The Unbanked Population: Missing Links in the Fintech Ecosystem

If microlending picks up pace, it could become the lynchpin for not just financial mobility but, as a sum of it’s parts, powerful economic change.

This vendor-written piece has been edited by Executive Networks Media to eliminate product promotion, but readers should note it will likely favour the submitter's approach.

Is FinTech challenging financial Orthodoxy

As the spectre of a financial slowdown in China looms, economic effects are beginning to cascade through­­ the entire Southeast Asian archipelago, heightening the unease of investors and businesses. Banks are braced for dwindling dividends and financial conventions are under threat from the growth of Fintech. According to McKinsey's 2015 Global Banking Annual Review, in 2014 VC investments in Fintechs leapt to $12.2 Billion compared to 2013 and in 2015, with more than 12,000 fintech companies moving into every banking activity and market.

For the penurious villager in Cambodia, however, the peaks and troughs of economic cycles bear miniscule impact. Driven to the periphery by the financial ecosystem, this burgeoning class represents the least financially-educated of the social hierarchy. Due to a lack of financial structure, these band of individuals - comprised of micro businesses and the financially challenged - encapsulate Asia's economic paradox.

Despite the growing realisation that long-term economic growth needs to be built on the foundation of financial inclusion, the World Bank's recent report revealed that only 27 percent of citisens in Southeast Asia have access to a bank account. Cut off from conventional resource channels, a significant number of the region's population have no avenue to raise capital or apply for credit. The promise of social mobility remains elusive for the "unbanked", perpetuating the vicious cycle of poverty for generations.

Fintech plugging the gaps

The emergence of Fintech has disrupted a host of industries, fronting new opportunities and striving to fix old problems. FinTech has shown a potential in driving economy and gradually upgrade the welfare of more than 600 million people in the region. Harnessing the potential of data analytics, Fintech has chartered new paths; amalgamating business know-how and social networks to fill barren gaps left by commercial banks.

However, most platforms, which includes P2P lending and crowdfunding, target small and mid-sized businesses with high-growth potential. While these additions supplement commercial banks and enhance the capital financing ecosystem, the clientele hasn't shifted dramatically.

Despite it's much maligned reputation, microlending is the rockstar that's veering into uncharted territory and reaching a segment of the population that has been completely severed from traditional banking services. Armed with a strong social core, microlending companies aim to provide resource channels for the unbanked; facilitating growth of microbusinesses in the region.

Increasing access to financial services

While mobile banking and e-wallets reflect stronger financial infrastructure and increased reach, the most consequential determinant for social mobility is the ability to provide financial services that meet the needs of microbusinesses. Unlike conventional business models, microbusinesses are short on liquidity and speed bumps, such as increased costs and fluctuations in demand, could easily cripple their growth. Harnessing the power of big data, microlending companies possess a robust risk architecture, which allows them to lend to a wider range of the population.

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