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Reimagining grievance and redress mechanisms to fix the weakest link for India’s financial consumers

Posted on by harshita

India’s journey of financial inclusion has been remarkable. In just a decade, more than 571 million Jan Dhan accounts have been opened, and digital public infrastructure, from UPI to Aadhaar, has reshaped how households access money, insurance, and government benefits. For millions of low-income families, women, and migrant workers, the formal financial system is finally within reach.

Yet beneath this progress lies a quieter, persistent challenge. Financial inclusion does not end with access alone; it also depends on protection, trust, and timely support when things go wrong. For many consumers, especially in rural India, grievance redress remains difficult, confusing, and unreliable. Take Rani, a daily wage worker from Uttar Pradesh, who learned this the hard way. When a failed PI transaction deducted money from her account, she made repeated visits to her bank branch. Each visit cost her a day’s wages, only to be asked for new documents every time. “I do not know if anyone will solve my problem,” she lamented. Her experience reflects the reality of millions who struggle to reach equitable financial services. While they have access, the system fails to solve their problems.

India’s vision of financial inclusion acknowledges this gap. The National Strategy for Financial Inclusion (NSFI 2025-30) emphasizes that inclusion can only be sustained when consumers have access to simple, responsive, and technology-enabled grievance and redress mechanisms. However, inclusivity remains a distant dream for many low-income users today.

What MSC’s research uncovered

MSC conducted a study across nine states to understand how low- and moderate-income (LMI) consumers navigate grievance and redress mechanisms. We used a stratified sampling approach that covered 443 LMI respondents who had registered a grievance with a regulated financial entity. Through this study, we examined their awareness, registration behavior, follow-up patterns, and resolution experiences. Our study revealed important patterns and persistent gaps that form the evidence base for the insights shared in this blog. The following section outlines key insights. Discover the detailed methodology and findings in our full study here.

Awareness remains uneven and heavily dependent on informal channels

Most respondents knew about basic grievance channels. 73% of them were aware of helpline numbers, and 63% knew they could approach their local bank branch. However, awareness of digital or formal channels lagged significantly. Only 43% of respondents knew of online grievance portals, and just 34% were aware of email-based channels. Although financial service providers (FSPs) are expected to educate consumers, only one out of five respondents reported that they had learned about grievance and redress mechanisms from the institution itself. In contrast, 69% of respondents reported word of mouth, 55% reported internet search, and 53% reported social media as the primary sources of information. This leaves consumers vulnerable to misinformation and unsure about how to escalate their complaints effectively.

Resolution is slow, inconsistent, and often incomplete

Among all registered grievances, only 59% were fully resolved. Another 25% were partially resolved, while 16% remained unresolved, often for months. For many, delays were significant. 37% of cases took longer than a month to resolve. A farmer in Maharashtra described a harrowing experience with a pending crop insurance claim. He said, “I kept calling the helpline, but each time they asked me to wait for 15 days. It has been months now.” Such delays erode trust and force consumers to engage in repeated follow-ups.

Persistence, not system efficiency, drives outcomes

Consumers’ grievances move forward largely because they continue to follow up consistently. Nearly 40% had to follow up three to five times, while 14% followed up more than six times.

The process often depends on individuals rather than institutional systems. More than half of respondents credited branch managers or staff to help them resolve their issue, while 49% said customer care agents played a major role. The system’s design does not work proactively. Resolution depends on whether a sympathetic employee chooses to support the customer. This makes outcomes arbitrary and inequitable.

Women face layered, gender-specific barriers

– Women experience greater hesitation and lower confidence when they navigate grievance and redress mechanisms.

– 22% of women were afraid to interact with officials, compared to 18% of men.

– Only 57% of women’s grievances were resolved within a month, compared to 71% for men.

– Only 7% of women respondents were aware of channels, such as the RBI Ombudsman, for grievance and redress.

As a result, women often accept partial resolutions just to end the exhausting, time-consuming process. “In the end, I had to accept whatever help they offered. It was taking too long,” shared a woman from Odisha. These stories reveal a concerning pattern. They highlight a system where grievance redress relies on individual persistence, personal favors, and local goodwill, rather than structured and efficient mechanisms.

