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    Financial Inclusion Trends Challenges and Polcies

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    Financial inclusion in Pakistan has increased over the past 5 years across various sectors such as corporate, SMEs, agriculture, and microfinance. However, 56% of adults in Pakistan remain financially excluded. The government and State Bank of Pakistan have implemented strategies to increase inclusion, including expanding branchless banking using mobile phones, developing the microfinance sector, and requiring large banks to open rural branches. While progress has been made, challenges remain around credit availability, risk mitigation services, and macroeconomic conditions.

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    Financial Inclusion Trends Challenges and Polcies

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    wunderwall
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    Financial inclusion in Pakistan has increased over the past 5 years across various sectors such as corporate, SMEs, agriculture, and microfinance. However, 56% of adults in Pakistan remain financially excluded. The government and State Bank of Pakistan have implemented strategies to increase inclusion, including expanding branchless banking using mobile phones, developing the microfinance sector, and requiring large banks to open rural branches. While progress has been made, challenges remain around credit availability, risk mitigation services, and macroeconomic conditions.

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    Financial Inclusion trends challenges and polcies

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    Financial inclusion in Pakistan has increased over the past 5 years across various sectors such as corporate, SMEs, agriculture, and microfinance. However, 56% of adults in Pakistan remain financially excluded. The government and State Bank of Pakistan have implemented strategies to increase inclusion, including expanding branchless banking using mobile phones, developing the microfinance sector, and requiring large banks to open rural branches. While progress has been made, challenges remain around credit availability, risk mitigation services, and macroeconomic conditions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    287 views20 pages

    Financial Inclusion Trends Challenges and Polcies

    Uploaded by

    wunderwall
    Financial inclusion in Pakistan has increased over the past 5 years across various sectors such as corporate, SMEs, agriculture, and microfinance. However, 56% of adults in Pakistan remain financially excluded. The government and State Bank of Pakistan have implemented strategies to increase inclusion, including expanding branchless banking using mobile phones, developing the microfinance sector, and requiring large banks to open rural branches. While progress has been made, challenges remain around credit availability, risk mitigation services, and macroeconomic conditions.

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    of 20

    Financial Inclusion in Pakistan

    Dr. Saeed Ahmed


    State Bank of Pakistan
    October 20, 2010
    2

    Outline

    • Status
    • Strategy
    • Achievements
    • Challenges
    • Opportunities
    • Outlook
    3

    Financial Exclusion in Pakistan


    56% of the adult population does not have access to financial services
    The
    Formally
    Served
    The Informally Served
    The Financially Excluded

    Total 11% 1% 32% 56%

    0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

    Source: Access to Finance Survey


    %
    4

    Financial Inclusion in Pakistan


    Sectors # of # of Borrowers- Growth (%)
    Borrowers- Jun’10
    Dec’07
    Corporate 26,061 78,211 200
    SMEs 163,213 209,942 13
    Agriculture 1,517,820 1,813,000 28
    Consumer Finance 3,025,463 2,664,768 -12
    Mortgage Loans 125,490 117,535 -6
    Microfinance Loans 1,471,295 1,800,000 34
    Total 6,329,342 6,683,456 5.6

    With 26 million bank accounts, Pakistan has a long way to go


    5

    Approaches to Financial Inclusion

    Financial Inclusion
    6

    Pakistan’s Financial Inclusion Strategy


    Vision of providing broad-based financial services by leveraging
    technology and alternative delivery channels

    • Sector Specific Prudential Regulations and guidelines


    • National Sector strategies
    ▫ National Microfinance Strategy to focus on institution building

    ▫ Agricultural Financing - Target of increasing to 3.3 million borrowers in 5 years


    ▫ SME financing – Target of increasing by 0.4 million borrowers in 5 years
    • Consultative approach for developing & improving policy and regulation
    • Mandatory for banks to offer basic banking accounts
    • Commercial banks with 100 branches or more to open minimum 20% of branches
    outside large cities and in remote geographic areas
    • Consumer protection and financial literacy for equitable financial services
    7

    Increased Outreach
    • Increase in use of financial services over the past 5 years
    ▫ Corporate borrowers by 83%
    ▫ SME by 134%
    ▫ Agriculture by 44%
    ▫ Consumer finance has tripled over 5 years
    ▫ 1.8 million microfinance borrowers; 0.45 million
    microfinance deposits; 3 million micro-insurance policy
    holders
    ▫ Mobile phone technology rapidly increasing
    8

