According to the State Bank of Pakistan’s financial stability review of the 1st half of 2011, pre-tax profits of the banking industry rose to an impressive 77.3 billion, the highest for the period in well over a decade. The recently released report further noted that during the half year under review, asset base of the banking system witnessed strongest growth since 2007 amid robust increase in investment, predominantly in government papers. Therefore, for the banking industry the incessant government borrowings have proved a blessing in disguise. The report highlighted that the amount of investment in government papers has more than doubled from Rs1.08 trillion in December 2008 to Rs2.62 trillion in June 2011. Dispelling the impression that Pakistani banks enjoy the highest spread in the world, the state bank report mentions that Pakistan ranks 69 out of 122 countries with high spreads. However, what still needs to be understood is that the banking industry has fared relatively well in the last few years.
Lacking financial inclusion
What seems to be lacking however in the banking sector is financial inclusion that remains to be quite low. In a recent study by Boston Consulting Group for Telenor titled ‘Shaping our financial future,’ the percentage of un-banked adults is at a staggering 85 per cent. Keeping in mind the strength of Pakistan’s banking industry, such figures remain alarming to say the least. This figure implies that 85 per cent of adults in Pakistan are financially excluded. The substantial growth in the telecom sector of Pakistan has resulted in an increase in mobile sim penetration that according to estimates is approximately 60 per cent of the total population. Growing density of mobile phone users presents an opportunity to the banking sector to utilise the platform to bridge the financial divide in the country. Adoption of branchless banking therefore is an initiative that promises great dividends for the country.
The fact that 85 per cent of Pakistani’s are financially excluded implies that they have to rely on often illegal means to manage their money. The potential for the banking industry to further grow exponentially is great. The same research by the Boston Consulting Group reveals that access to mobile financial services has the potential to increase Pakistan’s GDP by three per cent in the next decade. MFS can potentially allow 27 million people to have access to savings accounts through mobile phones, 17 million people will be able to pay their utility bills through MFS, 10 million people will have access to credit and four million people can potentially be insured through initiating branchless banking.
Branchless banking
To this effect the State Bank of Pakistan has taken some very good initiatives to promote branchless banking in Pakistan and other corporate entities have followed suite with the foremost example being Telenor through their easy paisa scheme and United Bank Limited with their Omni initiative. What Easy Paisa has done very successfully is that they have leveraged their mobile phone subscriptions and their distribution networks along with collaborating with Tameer bank’s microfinance initiatives to develop a system that allows the un-banked lower and middle classes to have access to branchless banking. The thing that stands out with Easy Paisa is that it is not only limited to Telenor subscribers but is a facility that can be availed by all mobile phone users, a move that expands the domain of the services being offered. “Branchless banking has the potential to cut down on logistics, in the present age of globalisation of information. It has the power to develop unprecedented electronic linkages, allowing transactions to be made with great ease,” said a senior banker in SME bank.
Laboratory of innovation
State Bank data further consolidates the argument presented by the official at SME bank, noting that branchless banking transactions have increased phenomenally by 27 per cent in July-September, while the volume of transactions increased by 43.2 per cent during the period under deliberation.
A research and policy centre at the World Bank, ‘Consultative Group to Assist the Poor’ (CGAP), has said Pakistan is a laboratory of innovation for branchless banking. With over 180 million people and a GDP per capita of $2400, according to the CIA world Factbook, the banking industry of Pakistan after having enjoyed a year of success need’s to diversify into branchless banking to tap this important resource. CGAP, conducted a survey in Pakistan were 300 easy paisa customers were interviewed. The findings were astonishing, since they noted that almost 5 per cent of Easy Paisa customers lived below $1.25 a day, while almost 40 per cent lived on less than $2.5 per day. The estimated further revealed that over 90 per cent of all customers rated the service as highly effective, with a significant proportion stating that it had a huge impact on their lives.
It is encouraging to note that other banks have also decided to jump in and tap into this promising opportunity, with Habib Bank Limited initiating branchless banking services in 2012. Like UBL, Habib Bank Limited has also decided to take this journey solo. With banking assets growing by an impressive 8 per cent in the period under review according to the State Bank Financial Stability report,, and the market still evolving financial inclusion through branchless banking is an area that promises to pay great dividends to the banking industry in the year 2012.
