Financial inclusion
Over the last few years the country has witnessed significant growth in branchless banking, microfinance, SME finance and Islamic banking. A special performance review meeting was held recently to assess the progress made on various financial inclusion initiatives and allied indicators approved by the NFIS Council in Sept 2016. The government directed all relevant stakeholders, including Nadra, FBR, SBP, provincial governments and the finance ministry, to work in close collaboration for increasing the outreach and access of financial services to people across the country. In this connection, the meeting underlined the need to adopt latest technologies for enhancing financial inclusion in a more efficient manner.
All over the world there is an increasing trend towards greater financial inclusion which means giving coverage to the maximum number of people in the banking system and the new payments, savings and insurance services developed as a result of digital technology. Financial inclusion is important both for economic development and poverty reduction. According to an estimate, around 2.5 billion people worldwide are financially excluded, and 200-250 million medium and small enterprises are underserved because neither pure cash systems nor the traditional banking model can effectively meet their needs.
Last year, the government officially launched National Financial Inclusion Strategy (NFIS), which seeks to promote financial mainstreaming of the un-served and under-served sections of the population. The NFIS aims to enable half of Pakistan's adult population to have a transactional banking account by 2020, with 25 percent of female population having bank accounts. The conventional, retailbanking accounts among Pakistani adults are in decline - from 10 percent in 2011 to under 9 percent in 2014. On the other hand, transaction in the branchless-banking is on a growth path. As of December 2015, there were 15.3 million BB accounts.
NFIS rightly views BB as a low-cost and medium to rapidly provide financial services to those who are un-banked and difficult to reach out. BB accounts or m-wallets may provide the bulk of growth in transaction accounts in the future. With the conventional bankers not too interested in opening mass level accounts, the mantle of 'financial inclusion' has fallen on BB players and the microfinance providers. In this context it is important that we keep track of how well financial inclusion is progressing. A basic yardstick for financial inclusion is the opening of accounts by first-time users in the low-income groups, who previously had no bank accounts or m-wallets. However, service providers in BB and MFP categories are said to have no reporting mechanism that can record such folks from those users who have already been banking and transacting via formal channels.
According to a report, there is no way to know how many among the 4 million+ microfinance borrowers are those who had no access to formal means of financing before they knocked the door of an MFP. In the absence of hard data, one does not really know how many men and women who had no prior access to formal finance have been financially on-board in recent years. If the government is serious about financial inclusion, the SBP should work on a meaningful definition of financial inclusion, conduct regular surveys and monitor progress over time. Otherwise, the NFIS campaign will fail to achieve its primary aim.
In recognition of this fact, last year the State Bank of Pakistan framed the "National Financial Inclusion Strategy" (NFIS), which set targets for financial inclusion and identified institutional mandates to help achieve them by 2020. Recently, Brookings Institution, a Washington-based think tank, came out with a review of 26 emerging economies, including Pakistan, to measure their progress in the field of financial inclusion. Brookings ranked Pakistan at number 14 out of 26 countries surveyed.