Majyd Aziz
Mark Twain, the American
author and humorist once noted that “everyone talks of the weather but no one
does anything about it.” It seems that this iconic quote can be applied, to a
large extent, on the global debate about pro-poor economic policies. Nary has a
week gone by without any conference, seminar, or a populist announcement by
state leaders regarding alleviation of poverty around the world. The hyperbole
is ever-present in these activities and a long list of to-do guidance is
circulated, deliberated and discussed. The focus is well-intentioned but the
implementation leaves much to be desired. This lack of an inclusive approach
has aggravated the global initiative to bring about economic sanity. This,
then, is the dilemma that is still the cause of social and political unrest,
mega deprivation, and enhanced non-legal actions by people.
The election manifestos of
political parties around the world proclaim in exuberant terms the priorities
if elected to power. The headline priority is invariably an agenda of poverty
alleviation through a defined enumeration of initiatives and projects. The
direct financial cost of these measures is never taken into consideration.
Resorting to catchwords and demagoguery is the marketing ploy during
electioneering and the hapless crowd eagerly listens and raises full-throated
slogans. For them, every election is one step away from deliverance from their
misery. Reality sets in soon and the gap between the rich and poor widens
further.
The above narrative is not an
isolated perception but is universal and more so in less developed countries.
The huge financial resources required to cut down the poverty figures take a
heavy toll on the governments. Domestic assets are not enough to bring about
the attainment of the objectives. Often, the election pledges and promises
succumb to grandiose projects that are generally not beneficial for the less
privileged but reflect the utter disregard by the rulers for the nation’s prime
imperatives. This also manifests disdain for social justice, for pragmatic
welfare of the people, and for human values.
The access to finance in a country like Pakistan is
tragically very limited and directly affects the population, especially those
on the lower tier of income groups. It also discourages micro and small sized
enterprises from expanding or surviving due to lack of affordable financial
resources. The unreasonably high financial transaction costs, non-dissemination
of credit availability, indefinable incentives, gender discrimination, and poorly
designed or non-transparent policies are the negative aspects of whatever
financial access is currently available. Thus, the lack of prescribed access to
finance impacts on the welfare and sustainability of small enterprises, as well
as on low income households. This is undoubtedly the crux of the matter.
The International Finance Institutions, such as World
Bank, IMF, or Asian Development Bank, are generally castigated for their
macro-economic recipe that focus on eliminating subsidies, increasing the rates
of infrastructure like electricity and gas, liberalization of trade, broadening
the tax base through value added tax, etc.
However, the pro-poor and
universally applicable initiatives undertaken by these IFIs, such as IMF, are noteworthy.
This new approach seems to be a visionary paradigm shift and the judicious implementation
of these initiatives would bring about desired enhancement in the quality and
standard of living of the dispossessed and deprived populace in the world. IMF
has developed the use of Financial Access Survey (FAS) that enables
policymakers to map out the dynamics of promoting financial services and
regulating and supervising financial institutions. According to IMF,”the FAS
is the sole source of global supply-side data on financial inclusion,
encompassing internationally-comparable basic indicators of financial access
and usage. It provides policy makers and researchers with annual geographic and
demographic data on access to basic consumer financial services worldwide.”
The FAS mapping of Pakistan reveals some key indicators
regarding access to finance. The charts below from the FAS reveal a very low
exposure to commercial banking, especially when there is a growing increase in
number of bank branches. It shows that there are only 4 commercial bank
branches for every 100,000 adults. There are less than 14 bank branches in
every 1000 square kilometer radius while ATMs are about 6 for every 100,000
people. Moreover, most of the foreign commercial banks are located in urban
areas and basically the government-owned banks such as National Bank of
Pakistan or the Zarai Taraqiati Bank Ltd (erstwhile Agriculture Development
Bank Ltd) have exposure in rural areas. It is also worthwhile to point out the
fact that since most of the banks have stringent rules and excessive paperwork,
the ordinary citizen is usually discouraged from entering the portals of these
financial institutions. Furthermore, only about 15% of households have deposit
accounts or borrow from these banks. That is why savings rate is also
pathetically very low.
The IFIs can
include a substantive package of initiatives in the approved loans given to
various nations. For a country like Pakistan, there is a vital need to provide
loans on lower-markup basis for financing of low-cost housing projects across
the country. At the present moment, there is a significant shortage of over
nine million housing units. Every day, this figure enhances by about 10,000
units. One major reason has been the high cost of construction as well as
either non-availability of land or exorbitant cost of land. Thus, housing
mortgages for a 25 year tenor at single figure markup rates would induce more
people to obtain housing loans and encourage them to move to suburbs or
settlements away from the hustle bustle of urban areas. Moreover, an upsurge in
housing construction would be beneficial for more than 45 ancillary industries
and create abundant job opportunities. This is very much needed for Pakistan
and this is a recipe for economic development in the otherwise shaky business
and industrial environments.
The scheduled commercial banks
are also tapering down their exposure of lending to SMEs. This has gradually become
adverse to the growth and proliferation of the SME sector due to the fact that
the burden of cost of capital is exceptionally prohibitive and beyond the
capacity of many SMEs and MSMEs to service their debt obligations. Moreover,
denial of credit from commercial banks also compels many SMEs and MSMEs to
source financing from the microcredit institutions or informal financiers,
albeit at a very high markup rate. This too is another discouragement of easy
financial access for those who have less collateral or who are unable to obtain
third party guarantees. A glance at the chart below demonstrates this tough situation.
