In the second part of our blog series on mobile money, we look at the positive impact it could have on economic growth in emerging markets.
According to Digital finance for all: Powering inclusive growth in emerging economies, a report released last year by global consultancy group McKinsey and Company, mobile money could provide access to financial services for 80% of the world’s two billion unbanked (more than half of them women). The potential impact on economic growth in the developing world is staggering. The report claims mobile money could add as much as 6% or $3.7 trillion to the gross domestic product (GDP)- the universal measure of economic growth- of emerging economies by 2025. To put this into perspective, that’s roughly the same size as the German economy. It could also create 95 million jobs.
What’s more, McKinsey estimates mobile money could provide credit of $2.1 trillion for up to 200 million micro, small and medium- sized businesses, which would boost productivity through cost and time savings, greater investment in machinery and to a lesser extent, increased labour. Meanwhile, governments could increase their revenues by $110 billion per year by streamlining their spending and tax collection.
The report highlights three key steps to achieving this level of growth:
A robust digital infrastructure, including widespread connectivity and a reliable personal identification system
A dynamic financial services market, encouraging innovation and unhindered by excessive regulation
The development of digital financial products offering clear advantages in terms of cost and usability for people in the developing world
West Africa is poised to harness this economic growth, as mobile money is already a well- established financial product. According to the Groupe Speciale Mobile Association (GSMA), there are 92 million mobile money accounts in the region- three times the number of Facebook users- and 57 service providers. Agent networks are rapidly expanding, while the volume of mobile money remittances is the highest in the world, partly due to low fees. The majority of markets in West Africa also have what GSMA considers regulatory-friendly environments1.
Latin America is well positioned to take advantage of this trend too. The number of registered accounts grew from 17 million in December 2015 to 30 million in December 2016 according to GSMA, while the number of mobile money services jumped from 11 in 2011 to 30 by the end of 2016. Encouragingly, at least three countries now have more mobile money accounts than bank accounts2. The region’s regulatory environment is also progressive, with El Salvador, Honduras and Columbia leading the way.
Written by – Arundhoti Banerjee, Associate Vice President – Strategy & Digital, Xpress Money