Worldwide, nearly two billion people lack access to basic financial services such as bank accounts, insurance, or a viable credit line. These financially excluded people belong to the disadvantaged, low-income segments of society.
For most of us, it’s hard to imagine living without a financial account, credit card, insurance, or a save place for our savings in today’s increasingly digital world. But, for the underserved masses, gaining access to formal financial services and reliable sources of finance is an everyday struggle.
According to the World Bank, being able to have access to a transaction account is a first step towards broader financial inclusion since a transaction account allows people to store money and send and receive payments. While a lot of people are yet to be brought under the fold of financial inclusion, great strides have been made toward financial inclusion globally with 1.2 billion individuals getting access to a financial account since 2011 .
Since access to a transaction account is believed to be the gateway to financial inclusion, the World Bank and IFC’s Universal Financial Access 2020 (UFA2020) initiative envisions to make more and more people a part of the formal financial system by 2020. For Pakistan, it is of greater significance as we are among the UFA2020’s 25 priority countries where the world’s 70 per cent financially excluded people live.
With deeper statistical observations, Pakistan, being the fifth most populous country, records less than 20pc of the population that has access to underlying banking facilities, even though growth has been seen in the establishment of banking companies and branches across the country for years, financial inclusion remains in a muddle. This is primarily due to complications including low literacy rate, long travel distance to a financial institution, tedious paperwork, few bank branches in sparsely populated areas, unavailability of services after office hours, lack of awareness, religious concerns, only to name a few.
However, during the last decade, Pakistan has gone through a considerable regime of developments and innovations in the financial technology through the digital pathway. The recent implementation of a rather open-minded set of financial policies has resulted in an empowering change which in turn has led to an overall increase in financial inclusion in the country. This has given birth to the establishment of the branchless banking system — which with the help of the telecommunication technology, is evolving into a unique digital ecosystem of financial integration.
Consequentially, the National Financial Inclusion (NFI) initiative came to existence in 2015 in order to boost the penetration of branchless banking and by also clinging it to the far-reaching roots of the telecom infrastructure of Pakistan. The vision is to increase the percentage of the financially-included through digitally-controlled transactional accounts to 50pc by the year 2020.
Today, the branchless initiative is growing at a steady rate and at the close of 2018, the branchless banking accounts stood at 47.2 million showing a 9.4pc Quarter-on-Quarter increase, similarly the deposits increased by 42.8pc to Rs23.7 billion. During the last quarter of 2018, 267 million transaction worth Rs1 trillion were recorded. However, there is much potential for further penetration of financial services and more we can jointly contribute.
According to the GSMA’s recent report "The Mobile Economy", of the 700 million new cellular subscribers globally, 4pc were to originate from Pakistan. There are a staggering 162 million telecom subscribers in Pakistan and 80pc available market which presents a huge opportunity for growth.
According to a McKinsey study, financial inclusion can result in potentially adding $36 billion to our GDP by 2025 and result in creating 4 million additional jobs.
One of the core examples of a BB system worth mentioning is Telenor Bank’s solution Easypaisa, the country’s first and largest mobile money product and M-Wallet, with over 29 million users and 75,000 touchpoints.
In 2018 alone, over 213 million transactions worth Rs266bn took place through its systems. Ant Financial’s investment in Telenor Bank and use of emerging technologies, such as Easypaisa’s recent international remittance service that is built upon the evolutionary Blockchain technology, is a testament to the potential that exists in our market. We can expect that with the right kind of enabling environment, the value can actually exceed the forecasted projections.
There are many ways to alleviate the financial inclusion gaps from Pakistan and they all stem from a strong resolve and commitment on both government and business levels. Introducing secure payment gateways in the country will further secure transactions taking place through online and BB channels and will increase trust of the consumers. Encouraging inter-operability through establishment of Third-Party Service Providers (TPSP) and will allow banks, telecoms and fintech companies to integrate their services seamlessly.
Moreover, introducing an increasingly forward-looking regulatory framework that puts Pakistan at the forefront of branchless banking adoption can further our march towards financial inclusion by utilising regulatory sandbox mechanism to test out new capabilities.
The importance of financial inclusion cannot be stressed enough and if through collaboration, we are able to put ourselves on the right path, reaching our financial inclusion targets will no longer seem like an insurmountable task and Pakistan will get ahead in the race of development.