“Out of adversity comes opportunity”

Benjamin Franklin’s famous saying has been used on more than one occasion to describe the way in which the Covid-19 pandemic has accelerated change over the past year. Nowhere is this more evident, in our view, than in the emerging and frontier markets financial sector. The resolve of governments to continue driving higher financial inclusion, and the willingness of companies to facilitate a shift to cashless transactions, are stronger than ever. While the pandemic has created multiple challenges for emerging and frontier market banks, we believe that most have managed risk admirably, have continued to innovate, and have weathered the impact of Covid-19 much better than many had expected. The structural opportunity for these businesses remains intact and, in our view, is not currently reflected in valuations, which remain below pre-pandemic levels.

Financial inclusion and fintech as forces for structural change

Financial inclusion – the process of individuals gaining access to basic financial products and services to meet their needs – is a structural change that we believe creates opportunities for select emerging and frontier market banks. In recent years, developments in this area have been accelerated by supportive government policies, fintech innovations and, latterly, by the need to minimise contact in a pandemic environment.


In much of the world, financial inclusion plays a key role in reducing poverty levels and boosting prosperity, which is why governments around the globe have been getting behind the effort. According to the World Bank, since 2010, more than 55 countries have made commitments to financial inclusion, and more than 30 have either launched or are developing a national strategy.


Understandably, fintech is seen by many as a disruptive threat to established banks in developed markets. However, it stands out as an opportunity, rather than a threat, to those incumbent banks in emerging and frontier economies that are driving innovation in their markets. As the shift to mobile banking and cashless transactions accelerates, we believe that our bank holdings offer an attractive proposition as they enjoy the competitive strength that comes from having low-cost traditional deposit franchises, while also benefitting from fintech-driven growth opportunities.


Even though many of the world’s unbanked individuals live in remote areas, where the nearest physical bank branch may be prohibitively far away from homes and places of work, rising mobile phone ownership and internet penetration is changing the way the world gains access to financial products. According to the World Bank’s Global Financial Inclusion Index (“Findex”), 78% of unbanked adults do have access to a mobile phone.


In emerging and frontier markets, gradually increasing penetration of financial products, combined with supportive demographics, should create a backdrop that, for well-placed financial institutions, proves conducive to strong and sustained earnings growth for a long time to come.

Gaining exposure to the opportunity

Through our bottom-up, fundamental approach, we have identified several companies where we believe this change is underappreciated by the market. KCB in Kenya, United Bank in Pakistan, and Bank of Georgia are held in both the Jupiter Emerging and Frontier Income Trust and the Jupiter Global Emerging Markets Fund. While all three are small-capitalisation companies, they are large players in their home markets and are all embracing fintech opportunities to create new avenues for growth.

Kenya Commercial Bank

Arguably, the potential for fintech to drive positive change is most evident in Sub-Saharan Africa, particularly in Kenya. The Kenya Vision 2030 blueprint, launched by the Kenyan government in 2008, made financial inclusion a central goal and, since then, dramatic progress has been made. Financial inclusion in Kenya reached 82.9 per cent last year and, while this means that around 17 per cent of the population is still excluded from access to formal financial services, the numbers have improved dramatically since 2006, when only 33 per cent of men and 21 per cent of women had access to financial services (in that time, the gender gap has also narrowed – from 12 per cent in 2006 to 5 per cent in 2020). 1

A large part of Kenya’s success has been down to the widespread usage of the mobile money platform, M-Pesa, which is now considered to be the most successful mobile financial service in the developing world. M-Pesa was established by incumbent telecom operator, Safaricom, with KCB as its main banking partner. KCB leverages this burgeoning technology by offering loan and savings accounts with attractive fees and variable payment or savings periods.

Over the past year, KCB has enhanced its mobile wallet platform, Vooma, which allows customers to save, borrow, send and receive money, pay bills, and buy airtime. Lending is the largest product on the platform, followed by savings. The bank is now doubling down on its payment services by significantly expanding the number of merchants and billers on the platform.

KCB aims to have a million merchants on the platform over the medium term, up from just thirty thousand presently, with a view to having Vooma contribute twenty per cent to group revenues in two years’ time, up from five per cent today. KCB has established a dedicated division to oversee this transition and there are members of the management team, reporting to the board of directors, who have full ownership of these targets.
Mobile transactions by KCB’s customers have rapidly overtaken in-branch transactions

KCB transactions by channel

Mobile transactions by KCB’s customers have rapidly overtaken in-branch transactions

In recent years, KCB, along with the rest of the Kenyan banking sector, has derated – initially due to concerns over a new law to cap interest rates (which ultimately had little impact on KCB’s profitability), and latterly due to the impact of Covid on the Kenyan economy. In our view, this has created a compelling long-term investment opportunity, with the stock currently trading at a mid-single-digit price-to-earnings multiple and less than one times price-to-book value, despite having a consistent track record of strong profitability and the potential to deliver strong growth.

UBL (Pakistan)

Banking in Pakistan is unique because, unlike the corporate/consumer lending model of most banks worldwide, Pakistani banks have largely favoured government lending historically. In terms of broader system leverage, there is very limited consumer or corporate debt. By way of comparison, in the UK, private sector debt stood at 190.3 per cent of GDP at the end of 2019;2 by contrast, private sector debt-to-GDP for Pakistan stood at just 18.1 per cent at the end of 2019.3

However, consumer lending is now rising from a low base, which is a tailwind that will likely support a positive loan growth outlook for many years to come. More striking to us is the opportunity in retail deposits. As the informal economy reduces, and savers become more educated about wealth management, this should be an area of substantial growth.

