McKinsey Global Institute estimates 200m micro, small and medium sized enterprises in developing countries lack sufficient access to credit ©123RF
McKinsey Global Institute estimates 200m micro, small and medium sized enterprises in developing countries lack sufficient access to credit ©123RF

Digital finance could generate $3.7tn for developing world

26 September 2016

Improving access to digital and mobile banking tools could increase the collective GDP of developing countries 6% by 2025, equivalent to $3.7tn, a report has said.

The report from McKinsey Global Institute (MGI), a management consulting firm, said 200m micro, small and medium sized enterprises in developing countries lack sufficient access to credit. 

MGI said digital banking could open up $2.1tn of loans to these businesses and create 95m new jobs across all sectors of the economy.

The report estimated the impact of digital finance on seven emerging economies, Brazil, China, Ethiopia, India, Mexico, Nigeria and Pakistan, and extrapolated the GDP impact on the rest of the developing world.

“Digital finance offers a transformative solution, and one that could be implemented rapidly and without the need for major investment,” the report said.

“A significant share of people in emerging economies are simply not part of the financial system, and an even larger number of adults do not use a full suite of financial services… Limitations in financial access are particularly acute among women, people living in rural areas and those who are less well off,” it added.

The report said digital finance could increase transparency and help create new credit scoring models and peer-to-peer lending platforms. Digital payments also allow for “micro-payments” enabling pay-as-you go models for solar power, irrigation systems or even school tuition fees.

It also said digital finance could benefit governments. It estimated developing governments could save at least $110bn a year because digital payments “reduce leakage” in tax collection and public spending. 

Developing countries needed to take several steps to benefit from digital finances, the report said.

Countries need to build “robust and broad” digital infrastructures and ensure there is “widespread mobile connectivity” and high levels of mobile phone ownership.

They need to develop national digital payment infrastructure that supports “safe, low-cost transactions”.

Finally, developing countries need to create appropriate financial services regulations to encourage safe and sustainable lending and foster a competitive market.

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