Policy Perspective: Digital & Financial Inclusion in Pakistan

Written in September 2018. Original post on linkedin

I have put together my thought’s on the subject from Digital & Financial Inclusion perspective based on our work at IDEATE to improve several Government Digitization projects (examples BISP, Punjab Kisaan Program, Healthcare in Public Sector). I will follow up with another article in this series about the role of Human Centered Design in government Digitization.

Executive Summary

1.     We must develop a Universal Payment Interface to accelerate Digital and Financial Inclusion and strengthen digital government programs. SBP should encourage/demand that all telcos make their digital payment network agnostic (e.g., A user of mobile Jazz cash must be able to send payments to mobile EasyPaisa owner).

Without this digital IT backbone, rest of financial & digital inclusion will not work!

2.    We must accelerate banked population from 21% to 50% to meet SBP 2020 timeframe with the aggressive digitization of government payments (see item #1 above).

3.    We must strengthen and build upon the Benazir Income Support Program as a (digital) platform to extend government services to the most underprivileged and under-served population.

4.    We must strengthen, improve and extend Punjab Kissan program and its digitized processes to agriculture and finance sector across the country. Provide constitutional cover should be provided to the digital processes.

5.    We must setup a department of Citizen Centric Services under the Knowledge Economy Authority and direct sponsorship of Cabinet on lines of the UK and US Government Digital Service departments.

Universal Payment Systems and Interface:

Banks and Telecom providers are reluctant to work towards integrations (interoperability) out of fears of losing customers due to ‘choice.’ The success of many government Digitization programs depends on ‘cross-platform compatibility’ for citizens. 

Universal payment interface in India has changed the game by bringing 800 Million users into financial systems and bringing global players like WhatsApp, Google Tez, etc. into payments. WhatsApp has the largest user base, and it can be a game changer in digital and financial inclusion. 

Kenya started this journey in 2004 with mPesa & after few interactions have full coverage of their population with mobiles.

1.     Farmers, BISP beneficiaries and other citizens availing Government to Persons (G2P) payments should be able to cash out government money/loan through any bank, mobile money provider (Telenor’s Easypaisa /Jazzcash, etc.). No single bank or service provider can service the entire set of users across the country. 

2.    Reduce NADRA fees on Bio-metric Verification for Government projects. Government should NOT charge the end-user for these identity verification transactions. And the population will also become part of the tax network in the future.

Special Digital Payment Initiatives with SBP:

State Bank of Pakistan is the keeper of the National Financial Inclusion Strategy. However, it has a very conservative approach towards regulation when it comes to Financial and Fintech regulations. We propose the following critical changes:

 1.     Setup special bank account category for Govt-2-People (G2P) payments that don’t get inactive & includes service charges. Currently, SBP asks for Asaan Account, but that has deactivation time periods. Level 1 accounts of Branchless Banking should be considered equivalent to Asaan Accounts.

(Imagine a farmer getting a loan for 2nd crop cycle, because no balance was maintained in the account, it got deactivated. Farmer is unable to withdraw money! It hurts government Agri loans program.) 

2.    Revisit State Bank rules to promote Financial Technology players who can accelerate the digitization of supply chains and cash flows. USD 2 Million capital expense requirements.

3.    Devise plans with the Knowledge Economy Authority to digitize value chains (entire chain from raw material to end consumer) agriculture, consumable products, packaged products working with industry, banking and development sector partners. It will help expand the Tax base.

4. Incentivise small and medium-size businesses (tax breaks, prioritization etc.) who put in significant efforts towards digitization of payments and paperwork in their supply chains and sales channels.

National Financial Inclusion Strategy (NFIS):

In May of 2015, the State Bank of Pakistan (SBP) announced its National Financial Inclusion Strategy (NFIS). Under the plan, among other goals, an ambitious target of achieving 50% financial inclusion by the year 2020 was set. 

1.     At the time of the announcement, around 100 million adult population had no access to formal financial services, meaning only 13% were banked. 

2.    Within three years, the strategy has shown some much-needed progress, and as of 2017, the banked adult population stands at 21%. While the improvement in numbers is promising, there is still a long way to go. Still a gap of 29% who do not have access to banking services.

3.    The NFIS strategy proposed digitization of majority of Government to Person (G2P) transfers like BISP, Agri loans and subsidies, pensions and all other payments as well as Person to Government (P2G) payments. 

We are not on track with the timelines for digitization in NFIS and several programs, e.g. digitization of Pakistan Post is significantly delayed. 

