Bringing everyone on board
- S. Fahim Ahmad
Pakistan’s progress in nurturing a financial services sector fit for purpose in the 21st century has prompted significant growth in financial inclusion across many sections of its society.
While a number of government-sanctioned initiatives have been addressing longer-term cultural changes in society – such as to help encourage gender equality in finance, or promote the wider use of Islamic financial products – there is a significant opportunity also being explored across an informal economy of around 27.31 million low-paid workers who operate outside the existing labour market legislation.
The implications for financial services provision to low-income communities have not been lost on the government division responsible for poverty alleviation and social safety.
An impressive portfolio of programmes already being delivered under the strategic initiative known as Ehsaas, includes the creation of Ahsaan (“easy”) bank accounts for informal workers and micro credit banks for daily wage workers.
The informal sector does remain underbanked to date. Informal workers are by nature “off the grid”, which means administrative hurdles for customers signing up for accounts – although the process has been simplified since 2019 to allow a lower monthly deposit requirement. Opening an account, too, only requires a customer to present their NIC (National Identity Card).
Veteran senior banker (ex-Citibank) and consultant, S. Fahim Ahmad, who also takes a keen charitable interest in the societal impact of finance, says that this relatively streamlined process is proving very popular – though there is still room to create more awareness.
“The main advantage of the Ahsaan account is that it provides security to daily wage workers who otherwise take risks moving around with cash,” he explains. “The State Bank here is a very supportive regulator, which is important considering that these types of account involve a disproportionate amount of work on the part of the banks for people who are running low balances. It’s seen as a service to the community.”
In Fahim’s view, mobile technology is also helping to streamline the financial inclusion journey. “If you have a cellphone from certain providers, you can deposit and transfer money with them. The agents representing these providers are open across the country from 11am to 11pm, making it easy to carry out a transaction. And with few exceptions, nearly everyone uses a cellphone today.”
Much has been made of the growth of microcredit to help those Pakistani small business that would otherwise be denied finance through the traditional routes. On this, Fahim has mixed feelings, however.
Increasing credit to either the low-paid or cash-poor small businesses is not a sustainable strategy, he argues, not least because of the relatively high rates of interest that borrowers face. The solution lies in more creative ways to distribute capital, such as interest-free loans.
“If I give you an interest-free loan to start your own business, you can generate a monthly income to make a real difference before worrying about interest. I like the example of buying sewing machines used by women to make clothes for the community and generate an income. But my position is that, once they have earned enough to repay the loan, they should then lend that amount to someone else instead of me.”
This pay-it-forward approach is a positive philosophy that embraces the generosity existing among some of Pakistan’s most underprivileged communities. With the right sort of lateral thinking, the country can truly achieve financial inclusion for all.
Read more from S. Fahim Ahmad in the Pakistan country profile on pages 40-43 of the Spring 2021 issue of Chartered Banker magazine.