The vast majority of digital financial services (DFS) startups in India and East Africa are not receiving the investment required to scale according to a report by VC firm Village Capital dubbed “Breaking the Pattern: Getting Digital Financial Services Entrepreneurs to Scale in East Africa and India.”

In the report, Village Capital interviewed 55 entrepreneurs and 23 investors, researchers, and other entrepreneur support organizations in India and East Africa made possible with funding from the Bill & Melinda Gates Foundation.

More than 233 million people in India and 60 million people in East Africa lack formal bank accounts, and more than 50% of small businesses lack access to formal credit, and yet, most DFS companies in these regions face significant barriers to scale.

According to the report investment is highly concentrated in just a few companies.  For instance, in East Africa, startup investment is at an all-time high, but 72% of venture capital went to only three startups in 2015 and 2016.

The report also says investors in East Africa and India consider DFS companies to be risky because of human capital challenges and structural barriers in the marketplace; but these challenges are hard to overcome without investment. As one Indian entrepreneur notes: “The traditional Silicon Valley model of building a product so viral that you don’t need a sales force cannot be applied to India.”

Because of the high cost of early stage due diligence in India and East Africa, investors often fall back on patterns to find companies and make investment decisions – relying on networks and indicators like prestigious universities or accelerator programs.

“If you’ve been paying attention to the Economist or the New York Times, you might think we’re in a golden age for digital financial services in India and East Africa. In fact, we’re only at the very beginning,” said Ross Baird, CEO of Village Capital. “We’ll need hundreds of companies to reach scale to truly improve the financial health of communities in India and East Africa, requiring us to look beyond the ‘one size fits all’ model of venture capital in markets that operate under an entirely different set of rules.”

The report provides several recommendations for investors, foundations, governments and entrepreneur support organizations, including: strengthening the human capital infrastructure; facilitating partnerships between entrepreneurs and major financial institutions; providing alternatives to pattern recognition fallbacks; and developing alternative financing mechanisms to provide DFS companies with the right funding at the right time.

Findings of this report will be used to shape Village Capital’s upcoming venture development work in financial health, in collaboration with PayPal. In 2017-2018, Village Capital and PayPal will operate four investment-readiness programs, supporting more than 40 emerging FinTech innovators across the US, Latin America, India and sub-Saharan Africa.