> Posted by Nadia van de Walle, Senior Research Manager, Financial Inclusion Insights, Intermedia

The State Bank of Pakistan’s (SBP) National Financial Inclusion Strategy (NFIS), launched in May 2015, set an ambitious goal of expanding access to financial services from 10 percent of adults to at least 50 percent by the year 2020. Intermedia’s newly-released Financial Inclusion Insights (FII) data suggests that, as of 2016, Pakistan’s progress was not yet on a trajectory to get to 50 percent. It also suggests ways Pakistan could improve the rate of progress.

FII’s new 2016 Pakistan Annual Report and Survey Data finds that financial access rose only incrementally, from 15 percent to 16 percent, in 2016. More than 45 million more adults would need to take up a formal financial account for the country to achieve 50 percent financial inclusion as defined by the NFIS. Further, even if access is improved, registration and regular use of accounts may lag and prove a steeper climb. The percentage of adults holding registered accounts with a full-service financial institution did not increase at all over the last year, measuring 9 percent in 2015 and 2016. Similarly, active registered users over the same period remained unchanged at 8 percent.

However, these figures could be improved if the gap between the formal products on the market and Pakistanis’ actual, day-to-day financial needs and preferences is addressed, FII data indicates.

Our data show that even though formal access and inclusion levels are low, many Pakistanis’ have active financial lives outside the formal sector. For instance, the 2016 FII survey showed that more than half of survey respondents had actively built savings at least once in their lives, and one in two adults without access to formal financial services had saved. People saved for emergency funds (62 percent), to make ends meet (57 percent), and to buttress their families against financial losses related to crime (42 percent), among other less common reasons. Similarly, 20 percent of Pakistani adults have borrowed before, either formally or informally – most often for emergency spending and daily purchases.

Clearly, Pakistanis are saving, borrowing, and transacting on a daily basis. Yet, for the most part, they are doing so in cash and via informal financial services rather than through formal institutions. In fact, 77 percent of Pakistani adults who save do so in the form of cash at home and 20 percent use Rotating Credit and Savings Associations (ROSCAs). An increasing number of people are using formal digital financial services (DFS) channels, but many do not register personal accounts, preferring over-the-counter (OTC) options instead. In 2016, while less than 1 percent of Pakistani adults had registered a mobile money account, nearly 10 percent were mobile money users, with 93 percent of mobile money use being OTC.

What will be the key levers for building momentum towards improved access and account registration and usage?

Design products and services that better reflect Pakistanis’ needs and daily lives. Despite relatively high awareness of formal financial services, survey respondents had a very low perceived need for them. In fact, 84 percent of Pakistanis who did not use any formal financial services said the main reason was they did not see a need. If your neighborhood merchants accepted only cash, ATMs were scarce, and opening a savings account required a long wait, wouldn’t you prefer to hold cash at home? Respondents’ second-most cited reason for not using a bank account was the perception that they did not have enough money to make transactions (see figure below). This common sentiment could reflect the kinds of products and services currently offered, and their costs and minimum requirements. Expanding access and usage could be aided through client-centric design, investment in infrastructure such as ATMs and other points of service, and deepening merchant acceptance of non-cash transaction tools.

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To improve DFS use, support access to phone ownership and the development of phone skills. In 2016, while 76 percent of Pakistani adults were aware of mobile money providers and almost two in three Pakistani adults knew of a mobile money kiosk or agent within a kilometer of their homes, the conversion rate from awareness to use was a tiny 0.11 percent. This low conversion rate reflects, in part, the lack of ability to fulfill the preconditions for use of mobile money:  In Pakistan, only 52 percent of the population owns a SIM card and only 44 percent have the ability to send and receive a text. Addressing these gaps could help ensure that common transactions such as P2P and bill pay can be done through a mobile money account and without the OTC assistance of an agent.

Invest in women’s access to phones, their mobile phone skills, , and programs that address social norms. The findings speak for themselves. In 2016, the gender gap in financial inclusion in Pakistan climbed back to the 2014 level of 8 percent, after falling to 5 percent in 2015. As shown in the figure below, the gap in the country is pervasive across all stages of the customer journey and across all demographics (poverty, education, geography, age and marital status).

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Gender continues to be a key demographic differentiator in bank account registration where the gap between women and men increased from 5 percent to 7 percent between 2015 and 2016. Among Pakistani women, urban, wealthy and highly educated women reported registering accounts most frequently. However, women within these privileged demographics reported registering less frequently than poor, rural men.  One of the biggest factors behind the gender gap in Pakistan is women’s lack of agency and decision-making power, as illustrated in the figures below.

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Only 16 percent of women in Pakistan who have an income from the formal economy have sole control over how they use their money (compared to 44 percent of men), and less than 20 percent of women have control over how to use household assets or household spending. While 88 percent of married men have access to a phone, only 65 percent of married women do. In terms of SIM card ownership, 57 percent of men own a SIM card, while only 27 percent of women do. Finally, as the State Bank of Pakistan continues to promote DFS, it is important to address the current phone skills gap across genders; 57 percent of men were able to send and receive a text versus only 30 percent of women.

Government policies and initiatives in support of financial inclusion are key for advancing access and usage of financial services. Yet, as the data show, progress can be slow when contending with historical barriers to inclusion and competing against informal services. To achieve the NFIS goals, stakeholders will need to address the lack of financial literacy, technological capabilities, and phone access, particularly among women. Additionally, given the active financial lives described by the FII Annual Report, formal products must be tailored to better meet the needs of Pakistanis who are currently using cash and relying on friends and family to save, borrow and protect themselves against risk.

What recommendations do you derive from the data? We’d love to hear from you.

Financial Inclusion Insights is an ongoing research program funded by the Bill & Melinda Gates Foundation and designed to build meaningful knowledge about how the financial landscape is changing across eight countries in Africa and Asia. The 2016 Pakistan Annual Report can be found here.

Image credit: World Bank

Have you read?

G2P and Gender: When Will Pakistani Women Be Able to Withdraw Their Own Money?

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My Turn to Speak: Voices of Microfinance Clients from Benin, Pakistan, Peru, and Georgia