Why does this matter?

Financial inclusion cannot thrive without trust. When problems go unresolved, or grievance and redress mechanisms feel slow, confusing, or intimidating, consumers withdraw from digital channels, mobile banking, and sometimes from formal finance altogether. This disengagement harms consumers, reduces usage for providers, increases reputational and operational risks, and signals systemic weaknesses to regulators. A strong, transparent, and timely grievance and redress mechanism is therefore not a mere service feature. It is essential infrastructure that protects users, sustains confidence, and strengthens the integrity of India’s financial ecosystem.

What needs to change?

MSC’s study reveals that nearly 20% of LMI users experience fraud or attempted fraud within their networks. This has a severely negative impact on usage. of the respondents moderately reduced their digital usage, 11% sharply reduced it, and 8% stopped using digital services altogether.
This erosion of trust mirrors the concerns highlighted in the NSFI 2025–30, which underscores that sustained financial inclusion depends on strong, technology-enabled, and user-centric grievance and redress mechanisms. Such mechanisms protect consumers and reinforce confidence in digital finance. It also highlights the need for stakeholders to take systematic actions across different categories to strengthen grievance and redress mechanisms.

Category 1: Strengthen grievance access and user inclusivity

  • Integrate GRM access through Unified Mobile Application for New-age Governance (UMANG), DigiSaathi, Jan Suraksha0; enable business correspondents (BCs) or customer service centres (CSCs) or self-help groups (SHGs) to help users file complaints into the RBI’s Complaint Management System (CMS) or Centralised Public Grievance Redress and Monitoring System;
  • Expand IVR, WhatsApp, or USSD grievance flows;
  • Build guided DFS grievance flows on DigiSaathi and ;
  • Pre-fill fraud complaints through the Digital Payments Intelligence Platforms (DPIP)
  • Integrate UPI, OTP, or KYC error codes into complaint workflows.

Category 2: Improve data standardization and integration

  • Create a national unified grievance taxonomy;
  • Enable API-based real-time data flows;
  • Create a national GRM intelligence layer that will integrate the CPGRAMS, CMS, the DPIP, the National Payments Corporation of India (NPCI), and the State Level Bankers’ Committee (SLBC) dashboards.

Category 3: Enhance grievance resolution efficiency and timeliness

  • Enable digital workflows with CMS or CPGRAMS; automate updates and publish monthly TAT dashboards;
  • Deploy a SupTech early warning engine that will combine DPIP alerts, CPGRAMS data, CMS data (capturing grievance pendency and time elapsed since registration), and outage feeds.

Category 4: Strengthen last-mile facilitation and coordination

  • Provide BC or CSC grievance apps linked to UMANG or CMS;
  • Train BC agents to capture issues related to the DPIP and incentivize capture;
  • Establish state GRM hubs that will integrate the SLBC, CPGRAMS, DPIP, and CMS, supported by quarterly audits.

Category 5: Build awareness, trust, and consumer protection literacy

  • Integrate awareness into Jan Suraksha0, PMJDY, and SHG or CSC programs through multilingual outreach campaigns;
  • Push DPIP alerts through WhatsApp or SMS;
  • Embed safety nudges and create local fraud-watch cells.

A path forward that can build trust

Grievance resolution must become a frontline service, not a back-office burden. When a customer like Rani receives timely, fair support, it reinforces confidence in the system not just for her, but for her entire community.

However, our study reveals that today only , which reveals significant gaps in service experience and accountability.

Effective grievance and redress mechanisms strengthen financial inclusion as they ensure that every user is treated fairly, problems are solved transparently, and complaints are not dismissed or lost. When redress systems work, customers feel respected, protected, and empowered to remain active participants in formal finance.

