For the majority of the world, financial services are either unavailable or of poor quality.
1.7 billion people globally have no access to financial services
76% of those live in sub-Saharan Africa and South Asia
67% of sub-Saharan adults and 32% in South Asia are unbanked
Reliance on cash makes it extremely difficult for individuals to save for needs such as education and healthcare, prepare for financial emergencies, and invest in their businesses. Fintech represents a massive opportunity for financial inclusion, with the World Bank asserting that fintech applications can especially help to drive development in emerging markets.
Each market has its unique challenges when it comes to financial services. Below are a few examples of how important fintech can be for the overall financial inclusion of the un- or underserved population and SMEs in the emerging world.
Brazilian consumers pay some of the highest interest rates in the world. Over USD 500 bln of outstanding household debt is priced at an average of 44% p.a., with USD 55 bln of this made up of high-priced unsecured loans with 230% average APR. Secured lending remains massively underpenetrated in Brazil where approximately 70% of all homes and cars are owned debt-free.
Mexican SMEs are massively underserved by traditional banks, where only 3 out of 10 businesses have access to formal credit. In Mexico, there are approximately 7 mln SMEs in the market, and for every 20 companies, 19 are considered ‘very small’ with annual sales of up to USD 700 k. However, though the massive scale of these companies represents a huge opportunity for SME lending in Mexico, historically, they continue to fly under the radar of the formal banking system.
Pakistan is a massively underpenetrated market, in terms of financial services. From a population of 200 mln people, only 21% of the adult population have a bank account, and as little as 2% of adults and 7% of SMEs receive formal credit from financial institutions.
In India, the vast majority of the population have been unbanked until only recently, and today approx. 80% of the population is banked. India has for many years also battled a shadow economy. Fintech has been a massive and positive contributor to financial inclusion and a weapon for the government and regulators in the war on cash.
The United Nations Sustainable Development Goals (SDGs)
Financial inclusion and the access to financial services for people and small businesses is an important part in achieving the SDGs. The UN writes the following about inclusive digital financing:
“Inclusive digital financial services refer to mobile money, online accounts, electronic payments, insurance and credit, combinations of them and newer fintech apps, that reach people who were formerly excluded. Digital financial inclusion, when provided responsibly and sustainably in a well regulated environment, not only drives growth, but also enables faster progress toward many of the other SDGs, as this compendium shows.”
Digital financial services, such as mobile wallets, electronic payments, fintech apps, digital credit services etc. can reach people previously excluded from these services. Here are some examples of how fintech companies contribute to financial inclusion:
- Providing access to financial services for previously unbanked or underbanked consumers and SMEs – ie., democratizing access to financial services
- Providing credit to low-income consumers and SMEs
- Providing financial services, e.g. loans and remittance services, to consumers on fair and affordable terms
We believe all of the above measures for financial inclusion positively contribute to the SDGs. Although financial inclusion specifically is not an SDG it is clearly an important aspect to achieving several of the SDGs, including:
(1) No Poverty
(2) Zero Hunger
(3) Good Health and Well-being
(5) Gender Equality
(8) Decent Work and Economic Growth
(10) Reduced Inequalities