One of the key challenges for postapartheid South Africa is bringing the benefits of the country’s formal, first-world economy to the low-income people who make up a sizable majority of the population. A group of pioneering companies is doing just that—and, in the process, revolutionizing the way they do business.

These trailblazers have adopted an approach that defies the experience and conventional wisdom of the financial-services industry: that the low-income market is at best marginal, at worst disastrous. Indeed, by tailoring their businesses to this market’s needs and resources, they are not only creating tremendous value for their shareholders but also offering bankers and insurers in Asia, Eastern Europe, and Latin America an important lesson.

The problem

Financial institutions dislike the low-income market because they mostly haven’t succeeded in making money in it. Why do they fail?

Products and distribution methods designed for affluent consumers don’t work well with poor people

In South Africa, many traditional, established companies have adapted neither their products nor their distribution networks to the needs of low-income people. Instead, complex products and distribution methods designed for more affluent consumers have been pushed into a market characterized by different forms of behavior, a much less...