Research shows that grievance redress or effective dispute resolution significantly increases users’ “continuance intention” to use mobile wallets and digital payments. Globally, studies by the United Nations Conference on Trade and Development (UNCTAD) find that strong dispute-resolution systems boost consumer loyalty, reduce churn, and increase repeat transactions. For India, a strong, transparent, and accessible redressal system is not a luxury- it is foundational infrastructure. As India advances toward the NSFI 2025–30 vision, strengthening grievance redressal becomes central to deepening usage, enabling safer digital adoption, and ensuring that every financial consumer feels protected within the system. By ensuring that user grievances are fairly and promptly addressed, we not only protect consumers but also sustain long-term engagement, deepen financial inclusion, and build a resilient, trustworthy digital finance ecosystem.

Every eligible grievance should be recorded, and once registered, it must be resolved as per regulatory guidelines. With the right systems and accountability, we can ensure that every person who enters the formal financial system feels protected, respected, and empowered to stay.

Every voice matters: Tracing the journey of grievance and redress for India’s LMI segment

Posted on by harshita

This study analyzes how low- and moderate-income users in India navigate grievance and redress mechanisms for financial services. Based on a multi-state quantitative survey of individuals who have filed grievances, the report assesses awareness of grievance channels, patterns of registration and escalation, resolution outcomes, and user effort. The findings highlight persistent gaps in accessibility, timeliness, transparency, and institutional responsiveness, and present evidence-based recommendations to improve the effectiveness and inclusiveness of grievance and redress mechanisms. 

Will AI take over public policy in India?

Posted on by harshita

For decades, governments have struggled with how to turn broad welfare goals into clear rules, such as who should be included, on what criteria, and how much support each person should receive. Policy choices around merit, reservations, and socioeconomic vulnerability have effectively decided who benefits and who does not. Public policy has always been about using imperfect information to make decisions that are as fair and just as possible. The advent of AI will turbocharge this process.

AI can now scan millions of data points, and predictions can be made in seconds. Today, technology has made it easier to identify where the floods will hit, which geographies in a country are most food insecure, which children are most likely to drop out of school, and who is most susceptible to health hazards. All this was not possible before, but AI has made it easier and faster to execute such dynamic and real-time analytics at a more local level.

We can see this shift in the core sectors. In the agriculture sector, crop insurance﷟ the PM Fasal Bima Yojana, reportedly added coverage of about 10 million hectares and 8.5 million farmers in recent cycles. These programs experiment with remote sensing and automated yield assessments. AI models can now combine weather, soil, and satellite data to help the government determine which blocks require additional irrigation support, which crops to encourage, and where to focus extension staff.

For example, our team at MSC co-designed the Bihar Krishi platform with the state agriculture department. We built a voice-first, AI-enabled interface that offers local-language audio advisories, voice-based scheme search, and personalized soil-health recommendations. The platform makes AI-driven agricultural advice accessible to more than 750,000 smallholders. It won a national DigiTech award for its efforts in farmer empowerment.

Disaster risk management follows the same path. Between 1995 and 2024, India has faced more than 400 extreme weather events and suffered more than 80,000 deaths. Annual disaster-led deaths have again crossed 3,000 in 2024–25. In this context, AI-enhanced early warnings, impact forecasting, and evacuation planning are no longer futuristic and have become an essential tool for survival. MSC’s 2025 case study, prepared for the GSMA of India’s SACHET public warning system, shows the importance of multichannel early warning systems. These systems combine cell phones with radio, television, social media, sirens, and other channels to ensure that everyone at risk is notified on time.

Use cases with potential for AI-driven improvement

Beyond these early deployments, the nation offers significant room for AI to strengthen the current public systems. India’s food security net under the National Food Security Act covers about 800 million people, each with a fixed monthly grain entitlement at a fixed subsidized price. AI layered on top of this infrastructure could make the system more responsive. It will anticipate where demand will spike due to migration and move stocks accordingly, as well as flag places where offtake is unusually low.

Education is another front where the need is obvious. The Annual Status of Education Report 2024 shows that only 23.4% of Class III children in government schools can read a Class II text, and 45.8% of Class VIII students can do basic arithmetic. AI cannot replace teachers, but it can help policymakers see, almost in real time, where learning falters and which interventions are effective. It also identifies children who consistently struggle or do not progress in basic skills.

