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Pakistan Ranked 5th in the World For Financial Inclusion Policy

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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Views: 677

Comment by Pluto210 on December 26, 2015 at 4:47am

I strongly believe that you need to write for the mainstream Pakistani newspapers and provide your input to the rapidly expanding electronic media. I usually quite enjoy reading your articles. I have a few queries Pakistan`s current GDP growth rate is around 4.4%. It is currently lowest in the whole of South Asia excluding Afghanistan. Why is that so? And your predictions about the future economic trends in Pakistan, under the current Nawaz government? 

Comment by Pluto210 on December 26, 2015 at 4:50am

Also do you think Pakistan`s current performance though remarkable, is not being upto par with other rapidly developing region is due to the image crisis which the country currently has? Also do you think good relations with India are a possibility? And if so do you think it will benefit Pakistan, given that we allow india to access the central asian market, Iran and afghanistan via Pakistan? 

Comment by Riaz Haq on December 26, 2015 at 7:48am

Pakistan economy suffers from low savings rate and low foreign investor interest resulting in significant underinvestment.  Pakistan needs investment of 20% of GDP to achieve 5% economic growth, a capital-to-output ratio (COR) of four. 

My hope is that CPEC will help boost FDI and financial inclusion will drive savings rates higher. If this happens, Pakistan should be able to clock higher GDP growth rates.

http://www.riazhaq.com/2014/05/declining-investment-hurting-pakista...

Comment by Riaz Haq on January 13, 2016 at 8:22pm

#Pakistan banks’ deposits up 12%, loans up only 7% in 2015 

http://www.pakistantoday.com.pk/2016/01/08/business/pakistan-banks-...


Total deposit of the scheduled bank has gone up by 12 per cent to Rs 9.3 trillion or 33 per cent of GDP in 2015 against an increase of 11 per cent in 2014 and average growth of 14 per cent during the last 5 years (2010-14).

Umair Naseer, an analyst at Topline Brokerage house attributed this to higher broad money (M2) growth in 2015, which clocked in at 11 per cent against 10 per cent in 2014 and last 5-year average M2 growth of 13 per cent.

The slight improvement in deposits growth bodes well for banking sector as there were concerns of deposit withdrawals following imposition of withholding tax (WHT) on cash withdrawal from bank accounts in 2015.

Government imposed WHT of 0.6 per cent on all banking transaction of over Rs 50,000 in a day for non-filers. Later on, the government reduced the tax rate to 0.3 per cent till January 2015 allowing traders to file tax returns in the given time.

Investments registered strong growth of 32 per cent to Rs 6.7 billion as banks continued to invest in risk-free government securities. Consequently, investment to deposit ratio (IDR) reached an all time high of 72 per cent in 2015.

Advances growth remained lackluster in 2015 increasing by 7 per cent against 9 per cent in 2014, increasing to Rs 4.7 trillion (17% of GDP).

This is also significantly lower than our initial estimate of 12 per cent at the start of the year, the analyst said.

Despite below expectation advances growth in 2015, advances grew owing to strong prospects from the initiation of China-Pakistan Economic Corridor (CPEC).

According to Ministry of Water and Power, out of the total $46 billion, $28 billion projects are to be completed by 2018, which will involve financing of power and infrastructure projects by Chinese and local banks. This coupled with other planned power sector projects is likely to trigger higher advance growth going ahead.

These projects will generate an additional credit demand of $2 billion annually during the next three years, which is equivalent to 5 per cent of the total advances of the industry.

Bankers are also of the view that local component of the financing could be 10-20 per cent of the total planned investment during the next three years. Advances will grow by 10-12 per cent in 2016 and 14 per cent on average during the next three years from 2016-18, the analyst said.

Initially, there were concerns that whether the planned Chinese investment would materialise. However, financial close of some of the projects has already been achieved indicating strong potential for CPEC related funding.

