New McKinsey Global Institute Report, Digital Finance for All: Powering Inclusive Growth in Emerging Economies, September 2016
In its new report, McKinsey Global Institute (MGI) seeks to quantify the economic impact of digital finance in emerging economies. It uses the following broad definition of digital finance: “financial services (payments, savings accounts, credit, insurance, and other financial products) delivered over digital infrastructures – including mobile and internet –with low use of cash and traditional bank branches”. MGI conducted field research in seven countries (Brazil, China, Ethiopia, India, Mexico, Nigeria and Pakistan). It was observed that the potential economic impact of digital finance varies significantly depending on a country’s starting position.
MGI notes that two billion individuals and 200 million businesses in emerging economies lack access to savings and credit. According to MGI’s report, rapidly spreading technologies offer an opportunity to provide financial services at lower cost and thus will contribute to the progress of financial inclusion.
MGI demonstrates that digital finance can have a positive impact not only on individuals, but also on businesses and public policies. Thanks to digital finance, 1.6 billion individuals could gain access to a financial account for the first time and businesses could improve how they track and analyse cash flow and their understanding of operations and customers. MGI estimates that the volume of loans extended to individuals and businesses could increase by $2.1 trillion. In addition, governments in emerging economies could save $110 billion per year by reducing the leakage in spending and tax revenue. Therefore, this could increase public investment in education and health care, for instance.
MGI calculates that widespread use of digital finance could boost annual GDP of all emerging economies by $3.7 trillion by 2025. This could lead to the creation of up to 95 million jobs across all sectors.
However, in order to fully benefit from the positive impacts of digital finance, a concerted effort on three areas is needed from both governments and businesses:
building a robust and broad digital infrastructure;
ensuring dynamic and sustainable financial services markets;
offering financial products that meet people’s needs.
Finally, MGI notices that the economic gains from digital finance are likely to be far larger than it estimated in its report. MGI underlines that, taken as a whole, digital finance can accelerate progress toward meeting many of the UN’s Sustainable Development Goals.
