By Marco Breu, Francisco Ortega and Roeland Vertriest

Having established itself within the financial services industry in developed markets, lean management is rapidly gaining traction in emerging markets. In Asia, South America, and Africa, we have seen banks undertake lean transformations that repaid their costs within 12 to 15 months, and raised profits by 10 to 20 percent within a year. Now some leading institutions are using lean management to streamline their operations and expand their business.

Lean banks operating in emerging markets are adopting transformative approaches to product development and distribution that make financial services accessible to low-income customers who have never been able to afford them before. The need is acute: many poor families who resort to borrowing from pawnbrokers or other informal channels are paying five or even ten times as much as they would pay for a bank loan. And for banks, the value at stake is enormous: fully 70 percent of global banking revenue growth in the next 3 years is expected to derive from emerging markets.

As well as reaching out to new customers, lean banks are deepening the penetration of their current customer base. One African bank managed to boost the average number of products per customer by more than 70 percent in a year. Moreover, when a bank wants to extend its geographic coverage, having standardized lean retail formats enables it to roll out new branches quickly and easily. For the many leading developed-market banks that are now seeking M&A opportunities in emerging markets, lean can offer huge benefits when it comes to incorporating acquisitions into existing networks. Lean provides a mechanism for banks to ensure that best practices are spread systematically across all their operations (see Exhibit 1 in PDF).

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This article was previously published in the McKinsey compendium, Lean Management: New frontiers for financial institutions.