In markets like Indonesia, those banks that have been able to couple robust loan and deposit growth with a level of profitability greater than their cost of equity have delivered extremely strong shareholder returns, as the sector has developed. Despite this potential opportunity for leading banks in Pakistan, too, they currently trade at valuations that are around half that of their regional peers.

As one of the largest banks in the private sector, we believe UBL should benefit from rapidly rising financial inclusion in Pakistan. There is scope for strong loan growth over the medium to long term, and for that growth to generate returns well above the cost of equity.

UBL has a clear digital strategy, centred on offering innovative solutions to existing customers through its UBL Digital app, and on promoting financial inclusion through the provision of basic banking facilities to the mass population. In mid-2020, UBL appointed a new CEO, Mr Shazad Dada, who has stressed the importance of expanding the bank’s digital offerings.

In the first nine months of 2020, the bank added 200 thousand new users to its digital banking platform, taking the total to 1.2 million. There is a long runway for further growth, too, considering that the bank has over 10 million customers and a large part of the population remains unbanked. UBL is clearly able to deliver a positive user experience and enjoys a high degree of trust with customers, as evidenced by its strong position in remittances. UBL has a market share of approximately 24 per cent in this space, and facilitated over USD6 billion of remittances in the twelve months to September 2020.4

Equally important is the resilience that UBL has exhibited over the past year, as Covid has weighed on the Pakistan economy. The bank has remained profitable and well-capitalised throughout the past 12 months and, other than a period of two quarters when the central bank asked banks to refrain from distributing dividends, UBL has resumed regular dividend payments. Despite its resilient operational performance, as with many other banks, UBL’s valuation remains significantly below pre-pandemic levels, however.

Emerging and frontier markets’ bank valuations remain below pre-pandemic levels

Emerging and frontier markets’ bank valuations remain below pre-pandemic levels

Bank of Georgia

Bank of Georgia is the leading bank in Georgia, with a deposit market share of around 40 per cent. 96% of the bank’s transactions are already carried out digitally rather than in-branch; and its mobile banking app, mBank, saw active user numbers increase by 33.6 per cent between January and December 2020.5 However, its aspirations go beyond retail banking, and in the past two years, the bank has taken advantage of its strong market position to expand its offerings.

Bank of Georgia’s mBank app

Bank of Georgia’s mBank app
(Image source: Bank of Georgia)

Bank of Georgia’s 2019 acquisition of Georgian e-commerce platform extra.ge is a good example of how the company has been able to identify ways to benefit from its market position and technological capability. In 2020, it relaunched the platform as a multichannel e-commerce marketplace, and extra.ge is now one of the largest online marketplaces in Georgia, integrating the bank’s payment and single sign-on systems, as well as offering preapproved instant instalment loans to buyers.

Bank of Georgia’s market share in payments is even higher than in deposits, at 49 per cent in 2020, as measured by number of transactions on point of sales (POS) terminals.6 The bank has leveraged this lead in payments to launch an inventory and sales management system called Optimo, which caters to both traditional retail and ecommerce. Optimo integrates inventory management, as well as sales and profitability data, into the POS offering. These solutions are powerful tools for customer retention, helping to ensure that Bank of Georgia maintains its leading position.

Much of the innovation and progress delivered by Bank of Georgia has been overshadowed in the short term by concerns about the impact of Covid on the Georgian economy. Due to its relatively high exposure to tourism, the Georgian economy contracted by -6.8% year-on-year in the fourth quarter of 2020.7 Despite these headwinds, however, Bank of Georgia remained profitable and well capitalised, leaving the bank positioned to resume a strong growth trajectory, once the impact of Covid subsides.


Our change-based investment approach aims to generate long-term capital appreciation by investing in under-researched and underappreciated companies. We believe that many well-managed emerging and frontier market banks stand to benefit from rising financial inclusion and the evolution of fintech.


While Covid may have resulted in short-term challenges, we believe that our bank holdings are resilient, attractively valued, and are innovating to ensure that they are able to profit from structural change.

1 Source: Kenya Economic Report 2020 Kenya-Economic-Report-2020.pdf (kippra.or.ke)
2 Source: United Kingdom Private Debt to GDP | 1995-2019 Data | 2020-2021 Forecast | Historical (tradingeconomics.com)
3 Source: Bloomberg
4 Source: UBL Financial results for 9 months of 2020 – Daily Times
5 Source: Bank of Georgia, 2020 results presentation
6 Source: Bank of Georgia, 2020 annual report
7 Source: Bloomberg


The Jupiter Global Emerging Markets Fund: The fund invests in emerging markets which carry increased volatility and liquidity risks. The fund invests in smaller companies, which can be less liquid than investments in larger companies and can have fewer resources than larger companies to cope with unexpected adverse events. As such price fluctuations may have a greater impact on the fund. This fund invests mainly in shares and it is likely to experience fluctuations in price which are larger than funds that invest only in bonds and/or cash. The Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request.

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