Moreover, current developments offer a broader governance opportunity. Grievance portals and citizen feedback systems are being digitized at scale to provide policymakers a textured, bottom-up view of where the state fails and why. Alongside this, the India AI Mission is a political signal that AI is not a side experiment but part of the state’s core toolkit.

However, these examples also highlight the risks of incorporating AI into public policy. Most datasets in the country reflect imbalances in caste, patriarchy, and regional differences, alongside uneven state capacity. Models trained on this data can learn that specific communities are at higher risk, are less creditworthy, or are less deserving of support. They then quietly code that conclusion into welfare targeting, enforcement, or policing. A biased official can be challenged, but a biased model wrapped in technical language is much harder to contest.

AI systems hallucinating at scale is another source of danger. A 1% error rate in a consumer app is a problem. However, a 1% misclassification in a system that touches 800 million food security beneficiaries or tens of millions of farmers is a failure on a national scale. When crop loss models underestimate damage or when an AI-powered fraud detection system mislabels genuine beneficiaries as “suspicious,” the result is lost food entitlements, unpaid claims, and mistrust.

Cross-cutting risks also affect the overall public information space. Deepfakes can inflame tensions, synthetic news can distort public discussion, and automated micro-targeting can make it easier to manipulate opinion than to engage with it honestly. Together, these tools can reshape the environment in which people discuss, understand, and ultimately decide policies.

The realistic path now is to recognize that AI will shape policymaking and put the right guardrails in place, rather than keep AI out. We suggest several practical directions:

Adopt a risk-based framework for AI in government:

– Distinguish clearly between low-stakes uses, for instance, basic predictive analytics and dashboards, and high-stakes decisions, such as ration eligibility, disaster evacuation planning, crop loss assessment, or school placement;

– Strengthen requirements for transparency, documentation, testing, and human oversight as the impact on people’s rights and entitlements increases.

Make explainability a core obligation, not a technical afterthought:

– Ensure that when a model influences an individual decision, such as stopping a pension, it offers a clear, accessible explanation of why that decision was made;

– Build simple, human appeal routes into every high-stakes AI system, along with logs and review mechanisms, from the design stage.

Protect beneficiary data and set strict limits on reuse:

– Allow program data for defined public purposes only, with no sharing of personal data without explicit consent;

– Include no training, resale, and secondary use clauses and strong audit rights in all AI vendor contracts.

Embed AI within a broader accountability ecosystem:

– Align the use of AI with the Digital Personal Data Protection Act to set boundaries on surveillance, profiling, and secondary use of personal data;

– Equip regulators with the technical capacity to challenge algorithmic systems used in public programs;

– Enable independent researchers and civil society to audit real-world impacts.

Use India’s digital public infrastructure to set the standard:

– Make open standards and APIs, as well as privacy-aware public datasets, the default for AI in public policy;

– Create an internal registry of AI systems and publish information on those that directly affect citizens’ rights and entitlements.

When we look at the bigger picture, AI will not write and govern policies for us. It will only change how we see problems and solutions. The task is to use these tools to make informed and fair decisions. If public institutions can combine the power of AI with clear rules and accountability, they will serve the public interest better without losing sight of the people behind the data.

Based on this agenda, MSC has also cofounded the Alliance for Inclusive AI with BFA Global and Caribou. We are committed to developing practical “small AI” solutions that expand opportunity for underserved communities across the Global South.

Women must power the digital economy

Posted on by harshita

Bangladesh’s digital finance revolution is often praised for its scale. According to a Transparency International Bangladesh (TIB) report citing Bangladesh Bank, there are 237 million mobile money accounts and 1.83 million MFS agents nationwide as of December 2024.

This has built one of the largest and most active digital payment ecosystems in the world.

Yet beneath this achievement lies a structural flaw that deserves urgent attention: Historically fewer than 1% of MFS agents are women. This figure is not a gender statistic to be filed away; it is an economic warning sign.

In any modern service-driven economy where value is created through interaction, participation, and service exchange, women cannot remain only consumers of financial services. They must also be part of its delivery infrastructure. Otherwise, the math of inclusive growth simply does not hold. In today’s economy, excluding women from the delivery layer of finance means excluding them from the core engine of economic growth itself.

