Did you know that over 70% of Southeast Asia’s population is unbanked or underbanked? The former lack access to basic financial services, while the latter are underserved and face problems such as the inability to obtain credit cards, loans or adequate insurance. These people constitute over 70% of the regional population, and the countries with the highest combined rates of unbanked and underbanked are Vietnam (79%), the Philippines (78%) and Indonesia (77%). They also happen to be the most populous nations in the region.
Micro, small and medium-sized enterprises (MSMEs) are 97% of all regional businesses, while employing 69% of the active population. However, more than 60% of these businesses cannot get loans when they need them, which limits their growth potential. Lack of access to credit means that many MSME operators and their employees are forced to live on cash. Many are unable to obtain important services such as proper health insurance.
Owners of these businesses also face an uphill battle when it comes to trying to figure out what loans they might be eligible for and how to apply for them. They face additional hassles due to a misunderstanding of bank charges, interest, and other rules and regulations related to financial products.
Technology offers new opportunities for the underbanked
As banks in the region have started creating more products like microcredits for MSMEs, a greater opportunity to help the underbanked arises through technology.
What many of the unbanked have access to is the internet, with the region having 440 million Internet users out of a total population of 680 million. By contrast, only about a quarter of those with internet access are fully banked. Many companies are now trying to help fill the void, which has led to a fintech boom in the region. For example, cashless payments increase from 18% to 58% in Indonesia between 2018 and 2021, and from 22% to 63% in the Philippines.
Many of these internet users are already using superapps that have increased their focus on financial services. For example, in 2018, Grab established Grab Financial Group (GFG), a regional fintech platform with a mission to drive financial inclusion across Southeast Asia.
Fintech companies like GFG are fractionating financial products and making them “micro” so they are more accessible to the underbanked, including small business loans, critical illness insurance and micro-investment products. Instead of having to rely on things like credit history, small businesses can now leverage data like their daily transaction history and app usage when assessed for approval. of a loan. In 2021, more than 60% of working capital loans issued by GFG were to small traders.
In addition to having access to financial services, MSMEs also benefit from being able to offer their consumers more flexible options, such as through PayLater by Grab, which gives customers the option to make purchases and then pay for them in interest-free installments—a big help for the nine out of ten Southeast Asians who don’t have access to credit cards.
Khaw Keng Kin Keng, known to his peers as “Mac”, is an example of a trader who has benefited from such financial products. As a restaurant owner in Bangkok, Thailand, Mac attempted to apply for a bank loan. He needed to purchase more equipment and hire additional staff, but had difficulty getting a loan due to the need for an official credit history and required monthly lump sum repayments.
However, through its Grab Partner status, Mac was eligible for a small business loan that broke down its fixed monthly costs into more affordable daily repayments—deducted from its sales—over four months.
“It inspires me to work hard to be able to pay it back, and I don’t see it as a burden,” Mac said. With that extra stressor removed, he was able to focus on growing his business.
Another example of how Grab is able to split financial products to meet the needs of the unbanked and underbanked is its microinsurance products. Instead of having to fork out large monthly or annual payments for insurance coverage, Grab driver-partners can accumulate up to S$200,000 in critical illness coverage for as little as S0.30 $ per trip. This makes it affordable and accessible to many other driver-partners, and allows them to work with peace of mind.
An example is Zheng Wei, a Grab delivery partner with access to premium health insurance products that can be paid for through his earnings as a delivery partner. His critical illness insurance plan provides him with coverage for 37 critical illnesses in the serious stage, and he also has a basic hospitalization plan.
Through the power of data, technology and vast ecosystems with millions of users, many underbanked and unbanked people now have access to key financial services and products such as insurance and finance. It will help uplift millions of people economically by enabling small businesses to grow and individuals to improve their financial well-being.