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Fintech in emerging markets – Cracking the code of financial inclusion

Emerging Markets

BNP Paribas Asset Management

Considerable challenges have made emerging markets’ path to progress harder, including the road to greater financial inclusion. But for ‘brave’ companies – and investors – we believe there are massive opportunities in areas such as fintech, the intersection of technology and banking.

In many emerging markets, gaps in the banking system have been limiting business growth, constraining consumer demand and hampering overall economic growth. For instance, many traditional banks are reluctant to engage with the less wealthy individuals and small and micro enterprises. As a result, millions have no access to financial services such as a bank, savings or any other transaction account. They are ‘unbanked’.

By harnessing financial technology, however, remarkable business success has been achieved in countries as diverse as Kenya and China. Fintech has helped advance one of the pivotal goals for sustainable global development – financial inclusion – providing access to payment platforms and services including credit, helping to reduce inequality and alleviate poverty.

However, while substantial progress has been made over the past 20 years, lifting people globally to ‘banked’ status, one-third of all adults around the world have remained financially excluded. This indicates there is still much to do and much to be gained. Widespread inclusion could increase the GDP of all emerging economies by 6%, or USD 3.7 trillion, by 2025, and lead to the creation of 95 million jobs.

In our white paper, we describe how the unique approaches of some companies have resulted in growth and rising profits and improved the lives of those they serve and their economies, achieving a true ‘triple bottom line.’

More mobile phones than bank accounts

As of 2014, mobile phone-enabled store-of-value and transaction accounts burst onto the scene in sub-Saharan Africa, with 12% of adults – roughly a third of the banked population – using mobile money accounts. This compares with just 2% in the rest of the world.

This phenomenon traces its roots to Kenya where M-PESA, intended to facilitate receipt and repayment of microfinance loans, became a digital system to settle payments quickly and securely via mobile phone. It made borrowing more efficient and allowed users to build a credit and transaction history, turning the payment platform into a gateway for further financial services.

The experience in Kenya and the expansion into neighbouring regions benefited the rate of financial inclusion in sub-Saharan Africa, which rose from 34% to 43% over 2014-2017.

With mobile phone penetration in sub-Saharan Africa still low at just 44% as of 2019, there is enormous potential for store-of-value transaction products.


Asian equation

There are still 225 million Chinese who are financially excluded, accounting for 13% of the global total.

With more than 40% of China’s population living in rural areas, the traditional financial services industry faced hurdles such as high costs to serve customers with low or irregular incomes, difficulty in reaching consumers in remote areas, and a lack of data preventing reliable and efficient assessments of a customer’s creditworthiness.

Even in the digital boom, many rural individuals and their businesses remained on the outside, missing out on the quality-of-life benefits urban residents enjoyed such as digital access to credit.

However, leading platforms, covering most of China’s population, have since been addressing the urban/rural asymmetry. Beyond e-commerce, they have worked to rebuild roads, improve logistics services and boost the digital literacy of more remote populations.

Not surprisingly, rural e-commerce sales growth has picked up. Obtaining internet-banking licences, they also began extending small-ticket and microloans to consumers and small businesses, reaching millions of previously underserved customers.

The evolution of China’s digital payments platforms has helped users become more financially visible and more economically viable. Beijing appears to recognise the benefits and to endorse a secure and potentially growing role for the private sector as its financial services industry evolves.

Sowing the seeds of change

The efforts, innovative thinking and dedication of a few seminal emerging market fintech players have altered the opportunities for both businesses and consumers. Today, fintech is attracting enormous amounts of capital globally. While much can be expected to fund positive development, there is also reason to be cautious.

As more players vie for their slice of the growth, extending credit without proper oversight or risk controls can do harm. The success of Chinese regulators in balancing ‘wait-and-see’ with measures to prevent or counter fraud and corrupt practices and centralise payments in a national clearing platform can be a blueprint for many countries.

There are other hurdles preventing mobile banking from proliferating rapidly. In Nigeria – Africa’s largest economy and among the seven biggest unbanked nations – the spread of mobile money has lagged, possibly due to overly conservative policy.

