Many citizens in the Middle East, Africa and South Asia (MEASA) region lack standard identification documents such as passports, or the credit data needed to secure loans. However, technological innovations are presenting new opportunities to collect, validate and store client information that are driving efficiencies and reducing costs for financial institutions.
Following the financial crisis of 2008-09, financial institutions have tightened lending in markets across the MEASA region. In parallel, rules on money-laundering, bribery and terrorism-related financing have also become stricter, making lenders more reluctant than ever to take risks. This has led financial companies to focus on clients that they consider “safe”.
While well intentioned, financial reforms and more stringent Know Your Customer (KYC) rules make it costly to process individuals and businesses, particularly small and medium-sized enterprises (SMEs), which often lack formal accounts or official documentation. “KYC is quite a cumbersome activity,” says Lutfi Zakhour, financial services lead at Booz Allen Hamilton, a consultancy. The process starts with the collection of documents at a branch, he explains, and the bank then has to validate these, conducting enhanced due diligence on high-risk accounts. This information not only has to be stored securely, but must be updated regularly. “This is time-consuming, for bank staff or financial institutions in general, and for consumers.” Applicants may be rejected because the risks are not worth the financial reward, which further widens the lending gap in emerging markets.
There are better ways to balance compliance with financial deepening. “Although they’re spending billions of dollars already on KYC-related technology and upgrades, banks still recognise that they have a lot more to do,” says Susan Starnes, head of strategy, trade and supply-chain solutions at the International Finance Corporation (IFC), part of the World Bank. A growing army of technology firms—and some banks—are using algorithms, machine learning, blockchain and biometrics to help. These technologies are being applied to securing and storing information on clients and assessing creditworthiness.