Digitization in BISP: 

Benazir Income Support Program (BISP) is the largest social safety net program of Pakistan with an annual budget of Rs 125 Billion (FY 18-19) which adopted digital payments for grant disbursements a few years ago (through bio-metric branch-less banking). 

One of the major side effects of digitization is ‘reduced corruption’. 

I have had the chance to work with Karandaaz and BISP to evaluate the biometric-based cash disbursements for BISP grants. Corruption and deductions have reduced, women feel empowered by a collection of money in their hands (bio-metric required). However, the program needs to do more to teach financial and digital literacy to the 5.4 Million women beneficiaries. 

1.     Revisit the program’s goals and objectives to incorporate graduation strategies: not only to sustain their livelihoods but also help beneficiaries graduate towards self-sustainability. Align the goals with a long-term vision of Digital & Financial Inclusion strategy of Govt. of Pakistan and remove political agendas from this program to make it more efficient and create true impact.

2.    The government needs to understand that just setting up an account and paying digitally doesn’t achieve financial inclusion: these marginalized communities need sustained efforts in capacity building and behavior change.

3.    Before handing them smartphones, they need to be made aware of the value of digital communication and financial services in their daily lives (use-cases, value proposition) so they can adopt digital financial services and learn to use mobile phones.

4.    Other initiatives should be connected with BISP: initiatives like the health insurance in KPK, micro-entrepreneurship, micro-loans (through MFIs like akhuwat). 

5.    A central knowledge body (knowledge economy authority) should work to improve these programs by bringing all stakeholders together (BISP, NADRA, SBP, Banks, Branchless Banks) and solve issues that impact service quality for marginalized beneficiaries. 

6.    Real-time complaint resolution system and dashboard for program monitoring should be setup in the Knowledge Economy Authority which captures the user profiles, grant disbursement details, history, family poverty score, etc. 

This dashboard can also prove to be a valuable tool for the private sector to devise programs to support these beneficiaries through their commercial and CSR initiatives. 

The central dashboard should be setup to track, manage and resolve complaints of BISP grant disbursement process connecting all government and non-government stakeholders.

Punjab Kissan Project:

The government of Punjab earmarked Rs. 100 Billion as Kissan Package in 2016 for the uplift of small farmers. The Punjab Kissan program aims to empower farmers through digital and financial inclusion through interest-free loans. 

The target for pilot was 600,000 loans over 5 years and equip 100,000 farmers with (subsidized) smartphones and mobile agriculture apps to improve agriculture practices and bring a technology revolution in agriculture sector. A few recommendations for enchancing this program are:

1.     Knowledge Economy Authority should work with key stakeholders to further strengthen the program based on feedback and evaluation of program. 

2.    Digitization of government land records (PLRA), loan application and approval process (PITB), payments (Telenor Bank) etc. are important components of the program which need to be further improved with better inter-departmental coordination to serve the farmers. 

3.    Support and expand technology integration (software and systems) between departments, financial intuitions and branch-less banking institutions through Universal Payments Interface. Such effort can turn the data from this program into a Digital Credit Lending platform which can revolutionize the agriculture sector.

4.    Amend Constitution to provide legal cover to the digitized processes such as ‘Digital Mutation’ (mortgage) and e-Passbook (digital version of physical passbooks – land ownership and other records).

5.    Extend the digital processes (land mutation, loan application, credit and identity verification, etc.) developed for Punjab Kissan program to all agriculture and finance sector.

6.    Extend the program to the entire country in a staged manner.

7.    De-politicize the program by eliminating hidden agendas so that the core purpose remains to serve the small and medium-size farmers.

8.    More industry partners (agri-businesses, Telcos., Banks, and Branchless banks, etc. should be brought in to expand this program nationwide and uplift Agriculture sector of the country. 

9.    Technology companies and agribusinesses from the private sector must become an essential part of this large-scale agriculture platform to solve the problems of farmers through technology and modern farming practices.

Knowledge Economy Authority (KECA):

The authority should work with government organizations (FBR, Planning commission, Statistics department, etc.), non-profits (particularly PPAF) and other research institutions to develop an information portal about demographics, social indicators, incomes, etc. of citizens. 

This information is extremely important for businesses to plan their products, services and business activities in the country. One of the reason for lukewarm interest from international organizations is due to lack of industry data and demographic information. Few such examples are:

1.     Europe www.statista.com

2.    Australia Small Business Research Center

3.    Canada Government Business Research

Such portal lines up well with PTI Digital Policy Agenda of “Open Government Data”.

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