Half the users are women. Almost none of the providers are

According to a TIB analysis of Bangladesh Bank data, as of December 2024, women now hold around 42% of Bangladesh’s mobile financial services accounts.They use mobile money to receive remittances, manage household transactions, run small enterprises, and increasingly participate in e-commerce.

Yet the frontline that powers this system, MFS agents handling cash-in, cash-out, merchant payments, and G2P transfers, remains almost entirely male. Unlike agent banking, which has a 50% mandate for female agents, the MFS ecosystem has no such requirement and continues to replicate a male-dominated structure. The result is a digital economy where women are permitted to consume but are effectively excluded from producing and delivering financial services. An economy built on one-sided participation cannot be inclusive or efficient.

Digital finance is a missed employment engine for women

This exclusion matters because digital financial services represent one of the easiest labour-market entry points for women in Bangladesh. Becoming an MFS agent does not require high literacy, large capital, significant mobility, or formal employment conditions. It allows flexible, community-based work that is compatible with household responsibilities and can evolve into stable micro-entrepreneurship.

For millions of women, especially youth and home-based entrepreneurs, this role could offer a rare pathway to income generation and formal economic participation. Bangladesh is foregoing this economic opportunity not because women are unwilling, but because the system is not designed for them.

The problem is the system design

Providers often argue that “women do not apply” or that women struggle with liquidity, safety risks, or high-footfall business requirements.

But evidence from India, Nigeria, East Africa, and Bangladesh’s own women-led agent pilot tells a different story. CGAP experience from markets such as Kenya and Nigeria shows that when female agents are supported with appropriate liquidity mechanisms, safer operating environments, and proximity-based models, they perform on par with or better than their male counterparts, despite having less working capital and mobility.

When the operating model aligns with women’s realities, community-level locations, tailored liquidity support, safer training environments, and incentives not tied solely to high-footfall markets, women not only participate, they excel.

They build higher trust with customers, convert dormant accounts into active users, manage compliance more reliably, and reduce churn.

The real issue is that the current agent model in Bangladesh is built around social norms: Retail spaces owned by men, mobility-heavy cash cycles, long operating hours in male-dominated marketplaces, documentation and trade licenses in men’s names, and training formats that assume freedom of movement.

When these structural assumptions go unquestioned, women appear “unsuitable” when in reality the architecture itself excludes them. A system designed for one demographic will always reproduce that demographic.

Women agents make business sense

Countries that have invested in women-led agent networks have demonstrated clear commercial returns.

In specific market programs, female customers have been significantly more likely to transact with women agents. According to World Bank research, in the Democratic Republic of Congo, women customers were about 1.5 times more likely to use female agents, boosting transaction volumes. In Bangladesh, evidence from MicroSave Consulting’s SATHI Network evaluation report on women-led agent networks shows that female agents routinely handle 15-20 transactions per day across mobile financial services and agent banking, earn stable monthly commissions, and attract a disproportionately high share of women customers driven by trust and comfort at the point of service.

Female customers who hesitate to seek assistance from male agents show higher comfort levels with women agents, which increases transaction volume and reduces dependency on informal intermediaries. This creates positive network effects: More women agents lead to more active women users, which increases ecosystem liquidity and digital commerce. The benefits are economic, not symbolic.

Breaking the 1% barrier is an economic imperative

If Bangladesh is to build a more inclusive and dynamic digital economy, it must redesign who gets to participate in the delivery layer of financial services.

This requires a coordinated shift across policy, provider design, and ecosystem partnerships including gender-responsive MFS agent guidelines, simplified KYC and licensing pathways for women-run, home-adjacent outlets, recruitment through women-focused MFIs and community networks, and safer, community-centric operating models.

The economic case is straightforward. A digital economy where women account for nearly half of users but over 97% of providers are men is structurally unbalanced.

It suppresses participation, weakens trust, keeps millions of women dependent on intermediaries, and slows the expansion of digital commerce.

In an era where economic value is increasingly created through service delivery, human interaction, and digital participation, not just production, this imbalance is costly.

