Written by Tatiana Nenova, Cecile Thioro Niang and Anjum Ahmad this report by the World Bank, released May 2009, 187 pages, available at: http://go.worldbank.org/0KKMYAT130
This World Bank report measures and describes the current state of formal and informal financial services in Pakistan for underserved populations and enterprises. Currently 14 percent of Pakistanis use savings, credit, insurance, payments and remittance services from the formal financial system. This is compared to India, Bangladesh and Sri Lanka where 48 percent, 32 percent and 59 percent respectively have access to formal financial services. In addition about 36 percent of Pakistanis use moneylenders, committees, family and friends. The State Bank of Pakistan (SBP), which regulates the banking sector, has grown over the past few years yet it has not met demand. Further details about the market and players in Pakistan are found in Chapter 1.
Access to Finance: Evidence from the Demand Side (Chapter 2)
A national Access to Finance (A2F) survey of 10,305 households throughout Pakistan focused on the demand side of financial markets, specifically in the informal sector. The findings of the survey indicated low access to formal finance in general and specifically for women, rural and lower income groups. The survey also found several patterns in relation to access to financial services – in rural areas there is interest in financial services even though there is financial illiteracy; men have better access but decision making with women is joint and both wish to learn about financial services; wide provincial differences exist; lower income groups have significantly lower awareness of and access to financial products. A strong aversion to debt was observed (61.3 percent of respondents) and it was noted that most informal borrowing is interest-free.
Access to Finance for the Underserved (Chapter 3)
There is room for growth in the microfinance sector with an estimated 10-20 million borrowers requiring credit and savings. Various providers of microfinance exist – Microfinance Banks (8), specialized non-government organizations (NGOs) microfinance institutions (MFIs) (5), not-for-profit rural development organizations (RSPs) (5) and other NGO MFIs (around 50). Formal microfinance reaches 2 percent of adults (1.7 million people) and MFIs lending was only USD 340 million (2007).
Improving Financial Access for Small and Medium Enterprises (SMEs) (Chapter 4)
Currently there are approximately 3 million SMEs that account for only 16 percent of total lending and 4 percent of total customers. SMEs have found access to finance reduced as banks find it difficult to serve SMEs profitably and products are not tailored to their needs. The government and SBP have launched policies to improve SME access.
Harnessing Remittances for Access to Finance (Chapter 5)
Pakistan receives an estimated USD 16 billion in remittances each year from international (USD 9 billion) and domestic (USD 7 billion) sources. Both formal and informal (hawala) channels are used. It is suggested that using mobile phone banking will lower costs and increase outreach to women and the poor in rural areas.
Expanding Access to the Underserved: An Action Plan (Chapter 6)
This section discusses how the SBP, government, private sector, community and donors should work together to reach out to potential women and rural clients. It is also suggested that using technology (mobile phones, smart cards), improving financial awareness and literacy, diversifying the financial products range (credit, savings, insurance), and enabling the legal and institutional framework are the best methods of rapidly scaling up in Pakistan. MFIs need to attract commercial funding and encourage savings to grow credit outreach. Finally the creation of public-private working groups on microfinance, SME finance and remittances is discussed.
Appendices A and B
These detail the Access to Finance survey conducted between October 2007 and March 2008 including the questionnaire used to survey households.
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