New research by AFI’s South Asia Region Financial Inclusion Initiative (SARFII) has shed light on two important dimensions of financial inclusion — inclusive digital transactions and credit scoring mechanisms.

Digital Transactions in the Microfinance Sector

A SARFII member survey examined the status, challenges, and regulatory landscape of digital transactions in the microfinance sector. Findings indicate that digital transformation across the region remains uneven and at a transitional stage. Policymakers face a range of challenges, including limited digital literacy, inadequate digital KYC systems, cybersecurity risks, borrower preference for traditional methods, and poor rural connectivity.

The lack of interoperability across digital platforms remains a critical bottleneck. While some regulatory initiatives — such as digital guidelines, fintech partnerships, and integration with national identification systems — have been introduced, the overall framework remains fragmented and insufficiently tailored to the microfinance sector.

There is also considerable variation in progress. Pakistan demonstrates relatively advanced adoption, with most microfinance institutions (MFIs) utilizing digital channels for both loan disbursement and repayment. Sri Lanka shows moderate progress, particularly in branch-level service availability and client usage. Bangladesh and Nepal, by contrast, lag behind, with digitalization largely limited to loan repayments via mobile financial services (MFS), and minimal integration in savings and disbursement functions.

Centralized Credit Scoring Mechanisms

The second working paper, a landscape study of centralized credit scoring practices across SARFII member countries, revealed a diversity of approaches. Both the Sri Lanka Credit Information Bureau and the Credit Information Bureau of Nepal represent operational centralized scoring models, governed through public institutions. In Pakistan, almost all commercial banks and microfinance banks maintain their own proprietary credit scoring models. In Bangladesh, the central bank has developed a uniform internal credit scoring methodology applicable to all banks, although its implementation remains decentralized. Meanwhile, the Maldives Monetary Authority is currently assessing the feasibility of incorporating a credit scoring mechanism.

“The study reveals that the informal sector remains unscored and excluded from digital transactions across all five countries in South Asia — representing the single largest financial inclusion gap in the regional credit scoring and digital transaction landscape,” said Nangsi Dema, AFI’s Regional Manager for Asia. “All six SARFII member institutions have expressed a shared commitment to working toward formal, coordinated, and regionally aligned regulatory approaches to microfinance digital transactions and centralized credit scoring.”

“Advancing regional projects under the SARFII platform — particularly in the areas of regulatory harmonization, capacity building, and knowledge sharing — is widely recognized by members as key accelerators of progress toward more inclusive, interoperable, and resilient financial systems across South Asia.”