Amir Saeed

Though Pakistan’s financial sector has made significant strides in recent years, financial inclusion remains a pressing concern as a large portion of the population, particularly micro-level clients, lacks access to essential financial services. Speaking to WealthPK, Aatizaz Hussain, Manager Implementation Financial Literacy at the National Institute of Banking and Finance, said that the State Bank of Pakistan had launched several initiatives to promote financial inclusion, including the National Financial Inclusion Strategy. “However, more needs to be done to meet the specific needs of micro-level clientele.” He explained that operational risk assessment was an essential part of financial product creation, allowing financial institutions to identify and reduce potential hazards. “By incorporating this technique into product creation for micro-level customers, the country’s financial institutions can create tailored solutions that meet their requirements.”

Micro-level clients, including small firms and businesses, require financial products that are adaptable, accessible, and reasonably priced. Traditional financial products often fail to meet these requirements, leading to a significant financial inclusion gap. Aatizaz opined that financial institutions should adopt a risk-based approach to product design, considering the unique risk profiles of micro-level clients. “This includes assessing credit risk, fraud risk, and market risk, among other factors. Advanced data analytics and risk management technologies are required for a thorough operational risk assessment. Financial institutions in the country must invest in these tools to provide targeted financial products,” he underscored. Talking to WealthPK, Dr Anwar Shah, a development economic researcher at the Quaid-i-Azam University, Islamabad, said that the financial sector had grown significantly in recent years, owing to the rise of branchless banking and mobile financial services. “Despite this success, a considerable financial inclusion gap persists.

Microfinance institutions have played an important role in promoting financial inclusion, but their outreach is limited.” He pointed out that banks’ reluctance to lend to small businesses stems from various factors, including high credit risk, a lack of collateral, and a limited financial history. “Small firms and individuals often have limited assets to pledge as collateral, making it difficult for banks to recover their loans in the event of default.” He called for collaboration among financial institutions, regulators, and policymakers to promote financial inclusion. “The SBP must provide clear guidance and incentives for financial institutions to develop and offer inclusive financial products, such as low-cost deposit accounts, microloans, and digital payment services.” Anwar suggested that banks should reduce the collateral requirements for loans or work with government agencies or non-profit organisations to guarantee or subsidise small business loans.

Credit: INP-WealthPk