'Mobile banking helps growth of small loans'

The spread of information technology and telecom footprint across the country, along with a competitive environment in the digital lending sector, can help millions achieve financial independence in the country, according to the chief executive of a microfinance company.

Habibur Rehman, the CEO of Sarmaya Micro finance, said, however, the biggest challenge to digital financing was the widespread operation of non-registered and illegal platforms that exploit their clients. "

As the outreach of digital lending platforms grows, not only new loaning options are available to citizens in remote areas, but it would also help digitisation of the economy," said Mr Rehman while talking to the media.

"Access to finance is among basic human needs in the modern era and getting loans in an emergency situation is difficult in rural areas as people do not have banking products like credit cards and ATMs are not available."

Mr Rehman said people were forced either to borrow money from friends and relatives or from money-lenders, popularly known as Soodkhor (usurer). "But growing digitisation can fill this gap with the help of an expansive network of money transfer platforms like Easypaisa and Jazzcash."

While Easypasia, owned by Telenor's microfinance bank, and Jazzcash, a subsidiary of Mobilink Micro finance Bank, disburse small loans, the nano digital lending sector caters for emergency cash requirements with speedy disbursements.

"Like Sarmaya, everything is totally smartphone-based in this sector, bypassing documentation and customers get access to money wherever they choose," Mr Rehman said.

He said the loaning process is based on Android phone with internet connectivity and after the basic formalities, loans ranging between Rs2,500 and Rs50,000 are sent to a mobile money wallet like Easypaisa and Jazzcash. "The clients who make timely repayments eventually build their credit record for larger loans," he said.

The names of defaulters are forwarded to the State Bank. Sarmaya, launched one year ago, has 68,000 clients and the company has so far disbursed Rs1.5 billion among 550,000 clients.

The default rate of Sarmaya is 6.8 per cent, but the company expects this figure to drop as clients begin to realise that nonpayments affect their credit history. There are only two nano digital lending companies in the country, while two more have recently obtained operational licences. At least 12 more firms have applied for licences to the SECP.

The State Bank of Pakistan (SBP) is evaluating a proposal to allow the selling of 10 to 20 per cent of remittances received through exchange companies to bring down the greenback rates by improving its availability in the open market. Currently, the exchange companies are required to deposit entire remittances into banks.

An SBP spokesman told media that a decision to this effect will be taken next week, adding that the central bank will also monitor the dollar rates in the open market.

"The SBP can withdraw the facility if the dollar rates don't come down despite higher inflows in the open market," said the spokesman.

After taking the final decision, the central bank will issue a circular explaining the mechanism for the exchange companies for using this facility.