Fintech & AI: Boosting Financial Inclusion for Latin America’s Informal Businesses

The persistent challenge of financial inclusion in Latin America is prompting innovative solutions, with fintech companies leveraging artificial intelligence to reach underserved populations. While traditional banking and government initiatives often fall short, a growing number of entrepreneurs are stepping in, attracting venture capital and demonstrating the potential to integrate millions into the formal economy.

Recent investment in Colombia-based startup Quipu exemplifies this trend. The company secured $300,000 in funding from Impacta VC, a Latin American venture capital fund, to expand its lending services to microbusinesses traditionally excluded from formal financial systems. This investment signals confidence in Quipu’s approach and its potential to scale solutions across the region.

Quipu distinguishes itself through an alternative credit scoring model powered by artificial intelligence. Rather than relying on conventional credit histories – often unavailable to informal business owners – the platform analyzes data from sources like photos and videos of work, digital activity, income information and payment history to assess creditworthiness. This approach opens opportunities for entrepreneurs previously deemed too risky by traditional lenders.

The Scale of Informality in Colombia and Latin America

The need for such innovation is underscored by the high rates of informality in Colombia and throughout Latin America. Data from Colombia’s national statistics agency, DANE, reveals that between September and November 2025, 55.4% of the Colombian workforce operated in the informal sector. In rural areas, this figure rises to 83.4%.

DANE’s research identifies several contributing factors to informality, including low levels of education, limited income, and a preference for flexible work arrangements. Structural issues such as a lack of economic complexity, low firm productivity, rigid labor laws, high formalization costs, and insufficient oversight also play a significant role.

The International Labour Organization (ILO) emphasizes the broader societal benefits of formalizing work, citing increased productivity, improved market access, greater sustainability, fairer competition, and more adequate social and labor protections. Formalization also provides a crucial safety net during crises, as demonstrated during the COVID-19 pandemic, when micro and small enterprises (MiPyMEs) were disproportionately affected. A study by the Corporación Interactuar in Colombia found that 10% of MiPyMEs declared bankruptcy and 65.7% were left without sufficient cash flow to continue operations.

The investment in Quipu reflects a growing recognition of the potential for fintech to address these challenges. By expanding access to formal credit, companies like Quipu not only reduce the risk of precarious debt cycles but also pave the way for broader financial inclusion and economic stability. The company’s expansion plans signal an intent to replicate this model in other Latin American markets.

However, the potential for pitfalls remains. A study by the Universidad EAFIT highlighted the risk of informal workers falling into “a cycle of indebtedness that compromises economic stability and exacerbates labor precariousness.” responsible lending practices and financial literacy initiatives are crucial to ensure that increased access to credit translates into genuine economic empowerment.

Initiatives like Quipu represent a movement towards supporting microbusinesses and encouraging their formalization. While formalization is influenced by complex structural factors, facilitating access to the formal economy represents a concrete step towards more equitable and sustainable growth in the region. The use of AI-driven alternative credit scoring models is a key component of this shift, offering a pathway for millions of previously excluded entrepreneurs to participate in the formal financial system.

The broader trend of fintech investment in Latin America is significant. More than 60% of venture capital investments in the region are now flowing into fintech companies, with $735 million allocated to startups across the region. This momentum is driven by the large underserved population – between 20% and 30% of Latin Americans remain outside the traditional banking system – and the rapid adoption of technologies that are redefining credit assessment and financial service delivery. Brazil’s pioneering open finance framework and instant payment system (PIX) and Argentina’s growth in payment accounts with balances invested in money market funds demonstrate the impact of policy reforms and digital public infrastructure investment.

With over 3,000 fintechs now operating across 26 countries in the region – a substantial increase from the 703 operating in 18 countries in 2017 – competition is driving data-driven innovation, making financial services faster, more affordable, and more inclusive. This surge in innovation is not simply about disrupting traditional banking. it’s about building a more inclusive financial ecosystem that serves the needs of a diverse and historically underserved population.