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Fintech in emerging markets – Cracking the code of financial inclusion

Considerable challenges have made emerging markets’ path to progress harder, including the road to greater financial inclusion. But for ‘brave’ companies – and investors – we believe there are massive opportunities in areas such as fintech, the intersection of technology and banking.

In many emerging markets, gaps in the banking system have been limiting business growth, constraining consumer demand and hampering overall economic growth. For instance, many traditional banks are reluctant to engage with the less wealthy individuals and small and micro enterprises. As a result, millions have no access to financial services such as a bank, savings or any other transaction account. They are ‘unbanked’.

By harnessing financial technology, however, remarkable business success has been achieved in countries as diverse as Kenya and China. Fintech has helped advance one of the pivotal goals for sustainable global development[1] – financial inclusion – providing access to payment platforms and services including credit, helping to reduce inequality and alleviate poverty.

However, while substantial progress has been made over the past 20 years, lifting people globally to ‘banked’ status, one-third of all adults around the world have remained financially excluded.[2] This indicates there is still much to do and much to be gained. Widespread inclusion could increase the GDP of all emerging economies by 6%, or USD 3.7 trillion, by 2025, and lead to the creation of 95 million jobs.[3]

In our white paper, we describe how the unique approaches of some companies have resulted in growth and rising profits and improved the lives of those they serve and their economies, achieving a true ‘triple bottom line.’

More mobile phones than bank accounts

As of 2014, mobile phone-enabled store-of-value and transaction accounts burst onto the scene in sub-Saharan Africa, with 12% of adults – roughly a third of the banked population – using mobile money accounts. This compares with just 2% in the rest of the world.

This phenomenon traces its roots to Kenya where M-PESA, intended to facilitate receipt and repayment of microfinance loans, became a digital system to settle payments quickly and securely via mobile phone. It made borrowing more efficient and allowed users to build a credit and transaction history, turning the payment platform into a gateway for further financial services.

The experience in Kenya and the expansion into neighbouring regions benefited the rate of financial inclusion in sub-Saharan Africa, which rose from 34% to 43% over 2014-2017.

With mobile phone penetration in sub-Saharan Africa still low at just 44% as of 2019, there is enormous potential for store-of-value transaction products.

Asian equation

There are still 225 million Chinese who are financially excluded[4], accounting for 13% of the global total.

With more than 40% of China’s population living in rural areas, the traditional financial services industry faced hurdles such as high costs to serve customers with low or irregular incomes, difficulty in reaching consumers in remote areas, and a lack of data preventing reliable and efficient assessments of a customer’s creditworthiness.

Even in the digital boom, many rural individuals and their businesses remained on the outside, missing out on the quality-of-life benefits urban residents enjoyed such as digital access to credit.

However, leading platforms, covering most of China’s population, have since been addressing the urban/rural asymmetry. Beyond e-commerce, they have worked to rebuild roads, improve logistics services and boost the digital literacy of more remote populations.

Not surprisingly, rural e-commerce sales growth has picked up. Obtaining internet-banking licences, they also began extending small-ticket and microloans to consumers and small businesses, reaching millions of previously underserved customers.

The evolution of China’s digital payments platforms has helped users become more financially visible and more economically viable. Beijing appears to recognise the benefits and to endorse a secure and potentially growing role for the private sector as its financial services industry evolves.

Sowing the seeds of change

The efforts, innovative thinking and dedication of a few seminal emerging market fintech players have altered the opportunities for both businesses and consumers. Today, fintech is attracting enormous amounts of capital globally. While much can be expected to fund positive development, there is also reason to be cautious.

As more players vie for their slice of the growth, extending credit without proper oversight or risk controls can do harm. The success of Chinese regulators in balancing ‘wait-and-see’ with measures to prevent or counter fraud and corrupt practices and centralise payments in a national clearing platform can be a blueprint for many countries.

There are other hurdles preventing mobile banking from proliferating rapidly. In Nigeria – Africa’s largest economy and among the seven biggest unbanked nations – the spread of mobile money has lagged, possibly due to overly conservative policy.

Encouragingly, traditional banking players are beginning to innovate and bank more inclusively, drawing upon technology. Those incumbents that adapt can be expected to emerge stronger and may even collaborate with fintech, acquire the compelling fintech players or buy stakes in them. This is happening in China, Brazil, and India.

In China – the top unbanked nation as of 2017 – legions of fintech companies have sprung up in a sector that has raised funds successfully, but is also deploying resources abroad, for example in India and southeast Asia.

Investment in affordable 4G wireless services and devices has meant they are proliferating rapidly, including in rural India, which had lacked internet access. It is no surprise that China’s tech giants are vying with US and global peers for this market given that the growth potential offered by India’s young and growing demographic exceeds China’s.

In Brazil, regulators have opened up the previously closed markets and enabled the growth of fintech. The country's central bank itself is launching an instant payments system, PIX. This can be seen as an encouragement of greater digital financial activity.

It has made clear its intentions to continue to promote affordability and access to financial services. This marks a powerful shift in a market where the majority of the population is banking savvy, yet has struggled to afford most financial services.

Financial inclusion – Fertile ground

Be it for established players or homegrown start-ups, the most unbanked regions are fertile ground for fintech growth, particularly as mobile phone penetration is high and rising.

Fintech solutions are deepening the global drive to democratise access to affordable basic services, making this a pivotal moment for financial inclusion and full participation in the economy.

The ultimate beneficiaries are those previously underserved. They are finally getting a hand-up rather than a handout. The power of this feeding through to these economies and promoting further entrepreneurialism and innovation will be playing out for many years to come.

This is an extract from the Fintech in Emerging Markets white paper by Whitney Jiranek (July 2020)


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.


[1] See for example Sustainable Development Goal (SDG) 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all https://sdgs.un.org/goals/goal8

[2] According to the Financial Inclusion Index survey in 2017, see https://globalfindex.worldbank.org/#data_sec_focus

[3] Source: 2016 McKinsey Global Institute research

[4] See https://globalfindex.worldbank.org/sites/globalfindex/files/chapters/2017%20Findex%20full%20report_chapter6.pdf

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