State of Financial Inclusion of Women in Pakistan © 2018 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff and external authors of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. All queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Photo Credits: World Bank and IFC Photo Libraries FINANCE, COMPETITIVENESS & INNOVATION INSIGHT | FINANCIAL INCLUSION, INFRASTRUCTURE & ACCESS TABLE OF CONTENTS ABBREVIATIONS AND ACRONYMS III ACKNOWLEDGMENTS V EXECUTIVE SUMMARY VII I. THE CASE FOR ADVANCING WOMEN’S FINANCIAL INCLUSION: INTERNATIONAL EXPERIENCES 1 The Case For Women’s Financial Inclusion 1 The Social Case 2 The Economic Case 2 The Commercial Case 3 Global Policy Experiences in Advancing Women’s Financial Inclusion 5 II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 11 Trends In Women’s Financial Inclusion—An Overview 11 Comparing Growth Across Women and Men 13 Geographic Trends 14 Mapping The Supply-Side Landscape 15 SBP-Regulated Financial Institutions 17 SECP-Regulated Financial Institutions 20 Central Directorate of National Savings 23 Usage of Financial Services Among Women 24 Credit 26 Savings 27 Insurance 28 Remittances and Payments 28 Mobile Money 29 Financial Literacy 29 III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 31 Estimating the Potential Demand for Formal Financial Services 31 The Methodology 31 Potential Demand for Credit 33 Potential Demand for Savings 34 Potential Demand for Insurance 36 Potential Demand for Mobile Payments 37 Gap Analysis and Pathways of Growth 38 Projections and Growth Drivers for Credit 38 Projections and Growth Drivers for Savings 41 Projections and Growth Drivers for Insurance 45 Projections and Growth Drivers for Digital Payments 46 IV: THE WAY FORWARD 51 STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN I ANNEX A: DEMOGRAPHIC AND INCOME DATA 55 ANNEX B: DIGITAL FINANCIAL SERVICES AND WOMEN’S FINANCIAL INCLUSION: WHAT CAN GOVERNMENTS DO? 57 ANNEX C: REGRESSION MODELS 59 LIST OF TABLES Table 1: Financial Inclusion Indicators, by Country, South Asia 1 Table 2: Women’s Labor Force Participation Rate, by Country (South Asia), 2017 4 Table 3: Change in Financial Access Among Adult Females (in Percent), 2008 to 2015 12 Table 4: Financial Service Providers in Pakistan—A Summary 16 Table 5: Snapshot of the Non-Bank Financial Sector (June 2016) 21 Table 6: Growth Projections for Credit (Number of Loans) to Women, 2015–2020 (in Millions) 39 Table 7: Growth Projections for Savings: Number of Accounts Held by Women (in Millions), 2015–2020 42 Table 8: Growth Projections for Micro-Insurance Policies Held by Women (in Millions), 2015–2020 45 Table 9: Growth Projections for Mobile Payments by Women (Number of Transactions per Month, in Millions), 2015–20 46 LIST OF FIGURES Figure 1: Financial Inclusion Among Women, by Category, 2008 vs. 2015 12 Figure 2: Growth in the Use of Major Financial Products and Services Among Women, 2008 vs. 2015 14 Figure 3: Change in Financial Access between 2008 and 2015, Women and Men 15 Figure 4: Change Between 2008 and 2015 in the Proportion of Women Using Selected Banking Services, by Province 16 Figure 5: Asset Growth in the Banking Sector, 2010–2015 18 Figure 6a: Growth in Microfinance Bank Borrowers, by Gender, 2008–2015 19 Figure 6b: Growth in Microfinance Bank Portfolio Value, by Gender, 2009–2015 19 Figure 7a: Growth in Borrowers from Non-Bank Microfinance Companies, 2008–2015 23 Figure 7b: Growth in Non-bank Microfinance Company Loan Portfolio Value, 2009–2015 23 Figure 8: Credit Usage Among Women, by Province, 2015 24 Figure 9: Formal Savings by Women, by Province 27 LIST OF BOXES AND SHOWCASES Box 1: What is Women’s Financial Inclusion? 2 Box 2: Women’s Financial Inclusion as a Driver of Global Growth 3 Box 3: MSME Development Fund, Nigeria 6 Box 4: Islamic Banking and Women’s Financial Inclusion 30 Box 5: Step-by-Step Estimation of the Potential Market for Credit Services Among Women 34 Box 6: Step-by-Step Estimation of the Potential Market for Formal Accounts Among Women 35 Box 7: Step-by-Step Estimation of the Potential Market for Micro-Insurance Among Women 36 Box 8: Step-by-Step Estimation of the Potential Market for Mobile Payments Among Women 38 Box 9: Digitizing Value Chains 41 Box 10: Islamic Finance Products for Women - Examples from Other Countries 44 Showcase 1: Leadership 9 Showcase 2: Innovation 25 Showcase 3: Strategies 48 TABLE OF CONTENTS II FINANCE, COMPETITIVENESS FINANCE, COMPETITIVENESS INSIGHT & INNOVATION & INNOVATION | FINANCIAL INSIGHT | LONG-TERM INCLUSION, FINANCE & ACCESS INFRASTRUCTURE ABBREVIATIONS AND ACRONYMS A2FS Access to Finance Survey BISP Benazir Income Support Programme CGAP Consultative Group to Assist the Poor CIB Credit Information Bureau DFI development finance institution DfID UK Department for International Development G2P government-to-person GBA Global Banking Alliance IFC International Finance Corporation KPK Khyber Pakhtunkhwa MFB microfinance bank MFI microfinance institution MSMEs micro, small, and medium enterprises NBMFI non-bank microfinance institution NFIS National Financial Inclusion Strategy OTC over-the-counter PMN Pakistan Microfinance Network SBP State Bank of Pakistan SECP Securities and Exchange Commission of Pakistan SMEs small and medium enterprises Exchange rate: PKR 104.8/ USD 1.0 (14-02-2016, SBPwebsite) STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN III ACRONYMS AND ABBREVIATIONS IV FINANCE, COMPETITIVENESS & INNOVATION INSIGHT | FINANCIAL INCLUSION, INFRASTRUCTURE & ACCESS ACKNOWLEDGMENTS T his report was authored by the Pakistan Microfinance Network under the guidance of the Finance Competitiveness and Innovation Global Practice of the World Bank. Makanda Kioko provided overall and technical leadership during the preparation of the report. The analysis in the report draws on data from Pakistan’s Access to Finance Survey 2015 conducted by Gallup Pakistan. The report also benefitted from technical guidance preparation of the report. The team would like provided by Sarmad Ahmed Shaikh, Mihasonirina to particularly thank Faiqa Naseem, the gender Andrianaivo, Uzma Quresh, Stephen Francis finance focal point in the National Financial Pirozzi, Margaret J. Miller, Ananya Wahid Kader, Inclusion Strategy Secretariat at the State Bank Faeyza Khan and Sheirin Iravantchi. Holly of Pakistan. The team would also like to thank Honglin Li provided operational support during the financial institutions and other stakeholders active finalization of the report, which further benefited in the financial inclusion landscape in Pakistan. from the work of Marc DeFrancis for editing and This report is made possible by the generous Aichin Lim Jones and Amy Quach for overall support from the Ministry of Foreign Affairs of design and production services. the Kingdom of the Netherlands and the Bill and The team would like to thank the State Bank of Melinda Gates Foundation. The support is provided Pakistan for extensive discussions, interactions, through the Financial Inclusion Support Framework suggestions and insights provided during the (FISF) Country Support Program for Pakistan. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN V ACRONYMS AND ABBREVIATIONS VI EXECUTIVE SUMMARY E conomic policymakers in developing countries across the world are focusing on expanding financial inclusion. This agenda assumes greater significance for countries like Pakistan, where financial inclusion levels are quite low. It has led to several policy interventions in Pakistan over the past decade and a half, including the promotion of microfinance, the promotion of small and medium enterprise (SME) finance, and the enabling of digital finance. These interventions have begun to show results: over the period from 2008 to 2015, the proportion of the adult population served by the formal financial sector rose from 12 percent to 23 percent, according to data from two rounds of the Access to Finance Surveys (A2FS) for Pakistan (2008 and 2015). To provide further impetus, the Government • To catalyze interest within the financial sector of Pakistan has launched its National Financial in Pakistan with regard to women’s financial Inclusion Strategy (NFIS) in 2015, which lays out inclusion by providing insights into both the state ambitious interim targets in pursuit of the goal of their financial inclusion and their financial of universal financial access. The NFIS headline behavior; and target is to provide access to formal accounts to 50 percent of adult population by 2020. The strategy • To provide a starting point for debates on strategy recognizes that achieving this target cannot be and policy development with regard to women’s achieved without advancing the financial inclusion financial inclusion to achieve the NFIS targets. of women and sets the goal of reaching 25 percent The business case for women’s financial inclusion of adult females with formal accounts by 2020, up can be constructed across three dimensions: social, from the 11.0 percent in 2015.1 economic, and commercial. In terms of the social This background paper has been developed to impact, access to finance has been linked to the inform the discussions on advancing women’s empowerment of women by creating economic financial inclusion in Pakistan. It seeks to map the opportunities for them, providing them with secure current state of financial access for women and and private means of saving, and enabling them to provide insights into their financial behavior to mitigate life-cycle risks. This empowerment, gleaned from the recently completed A2FS of 2015. in turn, creates further social impact by enhancing Using available data, the paper also estimates the the welfare of their families, since women tend to potential size of the financial services market for spend disproportionately more on the education and women (credit, deposits, insurance, and payments) health of their children. The economic rationale of and identifies growth drivers that could catalyze investing in women’s financial inclusion rests on the the market. More specifically, the report has untapped potential contribution women can make three objectives: to a country’s economy. For example, expanding credit to women-owned businesses can help such • To create a convincing business case for businesses grow and create jobs, and bringing the enhancing women’s financial inclusion by informally held savings of women into the formal drawing on international literature; net can strengthen financial intermediation in the 1 Access to Finance Survey 2015, conducted by Horus Development Finance and Gallup Pakistan for the State Bank of Pakistan. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN VII economy. Finally, there is a commercial case for an uptake of mobile money services, digitization of financial institutions to target women as clients: government payments under the Benazir Income women are more loyal customers (than men), they Support Programme (BISP), and other social are currently one of the fastest growing consumer transfer programs, as well as by an increase in the segments in the global economy, and they have number of women with bank accounts. added to the bottom line of those financial service However, there are regional variations. The highest providers that have focused on them as a key growth in the ratio of women with a bank account client base. In Pakistan’s context, women remain was seen in Baluchistan, driven by the digitizing of disproportionately engaged in unpaid care work government transfers, whereas most of the growth and their access to financial decision making at in women’s access to other formal services was home and outside as well as their mobility remain concentrated in Punjab and Sindh. Also, increases severely limited. There is a need to change this way in the inclusion of women were higher among of thinking. Addressing this will require supporting those living in rural areas than among those living extensive campaigns by various stakeholders in urban areas. Interestingly, the rate of expansion (including FSPs) addressing both men’s and of women’s financial inclusion outpaced the rate of women’s perceptions on women’s access to finance expansion of access for men during the 2008–15 and decision making. period. While further research would be required While there is clearly no easy or quick universal to identify specific drivers of this difference, A2FS solution for advancing women’s financial access, 2015 data suggests that the launch of BISP, which experiments by policymakers around the world primarily targets poor women as beneficiaries, provide useful lessons, such as the following: could partly explain the faster expansion in financial inclusion among women than among men over this • Setting quantitative targets supported by adequate period. Additionally, higher rates of initial adoption reporting and monitoring frameworks helps of mobile money services by women than by men create common and tangible goals for sector also led to a faster rate of expansion of women’s stakeholders. financial inclusion. • Gender-disaggregated data help dispel myths The sector-wise analysis of this expansion shows about women as less than viable customers and that two types of financial service providers— allow regulators as well as financial institutions commercial banks and microfinance providers— to adapt their strategies to the needs of the market. have primarily been driving this growth. Pakistan’s • Strengthening the financial industry’s financial sector is diverse in terms of types of infrastructure—especially broadening the financial institutions, but the banking sector has information base of credit bureaus, investing historically accounted for the bulk of the assets as in financial education, and strengthening client well as the number of people reached by formal protection frameworks—can contribute to financial services. The microfinance sector, in the creating an enabling environment for women’s last decade, has also contributed to bringing people financial inclusion. into the formal financial sector. Nearly 4.1 million people have been reached through credit services, Efforts by policymakers and financial service of which 54 percent are women, while 15.7 providers in Pakistan have helped advance women’s million people are being provided with savings access to formal financial services. The results services, of which 26 percent are women (Pakistan are evident, as the proportion of formally served Microfinance Network 2016). A significant impact women jumped from four percent in 2008 to 11 has also been created through enabling digital percent in 2015, based on A2FS Pakistan data (2008 financial services in the country, offered currently and 2015). These gains have been largely driven by by both commercial and microfinance banks. EXECUTIVE SUMMARY VIII The smaller subsectors of the financial industry, followed by shopkeeper’s credit. Only two such as leasing and modarabas, asset management percent of women borrow from formal sources. companies, and investment banks, have had limited impact in terms of expanding outreach. This is not • In terms of reasons for borrowing, the most surprising given that the products offered by these frequently cited purpose was to “buy food,” institutions tend to be more complex and, hence, followed by “for life cycle events” and “for unlikely to be the point of entry for new users dowry or weddings.” of formal finance. It is thus anticipated that any • The average loan size in 2014–15 stood at PKR major contribution to expanding access to formal 45,000. financial services in the near to medium term will continue to depend on the strategies of the banking • The main reason cited by women for not and microfinance sectors,2 including their ability to borrowing from the formal sector relates to leverage technology. lack of information, that is, not having enough information about the products and the conditions Although recent trends are encouraging, advancing of the loans offered by formal institutions. the trajectory will require a strategic focus on women as a viable customer base, an approach that currently seems to be missing in most financial institutions. Savings and Borrowing Characteristics of With the exception of a couple of commercial Women in Pakistan banks, most banks have relied on a feminization of existing products to attract women instead of developing demand-based products. Regarding the microfinance sector, women in this sector have consistently accounted for more than half of the borrowers and currently account for 26 percent of the savers, yet the sector is undergoing some shifts that could change these ratios downwards. For example, as microfinance banks move upmarket into lending to micro, small, and medium enterprises (MSMEs), their outreach to women may fall. In addition to the banking and microfinance sector, there is potential for expanding access through the government-backed Central Directorate of Savings, which appears to enjoy high levels of trust within the female population in the country. The A2FS 2015 provides insights into the financial behavior of women that can be used to develop strategies and products aimed at them. Following are some of the key take-aways emerging from the data. • On average, 18 percent of women borrow each year in Pakistan. • Borrowing from family and friends remains the most frequent method of obtaining credit, 2 In this paper, the term microfinance sector encompasses both microfinance banks and non-bank microfinance institutions. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN IX • Most women save in Pakistan: 63 percent accounts say this is because they do not know reported that they saved in the past year and the enough about m-wallets or find the process too average amount saved stood at PKR 25,000 per cumbersome. annum. The use of committee savings remains popular, with 29 percent women saving through Given the low levels of women’s financial inclusion this mode. in Pakistan compared to the country’s regional peers, it can be easily assumed that the market is • In terms of formal savings products, just 11 underserved and there is significant potential to percent of women save in bank accounts expand. However, to provide some measures of (including m-wallets). Most save for “meeting how large the gap is, in this paper we construct unexpected future expenses.” The reasons cited mid-term demand estimates for potential women by women for not saving in formal institutions users of formal credit, savings, insurance, and include (i) because doing so has no benefits, (ii) mobile payments. These estimates, shown in the because they lack information about products table below, capture the current non-users who are and institutions, and (iii) due to lack of trust in most likely to start using formal financial services financial institutions. given the similarity between their profile and that of current users. Further demand may be catalyzed • Uptake of insurance remains low among by exogenous factors such as economic growth, Pakistanis in general, including women, with less changes in Pakistan’s economy, and population than one percent of women reporting the use of growth. For example, the adult female population any insurance product. is expected to expand by five million women over • The biggest change in financial behavior over the the next five years. past few years seems to come from the uptake It must be mentioned here that these estimates are of mobile money services by women (and men) highly constrained by the unavailability of gender- in Pakistan. Five percent of women reported disaggregated supply-side data in the financial using some sort of digital financial service. Most sector, except in the case of microfinance. In the women who open a mobile account do so to send absence of such information, we have had to use or receive money to/from family and friends, or proxy indicators and combine different datasets,3 to pay utility bills. Those who do not open such which can be problematic for the accuracy and Sizing the Market: Potential Demand for Formal Financial Services Among Women in Pakistan Current Outreach Potential Market (in millions) (in millions) Number of Loans 2.26 9.9 Number of Accounts 15.6 90.3 Number of Micro-Insurance Policy Holders 2.1 8.4 Number of Mobile Payment Transactions (monthly) 6.7 16.0 Source: World Bank (authors’ estimates, detailed in Section 3 of this paper). 