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Financial inclusivity: How far we are from reality?


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.

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.


Measuring the number of adults that use a formal financial service may indicate the breadth of the financial sector, but tells us little about how the financial sector is performing. If we broaden this to also include the depth of usage, or the number and types of financial service these adults use, it tells us how responsive the financial sector is to needs. By considering both breadth and depth, we can more accurately identify where the development focus should be.If breadth of usage is low, providers should focus on improving the distribution infrastructure, specifically payments to reach new consumers. If breadth of usage is high, then providers should focus on targeting existing clients with a more comprehensive and tailored portfolio of financial services.

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.

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.

Thinking about financial inclusion targets and measurement in this light opens up new possibilities. Exploring the potential of different data sources, including supply-side and transaction data will unlock these possibilities. Finding new metrics for financial inclusion is an ambitious agenda – but one which is within grasp if all the stakeholders are on the same page.

A more targeted and sequenced policy response is required to help us get to where we want to go. Further, focusing on needs and unpacking people’s usage decisions can help to design discrete interventions for specific segments of the population. By understanding that it is not useful to push fully functional bank accounts, or productive credit, to parts of the population that are unlikely to need – and hence use — it, already takes a long way to knowing where to focus policy attention and resources.


It would be wrong to assume that mere smartphone penetration will result in digital financial inclusion. Presently, our financial ecosystem lacks the willingness for capacity building measures because of which customer-centric products are not being launched. 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.

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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