Bringing Finance to Pakistan's Poor

Yesterday I attended the World Bank's book launch of Bringing Finance to Pakistan's Poor: Access to Finance for Small Enterprises and the Underserved. The authors, Tatiana Nenova and Ceclie Thioro Niang, interviewed 10,000 households from across Pakistan's geographic and socio-economic landscape, including both men and women.

In general, Pakistanis are underserved by both formal and informal channels of finance. Only 14 percent of the total population has formal access, while just over 59 percent have access to either formal or informal finance. As the chart above illustrates, this is quite low compared to Bangladesh (32% formal access), India (48%) and Sri Lanka (59%). Small and medium enterprises, which account for 30% of GDP and 78% of jobs, only account for 16% of the country's overall credit.

What explains this gap? The authors argue:

Major constraints to financial access, in spite of policy reforms, arise from the high levels of poverty, combined with low awareness of and information about available financial services, as well as gender bias.

Three things in particular stick out to me: Women, savings and microfinance.

First, 80 percent of Pakistani women have no access to finance. However, this gender bias is eliminated at the formal level.

Second, the microfinance sector is very small, reaching only 2 percent of the poor. As a comparison, there are 82m cell phones users versus 3m microfinance clients. The authors point out that Pakistani microfinance institutions are not yet commercially viable, but have huge growth potential (10-20m estimated borrowers). Unlike most other countries, Pakistan's small microfinance industry is male-dominated, reaching few women.

Third, the survey finds that most Pakistanis have a strong aversion to debt, and are seeking financial channels to store their savings, rather than for borrowing. This is largely due to low levels of financial literacy, but also because formal borrowing has very high interest rates (19%), especially when compared to informal borrowing (23%).

This report is a pioneering survey, and the authors have been scrupulous in their methodology. It will serve well in closing Pakistan's financial information gap.