On the consumer side, banks are increasing their lending. However, their part of the total portfolio still remains low. As per SBP, consumer lending in 2015 increased by 10 per cent in line with last year’s figures and its proportion as a percentage of total loans stood at 6 per cent (1% of GDP). Corporate portfolio still dominates the total loan book of banks with total proportion of 67 per cent.

Spreads between the lending and deposit rate remained under pressure during 2015 following 300 basis points cut in interest rates and SBP initiative to curb spreads. Spreads as of November 2015 declined to 5.3 per cent against 6 per cent in Dec 2014. These spreads do not include return from investments, which protected banks from falling interest rates in 2015.

The analyst said that spread may remain flat in 2016 due to anticipation of status quo in interest rates. However, banks margins could come under pressure in 2016 as a major chunk of high-yielding Pakistan Investment Bonds (PIBs) mature in 2016.

Comment by Riaz Haq on February 8, 2016 at 8:55am

Queen Máxima of #Netherland to arrive in #Pakistan tomorrow to promote #financialinclusion

http://tribune.com.pk/story/1042556/queen-maxima-to-arrive-in-pakis...


Queen Máxima of the Netherlands will begin a three-day visit to Pakistan from Tuesday as part of her global efforts to promote financial inclusion.

The queen is the UN secretary-general’s special advocate for inclusive finance for development and her scheduled visit comes in support of Pakistan’s National Financial Inclusion Strategy.

Financial inclusion

During her visit, the queen is set to hold meetings with the president, Prime Minister Nawaz Sharif and Finance Minister Ishaq Dar, together with governor State Bank of Pakistan, according to Radio Pakistan. 

On the sidelines of these meetings, the queen is also scheduled to meet with other stakeholders from public and private sectors.

Further, Queen Máxima will hold discussions with the representatives of international organisations, financial organisations, telecom companies and micro-finance institutions to explore their role in improving access to financial services such as savings, payments, credit and insurance.

Davos meetings: Regional peace to map future progress, says PM

Launched in May 2015, the strategy aims to expand the availability of the financial tools the poor need to protect themselves against hardship and improve their lives.

The World Bank is preparing a programme to support the implementation of Pakistan’s financial inclusion strategy over the next five years.

Pakistan has a well-organised financial system but the use of formal services is low, particularly among women, farmers and small businesses.

Comment by Riaz Haq on February 9, 2016 at 4:21pm

#Pakistan Has Chance to Boost #Economy, World Bank President Says in #Islamabad. #financialinclusion http://goo.gl/ItqjSx via @WorldBank

Pakistan has a great opportunity to become more ambitious in reforming its economy so that more people are lifted out of poverty more quickly and prosperity is more widely shared among its people, said World Bank Group (WBG) President Jim Yong Kim.

Noting that the government had stabilized the economy over three tough years, Kim said he had discussed in meetings with the prime minister and finance minister about the importance of pressing forward with reforms that would unlock the country’s potential. As part of the World Bank’s continued support to the country, there was discussion of a Development Policy Credit to promote economic reforms. 

“Now is the moment for Pakistan to step up to a higher level of growth and opportunity for all its people,” said Kim. “In my meetings with the prime minister and finance minister, we discussed going to a higher level of ambition for reforms for the economy. These could include strengthening the role of the private sector for job creation, accelerating energy reforms, making improvements at the community level for health and education, and ensuring that anti-poverty measures are effective at reaching poor people.”

Kim made his comments on the first day of his two-day visit to Pakistan after meetings in Islamabad with the government leadership, including economic ministers and secretaries from provincial and federal governments.

Kim participated in a State Bank of Pakistan launch event for WBG support to Pakistan’s financial inclusion reform agenda, “Pakistan’s Path towards Universal Financial Access.” “The National Financial Inclusion Strategy has come at a particularly opportune moment as new technology and the rapid expansion of branchless banking offer unprecedented opportunities to transform financial inclusion in Pakistan. Pakistan is now leading the way in South Asia when it comes to digital finance and branchless banking”, said Kim.

The UN Secretary General’s Special Advocate for Inclusive Finance for Development, Queen Máxima of the Netherlands, and Finance Minister Ishaq Dar also participated in the event.

