The Journey of financial Inclusion in Pakistan

Financial inclusion is a powerful force for inclusive growth in countries, which empowers individuals and firms to access need based financial services. It aids to cultivate opportunities for enhanced socio-economic outcomes and allows all individuals to better integrate into the economy, improve their livelihoods and protect themselves against economic shocks. In pursuit of this objective, SBP has been driving ‘Financial Inclusion’ as a strategic goal through a three-pronged approach, which covers agile & innovative regulations, development of market information & infrastructure and capacity building of providers & clients. Primarily, SBP played a leading role in developing a formal microfinance sector as an alternative to conventional banking and a tool for poverty alleviation, which can adequately serve the needs of the lower income population of the country.  The Microfinance Ordinance issued in 2001 may be termed as  an essential step for formalizing Microfinance service providers.

This law contributed to the development of the sector and provided legislation for NGOs to transform into supervised deposit taking institutions to protect the depositors and develop a sustainable banking model for banking the low-income segments.

Through SBP's prudent regulatory and market support, today microfinance is a nationally regulated, highly structured, well-capitalized and attractive industry. It is worth mentioning that since 2010-11, The Economist Intelligence Unit in its annual Global Microscope review of financial inclusion environments has continued to rank Pakistan amongst the top 5 countries for creating an enabling environment for financial inclusion.

Given its priority, in 2007, SBP  prepared the National Microfinance Strategy which recognized 4 essential areas of action to revive the microfinance sector; i) commercialization, ii) sustainability of operations, iii) private domestic capital and iv) building of the human resource base. To set the pace for future growth, SBP laid down a solid foundation for future expansion to improve outreach, geographical expansion, and investment in capacity building and improve local and international equity injections.

SBP, in 2008, issued Branchless Banking (BB) Regulations to facilitate (Micro Finance Banks (MFBs) to leverage on the network outreach of telecommunication companies and allowed financial industry to enter into  bank-telco partnerships. Since then, various policies were launched to promote Alternate Delivery channels in the country, such as issuance of Rules for Payment Systems Operator/Payment Service Providers, Regulations for Mobile Banking Interoperability, Framework for Branchless Banking Agent Acquisition and Management, perceptive and prudent revisions of  Branchless Banking (BB) Regulations and launch of Asaan Account Regulations for low Know Your Customer (KYC) account opening.  

Overall, these measures helped to develop, innovate and sustain the market, while introducing the unbanked population to mainstream formal financial institutions. As of December 2017, the sector is catering to more than 2.5 million borrowers, with a gross loan portfolio of Rs 136 billion while 37 million low KYC branchless banking accounts have been registered, out of which 7.39 million belong to women.

Nonetheless, the level of financial inclusion remains low in Pakistan. The Access to Finance Survey conducted in 2015 revealed that lack of awareness about financial terms and products is one of the biggest obstacles in financial inclusion. In line with this evidence, SBP launched the first-ever Nationwide Financial Literacy Program (NFLP)  in August 2017 to impart education of basic financial concepts to the low-income and unbanked population.

Recognizing the gaps leading to persistent financial exclusion, State Bank launched a comprehensive National Financial Inclusion Strategy (NFIS) in 2015, which was adopted by the government of Pakistan. It creates the foundation for SBP, the Government and private sector to implement a comprehensive set of coherent and sequential reforms needed to make a meaningful impact on financial inclusion in Pakistan.

The NFIS sets clear targets of increasing adult population's access of formal financial accounts from 16% to 50% by 2020. Moreover, it aims to increase bank account ownership of adult women from 11% to 25% by 2020, while gender is a cross cutting theme for all sectors adopted under NFIS. The NFIS covers priority areas such as Branchless Banking, Digital Payment Systems, Agri. & MSME Finance, Housing Finance, Islamic Finance, Consumer Protection and Financial Literacy, Insurance and Pensions etc.  Besides others, promotion of digital financial services and payment systems is one of the priority areas under NFIS. The NFIS actions are giving fruit, as World Bank notes that the adult population having an account in Pakistan has increased to 21% from 13% since 2014 (WBG Global Findex Report 2017).

A number of initiatives have been introduced under NFIS to improve the access, usage and quality of formal financial services: i) development of Asaan Mobile Account Scheme to improve access & usage of digital financial services, ii) rationalization of NADRA’s verification cost, iii) exemption of withholding tax on cash withdrawals by BB agents in Finance Bill 2017, iv) enablement of NADRA’s Biometric Verification System (BVS) for Micro Insurers, v) creation of Innovation Challenge Facility (ICF) for promotion of Digital Financial services - Innovative and client centric Product and Services.

The goal of creating an inclusive financial system will certainly be long and challenging one but SBP remains committed to championing it. SBP endeavors to increase access to financial services for the underserved segments of the country thereby helping build a prosperous Pakistan.