A variety of secular trends are spurring innovation and disruption in the global economy and creating what we believe are attractive thematic investment opportunities. In this series of articles, we take a close look at some of these trends, the breadth of the opportunity set and the related risks.
Here, we focus on financial inclusion — the global push to ensure that individuals have access to useful and affordable financial products and services. Among our key conclusions:
- There is broad policy support around the world for boosting financial inclusion, and particularly in emerging markets.
- While financial inclusion has been gradually improving for years, we expect more rapid gains thanks to the digitalisation of financial services and the growing consumer acceptance of technology in the wake of the COVID pandemic.
- These trends can lead to attractive investment opportunities, including in areas like consumer lending, microfinancing, insurance, capital markets access and savings/investments.
An overview of financial inclusion and the critical role of capital markets
Financial inclusion is considered essential for reducing inequality and improving the prospects for economic development globally. Enormous progress has been made in recent years: for example, 76% of adults globally have a bank account, up from 50% in 2011. And in emerging markets, nearly 60% of adults made or received digital payments in 2021, up from 35% in 2014.1 But policymakers around the world recognise there is much more to do. The United Nations has identified financial inclusion as a primary enabler of seven of its 17 Sustainable Development Goals, and more than 60 countries have launched national strategies for financial inclusion since 2010.2
Well-developed capital markets are the key to improving financial inclusion. They are a driver of economic growth, which benefits employment. They draw savings into the economy, making capital available to companies, which, in turn, creates jobs and facilitates real wage growth. There is also evidence that capital markets are associated with higher productivity levels as the allocation of resources becomes more efficient — through better information, mechanisms that support good governance and the allocation of capital to innovative projects.
By providing diverse sources of funding to real economy participants, capital markets create competition for bank financing, encourage banks to increase their efficiency and lower the cost of bank capital. This, in turn, can persuade banks to increase their lending capacity, including lending to smaller businesses. Finally, well-developed capital markets can provide access to tools that help households and businesses invest for the future and better manage their risks.