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.

 However, particularly in emerging economies, there is a chronic shortage of necessary investment to build transport, communications, energy and water infrastructure. In the Middle East, Africa and South Asia (MEASA) region, the funding deficit amounts to over US$500bn annually.

Domestic sources of capital—the mainstay of infrastructure development in emerging markets—fall short, owing to fiscal pressures from the chronic deficits run by many countries in the MEASA region, or because of the risk of overindebtedness arising from excessive borrowing. Similarly, funding from multilateral development banks (such as the World Bank), regional development banks (such as the Africa Development Bank and India’s Infrastructure Development Finance Company) and country donor partners (notably China) cannot hope to close the investment gap completely. Fresh sources of funding and new funding mechanisms will be essential if governments are to make progress in addressing their countries’ infrastructure needs by building roads, connecting populations to power, and providing clean drinking water and sanitation.

In the MEASA region, when infrastructure is not paid for directly by governments themselves, it is primarily financed by banks, rather than through capital markets or public-private partnerships (PPPs). “But we think that those conditions are changing and that the region will be less reliant on bank financing for infrastructure in the future,” says Michael Grifferty, president of the Gulf Bond and Sukuk Association. He cites several reasons for this. Among them is the mismatch of timelines between infrastructure projects and banks: banks prefer shorter-term debt to meet short-term obligations. In addition to this, regulatory changes such as concentration limits and those stemming from Basel III, such as increasing minimum capital-adequacy ratios, may constrain growth in banks’ balance sheets. “Enforcement of banking regulation will inadvertently result in pushing some financing towards capital markets,” says Mr Grifferty. Such shifts will create an opportunity for greater use of PPPs, capital markets, and alternative sources of finance such as pension funds and insurance companies that value predictable long-term income.

In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.

Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.

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Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.