3 May 2023
The Financial Services Cambrian Explosion: how growth markets are innovating for the next 2 billion customers
An estimated 2 billion adults worldwide do not have a basic bank account. Globally, 59% of adults without an account cite lack of enough money as a key reason, implying that Financial Services are not yet affordable or designed to fit low income users. At the same time, Micro, Small, and Medium-sized companies in emerging economies also lack adequate financing to thrive and grow. This means financial inclusion is becoming a global priority for policymakers, regulators and development agencies.
Regulators in most Growth Markets and in all of the sample countries that Apis has used for this analysis (namely Nigeria, Kenya, South Africa, India, and Indonesia) have set financial inclusion as a key developmental goal, which features prominently on each regulator’s agenda. They key learnings from this paper for the orderly development of the financial services ecosystem and in turn the proliferation of financial inclusion, is for the regulator to ensure an enabling financial services’ ecosystem, tailored to each country’s specific needs and base or starting level of financial inclusion.
Financial regulations should not be overly costly or cumbersome but rather should be proportional to the underlying risks associated with specific products or transactions.
Timing is key
Overregulating too early can stifle innovation, while doing so too late leaves consumers unprotected. Striking the right balance therefore is key.
The need for a comprehensive Financial Services infrastructure
The key responsibility of the regulator should be to support, or even build itself, an enabling financial services infrastructure i.e. the rails on which financial inclusion can thrive, such as the wholesale and retail payments system, a national comprehensive identification/e-passport system, while at all times imposing financial education and consumer protection principles.
Given the broad scope of this topic, a sample of five representative countries, namely India, Indonesia, South Africa, Kenya, and Nigeria – each of which has financial inclusion as a stated developmental goal whilst having approached the problem differently with varying degrees of regulatory intervention – are examined in detail in this white paper.
Alas, regulatory intervention to promote financial inclusion is furthered by an environment ripe with the advent and explosion of mobile telephony, big data, and cloud computing. These factors are likely to have a greater impact on both top-down planning and the trickle-down of economic growth.
This leads to immeasurable benefits on the road to achieving financial inclusion, and as such, unlocking economic opportunity for the poor.