Women already drive a substantial share of Bangladesh’s digital financial activity. What remains unsettled is whether they can be empowered to shape, deliver, and fully benefit from the very systems they sustain.

Bangladesh’s next phase of inclusive growth will be determined not by how many women use digital finance, but by whether they are allowed to build it, lead it, and profit from it.

This was first published in “Dhaka Tribune” on 8th Jan, 2026.

Gender-Intelligent Banking is a key to Viksit Bharat– is the financial sector ready to contribute?

Posted on by harshita

India’s female workforce is transforming the country’s economic landscape. The Female Labour Force Participation Rate has nearly doubled—from 23% in 2017–18 to 42% in 2023–24—making it one of the sharpest rises among BRICS nations. With women now earning an average of USD 225.90 in urban areas and USD 140.86 in rural areas, their growing disposable income signals a powerful, underleveraged market for financial services. The surge in women-led MSMEs—up 75% in FY22—further highlights this shift.

Financially empowered, this growing segment of Indian women is accessing multiple financial services and actively using multiple banking channels and advanced financial products. These “advanced users” regularly save, transact, and borrow. They are educated, engaged in economic activities that provide relatively stable incomes, are familiar with digital interfaces, and face few mobility constraints. Collectively, these characteristics demonstrate financial capability and decision-making autonomy, signaling high readiness for deeper financial engagement.

Globally, 66% of married millennial women are actively involved in financial decisions, compared to earlier generations. Women control 80% of household spending and 40% of global wealth. This represents a significant business opportunity for financial service providers to unlock the largely untapped value within a segment historically underrepresented in formal financial systems. Women’s continued exclusion across India’s financial ecosystem is estimated to cost the country nearly USD 688 billion—directly undermining its ambition to become a USD 5 trillion economy and to meet the Viksit Bharat vision of a USD 30 trillion economy by 2047.

These financially independent women are visible in the financial system, but their participation in savings, credit, and insurance remains shallow. Thus, their financial journeys remain underleveraged. For financial institutions targeting them, inclusion is both a social and business opportunity.

Risk-return advantage: Women as a stable, high-value segment 

Women customers consistently exhibit lower risk profiles and higher financial discipline, making them attractive for financial institutions. Globally, non performing loan rates for women-led small businesses average just 2.7% – 33% lower than for men. Women also save more, borrow prudently, and generate healthier loan-to-deposit ratios, providing banks with liquidity and lower risk exposure. This  behavioral  readiness is also reflected in broader trends. Globally, 66% of married millennial women are actively involved in financial decisions, compared to earlier generations; women control 80% of household spending and 40% of global wealth. McKinsey reports that between 2018 and 2023, financial wealth grew by 43%, while wealth controlled by women grew by 51%, highlighting a significant and expanding market segment.

Gender intelligent banking

This leads us to Gender Intelligent Banking, a strategic approach where financial institutions design, deliver, and manage products, services, and customer experiences that consciously account for the different financial needs, behaviors, and barriers faced by women and men. It goes beyond simply offering products for women, it embeds gender insights into the entire banking value chain, from strategy and policy to product design and marketing, staff training, and customer engagement.

Financial institutions that integrate gender-intelligent practices proactively position themselves as leaders in a rapidly evolving market. The Government of India’s push through initiatives such as the Stand-Up India scheme, and the inclusion of gender priorities in national financial inclusion and MSME policies reflect a growing policy emphasis on women’s economic participation. As awareness increases, customers, particularly women, are more likely to engage with institutions that demonstrate gender sensitivity in their products, outreach, and service delivery. But are FIs ready?

By responding to this shift, financial institutions not only capture a larger share of the women’s market but also expand the overall customer base  while  strengthening  offerings  for  all  customers, effectively increasing the size of the financial inclusion “pie.” Aligning product design, distribution channels, and customer support with women’s needs, institutions build greater customer trust and strengthen brand goodwill, women customers are more likely to stay with and recommend institutions that demonstrate empathy and responsiveness to their life circumstances. Gender-intelligent design also diversifies customer profiles, which spreads credit and liquidity risk across a broader base and improves portfolio resilience.

