: understanding the determinants and impact on ease of doing business from World Bank survey.” https://www.nature.com/articles/s41599-024-02856-2

10 Government of UK. “Millions of people and businesses protected against debanking.” https://www.gov.uk/government/news/millions-of-people-and-businesses-protected-against-debanking

About the Analysis: This article synthesizes findings from extensive research into Canadian and EU financial inclusion frameworks compared with innovative approaches from India, Kenya, and Brazil. The analysis draws from primary legal sources, regulatory guidance, and peer-reviewed studies to examine how different jurisdictions address systemic banking barriers for low-income entrepreneurs.