3 The demand-side information is from the A2FS 2015, and the supply-side information is from the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP). EXECUTIVE SUMMARY X robustness of estimates. Hence, these numbers are marketing campaign would be needed to ensure only indicative and are meant to illustrate the high that information about the scheme reaches women levels of untapped potential. Although the results (and men) who are currently outside the formal presented here need to be interpreted with all their financial sector. Deepening of financial inclusion caveats, the exercise itself highlights the urgent through the use of more complex products could need to collect gender disaggregated data if sector be enabled by strengthening the retail offerings stakeholders are to develop evidence based policies of asset management companies. Partnerships and products for advancing women’s financial between diverse types of financial institutions inclusion. (such as non-bank microfinance institutions, microfinance banks or commercial banks, and While reaching universal financial access for insurance companies) could facilitate outreach women is a long-term goal, the NFIS provides a in rural areas. Islamic savings products that medium-term goal post for the sector, namely 25 target women could have tremendous potential percent of women having formal accounts by 2020. in the longer term. Also, to continue pushing Trends in supply and demand suggest potential the inclusion frontier outwards, the sector will drivers that could enable progress toward reaching need to invest in innovation and in shifting the this target. The following key drivers across the perceptions about formal institutions among different financial services are expected: women to gain their trust. • Credit: The currently prevailing low interest rate regime is expected to create pressures • Insurance: While there is some low-hanging on commercial banks to look for new market fruit that can be captured to drive insurance segments, and women could be one viable such uptake upwards soon, any long-term shifts in the segment. Taking advantage of technological growth trajectory of the industry would require developments in credit scoring and digital credit significant investment in innovating products and and broadening the scope of credit information processes and in shifting public perceptions about bureaus could facilitate women’s access to formal the insurance industry. Soon, partnerships across loans. In addition, given that one key bottleneck sectors (both financial and nonfinancial) that enjoy for women seeking to access credit from large footprints (digital and otherwise) could formal institutions is the lack of understanding present an opportunity. Appropriately structured of products, more effective and customized disaster-risk insurance also has potential to attract marketing could be an important enabler, along women, given the recent experiences with natural with raising levels of financial literacy. Longer- disasters in Pakistan. Data show that women term drivers will include the development of affected by a calamity in the near past are the Islamic finance products for women, growth in most likely to buy insurance. There is a need to women-led businesses and SMEs, and a robust raise awareness around mechanisms of recourse client protection framework. and client protections for users of insurance to create confidence in these services. Additionally, • Savings: Digital financial services will continue industry players may consider improving the to be an important driver for the inclusion of gender balance within their organizations. women in the formal financial sector. There is potential to leverage these platforms to capture • Mobile payments: The fast uptake of mobile the growing women-held savings in rural areas payments in recent years demonstrates the as well as converting the funds currently held potential that demand-driven products have for in prize bonds. In addition, SBP’s efforts to advancing financial inclusion. Drivers of future introduce deposit insurance will help create growth could also include further digitization confidence among women with regard to the of government-to-person (G2P) payments, formal institutions. However, an effective strengthening the e-commerce industry, and STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN XI increasing the network of point-of-service of excellent-quality female agents, and the terminals. Other factors that will affect this development of products that meet the specific subsector include growth in mobile ownership needs of women by focusing on the following: among women, the development of a network convenience, security, reliability, and privacy. EXECUTIVE SUMMARY XII I. THE CASE FOR ADVANCING WOMEN’S FINANCIAL INCLUSION: INTERNATIONAL EXPERIENCES “Women often bear the brunt of poverty and limited access to economic opportunity, including unfavorable financial access…. Inequality is not just a moral issue—it is a macroeconomic issue…. Growth has to be more inclusive, and for this, finance has to be more inclusive…to close the gender and inequality gap.” Christine Lagarde, Managing Director, International Monetary Fund* The gender gap in access to financial services is benefits it brings to women’s communities and significant globally, but it is even more so in the national economies as well as the bottom line of developing world. And this gap persists across all financial institutions. As we think about developing types of financial services. For example, there is a strategies for expanding access to finance for nine-percentage-point gap in account ownership in women in Pakistan, it is useful to remind ourselves developing countries, and the largest gap is in South why this is an agenda of critical importance. In this Asia (18 percent). Within South Asia, according to section we discuss why ensuring women’s financial the Global FINDEX of the World Bank, Pakistan inclusion is the smart thing to do and share examples fares poorly in overall financial inclusion as well of public policy from other countries that have had as the financial inclusion of women, with only 11.0 a positive impact on women’s financial inclusion. percent of the adult female population having an account (by themselves or together with someone The Case for Women’s Financial else) at a bank or another type of financial institution Inclusion (Table 1). Pakistan’s financial landscape is diverse in terms Why should policymakers and financial service of the size and type of service providers. It has providers worry about not only closing this gender recently become more so with the roll-out of digital gap but also raising the overall level of the financial financial services and growth in Islamic finance. inclusion of women? The case for women’s Institutions are motivated by different bottom financial inclusion is built not just on social justice lines, which imply that the case for women’s arguments but also on the economic and commercial financial inclusion needs to address different Table 1: Financial Inclusion Indicators, by Country, South Asia Accounts, Female (%) Accounts, Male (%) Gender Gap (%) Bangladesh 26.5 35.4 8.9 India 43.1 62.8 19.7 Pakistan 11.0 21.0 10.0 Sri Lanka 83.1 82.2 -0.9 Source: For Pakistan: State Bank of Pakistan, Access to Finance Survey 2015; for other countries: Global FINDEX, the World Bank. * Statement at the International Forum for Financial Inclusion, Mexico City, June 26, 2014. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 1 Box 1: What is Women’s Financial the economic empowerment of women leads to Inclusion? positive social spillovers for their households and communities. Women favor investments in their As with the case of financial inclusion in general, families’ welfare, and increases in their income there is no universally accepted definition or create far greater social returns as compared to indicator for levels of women’s financial inclusion. increases in men’s income (World Bank 2012). However, we can agree that women’s financial For example, research in Bangladesh and South inclusion occurs when women have “effective Africa has shown that an increase in women’s access to a range of financial products and services assets increases the share of household expenditure that cater to their multiple business and household on education (Maluccio and Quisumbing 2003). needs and that are responsive to the socioeconomic In Ghana, the share of assets and the share of land and cultural factors that cause financial exclusion in owned by women were found to be positively women and men to have different characteristics.” associated with higher food expenditures among Source: DfID, 2013, p. 7. rural households. Women also benefit personally through boosts in their self-esteem, lower rates of institutional goals. While theoretically it has been domestic abuse, and delayed early marriages and long argued that there is a positive link between pregnancies (World Bank 2012, 2013). Additionally, financial inclusion and development, the empirical financial inclusion can reduce the vulnerability of evidence for this is also now mounting. Inclusive women by enabling consumption smoothening or and efficient financial markets improve the lives of by providing insurance against life-cycle risks. For citizens, reduce transaction costs, spur economic example, Dupas and Robinson (2013) found that activity, and improve delivery of other social women with access to savings accounts invested 45 benefits and innovative private-sector solutions. In percent more in their businesses and were less likely the following, we consider evidence from around to sell their business assets in case of emergencies. the world to demonstrate the different routes The recent mobile banking revolution is seen as an through which the financial inclusion of women important driver of women’s financial inclusion. exerts a positive influence within their households Studies in Africa show that mobile phone banking and communities as well as across the economy. improves personal security, and in South Africa it is one of the main reasons behind the popularity The Social Case of basic bank accounts among women (Bankable Frontier Associates 2009). Women are equal members of society and deserve equal access to economic opportunities as men, hence there is a strong moral argument for closing The Economic Case the gender gap in access to finance. However, the Access to financial services can open up economic case becomes even stronger when we consider opportunities for women. Credit can enable them to the social returns this generates for the women start and grow their businesses, while having bank themselves, their families, and their communities. accounts can open pathways to additional financial There are several pathways through which financial services by establishing relationships with financial inclusion empowers women. For one, it increases service providers. These services can not only the economic empowerment of women by creating allow them to save securely and independently, but opportunities to earn a living and improve the also help them insure against risks and borrow for living standards of their families. This independent investment or consumption smoothening. These source of income also increases their bargaining gains at the personal level also create benefits for power within the household (DfID and GIZ 2013). the overall economy through the creation of new Additionally, there is growing evidence that businesses, growth of existing enterprises, cash I. THE CASE FOR ADVANCING WOMEN’S FINANCIAL INCLUSION: INTERNATIONAL EXPERIENCES 2 Box 2: Women’s Financial access to a savings account (Dupas and Robinson Inclusion as a Driver of Global 2013). According to an FAO estimate, if women had the same access to financial and other productive Growth resources as men have, they could increase yields on their farms by 20 to 30 percent (FAO 2011); According to research by McKinsey & Co. and this could raise total agricultural production Goldman Sachs, lack of financial inclusion of women in developing countries by 2.5 to 4.0 percent, is one of ten “impact zones” currently holding back which in turn could reduce the number of hungry the developing world from achieving gender parity people in the world by 12 to 17 percent. These at work. Moreover, closing the gender gap in credit are significant gains from which the economy can access could improve developing world growth benefit if investments are made towards advancing rates by 1.1 percent. the financial inclusion of women. Source: WWB, 2016. The Commercial Case flow and consumption smoothening, employment generation, and an overall positive impact on In many developing countries, private financial personal and household incomes. institutions account for most of the financial sector’s assets. They are therefore the main vehicles for Women entrepreneurs in developing economies achieving the goals of financial inclusion; without make significant contributions to growth and to their buy-in, universal financial access for women poverty reduction. But disparities in access to will remain a pipe dream. Financial institutions inputs (financial and nonfinancial) causes women’s need to recognize the business case in addition to businesses to be under-resourced, undercapitalized, the social and economic case if they are to commit and caught in cycles of low productivity. The IFC to this agenda, but the case is a strong one and it is (2011) estimates that there are roughly 8 to 10 growing stronger with time as women previously million SMEs with full or partial female ownership outside the labor force are becoming economically in developing countries, of which about 57 to 71 active. Nearly 900 million women are expected to percent are unserved or underserved by financial enter the mainstream global economy or start their institutions. These firms can be an important driver business during this decade, most of them coming for job creation and economic growth. A 2014 from developing countries (Global Banking study by Goldman Sachs found that a credit gap of Alliance 2014). approximately US$285 billion exists for women- owned SMEs in the formal sector in developing According to a Boston Consulting Group study, countries. If this gap were to be closed by 2020 in women control more than US$20 trillion in consumer just 15 countries, including the BRIC countries, per spending globally, and women are increasingly capita incomes could rise by 12 percent, on average, becoming a major force as entrepreneurs running by 2030 (Goldman Sachs 2014). small and medium enterprises (Boston Consulting Group 2009). As mentioned above, there is an unmet In addition to credit, access to appropriate savings global credit demand of nearly US$300 billion services also improves the ability of women every year among women-owned businesses. In entrepreneurs to manage their businesses and addition, women are more prudent borrowers increase productivity. A randomized evaluation in than men. Their risk averseness makes them less rural western Kenya found that access to a new likely than men to borrow if they cannot repay. commitment savings service enabled female market The Global Banking Alliance has estimated that, in vendors to increase investments in their businesses 2013, the number of nonperforming small business by 38 to 56 percent over female vendors without loans within its members’ portfolios was 54 percent 4 http://www.gbaforwomen.org/ Accessed on December 11, 2016. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 3 higher for men than for women.4 The experience • Fundación Delamujer, a Colombian microfinance of microfinance also shows that women are better institution (MFI), found that 75 percent of the at repaying loans than men and are also better at clients who had been with the firm for more than saving; for example, women are 16 percent more four years were women. likely than men to save for future expenses and tend to be more loyal customers. Women not only stay • Women customers of Westpac (the only Australian with an institution longer, they are also more likely bank with a dedicated unit serving women) held a to recommend it to others.5 greater number of products than men in 2013 and accounted for top-line revenue of US$1.5 billion. Case studies and performance analysis of financial institutions’ data shows that serving The untapped potential of the women’s market for women contributes to the profitability of financial financial services offers a tremendous opportunity institutions. The following are some examples to financial institutions in terms of growth (Global Banking Alliance 2014; Quinlan and and profitability. However, effectively serving Vanderbrug 2017): this segment requires that banks and financial institutions understand that women have different • Women-owned businesses served by BHD attitudes toward finance than men have. They also León (the second largest private bank in the lead economic lives that are different. Merely Dominican Republic) have a lower proportion of “feminizing” a product does not make it relevant to nonperforming loans than businesses owned by the needs of women customers. men, across all segments. In Pakistan, while women’s participation in the labor • Data from BLC Bank (one of the oldest banks in force has doubled over the last 30 years it remains Lebanon) show that the average profit margin for on the lower side as compared to its regional peers SME loans to women is 15 percent higher than (see Table 2). This can be attributed to the social for SME loans to men. and cultural norms of the country. • BLC Bank’s program was profitable within 18 While financial institutions clearly must have months, and Banca Mujer—a program focused a pivotal role in any strategy for the financial on women-owned SMEs at Banco Nacional de inclusion of women, the experience of countries Costa Rica, the largest bank in Central America— that have made strides in the right direction shows became profitable in its first year after a 60 percent that government action is also a critical factor in growth in the number of women SME customers. the change. Hence, we now turn to look at policy Table 2: Women’s Labor Force Participation Rate, by Country (South Asia), 2017 Sr. No. Country Participation % 1 Pakistan 25 2 India 27 3 Bangladesh 33 4 Sri Lanka 35 5 Nepal 82 Source: World Bank. 5 http://www.gbaforwomen.org/ Accessed on December 11, 2016. I. THE CASE FOR ADVANCING WOMEN’S FINANCIAL INCLUSION: INTERNATIONAL EXPERIENCES 4 interventions globally that have aimed at catalyzing The Alliance for Financial Inclusion (2016) women’s financial inclusion. recommends the following seven measures to policymakers as they develop their strategies for Global Policy Experiences In increasing women’s financial inclusion: Advancing Women’s Financial 1. Greater focus on the value proposition of women’s Inclusion financial inclusion with explicit policy objectives and quantitative targets can lead to policies that “The differences in economic lives of men and are transparently women-inclusive: For example, women mean that unless a financial inclusion setting quantitative targets related to women in program or policy is designed to specifically include national financial inclusion strategies and linking women, it may exclude them, or at least impact upon them to implementation plans. The National them differently to men.” DfID (2013), p. 7. Financial Inclusion Strategy (NFIS), adopted in Regulators and policymakers set the rules for their 2015 by the Government of Pakistan, explicitly countries’ financial systems, and in doing so they states that 25 percent of adult women shall be have a key role to play in creating an enabling provided access to finance. environment for the financial inclusion of women. Country example: In Nigeria, an MSME A key challenge for policymakers, especially development fund was created under its own regulators of financial systems, is how to create National Financial Inclusion Strategy, with regulatory frameworks that do not stifle innovation 60 percent of funding earmarked for women but also do not compromise the health of the financial (see Box 3 for more information about the fund). system. This requires “prudential regulation with openness to innovation and new products 2. Gender-disaggregated data collection and and delivery channels based on an objective and research make it possible to fine-tune policies: thorough assessment of risks and benefits” (DfID Gender-disaggregated data on portfolio and GIZ 2013, p. 11). While it is true that policy performance, for example, helps financial needs to be formulated within particular country institutions dispel myths about the viability contexts, and also true that women’s inclusion must of women as customers and enables them to take into account the particular ecosystem within reach their target markets and offer appropriate which women live, lessons from global experiences products. It also helps policymakers adjust their can be useful for policymakers as they develop frameworks to expand the outreach of quality, customized approaches to advancing women’s relevant financial services. At the moment, financial inclusion.6 gender-segregated data in Pakistan remains a The absence of a movable collateral registry, challenge for both regulators and FSPs, with the gender gaps in inheritance laws impacting women exception of the microfinance industry. negatively in different provinces, and lack of access Country examples: Papua New Guinea and to speedy justice in property and land cases further Rwanda refer explicitly to gender-specific impede women’s access to finance. Punjab is the tracking in their financial inclusion strategies. only province that has amended and introduced The Central Bank of Nigeria collects data new laws to improve women’s access to inherited disaggregated by gender from financial industry urban property and agricultural land. players using a template it developed. 