Financial inclusion numbers in emerging markets, and the road ahead

By Joerg Hansen

financial services and inclusion
Photo by Ivan Samkov on Pexels.com

By Joerg Hansen, CEO of Caiz Development GmbH

When we talk about financial inclusion, what we’re discussing is the ability to provide global access to financial services like credit, loans, insurance, and even something as simple as a bank account. It might seem simple, but according to the World Bank, 1.4 billion people in the world remain unbanked as of 2022. This means paying bills or getting a mobile phone contract (bare necessities in the modern age) is made harder, or even impossible; it means 1.4 billion people are much more vulnerable to fraud and predatory lenders than they should be; they might have to resort to carrying cash and falling prey to sky-high interest rates, simply because they have no other choice.

The same is true for countries like Brazil, India, Indonesia, Mexico, Turkey and South Africa. As Western countries are on track to go back to pre-pandemic economic trends by 2023, emerging markets simply do not have much of the same choice. “Developing economies are flying low,” reports the Director of the Prospects Group at the World Bank. “They do not have much gas left to use in terms of policy space if they encounter headwinds.” These headwinds could contribute to a further increase of global inequality, already exacerbated by the pandemic years, and perhaps even undoing the effects of the last two decades’ worth of effort in banking the unbanked.

Because while financial inclusion is supposed to include, well, everyone, the truth is a little more complicated. In developing countries, women are particularly vulnerable and have very little control over their financial future. The unbanked are disproportionately poor, and they’re overwhelmingly female. In South Asia, 625 million adults lack access to a bank account, and over in East Asia and the Pacific, the figure is just slightly lower, at 490 million. In fact, India, China, and Indonesia alone account for almost 40% of global unbanked adults, while Sub-Saharan Africa, with over 350 million unbanked adults, accounts for another 17%.

The truth is that the unbanked have long remained invisible to banks and financial institutions–at least, the most traditional ones.

Fintech, however, seems to have a better eye. Digital payment solutions, cashless business providers, and blockchain technology –together, core elements of Web3– are better equipped to deal with and potentially solve, the issue of lacking financial access for millions of people all over the globe. The 2022 United Nations Sustainable Development Goals report goes as far as calling digital finance a “great equalizer.”

As we’ve repeatedly seen over the past few years, the COVID-19 pandemic unwittingly acted as “a catalyst that drove a large increase in digital payments amid the global expansion of formal financial services,” which, according to the Global Findex 2021 database, created “new economic opportunities, narrowing the gender gap in account ownership, and building households’ resilience to better manage financial shocks.”

In 2022, two-thirds of adults across the world now either make or receive digital payments for the first time, and 76% have an account today, up from 51% a decade ago. In developing countries and emerging markets, the figures are very similar: 71% of people have an account, up from 42% a decade ago, and what’s more, “40% of people who made a digital payment from their account (to a merchant or for a utility service) did so for the very first time since the start of the pandemic.”

And besides purely selfless reasons such as wanting good for the world, we can also look at how financial inclusion can lift entire economies out of poverty. The numbers speak for themselves, so let’s check out a few examples.

Two percent of the entire population of Kenya benefited from the rise of digital financial services, which helped solve extreme poverty for over 1 million people in the country between 2008 and 2014. Over in Tanzania, the digitization of water payment grew water utility payments threefold and reduced waiting times from an average of 3 hours to a mere 10 minutes. In East Africa, farmers who accessed agricultural microinsurance through mobile devices between 2009 and 2012 earned 16% more on average compared to their uninsured peers and digitizing payments in Uganda cut costs by 27% for over 12000 Ugandan farmers.

The digital financial sector as a whole can boost annual GDP by up to $3.7 trillion, but also create up to 95 million jobs. In emerging markets, digital finance allows an ever-expanding list of products and services offering ––from contactless cards of COVID “they’re much more sanitary!” fame to inventions like wearables, biometrics, digital wallets, crypto and digital currencies, and QR codes–– to keep up positive progress across all metrics, with the only goal of meeting the needs of the global unbanked population.

The World Bank writes that “helping 2 billion people reach financial services is an ambitious undertaking,” and of course, that is an understatement. But with such a wide array of solutions at our fingertips and more data than ever before on how something like a global pandemic can affect emerging markets and financial systems as a whole, we need to try harder. New business models are emerging virtually every other day, and we need to find ways to harness their transformative power for the better, before we realize we’ve missed a great opportunity to do some good. Some concrete, inclusive, global good ––the very kind the world needs.

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