    Deepening nexus b/w mobile phones and


    financial services
    • Increased need for branchless banking
    • Currently:
    ▫ Close to 4000 ATMs
    ▫ About 26 million accounts in Banking system
    ▫ About 8500 bank branches as a whole industry
    ▫ A Population of more than 180 million
    • Branchless Banking using existing retail agents allows for:
    ▫ Leveraging an extremely low fixed cost channel
    ▫ Shifting basic banking and payment transactions to a more scalable,
    flexible and variable cost channel in a profitable and sustainable
    manner
    ▫ Offering a granularity rather than concentration and enabling delivery
    of basic services locally
    9

    Increasing market development using BB

    • Tameer and Telenor-Easy Paisa Mobile Banking


    ▫ Unique service geared towards a Pakistani target
    market
    ▫ TMB will use Telenor Pakistan’s franchises and retailers
    as banking service agents
    ▫ Basic banking services offered are:
    ▫ Utility Bill Payment
    ▫ Receiving International Remittances
    ▫ Receiving/Sending local current remittances
    10

    Improved Market Infrastructure


    • Developing market and players
    ▫ 8 MFBs and over 30 MFIs have entered the market
    ▫ Financial Inclusion Program sponsoring institutional
    development and credit guaranatee
    ▫ Commercial borrowing by MF players
    ▫ Pilot test of a credit bureau for microfinance
    ▫ 20% or 111 bank branches in rural/hard to reach areas
    as of 2008
    ▫ Innovative partnerships b/w Pakistan Post and First
    Microfinance Bank
    11

    Regulatory Infrastructure
    • Pakistan has a well-recognized regulatory
    infrastructure
    ▫ Rated by the Economist Intelligence Unit as #1 for
    Regulatory framework and #5 for Microfinance
    Business Environment*
    ▫ Acknowledged by CGAP for regulatory measures and
    oversight

    *Source: Global microscope on the microfinance business environment 2010-An index and study by the Economist
    Intelligence Unit
    12

    Regulatory Infrastructure
    • SBP has introduced the following measures:
    ▫ Introduction of branchless banking regulations and
    subsequent pilot tests by Telco's and banks
    ▫ Set up microfinance banks
    ▫ Increased lending limits of MFBs
    ▫ Permission to MFBs to accept borrowings in foreign
    currency
    ▫ Encouraged development of Pakistan Post-First
    Microfinance Bank partnership to collect savings from
    4500 outlets
    13

    Challenges
    • Floods catastrophe is expected to push people towards
    poverty and exclusion
    ▫ Expected in NPLs of financial institutions
    ▫ Extensive national infrastructure destroyed
    • Credit to the private sector dried up in the last few
    years
    ▫ Development finance institutions suffering as a
    consequence
    • Risk aversion of banks to explore new markets
    • Macro-economic challenges of high inflation
    14

    Challenges
    • Risk mitigation services required
    ▫ Insurance industry is largely under-developed
    ▫ Floods catastrophe underscores the problem
    ▫ In microfinance, insurance is limited to credit
    insurance
    • Small depositors need to be part of the banking
    sphere
    15

    Outlook

    • Technology holds the key to spreading financial


    services
    • Development of commercially viable entities is a
    time-consuming process
    • Global economic crisis affect funding for financial
    inclusion
    ▫ Demand remains unaffected
    • Sector specific strategies to widen the net of
    financial inclusion services
    16

    Going Forward
    • Banks cannot do it all and alone!
    ▫ Need a variety of players including MF, telcos and
    other financial sector players
    • Need for diversified financial services
    ▫ Risk mitigation services are key in a country with
    significant socio-economic challenges
    17

    Thank You
    18

    Number of Microfinance Borrowers


    2,500,000

    2,000,000

    1,500,000

    1,000,000

    500,000

    0
    Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 2010-June
    19

    Growing Deposit Base


    Volume (PKR in Millions)

    8,122
    Jun-10
    7,099

    4,115

    2,822

    1,419

    Dec-06 Dec-07 Dec-08 Dec-09 Jun-10


    20

    SME Borrowers (‘000)

    215 214

    185

    168
    161

    106

    Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

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