6 As a special case, recommendations for regulators interested in leveraging digital financial services to advance women’s financial inclusion are included here in Annex B; the recommendations are sourced from the World Bank (2015). STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 5 3. Reforms in legal and regulatory frameworks opportunities to create more enabling policies for can create space for innovation that supports women. Likewise, it is felt that digital finance greater women’s financial inclusion: Existing provides an opportunity to expand access to legal, regulatory, and supervisory frameworks finance among women in the country, keeping in may be discriminatory, especially stringent view distinct cultural norms. know-your-customer requirements and anti- money-laundering and anti-terrorism-financing Country examples: Indonesia has enabled frameworks. In addition, unwritten norms in women’s access through the establishment of financial institutions may also discriminate basic accounts and through the promotion of and act as a barrier for women, such as asking savings for migrant workers. Malaysia has done a woman to demonstrate that she has a male so by developing an agent banking framework, relative’s permission to take a loan or open an electronic payments, and innovative delivery account. Digital finance has especially provided channels. Tanzania has done so through a risk- Box 3: MSME Development Fund, Nigeria The Central Bank of Nigeria launched the MSME Development Fund in August 15, 2013, with a share capital of NGN 220 billion (approximately US$1.3 billion at the 2013 exchange rate). This fund was established to channel funds to MSMEs at low interest rates through several participating financial institutions. Ten percent of the MSME Development Fund is earmarked for developmental objectives such as grants, capacity building, and administrative costs, while the remaining 90 percent is renewable capital that will be released to participating institutions at 2 percent for on-lending to MSMEs at a maximum interest rate of 9 percent per annum. For micro businesses, the loan repayment period is a maximum of one year, whereas for small and medium enterprises the tenure is a maximum of three years. Eligible business activities that qualify for financing are agricultural value chain, services, cottage industries, artisans, trade and commerce, and any income-generating business as may be prescribed by the Central Bank of Nigeria. The MSME Development Fund operates as follows: 1. Prospective borrowers provide the requisite documents, including collateral, for SME loans. 2. Participating financial institutions appraise the loan applications; loan requests that are approved are then forwarded to the central bank for the release of funds. 3. The MSME Development Fund releases funds to borrowers through the participating institutions. 4. The accounts of benefitting borrowers are credited by the participating institutions within 5 working days upon the release of funds by the MSME Development Fund to the participating institutions. 5. Loans are granted at an interest rate of 9 percent per annum (all charges inclusive) irrespective of the type of eligible activity financed. 6. Borrowers are expected to pay back all loans as and when due, inclusive of any accrued interest to the participating institutions. 7. The MSME Development Fund at the Central Bank of Nigeria recycles all fully repaid loans transferred to it by the participating institutions. Source: Central Bank of Nigeria; https://www.cbn.gov.ng/MSME/ I. THE CASE FOR ADVANCING WOMEN’S FINANCIAL INCLUSION: INTERNATIONAL EXPERIENCES 6 based, tiered know-your-customer process, products and the rules governing them. A terrible by establishing a national ID database, and experience or mistrust of financial institutions by enhancing protections for small and can discourage women from accessing formal unsophisticated borrowers. financial systems. To protect new users of formal finance and increase their access to financial 4. The development of financial infrastructure is products and services, strengthening financial critically vital to implementing sound policy: consumer protection involves developing Expanding the coverage of credit bureaus, concrete requirements for the disclosure of key establishing collateral registries, and expanding information clearly, fairly, and on a timely basis; payments systems for innovative G2P programs implementing clear procedures for receiving all can help meet the overall challenge of and handling complaints; and ensuring the financial inclusion and especially enable confidentiality, accuracy, and timeliness of women’s access to finance. For example, to information sent to credit bureaus. Also important overcome the collateral constraints that women is to raise awareness about the consumer face, two approaches can help build the case protection measures in place to create confidence for permitting alternative forms of collateral: in the financial system. GRM is now in place with expanding the coverage of credit information both regulators (SBP and SECP), with the aim bureaus to include several types of lenders (such of promoting responsible finance and protecting as utility companies, telephone providers, and consumers from exploitation in the country. retailers); and tracking performance history on post-paid services. Requiring credit information Country example: In 2010, Senegal introduced bureaus and collateral registries to maintain and its Observatoire de la Qualité des Services track gender-disaggregated data on lending and Financiers to oversee, from the financial performance can also enable women’s access to consumer protection perspective, the products credit. With the adoption in 2015 of the country’s and services of banks, insurance companies, CIB Act, more private-sector players are likely to the postal system, and decentralized financial enter into the arena. Plans are afoot to establish systems, including the establishment of a recourse a collateral registry, and the development of mechanism. The challenge in its application payment systems is a key goal set out by the is that the Observatoire is still little known by central bank. With all of this development in the poor clients, suggesting that an information financial infrastructure of the country, we are campaign is an important aspect of putting into likely to witness more expansion in this sector. place financial consumer protection mechanisms (GIZ 2013). Country example: The Kenya Credit Reference Bureau covers banks, savings and credit 6. Financial education and financial literacy cooperatives, utility companies, and microfinance programs for women are critical investments for institutions, which broadens its coverage to promoting women’s financial inclusion: Many include institutions with relatively more women country-level financial inclusion strategies have borrowers. incorporated measures to increase financial literacy and financial capabilities. Best practice 5. Refined and strengthened financial consumer suggests the use of multiple communication protection regulation can address the concerns channels targeting different segments of the and issues of women clients, balancing protection population, including women, using clear and with expansion of outreach: Unbanked women compelling messages. To increase effectiveness, or those who are inexperienced users of formal the process of designing the media campaigns financial services can be at risk of unfair treatment should include both financial experts and given their lack of understanding about financial gender experts. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 7 Country example: Turkey has designed a Country example: In Zambia, ownership of the comprehensive financial literacy program, which agenda on women’s access to finance resides at the makes families and women a focus, albeit within highest level among central bank officials, such as the context of the household. the governor and deputy governor of the Bank of Zambia. This has led to a greater push for better 7. While beyond the scope of financial sector policy, gender-disaggregated data collection and to audits legislation and regulations addressing social of gender differentiation in products and services norms that constrain women’s financial inclusion by the financial institutions themselves (GIZ 2013). can have important repercussions for financial inclusion. Entrenched patriarchal interests and There is clearly no easy, universal, and quick social structures can be important bottlenecks to solution for advancing women’s financial inclusion. women’s participation in the financial system. Dealing with deep-rooted social biases and legal Policy that takes into account these difficulties and and institutional constraints that prevent the full finds innovative ways to counter them can even participation of women in the formal financial create social change. For example, promoting system requires concerted efforts by market players branchless banking that counters the mobility as well as policymakers. However, it is also clear challenges women face in many developing that there is a tremendous opportunity for both countries can be a first step toward broader use of the private sector and the government to seriously financial services. address this agenda. Policymakers need to identify and enable ‘gateways’ that allow women’s entry into A prerequisite to adopting these measures is raising the formal financial system given their country’s awareness among regulators and policymakers stage of financial development, the demand-supply about the financial needs of women in different barriers faced by women, and economic priorities. market segments. Applying country-specific diagnostics, bringing women’s associations and Several organizations in Pakistan have challenged women leaders into the policy dialogue, and these barriers and emerged as leaders in serving identifying documentation and research on specific women within their particular market niches. policy changes and their impact on women’s Three such cases are presented in the sidebar titled, financial inclusion (what works but also what does Showcase 1: Leadership. not) are all approaches that can help raise the profile of the issue and create policy champions within the industry. I. THE CASE FOR ADVANCING WOMEN’S FINANCIAL INCLUSION: INTERNATIONAL EXPERIENCES 8 SHOWCASE 1: LEADERSHIP Despite the significant challenges and barriers to advancing women’s financial inclusion in Pakistan, several institutions have demonstrated the possibility of achieving this goal. Three organizations that have played a leadership role in making an impact on Pakistan’s access-to-finance landscape while serving women are showcased here. First Women Bank Ltd.: The Bank for Women First Women Bank Ltd. was created through an affirmative action taken by Pakistan’s parliament in 1989 with a mandate to provide access to quality financial services for women in Pakistan. The bank has been pursuing its vision of providing access to the largely untapped female population segment by designing customized products and a commercially sustainable strategy. Its Business Loan for Women focuses on the “S” of the SME category by extending loans of up to PKR 2.0 million to businesswomen for the establishment of new businesses as well as the expansion of existing businesses. In addition to the loan facility, the bank’s Financial Services Division also assists loan applicants with taxation, marketing, and legal issues. Several well known women-owned brands and businesses across a variety of sectors in Pakistan have benefitted from this product. As of the end of 2017, the GLP stood at PKR 10 billion. Recognizing the challenges women face in meeting stringent know-your-customer and documentation requirements for opening bank accounts, the State Bank of Pakistan has introduced Asaan Accounts (“Asaan” means “easy” in Urdu). These accounts can be opened with a simple identity check and entail reduced administrative requirements on the part of the bank staff. The bank has also successfully partnered with the government on this initiative, whose product has allowed it to reach out to low-income customer segments such as daily wage earners and unskilled workers, as well as to housewives, pensioners, and young adults. Kashf Foundation: Going Where No One Has Gone Before Established in 1996, Kashf Foundation was the first microfinance provider in Pakistan to solely focus on women. Today it is the largest provider of microfinance for women in the country, serving 215,000 clients in 41 districts across Pakistan. Kashf’s model is designed to engage with its clients not just at the individual level but also with the community and society. The foundation’s management regards this broader engagement as key to understanding women’s needs and creating an impact in their lives. While Kashf’s business model has been adapted over time in response to changes in market conditions and internal learning, the focus on women has remained central. The commitment of top management and board members has been critical in ensuring that this focus is maintained. The tone at the top is put into action within the organization through a proactive approach that, at a minimum, involves the following principles: • Working with women requires you to be ‘out there’: Kashf strives to maintain close contact with its customers by regularly soliciting client feedback, undertaking client-centric research for the design of products, maintaining a toll-free helpline, and collecting data from nearly 12,000 clients on a quarterly basis through on-site visits by the compliance department. • Tracking performance through meaningful metrics is key: Kashf has developed a social performance dash- board, which is updated every six months and presented to the board. The dashboard not only tracks loans to women but also the usage of loans within the household. Given that there are no local benchmarks of perfor- mance related to gender, Kashf aspires toward international best practices and is connected to several leading forums on microfinance and financial inclusion of women. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 9 SHOWCASE 1: LEADERSHIP (Continued) • Sensitivity to local norms matters: Kashf does not present itself as a women-only organization within the com- munities where it operates. Men also lack financial access in low-income households, and refusing to serve them at all could be morally and socially difficult to justify. The organization thus offers a rickshaw loan for men but ensures that such loans do not exceed a given proportion of the portfolio by setting clear gender-disaggre- gated key performance indicators for its branches. • You have to walk the talk: Kashf has an explicit policy of gender equality within staff across all management levels. It tracks its gender ratios on a regular basis and feeds them back into recruitment as well as staff development programs. Akhuwat: Religion a Barrier or an Opportunity? Religious and cultural norms are commonly cited as a key obstacle to expanding women’s rights and access to services, including finance, in Pakistan. These norms will certainly be challenging to overcome if financial institutions approach the market with a one-size-fits-all strategy that mimics products and processes on offer in societies and cultures dissimilar to the one they operate in. To break barriers and, in turn, influence the prevailing norms themselves, institutions need to take on a leadership role in their sector. Akhuwat is an Islamic microfinance provider operating in Pakistan that has managed to reach out to many women by designing its strategy around the family unit and places of worship, which are both central to community life in Pakistan. Starting with a single PKR 10,000 loan to a woman in 2001, its disbursements now exceed PKR 13.6 billion, benefiting more than 797,148 families. It has a network of 343 branches in more than 210 cities across the country, which each operate out of places of worship of different faiths. Akhuwat uses its unique lending model to facilitate women’s access to finance. Interest-free microcredit has formed the cornerstone of Akhuwat’s operation since its inception, a derivative of Qarz-e-Hasan, which is based on Islamic teachings. It uses mosques and churches as its base of operation, since it finds that women are more comfortable interacting in such safe places. Use of the vast existing infrastructure of religious places also allows Akhuwat to minimize its operational costs, have extensive outreach to women, and function efficiently. Additionally, Akhuwat’s most common product is the family enterprise loan, which accounts for 91 percent of its loan portfolio and is taken through a joint decision of husband and wife. Many women utilize these loans for themselves and their families. In working with women who have remained outside the financial sector, Akhuwat is expanding access to a segment that previously thought finance was irrelevant to their economic lives. In doing so, it is poised to not just provide access to finance but also influence norms in the process. I. THE CASE FOR ADVANCING WOMEN’S FINANCIAL INCLUSION: INTERNATIONAL EXPERIENCES 10 II. THE FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION A major impediment to advancing the financial inclusion of women is the unavailability of gender disaggregated data on the supply of and demand for women’s financial services. While headline indicators are important for international benchmarking and target setting, more granular data are also essential for stakeholders: market players need data to design products and outreach strategies and to understand customer behavior, whereas regulators and policymakers need data to design evidence-based policies and gauge their effectiveness. The Access to Finance Surveys (A2FSs) completed in 2008 and 2015 in Pakistan provide a rich database that can be used to glean such insights into women’s financial lives in the country. This chapter explores trends in women’s financial access based on the A2FS data and provides a snapshot of the retail institutions in the financial sector to build a supply-demand picture. Trends in Women’s Financial • The informal category refers to households Inclusion – An Overview using committee-based saving mechanisms, shopkeeper credit, and loans from moneylenders. The two rounds of the A2FS7 in Pakistan (2008 and 2015) enable us to undertake longitudinal and trend • The financially excluded is a residual category, analyses of service usage by different segments of covering respondents that are not using any form the population. All data presented here are drawn of formal or informal finance. from the 2008 and 2015 A2FS unless mentioned otherwise. A2FS divides financial access into All categories are exclusive and exhaustive in the four categories—banked, other formal, informal, sense that, taken together, they encompass the and financially excluded—and breaks down the entire adult population of the country and there population in the same way. Specifically: is no overlap between any two access substrands. For example, an individual who has used mobile • The banked households are those that use financial services in the past year and relies mostly conventional banking products such as basic on informal financial service will be categorized in savings/current accounts, Islamic bank accounts, the other formal category. debit/credit cards, mobile wallets, government assistance cards, and personal/business loans. Overall, access to formal financial services in Pakistan has grown significantly, from 12 percent • The other formal category includes households in 2008 to 23 percent by 2015. This is in line with using services such as mobile money payments/ trends in the region: the percentage of Bangladeshis remittances, life insurance, microfinance, savings with formal financial services more than doubled and investment shares, government savings between 2013 and 2015, going from 20 percent to certificates, and saving prize bonds. 