McKinsey Quarterly

Small enterprises offer large potential for global banks

Innovative ways of reaching unbanked companies will be the key to capturing emerging-market opportunities.

Emerging markets are poised to account for 60 percent of global banking-revenue growth over the next decade. To fully participate in this growth, banks will need to reach micro-, small, and medium-sized enterprises, which typically earn less than $3.5 million in revenues, fall outside traditional bank networks, face risks that are difficult to analyze, and often are under- or even unbanked.

Our research, however, suggests that banking revenues from such businesses could grow to $367 billion a year, from $150 billion, as banks deploy innovative ways of reaching them (such as mobile banking) and introduce advanced rating techniques geared to small borrowers. To identify the opportunities and challenges, we clustered these markets along two dimensions: credit bureau coverage and bank branch density (which are proxies for market access and the ease of assessing risk). Four market types emerge, each with different growth opportunities, challenges, and strategic options.

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