LONDON—Banks could generate incremental global annual revenue of $200 billion– equivalent to 20% of emerging market banks’ 2016 revenues – by better serving financially excluded individuals and small businesses in 60 emerging countries, according to a new report.
Driving greater financial inclusion – the availability of affordable, accessible and relevant financial products – will generate sizeable economic benefits, according to the report from Ernst & Young, boosting GDP by up to 14% in developing economies such as India, and 30% in frontier markets such as Kenya, stated The Financial in its analysis.
More than 40% of micro, small and medium enterprises (MSMEs) in the least developed countries reported challenges in obtaining financing, compared to 30% in middle-income countries and just 15% in high-income regions, as traditionally, banks operating in emerging markets have not viewed financially excluded individuals and MSMEs as profitable target customer segments, the report stated.
“There is a multitude of opportunity for banks to increase profits by being more financially inclusive. 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,” stated Jan Bellens, Ernst & Young global banking and capital markets emerging markets leader, in The Financial’s report.
According to the Ernst & Young report, 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 digitization. Policy and systemic drivers include strong customer safeguards, responsible financial literacy programs, bankruptcy regimes, regulatory incentives for banks, diverse financial ecosystems and interoperable financial systems, The Financial explained.