Daily Times

The Deputy Governor State Bank of Pakistan Jameel Ahmad while talking to this scribe said that the equal opportunities for all to accessing and using the financial services would make the newly introduced and adopted National Financial Inclusion Strategy (NFIS) to contribute significantly in the economic growth. Lack of access to formal financial services commonly known as financial exclusion is the biggest challenge the government and the regulators are facing right now. Majority of our people face the challenges of poverty and illiteracy all together but struggle to meet their day-to-day needs.

The power of financial inclusion can be a remarkable stepping-stone for empowering the underprivileged and helping them pave their own path out of poverty. It also provides opportunities to these marginalized groups for fully realizing their potential and contribute to the overall economic growth of the country.

He said the central bank and the Pakistan government have a firm resolve to reach the under-served groups and provide them with every opportunity to inspire confidence and assurance for their lives. It is a priority to achieve our shared vision of sustainable growth, whereby all members of the society share the opportunities and benefits created by the economic growth. The NFIS would focus on the enhanced targets including Small-Medium Enterprises (SMEs), agriculture, housing and Islamic finance on an extended time-line to 2023.

By 2023, the SBP Deputy Governor said, the NFIS aims to enhance the usage of Digital Payments to 65 million active digital transaction accounts, with gender segregation of 20 million accounts by women: to increase deposit to 55 per cent of the GDP: to promote SME Finance to 700,000 enterprises; to increase Agricultural Finance disbursements to Rs.1.8 trillion, and serve 6 million farmers through digitalized solutions; and to enhance share of Islamic Banking to 25 percent of the banking industry.

He opined, “We have a clear priority to ensure that a gender-segregated target for account usage is incorporated as well. The vision of inclusive economic growth cannot be realized without providing women, equal opportunities of accessing and using financial services, and we need to gear up an industry to reduce the gender gap in financial inclusion.

The Refinance and Credit Guarantee Scheme (RCGS) for women entrepreneurs in the underserved areas has been created to ensure improved access to finance for women entrepreneurs under which financing at a subsidized rate of up to 5 percent, is available for women entrepreneurs to set up new businesses or expand existing ones. Furthermore, banks can also avail risk coverage against those loans.

The financial inclusion agenda set for the next 5 years is also reflected in the recent tax incentive announced by the government, which will reduce Microfinance bank’s income tax rate on the income earned by financing towards priority areas such as agriculture, SME and housing.

SBP is in the process of taking a number of initiatives that would not only enable the adoption of innovative ideas by service providers but would also enable new and smaller service providers to come and play their role in the provision of financial services in the country. In this regard, one of the important initiatives is allowing non-bank e-money providers to provide payment related services in the country.

Microfinance is vital for the ‘empowerment of the community’

Based on our study on latest global experiences, SBP is also hoping that these e-money providers will be able to support the payment related needs of individual customers and business alike. SBP will also be issuing rules for simplified merchant onboarding and a policy on QR codes which is a low-cost method of digital payments. While we expect these measures to speed up digitization of retail payments in the country, it is also imperative to digitize the economy as without digitization of core transactions, SBP efforts to digitize payments will only have limited impact.

Talking about the innovative thinking and innovative players, he said the SBP already has an innovative challenge fund facility that provides funding facility to companies and start-ups for innovative products and services in the area of digital payments. SBP is also in the process of organizing an “Ideathon” which will encourage innovative thinking by inviting ideas for solving financial inclusion of women, enhancing adoption of digital financial services by less-educated or less-literate segments of population, and digitization of informal saving mechanisms.

Apart from this, Jameel Ahmad said, the SBP is also in final stages of developing a mechanism for regulatory sandbox for Fintechs in the country that would give them a chance and an opportunity to demonstrate their ideas to SBP in a controlled environment.

Every SBP initiative is conceived with only one goal in mind and that is to empower the low-income segments of population to advance financial inclusion and reduce poverty in our country. Going forward, we shall take the challenge of financial inclusion as top priority and use the opportunities provided by technology to deliver the best of best to our citizens. The financial sector shall take advantage of current favorable market environment by investing in innovative technologies and product offerings to expand services and broaden access to financial services in the country.

Globally, microfinance has empowered, transformed and uplifted not just individuals and families but entire communities as well. Over the years, the availability, accessibility and affordability of microfinance products have drawn more micro entrepreneurs to do business with financial institutions. We can see that today the industry has come a long way and is able to fill necessary gaps to gear itself for strategic growth. Through SBP’s supportive interventions the grants have gradually been replaced with wholesale funding while capital adequacies have been strengthened to support innovation and portfolio growth.

By the end of calendar year 2018, Microfinance Banks (MFB) and Institutions disbursed loans worth PKR 274 Billion to over 6.9 million borrowers, spread across 135 districts of Pakistan. Through these loans, micro-enterprises are making a distinctive contribution to local economies, through job creation, increased productivity, innovation, and linkages with various value chains.

Moreover, MFB’s have certainly come a long way to offer deposits and saving plans for low-income segments of the population. As of December 2018, over 35 million micro-savers have deposited almost Rs. 240 Billion with Microfinance Banks. Additionally, 4 microfinance banks have full-fledged branchless banking operations. Within these accounts, more than 3.5 million transactions are taking place over BB platforms daily, with an average transaction amount of Rs 3,100. This reflects that the synergies between microfinance and technology are not only improving financial access, but also driving usage and improved quality of financial services.

Despite these gains, Pakistan is still facing the challenge of providing universal access to credit, insurance and other financial services to the rapidly increasing population of the country. As we move forward, we need to assess the microfinance industry’s strengths, and identify opportunities for growth, and improved quality of services.

He said the Microfinance sector is poised to solve the problems by leveraging on three distinct advantages in the financial industry that larger banks normally do not have. It includes presence at the grassroots level, lending methodologies that are perfectly equipped to serve the missing middle; and specific technical skills well-suited to deal with their niche market. These MFB’s strengths would lead to grow their outreach and quality of services. However, the practitioners shall have to focus on two areas; capacity building and adoption of new technologies.

Capacity building is an important factor for the growth and survival of micro entrepreneurs and to enable them to scale up and grow, the industry needs to create the right synergies by building their capacities. The second most significant aspect for scalability and viability of these micro-entrepreneurs is the adoption of technologies for the provision of innovative services especially to the marginalized groups.

The microfinance sector can use technology to efficient credit evaluation process, promotion of web-based business models, commonly known as e-commerce, provision of efficient payment services and services related to health, agriculture and SME sectors.