At a time when India is looking to spread financial inclusion under the Jan Dhan programme, a McKinsey Global Institute report, Digital finance for all: Powering growth in emerging economies, points out that a billion people globally—45% of the developing world’s adult population—do not have an account with a bank or a financial institution. Similarly, 200 million MSMEs—50% of such businesses in the developing world—lack sufficient access to credit. These individuals and companies transact exclusively in cash. As a result, over 93% of all transactions—94% in China and 99% by volume in Ethiopia, India, Nigeria and Pakistan—in emerging economies are carried out in cash.
McKinsey estimates that digital fin ance would increase the GDP of all emerging economies by 6%—$3.7 trillion by 2025. China with $1.1 trillion and India ($ 700 billion) would account for half of that. It could in turn unleash $2.1 trillion in loans to individuals and small businesses which would help governments gain $110 billion per year from reduced leakages and tax collection.
Financial service providers could save $400 billion annually in direct costs, and businesses can save 25 billion hours of labour a year by switching from cash to digital payments. This could create 95 million jobs globally, including 21 million in India. The deep penetration of mobile phones is what makes it all the more possible. While 80% of adults in emerging economies had a mobile phone in 2014, only 55% had a financial account. That is expected to exceed 90% of adults by 2020. The emergence of digital finance will open up a new world of economic activity. That’s the huge opportunity to spur economic growth.