It also allows financial institutions to differentiate their brand, anticipate customer needs, and drive product innovation that serves all customers, expanding market share before competitors catch up. Thus, early movers can build organizational capabilities that are difficult for competitors to replicate, gain stronger partnerships with regulators,  development agencies, and ESG-focused investors, and secure access to funding aligned with gender and sustainability goals.

Thus, the evidence is unambiguous: women represent the largest untapped market with a potential to contribute 14% to the 5 trillion economy goal and the USD 30 trillion goal for Viksit Bharat by 2047. They are ready to engage, and they bring both stability and long-term value to the financial system. Institutions that view this moment as an opportunity, rather than an obligation, will shape the next phase of financial growth through innovation, resilience, and foresight. Business share will belong to early movers who build new markets that are sustainable, equitable, and designed for long-term value creation.

This was first published in “Hans India” on 26th December, 2025

Inside the innovation lab: How institutions can learn, adapt, and scale like startups

Posted on by harshita

“We want to work with startups, but I am terrified our systems will break, or someone will say we wasted public money.” This was the frank admission from a senior government official in a meeting. Such fear is not unfounded. Institutions carry reputations, rules, and people with careers tied to “doing things right.” Startups carry urgency, unproven ideas, and lack a safety net.  

Yet, the world demands that institutions and startups come together if we want to solve problems at scale across areas, such as climate, inclusion, and health. 

Through the years, many public and private institutions have attempted to bridge the gap between these two worlds. One of the more promising constructs is the innovation lab. A lab is a structured, institutionally anchored space where startups, policymakers, and teams can safely test, learn, and scale innovations without disrupting day-to-day operations. It helps institutions stay future-ready as it systematically phases out outdated processes and embeds new ones, which ensures they evolve continuously – as we have seen in cases like UIDAI (India), City Exchange Program under MoHUA (India), and the governments of Singapore and the UK. Strong models also come from Rwanda’s IremboGov, Colombia’s Public Innovation Team, and Portugal’s LabX—all of which demonstrate measurable impact in digitising services, improving policy design, and scaling public-sector innovation. But poorly designed or poorly run labs can easily become stalled projects—promising on paper yet irrelevant in practice. 

This blog draws from MSC’s experience and conviction on how to improve labs. This belief is grounded in our work. MSC has built and run innovation labs inside ministries, state departments, regulators, and financial institutions, not as side projects but as embedded capability engines. :In the last 3 years alone, MSC has built  

  • The Bihar Krishi Lab unified 50+ state agriculture schemes into a single digital window, enabling 0.75 million farmers to access advisory and input services more efficiently. It is now gearing up to reach 4 million farmers. 
  • FinLab Bangladesh worked with a2i and Bangladesh Bank, accelerating 8 pilots, strengthening regulatory sandboxes, and influencing reforms in payments and agent banking benefitting 100,000 female garment workers and 50,000 microenterprises. 

Below, we have documented what works, what often fails, how MSC builds labs that scale, and why institutions and funders must step up.  

Lessons about innovation labs from the Global South 

When we discuss innovation labs, we often cite examples, such as MindLab from Denmark or other Western countries. However, valuable lessons have emerged from the Global South, from Peru to Bangladesh, Chile to Botswana, where institutions must innovate as a necessity, and not as an experiment. Across these countries, governments, large private entities, and development agencies have quietly reinvented how they learn, adapt, and scale ideas. Some have succeeded in turning labs into institutional muscle—a repeatable capability to test, learn, measure, and channel innovation back into the institution’s growth cycle. Others have encountered challenges along the way, and their experiences offer equally valuable insights. 