The advent of branchless
banking and the use of mobile phone service operators for widespread banking
access has been greatly appreciated by the people as this provides them with
alternate banking facilities, is proximity-convenient, and it does not compel
users to maintain bank accounts. In an article, “Mobile Banking: The Fingertip Solution”, this writer emphasized that “The
favorable attitude towards mobile banking is a manifestation of consumer
financial empowerment. The customers are getting hassle-free service and in
close proximity to their home or place of work. The guiding line for service
providers is, and should be, that customer behavior is re-defining the ways of
conventional banking and that customers are less interested in visiting
branches and wasting precious time.”
The chart prepared by Tameer Bank Easypaisa displays an eye-popping
scenario of those with formal financial access in eight Asian countries. The
figures are depressingly low for Pakistan. To further amplify the idea of
seamless banking through the use of mobile phones, Easypaisa observes that only
15 million Pakistanis have bank accounts while there are 130 million SIM users
across the country. There is a formidable scope for promotion of branchless
banking in the years to come and this would definitely make a monumental
difference in the attitude of people and may also, to a substantial extent,
encourage savings at the grassroots level.
Some relevant information about seamless banking in Pakistan:
·
In first quarter of 2014, value of branchless banking transaction was
Rs 225 billion while volume was 55 million compared to Rs 52 billion and 12
million in first quarter 2012 respectively
·
In first quarter of 2014, the number of retail agents involved in
branchless banking transaction was over 115,000 compared to less than 20,000 in
first quarter 2012
·
In first quarter of 2014, the number of accounts involved in branchless
banking transaction was over 3 million compared to less than 0.75 million in
first quarter 2012
·
Adults with an account at a formal financial institution
(percentage-wise) in Pakistan, India, South Asia and among lower middle income
are 7%, 33%, 31% and 26% respectively in rural areas and 15%, 41%, 38% and 34%
respectively in urban areas
·
Adults with an account at a formal financial institution
(percentage-wise) in Pakistan, India, South Asia and among lower middle income
are 17%, 44%, 41% and 34% respectively among men and 03%, 25%, 25% and 23%
respectively among women
Her Majesty Queen Máxima of the Netherlands who was designated as the UN
Secretary-General's Special Advocate for Inclusive Finance for Development, in
a speech highlighted the imperative need for providing financial access to
those who are denied this due to the conventional rules and customs prevalent
in most of the countries. She said that “financial inclusion means universal
access, at a reasonable cost, to a range of financial services, provided by a
variety of sound and sustainable institutions. We therefore have advanced from
the term "microcredit", stressing also the importance of savings,
mortgages, insurance, payments and remittances. When talking about access
to finance around the world, the challenges are huge. Despite some important
developments over the past 10 years, over 2 billion people still do not have
access to financial services. This means that over 2 billion people lack the
tools that will help them generate income, help them to reduce life's
uncertainties, and protect their families from unforeseeable shocks.”
Queen Máxima
proposed that “national strategies and visions need to be developed. These
strategies need the engagement of governments, the country's regulators and
supervisors, financial institutions (including NGO's) and even telecom
providers or retailers. All of these should work together to increase access to
financial services.”
The
Washington-based Center for Global Development (CGD) constituted a Task Force
in June 2008 of leading experts from around the world, including Dr Ishrat
Hussain, Former Governor of State Bank of Pakistan, to identify key principles that initiatives
and programs for improving access to finance need to meet to be considered
sound and successful. According to Nancy Birdsall, President of CGD, the Task
Force deliberated on “ten principles to deal with three issues: (1)
expanding financial access, including best practices for stimulating informed
demand as well as for adequate competition among suppliers; (2) regulation of
financial service providers, and (3) avoiding distortions when public resources
are used to provide financial services.”
Ms Birdsall added
that “in the spirit of CGD’s goal of generating ideas to support efforts by
developed countries
to improve the wellbeing of the majority of the poor and near poor in the
developing world, we also hope that the principles will be useful to donors and
bilateral and multilateral organizations that play a key role in designing,
advocating, and in a number of cases, financially supporting relevant policy
initiatives for improving financial access.”
The
non-availability of desired financial products, the high capital cost, the low
rate of return in savings accounts, the lack of proper knowledge about
financing, the low literacy level especially in rural areas, and the narrow
base of consumer credit, etc have all been critical factors in structuring
financial access for guidelines. The system of exorbitant rates of usury by
loan sharks, the proliferation of Ponzi-type scams, the misuse of credit
facilities, the evolution of unregulated financial predators, and the expensive
inputs of raw material or unaffordable land prices are also debilitating
factors in taking advantage of the presently available financial products and
initiatives.
CGD notes that “access
to finance is about who gets offered what products at what price. Limited
access to financial services reduces welfare and slows firm growth; in
addition, it can increase the risk of financial instability as the poor seek to
develop their own means of informal access. Access for low-income households
(or individuals) and small firms are more limited than it should be because of
information frictions, distorted incentives, and, above all, disproportionately
high transaction costs. Some of these can be alleviated through policy actions,
and some may be worsened by side-effects of poorly designed policy.”
The onus lies on
the governments and the Central Banks to work out pragmatic financial access
policies in consultation with the domestic financial institutions as well as
trade and industry representatives. Continued apathy would be anathema to the
welfare and prosperity of the nations and the denizens. IFIs and recognized
think tanks can activate the spur mode that would enable the governments and
the financial institutions to revolutionize their commitments to the people and
provide them affordable access to finance. Edward Osborne Wilson, the American
biologist who is known as the Father of Sociobiology, remarked that “the
great challenge of the twenty first century is to raise people everywhere to a
decent standard of living while preserving as much of the rest of life as
possible.”
