Download Pakistan Financial Inclusion Programme: Programme Design

Developing Inclusive Financial Sector
in Pakistan
The Fourth Annual Conference on Management of the Pakistan
Economy, Ensuring Stable and Inclusive Growth
Lahore School of Economics, 24 April 2008
Haroon Sharif
Senior Adviser (Growth and Financial Sector)
Department for International Development, UK
Financial Sector Success Story
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80% financial sector privatised
Non-performing portfolio reduced
Private sector credit up by 400bn in 5 yrs
SME now account 16% of total advances
Rise in agriculture credit
Aggregate borrower have risen from 2.2mn
to 4.6mn in 2006
New housing loans of 70bn
So, how inclusive is the financial
sector?
Page 1
How Inclusive is Financial Sector?
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Only 5mn borrowers - 20mn depositors
Credit to GDP ration is 30% (India:40%,
Indonesia:50%, Thailand: 75%)
15% of population has bank accounts
171 deposit accounts per 1000 people
30 loan accounts per 1000 people
(Bangladesh:479, Nepal:184, India:117)
Only 1.2mn microfinance borrowers
No access to formal finance in rural areas
Massive regional inequalities in terms of
financial access
Page 2
Credit providers by province, PSES 2001-02
Province
Friends /
Formal /
relatives /
semi-formal Trade-related Shopkeepers neighbours Nonclassified
Total
Punjab
Sindh
NWFP
Balochistan
4.5
1.7
1.1
3.8
7.0
16.3
1.9
9.8
17.7
31.1
27.8
53.4
66.9
46.1
66.7
33.0
3.9
4.8
2.5
0.0
100.0
100.0
100.0
100.0
Overall
3.3
8.8
23.0
61.1
3.9
100.0
Life Insurance Penetration - % of
GDP
2.53
2.26
2.15
2.5
2.53
2.59
3
2
Pakistan
India
Sri Lanka
1.5
Bangladesh
0.62
0.42
0.27
0.6
0.37
0.28
0.55
0.37
0.24
0.29
0.55
0.24
0.53
0.29
0.5
0.3
1
0
2001
2002
2003
2004
2005
Source: Swiss Re Sigma reports
Page 4
Pakistan: Financial Access
Banks
Informal (ROSCAs,
Moneylenders etc)
Excluded
Formal
other
A purely speculative band based on SBP figures for financial
services and the Poverty and Social Impact Assessment of
Microfinance Policies (2006).
Page 5
Sizing the Lower End Market
Estimated Adult
Population
NON-POOR
14.5
TRANSITORY NONPOOR
25.1
TRANSITORY
VULNERABLE
14.3
TRANSITORY POOR
13.3
CHRONIC POOR
6.6
EXTREMELY POOR
0.9
27.6
52.7
20.8
Centre for Research on Poverty Reduction and Income Distribution (CRPRID) &
Household Income and Expenditure Survey 2000 – 2001.
Page 6
Financial Inclusion Targets
US$ 7
Billion
(b) Growth Stimulus
Options
Active Borrowers
10m
Savings 25%
Debt
50%
5m
(a) Remove Growth Cap
– Yields of 30%
As Is – Growth Cap
2000
2006
Equity
25%
2010
Page 7
Growth is evenly spread across peer
groups
Market Share By Peer Groups
(Based on Institution Type)
100
4
1
% of Total Active Borrowers
90
5
5
5
6
10
8
80
5
5
24
25
34
35
40
37
35
2005
2006
2007
11
10
12
14
16
14
35
34
39
2004
70
60
50
73
95
54
45
28
30
2002
2003
90
40
30
20
10
0
16
0
1999
0
2000
2001
Year
MFB
RSPs
Specialized NGO MFIs
Others
Page 8
Page 9
Key Lessons – Time for a Policy Shift
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Wider outreach of finance is critical for
stability, sustainable and inclusive growth;
Market based solutions are sustainable;
Directed credit has not worked;
Subsidies do not achieve scale;
Need to mobilise indigenous resources;
Microfinance alone will not achieve scale;
Branchless banking can reduce costs;
Financial innovation should be encouraged.
Page 10