Financial Inclusion and FinTech Models in Frontier and Emerging Markets

May 23, 2023

Sturgeon Capital’s target countries in the emerging and frontier markets (EM/FM) are primed for growth in the next decade, both in terms of digitalisation momentum and venture opportunities that will be further enabled through progressive and digitally-embracive policymaking, private-public partnerships, as well as the governments’ commitment to reform and fully digitise their economies to achieve wider-reaching economic progress.

Further digitalisation of public channels and services, investment in robust communications infrastructure, enhancement to existing regulatory frameworks and the creation of new legal foundations have all been instrumental in moving the needle on increasing financial inclusion in other EM. We are witnessing the growth and emergence of innovative FinTech solutions across our markets that will serve as a foundation for economic development in these markets for years to come.

Digital Evolution across 90 Global Economies


Source: Digital Intelligence Index (accessed in January 2023)

Thus far, every government in our sample has put forth a plan for economic development that is inextricably tied to the digitalisation of their economies, from “Digital Egypt” and “Egypt Vision 2030”, “Digital Bangladesh 2009” and “Vision 2041” to graduate to a higher middle-income country by 2031, “Digital Transformation Strategy of Georgia 2021-2025”, “Digital Pakistan Policy” and “Pakistan’s Vision 2025”, Kyrgyzstan’s “E-commerce Development Programme” for 2023-2026 and “Vision 2040” development strategy, “Digital Uzbekistan – 2030 Strategy”, and Kazakhstan’s “Strategic Roadmap for FinTech and Innovation for 2020-2025” and the “National Payment System Development Strategy” through 2025. Every initiative reflects governmental shift to reform existing structures, better utilise human capital, attract investment and speed up economic growth.

Digital Evolution Drivers – Top Results (1-90 on a descending scale)

Bangladesh Egypt Georgia Kazakhstan Pakistan
Demand Rural digital divide (40/90) Consumer spending (36/90) Gender digital divide (17/90) Gender digital divide (4/90) Consumer spending (57/90)
Supply Mobile access affordability (51/90) Access to financial institutions (31/90) Mobile access availability (25/90) Mobile access affordability (13/90) Electronic payments (54/90)
Institutions Bureaucracy (57/90) Legal environment for business (60/90) Bureaucracy (7/90) Bureaucracy (22/90) Bureaucracy (36/90)
Innovation Financing (74/90) Start-up capacity (33/90) Start-up capacity (1/90) Start-up capacity (2/90) Talent availability (49/90)

Source: Country Dashboards from Digital Intelligence Index (accessed in January 2023)

Digital Evolution Drivers – Bottom Results (1-90 on a descending scale)

Bangladesh Egypt Georgia Kazakhstan Pakistan
Demand Gender digital divide (88/90) Class digital divide (89/90) Rural digital divide (76/90) Consumer spending (61/90) Gender digital divide (90/90)
Supply Access to financial institutions (88/90) Communications infrastructure (79/90) Traditional transport (62/90) Access to financial institutions (81/90) Communications infrastructure (89/90)
Institutions Legal environment for business (89/90) Transparency (83/90) Government facilitation of ICT (89/90) ICT regulatory environment (84/90) Effectiveness of institutions (88/90)
Innovation Value capture (89/90) Business practices (89/90) Business practices (84/90) Business practices (81/90) Value capture (86/90)

Source: Country Dashboards from Digital Intelligence Index (accessed in January 2023)

The evolution of instant P2P payment systems, like RAAST in Pakistan and InstaPay in Egypt, will further transform the payments landscape and bolster the growth of digital transactions across covered FM, increasing financial inclusion. These solutions have shown high traction in other markets, like India, with its introduction of a UPI digital payments platform that has grown consistently YoY since 2016, increasing its daily transaction volume by 50% from 240 million to 360 million in just one year in 2022. UPI system processed a remarkable total of 7.82 billion transactions in 2022, amounting to Rs 12.82 trillion (approx. $156 billion). India has achieved unprecedented advancement in its digital payments penetration since the launch of UPI, which has created fast payment rails for remittance transfers, mobile wallets and many successful FinTech use cases.

Digital Payments Penetration

Digital Payments Penetration

Source: The Global Findex Database 2021 (accessed in January 2023)

All covered FM have the opportunity to develop more transparent and simplified taxation regimes with the right-fit income and reporting thresholds for SMEs and individuals, allowing more lending activities and data-driven credit FinTech solutions to flourish. As further digitalisation takes place in each country, it will be imperative to ensure the wider population not only has access to the internet but is also digitally literate – which can be supported through government action and private-public partnerships, as well as incorporated in FinTechs in the form of knowledge-boosting and behavioural engagement features in their product offering. More work needs to be done on the interoperability and API data connectivity between players to allow for seamless and secure data sharing, better user experience and introduction of more robust and data-driven FinTech solutions.

We would be amiss if we did not see traction in Shariah-compliant financial products across our markets that have not been historically associated with Islamic banking. These new FinTech models are unlocking ways to access capital previously unavailable to the more traditional segment of the population in each country. We will monitor their development and evolution, as they could become an important component of further growth in financial coverage and inclusion across Sturgeon’s FM.

This research has shown that Sturgeon’s target markets are five to ten years behind their EM comparator peers in terms of technology adoption and financial penetration. The advantage they have is twofold: firstly, the level of smartphone and internet penetration is growing faster and at a lower cost than it did in, for example, India or Indonesia ten years ago; and secondly, the technology and financial playbook has now been tested, refined and implemented across a wide range of countries. Together, these point to a rapid acceleration in technology adoption and financial penetration within a shorter timeframe than their peers – a prime example of technological leapfrogging that characterises EM.

Mobile Phone and Internet Penetration

Mobile Phone and Internet Penetration

Source: Chart created using data from the Global Findex Database 2021 (accessed in January 2023)

However, it won’t be as simple as a “copy and paste” job in each market to take business models that have been successful elsewhere and implement them locally. The idiosyncrasies of each market, such as the dominance of state-owned banks in Uzbekistan, Central Bank limits on interest rates in Bangladesh or a growing preference for Shariah-compliant financial products across Muslim-majority countries, mean that an in-depth understanding of local nuance and a high degree of localisation are required to be successful. Nor is each market at the same stage: Georgia and Kazakhstan are more advanced, driven by the success of TBC/Bank of Georgia and Kaspi, respectively, while Uzbekistan, Bangladesh and Pakistan are still in the early stages of adoption but with much larger addressable markets.

Over the next five to ten years, Sturgeon will continue investing in FinTech Lending and FinTech Infrastructure business models. Given the complexity of building financial solutions at scale, we will focus on teams with first-hand, in-depth experience building financial products in EM. One of the key risks is that due to the size of these target markets and the low base level of financial penetration it can be easy to build initial traction and appear to have found product-market fit. However, building the systems and processes to grow from early adopters into the mass market is far more challenging, especially when it comes to handling regulators and building a scalable balance sheet, and this is where experience and know-how are vital. To solve the problems of financial inclusion in these markets, we need business models that are scalable, sustainable and profitable, and we will invest with teams who can demonstrate that they can grow their businesses into category leaders of the future.

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