Seeing Profitability Through a Banking Lens

by Francesc Prior and Javier Santoma
published in IESE Insight, 2011
Ref ART-2010-E

Seeing Profitability Through a Banking LensThe 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.

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About the authors

Francesc Prior is Research Associate at IESE Business School and Associate Professor of Banking and International Finance at Universitat Internacional de Catalunya, Spain.

Javier Santoma is Professor in the Financial Management Department at IESE Business School, Spain.


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