Every economy, big or small, requires financial services for its people and its businesses.
Financial services enable people to save, invest and generally be risk-free. However, these financial services come at a premium mostly and they are still not widespread into the hinterlands of emerging economies. This prevents a large number of people within emerging economies from being included in the financial activities of the country.
As per a McKinsey 2016 report, approximately 2 billion individuals and 200 million business across emerging economies lack access to these financial services. Some who have access need to pay premiums for a small range of products. With the advent of digital technologies and the availability of internet and mobile phones in the interiors of various countries, it may now be possible to provide financial services at cheaper prices to a wider customer base.
It would emerging economies in a number of ways:
● Financial Inclusion: This would help individuals as well as businesses to get access to savings and credit facilities at the click of a button. Approximately, 1.6 billion new customers can be reached in emerging economies.
Approximately, $2.1 could be extended as loans to individuals and businesses and governments in these countries could save around $110 million from leakages from evasion of tax revenue and spending.
● GDP Growth: As per this report, about $3.7 trillion would be added to the annual GDP of these emerging economies by 2025.
This would be an increase of 6% on the usual business scenario. Moreover, lower income countries such as India, Ethiopia and Nigeria are likely to experience a 10-12% growth because of lower current digital inclusion rates. Mid-level income countries such as China and Brazil are likely to see a 4-5% growth, which is still very substantial.
● Job Creation: The growth in GDP may lead to massive job creation of about 95 million jobs across various sectors.
● Serves Lower Income Customers Too: This wave of financial inclusion has been made possible by rapid spread of mobile phones.
With mobile payments, the cost per transaction can be reduced by 80-90%, thereby, helping financial institutions to serve low income customers and do so profitably.
With increased mobile penetration, dynamic business environment for providers of financial services and digital finance products that fulfill the needs of the customers, these potential figures can be achieved.