Improving financial inclusion in Pakistan

By July 15, 2019 July 22nd, 2019 No Comments

The SBP estimates the market potential of digital financial services will reach 36 billion USD by 2025. This will not only transform the country’s socio-economic outlook and create employment opportunities for millions of Pakistanis but also break the cycle of abject poverty

Although financial inclusion is not a specific goal of the United Nation’s Sustainable Development Goal — the global framework to achieve a better and more sustainable future for all — it is now widely recognized as an important prerequisite which enables those in developing countries to access many key services that promote economic development and social inclusion. Indeed, financial inclusion and self-ownership goes beyond having a bank account for the obvious economic reasons of saving money, managing risk and executing payments, but rather it makes people more independent and secure.

The latest edition of the Global Findex Report suggests that financial inclusion is on the rise globally with only two thirds of people having access to financial services; in some developing economies not having a bank account remains a key obstacle for adults. In Pakistan, that’s a staggering 100 out of 125 million people!

The report highlights that account ownership at a formal financial institution has doubled within six years to 21 percent in 2017. However, the National Financial Inclusion Strategy (NFIS) launched three years ago aims to achieve the ambitious target of 50 percent by 2020. It is expected that universal financial inclusion can only be achieved with innovative solutions that are accessible and effective through the use of digital finance.

Digital financial services, including payment cards, mobile money services and other financial technology (or fintech) applications are useful tools to be leveraged. This becomes even more important bearing in mind that more than half of non-banked adult people in Pakistan have a mobile phone. Various governmental institutions, under the leadership of the State Bank (SBP), have therefore acknowledged in the NFIS “that a rapid and substantial expansion of digital accounts, accessible through mobile phones, is achievable.”

SBP, Pakistan’s Telecommunication regulator PTA, the national data regulator NADRA and other governmental institutions continuously engage with all relevant stakeholders from the business sector and development organizations in a concerted effort. This ‘public-private collaboration’ strives for cutting-edge innovations and digital solutions for greater social impact. There are also anticipated spillover benefits in connection to the China-Pakistan Economic Corridor and the private business from the northern neighbor — “technology, experience and knowledge make the real difference”.

As much as achieving these targets is a challenge, much more so is the necessity to transition the economy and society towards digital platforms. One key step in this direction is SBP and PTA’s Mobile Banking Interoperability in conjunction with technology solution providers. The introduction of a Payment Gateway catering to individuals as well government-level payments is implemented under the so called ‘Asaan Mobile Accounts (AMA) scheme’.

Such an integrated platform of financial institutions and mobile operators has been rolled out this month. It allows any person with a basic mobile phone to open a mobile account through a Unified Unstructured Supplementary Service Data (USSD) code from anywhere at any time. It reduces transaction costs of banks and clients and strengthens customer identification and verification procedures, a crucial step since most SIM cards are still used in ‘non-smart’ phones; the next technological step would be a 2.0 version for smartphones.

The overall puzzle of financial inclusion in Pakistan would not be complete without an e-government policy to design and introduce effective policies for rapid and continued social and economic advancement. For example, this could include digitized large payments for pensions and social security payments or digital education. Eventually, this provides a much-needed push to transform the country into a less cash or even cashless economy. The macroeconomic impact stemming from such digital financial payments would lead to millions of new jobs.

Deep-rooted cultural and social barriers have resulted in an imbalance within populations of those who are financially included:  predominantly male (86 percent) and urban (68 percent). Pakistani men are more than twice as likely as women to have a mobile phone and without integrating the needs of women into improving financial inclusion, efforts are destined to fail. The recent Global Competitiveness Report states in the context of technological readiness that: “the challenge for large emerging economies [is] to fully integrate their entire population — especially those living in the most remote areas — into modernization processes.” This cannot be answered by technology alone but needs a fundamental shift in mindset.

The private sector plays a crucial role in accelerating Pakistan’s progress relating to NFIS’s 2020 targets. The SBP estimates the market potential of digital financial services will reach 36 billion USD by 2025. This will not only transform the country’s socio-economic outlook and create employment opportunities for millions of Pakistanis but also break the cycle of abject poverty. It is an incredible opportunity that “Pakistan currently has the largest percentage of young people ever recorded in its history”: 64 percent of the population is below the age of 30, the generation with undoubtedly the highest digital literacy.


By Christoph S Sprung, Resident Director, VRG (AG), Zurich Switzerland

Also published in Daily Times

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