Capital Markets, Financial

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Renminbi strengthens further despite gains by dollar

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Nomura rounds up markets’ biggest misses in 2016

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Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Categorized | Banks, Financial

EMs urged to embrace digital finance

Posted on September 21, 2016

An employee uses a Nokia 1200 mobile phone inside an M-Pesa store in Nairobi, Kenya, on Sunday, April 14, 2013. In the six years since Kenya's M-Pesa brought banking-by-phone to Africa, the service has grown from a novelty to a bona fide payment network. Photographer: Trevor Snapp/Bloomberg©Bloomberg

A store owner in Nairobi uses the M-Pesa banking service

Emerging markets could boost their economies by $3.7tn over the next decade if they embrace the full potential of digital finance, according to a report published on Wednesday by McKinsey, the consultants.

    Mobile wallets, online payments, pre-paid cards and digital savings accounts are all examples of low-cost financial services that McKinsey Global Institute estimates could add 6 per cent to emerging market gross domestic product by 2025, a boost equal to the entire African economy.

    The report, released to coincide with the UN general assembly in New York, was based on field research conducted in seven countries: Brazil, China, Ethiopia, India, Mexico, Nigeria and Pakistan.

    It found that nearly 80 per cent of adults in emerging economies had mobile phones in 2014, but only 55 per cent had a financial account. With mobile phone ownership projected to reach more than 90 per cent of adults in emerging markets by 2020, McKinsey said: “For most people in these countries, the story begins in the palm of their hand, with a mobile phone.”

    “This can provide easy access to a digital wallet that could be used for all payment transactions, such as receiving remittances, wages, and government subsidies, making purchases at stores, or paying utility bills and school fees.”

    McKinsey estimated that digital finance could help to connect 1.6bn people to the financial system — more than half of whom would be women — out of the more than 2bn people who have no bank account. Women in emerging economies are 20 per cent less likely to have a formal bank account than men, it found.

    Chart: Share of digital payments

    It added that the change could generate $2.1tn of extra lending to individuals and small businesses while attracting $4.2tn of deposits to financial services providers, which could be telecom or technology groups as well as banks.

    Two-thirds of the estimated economic gains would come from the lower cost and increased speed of using digital finance over traditional cash and brick-and-mortar financial services, McKinsey said. It estimated that digital finance was 80-90 per cent cheaper than the traditional bank branch.

    “The major benefit doesn’t come from the poorest people at the bottom level, much of it is middle class people being included,” said Susan Lund, a McKinsey partner who co-wrote the report.

    “It stems from the productivity gains of switching from cash and manual payments to automated processes and digital payments.”

    Chart: Financial services via mobile phones

    By switching from cash to digital finance, McKinsey said emerging markets would be able to reduce corruption and cut down on the black market, which could save governments $110bn.

    The report said the expansion of financial services on mobile devices had the potential to spread much faster than traditional bricks-and-mortar banking.

    It gave the example of the M-Pesa mobile payments system in Kenya, which grew from zero to 40 per cent of adults using it in the country in its first three years after launching in 2007 and by last year had hit 70 per cent.

    Ms Lund said India was one of the countries doing the most to encourage digital finance, after the government recently awarded new banking licences — including to non-bank financial providers — and started paying social subsidies digitally.

    Chart: Share of digital payments

    The benefits of digital finance are not spread evenly across emerging markets. Lower-income countries, such as Ethiopia, India and Nigeria, have the greatest potential and could add 10 to 12 per cent to their GDP by embracing digital finance.

    Meanwhile, digital finance could add 4 to 5 per cent to the middle-income economies, such as China and Brazil.


    Four emerging market fintechs to watch


    Founded 18 months ago, Juvo provides credit to mobile phone pay-as-you go subscribers in emerging markets, helping many of the world’s 2.5bn people who are financially excluded to start building a credit rating. The San Francisco-based company has signed up 100m subscribers of mobile operators in 23 countries. It recently raised $14m from big name investors, including the former chief executives of AT&T, the New York Stock Exchange and Vodafone.

    Kubo Financiero

    This Mexican start-up is a peer-to-peer lender that matches middle class and wealthier savers with small businesses and households seeking to borrow $400 to $4,000. Borrowers submit requests that are automatically risk-assessed along with their profiles, and lenders can select the borrowers they want to fund. Text messages prompt borrowers when they miss a payment, and delinquency rates have been lower than for microfinance borrowers to date, offering double-digit returns to lenders.

    The Stockholm-based payment processor has expanded into 11 countries, including Brazil and Mexico. Through a smartphone app, it enables small businesses to process digital payments, track and evaluate their sales data, and monitor profitability, raising their productivity and profitability. Digital records for revenue and expenditure also enable businesses to demonstrate their credit quality to lenders.


    Using the blockchain technology that underpins the cryptocurrency bitcoin, this Swiss-based company provides a digital wallet that allows people to transfer money and pay for goods without needing a bank account. The company has teamed up with the Tunisian post office for a pilot scheme that uses an electronic currency, dubbed the eDinar. The company expects to announce commercial launches of its technology in other southern and eastern African countries by next year.