SwissBanking
The online magazine of the Swiss Bankers Association
December 13, 2017

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Banking the unbanked

Banking the unbanked

Millions of people around the world have no or only insufficient access to financial services. How fintech is driving financial inclusion and in doing so, could revolutionise wealth management.

Banks manage billions in assets around the world and offer a broad range of products and services. One would think that people are spoiled for choice in this area, but in reality, access to these banking services is not a given. Up to 90 percent of the population in developing countries does not have access to financial services due to a lack of points of sale or service locations, high costs, insufficient infrastructure and inadequate framework conditions. As a result, millions of people around the world are, among other things, denied the possibility of investing in their own business models and therefore of having a secure income. As a targeted instrument for development efforts, microfinance closes that gap. Credit Suisse has taken on a pioneering role in this area.

Innovation through microfinance

One of the key characteristics of microfinance is the small size of the loans granted. Even microcredits of just a few dollars can make it possible for people who are excluded from the financial system, and who cannot receive money from local banks without financial guarantees, to build a livelihood.

Microfinance has strong potential.

The microfinance sector has been reporting solid double-digit growth for years. Just like last year, the growth forecast for the global microfinance sector in 2017 is between 10 and 15%. Microfinance therefore has strong potential and in combination with social responsibility, is also attractive for major investors. For example, as one of the first companies in Switzerland, Credit Suisse became involved in microfinance in 2002, and in 2008, launched the Microfinance Capacity Building Initiative (MCBI).

The initiative develops innovative financial products and services. 

“Through the MCBI, Credit Suisse supports the development of innovative solutions provided by microfinance institutions in order to meet the needs of clients at the lower end of the income pyramid”, says Manuel Hörl, Head Microfinance Capacity Building Initiative (MCBI) at Credit Suisse. According to Hörl, the initiative strengthens the microfinance industry by promoting expertise and skills and driving market developments. As part of this initiative, Credit Suisse collaborates together with five partner organisations and develops innovative financial products and services with them. “Together with our partners, we try to find new ways to give all segments of society access to financial services and financial advice.”

Expanded possibilities through fintech

It is not only client demands that are changing as a result of global digitalisation. The rapid spread of technology – in particular mobile phones and the internet – at all income levels and in all regions, is opening entirely new opportunities for the provision of financial services. Fintech startups are bourgeoning around the world as a result of the new digital environment. These startups are young, dynamic and bubbling over with new technology-based ideas aimed at enabling innovation and improving financial services.

Venture Lab concentrates on startups that develop solutions for financial inclusion.

And this is precisely what one of the five partner organisations in Credit Suisse’s MCB-initiative is addressing: Accion is a global non-profit organisation that has been promoting financial inclusion around the world for over 55 years. In 2012, it founded the investment vehicle Venture Lab. Venture Lab concentrates on investments in seed-stage startups that develop solutions for financial inclusion with a focus on low-income people and companies at the lower end of the income pyramid. It provides fledgling companies with the seed capital they require and brings in employees and resources from Accion’s global network to increase their chances of success. To date, Venture Lab has invested in over 30 companies in countries such as Mexico, Indonesia, Tanzania and India that have either made access possible or helped improve these companies’ access to savings services, payment transactions, loans and insurance:

  • Salud FÁCIL in Mexico, for example, makes it possible for clients with a very low income to secure affordable loans so they can get medical help and pay for their healthcare costs.
  • Coda Pay is a mobile-first payment system in Southeast Asia that in collaboration with telecommunications providers, enables clients without credit or debit cards to make cash-free payments by means of mobile phone subscriptions.
  • GoFinance provides business loans to small companies with a local focus and a corresponding value chain. The company uses digital data and mobile money so that loans can be granted more effectively in the highly undersupplied SME market in East Africa.

Think big, start small

Ideally, digitalisation ensures that the end consumer has access to financial services and, in certain cases, can therefore secure a livelihood. The internet, new technologies, mobile payment platforms and innovative concepts in the area of financial services can pave the way for the next step towards financial inclusion. For financial institutions, such innovations can facilitate increased efficiency, a broader service offering and a reach that extends beyond the existing customer base.

These types of business models are attractive due to their digital nature and the scalability of fintech solutions.

What’s more, in addition to the returns and the positive reputational impact in terms of corporate social responsibility, the commitment of investors in this area has one further effect: “These types of business models are attractive due to their digital nature and the scalability of fintech solutions”, says Manuel Hörl. Although the innovations supported by Venture Lab predominantly focus on addressing the wealth pyramid, the projects can just as easily be applied to other target groups thanks to the scalability. “The next fintech solution to revolutionise the business with very wealthy customers could initially have been developed for the bottom end of the income pyramid”, says Hörl.

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The SBA reserves the right not to publish comments. This applies in particular to comments that are offensive, irrelevant or do not address the topic. It also applies to comments written in dialect or a foreign language (except for French, English and Italian). Comments posted under pseudonyms or obviously false will also not be published. Comments are moderated.