43 percent, while in India the rate of access jumped 7 The first round was conducted in 2008 with a sample of 10,000 households (HH) across the four provinces of the country. The second A2FS was completed in 2015, again with a sample of 10,000 HH across Pakistan. A2FS is the largest demand side survey on financial indicators in Pakistan. Due to its large sample size, it has a high likelihood of maintaining sample power as we break down categories of respondents into segments that are meaningful for stakeholders such as provinces, urban/rural, income quintiles. Moreover, the A2FS questionnaires are the most comprehensive in terms of coverage of types of formal and informal financial services. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 11 from 47 percent to 65 percent over the same period number of women with bank accounts jumped (Intermedia 2016). Formal financial access for from four percent in 2008 to 11 percent in 2015. women has also grown in Pakistan, with female This was driven by growth across a number of users of formal financial services going from five services, including use of bank accounts, mobile percent in 2008 to approximately 17 percent in wallets, microfinance, and use of government 2015. Analysis of the access strand is revealing in assistance cards. The use of other formal services what it shows about where this growth has occurred also increased significantly over the 2008 – 2015 in terms of services, regions, and income groups. period (Table 3). While the overall number of women using informal services and the financially Access to formal financial services rose by 5.7 excluded increased marginally (by 0.4 million), million among women (for context, the total female the number of women that are financially excluded adult population in 2008 was 40.1 million and in dropped by 0.8 million. However, in proportional 2015 stood at 45.3 million8)(see Figure 1). The Figure 1: Financial Inclusion Among Women, by Category, 2008 vs. 2015 Banked Other Formal Informal Excluded 0 10 20 30 40 No. of Women (in millions) 2008 2015 Source: State Bank of Pakistan, Access to Finance surveys, 2008 and 2015. Table 3: Change in Financial Access Among Adult Females (in Percent), 2008 to 2015 2008 2015 Change Banked 4 11 +7 Other Formal 1 6 +5 Informal 28 26 -2 Excluded 66 57 -9 Source: State Bank of Pakistan, Access to Finance surveys, 2008 and 2015. 8 Pakistan has not had a population census since 1998. Population data is projected on the basis of 1998 statistics. Headline demographic indicators for Pakistan are provided in Annex A. II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 12 terms, the share of women using informal services • Growth has also come from the number of dropped from 28 percent to 26 percent over the women participating in government-led saving period of the analysis. Similarly, the proportion of schemes, including women saving in government financially excluded women fell from 66 percent to savings certificates and prize bonds, which rose 57 percent. from 0.3 million to nearly two million over the 2008–15 period. That said, this sudden jump is These are encouraging trends for service providers also partially due to a change in definition of the as well as policymakers striving to advance other formal category between the 2008 and 2015 women’s financial inclusion in Pakistan. Analysis surveys: in 2008, prize bonds were not included of major formal services contributing to the growth in the other formal category, whereas they are is also interesting in its implications.9 Policy included in the 2015 survey definition. interventions and financial innovation in the private sector both seem to be driving growth. Although Also useful is an examination of trends in informal the A2FS 2015 data do not allow us to assess the financial services. One trend that stands out is individual contribution of each product and service, an increase in the number of women saving in patterns in their uptake do permit us to draw some committees, which rose from 5.7 million to 13.3 broad conclusions. million over the 2008–15 period (Figure 2). The • First, branchless banking has positively impacted trend of increases across the different types of access for women, as it rose from zero (in 2008) savings instruments, both formal and informal, to nearly 2.3 million unique users in 2015. This suggests that more and more women are saving also accounts for the significant growth in the through some sort of institutional mechanism. This other formal category evident in Figure 1. points toward a potential market for deposits that is likely to grow in the coming years. The only service • Second, channeling government payments that did not grow exponentially during this period through the banking sector seems to have was insurance. That is not surprising, however, as impacted nearly 0.7 million women, most of insurance is considered to be a complex financial whom are likely to be at the bottom of the income product and is generally not the first point of entry pyramid and to have previously been financially into the formal financial system. excluded. The main contributor in this context has been the national safety net program, the BISP, Comparing Growth Across Women launched in 2009. Over the years, this program and Men has transitioned to the use of banking channels (through smart cards, debit cards, and mobile Before we commence a deeper analysis of growth phones) to make monthly transfers to women in in women’s access to finance, it will be useful to the poorest households. compare it to the growth in access for men since, as mentioned earlier, men and women lead different • Additionally, the number of women with bank economic lives. accounts also increased significantly: 2.7 million women saved in banks in 2015 compared to 1.6 We do find that patterns of growth in financial million in 2008. Mobile wallets’ uptake seems access for men and women differ considerably in to be contributing to this growth in a significant Pakistan. As with women, formal access for men has way. While the absolute levels of women with also increased since 2008, rising from 22 percent bank accounts remain low, they currently show in 2008 to 29 percent in 2015. Given Pakistan’s an encouraging trend when viewed against the high levels of financial exclusion, advances in historical context of snail-paced growth. the use of formal finance by both sexes are a 9 These are not exclusive categories, i.e. a woman may be using different financial services at the same time STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 13 Figure 2: Growth in the Use of Major Financial Products and Services Among Women, 2008 vs. 2015 Basic Banking Account Current or Cheque Account Saving Account Mobile Wallet Government Assistance Card Personal Loan from Bank Microfinance Mobile Money - Payments Mobile Money - Remittances Insurance Shares Government Savings Certificates Prize Bonds Committee Savings Shopkeeeper Credit Borrowing from Money Lender 0 2 4 6 8 10 12 14 No. of Women (in millions) 2008 2015 Source: State Bank of Pakistan, Access to Finance surveys, 2008 and 2015. welcome development. However, differences in the we need a better understanding of exogenous and patterns of growth indicate that current pathways endogenous drivers of change. While achieving of expanding access are affecting men and women that is beyond the scope of this paper, we can differently. Figure 3 shows that both men and speculate based on A2FS and other economic data women are using more banking services, but over a that changes in women’s participation in the labor million more women than men became included in force and in the uptake of branchless banking are the banked category. Interestingly, while the ratio key pieces of the puzzle. of women that are financially excluded fell, that of financially excluded men rose by 6.3 percent. Geographic Trends This last increase is only compensated by a drop in Both urban and rural areas contributed to the growth male users of informal financial services to allow in women’s financial inclusion, but rural growth overall inclusion of men to rise. Further research played a bigger role. Out of the 12 percent overall is required to understand whether users have been increase in the proportion of financially included shifting from formal to informal, or vice versa, and women over the 2008–2015 period, more than half what are the drivers of these changes. (7 percentage points) came from rural areas. Hence, while the story of women’s access to finance Analyzing rural-urban growth patterns in the access in the past few years in Pakistan seems clearly to strand also shows broad-based growth. By the end be one of increasing inclusion, in the case of men of the study period, a higher proportion of women it seems to be relatively more complicated. Even reported that they were using bank accounts or using to unpack the contributors to women’s inclusion other formal services across rural as well as urban II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 14 Figure 3: Change in Financial Access Between 2008 and 2015, Women and Men 8 Percent Change in Number of Users 6 4 2 0 Banked Other Formal Informal Excluded -2 -4 -6 Men Women Source: State Bank of Pakistan, Access to Finance surveys, 2008 and 2015. areas. Similarly, the proportion of women using of the financial sector’s assets. Table 4 shows the informal finance or being financially excluded also main types of financial institutions operating in dropped in both rural and urban areas. Pakistan. Generally, the landscape can be divided along the lines of regulators, that is, between those Concerning provincial patterns, Punjab and Sindh financial institutions that are regulated by the State accounted for most of the growth in usage of formal Bank of Pakistan (SBP) and those regulated by the financial services by women. Punjab and, to some Securities and Exchange Commission of Pakistan extent, Baluchistan accounted for the drop in the (SECP). SBP regulates banks, development finance use of informal financial services that we observe institutions (DFIs) and microfinance banks (MFBs) at the national level. Encouragingly, the proportion whereas SECP regulates the corporate sector, of financially excluded women fell across all capital markets, insurance companies, non-bank provinces, albeit at varying rates. Figure 4 shows the microfinance institutions, other non-bank financial change in the proportion of women using different institutions and private pensions. services across provinces. Baluchistan stands out as making the largest strides toward women’s financial We develop in the following pages a supply-side inclusion, with 15 percent more women with bank picture of the financial sector in Pakistan based on accounts in 2015 as compared to 2008. The picture the different types of institutions. Our objective in Sindh and Punjab is also encouraging. However, is to understand how each type of institution is data from KPK (Khyber Pakhtunkhwa) show a positioned in terms of its financial strength and drop in levels of inclusion and a parallel rise in the market focus. This context will help us assess—in use of informal services. the demand-side analysis that follows later—how different institutions can be expected to contribute Mapping the Supply-Side Landscape to advancing the financial inclusion of women in The financial sector in Pakistan has diversified Pakistan. in recent years, but it remains dominated by the We start with the SBP-regulated institutions and banking sector, which holds more than 70 percent then proceed to the SECP-regulated institutions. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 15 Figure 4: Change Between 2008 and 2015 in the Proportion of Women Using Selected Banking Services, by Province 20 Percent Change in Number of Users 15 10 5 Financially Excluded 0 -5 Banked Other Formal Informal -10 -15 -20 Punjab Women KPK Baluchistan Source: NEED TO ADD HERE. Table 4: Financial Service Providers in Pakistan: A Summary Type of Institution Estimated Number Details on Type of Institution Commercial Banks 35 Regulated by SBP, they account for the bulk of the financial sector assets. They also include 6 Islamic banks. Microfinance Banks 11 Regulated by SBP under a special MFI Ordinance 2001, with (MFBs) restrictions on operations in comparison to commercial banks Development Finance 8 Specialized banks, mostly set up as joint ventures with friendly Institutions (DFIs) resource-rich countries by the government; they are regulated by SBP Non-bank Microfinance 40 Recently brought under SECP regulations Institutions Insurance Companies 47 37 non-life insurance companies, 9 life insurance providers and one reinsurer; 13 of them also offer takaful (Islamic insurance); SECP regulated Leasing Companies 34 Regulated by SECP, there are 9 leasing companies and 25 modarabas in operation but many struggle to survive Investment Banks 7 The sector’s survival is threatened due to competition from commercial banks; regulated by SECP Asset Management 24 Regulated by SECP; these companies manage 170 mutual funds Companies and 23 plans, and collectively account for more than 60 percent of the NBFI asset-base Directorate of National 1 A government entity not supervised by SBP or SECP; raises debt Savings for the public exchequer from the wider public Source: State Bank of Pakistan and Securities and Exchange Commission of Pakistan. II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 16 SBP-Regulated Financial Institutions • SBP has launched a financial literacy campaign – this campaign is being implemented through SBP plays a leadership role in financial policy MFPs, commercial banks and DFIs where development in Pakistan, especially in terms of special focus on women is incorporated into the financial inclusion. Its policy interventions over the campaign. past decade and a half have borne good results in advancing the frontier of formal financial access Commercial Banks for women as well as men. It is also steering the There are 35 commercial banks in the country, implementation of the recently launched National which can be further categorized as government- Financial Inclusion Strategy (NFIS). Given this owned banks (5), private banks (22), foreign banks leadership role, as well as its role as a custodian of (4), and specialized banks (5). The total asset base the banking system, which accounts for most of the of the commercial banks is PKR 15.4 trillion, with financial sector’s assets, its approach to women’s advances accounting for 34 percent of total assets financial inclusion will be critical in setting the and investments accounting for 50.7 percent (SBP direction of the institutions it regulates. 2016a). Of the sector’s total assets, 80 percent To implement the NFIS, the SBP and SECP will is held by private banks. The specialized banks issue policy and encourage and influence regulated were set up by different governments throughout entities under it. Where necessary, interventions Pakistan’s history to provide financing for neglected will also be made. The entities implementing the economic sectors such as agriculture (ZTBL) and NFIS are commercial banks, MFBs, NBMFCs, and SMEs (SME Bank). One of the government-owned development financial institutions. These targets commercial banks, First Women Bank Ltd. (see are being overseen by the NFIS Secretariat, housed Showcase 1, boxed in Section 1), was set up in in SBP, with dedicated staff and personnel who 1989 primarily to serve women across Pakistan; for will be monitoring and evaluating the outcomes all practical purposes, this bank also operates as a of the policies. The implementation and follow- specialized bank. up responsibility is also assigned to the NFIS Commercial banks have the largest brick-and- Secretariat. SECP is also a member of the NFIS mortar footprint among financial institutions, with council. Some of the specific interventions include more than 13,000 branches across Pakistan as these: of end-September 2016 (SBP 2016b). However, • Lines of credit are being extended to MFPs by despite their long history and wide footprint, their SBP, funded by the World Bank with a condition contribution to advancing financial inclusion in that 60 percent of new borrowers should be Pakistan has been limited. In terms of credit, they women. largely cater to the upper end of the firm spectrum (corporates or, at best, medium-size enterprises) as • Refinance and credit guarantee schemes for well as to high-net-worth individuals. In terms of women entrepreneurs in underserved areas have deposits, the client base is relatively more diverse, been launched by SBP with the aim of promoting with the five largest banks accounting for 50 percent improved access for women entrepreneurs. A of customer deposits because of their long history maximum financing facility of PKR 1.5 million is and large branch networks. available for women entrepreneurs with a tenure of up to 5 years. This amount can be used for The private-sector credit offered by commercial setting up of new business or for the expansion banks has more or less stagnated over the past few of existing ones. Of the outstanding principle, 50 years (Figure 5), despite the easing of monetary percent is guaranteed by SBP in case of default. policy over the last three years that brought the policy rate down to 5.8 percent (in November 2016) STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 17 Figure 5: Asset Growth in the Banking Sector, 2010–2015 16,000 14,000 12,000 in PKR Billions 10,000 8,000 6,000 4,000 2,000 - 2010 2011 2012 2013 2014 2015 Total Assets Investments Advances Source: State Bank of Pakistan. from 10.5 percent (December 2013). Commercial Microfinance Banks banks have instead been placing funds in risk-less Regulated under Microfinance Ordinance 2001, government paper and have shown little appetite the microfinance banks (MFBs) are deposit-taking for extending the banking frontier and tapping entities regulated by SBP that are formed with unserved segments. a double-bottom-line objective, that is, not only In terms of serving women, we mostly see a to earn a profit but also to create a positive social feminization of banking products, such as pink- impact. There are currently 11 MFBs in the country colored credit cards or the rebranding of existing and they have a diverse set of sponsors, including products as “serving women’s needs”10 instead of local commercial banks, mobile network operators, real innovation to meet women’s needs. Among international investors, and NGOs. They account commercial banks, First Women Bank Ltd. is for more than 60 percent of the microfinance the only bank that has a mandated mission to industry’s loan portfolio and 40 percent of its active serve women, but this bank has been plagued borrowers (the rest are accounted for by non-bank by sustainability issues for the better part of its MFIs, regulated by SECP and discussed below). existence, and its market share remains marginal. The microfinance sector is perhaps the only Recently, one of the biggest commercial banks in subsector within the financial industry that regularly the country, Habib Bank Limited, has launched a collects and publishes gender-disaggregated data. program that aims to convert Habib Bank Limited Although the MFBs have posted significant growth into “the bank of choice for women” in Pakistan. in both borrowers and portfolio value over the Its case is documented in Showcase 3, boxed in past few years, the rate of growth among men has Section 3. outstripped the rate among women. Analysis of 10 For example, a mid-sized commercial bank offers a women’s saving plan product and markets it as suitable for all cat- egories of women, whether housewives or working women. It is not clear how one product can serve such diverse market segments equally well. II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 18 Figure 6a: Growth in Microfinance Bank Borrowers, by Gender, 2008–2015 1,200 1,000 Borrowers (000) 800 600 400 200 0 2008 2009 2010 2011 2012 2013 2014 2015 Men Women Source: Pakistan Microfinance Network, Pakistan Microfinance Review, 2015. Figure 6b: Growth in Microfinance Bank Portfolio Value, by Gender, 2009–2015 50,000 45,000 Loan Portfolio (PKR Millions) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2009 2010 2011 2012 2013 2014 2015 Men Women Source: Pakistan Microfinance Network, Pakistan Microfinance Review, 2015. outreach data shows that (as of 2015) men account Recent changes in regulations, as well as financial for 76 percent of MFBs’ client base and 82 percent innovation in the form of branchless banking, of their loan book (Figures 6a and 6b). The shift has have created opportunities for MFBs to expand been more drastic in the case of loan portfolio value, their outreach to women. However, other changes as most of the large MFBs have started to move pose some risks. For example, an amendment toward larger individual loan and microenterprise to the Prudential Regulations for MFBs in 2012 lending (discussed below). This trend is in sharp allowed the banks to lend up to 40 percent of their contrast to the non-bank MFIs segment, which portfolio to microenterprises. These loans could be is discussed below in the subsection on SECP- in amounts higher than the previous limit of PKR regulated financial institutions. 