Rationale for the Pakistan A2F surveys

The State Bank of Pakistan (SBP) has taken an active interest in understanding the state of financial inclusiveness in Pakistan's financial sector. As the primary regulator and focal stakeholder regulating the financial and banking sector, the State Bank of Pakistan has an active interest in gauging the level of financial access in Pakistan for a variety of purposes, including: understanding the need for banking innovation and financial development to expand access to finance to a wide cross-section of the country's population; understanding demand-side dynamics that prohibit, or alternatively, incentivize engagement with the financial sector and products; recognizing the scope and function of financially innovative institutions and products that are increasingly populating Pakistan's financial landscape; creating more effective regulatory regimes to better manage the growth and expansion in the country's financial sector, and its numerous innovative products; creating more effective consumer protection and servicing guidelines that can increase information, security, and trust in the financial system especially for those voluntarily abstaining from joining the country's financial system. The accumulation of these interests for the State Bank of Pakistan and the Government has been at the forefront of domestic discourse and research efforts designed to deconstruct access to finance in Pakistan.

A first Access to Finance study was conducted in 2008 at the request of the Government of Pakistan and SBP. The study yielded a rich data base on many aspects of access to financial services and was used to provide useful inputs for analysis, planning and implementation of the Financial Inclusion Program (FIP). In cross-country comparisons conducted on the basis of the 2008 A2F - Pakistan was the lowest ranked country in the region, as well as when juxtaposed with countries with similar socioeconomic and demographic profiles. The 2008 survey highlighted several crucial features of limited financial inclusion in Pakistan, such as: more than half of the population saves, but only 8% entrust their money to formal financial institutions; one-third of the population borrows, but only 3% use formal financial institutions to do so; international remittances had grown by 29% since 2001 yet only 2.3% of Pakistanis sent or received remittances, while half of remittances, including domestic flows were transmitted informally. In other words, the report revealed that the vast majority of the country's population remains outside the formal financial system. The authors of the 2008 report concluded that the major barriers to financial access, in spite of policy reforms, arose from high levels of poverty, combined with low awareness of and information about financial services, as well as gender bias. The authors suggested that the formal financial sector ought to align with and incorporate informal channels and processes to increase financial outreach to the marginalized sections of the population.

The 2008 A2F survey also highlighted the substantial gender difference in access to finance in Pakistan: the survey found that women remained significantly less likely than men to have access to the financial sector overall. Notably, there are fewer women with access to banking services (5.5 % vs. 21.1% men), money transfers (1.4% vs. 3.3% men) and insurance (0.6% vs. 3.3% men). Since 2008, physical infrastructure (bank branches and ATMs) has gradually increased, thereby indicating the interest of the financial sector in extending its outreach. But the expansion of the microfinance sector and of the branchless banking services were the developments on the supply side that were most relevant in terms of financial inclusion. In 2008, SBP issued Branchless Banking Regulations with the emphasis on bank-led model. Revised Branchless Banking Regulations were issued in 2011.

At first, the branchless banking market evolved at a slow pace. However, since 2011, six providers have deployed their services and resources in this sector, thereby increasing the penetration of branchless banking infrastructure. In September 2013, the total number of BB agents had increased to over 125,000. By 2008, microfinance sector estimations indicated that the total number of clients had reached 1.7 million. This coverage amounted to a meager 1% of the population, compared with 35% coverage in Bangladesh, 25% in India, and 29% in Sri Lanka. Since then the microfinance sector has managed to substantially increase its outreach.

The main purpose of the present study is to deliver results that can be compared to those obtained with the 2008 A2F survey, so as to measure the evolutions that would parallel the developments observed on the supply side. Beyond this primary objective, it also attempts to provide a deeper understanding of the factors determining demand for financial services (information about financial services, understanding of these services; financial literacy, opinions, trust, perceptions, etc.