Valuations are a further factor in favour of emerging markets. The price-book ratio of the MSCI EM index relative to that of the MSCI World index is near the lows since 2003. For the IT sector, relative multiples have rarely been this low since the tech bubble in the late 1990s.

On a price-to-next-twelve-month (NTM) earnings basis, relative multiples are similarly near levels not often seen since 2005 after which there was an extended period of EM outperformance.


Encouragingly, traditional banking players are beginning to innovate and bank more inclusively, drawing upon technology. Those incumbents that adapt can be expected to emerge stronger and may even collaborate with fintech, acquire the compelling fintech players or buy stakes in them. This is happening in China, Brazil, and India.

In China – the top unbanked nation as of 2017 – legions of fintech companies have sprung up in a sector that has raised funds successfully, but is also deploying resources abroad, for example in India and southeast Asia.

Investment in affordable 4G wireless services and devices has meant they are proliferating rapidly, including in rural India, which had lacked internet access. It is no surprise that China’s tech giants are vying with US and global peers for this market given that the growth potential offered by India’s young and growing demographic exceeds China’s.

In Brazil, regulators have opened up the previously closed markets and enabled the growth of fintech. The country’s central bank itself is launching an instant payments system, PIX. This can be seen as an encouragement of greater digital financial activity.

It has made clear its intentions to continue to promote affordability and access to financial services. This marks a powerful shift in a market where the majority of the population is banking savvy, yet has struggled to afford most financial services.

Financial inclusion – Fertile ground

Be it for established players or homegrown start-ups, the most unbanked regions are fertile ground for fintech growth, particularly as mobile phone penetration is high and rising.

Fintech solutions are deepening the global drive to democratise access to affordable basic services, making this a pivotal moment for financial inclusion and full participation in the economy.

The ultimate beneficiaries are those previously underserved. They are finally getting a hand-up rather than a handout. The power of this feeding through to these economies and promoting further entrepreneurialism and innovation will be playing out for many years to come.


This material is issued by BNP Paribas Asset Management USA, Inc. (“BNPPAM USA”)*. In Australia, BNPPAM USA is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 in respect of the financial services. BNPPAM USA is regulated by the SEC under US laws, which differ from Australian laws. This material is distributed in Australia by BNP PARIBAS ASSET MANAGEMENT Australia Limited ABN 78 008 576 449, AFSL 223418 .

This material is produced for information purposes only for the exclusive use of wholesale clients and does not constitute:

1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or

2. investment advice.

Opinions expressed are current as of the date appearing in this document only. This document is not to be construed as an offer to buy or sell any financial instrument. It is presented only to provide information on investment strategies and current financial market trends. The analyses and opinions contained in this document are those of BNPPAM USA, and are based upon information obtained by BNP PARIBAS ASSET MANAGEMENT USA, Inc. from sources which are believed to be reliable. BNPPAM USA provides no assurance as to the completeness or accuracy of the information contained in this document. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Investment strategies which utilize foreign exchange may entail increased risk due to political and economic uncertainties. The views expressed in this document may change at any time. Information is provided as of the date indicated and BNPPAM USA assumes no duty to update such information. There is no guarantee, either express or implied, that these investment strategies work under all market conditions. Readers should independently evaluate the information presented and reliance upon such information is at their sole discretion.

The information contained herein (and any calculation of targeted/expected returns) includes estimates and assumptions and involves significant elements of subjective judgment and analysis. No representations are made as to the accuracy of such estimates and assumptions, and there can be no assurance that actual events will not differ materially from those estimated or assumed. In the event that any of the estimates or assumptions used in this presentation prove to be untrue, results are likely to vary from those discussed herein. Past performance is not indicative of future results. The value of investments and the income derived from those investments may fluctuate over time such that the value of a portfolio at any given point in time may be more or less than its original value.

*BNP PARIBAS ASSET MANAGEMENT USA, Inc. is registered with the US Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended.

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September 17, 2021 3 min
China Insights, Emerging Markets, ESG/SRI, Global Equities, Global Fixed Income, Latest news, Responsible Investing