As formal financial services in Pakistan remain clustered mostly around bigger hubs of formal economic activity, a large portion of Pakistan’s population, operating in the informal sector, gets little or no access to formal financial institutions. Despite a continued emphasis on financial inclusion through the National Financial Inclusion Strategy (NFIS), launched in 2015, Pakistan still lags in financial inclusion indicators compared to other countries.

Findings from a new Staff Note by the State Bank of Pakistan explores the potential of the Pakistan Post in enhancing financial inclusion in Pakistan.

The Pakistan Post is a government-owned entity that primarily provides postal services to around 20 million consumers. It also provides life insurance services, collects utility bills and taxes, manages a money and remittance transfer facility, and performs agency function on behalf of the Central Directorate of National Savings (CDNS). The outreach and the footprint of Pakistan Post indicate its potential strategic value in improving financial inclusion, especially in rural and far-off areas where the post office has been the only service provider for decades.

Four factors give the Pakistan Post an edge over other financial institutions in reaching the financially excluded:

1. Affordability: the services of the Pakistan Post are often subsidized and cheaper compared to other service providers.
2. Penetration: Pakistan Post’s branch infrastructure consists of around 2400 delivery post offices and a much large number of non-delivery ones. 87% of these post offices are located outside the five most populated cities.
3. Trust: Pakistan Post’s post offices have been operational since Pakistan's creation in 1947 and have an even longer history of service delivery in the sub-continent. Also, Pakistan Post’s traditional savings bank is often the only financial service available in some rural and remote areas. The trust factor gives Pakistan Post an inherent edge in attracting previously unbanked individuals and enterprises.
4. Practicality: Pakistan Post is well-positioned to take up a number of financial services effectively. It has already launched its remittance service in June 2019 in collaboration with the National Bank of Pakistan to improve the delivery of international remittances. This initiative could help divert more remittances to the formal sector and increase formal savings, while also creating prospects for the development of linked lending services for small businesses and households, and various types of insurance over time.

Cross-country Experiences

Experiences of other countries provide further motivation to adopt a post office-led financial inclusion model. Japan, China, Brazil, India, and Russia have achieved notable gains through postal financial inclusion.

The case of Japan is worth highlighting in particular. Amid a culture that encourages savings. Japan Post provided the platform for their accumulation. Later these savings were used for Post-World War II reconstruction to develop housing and small businesses in Japan.

Prospective directions for Pakistan Post

Pakistan can also tap the potential of the Post Office to achieve some of the headline targets of its National Financial Inclusion Strategy by 2023. The SBP’s new Staff Note highlights the following ways to align the Pakistan Post with the broader goals of financial inclusion:

1. Enhance Scope: there is great potential for the Pakistan Post to expand its banking function by extending loans and insurance services to small and micro businesses, especially in rural areas. The blueprints for such models of expansion are readily available for adoption.
2. Financial Literacy: the Pakistan Post can also promote financial literacy among teenagers and incentivize them to open and maintain postal savings accounts from an early age.
3. Partnerships: the Pakistan Post can establish strategic partnerships with commercial banks, especially Islamic banks. It can help disseminate information related to the services provided by partner Islamic banks and in return, these Islamic banks could gain the opportunity to serve Pakistan Post’s many traditional customers, who remain excluded from traditional banking on religious grounds.

However, in order to ensure that this postal financial inclusion model is successful, Pakistan Post must ensure compliance with financial regulations, including AML/CFT and invest in technology upgradations to compete effectively with other financial service providers.