Following the approval of an “enhanced” National Financial Inclusion Strategy (NFIS) in November last year, it is good to see the finance minister following up on it. Chairing the sixth NFIS Council meeting a fortnight ago, the minister reiterated the importance of meeting these targets for job-creation and economic growth (see the illustration for a snapshot of key NFIS targets).

Since financial exclusion is overwhelming, it is imperative that the drive for financial inclusion which started under the PPP regime (Financial Inclusion Program) and expanded in scope under the PML-N government (NFIS 2015-20) continues in this government in a better form (NFIS 2018-23).. Not only are three quarter of Pakistani adults out of the banking system (un-banked), the remaining quarter who do have financial access cannot utilize the system adequately (under-banked).

The Prime Minister has also shown seriousness to get the financial-inclusion agenda rolling, but the system that is used to old ways will continue to pay lip service to this agenda. The NFIS targets for 2023 will face challenges during implementation both from within and without the government.

Within, the highly ambitious target of 100 percent digitization of government receipts and disbursements by 2023 will be impeded by the opaque ministries and public-sector enterprises. To promote government-level digitization, the NFIS had called for setting up a Transformation Office at the PM’s Office by March 2019. But so far, there is no progress reported on this initial step. (For some ideas on public sector digitization, read: IT: build scale,” published November 26, 2018).

And outside the government, the financial sector has no motive or urgency to do more towards meeting the 2023 targets relating to basic access and lending for SMEs, agriculture and housing sectors. One way to get commercial banks cracking is to have the finance ministry give them individual, yearly directives on applicable targets.

Such a proposal may face resistance from bankers on the ground that strictly target-oriented banking can give rise to a mad rush to achieve targets. A race to achieve targets can lead to low-quality growth in the targeted indicators and eventually hurt the banking system. If “directing” doesn’t work, and neither does “appealing,” what works?

That leaves the government with the option of offering qualified tax incentives to nudge banks into action. The NFIS has proposed to allow a reduced (20%) income tax on income earned by commercial and microfinance banks on lending to priority sectors (e.g. housing and SME finance). But such an incentive alone may not excite bankers enough to get their hands dirty in the bottom half of the market. Need more!

In short, the NFIS needs a robust implementation framework that not only recognizes the above-mentioned challenges but also makes it mandatory for all financial institutions – commercial banks, microfinance, branchless banking providers, etc. – to cooperate and become interoperable for a common payments ecosystem. Otherwise, despite the government’s moral suasions, the financial system will continue to grow in a selective and haphazard manner, keeping the door shut on a majority of population.