How digital finance could boost growth in emerging economies
Delivering
financial services by mobile phone could benefit billions of people by spurring
inclusive growth that adds $3.7 trillion to the GDP of emerging economies
within a decade.
Two billion individuals and 200 million micro, small,
and midsize businesses in emerging economies today lack access to savings and
credit. Even those with access must often pay high fees for a limited range of
products. Economic growth suffers. But a solution is right in people’s hands: a
mobile phone. Digital finance—payments and financial services delivered via
mobile phones and the Internet—could transform the lives and economic prospects
of individuals, businesses, and governments across the developing world,
boosting GDP and making the aspiration of financial inclusiona
reality.
A new report from
the McKinsey Global Institute (MGI), Digital finance for all: Powering
inclusive growth in emerging economies, is the first attempt to quantify
the full impact of digital finance. In addition to extensive economic modeling,
the report draws on the findings of field visits to seven countries—Brazil,
China, Ethiopia, India, Mexico, Nigeria, and Pakistan—and more than 150 expert
interviews. It also lays out the key conditions that will need to be met to
capture the benefits.
The research finds that
widespread adoption and use of digital finance could increase the GDPs of all
emerging economies by 6 percent, or a total of $3.7 trillion, by 2025. This is
the equivalent of adding to the world an economy the size of Germany, or one
that’s larger than all the economies of Africa. This additional GDP could
create up to 95 million new jobs across all sectors of the economy.
Many stakeholders would
benefit. Digital finance could provide access to 1.6 billion unbanked people,
more than half of them women. An additional $2.1 trillion of loans to
individuals and small businesses could be made sustainably, as providers gain
newfound ability to assess credit risk for a wider pool of borrowers.
Governments could gain $110 billion per year by reducing leakage in public
spending and tax collection. Providers of financial services would
benefit, too. They stand to save $400 billion annually in direct costs by
shifting from traditional to digital accounts, which can be 80 to 90 percent
less expensive to service. By expanding their customer base, providers increase
revenue opportunities and could sustainably increase their balance sheets by as
much as $4.2 trillion.
The economic potential
varies significantly, depending on a country’s starting position. Lower-income
countries such as Ethiopia, India, and Nigeria have the largest
potential, with the opportunity to add 10 to 12 percent to their GDP, given low
levels of financial inclusion and digital payments today. Pakistan has a
somewhat lower GDP potential, at 7 percent. Middle-income countries such as
Brazil, China, and Mexico could add 4 to 5 percent to GDP—still a substantial
boost.
Digital payments and
financial services are part of the vital infrastructure of a modern economy,
enabling individuals, businesses, and governments to transact cheaply and
efficiently. For a range of companies, including banks, telecommunications
companies, payments providers, financial-technology start-ups,
retailers, and others, the potential business opportunity is large. In most
countries, which players will dominate is still up for grabs.
The opportunity to
accelerate inclusive growth could be addressed rapidly and without the need for
major investment in costly additional infrastructure. Mobile phones are the
game changer that make this all possible. In 2014, nearly 80 percent of adults
in emerging economies had a mobile phone, while only 55 percent had financial
accounts. Almost 90 percent of people in emerging economies have access to a
network, and the share of those with 3G or 4G coverage is growing.
To capture the
opportunity, businesses and government leaders will need to make a concerted
and coordinated effort. Three building blocks are required: widespread mobile
and digital infrastructure, a dynamic business environment for financial
services, and digital finance products that meet the needs of individuals and
small businesses in ways that are superior to the informal financial tools they
use today.
Widely used digital finance has the
power to transform the economic prospects of billions of people and inject new
dynamism into small businesses that today are held back for lack of credit.
Rather than waiting a generation for incomes to rise and traditional banks to
extend their reach, emerging economies have an opportunity to use mobile
technologies to provide digital financial services for all, rapidly unlocking
economic opportunity and accelerating social development.
By James Manyika, Susan Lund, Marc Singer,
Olivia White, and Chris Berry
http://www.mckinsey.com/global-themes/employment-and-growth/how-digital-finance-could-boost-growth-in-emerging-economies?cid=other-eml-alt-mgi-mgi-oth-1609
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