Financial inclusion is improving fastest in the economies that have—or are building—a digitally-enabled financial system.

Multiple studies have shown the evolution of fintech has been critical to accelerating financial inclusion across the world, especially in developing markets.¹ Advancements in digital finance have been essential to expanding access to banking products, enabling more people to save, borrow, and invest.

It’s imperative for us to measure progress in this area—year over year—within the 42 markets we analyze in the Global Financial Inclusion Index (Index).

“Improving online connectivity and the development and adoption of digital infrastructure—especially within financial services—are helpful data points when assessing markets’ growth potential,” says Seema Shah, chief global strategist for Principal Asset Management^SM. “These are important components of a financially inclusive society and are also apparent in many of the markets we identify as attractive from an investment standpoint.”

In 2023, the Index revealed two regions in which financial inclusion improved most markedly on an absolute basis year over year: Latin America (score up 9.4 points) and Southeast Asia (score up 5.8 points). The increase in the overall scores for these regions corresponds with notable progress from the major economies within them.

“We believe there are many opportunities across Latin America, and equity valuations have rarely been lower. It’s a good time to buy into the long-term growth story of the region, which benefits from numerous demographic megatrends—including more connected societies and greater access to financial products,” Shah says. “Similar long-term themes can be seen across emerging Asia—although we still expect there to be near-term challenges for the asset class given China’s economic slump.”

Progress in digital-enabled financial systems within emerging markets

Brazil (21st), South Korea (13th), Vietnam (17th), and Thailand (10th) experienced the most substantial advancements in financial inclusion year over year. The key driver was improvement in their financial system support rankings, and a major catalyst for advancement was an improvement in digital finance and connectivity.

For example, Thailand maintained its top position in the volume of real-time transactions (first) and online connectivity (fourth) indicators, while it improved in the access to credit and borrowers’ and lenders’ protection rights’ indicators. Brazil, South Korea, and Vietnam alongside Malaysia, Hong Kong, and Singapore demonstrate similar trends.

Latin America showcases the same pattern. A marked increase in volume of real-time transactions elevated Brazil from 22nd in 2022 to a joint first-place position in 2023 for this indicator. Equally, Mexico saw an increase in real-time transaction volumes (although its ranking declined marginally in this indicator due to other markets making even greater investments and strides in digital finance).

Whereas the rankings for the other larger Latin American economies tracked by the Index show they are still relative laggards in building a digitally enabled financial system, each has seen improvements in the online connectivity indicator—a key requirement to the development of a modernized financial ecosystem.