150,000, increasing to as high as PKR 500,000. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 19 However, this change may also be viewed as a Over time, its responsibilities have been expanded risk to women’s access to finance. If banks move to include supervision and regulation of insurance upmarket into client segments where women- companies, non-banking finance companies, and owned enterprises tend to be fewer and costlier to private pension schemes. It is also engaged in identify, there is a danger of further declines in the overseeing various external service providers to the share of women in the outreach of MFBs. corporate and financial sectors, such as chartered accountants, rating agencies, corporate secretaries, Development Financial Institutions (DFIs) brokers, and surveyors. Development financial institutions (DFIs) are government-owned entities designed to promote In recent years, the SECP has shown an interest investment in the private sector and spur economic in expanding the penetration of the services it activity in the country. There are eight DFIs in oversees beyond their conventionally tapped the country, nearly all having been set up as joint market segments. To this end, it promulgated ventures between resource-rich countries and micro-insurance regulations in 2014, expanded its Pakistan (except for the House Building Finance ambit to regulate non-bank MFIs in early 2016, and Corporation). These institutions offer specialized in June 2015 also launched a three-year Investors’ financial products and services with a focus on Education Program aimed at the public-at-large. project financing and long-term financing solutions While the financial institutions SECP oversees are for targeted sectors. The asset base for the DFI small in comparison to SBP, they are more diverse industry is PKR 191.3 billion, with investments and offer scope for innovation and growth into accounting for PKR 108.4 billion, followed by markets that have hitherto been ignored in terms advances worth PKR 63.4 billion (SBP 2016a, of women’s inclusion. Table 5 shows the size p. 24). and composition of the non-bank financial sector Despite having a development agenda and an aim regulated by the SECP. to promote growth, DFIs have shied away from We discuss next the subsectors regulated by the reaching out to women and confined their activities SECP that may have relevance to advancing to big-ticket borrowers. However, there remains women’s financial inclusion. some scope for DFIs to work in the area of women’s access to finance, particularly for the House Leasing Companies and Modarabas Building Finance Corporation. Low-cost housing The leasing industry in Pakistan traces its origin loans for women remain an underdeveloped and to the Islamization of the economy in the 1980s. under-researched area. Keeping this in view, the At its peak, there were 41 leasing companies in World Bank has just initiated a USD 145 million operation. Key business lines included consumer project in early 2018, which aims to crowd in auto leases, commercial vehicle finance, leasing to commercial financing for home ownership and to SMEs, and corporate and operating leases. There provide greater incentives for women to become are currently eight leasing companies operating home owners. in the country with a total asset base of PKR 42.3 billion (as of June 2016). In addition, there are 25 SECP-Regulated Financial Institutions modarabas with an asset base of PKR 36.5 billion (SECP 2016a). The Securities and Exchange Commission of Pakistan (SECP) was established in pursuance of The decrease in the number of leasing entities has Securities and Exchange Commission of Pakistan been due to the encroachment of commercial banks Act of 1997 and became operational on January 1, and DFIs into the clientage of leasing companies, 1999. Initially, the SECP was responsible for the eroding their market share. In addition, leasing regulation of corporate sector and capital markets. companies are secondary lenders and depend II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 20 Table 5: Snapshot of the Non-Bank Financial Sector (June 2016) No. of Total Assets Assets as Percent of Entities (in PKR Millions) Total Sector Assets Mutual Funds 172 546,222 59.06 Asset Management Companies 23 37,334 4.04 Portfolio Management Assets 0 139,229 15.05 Real Estate Investment Trusts 1 27,165 2.94 Investment Finance Companies 10 76,855 8.31 Leasing Companies 8 42,262 4.57 Modarabas 25 36,538 3.95 Pension Funds 17 19,317 2.09 TOTAL 256 924,922 100 Source: SECP Annual Report 2016. on funds from commercial banks. Therefore, clusters and value chains, we can identify sectors the withdrawal of credit lines in the aftermath of where women’s participation is growing and where the 2008 financial crisis adversely affected the the opportunity for women-focused leasing and leasing industry. This, coupled with an increase financing products is high. in the minimum capital requirement, has led to a Asset Management number of entities going out of business. Moreover, the slowdown in growth and investment in the The asset management industry in Pakistan has economy has led to a decline in leasing activity in grown rapidly. Although the first mutual fund was the country. launched in the country back in 1962, the industry really took off in the 2000s with the entry of private However, the prevailing environment of low fund managers. Currently, the industry is made up interest rates provides the leasing industry with an of 24 entities with assets under management worth opportunity to finance microenterprises and SMEs, PKR 550 billion. With more than 170 mutual funds given that commercial banks are not focused on and 23 plans, this segment accounts for more than these segments. For example, Islamic leasing for 60 percent of the asset base of non-bank financial fixed assets in business sectors such as bakeries, institutions (SECP 2016a). The funds invest in both dairy, gems and jewelry, and dry cleaning services money and capital markets. appears to have the potential to target women. SBP has undertaken detailed studies on several SME Despite being a flourishing industry, asset subsectors11 that have scope for leasing, but the management accounts for only 5.4 percent of the studies do not collect gender-disaggregated data. By total deposit base of the country, as compared with incorporating a gender lens in studies of business 11.8 percent in India.12 A key reason for this has 11 Available at http://www.sbp.org.pk/publications/Pub-Occa.htm 12 Mutual Fund Association of Pakistan, http://mufap.com.pk/pdf/presentations/2012/presentation1.pdf STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 21 been a small retail base, which has also led to a lack Non-Bank Microfinance Companies of attention to women as potential clients. As the Non-bank microfinance companies are a diverse retail customer base for these funds expands there group of institutions, which include NGOs working is a strong chance that the women clientage would exclusively in microfinance, microfinance programs also increase. However, such growth is not expected that are part of rural support programs, and NGOs to help expand the access frontier for women, since with integrated programs. There are more than the customers of asset management companies tend 40 such entities in Pakistan. Previously, they had to be people who are already availing themselves been operating outside any regulatory umbrella, of formal banking services, especially bank but by 2015 they had been transformed to non- accounts. The most likely female target market bank microfinance companies under the non-bank for asset management companies will be formal financial institution rules. sector employees in urban centers and financially literate women. Nevertheless, this should lead to Some of these organizations are among the pioneers deepening financial inclusion for women over the of microfinance in the country and enjoy good long term. outreach in rural areas. Currently, they account for 40 percent of the industry loan portfolio and 60 percent Investment Banks of borrowers. Their clients are predominantly Investment banks provide long-term funding women, and the share of women in their portfolios solutions separately from normal banking channels, has been increasing over time (Figure 7a). In addition but they do not provide retail banking services. There to credit, these organizations are also providing are currently seven investment banks in the country, micro-insurance products using different business and the space for them is shrinking over time due models. If they had adequate funding lines for on- to their inability to compete with the investment lending, these institutions could play a crucial role banking wings of commercial banks, which have in women’s access to finance in the lower income large pools of funds available. Moreover, overall segments. These institutions have also proven to stagnation in the economy has led to a reduction be more open to innovation and testing new ideas, in IPOs, mergers and acquisitions activity, and the given their localized scale and relatively lower levels privatization of state-owned activities. In addition, of formalization. Two examples of innovations in the liquidity mismatch due to long-term loans and product and process by non-bank microfinance short-term liabilities remains a key hindrance in companies are discussed in Showcase 2. this regard. Insurance The total asset base of the industry is currently at The insurance industry is a crucial component of PKR 9.7 billion; this means it has shrunk by two- any country’s financial landscape, since it provides thirds from its 2010 total of PKR 29.7 billion (SECP mechanisms for individuals and businesses to 2016b). Most of the entities have equity below manage the risks they face. The insurance industry minimum capital requirements and are struggling in Pakistan can be divided into two types of to survive. companies: those selling life insurance and non- With their current outlook, the investment banks life-insurance companies. There are currently 41 are unlikely to reach out to unserved segments such non-life-insurance companies, nine life insurance as women. Further research and a focused strategy providers, and one reinsurer. Out of the 41 non- are required to understand whether and how this life-insurance providers, three have been allowed sub-industry can contribute to the overall goals of to extend general takaful (Islamic insurance), while advancing women’s financial inclusion in Pakistan. two life insurance companies can extend family takaful products (SECP 2016a). II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 22 Figure 7a: Growth in Borrowers from Non-Bank Microfinance Companies, 2008–2015 2,000 Borrowers (000) 1,500 1,000 500 - 2008 2009 2010 2011 2012 2013 2014 2015 Men Women Source: Pakistan Microfinance Network, Pakistan Microfinance Review, 2015. Figure 7b: Growth in Non-bank Microfinance Company Loan Portfolio Value, 2009–2015 30,000 Gross Loan Portfolio (PKR Millions) 25,000 20,000 15,000 10,000 5,000 - 2009 2010 2011 2012 2013 2014 2015 Men Women Source: Pakistan Microfinance Network, Pakistan Microfinance Review, 2015. Insurance penetration in Pakistan is quite low at across the entire insurance sector insurers have 0.8 percent, as compared with 4.1 percent in India launched specific products for women clientage. and 4.4 percent in Thailand (FIOP 2015). A key However, these initiatives are relatively new and impediment for the life-insurance sub-industry their success remains to be seen. has been low awareness of its products among the general public. Also, the life-insurance sector is Central Directorate of National Savings dominated by the state-owned insurer, which has The Directorate of National Savings does not fit into skewed the sector. Micro-insurance has emerged as the picture of financial regulation overseen by the an attractive option for insurance companies, and SBP and the SECP. Its existence predates Pakistan’s it has been expanding over time in the credit, life, independence, with the first national savings bureau and health segments. Despite the low penetration, being set up in 1943 as an attached department STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 23 of the Ministry of Finance under colonial rule. Usage of Financial Services Post-independence, the Pakistan Savings Central Among Women Bureau was created, and the savings work was entrusted to it by the Government of Pakistan. To complement the institutional supply-side In 1960, it was renamed the Central Directorate analysis, we now turn to the usage of formal as of National Savings and was entrusted with well as informal financial services among women all policy matters and the execution of various in Pakistan, using A2FS 2015 data. In order to have national savings schemes. In 1972, the scope of a meaningful discussion, we have disaggregated the directorate was broadened whereby it started the data into different population segments based selling prize bonds, and subsequently it rolled out on geography (provinces, large cities, small towns other savings schemes. Currently, the directorate is and rural locations) and income. This generated 37 headed by a director general of national savings, subcategories, or population segments. who is a senior bureaucrat within the government. Within each category, we then examined service The Central Directorate of National Savings usage by type of service, reasons for using or not currently offers various saving schemes for using particular services, frequency of use, and individuals, including those targeting women. average transaction amounts (where available For example, its Behbood savings certificate is and applicable). Given the span of data, only the targeted at widows and senior citizens and can be interesting results are presented here. These can purchased in denominations as low as PKR 5,000. be used to push the discussion forward in further Its other certificates are also popular, and A2FS identifying potential market segments for women’s 2015 data show that its uptake among women has financial inclusion. been increasing. The directorate sells its products Some caveats are warranted on the data used: The through its 375 branches in cities across Pakistan sample size for some segments was too small to as well as through the government’s post offices. obtain any meaningful conclusions; these segments At end-September 2016, investment in its different were not used in the analysis. Also, the relatively products stood at nearly PKR 72 billion. Figure 8: Credit Usage Among Women, by Province, 2015 20 Percent of Adult Female 15 Population 10 5 0 National Punjab Sindh KPK Baluchistan Formal Informal Others Source: State Bank of Pakistan, Access to Finance Survey, 2015. Note: The Others category mainly includes borrowing from friends and family. II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 24 SHOWCASE 2: INNOVATION The microfinance sector in Pakistan has been at the forefront of innovation within the country’s financial sector. While most attention in this context goes to the branchless banking segment, there are other promising innovations of product and practice among smaller microfinance providers that also merit attention. Two examples from non- bank MFIs are presented here, one from Punjab and the other from Sindh. Damen: Experimenting with Micro-Insurance DAMEN is a women-focused non-bank microfinance institution based in Punjab with a customer base of 50,000 women borrowers. It operates in five districts, mostly in the rural areas and urban slums. DAMEN has partnered with MicroEnsure to offer health insurance to cover its clients against loss of income. MicroEnsure is a specialist provider of insurance to the mass market with more than 15 million customers in 17 markets across Africa, Asia, and the Caribbean; it provides insurance services (including life, health, and property products) via a range of distribution partners that include microfinance companies, co-operatives, and mobile network operators. DAMEN’s product protects its clients in situations when there is a break in household income due to an unforeseen event. The product, called Damen Sehat, is offered to every customer through a premium sharing arrangement between DAMEN and the clients. An insurance claim can be made at all major hospitals across Pakistan. The coverage is provided to both the client and her spouse. A pilot was conducted in early 2015 with 10,000 clients, and since then it has been rolled out to cover 45,000. The claim-to-premium ratio to date is 52 percent, and more than 800 claims have been processed since the program started in 2015. Thardeep’s E-Appraisal System: Levering Technology to Facilitate Women Clients Thardeep Microfinance Foundation operates in seven districts of Sindh, in areas where difficult terrain makes the cost of delivery high and creates mobility challenges for clients. In January 2016, Thardeep began transitioning to a paperless environment by introducing an online appraisal system. This e-appraisal system has been introduced not only to serve the overall market but especially to facilitate women’s financial access. The old manual system used to take 10 to 15 days for processing, with loan officers going door-to-door for documentation and other requirements. Major hurdles were faced by women who had difficulty arranging for copies of CNIC and photographs. In Sindh, women are not easily allowed to go outside their homes into the town to arrange for the required documentation but instead need to rely on their spouses. Furthermore, providing a photo to a stranger is frowned upon, especially if it is handed over to a man. The new system circumvents these problems and facilitates women in the comfort of their homes. Women have placed confidence in the new e-appraisal system, with 65 percent of the first 60,000 applicants that used the system being women. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 25 SHOWCASE 2: INNOVATION (continued) How the system works: The e-appraisal system integrates all levels of operation, ranging from the loan officer in the field to the head office, allowing for real-time data sharing and quick loan processing. Basic technology is employed: a tablet, a biometric device, and a mobile SIM card with internet connectivity. Once the processing is completed, the loan is disbursed through branchless banking channels. Thardeep believes that use of such a mechanism can greatly reduce the additional costs, both at the organizational end and at the client’s end. The expected total saving for the clients is about PKR 220 per loan cycle. And with regard to TMF’s own cost saving, an amount of PKR 9.5 million is expected to be saved from an organizationwide roll-out to its 100,000+ clients. small sample sizes from KPK and Baluchistan meant country (37 percent), and even in Sindh’s small that it was more difficult to disaggregate data from towns (16 percent) and rural areas (27 percent) these provinces in a robust manner; consequently, women’s borrowing occurs at relatively high rates. these two provinces are only analyzed where the There also seems to be a connection between sample power was sufficient. income levels and borrowing: women in lower- income segments tend to borrow at higher rates Credit than wealthier women. This is not surprising given some of the other trends revealed by the A2FS 2015 Approximately 18 percent of women in Pakistan data concerning reasons for borrowing and sources borrow, mostly from informal sources. However, of credit. For example: this number varies considerably across provinces (Figure 8). For example, the credit culture seems • The top reason for borrowing is to purchase food, to be strongest in Sindh, followed by Punjab and and this is common across provinces, in both Baluchistan. While informal sources, such as urban and rural areas. Other reasons that appear shopkeepers’ credit, seem to be playing an important across provinces, although in varying priorities, role in meeting the credit needs of women, most of include borrowing for life-cycle events, such as the borrowing in Baluchistan is from sources that weddings and dowry, and meeting educational are neither formal nor informal, such as borrowing expenses. In Punjab, unforeseen emergencies from friends and family. KPK data show a weak also lead to women borrowing. In rural Sindh, credit culture, with hardly any women reporting women are more likely to borrow for unforeseen that they have borrowed in the past year. emergencies, whereas in small and large cities it is more likely to be for life-cycle events. Trends also vary across rural and urban areas in the different provinces. Generally, we find that more • The top three sources of credit are similar women borrow in rural areas or small towns. For across Punjab, Sindh, and Baluchistan. These example, about 16 percent of women in large urban include loans from friends or family, advances centers borrow, whereas in rural areas 22 percent from shopkeepers (or moneylenders in the case borrow. In Baluchistan, hardly any women in large of Baluchistan), and goods received on credit. cities borrow, whereas 37 percent of those in small Besides friends and family, shopkeepers’ credit towns and 16 percent of rural women borrow. emerged as the top source of finance across rural and urban areas of Punjab and Sindh, as well as Sindh dominates in terms of the credit culture areas outside big cities in Baluchistan. On the among women across its cities, towns, and villages: other hand, in Punjab and Sindh the most frequent a higher proportion of women borrow in the large source of formal credit is a microfinance provider. cities of Sindh compared to anywhere else in the II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 26 • The average loan size for women is about PKR Savings 45,000. Most women who borrow do so once a year. According to the A2FS 2015 data, 63 percent of women in Pakistan save, and of these women only • Reasons for not borrowing from formal about 11 percent save through formal financial institutions vary across the two provinces for institutions. While the gap between the proportion which data are available. In Punjab, these relate to of women who save and the proportion who do so lack of information, such as not knowing whether using a formal financial institution is large in all an institution offers loans or not understanding four provinces, it is highest in KPK, where hardly enough about or knowing the conditions of loan any women are using formal financial services products offered by financial institutions. In (Figure 9). On the other hand, Baluchistan has Sindh, information gaps also matter, but another the lowest overall saving ratio but the highest use reason for not borrowing is the debt management of formal institutions. This may connect back to strategies used by women: they want to pay off the Benazir Income Support Programme (BISP), any existing loan before seeking a new one from a high number of its beneficiaries being located a formal institution. In the rural areas of Punjab, in Baluchistan and the use of formal financial the main reason for not borrowing is the “shame” channels to disburse cash grants to them. While associated with going to an institution for women save in high proportions across all income borrowing. Reasons also vary by income groups, segments across all provinces, relatively more although the findings on this are limited to women save in higher income groups, formally as Punjab given the data limitations. Informational well as informally. Other trends related to savings constraints apply more to low- and middle- that emerge from the A2FS 2015 data include these: income groups, whereas among the upper-income • The most common motivation for saving is to group there seems to be a social stigma attached “meet future unexpected expenses.” Rural and to borrowing; indeed, the statement that “it was urban women alike across all provinces cited this not common in their community” was often cited as the topmost reason, while in Baluchistan the as the main reason not to borrow. main motivation was to buy household goods. Figure 9: Formal Savings by Women, by Province Percent of Female Adult Population 100 80 60 40 20 0 National Punjab Sindh KPK Baluchistan Total Savers Formal Savers Source: State Bank of Pakistan, Access to Finance Survey, 2015. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 27 Other key reasons relate to meeting unforeseen Nearly all women who use insurance live in urban risks, such as medical expenses or funds needed areas and belong to the upper income quintiles. for family members in case the saver experienced The low levels of insurance penetration translated some unfortunate incident. into small sample sizes in KPK and Baluchistan, making any meaningful analysis of usage difficult. • The most popular mode of saving is at home or Nevertheless, a few general findings do emerge with friends and relatives, followed by saving in from the data: committees. In Punjab, the third most commonly used mechanism is banks, whereas in Sindh • In KPK and Baluchistan, women sought insurance holding savings in the form of gold, silver, or because of a bad experience they had in the past jewels (to be sold in times of emergency) was against which they were not insured, whereas in cited instead. In rural Sindh, saving in livestock Punjab and Sindh women who sought insurance is also common among women. were motivated to purchase it either by friends and family or by an insurance company agent. • Reasons women give for using these modes are particularly revealing about women’s preferences • The most common insurance instruments used in choosing saving mechanisms. For each of the by women in Punjab and Sindh include life three top-ranked mechanisms, women said they insurance and postal life insurance*, whereas use them because (i) they are cheap, (ii) they are in KPK and Baluchistan the most common is commonly used in their communities, (iii) they vehicle insurance. Women in rural Punjab also allow the women to solve their problems (meet reported use of agriculture/crop insurance. their needs), and (iv) they are found to be “easy • Reasons for not using insurance include (i) lack to handle.” Cost effectiveness was the most of information and understanding, (ii) mistrust frequently mentioned reason. Reasons relating to of insurance companies, and (iii) the high cost of safety and risks of losing money were only cited insurance. by women in large cities in Punjab and KPK. • Top risks that women face. The most common • Most women save at least once a month. risks women face include unforeseen medical • The average value of savings by women per expenses, the death or disability of a member of annum is approximately PKR 25,000, with higher the household, and the birth of a child (including levels of saving per person in urban areas. cesarean birth). There are, however, variations across rural and urban areas. For example, in • Top reasons women cited for not saving in Punjab’s large cities, security-related threats such financial institutions were: (i) because they as theft or robbery matter more, whereas in rural thought saving would bring them no benefits, (ii) areas unforeseen medical expenses are seen as because they lacked information about products the top risk. In the big cities of Sindh, medical and institutions, and (iii) because they lacked expenses are a significant risk, whereas in rural trust in financial institutions. Lack of trust is areas the death of a family member is identified especially common among the low- and middle- as the biggest risk. Among women in large cities income quintiles in Sindh, whereas the belief in Baluchistan, the risk of loss of property due to that a bank account will provide no benefit was natural disasters is considered most threatening. common across all income groups. Remittances and Payments Insurance Overall, 3.0 percent of women send and receive Less than one percent of women in Pakistan use any money, and only one-third of these women use formal kind of insurance, according to the A2FS 2015 data. channels to do so. Most of these women receive * Postal life insurance products are sold through the Pakistan Post at post offices across the country. II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 28 money at least once a quarter whereas they send by m-wallets (2 percent) and OTC remittances money at least once a year. The frequency of sending (1 percent). The key reasons for opening mobile and receiving money varies across provinces, being accounts include needing to send (or receive) lower in Punjab where women send/receive money money to (or from) family and friends and paying only once a year on average and higher in KPK and utility bills. Those who did not register said they Sindh where remittances are often monthly or even did not do so because they did not know enough weekly. Women’s participation in the remittance about m-wallets. This was the top reason across market appears to be as net receivers of money. provinces and income groups, followed by “finding When they do remit, they prefer to deliver the money the process too complicated” and mistrust in personally by hand. Reasons for not using formal financial institutions. In large urban centers in channels relate to the cost of using these services and Sindh, women did not register because they did not the lack of trust in them. see any benefits in opening a mobile account. Payments have slightly higher penetration among Lack of information is a pervasive barrier, despite women, with 4 percent of women making some a high proportion of women expressing confidence sort of payments and 3 percent using mobile in their understanding of mobile money. At a basic platforms to do so. The main reason for not using level, 74 percent of women had heard of mobile formal channels for payments is the perceived cost money services, though just 36 percent understood associated with them. what they mean. These relatively high levels of awareness are spread across rural and urban areas Mobile Money of Punjab, Sindh, and KPK. By contrast, women in Baluchistan lag considerably in their awareness The A2FS data show that technology has been levels, with only 28 percent saying they had heard important in enabling the expansion of access and of these services and only one percent claiming to usage of formal financial services for women (and understand them. men) in Pakistan over the past eight years. Overall, five percent of women reported using mobile money The challenge of awareness brings us to the issue (m-wallets and OTC) in the 2015 survey, which is of financial literacy among women in Pakistan. quite significant given that only 6.4 percent reported Although the debate continues, there is mounting using conventional banking services despite the long evidence that improving the financial literacy of history of commercial banking in Pakistan. Thus, men and women can promote financial inclusion although digital financial services are only enablers (Alliance for Financial Inclusion 2016). We use of financial inclusion leading to uptake of financial A2FS data to analyze levels of financial literacy services like credit, savings, and insurance, their among various segments of Pakistan’s female recent contribution to the surge in usage of formal population next. financial services makes it important to analyze who they are reaching, what they are being used for, Financial Literacy and why. This will help inform sector stakeholders The A2FS 2015 data show that 55 percent of women as they consider strategies for further expanding in Pakistan have heard of and understand some of women’s access to formal financial services through the commonly used financial terms, such as bank, mobile-based solutions. pension, interest, bank account, and committees. Most of the women who reported themselves as Awareness levels across provinces are as follows: users of mobile money services live in the small Punjab, 59 percent; Sindh, 56 percent; KPK, 49 cities and rural areas of Punjab. Users are more percent; and Baluchistan, 13 percent. Awareness or less spread out across income groups in the at the national level drops to 18 percent for more province, with usage being lowest in the lowest sophisticated terms such as insurance, shares, quintile. In terms of the services these women use, investments, insurance premiums, stock exchange, OTC payments are dominant (3 percent), followed and exchange rate. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 29 There is also an urban bias, with women in urban of understanding tend to be higher and the gap centers in Punjab and Sindh having the highest between men and women tends to be smaller. levels of understanding. Similarly, more women in As we think about designing products for women higher-income groups have knowledge of financial as well as our outreach strategies, it is important to terms, with the knowledge gap between high- and understand the level of autonomy women have in low-income segments being wide. For example, financial decision making within the household. As only 43 percent of women in the bottom income the A2FS 2015 data show, only 4 percent of women quintile understand basic financial terms, whereas in the country make financial decisions on their this ratio is 80 percent for the top income quintile. own, whereas 47 percent of them make decisions in Similarly, only women in high income brackets consultation with their spouses (18 percent of men show any significant levels of understanding of said they make financial decisions independently more complex financial terms. Even knowledge while 23 percent said they did so in consultation about Islamic banking is quite low, with only 7 with their spouse). Women in higher-income groups percent of women at the national level saying they are more likely to make decisions independently, understand what it is (Box 4). but the overall levels of autonomy remain low. An analysis of the gender gap in levels of financial Insights from the A2FS in 2008 and 2015 into literacy shows interesting trends. For one, we find women’s financial behavior and preferences can be that the gap between genders is significantly different used by policymakers, financial service providers, across provinces: in Punjab, levels of understanding and technology platforms as well as researchers of basic financial terms differ between men and to design evidence-based policies and financial women differ, on average, by only 2 percent, but products and solutions. The two rounds of data also the gap widens in other provinces. In Sindh, this make possible some ballpark estimates about the difference is 9 percent, and in Baluchistan and potential market size for formal financial services KPK it is nearly 17 percent. Additionally, in urban among women, an exercise that is taken up in the areas and within the top income quintiles, levels following section. Box 4: Islamic Banking and Women’s Financial Inclusion In 2001, SBP initiated a strategy to facilitate the establishment of Islamic banks as well as Islamic banking subsidiaries and branches of conventional commercial banks in Pakistan. It issued detailed licensing criteria, instructions and guidelines for Shariah compliance; profit and loss distribution and pool management; and new prudential and other standards. Since the introduction of the regulations, Islamic banking has grown at a fast pace, with six dedicated Islamic banks and 16 banks with dedicated Islamic banking branches operating in the country by June 2016. At this time, total assets of Islamic banks equaled PKR 1,745 billion, equivalent to 11.4 percent of total banking assets. In the absence of gender disaggregated data, it is difficult to see which Islamic banking institutions are serving women and how the segment has grown over time. However, the demand-side A2FS data shows some growth in usage over the period 2008-2015: women with Islamic bank accounts went from 0.01 percent to 0.4 percent. The survey also tells us that religious beliefs are an important reason for women to not open a bank account, with 34 percent of women citing it at the national level. This barrier is particularly important in small towns and rural areas across all provinces and high income quintiles in Sindh and Baluchistan. Nevertheless, a strategic focus on women within the Islamic banking industry seems missing at present. Source: Data from SBP Banking Compendium (2016) II. FINANCIAL LANDSCAPE OF PAKISTAN AND WOMEN’S FINANCIAL INCLUSION 30 III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN T he supply-and-demand-side analysis of the financial sector from a women’s inclusion lens sets the background for thinking about untapped potential and ways to convert it into access and usage by and for women. Given the low levels of financial inclusion of women in Pakistan as compared to its peer countries, it may be assumed that the market is underserved and holds significant potential to expand. However, to provide some measure of how large the gap is, in this section we construct midterm demand estimates for potential women users of formal credit, savings, insurance, and mobile payments. It must be mentioned here that these estimates methodology for combining the two sources in are constrained by the unavailability of gender order to construct demand estimates and subsequent disaggregated data within the financial sector, growth projections for the period 2016–20. except in the case of the microfinance subsector. In the absence of such information, we have had to rely The Methodology on proxy indicators and had to combine different datasets, which can be problematic for accuracy and Using demand-side data from A2FS data, we robustness of the estimates. Hence these numbers undertake a statistical analysis to estimate the size are only indicative and are meant to illustrate the of the potential demand for formal financial services high levels of untapped potential. Although the among women in Pakistan. To keep the numbers results presented here need to be interpreted with as realistic as possible, the exercise focuses on all their caveats, the exercise itself highlights the identifying the nonusers of each formal financial urgent need to collect gender disaggregated data. service who are most likely to convert to becoming users. The