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Finding a pathway to expand digital financial inclusion in Pakistan

In recent years, financial inclusion is one area where stakeholders of the financial ecosystem have been focusing lately as part of a broader strategy to reduce poverty, encourage economic development, and promote stability and security. The term ‘financial inclusion’ refers to the provision of accessible, usable, and affordable financial services, either through the formal or informal financial sector, to underserved populations. Financial inclusion also applies to ‘underbanked’ communities, where people lack reliable access to or are unable to afford the associated costs of financial services. ‘Digital financial inclusion’ can be defined as digital access to and use of formal financial services by excluded and underserved populations.

On a macroeconomic level, financial inclusion is linked to economic and social development, and improvements in financial access have been shown to contribute to reductions in extreme poverty and wealth inequality. Additionally, expanded access to the financial sector helps finance small business and microenterprise: a positive correlation has been found between financial inclusion and employment opportunities, and it is generally believed to positively affect economic growth.

In Pakistan, three sectors that have witnessed tremendous growth in terms of innovation and users are Information and Communication Technology (ICT), telecommunications and financial services. By joining hands, they could bring millions of marginalized people into formal banking channels. The exclusion of an entire customer base from the formal financial sector has created a window of opportunity for financial service providers in creating digital value propositions. Digital banking is likely to provide huge impetus to financial inclusion. Surrounded by so much potential, it is likely that financial service delivery coupled with technology will have a transformational impact on the world’s unbanked and financially excluded populations.

Financial inclusion status is more likely to improve through technological advancements as:

1- Conventional banking models are not feasible for low ticket size of transactions, deposits, loans etc.
2- There is a lack of awareness of financial products.
3- There is a high requirement of trained and skilled manpower.
4- Consumer behavior is changing towards rapid adoption of digitization.
5- Demographic dividend is likely to create a large digital savvy customer segment.


It would be wrong to assume that mere smartphone penetration will result in digital inclusion. Presently, our financial ecosystem lacks the willingness for capacity building measures because of which customer-centric products are not being launched. So, first and foremost, a clear strategy must be devised. Policy makers along with all stakeholders must develop a holistic long term strategy for Digital Financial Services (DFS), implement sound legislation and make smart investments. Secondly, a true understanding of individuals’ behaviors, needs and problems will help in the achievement of significant change and greater success. Thirdly, digital inclusion requires an action plan for disruption which offers a bundle of opportunities but requires swift decision making in a technology driven world.

In Pakistan, an example of G2P payments digitization is that government is already using ATM cards to make monthly payments to around 94 percent of eligible beneficiaries under the Benazir Income Support Program (BISP). The recent success of the BISP in beneficiary women’s use of the banking system has bridged gender gaps. It will also help to break down psychological barriers and attract more people towards the formal banking channel. Moreover, Pakistani banks need to be proactive and develop closer links with communities particularly in the rural area. As far as P2G payments digitization is concerned, in Lahore, transferring property was made easier by improving the quality of land administration through digitizing ownership and land records.


As far as country commitment, mobile capacity and regulatory environment are concerned Pakistan is well positioned for mobile financial inclusion. However, adoption is one area where there is need for sustained and deeper focus through improved products and services, enhancing financial literacy through awareness campaigns and engaging industry champions to reinforce the efforts for the development of a robust digital financial ecosystem.

Another issue is that of measurement tools. According to State Bank of Pakistan (SBP) website, there are some 43 million accounts as at May 31, 2016. A close scrutiny of these accounts would reveal that some bank managers had found a way to fool the system by simply depositing negligible amounts into accounts to make them appear active. Just opening accounts is clearly not sufficient. It appears that the targets are being met on paper only as actual usage was non-existent and the account holders themselves were likely oblivious to what was happening in their accounts.

There is a common deception in financial inclusion: that financial services uptake is the objective. In fact, savings, credit, payments and insurance are means and not an end in them. The real destination is the more fundamental needs that people must meet through financial services. These include receiving income, buying groceries, paying for schooling or healthcare, buying stock for a business, or sending money to elderly parents, all of which, in turn, help them meet their financial goals.

A financial service such as a bank account may connect them to one or more of these destinations, but to do so it must be used. Unused accounts are also not profitable for providers. So, if targets are set that incentivize the delivery of services to people who are not likely to need it – and will hence not use it – the end-goal of financial inclusion will not be achieved.

The role of digital financial inclusion is inevitable in Pakistan’s transition from cash-based economy to a documented economy. However, people are hesitant to switch as this will cause them to appear on the ‘radar’ of various authorities. There is deep-rooted fear that additional ‘costs’ may be incurred when using digital banking. Secondly, most people do not want other to know that they are receiving funds. Thirdly, a vast majority simply wants to enjoy the convenience of cash payouts through OTC transactions. It is also possible that a section of the population wants to conceal their income because of the country’s taxation system, and hence opts for cash based transactions.

Digital financial inclusion can reduce the risk of loss, theft, and other financial crimes posed by cash based transactions, as well as the costs associated with transacting in cash. However, access to digital financial services does not come without risks to customers as well as to providers.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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