The power of digital finance
Broadening access to finance through digital means can unlock productivity and investment, reduce poverty, empower women and help build stronger institutions with less corruption. The benefits can transform the economic prospects of emerging economies.
Rapidly spreading digital technologies now offer an opportunity to provide financial services at much lower cost, and therefore profitably, boosting financial inclusion and enabling large productivity gains across the economy. This McKinsey report seeks to quantify how large the economic impact could be.
Key benefits of digital finance:
- Digital finance has the potential to provide access to financial services for 1.6 billion people in emerging economies. It could increase the volume of loans extended to individuals and businesses by $2.1 trillion and allow governments to save $110 billion per year by reducing leakage in spending and tax revenue.
- The widespread use of digital finance could boost annual GDP of all emerging economies by $3.7 trillion by 2025, a six per cent increase versus a business-as-usual scenario. This additional GDP could lead to the creation of up to 95 million jobs across all sectors.
- The potential economic impact varies significantly depending on a country’s starting position. Lower-income countries have the largest potential, with the opportunity to add 10 to 12 per cent to their GDP. Comparatively, middle-income countries could add four to five per cent to GDP.
- The rapid spread of mobile phones is the game changer that makes this opportunity possible. In 2014, nearly 80 per cent of adults in emerging economies had a mobile phone, while only 55 per cent had financial accounts. Mobile payments can lower the cost of providing financial services by 80 to 90 per cent, enabling providers to serve lower-income customers profitably.
- Businesses and government leaders need to make an effort to secure these potential benefits. Three building blocks are required: widespread mobile and digital infrastructure; a dynamic business environment for financial services; and, digital finance products that the meet the needs of individuals and small businesses.
- Broadening access to finance through digital means can unlock productivity and investment, reduce poverty, empower women, and help build stronger institutions with less corruption—all while providing a profitable, sustainable business opportunity for financial service providers. The benefits for individuals, businesses and governments can transform the economic prospects of emerging economies.