Pakistani banks need to do more. A comparison between Pakistan and its neighbouring economy India vis-à-vis retail banking infrastructure reveals a sharp difference. India being an economy and country almost seven times that of Pakistan, of course, means India will beat Pakistan on numbers every time. But relative to population, Pakistan is lagging behind, too, as the two illustrations show.
Reading through the recent central bank quarterly Payment Systems Review for the quarter ended March 31, 2017, it is apparent that growth in both retail banking infrastructure (bank branches and ATMs) and electronic payment channels (such as debit and credit cards) is paltry at best. One wonders whether the 32 odd commercial banks aren’t interested in retail expansion.
Sure, m-wallets in the branchless banking (BB) sphere had grown to roughly 24 million by March end. That figure perhaps beats the number of unique bank accounts opened by dozens of commercial banks. But little good is double-digit growth when more than half of those m-wallets are reported as inactive every quarter. Also, m-wallets have yet to gain interoperability, meaning customer value remains limited.
On the IMF’s financial development index, India – which itself has a long way to go to provide universal financial access to its citizens – comprehensively outperforms Pakistan. Correspondingly, India also has a higher score on the financial inclusion index. Pakistan also lags behind other peer-group economies like Bangladesh, Indonesia, and Vietnam, on both counts of financial development and financial inclusion.
Let’s stick to India for comparison’s sake. As opposed to Pakistan where the private-sector dominates the banking arena, the Indian banking sector is dominated by public-sector banks, with a confounding mélange of private banks, specialized banks, rural banks, cooperative banks, and more recently, payments banks.
There is criticism over large public footprint in India’s banking sector. But those banks do help broaden access to finance in a country rife with poverty and inequality. Facing fiscal constraints and apathy from private sector, the government finds those banks effective in providing financing for infrastructure, agriculture, and housing schemes. Recently, public-sector banks have opened 80 percent of roughly 300 million accounts under the Jan-Dhan Yojana scheme, which targets bank accounts for every household.
The authorities in Pakistan are also humming the tune of financial inclusion.
That’s great. But one has problem understanding how would tens of millions of un-banked and under-banked adults be brought into the formal financial fold when BB service providers have limited focus, microfinance sector faces capital constraints in providing credit to a significant chunk of the addressable market of 20 million+ micro borrowers, and commercial banks seem uninterested to drastically expand their footprint.
One cannot reasonably expect the private sector to compromise on profit-making, which is their raison d’être. But in a developing country with growing income disparities, shouldn’t the banking sector, at the very least, have a more ‘development’ focus? Who else has the capability to expand financial access to the nook and corner of the country? What can be done to increase competition in the banking sector? Does Pakistan need more private-sector banks for that? Or must the public sector have a bigger role?
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