Financial Inclusion

South Asia: Unlocking Business Opportunities Through Economic Reforms

While most of the six nations constituting South Asia (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka) have not been under much spotlight for technological and business competitiveness, local business environments have seen a consistent change in the past few years. While South Asia is the only region not represented in the top 50 ranking for ease of doing business (Doing Business 2018 by the World Bank Group), one nation – India – stands out this year as one of the 10 economies that improved the most in the areas measured by the annual ranking.

An important hallmark of the region is a wide disparity in opportunities depending on the country: there are considerable variations in performance between economies within the same region and even within the same regulatory area. Within South Asia, India has the highest score for protecting minority investors, scoring eight times over Afghanistan’s mark.

Although certain countries lag significantly within the region in comparison to other local economies, South Asia is one of the regions with the highest share of reforming economies in Doing Business 2018, along with Europe, Central Asia, and Sub-Saharan Africa – 75% of economies in South Asia have implemented at least one business regulation reform that represent an improvement of the opportunities to start a business and get credit record. In fact, the average number of reforms per economy is highest in South Asia (but the average impact is biggest in Sub-Saharan Africa).

In 2016/2017, South Asian countries were the ones with the highest number of reforms to make various business operating activities easier: 38 reforms making it easier to start a business, 38 reforms making it easier to get credit, 21 reforms improving the protection of minority investors, 33 reforms making easier to trade across borders, and many more reforms on various accounts.

A particular economy stood out among these changing nations (unsurprisingly, for being a hotbed for business growth development in the past few years). According to the ranking, with 8 reforms making it easier to do business in 2016/17, India was the only economy in South Asia to join the list of the top 10 improvers. India made obtaining a building permit faster by implementing an online Single Window System for the approval of building plans; the new system allows for the submission and approval of building plans prior to requesting the building permit.

While there are undeniable roadblocks in the business environment in South Asia’s economies in comparison to other regions, those roadblocks represent an opportunity for technology companies – startups and international corporations – to step into bank on the development.

Asia has the largest percentage of the under-banked population and a large, growing middle class that will soon need new solutions to address its wealth management and banking needs. Moreover, as mobile connectivity continues to grow in the region, local economies will continue to drive a large part of that growth as global economic power shifts from mature markets to emerging economies, professionals suggest.

Particular economies in South Asia are expected to see their technology sectors revived, although the social and economic reality cannot promise a quick fix even with reforms. According to The Express Tribune, an effort to promote FinTech, the Pakistan Telecommunication Authority (PTA) – the telecom regulator – has decided to award Third Party Service Providers’ licenses by June or July 2018, which will pave way for interoperability between cellular mobile operators and ramp up financial inclusion all over the country. The new platform will help to dismantle existing barriers that prevent digital wallets (branchless bank account-holders) from sending money to different bank accounts. Users will be able to make transactions from wallet to wallet or wallet to the bank account.

The nascent-but-growing FinTech industry in another South Asian economy – Bangladesh – holds a promise for inclusive opportunities for a largely under-served population. Bangladesh’s undeveloped financial system, huge unbanked population, and increasing smartphone penetration rate contributed to the development of innovative digital finance solutions, according to FinTech Singapore. Bangladesh has an extremely low banking penetration rate with over 70% of its population having no bank account. The traditional banking sector lacks the adequate technology to reach the pool and only serves 17% to 36% of adults, the edition adds. On the bright side, for entrepreneurs and investors, Bangladesh is the world’s eighth densely populated country and one of the top performing economies in Asia, averaging an annual growth of more than 6%.

Another under-appreciated but promising economy in the region is the island nation of the Maldives. TechBullion reports that the Maldives Government is now turning to technological solutions to ensure its citizens feel connected and safe, which, first of all, comes in the form of governance. The Finance Ministry of the Maldives opened up the nation’s books to its people through a digital app and website, allowing citizens to easily access detailed breakdowns and data on government financial operations. It also outlines government objectives, the economic & fiscal policy outlook, and the Public Sector Investment Program, the edition reports.

In addition to state transparency, the Maldives Government’s Immigration Service in partnership with Germany’ largest biometric company, Dermalog, introduced a pioneering new biometric citizen ID card. The Passport Card can be used for international travel and ID verification, as a driver’s license, an insurance document, a health card, and even a payment card.

Nepal’s and Sri Lanka’s startup communities may be facing significant hurdles, but despite that, online enterprising activities are reported to be on the rise in the capital city of Nepal, Kathmandu. As reported by YoStartups (a pre-accelerator that collaborates with universities, co-working spaces, incubators, VCs and angel investors), the IFC recently initiated a $14 million SME venture fund – Business Oxygen (BO2) – to support such SMEs of at least two years old. This fund is managed by the Bank of Kathmandu and Beed Management Firm, which provides international management consulting and financial advisory services with its offices in Nepal, Bhutan, and Rwanda.

Impressively, out of 42 microfinance development institutions in Nepal, in September 2016, 34 microfinance entities have joined forces to set up a FinTech company – Nepal Finsoft – to build and maintain a shared core banking platform, which will be live in 85 days counting from now. Supported by the Nepal Microfinance Bankers’ Association, Nepal Finsoft will build and maintain a shared core banking platform.

South Asian economies have significant reforms and investments to make for local startup communities to thrive, but the obstacles represent opportunities those nations are yet to harness. Underdeveloped financial systems may be the best call for outsiders to take a step forward and bring technologies and funds into South Asian nations.

Elena Mesropyan

Global Head of Content, MEDICI

Elena is a research professional with a background in social sciences and extensive experience in consumer behavior studies and marketing analytics. She is passionate about technologies enabling financial inclusion for underprivileged and vulnerable groups of the population around the world.