Pakistan Ranked among Top 5 for Financial Inclusion
By Riaz Haq
CA

When people in need of money go to unscrupulous and unregulated moneylenders, they usually get trapped in mounting debts at exorbitant interest rates. In developing nations like India and Pakistan, many end up losing their basic freedom and human dignity when they are forced to work as bonded laborers. How can this situation be changed?
The first obvious answer is to enforce laws and rules against the use of bonded labor. The second, often ignored, answer is to enable people to legitimately borrow the money they need from  regulated financial institutions  like banks.  In addition, they can also save and invest money as bank customers. This is called financial inclusion.

The Economist magazine publishes an annual Economic Intelligence Unit (EIU) assessment and ranking of countries for their policies to promote financial inclusion. In 2015, the  EIU has ranked Pakistan 5th in the world  among 55 countries surveyed for financial inclusion.

Peru (90 points) and Colombia (86) remained the top two countries for financial inclusion. The Philippines was followed by India (71) and Pakistan (64), while Chile and Tanzania (62) tied at sixth and Bolivia and Mexico (60) tied at eighth. Ghana (58) rose in the ranks to clinch the 10th place. Finishing at the bottom of the rankings were Haiti, Congo, and Madagascar.
Pakistan had 41.7 million bank accounts last year for its adult population of about 100 million, according to the State Bank of Pakistan (SBP). More than 31.3 million accounts, or 75% of all bank accounts, belonged to the personal accounts category. The SBP has recently modified the regulatory framework to quicken the bank account-opening process with the help of the national database authority, according to Pakistan's  Express Tribune  newspaper. “NADRA is the real-time online depository of the biometric impressions of close to 100 million people,” Tameer Microfinance Bank CEO Nadeem Hussain said, adding that utilizing its database had so far resulted in eight million one-minute accounts.
According to a new  CGAP (Consultative Group to Assist the Poor) , accumulated research confirms that financial inclusion, defined as access to and use of formal financial services, benefits the poor people. Some 20 randomized control trials (RCTs) indicate that formal financial services, such as microcredit, savings, insurance and mobile payments, can have a positive impact on a variety of microeconomic indicators, including self-employment business activities, household consumption, and well-being. “But benefits are not limited to the microeconomic level,” notes co-author Robert Cull, Lead Economist, Finance and Private Sector Development Research Group at the World Bank. “In addition to benefits to individuals, non-experimental evidence indicates that broader financial inclusion also coincides with greater local economic activity and decreased economic inequality at the macroeconomic level.”
Inability to have a bank account in  modern economy  causes financial exclusion of such individuals who happen to be poor. Improving their financial inclusion is essential to make them participants in the nation's economy. The State Bank's efforts to promote financial inclusion are part of Pakistan's war on poverty that needs to continue until all citizens have full access to financial services in the country. The high and growing penetration rate of mobile phones offers the fastest way to do this by offering  branchless mobile banking  to  everyone with a cell phone .

 

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Editor: Akhtar M. Faruqui
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