Govt devises strategy for financial inclusion

KARACHI: The government along with central bank has devised a comprehensive strategy to achieve financial inclusion through various reforms and initiatives in the banking sector, but there are challenges ahead to meet the set targets, a report published by Economic Intelligence Unit said.

State Bank of Pakistan has developed National Financial Inclusion Strategy (NFIS), which provides a framework and road map for priority actions, aimed at addressing constraints and significantly increasing access to and usage of high-quality financial services. The government has a very well-documented and articulated strategy as well as a road map for priority actions and target indicators. The government has already taken steps towards further financial inclusion, having simplified the “Asaan Account”, with no minimum balance and a required deposit of only Rs 100 (around 95 US cents), although its degree of adoption will be a true test of success, the report said.

EIU report highlighted that implementation will also be the litmus test for the Credit Act, which has just been passed by National Assembly. Although implementation of both of these initiatives is still in the early stages, the government has shown commitment and targets are expected to be implemented by 2020. The government has joined the global Better than Cash Alliance Initiative (BTCA), which signals its commitment to the digitisation of payment processes. In order to expand branchless banking and modern payment tools, SBP is also working on developing guidelines for the development of various e-money channels and instruments in the country.

It further pointed out that several initiatives are underway in both the public and private sectors, including SBP’s National Financial Literacy Initiative to promote financial literacy and awareness of products and services. But NFIS faces challenges in implementing its priorities of increasing and diversifying financial-service access points. The supply of credit to underserved markets is constrained by poor contract enforcement, deficiency in land titling and registration, and the absence of a secure transaction framework and electronic collateral registry for movable collateral.

Lack of capacity in both financial institutions and clients is also a constraint to greater financial inclusion. On the client side, lack of financial literacy and awareness serves to limit demand for financial products and services. The level of financial inclusion remains low in Pakistan as 16 percent of the population has access to any financial services. Microfinance reaches less than 3% of the population and less than 7% of small and medium-sized enterprises (SMEs) use formal finance for working capital or investments.

Availability of financial products and services has gradually improved, but access to finance continues to be limited, especially on the credit front. MFBs currently account for 70% of the asset base of the microfinance segment and have witnessed a huge rise in investor interest over the last few years. Despite the persistent energy crisis and security challenges, positive economic indicators, including lower inflation, falling interest rates and uptake of private credit have led to positive growth in the microfinance segment.


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