Kim also participated in a panel discussion on “Managing Displaced Populations” and learnt how the country managed a large Afghan refugee population. The event was co-organized by the World Bank, the Economic Affairs Division and UNHCR, in the context of the continuing global refugee crisis. 

“There is much the world can learn from Pakistan, which has for decades hosted refugees from other countries or had to cope with temporarily displaced people within its own borders,” said Kim. “We are committed to support the Government of Pakistan in repatriating the crisis affected displaced people through the newly effective cash transfer project.”

Later in the day, he met with the provincial leadership of Khyber Pakhtunkhwa and Punjab and learned about province-level reform efforts and development projects under implementation and preparation with World Bank Group support. He underlined the importance of the role of the provincial governments in the effective implementation of reforms.

Kim later plans to meet private sector representatives, students, and the provincial leadership of Sindh.

The World Bank Group in Pakistan:
The World Bank’s program in Pakistan is governed by its Country Partnership Strategy (CPS) agreed with the government. The World Bank Pakistan portfolio has 26 investment lending projects under implementation with a total net commitment of $4.99 billion. To date, we have committed over $5.6 billion in Pakistan, including $1.2 billion during the 2015 fiscal year. IFC’s advisory services program in Pakistan is one of its largest in the region, with 13 active projects and a funding commitment of over $20 million

Comment by Riaz Haq on March 7, 2016 at 10:08am

Change is afoot to grow #Pakistan’s banking sector. #financialinclusion | World Finance http://www.worldfinance.com/banking/change-is-afoot-in-pakistans-ba...

Pakistan’s economy presents great opportunities for the banking sector. Habib Bank is hoping to bring an end to its unbanked masses
Now that Pakistan stands at the cusp of socio-political and economic change, it is the ideal opportunity for the banking sector to redress the lack of outreach towards sections of the population that were hitherto excluded from the formal financial sector, or did not have the knowledge to utilise banking services.

Indeed, it is a very real appreciation of impediments at the grassroots level that has driven Habib Bank Limited (HBL) to expand its product line to especially cater to the low-income population of the country, which would have otherwise remained disenfranchised from the national economy.

Hence, HBL has made a conscious effort to ensure delivery of financial services to this segment by streamlining products, policies and procedures to enable financial inclusion. As such, most of the initiatives HBL has undertaken have been ground breaking in both scope and outcome, and their key focus has been easing the transition from conventional methods of money handling towards more reliable, convenient and trustworthy avenues.

Getting banks up to speed
Another shift that has been witnessed by the industry is the exit and scale down of various foreign banks operating in Pakistan. This provides an opportunity for local banks to reach out to global corporates that seek a certain standard of service and technology.

HBL has been very successful at capitalising on this market opportunity with a majority of large local and multinational corporations now utilising HBL banking services. HBL has also strategically acquired the retail operations of Citibank, and recently the entire operations of Barclays Bank in Pakistan.

As far as performance is concerned, the banking sector is one of Pakistan’s best performing industries, with its assets rising to approximately $129bn between Q2 and Q4 of 2015. Its profitability remains high and the industry’s key performance indicators for nine months of 2015 displayed a robust picture.

The capital adequacy ratio, a measure of solvency, stands at 18.2 percent, which is well above the benchmark of 10 percent set by Central Bank of Pakistan and international standard of eight percent. All in all, the sector is going from strength-to-strength, with this trend likely to continue into 2016 and beyond.

Islamic financing
Pakistan was among the first three countries to attempt to implement Islamic financing at a national level, and its origins date back to the 1970s. Today, Pakistan has six dedicated Islamic banks and almost all the commercial banks have Islamic divisions that provide sharia-based solutions to their customers. The emergence of Islamic finance in Pakistan has led to greater financial inclusion for a large segment of the population awaiting sharia-based products.

Comment by Riaz Haq on September 7, 2016 at 10:43am

IRTI, Thomsob Reuters and IBA Study reveals double-digit growth in #Pakistan’s #Islamic finance sector. #Karachi http://en.mehrnews.com/news/119532/Study-reveals-steady-growth-in-P...

