Fi­nan­cial in­clu­sion

The Pak Banker - - FRONT PAGE -

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.

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