BY Fraser Tennant
Improving financial inclusion for micro, small and medium enterprises (MSMEs) in 60 emerging countries could generate incremental global annual revenue of $200bn, according to a new report by EY.
In ‘Innovation in financial inclusion: revenue growth through innovative inclusion’, EY states that the availability of affordable, accessible and relevant financial products will generate sizeable economic benefits – equivalent to 20 percent of emerging market (EM) banks’ 2016 revenues. Greater financial inclusion will also boost GDP by up to 14 percent in developing economies such as India, and 30 percent in frontier markets such as Kenya.
Furthermore, more than 40 percent of MSMEs in the least developed countries reported challenges in obtaining financing. This compares to 30 percent in middle-income countries and 15 percent in high-income regions. Traditionally, banks operating in EMs have not viewed financially excluded individuals and MSMEs as profitable target customer segments.
“There is a multitude of opportunity for banks to increase profits by being more financially inclusive,” said Jan Bellens, EY global banking & capital markets emerging markets leader. “Not only does financial inclusiveness have a positive impact on financial institutions’ bottom line, but it is also good for local economies and individuals as inclusiveness tends to smooth income trends, grow local businesses, protect against natural and man-made disasters and helps individuals to save for important life events.”
EY notes that banks’ financial inclusion growth opportunities will be the greatest in markets that embrace technology-led innovation and that have a clear and supportive policy framework for financial stability. Drivers of technology infrastructure include mobile adoption and e-payments, national digital identity systems, credit data infrastructure, open access to digital data and currency digitisation. Policy and systemic drivers include strong customer safeguards, responsible financial literacy programmes, bankruptcy regimes, regulatory incentives for banks, diverse financial ecosystems and interoperable financial systems.
The report also suggests that banks which focus on the following three actions will be most successful in the realm of financial inclusiveness: (i) customise offerings to raise relevance and deepen account adoption; (ii) innovate channels to reach more customers at lower cost; and (iii) creatively manage risk to address absence of credit histories.
According to the report, “institutions that act now to increase financial inclusion will be well-placed to dominate retail and MSME banking in EMs for years to come".