How Financial Inclusion is Supporting Economic Growth in Emerging Markets

By Rakshith Rao, CEO, and Co-founder of APIwiz

October 4, 2022

Financial inclusion for all is vital to supporting economic growth in emerging markets—which, in turn, have a catalyst effect on our total global economy. When higher numbers of people and businesses are included in banking, emerging markets are strengthened as a result of increased access to services and products that benefit both them and the wider economy.

As a result, financial inclusion for the more than 1.4 billion unbanked people worldwide is noted as an enabler for eight of the 17 UN Sustainable Development Goals for 2030. So, how is greater financial inclusion being made possible?

New technological developments such as digital-first and mobile solutions are already helping overcome traditional barriers affecting the underserved population, particularly in South East Asia—where 70% of the region struggles with basic access to financial services.

Let’s find out how digital tools are helping support emerging markets’ economic growth.

Current challenges for emerging markets

The Philippines is an excellent example of the challenges faced by traditional banking. As an island nation, it’s too costly to build brick-and-mortar branches in multiple locations. However, the need to be there physically prevents many people from accessing financial services and products that benefit others around the globe.

Right now, an individual would be required to make arduous journeys, potentially long distances, even to open an account, let alone begin to use it. When banking needs to be done in person, the back and forth of opening a new account, withdrawing money, or taking out a loan, for instance, can go on for weeks and require multiple visits. People may have been more likely in the past to keep cash at home because they feel it is safer.

This is changing. Digital technology, often mobile phones, is making it easier to reach those that hadn’t been included before. Around 83% of the world’s population, roughly 6.6 billion people, now own a smartphone, but smaller local banks often still struggle to leverage the mobile technologies needed to reach their current customers and include potential new ones.

Digital solutions for financial inclusion

Financial health, defined by standards of day-to-day living or operations and the ability to weather economic shocks, is improved by fintechs that help bridge the gap between access and usage of banking products and services. Banks can increase inclusion by partnering with fintechs and neobanks to develop digital-first strategies.

One example is Tonik, a digital-only bank, one of the first of its kind to launch in Southeast Asia in 2018, which operates under a banking license issued by the central bank of the Philippines. Thanks to its collaboration with a traditional financial institution, Tonik is a neobank that has been able to provide mobile financial services to over 230,000 new customers and develop a lending portfolio of $20 million.

Tonik is just one example of how fintechs built with Application Programming Interfaces (APIs) are using tech to integrate with traditional banking services and bring financial inclusion into the last mile.

Digital transformation through APIs increases connectivity with the more vulnerable segments of society—particularly women, microenterprises, and domestic migrants—who can now be reached directly via a mobile or digital device. It also creates more opportunities for small and medium-sized enterprises (SMEs) in emerging markets to access financial credit and loans.

Greater financial inclusion opens opportunities in local stores and businesses too. These small conveniently-based businesses can offer deposits and withdrawals, creating new revenue streams while benefiting individuals and wider markets. Offering these additional services encourages more customers to the stores helping them access more cash to use in shops nearby, giving a boost to local communities and economies.

Looking to the future

Government regulations and legalization have been vital in accelerating the modernization of the banking systems in developing regions. While the regulation and supervision of fintech and financial service partnerships is of ongoing concern, guidelines reduce the financial risk for all involved, from customers to banking institutions.

Modern technology is formalizing the banking systems in emerging markets to give more people the opportunity to both access and use financial services. Yet, fintech and neobanks need to be secure and compliant with regulations to scale successfully and open more doors for those currently un- or under-banked.

Article by Rakshith Rao, CEO, and Co-founder of APIwiz