statistical analysis was approached as follows: Estimating the Potential Demand for Formal Financial Services Existing users of informal services for each 1. financial service (credit, savings, payments and In this section, we estimate the market gap across remittances) were used as a baseline number to four key services that are most relevant to women’s estimate the size of the population that forms the financial inclusion in Pakistan in the medium broadest convertible (to formal financial services) term. The key data challenge in this context was segment. the choice and use of available data. On the one hand, we have demand-side data from A2FS, but A further analysis of usage (frequency, ticket 2. on the other hand, the supply-side data comes size, and distinction between different services) from financial service providers and regulators. of the users of informal services, together with a For various reasons (discussed below) there can comparison with the nature of the formal financial be substantial differences between the two sets services available, was used to filter down of information, making it challenging to combine this estimate. them. In the next subsection we lay out our STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 31 3. These estimates were further refined using of error and statistical significance qualifications. regression models to identify factors that had a When proportions and numbers emerging from the statistically significant impact on the likelihood survey are as low as we have in Pakistan’s financial of usage of formal financial services. The inclusion data, this margin of error can take on demographic factors used included education, additional significance. It also results in differences age, education of female household head, mobile between A2FS data and the supply-side numbers. ownership, financial literacy, and marital status A third challenge of using demand-side data/ (for full models and regression results, see indicators is related to the regularity of reporting Annex C). and tracking financial inclusion indicators. The 4. For insurance services, in the absence of an industry at the moment is set up to track supply-side alternative in the informal sector, a combination indicators, such as number of accounts and number of demographic data and usage of related formal of loans, on a regular basis. It is thus pragmatic to financial services was used to estimate the unmet create growth projections using these indicators. demand. Hence, for our purposes, we draw on A2FS-based 5. Usage data, demographic data, and economic estimates of the potential market and then relate data were all used to assess the potential value of that to current levels of industry data to create this unmet demand in the different segments. projections for women’s financial inclusion over the next five years. We do so as follows: However, using the A2FS data to create midterm projections is problematic because, as mentioned • We undertake a statistical analysis using A2FS earlier, these data do not match the supply-side data data to generate the extent to which the market used by industry players. This mismatch can lead to is underserved, that is, how many multiples of the following issues. current outreach remain untapped. Hence, what matters for this exercise are the potential growth First, the A2FS (and other demand-side surveys) rates rather than absolute numbers emerging generates data on unique users of a financial service. from the A2FS. For example, when the data show that 11 percent of women in Pakistan have bank accounts, this is • We then apply these growth rates to the actual a count of the number of women. By contrast, the supply-side data for the year 2015 to estimate available supply-side data do not track individual potential demand in the market. Various sources users but accounts, and since one person may have were used to obtain base year data for several more than one account that person can be double- types of financial service providers. These are (or multiple-) counted. This creates a mismatch referenced in the text. between the financial inclusion data generated • Growth projections are presented using supply- by the surveys and the actual supply-side data side data instead of A2FS numbers, since these that institutions track and have available. While are the indicators most likely to be tracked and targets for inclusion are also often set in terms of used by institutions and policymakers in their individuals, currently there is no supply-side data planning. available to identify unique users. In this section we discuss the potential demand Second, the A2FS is based on a national sample, and the gap in the market, and we turn to growth which is used to infer information about the projections in the following section. It is important population (Pakistan’s adult population). As to bear in mind that whatever data we use, we with any inference exercise that uses a randomly find that the gap between existing female users of selected and representative sample and other formal financial services and the potential users standard survey implementation procedures, the is large. The stakeholder consultation should resulting data points are still subject to a margin III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 32 preferably focus on how to advance women’s services in the year preceding the reference period financial inclusion, given that these estimates only (per A2FS 2015 data). Using the demand-side confirm what we know from institution-level data A2FS data, an analysis of various characteristics and demand-side surveys. of users of formal credit was done to understand the key characteristics that drive demand. Mobile In addition to the estimated gaps based on ownership was found to be critical, along with the the current demographics of the adult female usage of informal credit (excluding store credit) population, further demand can be expected from and informal saving mechanisms. Nonusers with exogenous factors such as economic growth, shifts these characteristics—that is, those who own a in economic activity, and population growth. For mobile phone and are using informal credit and example, between 2016 and 2020 five million more saving mechanisms—are most likely to use formal women are expected to be added to the adult female credit soon. These are estimated to be 7.8 percent population base in Pakistan,13 showing on one hand of the adult female population, equaling 3.5 million the potential to grow but on the other, the challenge women. This represents a growth potential of about for inclusion to outpace population growth. 438 percent. Potential Demand for Credit As discussed above, to convert these demand- side estimates into indicators that can be tracked To identify demand for credit, we started the analysis by financial sector stakeholders, we proceed by by looking at female borrowers who borrow from taking this growth ratio and applying it to the actual informal sources, ranging from shopkeepers to supply-side data published by SBP (for commercial money lenders. Based on the frequency, nature, and banks) and the Pakistan Microfinance Network size of the borrowing from shopkeepers, nonusers of (PMN) (for the microfinance sector). Based on our formal financial services who were only borrowing estimates, the total number of loans made to women goods or cash from shopkeepers were excluded at end-December 2015 by the commercial banks from the potential demand figure. The demographic and microfinance sector stood at 2.9 million loans. factors were tested on the use of formal borrowing Applying the potential growth of 438 percent to this sources by women using a regression analysis. baseline, and holding population levels and other The analysis found that mobile ownership is the socioeconomic indicators constant, we estimate only factor that had a statistically significant impact that the total size of the credit market for women on the chances of using formal borrowing services, is 12.7 million loans. The currently underserved controlling for other factors. Mobile ownership was market is thus 9.8 million loans. This estimation is then used as a final filter to determine the demand shown step-by-step in Box 5. in terms of the number of potential borrowers. The A2FS data allow us to break down the unmet value of potential borrowing was then estimated demand by province. We find that 75 percent of using the figure of PKR 45,000, which was the the demand is located in Punjab and 18 percent in average size of borrowing in the last 12 months Sindh. Within all the provinces, 48 percent of the (according to the respondents in the A2FS 2015). demand is in rural areas, followed by large cities and The female adult population in Pakistan in 2015 then, lastly, small towns. In Sindh, on the contrary, was 45.3 million,14 of which only 1.7 percent 67 percent of the demand comes from large cities or 0.8 million women had used formal credit and the remaining from rural areas. 13 Assuming the population growth rate stays the same at 2.1 percent. Estimates based on WB data. http://data.worldbank. org/country/pakistan 14 Source: The World Bank (http://data.worldbank.org/country/pakistan) for data on total population, and 1998 Census (http://www.pbs.gov.pk/sites/default/files/other/pocket_book2006/2.pdf) for the percentage of female population. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 33 Box 5: Step-by-Step Estimation of the Potential Market for Credit Services Among Women • Women borrowing from formal sources in 2015 = 1.7 percent = 0.8 million women (A2FS 2015 data). • Potentially underserved women borrowers = 7.8 percent = 3.5 million women (estimated through regression analysis using A2FS 2015 data). • Growth potential = (3.5/0.8)*100 = 438 percent. • To convert this into supply-side targets, we use baseline data from the sector being tracked by SBP. According to SBP’s Statistics on Scheduled Banks (Dec 2015)15, the total number of loans to the private sector by scheduled banks (including personal loans) = 3.2 million. These data are not available in gender- disaggregated form, so a proxy ratio is used. An estimate by SBP for December 2013 suggests that five per- cent of loans to the private sector by banking sector are going to women.16 Applying this ratio, we estimate that at end-December 2015, the baseline number of loans made to women by scheduled banks = 160,000 loans. • To this, we add the number of loans to women by the microfinance sector, sourced from PMN’s MicroWATCH.17 These data are available in gender-disaggregated form, and stood at 2.1 million loans at end-December 2015. • Together, the 160,000 loans from the scheduled banks and the 2.1 million loans from the microfinance sector give us a baseline for December 2015 of 2.26 million loans to women. • Applying the potential growth ratio of 438 percent to this number, we find that the total potential loans to women = 9.9 million loans. • The currently missing market thus is 9.9 million minus 2.26 million = 7.6 million loans to women. Potential Demand for Savings Demographic factors were tested on the use of formal borrowing sources by women using Only 2.8 million women in Pakistan (6.4 percent) regression analysis. It was found that high financial save formally using conventional bank accounts, literacy, education higher than middle school, and according to A2FS 2015. The starting point for mobile ownership all improved the chances that an estimating potential demand for saving was an informal saver would be a formal saver. These three observation concerning women who only use factors were used to filter down the demand numbers informal services to save, such as saving cash at further to reach the final size of the savings gap. The home, saving in assets, or saving with third parties. value of potential savings was then estimated using This pool was further filtered down by excluding the figure of PKR 25,000, which was the average savers who were only saving with cash at home or size of borrowing during the last 12 months quoted with family/friends/neighbors. The lack of use of by female respondents in the 2015 AF2S. Using external third parties or any kind of non-cash assets the characteristics of typical savers and the average of value made them less likely, in our opinion, to saving amount, the potential demand for formal seek out savings solutions from formal financial saving is 6.1 percent or 2.6 million individuals, institutions. 15 Available at http://www.sbp.org.pk/publications/schedule_banks/Dec-2015/Advances.pdf. Please see Section 3.2 (p. 65) on Advances Classified by Borrowers - All Banks. 16 SBP, Key Indicators on Gender Mix, Available at http://www.sbp.org.pk/acd/Access-Finance-Indicators-mix.pdf; See Table 1. We exclude microfinance banks in this estimate. 17 Available at http://www.microfinanceconnect.info/assets/articles/52d457480386fcfc1ae14805b86aa058.pdf III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 34 representing a growth potential of approximately estimates assume one account per woman, since the 93 percent in terms of new depositors. A2FS data allow us to estimate the number of potential users. As we did for the analysis of credit demand above, here we apply the growth ratio to the actual supply- If we also take into consideration the possibility side data published by SBP (for commercial banks) of multiple accounts, this estimate would increase and PMN (for microfinance banks). Based on our significantly. CGAP (2009) estimates that the estimates, the total number of bank accounts held number of accounts per banked adult is between 2.2 by women at end-December 2015 in commercial and 3.8, and notes that this does not vary significantly banks and microfinance banks stood at 15.6 across developing and developed countries (p. 12). million. Using the potential growth of 93 percent If we assume the average to be three accounts per on this baseline, and holding population levels person, then the potential number of women-held and other socio-economic indicators constant, we deposits would be 90.3 million accounts. This estimate that the total size of the savings accounts estimation is laid out step-by-step in Box 6. market for women is 30.1 million accounts. These Box 6: Step-by-Step Estimation of the Potential Market for Formal Accounts Among Women • Women saving formally in 2015 = 6.4 percent = 2.8 million women (A2FS 2015 data). • Potentially underserved formal female savers = 6.1 percent = 2.6 million women (estimated through regression analysis using A2FS 2015 data). • Growth potential = (2.6/2.8)*100 = 93%. • To convert this into supply-side targets, we use baseline data from the sector being tracked by SBP. According to SBP’s Statistics on Scheduled Banks (Dec 2015)18, total personal accounts held in commercial banks stood at 32.9 million. These data are not available at a gender disaggregated level, so we proxy the breakdown by using the ratio of women-to-men who reported that they had a bank account in the A2FS 2015. About 6 percent of women (as compared to 10 percent of men) said they had a bank account. Although this seems high, we use this ratio in the absence of better data, and break down the total personal accounts reported in the SBP Statistics by gender: 37.5 percent of accounts (12.3 million) are held by women in commercial banks. • To this, we add the number of accounts held by women in microfinance banks, sourced from PMN’s MicroWatch.19 These data are available at a gender-disaggregated level, and they stood at 3.3 million female depositors at end-December 2015. • Together, the 12.3 million accounts held in scheduled banks and the 3.3 million accounts held in microfinance banks give us the baseline for December 2015 of 15.6 million formal accounts held by women. • Applying the potential growth ratio of 93 percent to this number, the potential formal accounts held by women = 30.1 million accounts. • Given the possibility of multiple accounts per depositor and CGAP’s estimate that this lies between 2.2 and 3.8 accounts per person, we can estimate the total potential number of women-held deposits in Pakistan to be 90.3 million. 18 Available at http://www.sbp.org.pk/publications/schedule_banks/June-2016/Deposits.pdf. Please see Section 2.2.4 (p. 29) on Deposits classified by Depositors - All Banks. 19 Available at http://www.microfinanceconnect.info/assets/articles/52d457480386fcfc1ae14805b86aa058.pdf STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 35 Of this total savings account potential, 61 percent lies are saving through banks and not just any formal in Punjab, and 31 percent in Sindh. It is interesting product/service/avenue. The analysis found no to note that the demand is equally distributed over reliable source of the average insurance premiums urban and rural areas in Punjab, creating a business per policy from the survey or industry reports. case for financial institutions to tap rural markets. Based on a 2011 number from an Express Tribune In Sindh, 25 percent of the potential lies in rural news report, we have estimated the average value markets. of a premium to be PKR 5,000.20 In the analysis of how men and women view risks Potential Demand for Insurance differently, we also found that, as compared to For insurance, there is no clear alternative provided men, women are more likely to identify the death by informal sources other than saving. Based on of a household member and unforeseen medical industry research and statistical analysis, it was expenses as the biggest risks they might have to determined that the most likely users of formal cope with. Insurance penetration among the adult insurance services are women who are already female population is only about 1 percent, meaning saving at formal financial institutions. These women 0.43 million women have insurance policies. The already have relationships with these institutions nonusers most likely to buy insurance are already and would have the relatively high financial literacy saving with the banks. They represent 3 percent levels needed to engage with insurance providers or 1.3 million women. This therefore represents a and understand the product offerings. This demand growth potential of 302 percent. number was further filtered down to women who Box 7: Step-by-Step Estimation of the Potential Market for Micro-Insurance Among Women • Women using insurance in 2015 = about 1.0 percent = 0.43 million women (A2FS 2015 data). • Potentially underserved market for women with respect to insurance = 3.0 percent = 1.3 million women (estimated through regression analysis using A2FS 2015 data). • Growth potential = (1.3/0.43)*100 = 302%. • To convert this into supply-side targets, we need baseline data from the sector stakeholders. PMN in its MicroWatch tracks data on micro-insurance policy holders at a gender-disaggregated level, and places the number of women with micro-insurance at 2.1 million at end-December 2015. Data outside the microfinance sector from the wider insurance industry are not publicly available concerning the number of policy holders or the average value of premiums. The headline indicator of insurance penetration (estimated as the ratio of premiums underwritten in a particular year to the GDP) is not helpful for tracking inclusion. We thus limit our analysis to micro-insurance policy holders here. • There were 2.1 million female micro-insurance policy holders as of December 2015. • Applying the potential growth ratio of 302 percent to this number, we find that the total potential market for female insurance policy holders = 8.4 million policies. • The currently missing market thus = 8.4 million minus 2.1 million = 6.3 million insurance accounts for women. 