Promoting SHS market in Pakistan: WB for addressing barriers limiting mobile wallet uptake

ISLAMABAD: To leverage mobile wallets for growing the solar home systems (SHS) market in Pakistan, regulators, telecom companies, banks, and other sector stakeholders must collaborate to first address the barriers including technology limitations, need for roaming agents and low digital literacy that limit mobile wallet uptake, says the World Bank.

The bank in its latest report, “Leveraging Digital Finance to Scale the Solar Home Systems Market in Pakistan,” stated that millions of people in Pakistan use mobile banking payments, but transaction levels and activity rates remain low.

The report noted that during Q1, FY21, there were over 221,525 active branchless banking agents in Pakistan serving nearly 67 million accounts. Of these, only about 43 million or 64 percent were active accounts with total deposits of Pakistan rupees (PKR) 56 billion, a small fraction of the nearly Rs18 trillion held in total bank deposits in Pakistan during the same period. The average mobile banking transaction was just over Rs3,000, with 594 million transactions during the quarter. The total volume of transactions processed by the mobile banking network in Q1, FY21 was Rs1.8 trillion.

To effectively scale the SHS market in Pakistan’s context, the use of mobile wallets needs to increase significantly across all target markets. Simultaneously, local microfinance businesses must align their operations with the needs of the SHS market, integrate more technology solutions into business operations, and develop competencies for digitizing loan payments through the use of mobile money. For the microfinance industry, mobile money can minimize the transaction costs of their portfolios while keeping payment friction to a minimum, effectively circumventing the operational limitations that prevent MFIs from extending their portfolios or targeting new markets in Sindh and elsewhere. To leverage mobile wallets for growing the SHS market in Pakistan, regulators, telecom companies, banks, MFIs, SHS businesses, and other sector stakeholders must collaborate to first address the following barriers that limit mobile wallet uptake in Pakistan:

Technology limitations: Limited access to unstructured supplementary service data (USSD), a communications technology that delivers mobile financial services to low-income customers, is a major factor contributing to slow growth in mobile wallet accounts. To correct this market failure, the State Bank has recently launched the Asaan Mobile Account (AMA) program.

The need for roaming agents: Currently, roaming agents for mobile banking services are not allowed in Pakistan under normal circumstances, which limit the utility of mobile banking for rural populations that rely mostly on over-the-counter (OTC) transactions for cash deposit and withdrawal services.

Low digital literacy: Although the new USSD directive will correct an important market failure limiting the growth of the mobile banking sector, potential customers in rural areas will need significant hand-holding—help with understanding the benefits of the technology and assistance with registering a mobile banking account and learning to use it for simple transactions—before there is large-scale adoption of mobile banking in these areas.

Insufficient use cases for low-income customers: Large-scale adoption of mobile banking in Pakistan therefore requires “push” strategies that incentivize or compel rural populations to adopt mobile banking.

Over the past decade, solar home systems (SHS) have emerged as a leading decentralized renewable energy technology for meeting the electricity needs of off-grid populations in developing countries.

SHS technology addresses the rural electrification gap without costly extensions in transmission networks, providing an alternative to conventional off-grid energy sources such as kerosene, diesel, and battery-operated torches. While the earliest and largest SHS markets are based in East Africa, SHS provision is now established as a global business with growing markets in West Africa, South and South East Asia, and Latin America. In 2020, the off-grid solar sector as a whole was a US$1.75 billion annual market, serving 420 million users. More than 1.6 million SHS units of various capacities were sold globally in 2020 and SHSs, which currently represent about 17 percent of unit sales in the off-grid lighting and appliances sector, are expected to increasingly drive sector growth in the future.

This brief analysis was compiled by the World Bank to assess the potential for using mobile banking to scale the SHS market in Pakistan. The findings will support implementation of the Sindh Solar Energy Project by the Government of Sindh,13 and inform the World Bank’s advice to various federal and provincial government agencies on increasing access to electricity. Initial research for the assessment was carried out in 2019 and updated in June 2021 to reflect recent industry developments.

The report explores the synergy between mobile banking services and SHS businesses, and develops a use case for mobile wallets in SHS provision through a case study of the SHS market in Sindh, Pakistan.

The report draws heavily on international experience to establish the efficacy of mobile wallets for scaling SHSs and addresses the following important knowledge gaps in Pakistan’s context: To what extent are mobile banking in general and mobile wallets in particular used to collect SHS financing payments in Pakistan? Are there any immediate barriers that curtail or limit the use of mobile wallets in SHS and how can these be addressed? As a corollary, the report also documents the incidence of both mobile wallet and over-the-counter (OTC) transactions and barriers that are limiting the overall growth in mobile wallets.

Copyright Business Recorder, 2022