ACCESS to financial institutions for the bulk of the population is at a low level despite official efforts put in through the National Financial Inclusion Strategy (NFIS) launched in 2015 to promote inclusive economic growth.

The main problem identified by central bank experts is that the limited formal activities are clustered around cities — hubs of formal activities — while the bulk of the population is engaged in informal activities.

Owing to very few avenues of financial services, the formal domestic savings rate has remained low and problematic for the past one decade. Similarly, the country’s development has suffered because important labour-intensive sectors like house finance, small and medium enterprises (SMEs) and small farms are underserved by financial institutions.

Mobilisation of savings mainly lies with the commercial banks and Central Directorate of National Savings.

A study conducted by central bank experts says the financial outreach can be extended through the Pakistan Post to rural and far-off areas where its wide network of infrastructure has been providing postal services since the birth of Pakistan and whose origin can be traced to undivided British India. It is believed that the organisation has thus come to enjoy the trust of the people.

A study conducted by central bank experts says financial outreach can be extended through Pakistan Post to far-off areas where it has been providing services since the birth of the country

The research report titled ‘Enhancing Financial Inclusion through Pakistan Post’ has been jointly prepared by three officials of the State Bank’s Economic Policy Review Department — Talha Nadeem, Waqas Ahmed and Khurram Ashfaq Baluch.

Reviewing the international experience in this domain and prevailing ground realities at home, the authors conclude: the post office branches can provide a better environment for competition and implement the nationwide policies more effectively than the financial institutions.

By creating competition, the Pakistan Post can help keep an effective check on prices of financial services. Elaborating their point of view the financial analysts say the post offices are often structured like non-profit organisations and their mission is to achieve universal access. That stands in sharp contrast to conventional financial institutions which are governed primarily by a profit motive. For financial institutions, the cost of accommodating small scale savers and borrowers can often act as a deterrent.

Currently, however, the potential of the Pakistan Post for enhancing financial inclusion largely remains untapped. In recent years its operations have also shrunk because of competition from urban-based courier services and a sharp drop in the postal life insurance business.

According to the Pakistan Economic Survey 2018-19, the number of post offices has come down to 10,496 from 12,339 outlets in 2004-2005. But the organisation still provides postal services to some 20 million people. Like many state-run entities, the organisation runs in losses. Lately, it has been placed under the Ministry of Communications in the government’s drive for austerity.

However, to pull the organisation out of its current plight, its activities are being expanded. Under the umbrella of Pakistan Remittance Initiative and with the collaboration of National Bank of Pakistan (NBP), the Pakistan Post launched a remittance service in June 2019.

A major incentive for the customers in this initiative is that neither the sender nor the recipient has to incur expensive delivery charges or heavy deductions on transfer amounts. The transaction cost is minimal and the facility is offered without taking deposits.

The recipient can collect the funds from one of the targeted 500 post office branches or 1,500 NBP branches. During the initial period (July-December 2020) around $30.9m worth of foreign remittances were reported to have been routed through post offices. If the channel picks up, it can discourage the use of hundi and hawala and add to the country’s foreign exchange reserves, say the financial experts.

The Pakistan Post has also launched recently a service for home delivery of pensions. Though it is facing some teething problems, these are not of a long-term nature.

As an agency of Central Directorate of National Savings (CDNS), the organisation has distinguished itself by contributing a stable 25 per cent of the financial flows in the saving schemes over the past decade. Commercial banks’ share is 3pc and CDNS own collection is to the tune of 72pc.

Cross country experience, according to various studies quoted by the research report demonstrates that state-owned post office services can play a vital role in financial inclusion of under-served and unbanked population in emerging economies.

In Japan, postal savings played a critical part in the country’s enviable growth and development in the post-World War II era as it led to a ‘virtuous cycle’ of economic development. The savings were used as operating funds for SMEs, for provision of housing finance and building of airports, motorways and other national projects. At its peak in 1999, the stock of postal savings in Japan was equal to 50pc of the country’s GDP.

The analysts are of the view that the Pakistan Post can benefit from business models of countries which achieved a degree of success in financial inclusion. They include Japan, China, India, Russia and Brazil. These states have either used one or more of the following four factors to their advantage: technology, strategic partnerships, financial literacy and access to physical post office infrastructure.

Both in the cases of Japan and China, the parent departments of post saving banks have been converted into corporate entities and are listed on the stock exchanges of their respective countries.

Pakistan Post management says it is emphasising using latest communication and information technology. It offers electronic money orders service and delivery at the doorstep of the customer.

The post offices are stated to suitably placed with their local staff’s knowledge of farmers’ activities and crop/livestock performance to provide financial services to their customers. According to the research report, the postal network can help in crop procurement, transfer of farm subsidies and assist in minimising the overbearing role of the middlemen.

The Pakistan Post currently facilitates a limited range of basic financial products and services such as life insurance, money transfers and agency service to CDNS. It also collects taxes and utility bills.

The findings of the central bank researchers demonstrate that the Pakistan Post can help in achieving headline financial targets set in the extended National Financial Inclusion Strategy 2019-2023.

Published in Dawn, The Business and Finance Weekly, July 27th, 2020

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