Fostering financial inclusion in Pakistan

The ‘World Financial Inclusion Week2017’ is being observed this week (October 3 – November 3, 2017). As an annual global event, it provides organizations and governments to reflect on the state of financial inclusion in their countries and reiterate their commitment to empowering people by providing them access to relevant financial services. According to the World Bank, an estimated 2 billion adults around the world lack access to even basic banking services. Pakistan has made some progress on improving financial inclusion but about 100 million adults are still without access to formal and regulated financial services. For women, the situation is quite dismal with only 11 percent of women considered to be banked. This is perplexing because countries with comparable GDP and a weaker financial infrastructure have higher levels of financial inclusion.

Access to appropriate financial services can be a key enabler for long-term economic progress and human development. It provides much needed financing for business activities, especially for growth of micro and small businesses, and increases household incomes. It helps the poor keep their money safe and reduce their vulnerability, and makes capital available for entrepreneurs to start businesses and create jobs. Apart from empowering individuals and segments of population, access to financial services is crucial for the national economy as lack of access to formal banking services leads to undocumented financial transactions worth billions of rupees. This economic activity can be brought in the system through offering banking services customized to the needs of different population and business segments in the country. McKinsey Global Institute in a recent report has estimated that financial inclusion using digital technologies can increase Pakistan’s GDP by 6%.

The government of Pakistan introduced its National Financial Inclusion Strategy (NFIS) in 2015 to expedite its efforts towards extending financial access to at least 50 percent of its adult population by 2020. The strategy primarily focuses on four key areas: promoting digital transaction accounts and reaching scale through bulk payments, expanding and diversifying access points, improving capacity of financial service providers, and increasing levels of financial awareness and capability.

However, the magnitude of the challenge necessitates active participation of the private sector in the cause of fostering financial inclusion. With about 80 percent of the banking sector assets now held by the private sector and the potential for mobile phone technology to drive financial access, the private sector will be a key player in reaching those who are currently excluded from the financial sector, whether these are small and medium size enterprises, micro-businesses, women or the poor. In the absence of a sufficient footprint of conventional banking institutions, digital financial services especially have the potential to leapfrog financial inclusion in Pakistan and effectively fulfil the financial needs of the unbanked population. For this, however, the stakeholders will need to invest and innovate in terms of the products and services, development of financial industry infrastructure, and research and development.

Karandaaz Pakistan, a non-profit organization, set up by UK’s Department for International Development and Bill & Melinda Gates Foundation is supporting the goals set up under the National Financial Inclusion Strategy of the government. The organization develops and disseminates evidence-based insights to facilitate innovation, women entrepreneurship and youth empowerment, and to support the financial ecosystem to promote financial inclusion in Pakistan. It is an avid proponent of financial inclusion and particularly focuses on ensuring gender parity and inclusion of all in the process. Karandaaz Pakistan works across the ecosystem with all the players and invests growth capital in small and medium size enterprises (SMEs) to trigger broad-based employment generation in Pakistan. So far, Karandaaz Pakistan has spent Rs 5.1 billion on a range of initiatives which will ultimately contribute towards promoting financial inclusion in the country. This includes providing capital to over 300 SMEs through innovative product programmes in partnership with the financial institutions and seed investments in seven FinTech companies to help them scale-up their products. One of the digital finance interventions supported by Karandaaz in agriculture sector resulted in extension of financial services to over 93,000 unbanked farmers.

Effective tackling of financial exclusion in Pakistan will take coordinated efforts from all stakeholders-the government, regulators, financial institutions and digital financial services providers. A conducive regulatory and tax environment is required in which innovative digital financial products meeting the needs of customers can be developed by the financial service providers.  The citizens need not just awareness about the cost of paper cash and benefits of digital cash but also the confidence that they will be protected against fraud or misuse of digital cash. The government can play a critical role by digitizing all Person to Government and Government to Person payments which will not only make the transaction processes efficient and transparent but also result in elimination of corruption and increase in revenues for the Government.  However, this transformation will require strong sponsorship and ownership at the highest policy levels at both federal and provincial levels.

The writer is the CEO of Karandaaz Pakistan, a DFID and BMGF funded not-for-profit development finance company.


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