A study launched by IRTI, Thomson Reuters and IBA has shown that Pakistan’s Islamic finance sector continues its steady growth.
The study on the Outlook of Islamic Finance in Pakistan said the banking sector is growing and market share in 2018 is expected to rise to 15% percent.

----

The Pakistan study ... provides recent developments across the Islamic finance industry and the broader economy and identifies challenges for the country’s future before presenting a number of key development recommendations.

Since its independence in 1947, Pakistan has been striving to develop an economic system based on Islamic principles, the study explains. And in the past 15 years, Pakistan has shifted to a dual Islamic/conventional financial system, which boosts business with the global economy while making progress towards a fully Islamic financial system by building market demand for it. Policymakers and regulators in Pakistan have made positive strides to reform the legal and regulatory framework in the past decade.

The study also highlights the country’s resilient agricultural production, strong potential for hydropower generation, oil production, natural gas reserves, and large gold and copper ore deposits. These resources should also be fully utilized to help accelerate the growth and development of the country, and the Islamic finance industry is a potential partner for structuring and financing such industrial projects. 

“Islamic finance is taking strong roots in Pakistan with the support from the government as well as from the State Bank of Pakistan, and the Securities Exchange Commission. Besides the growth in Islamic financial assets, a sustained progress can be observed in regulations, highlighting new frameworks for Shariah governance for Islamic financial institutions, Sukuk and Takaful. The Islamic finance industry is establishing on a robustfooting and we are confident that it has a strong potential for leading the international Islamic finance industry,” said Professor Dr. Mohamed Azmi Omar, Director General of IRTI.

The report highlights that the Islamic capital market sector registered a remarkable growth at a double-digit rate in the past decade, recorded mostly by Islamic mutual funds. Takaful and Mudarabah companies are catching up, despite the relatively small size of these industries. In all Islamic finance industry segments, finance professionals and investors maintain a positive economic outlook, and Islamic finance institutions have built strong fundamentals.

The study also highlights some key trends in the future growth of Islamic finance in Pakistan. These include the rise of branchless Islamic banking via mobile services, the fast growth of the KME Meezan Index (KMI-30) and Islamic All-Share Stock Indices, open market operations on government Sukuk to maintain the liquidity of the Islamic banking system and the rapid expansion of Islamic microfinance.

“To maintain this pace of growth, we recommend that policymakers and professionals continue their reform of regulations and integration with global Shariah and governance standards, the expansion and deepening of an Islamic finance education curriculum, and their marketing effort towards rural areas, to spread awareness and financial inclusion,” said Mustafa Adil, Head of Islamic Finance at Thomson Reuters. “We have no doubt that in the coming decade, we will see Pakistan as key international player for the growth of the global Islamic finance industry”.

To download the full version of Pakistan Islamic Finance Report: Innovation at Asia’s Crossroads, please visit the pages below:

http://islamic-finance.zawya.com/ifg-publications/Pakistan-30081607...

http://www.irti.org/Reports/Pakistan.pdf

Comment by Riaz Haq on January 22, 2017 at 5:25pm

#Mobile banking helps #Pakistan’s poor & women by social & financial inclusion. #BISP

http://www.cambridgenetwork.co.uk/news/how-mobile-banking-helps-pak...

Research carried out in Pakistan indicates that mobile phone banking can help alleviate poverty, improve women’s rights through financial and social inclusion and reduce corruption in developing countries.


The study by Dr Atika Kemal of Anglia Ruskin University’s Lord Ashcroft International Business School, is the first to look at how mobile banking innovation can help with the disbursement of government-to-person payments in state welfare programmes.

Dr Kemal studied the Benazir Income Support Programme (BISP) in Pakistan, which was launched in 2008 and is one of the largest social protection programmes in Asia.

BISP provides over 5.3 million low-income households with 4,500 Pakistani Rupees (approximately £34.50) every quarter. The payments are disbursed digitally to women only, as heads of the household.

