Financial Inclusion trends challenges and polcies

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Financial Inclusion in PakistanDr. Saeed Ahmed

State Bank of Pakistan

October 20, 2010



Outline

� Status

� Strategy � Achievements

� Challenges

� Opportunities

� Outlook

2



Financial Exclusion in Pakistan

Source: Access to Finance Survey

TheFormally

Served

The Financially Excluded

56% f th d lt p p l ti d t h t fi i l i

The Informally Served

11% 1% 32% 56%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Total

%

3



Financial Inclusion in Pakistan

Sect # f B w ers-Dec¶07

# f B rrow ers-Jun¶10

Growth (%)

Corporate 26,061 78,211 200

SMEs 163,213 209,942 13

Agriculture 1,517,820 1,813,000 28

Consumer Finance 3,025,463 2,664,768 -12

Mortgage Loans 125,490 117,535 -6Microfinance Loans 1,471,295 1,800,000 34

Tot l 6,329,342 6,683,456 5.6

4

W ith 26 million b nk ccounts, P k ist n h s long w to go



Approaches to Financial Inclusion

IntegratedApproach

High Level of StateIntervention

ComplimentaryApproach

Public and privatesector complimenteach other¶s role

AlternativeApproach

Specialized financialinstitutions (MFIs)

Financial Inclusion

5



Pakistan·s Financial Inclusion Strategy

� Sector Specific Prudential Regulations and guidelines

� National Sector strategies

National Microfinance Strategy to focus on institution building

Agricultural Financing - Target of increasing to 3.3 million borrowers in 5 years

SME financing ± Target of increasing by 0.4 million borrowers in 5 years

� Consultative approach for developing & improving policy and regulation

� Mandatory for banks to offer basic banking accounts

� Commercial banks with 100 branches or more to open minimum 20% of branches

outside large cities and in remote geographic areas

� Consumer protection and financial literacy for equitable financial services

Vision of providing broad-based financial services by leveraging

technology and alternative delivery channels

6



Increased Outreach� Increase in use of financial services over the past 5

years Corporate borrowers by 83% SME by 134% Agriculture by 44% Consumer finance has tripled over 5 years 1.8 million microfinance borrowers; 0.45 million

microfinance deposits; 3 million micro-insurance

policy holders Mobile phone technology rapidly increasing

7



Deepening nexus b/w mobile phones

and financial services� Increased need for branchless banking� Currently:

Close to 4000 A TMs

About 26 million accounts in Banking system About 8500 bank branches as a whole industry A Population of more than 180 million

� Branchless Banking using existing retail agents allowsfor:

Leveraging an extremely low fixed cost channel Shifting basic banking and payment transactions to a morescalable, flexible and variable cost channel in a profitable andsustainable manner

Offering a granularity rather than concentration and enablingdelivery of basic services locally

8



Increasing market development using BB

� Tameer and Telenor-Easy Paisa Mobile Banking

Unique service geared towards a Pakistani targetmarket

TMB will use Telenor Pakistan¶s franchises andretailers as banking service agents

Basic banking services offered are: Utility Bill Payment

R eceiving International R emittances

R eceiving/Sending local current remittances

9



Improved Market Infrastructure

� Developing market and players 8 MFBs and over 30 MFIs have entered the

market Financial Inclusion Program sponsoring

institutional development and credit guaranatee Commercial borrowing by MF players

Pilot test of a credit bureau for microfinance 20% or 111 bank branches in rural/hard to reach

areas as of 2008 Innovative partnerships b/w Pakistan Post and

First Microfinance Bank

10



Regulatory Infrastructure� Pakistan has a well-recognized regulatory

infrastructure

R ated by the Economist Intelligence Unit as #1 forR egulatory framework and #5 for MicrofinanceBusiness Environment*

Acknowledged by CGAP for regulatory measuresand oversight

11

*Source: Global microscope on the microfinance business environment 2010-An index and study by the

Economist Intelligence Unit



Regulatory Infrastructure

� SBP has introduced the following measures:

Introduction of branchless banking regulationsand subsequent pilot tests by Telco's and banks

Set up microfinance banks

Increased lending limits of MFBs

Permission to MFBs to accept borrowings inforeign currency

Encouraged development of Pakistan Post-FirstMicrofinance Bank partnership to collect savingsfrom 4500 outlets

12



Challenges� Floods catastrophe is expected to push people

towards poverty and exclusion Expected in NPLs of financial institutions Extensive national infrastructure destroyed

� Credit to the private sector dried up in the lastfew years Development finance institutions suffering as a

consequence� R isk aversion of banks to explore new markets� Macro-economic challenges of high inflation

13



Challenges

� R isk mitigation services required

Insurance industry is largely under-developed Floods catastrophe underscores the problem

In microfinance, insurance is limited to creditinsurance

� Small depositors need to be part of the bankingsphere

14



Outlook

� Technology holds the key to spreading financial

services� Development of commercially viable entities is atime-consuming process

� Global economic crisis affect funding for

financial inclusion Demand remains unaffected

� Sector specific strategies to widen the net of financial inclusion services

15



Going Forward

� Banks cannot do it all and alone!

Need a variety of players including MF, telcos andother financial sector players

� Need for diversified financial services

R isk mitigation services are key in a country with

significant socio-economic challenges

16



Thank You

17



Number of Microfinance Borrowers

18

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 2010-June



Growing Deposit Base

19

1,419 2,822

4,115

7,099

8,122

Dec-06 Dec-07 Dec-08 Dec-09

V olume (PKR in Millions)

Jun-10



SME Borrowers (¶000)

20

106

161168

185

215 214

Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

Documents

Financial Inclusion trends challenges and polcies