A Billion Customers Waiting: The Unbanked in Africa and Other Developing Countries Constitute an Enormous Potential for Profitable Expansion for Commercial Banks, According to a New Study. Tom Nevin Reports

Article excerpt

The problem of financial exclusion or limited access to banking services for individuals and small businesses looms large around the world but is nowhere as pronounced as in Africa. In China and India only about a third of the population participates in the formal banking sector. In Africa that fraction falls to just 25%.


A realisation is dawning, however, that amongst the excluded is a distinct and huge group of customers whose potential to become viable banking customers has been greatly underestimated. A recent think tank at the Boston Consulting Group (BCG), categorises this cluster as "the next billion" potential clients that sits just above the poorest of the poor and just below those currently targeted by most banks.

"Governments and microfinance institutions have made some headway in alleviating financial exclusion," notes Janmejaya Sinha, BCG's managing director in Mumbai, "but banks have lacked a clear commercial impetus to do so."

He says that employing innovative business models "would open up unparalleled opportunities for profitable expansion in some of the world's most rapidly growing economies".

"If the next billion customers constitutes a nation by itself, it would be the 10th largest economy in terms of GDP, ranking after Spain but ahead of Brazil, Russia, India, South Korea and Mexico," says BCG. "In its development, the next billion 'nation' stands today where India stood in the 1990s and China stood in the 1980s--on the cusp of high growth and voracious consumption."

For all the hardship and steep interest rates that face emerging country entrepreneurs, the next billion nation has not opted out of the formal banking sector. Most have been excluded from participating by financial institutions unable or unwilling to understand their needs and adapt business models to serve them profitably.

"Our definition of the next billion customers also includes people whom banks are compelled to serve but who cannot be served profitably through conventional business models," says Sinha. …