What worked are the labs that breathe with the institution 

  1.  MineduLAB, Peru, turned evidence into policy: Peru’s Ministry of Education created MineduLAB with J-PAL and IPA as an embedded unit that tested interventions inside real programs, with findings directly shaping policy.
    Lesson: Labs work when embedded within institutions and have access to budgets and decision-makers. (J-PAL case study) 
  2. Laboratorio deGobierno, Chile, built a culture, not a project: Chile’s Laboratorio de Gobierno became a permanent institution working across ministries to redesign services. It earned legitimacy by working directly with frontline officials and sustained itself across political cycles by embedding innovation as a public-sector culture rather than a short-term project
    Lesson: Political legitimacy and continuity matter. Labs designed to outlast administrations turn innovation from a one-off experiment into a routine government practice. (OECD-OPSI) 
  3. a2i Innovation Lab, Bangladesh, made innovation a civil-service function:a2i began with digitizing public services and later embedded innovation officers within ministries, turning innovation into a routine civil-service role and significantly improving service delivery. Lesson: Labs last when innovation becomes everyone’s job. Institutionalized innovation roles ensure it outlives any one project or funder.  
  4. Botswana’s GovTech Lab transformed hackathons into vehicles for meaningful reform:The GovTech Lab in Botswana, backed by Botswana’s SmartBots strategy, evolved into a structured cycle of scouting, incubation, and integration into national e-government systems.
    Lesson: Labs can start small, but they should be systematic.  

Innovation must move from one-off events to embedded, continuous cycles. As NITI Aayog’s 2023 paper notes, labs should help institutions turn innovation into a sustained habit—not isolated bursts of activity. 

Labs that lost the rhythm and connection with institutions and users failed 

  • Labs that stayed outside the system: OPSI–OECD analyses show that many donor-funded labs ran as parallel units with little institutional embedding, and often disappeared when funding cycles or leadership changed—along with their learning and momentum. 
  • Labs that could not adapt to political or leadership change: The fate of MindLab in Denmark is a cautionary tale repeated in many developing contexts. When labs depend on individual champions, they risk being dismantled when leadership changes. 

How MSC’s labs work to bridge current gaps 

At MSC, we believe innovation labs should be engines of capability. Here is how we build them, rooted in a customized institutional reality: 

  1. Problem first, tech later: Every lab begins with the question “What problem truly matters to the institution and its beneficiaries?” and not “Let us explore AI.” We co-diagnose with leaders and frontline staff to pick two to three mission problems. 
  2. Anchored sponsorship and internal champions: From day one, our senior leadership backs a lab. We establish a steering committee or “champions circle” inside the institution. This ensures labs against cuts when leadership changes. 
  3. Overlay but embed: Labs under MSC work with the external startup ecosystem, such as accelerators, funders, and domain NGOs. They also place a small team or liaison inside the institution, in strategy, planning, and program units. This ensures that the labs are neither external nor isolated. 
  4. Be ambitious but stay focused: Innovation demands ambition, but without focus, it risks losing direction. The lab defines its niche within the innovation value chain, whether it involves early-stage support, commercialization, adoption, or scalability, and delves deeply into it. Labs need to stay focused to ensure measurable progress while they collaborate with other innovation centers that handle complementary stages. 
  5. Portfolio of experiments and scaling plan: We run safe and riskier pilots in parallel with clear metrics, timelines, and budget. However, before pilots, we design how each pilot will scale through the procurement route, budget line, policy clearance, and necessary legal or regulatory changes. 
  6. De-risking demand and adoption: We go beyond building solutions to help users adopt them. That means field testing, trust building, education, collecting feedback, and iteration. Many labs fail because they forget this side of the loop. 
  7. Lessons, transparency, evolution: Labs publish interim lessons, dashboard metrics, failure logs, and playbooks. At fixed intervals, we revisit the portfolio, reset focus, and adapt to new leadership or institutional shifts. 

MSC labs are more than experiments, they  are institutional engines of change designed to scale pilots to system-wide levels, iterate with feedback, align policies, and design for adoption. 

Yet, even with the right design, innovation labs bring their own evolving challenges, especially in the public sector, which balance agility with accountability and experimentation with institutional rhythm.  

The solution is to keep them dynamic, mandate-driven, and KPI-focused. At MSC, we view each lab as a living system that constantly adapts, learns, and aligns with institutional goals so that innovation remains both practical and lasting. 

Why should institutions and funders consider labs? 

Innovation labs are not luxury experiments. They are the scaffolding through which large institutions can learn to become adaptive. They can turn friction into rhythm and promote collaboration between institutions and startups. 

Let us build these bridges together.