Overcoming inequality – 14 Mar 2023


Karandaaz Pakistan launched its national financial inclusion strategy this week. Taking a bird’s eye view of financial inclusion in Pakistan, this article revisits targets set under the National Financial Inclusion Strategy (NFIS) and offers a brief overview of key findings of the recent financial inclusion sample survey.

We emphasize that progress in financial inclusion is critical and requires holistic adoption of the 2030 sustainable development and finance agenda. If properly deployed and harnessed, both have the potential to generate enormous growth, diversity and value from financial inclusion. Concurrently, there is huge learning for Pakistan to fast-track financial inclusion by enhancing digital corridors.

Under the NFIS, the government of Pakistan’s ambition is to increase financial inclusion to 50 per cent of all adults. The achievement of this overarching target is premised on the enhanced usage of digital payments via 65 million active digital transaction accounts (DTAs), with women accounting for at least 20 million of these accounts; enhancement of deposit-to-GDP ratio by targeting it to rise by 55 per cent; extending finance to 700,000 SMEs (17 per cent of the private-sector credit); and increasing agricultural finance to serve six million farmers through digitalized solutions and enhancement of annual credit disbursement to Rs1.8 trillion.

Opening basic adult accounts has been a difficult first step in the country, as has been the case in several developing countries, but it is a powerful enabler of poverty reduction, promising greater prosperity. So Pakistan must stay the course on these financial inclusion targets.

Progress on financial inclusion in Pakistan is mixed as evident from the Karandaaz Financial Inclusion 2022 Survey (K-FIS). The good news is that some developments and trends captured by the survey will offer an impetus to financial inclusion. Notably, the increase in mobile money accounts, which have more than doubled between 2020-2022 from 9.0 per cent to 19 per cent. When parsed by type of financial institution, the data also reveals that while registration of bank accounts remained stagnant in urban areas at 21 per cent, for rural areas bank account registration jumped from 11 per cent to 19 per cent.

Overall, financial inclusion in Pakistan has increased by 9.0 percentage points reaching 30 per cent of adults in 2022. Prior to the results of this edition of financial inclusion survey, a similar increase in financial inclusion was achieved over seven years. So, it seems that, even though slow, we are doing some things right. But the findings also show significant and chronic gaps in the inclusion of women, rural populations and across different regions in the country – where financial inclusion in Punjab, Islamabad, AJK and Gilgit-Baltistan exceeds the national average, in Balochistan it does not even reach 15 per cent, with the financial inclusion of women being as low as 5.0 per cent.

Similarly, while overall rural financial inclusion has improved, registered mobile money users increased by 15 per cent in urban areas, but only 5.0 per cent in rural areas. Inequality in the provision of financial services means that pockets of Pakistan’s citizenry remain unserviced. This is no longer acceptable. Given the size of the unfinished agenda, the K-FIS is a step in the right direction and progress needs to be accelerated.

Over the last decade or so not only have the contours and products and services under financial inclusion been enhanced globally, but there has been a sea change in the ecosystem and institutional frameworks, modes of delivery and interoperability. Globally, foundations have been laid for a modern architecture and institutional infrastructure to drive growth and innovation in financial inclusions at a faster pace. Much of the growth is powered by digital financial services such as through greater connectivity and digital IDs, Big Data deployment, technology, high-powered systems, fintech solutions and AI analytics to promote productivity enhancing and risk enhancement and mitigation instruments based on emerging empirical research.

In Pakistan, adoption of digital finance received a significant push during the Covid-19 pandemic as cash transfer mechanisms were digitized to provide social safety net payments via branchless banking channels, adding 7.5 million new account-holders. This push was reinforced more recently, and very tragically, during the floods of 2022, when more than 30 million people were displaced from their homes and needed emergency relief and rehabilitation support. At the same time, the SBP’s Asaan Mobile Account (AMA) scheme through third-party service providers helped onboard more than 5.5 million wallets (44 per cent of which were women). And last but not least, the launch of Raast-enabled real-time retail payments, with more than Rs1 trillion worth of payments having been routed through it in the last 11 months. All this digitization offers granular data that is a gateway to influencing behavior and has tremendous commercial value.

To conclude, financial inclusion is an unfinished agenda. The urgency to adopt financially inclusive policies is critical as the world, and in particular developing countries, is in the grip of multiple crises. Macroeconomic contraction is hurting our industry and resulting in numerous job losses. Inflation is wreaking havoc on household budgets. Considering this growing uncertainty and the grim outlook over the next 12-18 months, it is clear that the world needs new solutions to really help the most vulnerable build resilience.

Financial inclusion players can provide the bulwark against these challenges, as they threaten to worsen inequality in Pakistan and the world at large. However, the private sector and the government need to step in to ensure the required infrastructure is extended adequately into rural Pakistan, where more than 60 per cent of our population resides.

Dr Shamshad Akhtar is the chairperson of Karandaaz Pakistan.

Mehr Shah is director of research at Karandaaz Pakistan.

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