Pakistan has a population of over 180 million, but only 23 million bank accounts, 11,600 bank branches and 6,232 ATMs across the country (compared to 70,000 ATMs in the UK). The shortage of banking infrastructure is particularly severe in rural areas. Mobile banking has become popular for the poor by providing bank accounts to advance financial inclusion in underserved communities.

The BISP payments were initially distributed to households in cash or money orders via a network of local parliamentarians and postmen. In 2010, mainly to improve transparency, visibility, security and efficiency in the delivery of social cash, a shift to digital technologies, including mobile banking, took place in selected districts.

However, due to the high costs in funding mobile handsets to women, besides other security reasons, mobile banking was gradually phased out and eventually replaced by the Benazir Debit Card.

BISP is primarily funded by the Government of Pakistan, but also receives financial support from multilateral and bilateral donor agencies, including the World Bank and the Department for International Development (DfID) in the UK.

Dr Kemal, an Associate Lecturer at Anglia Ruskin University, said: “The transition from cash-based to digital payments was really due to pressure from international agencies which had invested in the programme. While some political actors resisted the shift to mobile banking, it led to increased accountability and governance, and a reduction in administrative and transaction costs. Financial inclusion was really only a secondary objective for BISP.

“However, from the perspective of women, mobile banking provided flexibility and convenience to cash the full amount of grants at various locations such as banking agents, ATMs and point-of-sale machines via a secure PIN known only to the beneficiary. This eliminated the practice of politicians or postmen demanding bribes for delivering the cash payments at home.

“BISP is also responsible for women’s empowerment through social and political inclusion. Women were issued with national identity cards that were mandatory to register with BISP and to eliminate identity theft when cashing payments. This not only boosted their social standing and authority in their households but also granted political freedoms through assisting their rights to exercise their vote in elections.

“However, my study also found that the majority of women were illiterate, so they encountered digital and financial hurdles. Also, other infrastructural constraints, such as weak mobile signals and power outages in their homes, affected mobile phone usage. Women were also dependent on more literate family members or friends for reading text messages to notify them of payments.”

Comment by Riaz Haq on January 24, 2017 at 9:11pm

#Pakistan's economic reforms strategic, sustainable: World Bank. #economy http://www.brecorder.com/pakistan/business-a-economy/335530-pakista...

The World Bank (WB) Tuesday termed Pakistan's economic reforms as strategic, relevant and sustainable.

The remarks were made by WB Director, Finance and Markets Global Practice, Sebastian -A Molineus during a review meeting on WB's portfolio in Pakistan which was chaired by Finance Minister, Senator Mohammad Ishaq Dar.

The meeting was attended by WB delegation led by its Country Director, Patchamuthu Illangovan, senior officials of Ministry of Finance, Ministry of Commerce and Securities and Exchange Commission of Pakistan.

Molineus congratulated the Finance Minister on the successful implementation of the reforms and the resultant economic turnaround.

He highlighted that the government's reforms have also played a major role in increasing financial inclusion in the country.

Molineus expressed interest, on behalf of the World Bank, in initiating projects aimed at facilitating long-term financing in Pakistan, including housing finance.

The Country Director World Bank briefed the Finance Minister on the World Bank's portfolio in Pakistan, including the status of various ongoing development projects.

The Finance Minister appreciated the briefing from the Country Director and expressed satisfaction on the progress made so far on the various ongoing development projects being undertaken in Pakistan with the World Bank's support.

He expressed appreciation for the cooperation between Pakistan and the World Bank.

He also said that both parties must strive to further strengthen this relationship in order to take it to the next step.

The Finance Minister thanked Molineus for his remarks regarding the present government's successful economic reforms.

He highlighted that, after having achieved macroeconomic stability, the government is now focused on attaining higher, sustainable and inclusive economic growth.

He also welcomed the interest expressed by the World Bank in initiating projects for long-term financing.

He said that the government was always ready to cooperate with the World Bank on initiatives that can help improve the quality of lives of the people of Pakistan.

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