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Pakistan Ranked Among Top 5 For Financial Inclusion

RiazHaq

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Haq's Musings: Pakistan Ranked Among World's Top 5 Nations For Promoting Financial Inclusion

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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Haq's Musings: Pakistan Ranked Among World's Top 5 Nations For Promoting Financial Inclusion
 
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Haq's Musings: Pakistan Ranked Among World's Top 5 Nations For Promoting Financial Inclusion

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.

Related Links:

Haq's Musings

Pakistan Economy Near Trillion Dollar Mark

Pakistan 2.0: Technology Driving Productivity

Branchless Mobile Banking Takes Off in Pakistan

Financial Services Sector in Pakistan

Pakistan Ranks High in Microfinance

Pakistan Deploying Mobile Apps to Improve Governance

Pakistan Mobile Broadband Faster Than India's

Pakistan's Media and Telecom Revolution

Haq's Musings: Pakistan Ranked Among World's Top 5 Nations For Promoting Financial Inclusion

Looks like our Jan dhan scheme is working
 
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Superhero guy above is actually right. Pakistan is a capital starved country. Attracting capital is all what current economic situation of Pakistan is about. And governments are failing badly in it.
 
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I am also a Delhi WALA, wont take it causally
Watch your Mouth before you say something, abusing and then making an excuse.
 
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you are 1/5th of world population and proud to be a 3 trillion economy?

You are right, that sucks...The upside is there is gradual transformation. Bringing change to a billion demographic is a himalayan task.

3 trillion yoy should actually be 10 trillion year on year to be proud of.
 
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#Pakistan banks’ deposits up 12%, loans up only 7% in 2015

Pakistan banks’ deposits up 12%, advances up only 7% in 2015 | Pakistan Today


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.
 
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