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Financial inclusion : a catalyst for poverty reduction

Though Pakistan is now 72 years old, still our economy is going through a transition phase. The stabilization policies are in place to ensure a stable macroeconomic environment which is vital for economic development. The government is pursuing wide-ranging reforms to improve the ease of doing business in the country and minimize the cost of stabilization measures.

The former Governor, SBP, Mr. Tariq Bajwa, in his keynote address during Bloomberg Pakistan Economic Forum, on March 18, 2019 talked about “Financial Inclusion”. He said that it is an important instrument for inclusive economic growth and therefore, is also a high priority for the government. “We all know that majority of people in our country fall in lower income groups who strive each day to make their ends meet. Financial inclusion can empower these segments to not only meet their financial needs but also improve their livelihoods through better financial management and investment in micro and small businesses”. He further added that, “In this regard, the GoP has adopted the National Financial Inclusion Strategy (NFIS) as one of its priorities. The NFIS targets and time-line have been enhanced until 2023 from its earlier end-date of 2020. He also said “We now have an agenda set for us for the next 5 years and some ambitious targets to meet, through which we aim to enlarge the strategy’s scope and deepen its impact for the country’s socio economic growth”.

What is financial inclusion?

Financial inclusion is the pursuit of making financial services accessible at affordable costs to all individuals and businesses, regardless of net worth and size, respectively. Financial inclusion is defined as access to formal financial services by individuals and firms to use a range of quality payments, savings, credit and insurance services which meet their needs with dignity and fairness. It is a building block for both poverty reduction and opportunities for economic growth, with access to digital financial services critical for joining the new digital economy. Financial inclusion facilitates day-to-day living, and helps families and businesses plan for everything from long-term goals to unexpected emergencies. As accountholders, people are more likely to use other financial services, such as savings, credit and insurance, start and expand businesses, invest in education or health, manage risk, and weather financial shocks, all of which can improve the overall quality of their lives.

How it helps in reducing poverty?

  • The financial sector is continually coming up with innovative and unified ways to provide services to the global population. The increase in the use of IT in the financial industry (fintech) seems to have filled the void of inaccessibility to financial services.
  • The advent of fintech has created a way for all entities to have access to all financial tools and services at reasonable costs.
  • Increasing access to bank deposits that enables individuals to accumulate savings in a safe and secure environment.
  • Reducing vulnerability of poorer households via minimizing negative impacts of income shocks.
  • Improving access to credit thereby improving asset base.
  • Decreasing proportion of low-risk, low-return assets held by households for precautionary purposes.

Financial inclusion Increases economic growth by:

  • Facilitating transactions.
  • Providing investment opportunities to all segments of the population.
  • Mobilizing savings.
  • Facilitating inflows of foreign capital (including FDI, portfolio investment and bonds, and remittances).

Financial inclusion promotes stability by:

  • Strengthening financial institutions.
  • Broadening markets for financial service providers.
  • Allocating capital efficiently among competing uses.
  • Facilitating risk management through a variety of services including insurance.
  • Making money transfers more efficient and quicker.
SBP’s Financial Inclusion Program (FIP)

The Financial Inclusion Program (FIP), implemented by SBP with support of the UK Department for International Development (DFID), aims to transform the financial market with a clear objective to provide equitable and efficient market-based financial services to the otherwise excluded poor and marginalized population including women and young people.

FIP focuses on enhancing access of financial services for lower segment of population. FIP contributed in financial sector development through enhancing governance structure, product development, creating better systems and controls, and developing IT infrastructure, etc. FIP has also been instrumental in meeting liquidity and credit requirements of micro & housing sectors, fostering innovations in rural & agriculture finance, digitizing streams of Government to Person payments, etc, while gender finance & Islamic finance are the cross cutting themes. The key elements for success of the program lies in its structured governance framework and creating strategic partnership among the private & public sector institutions.


Financial Inclusion Program Components
  • Credit Guarantee Scheme (CGS) for Small and Rural Enterprises Guidelines
  • Microcredit Guarantee Facility (MCGF) Guidelines
  • Technical Assistance Fund
  • Financial Innovation Challenge Fund
Examples of financial inclusion

Examples of fintech developments that have increasingly been embraced by financial users include crowdfunding, robo-advisers, digital payments, peer-to-peer (P2P) or social lending, and insurance telematics. While these innovative services have disrupted the financial world by including more participants in the money sector, there is still an untapped portion of the world population that remain unbanked or underbanked.

Being able to have access to a transaction account is a first step toward broader financial inclusion since a transaction account allows people to store money, and send and receive payments. A transaction account serves as a gateway to other financial services, which is why ensuring that people worldwide can have access to a transaction account is the top focus.

World bank group’s universal financial access 2020 initiative

Great strides have been made toward financial inclusion and 1.2 billion adults worldwide have gotten access to an account since 2011. Today, 69% of adults have an account. Moving from access to account to account usage is the next step for countries where 80% or more of the population have accounts (China, Kenya, India, Thailand). These countries relied on reforms, private sector innovation, and a push to open low-cost accounts, including mobile and digitally-enabled payments. However, close to one-third of adults – 1.7 billion – are still unbanked, according to the latest Findex data. About half of unbanked people include women poor households in rural areas or out of the workforce.

The gender gap in account ownership remains stuck at 9 percentage points in developing countries, hindering women from being able to effectively control their financial lives. Countries with high mobile money account ownership have less gender inequality.

The writer, Mr. Nazir Ahmed Shaikh is a freelance columnist and is an educationist by profession. Currently he is associated with SZABIST as Registrar and could be reached nazir.ahmed@szabist.edu.pk.

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