Un-locking the Co-relation between Financial Inclusion and Economic Growth inclusive finance or financial inclusion, is a much talked about concept since a decade now. Currently developing countries are working hard on the subject. This is the most sought out method used to eradicate poverty and to help poor individuals improve their living standards. Financial Inclusion is one convenient term coined to refer the accessibility of financial services to the urban and rural population. It is a basket of financial products and services that are made available to low income population of the country.
Financial Inclusion help families and entrepreneurs to generate income, manage cash flows, and also invest in the opportunities available in building assets. It includes various banking services and products available to the less privileged population, living in rural areas. These will help them to enhance savings for future needs, support their families and finance in children marriage specially back home living in rural areas by transferring funds via online banking services. In the process various actors play their role. Mostly used services are microloans, saving products, money transfers among others through financial institutions, banks also including Microfinance banks. These small loans as name depicts are given to poor individuals in order to start income generating activity to help them in improving their living condition. These borrowers are poor at the level that they are unable to provide collateral for loan repayment. If they open bank accounts, the balance remain low and so the profits.
It is essential for this purpose to develop a criteria and regulations on which initiatives to be taken by Inclusive finance institutions.
At the time of initiation of Microfinance, it was expected to be the perfect substitute of informal finance. Though it proved to be a great success in many developing countries, but due to the procedures followed by the micro-finånce institutions not as great success in Pakistan. Some institutions operating this program also remained dependent on informal finance.
To add, when these programmes fail to reach all poor population then the benefits do not have the real impact on the targeted population, thus the success may only be partial. In many cases micro-finance loan repayment schemes are in tightly fixed instalments. The loaners at times have to depend on informal money lenders for repayment. In such cases women clients were targeted more.
In spite of financial sector reforms that took place from time to time and were successful, it is noted that even less then 1 % of the poor have the access to microfinance services which is very low as compare to our neighbours. Lately it is expected to have increased a little.
The significance and importance of financial intermediaries was known since long but the limited outreach witnessed specially in rural areas.
It is after recognising the critical need, that the government and the State Bank of Pakistan joined hands to make it possible to provide appropriate and affordable services to the poor and assure its sustenability. In order to bring the financially ” excluded” into the financially “Inclusive” population is a huge task. At macro-level it is essential, as it will help to generate savings’ hence, investment will ultimately lead to economic growth.
In Pakistan 60 % plus population live in rural areas having very little financial banking services.
In both urban and rural areas people specially senior citizens prefer cash dealings, specially women, they have an unknown fear and no trust. Recognising the fact, the SBP explored the possibilities to minimise this attitude and encourage the electronic payment system through branch- less banking system. Thus easypaisa and mobi cash came into practice. Easypaisa Transforms into Pakistan’s First Digital Retail Bank. It is possible due to mobile technology, which provided new branch less banking services to the people with no bank account facilities, in easy, safe and minimum time. In spite of the success of micro credit loans, half of the poor population still depend upon money lenders. There are many reasons though, probably one of the major one may be the complicated procedure which the financial institutions have to follow. Rural poor hesitant to adopt banking services due to high transaction cost as well as the time consuming procedures. Visits to banks, waiting in line, and often system failure (which even urban population also face) supposedly major disadvantages.
With the passage of time though the outreach of the banks increased to some extent, not much.
The goal of initiating the Inclusive finance is to achieve or to the minimum improve the Inclusive economic growth. Hence to enhance the access of financial services, the focus to Inclusive finance program to marginalised and poor entrepreneurs.
The SBP played a positive role in promoting an Inclusive financial sector.
Pakistan has now been one of the pioneers in introducing financial inclusion for over two decades now. The major achievement is the establishment of a regulatory framework for Microfinance Banks in 2021. Moreover the adoption of Branchless Banking Regulations has applied a tiered approach to Know Your Customer (KYC) requirements in 2008. Despite the above mentioned efforts made by the government with the partnership of SBP the level of financial inclusion remained low. However, with the introduction of new service for local as well as foreign clients in 2021 by State BankofPakistan, things started showing improvement. Yes, it is RAAST, the instant payment system. The transition from banks cheque withdrawal to cashless transactions is essential in order to encourage financial inclusion.
During the month of September government initiated the salary payment to its 90 % employees in
Islamabad. Whereas the employees of Auditor General Pakistan, Punjab and KPK will receive online salary payment from next payment. This will according to one estimate increase the online transaction to Rs 2.6 million daily. Currently, estimated that 87 % transactions are done online whereas only 13% via bank account. This is a huge success seen in financial inclusion programme.
Pakistan is all geared up to adopt to new branch less services but less educated and or at times educated personal become victim of cybercrime. Due to less or no awareness and education of things becomes easy target of fraudsters. It is therefore, essential to improve financial inclusion in order to achieve larger socio-economic targets spurring economic growth and thus reducing poverty. In this connection National Financial Inclusion Strategy aims to bring more population into account ownership in order to encourage them to adopt digital payment channels. In this regard according to one estimate, if look at the unbanked people either using small amounts of financial services,or may be completely out of the system. There are at least 2.5 billion people in the world.
The era of Covid-19 pandemic played the role of an impetus for digital adoption..the time when economy saw a surge in digitisation. According to the SBP Annual Payment System Review FY 2024, adoption of digital channel continued to accelerate. Mobile- app banking users increased by 1 6 %, Internet banking user 25 %. It is important to note that in Pakistan, a significant disparity exists between mobile connectivity and financial inclusion.
The technological barriers supposedly the major cause, such as limited Internet access or weak Internet service or no service at all at times. These disruptions discourage specially the rural population and strengthen their negative attitude and behaviour towards the adoption of services. Hence the most urgent need is to improve the quality.
To conclude, financial inclusion or Inclusive finance is remarkably a crucial driver of economic growth and development. It impact urban and more importantly rural individuals, businesses, thus, impact entire economy of the country.
Thus, positive impact is there but in order to include the entire rural community challenges remain. With the initiatives suggested by policy makers and implementation of those by the government and stakeholders the targets will be achieved.
