Financial Inclusion in Pakistan

Dr. Saeed Ahmed

State Bank of Pakistan
October 20, 2010
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Outline

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

%
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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

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Approaches to Financial Inclusion

Financial Inclusion
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Thank You
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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
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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

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SME Borrowers (‘000)

215 214

185

168
161

106

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