Seeing Profitability Through a Banking Lens
Prior, Francesc; Santomá Juncadella, Javier
Publisher: Estudios y Ediciones IESE
Original document: Seeing Profitability Through a Banking Lens
The two things that emerging markets lack – access to finance and the extension of credit – are the two basic factors considered as key drivers of economic growth. Yet, for banks, the lack of access to financial services and money transfer facilities in these markets represents a huge business opportunity, especially among low-income segments and small and medium-sized enterprises (SMEs). This article examines three promising new business models: upscaling, whereby existing local non-bank institutions become banks; downscaling, whereby the infrastructure of traditional banks is adapted to serve new segments; and greenfield banking, which involves creating completely new microfinance institutions. All require a willingness to adapt to a very different type of customer, as well as taking an innovative, proactive approach to the challenges of risk assessment and efficiency. For companies in other sectors looking to expand into emerging markets, these three business models can serve as a guide. Using lessons derived from the banking sector, the authors urge all companies to see the profitability of emerging markets through new eyes: study their social diversity in depth; forge local alliances; and use new technology to make up for structural shortcomings and inefficiencies.
Tools and Frameworks:
> “Bank Branch Density and Financial Depth by Region” compares these factors in the United States, Western Europe, Asia, Eastern Europe, Latin America and Africa.
> “Flow of Remittances in Emerging Economies” measures these between 1992 and 2011 to show the sizeable business opportunity that exits in this area.
> “Innovative, Proactive Measures” suggests ways to resolve the credit risk and efficiency problems associated with emerging markets, for each of five links in the value chain.
Santander, Standard Chartered, HSBC, Compartamos, Accion International, ProCredit, ICICI Bank, Access Bank, Real Microcredit, ABN AMRO
Based on several pieces of research and a book by the authors derived from their experience in financial sector development projects around the world with organizations including the World Bank Group’s International Finance Corporation (IFC), the Inter-American Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, BBVA, Florida International University’s Summit of the Americas Center and IESE’s Africa Initiative.
About the Authors:
Francesc Prior is a finance professor at the International University of Catalonia (UIC).
Javier Santomá is a professor of financial management at IESE, where he also serves as the academic director of the International Faculty Program.