The second search result that shows up when I google the term “community-based lending” is the Wikipedia entry for microfinance. This isn’t very surprising since we all know that the innovation of the microfinance model was finding a way to sustainably extend credit based on the local community vouching for a new client. Even in the U.S., banking for much of its history was based on the local bank’s local knowledge about the people to whom it was lending.

Then automation entered the picture. People began being evaluated for loans based on an automatically-generated credit score that pulled specific data points into an algorithm and then spit out a number that was used to evaluate risk. No one can deny that this innovation was extremely useful in allowing banks to increase both the scale and the speed with which they offered products and services. Many banks began reaching far beyond their local communities to serve a global clientele.

The problem is that such data doesn’t exist for everyone. Automation, one could argue, has disproportionately hurt the unbanked and kept them excluded from financial services. Yet most people recognize the value of an automated credit analysis process. One of the weaknesses of the microfinance model even today is the lack of scale from high-touch, locally-based operations. Whereas microfinance reaches the previously unbanked on a small scale, conventional banking reaches the already banked on a large scale. So how can we arrive at a large scale locally-based approach to serve the unbanked?

Simple…redefine what we mean by community.

Community is now being defined by many as the social knowledge that people are beginning to generate through, yep you guessed it, social media.  In developed and developing countries alike, there is a growing cohort of start-ups that are leveraging information people share about themselves on social media websites such as Facebook, Twitter, LinkedIn and Foursquare, using this public information to provide a fuller and more accurate picture of their financial lives to potential financial providers.

Sociogramics uses social media as a source of alternative data for the underbanked in the U.S. to enable them to access financial services, especially loans. The home page of Sociogramics harkens back to the quintessential picture of community banking in the U.S. – George Bailey from It’s a Wonderful Life. Sociogramics founder Gary Kremen argues that FICO scores are dominating the financial landscape. Instead through Sociogramics, he wants to turn banking back to being “human again.”

Demyst.Data pulls hundreds of customer information data points from public online sources to inform financial institutions about new customers. Lenddo uses online data and a customer’s community of social network friends to build a profile for access to loan products. Even large credit scoring and data companies like Experian are beginning to use alternative data such as rental payment histories and telecom data to complement their scoring methodology. Experian reports that when this alternative data is added, a client’s score almost always goes up. Cignifi offers a platform that leverages data from mobile phone usage to round out a client’s profile for banks.

I can only imagine the red flags that are going up in everyone’s minds right now. Facebook profiles to evaluate credit risk? Remind me again how this is supposed to help poor people in the developing world? I admit that this was the topic of several conversations at CFSI’s recent Underbanked Financial Services Forum in San Francisco, a conference which is mainly focused on reaching the underbanked in the U.S. market.

But don’t underestimate too quickly the changes that are underway around the world. Last year Huawei began offering an $80 Android phone in Kenya. At last year’s GSMA Mobile World Congress, mobile executives called for a collective effort to develop a smart phone at a price point below $50. GCASH recently launched a mobile app which allows users to send money not only to people in their phone book but also to their e-mail and Facebook contacts. Even CGAP’s own analysis shows that 43% of cgap.org users and 40% of microfinancegateway.org users access the internet on their mobile device.

The culmination of this vision is obviously many years away. But the digital world is already redefining the way people interact with one another and it is beginning to reach even the remotest villages. Some of us might not like the changes that are being ushered in. But what better way to adjust to these changes than to capitalize on this new definition of “local community” by bringing a more accurate and inclusive financial profile to those people that would benefit from it most.