Access to basic utilities is considered the right of every citizen, however, the definition of basic utilities has changed over the years. We have moved ahead from the days when the word utility was synonymous with electricity, water and gas. In today’s world, the internet has also become a necessity rather than a luxury as the lack of connectivity can limit your access to education, health, finance and other life-enhancing services.

Yet, a lot of people tend to overlook the right to access basic financial services when presenting the case for the fundamental rights of a citizen. The primitive techniques used by the financially excluded to manage their finances become a hurdle for them not only to grow their wealth but also to manage basic tasks that, to an average urban middle-class person, are menial.

In Pakistan, the road to financial inclusion is a long one and although we have taken huge steps in the past decade, the challenges ahead are massive, to say the least. Digital financial services have been a catalyst in paving the way for the masses to readily adopt financial services in recent times.

However, for many, the term financial inclusion is just having a bank account. Though this is an indispensable part of the narrative, it is not the whole story. What financial inclusion means is having access to basic financial products including loans, savings and money transfer services.

Having a bank account, though an indispensable part of the narrative, is not the whole story — having access to basic products such as loans, savings and money transfer services is essential to increase inclusion

As per the World Bank’s estimate, Pakistan is in the lower echelons when it comes to financial inclusion globally. This is not without a reason. The country has a massive literacy problem that prevents the adoption of financial services. Furthermore, the overall lack of documentation and limited avenues add to the woes of the situation.

In the recent past, increased adoption of digital financial services is an encouraging sign for those pushing for greater financial inclusion in the country. As per the State Bank of Pakistan’s latest report, branchless banking accounts reached 85 million by March 2022, growing at a rate of approximately 22 per cent year on year.

This is an impressive figure given the fact that conventional banks have only 66m accounts registered with more than 16,700 branches operated by 44 organisations.

The reason why digital financial services have been such a popular product is the inherent convenience, both for the customers and operating entities. If the comparison is to be drawn from a customer’s perspective, digital financial services save them the hassle and time to travel to their nearest branch for basic tasks like paying a bill or receiving a remittance.

The inconvenience increases many folds if we consider that a huge chunk of the financially excluded lives in the rural part of the country where branches of conventional banks are limited. None­theless, the branchless banking model has somewhat reduced this inconvenience with more than 586,000 branchless banking agents spread across the country.

The delivery channel also makes sense from the business point of view. As per the Pakistan Microfinance Network, the operational cost forms 22pc of the gross loan portfolio of the sector thus single-handedly driving up the cost of borrowing for the final consumer and acting as a deterrent for the adoption of loan products.

Therefore, the efficacy of digital financial services in controlling cost increases as it doesn’t incur overheads which the brick-and-mortar operations bring with them. It is also interesting that unlike the products of microfinance which are focused on the financially deprived, mobile money offerings are used across the board.

However, the growth of digital finance and the perks of financial inclusion associated with it have a direct correlation to the progress that is made on the digital front. Pakistan still lingers behind many developing countries when it comes to mobile broadband penetration.

The 51pc penetration is still on the lower side. Further, 97pc of broadband users access the service through their mobile phones.

Therefore, to accelerate financial inclusion and for poverty alleviation, universal broadband access is pivotal.

The first step towards this would be an effective loan recovery mechanism or credit scoring model enabling the telecom companies and other third parties, including microcredit providers, in offering smartphones in easy instalments to facilitate the purchase of smartphones among low-income groups. In addition to this, the reduction of taxation on digital services and ancillary equipment like basic smartphones can fuel the uptake of financial services further.

The author is a tech journalist turned policy and strategic communication professional. He tweets at @mkhayyams

Published in Dawn, The Business and Finance Weekly, July 13th, 2022