Mapping The Unbanked: A Pan Regional Market

By Zahi El Khatib, Managing Director, The Abraaj Group

Around the world, there are 2 billion ‘unbanked’ people: adults without an account with a financial institution. This is a particular problem in  growth markets. In Sub-Saharan Africa and South Asia, only 30% of adults have an account. In the Middle East the figure is just 14%.

However, this problem is not confined to individuals alone: small businesses also suffer from the same lack of access to formal financial services. There are 200 million micro, small and mid-size businesses in  growth markets that lack access to savings and credit, while those that do have access often pay high fees for a limited range of products.

Why is that a problem? Lack of access to credit and savings facilities holds both individuals and businesses back and greatly increases vulnerabilities to economic shocks while limiting access to everything from insurance to healthcare and education.

Blog by Zahi el Khatib - Mapping the Unbanked

The benefits of banking are significant for the wider economy too. According to a recent report by McKinsey, delivering financial services to unbanked people in growth markets is expected to add US$3.7 trillion to the GDP of these economies within a decade.

Technology leads the way

Rapidly advancing technologies, evolving financial needs and a changing regulatory landscape are helping to open doors to disruptive innovation in financial services.

Disruptive business models have a unique opportunity to address the gaps in financial provision in GGMs, often “leap-frogging” the conventional institutions and channels such as credit and debit cards that are playing catch-up with the unprecedented pace of technological change.

For example, mobile money is transforming daily lives in many growth markets. The ability to transfer funds, pay bills, save and access credit via a mobile phone is giving individuals and small businesses around the world access to formal financial services for the first time.

Figures from the global mobile phone operators’ association, the GSMA, show that the number of mobile money services offered around the world has tripled since 2010. By the start of 2015 there were 299 million registered mobile money accounts.

The attraction of mobile money is straightforward: in GGMs, many more people have mobile phones than have bank accounts. In Bangladesh, for example, more than 75% of the population has a mobile phone, but only 31% has a traditional bank account.

Diverse drivers

Financial inclusion is being driven by many factors. Urbanization is key, especially as the world’s cities swell by almost a million people every five days. If you add strong GDP growth, the rise of the middle class where almost 2.8 billion people from growth markets are expected to enter the middle class by 2030, and technological innovation, you have powerful forces that combine to drive financial inclusion to its next stage.

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The size of the challenge is certainly daunting. Two billion people without access to financial services is bad for them and bad for the economy. But change is happening faster than we think with numerous factors helping to connect increasing numbers of people in growth markets to the opportunities that banking brings.

With strong growth in the growth markets financial sector and disruptive innovation rapidly transforming the banking landscape, financial assets are an expanding and exciting investment opportunity set.

Abraaj is uniquely placed to play a key role in this sector, with its investment in, and support of, many of the most dynamic players in growth markets. Working with a raft of promising companies who each thoroughly understand their product and customer, we are proud to be playing a prominent part in the financial revolution that is inexorably sweeping across our markets.

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