Belatedly though the regulators have finally woken up from a deep slumber to mitigate the decades-old problem of lack of financial access in Pakistan where the 187 million people’s exposure to economic indicators like investment, insurance, savings, pension funds etc stands lowest among the comity of developing nations.
Apparent reason of the problem is that while majority of Pakistanis are financially illiterate the authorities concerned have done little or nothing at all during last six decades to give them even a basic understanding and knowledge of finances that, if done, must have enabled the former to fully participate in the economic development of the country. A World Bank report on “Bringing Finance to Pakistan’s Poor” says only 14 percent of the politico-judicially-embattled Pakistanis use a financial product or service from a formal financial institution. This, 14 percent, share in financial access is the lowest when compared with that of Pakistan’s competitors from South and Southeast Asia like India (over 40 percent), Bangladesh (30 percent), Nepal (20 percent), Sri Lanka and Thailand (60 percent), Singapore (100 percent) and China and Indonesia (over 40 percent).
According to official data, almost 50 percent of Pakistanis are completely excluded from financial sector while 20 percent others do not know about even the simplest form of financial services or products available in the market. Further, a comparative analysis reveals that Pakistan despite having a bigger population has an “extremely minute” investment and saving base compared to other developing economies like Bangladesh, Turkey and Thailand. Of the 187 million Pakistanis only 0.170 million or 0.9 percent have a Unique Identification Number (UIN) to invest at the country’s stocks market against 2.804 million in Bangladesh, 3.050 million in Thailand and 4.132 million in Turkey where the populations, respectively, stand at 158 million, 67 million and 74 million. The Collective Investment Schemes (CIS) unit holders in Pakistan account for only 0.14 million against 3.6 million of Turkey and 1.5 million of Thailand.
Pakistanis also leg behind in terms of insurance penetration (as a percent of GDP) with 0.7 percent against 0.94 percent of Bangladesh, 4.1 percent of Thailand and 1.28 percent of Turkey. Only 2000 or .001 percent Pakistanis participate in Pension Funds compared to 3.4 million Thais and 2.6 million Turks. Turkey is the only country Pakistan is ahead of in terms of savings as only 12 percent of Turkish people are prone to savings against 13.8 percent Pakistanis. Bangladesh and Thailand with 19 and 31 percent saving base stand far ahead Pakistan. “One of the main reasons for such low involvement in the finical markets by Pakistanis is a lack of awareness… education,” viewed Syed Javed Hassan, chief executive officer of Institute of Capital Markets (ICM), a non-profit organization working since 2009 under the ambit of Securities and Exchange Commission of Pakistan (SECP) to educate the participants of financial sector industry.
Urging the need for making efforts to raise financial literacy through structured investors’ education, the ICM chief said the SECP had devised a three-year Investors’ Education Program (IEP) starting from Friday, July 13, at the Karachi Stock Exchange (KSE) and to spread countrywide subsequently. “Investment Basics being the theme of it, the Program would aim at educating the investors on the college and university level,” he explained.
Ideally, investment base in the 187 million Pakistan must be at least 100 million. “This lower investment rate does not allow the local equity market to expand,” said Hassan who tends to agree that the 2005 and 2008 market crashes had created a credibility dilemma for the stocks markets. He, however, lures the risk-averse investors by claiming that: “A lot of measures have been taken by the apex and front regulators to manage the risks previously involved on the stocks markets.”
The ICM executive said gone are the days when the equity market was plagued with speculative trading, pumping and dumping and leveraging. “In next three to four months the stocks market would be in no one’s but in general shareholders’ control,” Hassan said referring to the SECP-backed steps like launching of a liquid thus more representative benchmark index at the KSE and demutualization of the stocks exchanges.
One can hope for the best as the SECP has eventually recognized that all of the past initiatives it had taken on investors’ education were “fragmented” and lacked coordination with other stakeholders. This time, however, the IEP is being carried out on a broad scale with the SECP partnering with key capital market stakeholders including country’s three stock exchanges, Pakistan Mercantile Exchange, Central Depositary Company, National Clearing Company of Pakistan Limited and Mutual Funds Association of Pakistan.
Rude awakening
