KARACHI: Managing everyday finances can be a daunting task for more than three million estimated small and micro enterprises in Pakistan.
Financial literacy stands at a low of 13%, which results in lack of financial freedom and friction points in daily transactions. Be it making bill payments, the society has been highly cash-dependent.
However, we are progressing as a nation and we are witnessing an emerging trend where people are embracing digital payment services.
Pakistan is one of the countries having the lowest financial inclusion ratios in the world. Currently, only 21% of the population has access to traditional banking services in the country, just 7% of whom are women. This seems a lot until we consider other countries, especially India, where the percentage is more than 80%. According to World Bank Country Director for Pakistan Patchamuthu Illangovan, an average Pakistani citizen performs just one digital transaction each year. In India, this number is five while in Indonesia, it is seven.
The international financial institution believes that there is immense potential in the digital transactions arena of the country and has committed $130 million for digital payments in Pakistan as part of the 2015 National Financial Inclusion Strategy.
According to McKinsey Consulting, Pakistan’s digital financial market potential is almost $36 billion. Widespread use of digital payments can improve the GDP by 7%, creating four million jobs in the process and bringing more than $250 billion worth of deposits into circulation. Pakistan is one of the countries that are embracing change at a rapid pace.
The government as well as public and private sector organisations are initiating projects that enable a bigger proportion of the underserved segment. The State Bank of Pakistan (SBP) recently unveiled its national payment systems strategy, which introduces a new digital-focused framework to encourage the use of non-cash channels for payments in Pakistan.
Also the central bank is working on a micropayment gateway that will democratise payments for all and lower the barrier for new entrants. The SBP aims to materialise the goals highlighted by the World Bank by the year 2025.
Confidence in Pakistan’s economic indicators is growing with foreign direct investment (FDI) rising to $850 million between July and November 2019. This indicates a 78.1% increase from the previous year. Investments from China rose to $141 million, $70 million of which was directed towards the microfinance sector.
International corporations are enabling and investing in firms inside Pakistan to collaborate on the digital banking and microfinance frontiers. Pakistan government is proving to be a key driving force behind this surge in investments that the country is witnessing.
The government of Pakistan also introduced the ‘Digital Pakistan’ initiative. It is aimed at digitising the government’s core function for establishing a stabilised national economy. Under this project, the government aims to achieve five distinct goals that revolve around access and connectivity, digital infrastructure implementation, e-government, digital skills and literacy, and innovation and entrepreneurship.
As a positive and conducive environment emerges at the top level, the effects are trickling down with many private sector companies taking up the reins to introduce their own digital payment models in Pakistan. Banks and mobile wallet providers are playing a major role in facilitating not just the customers but merchants, distributors and even large businesses to become a part of the cashless economy.
It’s not just general financial transactions like payment transfers that are going digital. Features like bill payments, mobile top-ups, e-commerce payments and a number of other funding channels are opening up for a greater proportion of the population.
Initially, only banking applications provided these services but now these options are also available to all consumers who have access to a feature or mobile phone.
However, that’s not it. These services are also enabling micro SME customers to obtain micro and nano loans to boost and expand their businesses. Digital payment platforms are creating new secure and robust horizons for individuals and SMEs (small and medium enterprises) to obtain loans starting from Rs1,000 and going all the way into Rs100,000 brackets.
Unlike conventional banking, these loans are given out on the basis of regular financial transactions being carried out on the mobile banking channels. Industry experts believe this is just a glimpse of the digital payment revolution that the country will be experiencing in the coming years.
As the economy shows signs of transforming with encouraging signals from the government as well as large corporations, this momentum needs to continue where acceptance of digital payments becomes a norm.
Lack of resources and illiteracy are significant factors that are keeping most people away from acknowledging a cashless system of payments. There is a need for institutions and organizations at various levels to do more in order to address and resolve these problems. Only with an inclusive approach, will the country be able to produce the results that it envisions. There is immense opportunity to digitise economy and leapfrog our nation to the next industrial revolution leveraging the power of our youth that constitute 64% of the population. Digital payments are just one foundational capability that will open the door to economic and social uplift of millions of Pakistanis.
The writer is chief strategy and transformation officer at Telenor Microfinance Bank
Published in The Express Tribune, March 9th, 2020.
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