Banks: The Lifeblood of Emerging Economies
Writer Wendy du Plessis
Banks play a vital role in igniting growth in emerging markets. They provide critical access to financial services, stimulating development and generating prosperity. Banks already shoulder a heavy responsibility, but are they doing enough to keep pace with a connected and demanding world?
Global attention is shifting from a heavy focus on advantaged economies to one in which developing markets are now coming into their own. This raises questions about the ability of financial services institutions to be a force for good in emerging markets by acting as a crucial lubricant to all economic transactions, as well as a market-maker. In a changing world, it cannot be business as usual, so banks are being challenged to innovate and become more agile if they are to safeguard their role as trusted partners for economic growth.
Recent innovations in the financial services sector, including digital financial technologies and cryptocurrencies, have opened the door for extending banking services to all customers and communities at dramatically reduced costs. However, these technological advances may well pose a threat to the traditional banking model, as well as established financial services providers. How banks handle the evolution of the traditional service model will determine their own future relevance and, critically, the existence of the industry as a whole.
Financial inclusion drives economic growth
According to a recent International Monetary Fund (IMF) paper, Identifying Constraints to Financial Inclusion and Their Impact on GDP and Inequality, small and medium-sized enterprises in many developing countries continue to face barriers that hinder their access to finance. According to the IMF research, this appears to be borne out by the fact that 51% of companies in advanced economies make use of bank loans and only 34% in developing economies.
The study identified three obstacles to financial inclusion:
Access to credit, as determined by the size of the participation cost.
Depth of credit or borrowing constraints, such as higher collateral requirements.
Intermediation of credit, where poorly capitalised borrowers are charged higher interest rates and fees.
As a result of these barriers to development, individuals often rely on savings to start a business and, once established, new enterprises depend on self-financing to meet investment needs, inhibiting the size and productivity of the organisation.
The study found that eliminating these barriers to financial inclusion had a significant and unambiguous impact on GDP growth and productivity, “resulting in stronger entrepreneurial activities and new business start-ups that increase aggregate output”.
• Banks can be a force for good in emerging markets. They act as market- making intermediaries that provide vital access to services and capital. But are they doing enough?
• Technological advances are dramatically reducing the cost of extending banking services and disrupting the industry as a whole.
• What do banks need to do to remain relevant in a world where innovation and agility are overtaking traditional roles?
• Eliminating barriers to financial inclusion has a significant impact on GDP growth and productivity.
46 An Absa Investment publication
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76
