All of us have at least one bank account. The chances are that most of us have more than one account. Some may also have borrowed from banks to purchase a refrigerator or lease a car or build a house. Others may have a credit card or two sold to them because the banks trusted their capacity to pay back based on their relationship with them — or in simpler words based on the movement of money in and out of our account(s).

With the help of our debit and credit cards we can make online purchases any time. We may never be out of cash even when we’re waiting for our employers to transfer salary to our bank account.

We’re the lucky ones — the ‘financially included’ members of society. We take our financial inclusion or freedom for granted without knowing that we’re among only 3.5 million adults in a population of 210m who are part of the banking system.

Indeed, there’re another 7m people — mostly low-income individuals — who are also part of the country’s ‘financially included’ population thanks to a growing network of microfinance banks and institutions. But they’ve to pay a higher price for this facility, which they’re willing to pay because it still costs them far less than what they’ve to pay if they are forced to borrow small amounts from what we know as ‘money sharks’.

‘The sad part of the story is that women and young people disproportionately remain out of the (financial) system, which stops them from becoming active contributing members of the economy’

Jason Furman, a Harvard professor, once said of financially excluded people: by turning to alternative financial services, families often face substantial costs, including not only direct monetary ones but also lost economic opportunities.

For Mumtaz Hussain Syed, the chief executive officer of Aequitas Information Services, Pakistan’s first central bank licensed private credit information bureau operating under the brand name of Tasdeeq, financial inclusion is one of the biggest challenges facing the country now. “Financial inclusion is crucial for lifting people out of poverty, escalating the pace of economic growth and sharing its fruit of development with a wider section of the population.”

The State Bank of Pakistan had in 2015 developed a National Financial Inclusion Strategy (NFIS), which aimed to give at least half of the country’s adult population access to financial services in five years. And yet we’re far from achieving the target in spite of the phenomenal growth of the microfinance industry in recent years. “The sad part of the story is that women and young people disproportionately remain out of the system, which stops them from becoming active contributing members of the economy,” Mr Syed points out.

With his over 32 years of experience in investments and finance across diverse industries, Mr Syed was quick to see the business proposition of private credit bureaus when the State Bank of Pakistan (SBP) started giving licenses to the private sector for their establishment as part of its financial inclusion strategy. But he looks at it as a social business that is helping unbanked and underbanked people get access to financial services.

“In the United States and Europe, individuals act and work like corporates. That means they have a certain percentage of equity and a certain percentage of debt for the creation of their assets. The level of debt permissible to an individual is determined by their credit scorecards developed by credit bureaus through an analysis of their payment history,” explains Mr Syed who held a key management position at investment banks and telecom companies before he decided to work for himself and start his own business.

“You don’t have to be a bank customer for us to have a credit scorecard; we also use multiple non-conventional sources to assess risk for an individual and create their credit profiles. We do it by using the record of their utility bills, mobile telephone consumption, house rent payments, household consumption patterns and so on.”

For him, the establishment of Tasdeeq was more like creating synergies with other businesses of the Aequitas Group: Pakistan Credit Rating Agency, the oldest and largest credit rating agency in the country, and Analytics, which specialises in data warehousing and business intelligence. The group is also the first independent SBP-licensed ATM operator.

Before credit bureaus, he says, there was no way of measuring the payment capacity of individuals. “Banks were lending to people purely based on their equity or net worth. Someone who had never borrowed from the banks would never have a payment history to show. That’s where the credit bureaus come in. We build the required data for the banks and other creditors. You may also use this data before deciding to rent your house to a person or sell a television to a customer on instalments,” he adds.

There’s a very big consumer market internationally in terms of financial needs, he says. “Consumer finance as a percentage of the total loan portfolio in Pakistan is very small. Today the banks are investing in government debt or lending only to big corporate clients although their consumer portfolios can grow very large in terms of size.

The microfinance industry has made some strides in recent years. But between commercial banks and microfinance institutions, there is a huge chunk of people who have the ability and the need to borrow for consumption. There is a huge market potential for consumer products and white goods in Pakistan as the low-middle-income people, who form the majority of the population, cannot afford to buy but are willing to pay a little price if they can get them on instalments, he explains.

“At Tasdeeq, we are trying to build data that will help underbanked and unbanked people access to cheaper loans and help bankers find a huge new market where they can lend safely. Imagine if and when a majority of our 210 million would be able to borrow for meeting their needs, creating assets, running businesses, meeting consumption needs and what not.”

“But they are unable to borrow because they do not have collateral or do not have a credit risk profile. The credit bureaus will be playing a major role in terms of helping a significantly large number of people access financial services,” he elaborates.

Published in Dawn, The Business and Finance Weekly, September 28th, 2020