Financial inclusion is crucial for the sustainable growth of an economy, allowing individuals and organizations to access credit, safe money and get insured against risks. Yet, most individuals and Small and Medium-sized Enterprises (SMEs) in ASEAN are not included into the region´s banking and financial system. What is a threat to the economic welfare of many, constitutes an attractive market opportunity for the financial sector.
More than 50% of ASEANs adult population does not have access to financial services. Similar applies to the region´s SMEs. According to a 2015 report by Deloitte and Visa assessing the financial inclusion of SMEs in the ASEAN region, less than 60% of SMEs in Malaysia, Indonesia, Thailand, the Philippines and Singapore have the option to seek bank loans. Most SMEs rely heavily on private capital and savings. The underserving of SMEs by financial institutions could seriously weaken regional growth if not addressed adequately. SMEs in these countries contribute between 30% and 60% of the countries’ gross domestic product and employ up to 90% of the local workforce. Increasing these firms access to financial services and credit, in particular, will be crucial in assuring the region´s future growth.
But the regional economy is not the only actor losing from the neglect of SMEs in financial services, the banking industry itself fails to act upon a major opportunity. ASEAN´s large unbanked population offers an almost untouched market for financial companies offering new and alternative ways to reach customers and provide financial services outside of the regions´ major business hubs. Challenger banks and fintech startups increasingly focus on serving the needs of SMEs and remote populations, collaborating with telecommunications services, for instance, in order to deliver financial services via mobile phones.
As the ASEAN Economic Community moves towards ever more integration, SMEs will find themselves in an increasingly competitive and complex environment. In order to face these challenges, they will require access to external financing, more efficient and interregional payment methods and professionalized cash flow management. Companies that offer innovative solutions able to address the specific and regionally differing needs of the SMEs will be at the forefront of ASEAN´s new financial revolution.
In the words of Mohit Mehrotra, Partner at Deloitte:
“With the advent of the digital age, financial institutions in the ASEAN region have to rethink the role banks want to play in the SME banking space to address the financing gap and capitalize on the SME banking opportunity.”
Inclusive banking offers financial investors a host of opportunities. Nevertheless, any investment strategy in ASEAN needs to take into account regional affinities and differences, infrastructure challenges and governance hurdles. The ability to connect ASEAN´s remote regions will in the future be a crucial key to success, in doing so, investors need reliable partners knowledgeable about the terrain and aware of the risks a complex and emerging market holds.