100m adults don’t have access to financial services in Pakistan: report

Habib Bank Building

A World Bank report issued from Washington says about 100 million adults in Pakistan do not have access to formal and regulated financial services. This number accounts for about five per cent of the world’s unbanked population which stands at two billion.
Having a formal and regulated transaction account opens access to other financial services, such as savings, payments, insurance and credit; all of which can help people better manage their lives and reduce poverty.
In May 2015, Pakistan launched its National Financial Inclusion Strategy (NFIS). Pakistan’s goal is to achieve universal financial access to at least 50 per cent of adults, including women and youth, and to increase the percentage of SME loans in bank lending to 15 per cent by 2020.
Pakistan’s financial inclusion strategy focuses on four areas: promoting digital transaction accounts and reaching scale through bulk payments; expanding and diversifying access points; improving capacity of financial service providers and increasing levels of financial awareness and capability.
Despite the low use of digital financial instruments, Pakistan is leading the way in South Asia in mobile money. Only 13 per cent of Pakistani adults have a formal account, according to Global Findex 2014. Less than five per cent of women are included in the formal financial sector, compared to South Asia’s average of 37 per cent. More than 100 million Pakistanis are unbanked; they account for five per cent of the world’s unbanked population. Some 27.5 million of Pakistani adults cite distance to a financial institution as a barrier to opening a financial account.
Only 2.9 per cent of adults in Pakistan have a debit card, and only 1 per cent of adults use them to make payments. A mere 1.4 per cent of adults use an account to receive wages. Only 1.8 per cent of adults used it to receive government transfers in 2014. At the same time, Pakistan is leading the way in South Asia in digital finance and branchless banking. Almost six per cent of adults have mobile accounts, compared to South Asia’s average of less than 2.6 per cent. The financing needs of micro, small and medium enterprises (MSME) are unmet by the formal financial sector.
MSMEs receive only seven per cent of total bank credit to the private sector. There are 3.2 million SMEs, but only approximately 188,000 SME loans outstanding on banks’ books. Pakistan is leading the way in South Asia in digital finance and branchless banking. A shift was made in all government-to-person payments from cash to digital payments, following the success of the Benazir Income Support Programme in opening up access to financial services. But, there is need to create incentives for the private sector to use electronic payments instead of cash when paying for private sector invoices and salaries.
Build on the success of Easypaisa, Pakistan’s first and largest branchless banking solution. Twenty million customers conduct nearly 650,000 transactions through Easypaisa, which is accepted at over 75,000 shops in more than 800 cities across the country. However, there’s need to establish a consistent regulatory and oversight framework for all the payment and settlement systems for banks and non-banks and to develop legal frameworks for secured transactions, factoring and credit reporting systems and an electronic movable collateral registry.
Other required reforms include establishing an enabling regulatory and supervisory framework for the non-bank financial sector, including Islamic financial service providers, supported by adequate financial consumer protection, expanding access points to banks through agent networks or partnerships with microfinance institutions or postal networks and improving financial education and literacy outreach, particularly among people who have little experience with the formal financial sector and digital payments.
The Bank Group’s past support to the country has enabled it to strengthen its banking system and increase private sector participation. IFC investments have supported nearly nine million customers through the private sector in expanding access to financial services to women and to micro, small, and medium enterprises. Some of the recent engagements include: Supporting the development of the NFIS in 2015 and supplementing it with nine technical notes on agriculture finance, MSME finance, digital transactional accounts, housing finance, Islamic finance, payments systems, secured transactions, insurance and pensions.

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