SINGAPORE (Sept 22): Digital finance — or the delivery of financial services through mobile phones, internet, or cards with a link to a digital payment system – could be the solution for individuals and businesses that lack access to savings and credit in emerging economies.

According to McKinsey Global Institute’s latest report, digital finance could boost the gross domestic product (GDP) of all emerging economies by almost 6%, or S$3.7 trillion, by 2025. That would in turn help to create as many as 95 million new jobs across all sectors of the economy.

Breaking it down, about two-thirds of the increase would come from improved productivity from digital payments, a third would come from additional investment, and a small fraction would come from time savings for individuals.

“Lower-income countries such as Ethiopia, India, and Nigeria have the largest potential, with the opportunity to add 10 to 12 percent to their GDP, given low levels of financial inclusion and digital payments today,” said the report. “In comparison, middle-income countries such as China and Brazil could add 4 to 5 percent to GDP—still a substantial boost.”

Beyond that, the widespread adoption of digital finance would also potentially provide access to a financial account for 1.6 billion people - half of them women - for the first time. For individuals, it would improve the cost and range of financial products available to them.

Emerging economies could sustainably dispense S$2.1 trillion in new loans to individuals and small businesses, while governments would gain S$110 billion by collecting its taxes more effectively.

Financial service providers could also cut 80% to 90% of their cost by offering customers digital accounts and save as much as S$400 billion by shifting away from cash to digital payments.

So what can businesses and government leaders do to ride the digital finance wave?

Mckinsey recommends the provision of a widespread mobile and digital infrastructure, a dynamic business environment for financial services that encourages competition and innovation while limiting risk, and offering digital finance products that meet the needs of individuals and small businesses.