Pakistan Post can help boost financial inclusion

Study suggests state institution’s potential remains largely untapped

KARACHI:

Pakistan Post has immense potential to provide full-fledged banking services to unbanked people, especially in the rural area. An example of this can be seen in various countries across the globe that have upgraded from the conventional systems. Currently, Pakistan’s state-owned logistics firm offers limited financial services through its network of branches in 10,500 locations across the nation.

“The potential of the Pakistan Post to enhance financial inclusion (providing affordable and quality financial services to all citizens) remains largely untapped,” said a study conducted by the central bank’s officials.

Pakistan Post already offers some financial services through a Postal Savings Bank (PSB) but its performance over the past couple of years has remained underwhelming. “By contrast, the use of post office infrastructure network has been effective in promoting financial inclusion in various parts of the globe. This is demonstrated by the experience of countries such as Japan, China, Brazil, Russia, India, and others,” it said.

Financial inclusion is a must for inclusive economic growth in Pakistan. However, access to formal financial institutions is still quite low despite the launch of the National Financial Inclusion Strategy (NFIS) in the country in 2015.

People holding an account in financial institutions doubled to 21% in 2017 as compared to 10% in 2011, “but was still far lower than the average (70%) of South Asia and the world (69%),” it added.

One of the reasons for low financial inclusion is that formal financial activities are often clustered around bigger hubs of formal economic activity; the country is large and diverse with a bulk of population engaged in the informal sector.

“With the effective inclusion of Pakistan Post in the provision of extended financial services, NFIS targets can be met rather efficiently as financial outreach can stretch to the rural and far-off areas where the post office has been providing its limited services for decades, thus harbouring the trust of residents.”

At the institutional level, certain factors tend to give the post office an edge over many other financial institutions, both in general across the globe, and also in Pakistan’s case. “They are linked to affordability, penetration, trust, and practicality,” the study said.

In addition to the primary postal services to around 20 million consumers, the Pakistan Post also provides life insurance instruments, performs agency function on behalf of Central Directorate of National Savings (CDNS), and collects taxes and utility bills, money and transfer money from within the country and remittance inflow from abroad.

Data of gross investment in national savings schemes shows that Pakistan Post contributes 25% to financial inflow under such schemes.

It has also recently ventured into home delivery service of pensions and facilitation of home remittances. “In this regard, a collaboration of Pakistan Post and National Bank of Pakistan (NBP) for delivery of remittances can act as a transitioning phase between traditional postal services and more modern financial services. Doing so may also help the government to achieve some of the headline targets for financial inclusion set in the extended NFIS 2019-2023,” the study said.

Provision of agriculture and livestock insurance schemes, generating local employment opportunities, and collection of financial data of previously unbanked households are some examples “that may motivate investment in this legacy institution.”

There is a silver lining in these aspects as Pakistan Post can carry out all of this developmental and strategic work through meaningful collaborative efforts and partnerships with various public and private sector entities, it stated.

Pakistan Post upgraded

However, the post may have to address a few weak links first. For one thing, significant improvement in manpower capable of delivering financial services would be required. This is all the more relevant given the country’s efforts to strengthen its anti-money laundering (AML) and combat terror financing (CFT) regime.

“The Pakistan Post was among the entities flagged in the Asia Pacific Group’s ‘AML/CFT Mutual Evaluation Report (MER) of Pakistan’ for having grave deficiencies,” it said.

The release of this report in October 2019 was followed by deliberations to significantly restructure the scope and operations of the Pakistan Post. As such, Pakistan Post would have to invest in streamlining its operations to comply with regulatory measures before undertaking any new initiatives to aggressively drive postal financial inclusion going forward, the study stated.

Furthermore, to be updated and to compete with other financial institutions, Pakistan Post would have to invest in its technology infrastructure to stay relevant. Such investment has important and strategic externalities that outweigh the benefits in the long-run.

Published in The Express Tribune, July 5^th, 2020.

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