20 http://tribune.com.pk/story/454814/increasing-coverage-why-pakistans-life-insurance-business-is-taking-off III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 36 Data on number of policy holders is not aggregated transactions. Regression analysis showed that and published at the industry level within the women who had a low or medium level of financial insurance sector. The headline indicator in the sector literacy and were above age 40 were more likely to tends to be “insurance penetration” (the ratio of use mobile money to pay their bills. We used these total premium to GDP), which is not useful in terms cuts to filter the potential demand size further. It of tracking inclusion. The only subsector for which is important to note that there are wide variations data on the number of policy holders is available among provinces in gender comparison in terms of is micro-insurance. According to PMN, the total who pays the utility bills, with Sindh standing out number of female micro-insurance policy holders as the province where more women claimed to pay as of December 2015 was 2.1 million.21 Applying utility bills than men. the potential growth rate from the A2FS 2015 data Nationwide, 1.3 million (1.3 percent of) women use above to these data from the microfinance sector, mobile money services for bill payments, that is, we estimate the potential size for women-held they go to an agent or use their mobile phones for micro-insurance to be 8.4 million policies/plans. payment. The majority of non-users who are most Special caution should be exercised in interpreting likely to use mobile money services are over age 40 potential users for insurance and the total premium and have a low to medium level of financial literacy. paying capacity. Life insurance is the most prevalent This segment consists of 3.2 million women, form of insurance in Pakistan (Intermedia 2016). representing a growth potential of over 240 percent. For this type of policy, insurance companies usually As we did for the other services analyzed above, target households and not individuals. For instance, we apply this growth ratio to the supply-side data the person in the household who is the chief income published by SBP in its Quarterly Branchless earner, usually a male, is most likely to be insured. Banking Newsletter (April - June 2016) (SBC Given this business practice and household norm, 2016c). On average, 33 million customer-oriented accurate estimation of demand for insurance by branchless banking transactions take place every women is tricky. Further, as mentioned at the start month, of which 26.7 million relate to payments of this section, since insurance is a difficult concept (excluding cash deposit/withdrawal and mobile to understand even for those with a moderate top-ups). Based on our estimates, we find that 6.7 level of financial literacy, it is not unreasonable to million of these transactions are undertaken by assume that it cannot be the first point of entry for women. Using the potential growth of 240 percent individuals, especially for women who have not on this baseline, holding population levels and other used any other formal financial service. socioeconomic indicators constant, we estimate that the total size of the mobile payments market Potential Demand for Mobile Payments for women could be 16.0 million transactions per To identify demand for mobile payment services, month. This estimation is laid out step-by-step in the first cut was to identify women who made any Box 8. Capturing these transactions would provide a sort of payments. The next step was to filter those gateway for women’s entry into the formal financial numbers down to the women who stated that they sector as well as create opportunities to cross-sell paid utility bills for their families, since utility bills products for financial institutions. are the gateway for women into mobile money 21 PMN MicroWatch Issue 38. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 37 Box 8: Step-by-Step Estimation of the Potential Market for Mobile Payments Among Women • Utility bills tends to be the entry point into mobile financial service usage. Hence we match profiles of current female users paying utility bills through mobile services to estimate the number of non-users with similar profiles. • Current female users of mobile services for utility payments number 1.3 million, and potential additional users are estimated to be 3.2 million, showing a growth potential of 240 percent. • To convert this into supply-side targets, we use the baseline data from the Quarterly Branchless Banking News- letter (Apr-Jun 2016). Data on number of transactions is broken down into OTC and m-wallet as well as by type of transaction. On average, 33 million customer-oriented transactions are undertaken per month across OTC and m-wallets. • Of these 33 million transactions, 26.7 million relate to payments (excluding cash deposit/withdrawal and mobile top-ups). The data are not available at a gender disaggregated level, so we proxy the breakdown by using the ratio of women-to-men who reported that they have used a mobile platform for payments in the A2FS 2015. About 3 percent of women (compared to 9 percent of men) said they had used mobile financial services this way. This is not an implausible ratio given that an SBP estimate suggests 38 percent of m-wallets are opened by women (SBP 2016d). In the absence of more precise and updated data, we rely on this ratio and break down the total transactions reported in the SBP newsletter by gender: 6.7 million transactions per month by women. • Applying the potential growth of 240 percent to this baseline, and holding population levels and other socioeco- nomic indicators constant, we estimate that the total size of the mobile payments market for women could be 16.0 million transactions per month. Gap Analysis and Pathways of We also develop growth projections (2016–20) for Growth women’s inclusion, separately for credit, savings, insurance, and mobile payments. These projections The foregoing analyses suggest that the potential are meant to guide the industry’s thinking in terms demand for formal financial services among women of levels of funding and strategies that would be is large and indicates a large untapped market. required over the next five years instead of being The challenge before the financial sector is to find hard targets. pathways to meet that demand. The discussion here focuses on potential pathways to advance the Projections and Growth Drivers for Credit financial inclusion of women in Pakistan. These Supply-side information on the strength pathways are discussed under two categories: of institutions, outreach levels, and policy • Low-hanging fruit: These are the opportunities environment, as well as demand-side data on usage, that are easiest to capture and do not require attitudes, and characteristics of women users (and structural changes that would need a longer time non-users) of financial services both suggest that to materialize. A time horizon of five years has two sets of institutions are most likely to contribute been kept in mind when identifying these drivers. to expanding women’s access to credit. These are the commercial banks and microfinance providers • Long-term opportunities: These are interventions (including both MFBs and non-bank microfinance and ideas that require more time to germinate and institutions). Based on this, we develop growth show results. projections for these two sets of institutions, shown in Table 6. III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 38 As estimated in the section above, at end-December this number may seem low, setting a realistic goal 2015, loans to women by commercial banks stood will provide impetus to banks to develop strategies at 160,000 loans, whereas loans to women by the for targeting women, which can then create higher microfinance sector stood at 2.1 million loans. growth trajectories in the coming years. A target that Collectively, the two sectors issued 2.26 million seems out of reach may only discourage financial loans to women in 2015. Given that the NFIS institutions and prove counterproductive. target envisions an approximately fourfold increase Table 6 shows the growth projections based on the in women with formal (savings) accounts,22 we goal of doubling the credit outreach to women over considered applying the same rate of growth to the next five years. We expect growth to be faster credit (loans). Using these baseline numbers, this in the later years than in the immediate future, as would mean increasing the total number of loans to financial service providers develop their strategies, women by 2020 to 9.0 million. However: design products, and adapt internal operations • The microfinance sector has developed its own to serve this market segment. Hence growth is growth strategy through its industry association, projected to be relatively slower in 2016–17 and to and aims to reach 4.0 million women borrowers pick up in 2018–20. All targets are indicated for the by 2020, up from 2.1 million in 2015. The end of the calendar year (end-December). microfinance growth strategy thus envisions What will drive this growth? We draw on both doubling loans to women through microfinance demand- and supply-side data to propose a few key providers.23 drivers of credit growth for women. • Consequently, the commercial banks would have Low Hanging Fruit: Short-Term Drivers to reach 5.0 million loans to women over the next four years if both sectors are to collectively reach 1. Low interest-rate regime: With the benchmark 9.0 million loans. This seems like an extremely policy rate at its historical low, the profit margins ambitious target. of financial institutions, particularly commercial banks, have been squeezed. In order to maintain Instead, we suggest a more realistic yet ambitious profitability, mid-sized and smaller banks are target which would require the commercial banks exploring newer areas and market segments. to increase their outreach four-fold, that is, go from Some large commercial banks are also starting to 160,000 to 640,000 loans to women by 2020. While tap into the female market segment, but currently Table 6: Growth Projections for Credit (Number of Loans) to Women, 2015–2020 (in Millions) Baseline 2015 2016 2017 2018 2019 2020 Loans by 0.16 0.25 0.34 0.44 0.54 0.64 Commercial Banks Loans by 2.1 2.3 2.6 3.0 3.5 4.0 Microfinance Sector TOTAL 2.3 2.6 3.0 3.4 4.0 4.6 Source: Projections by authors and Pakistan Microfinance Network (Microfinance Growth Strategy 2020). 22 The NFIS 2015 (p. 21) sets a target of 25 percent of adult females having a formal account by the year 2020. A2FS data indicates that, in 2015, approximately 6.4 percent of women had formal accounts. This suggests that the financial sector would need to expand outreach of accounts to women by four times to reach the NFIS target. 23 Available at http://www.pmn.org.pk/assets/articles/fcf3e6c087ccd7077abe4908ae310e70.pdf STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 39 the focus is limited to high-end customers. base of banks has increased by 66 percent, Helping these institutions go down-market to tap with 70 percent of the deposits being low-cost middle-income women will be key to meaningful deposits. However, the same cannot be said for growth in access. the microfinance providers, especially the non- bank microfinance companies that depend on 2. Digital credit: This involves extending credit to borrowings for on-lending. In order to reach out clients by assessing their creditworthiness and to 4.0 million women microfinance borrowers, borrowing capacity based on their cellphone they require about PKR 120 billion in additional usage. This not only expands the customer funds. A third of these funds will be raised by base for lenders but also reduces the customer MFBs through deposits, while the rest will be acquisition cost significantly. Mobile-network- raised through loans. A diversified set of sources operated MFBs are already developing and will need to be tapped to raise this amount, such piloting such products. Documenting the results as the newly formed Pakistan Microfinance of these pilots will be important to understand the Investment Company (PMIC), money and capital risks and benefits such loans bring to clients and markets, international lenders, commercial banks, service providers. Also, our findings show that and DFIs. shopkeeper’s credit is one of the most common forms of credit used by women. Digital credit Long-Term Drivers products can be designed to convert this informal 1. Islamic finance: A substantial proportion of market into one that is served formally. women cited religious reasons for not borrowing 3. Expanding the scope of credit bureaus: Women from a bank. Pakistan has a growing Islamic in Pakistan lack credit histories, but this can be banking industry, but it lacks any focus on women. addressed by expanding the scope of existing SBP could work with the Islamic banking industry credit bureaus to cover other transactions, such to develop a strategy for targeting women and as cell phone usage and utility payments. This monitoring its implementation. will not only address the collateral issue but 2. Growth of women-owned SMEs: Most women- also enable institutions to offer terms that reflect owned businesses operate in the informal the actual risk women present instead of the sector and fail to achieve their growth potential. perceived risk. However, little is known about women-owned 4. Effective marketing: A major reason for women SMEs in Pakistan. Understanding their financing not borrowing from formal financial institutions and business needs may make it easier to structure is lack of information about the products and programs and interventions to help them not only services. The challenge is not just in providing access finance but also grow. Use of technology information but also in how the messages are and mobile money platforms within value chains designed and received by potential clients. An can also create a win-win situation for women assessment of the marketing and branding of entrepreneurs by reducing their transaction banking products among women from different costs, securing their financial transactions, and socioeconomic groups and geographic areas expanding access to formal financial services for could guide institutions in ways to better design women. The potential for doing so is reflected marketing strategies. in two cases of digitizing value chains—one from Pakistan and one from Colombia—that are 5. Funding for growth: Overall, the commercial discussed in Box 9. banks have adequate liquidity to meet the needs of credit expansion. The advances-to-deposits 3. Client protection: Awareness about mechanisms ratio of the banking industry stood at a multiyear of client protection and recourse is low among low of 51 percent in 2015, down from 60 percent women. Wider dissemination of information about in 2010. In the same timeframe, the deposit such mechanisms, along with a strengthening of III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 40 Box 9: Digitizing Value Chains Although the examples we cite here do not directly relate to women-led value chains, they help illustrate the potential benefits of leveraging technology in such relationships. Telenor and Nestle Partnership: To further financial inclusion and increase digitization within the agricultural sector, Telenor partnered with Nestle Pakistan to provide SIM cards and mobile accounts to 15,000 farmers across Pakistan. Under this arrangement, farmers are paid on a weekly by Nestle (as a proxy of the supplier) through their mobile money account. Compared to the previous method where dairy farmers received cash payments by the supplier (routed through a bank), this payment mechanism increases convenience since farmers do not have to travel long distances to receive their payment (since the amount can be cashed out at the nearest agent) and reduces risk of robbery and theft. Although the examples at scale of businesses successfully digitizing payments are limited, one successful case is from the Colombia coffee sector. The Colombia Coffee Growers Federation issued ATM cards to 82 percent of its out-growers. This helped the company reduce its disbursement costs by up to 79 percent compared to cash, a saving of USD 15.5 million. Similarly, Multiflower, a seed and cuttings exporter based in Arusha, Tanzania, conducted a pilot in 2013 where they issued loans totaling USD 6,000 to 200 farmers and paid USD 67,000 to 300 farmers via M-Pesa’s mobile money product. The switch from cash to digital payment resulted in an average saving of USD 10.75 in transport costs and 8 hours per payment per farmer. Over the duration of the pilot, participating farmers saved a total of approximately 6,000 hours because they did not have to travel to collect their payments. Accessing Low-Cost Fertilizer in the Agribusiness Value Chain by Meezan Bank Limited: In 2016, Meezan Bank Limited piloted a seasonal inventory financing program for urea distributers. Working with 74 small and medium sized dealers, Meezan Bank created a technological based eco-system whereby it combined SME dealer finance with direct digital lending products for fertilizer purchase to the end retail farmer. The model also linked up with informal credit providers as well as microfinance institutions to cater for this niche credit market. According to Karandaaz Pakistan, which supported the pilot, the experiment shows that there are opportunities to leverage digital financial channels to serve previously unserved markets and boost financial inclusion at the base of the pyramid in rural areas. the mechanisms, could raise trust levels among Formal savings accounts tend to be the most women, enabling the entry of more users into the likely point of entry for men and women into the formal financial system. formal financial sector. Thus, the number of people with formal accounts tends to be one of the basic Projections and Growth Drivers for Savings indicators that sector stakeholders and policymakers use to gauge levels of financial inclusion. However, Based on current outreach, on recent growth and the challenge in tracking this indicator in Pakistan sector capacity, and on demand-side information is that financial service providers do not track on the saving preferences of women who use (or unique users, and the data include people with do not use) formal savings services, it is expected possibly more than one formal account. Tracking that three types of institutions will play a role in the NFIS target—reaching 25 percent of adult advancing women’s use of formal sector saving females with a formal account by 2020—presents products and services. These are the commercial the same problem in the absence of data on the banks, microfinance banks, and the Central unique number of women with accounts. Directorate of National Savings (CDNS), with technology acting as an enabler through m-wallets. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 41 With that caveat in mind, we turn to creating primarily the microfinance sector and commercial growth projections for the number of women-held banks—collectively needs to double its existing deposits in the formal financial sector. We focus on levels of outreach to women. the microfinance and commercial banks, as we did Women want saving services that are cheap, that in the case of credit. Baselines for the year 2015 meet their needs, and that are easy for them to for the two sub-industries, as estimated in the above manage. Given that 63 percent of women save on section, stood at 12.3 million women-held accounts a regular basis and only 11.0 percent save with a in commercial banks and 3.3 million women-held formal institution, the scope to tap into women’s accounts in microfinance banks. To develop growth savings market is huge. Savings is also key as it is projections, we consider the following: often an entry point for women to enter the formal • The microfinance industry, in its own growth financial sector. Some short and long-term drivers strategy, has projected an ambitious target of 12.5 for growing the women-held deposit market in million accounts by 2020. Pakistan are discussed below. • On average, CGAP (2009) estimates that Low Hanging Fruit: Short-Term Drivers the number of accounts per banked adult is 1. Increasing uptake of m-wallets: M-wallet between 2.2 and 3.8, and this this does not vary accounts provide a golden opportunity to significantly across developing and developed offer savings products in a hassle-free and countries (CGAP 2009, p. 12). inexpensive manner. With commercial banks and microfinance banks both utilizing branchless • If we assume the average number of accounts banking channels, m-wallets offers the quickest to be three per person, then to reach 25 percent way to reach unbanked women. We can already of the adult female population we would need see the potential for mobile money to transform 34 million accounts by 2020 at current levels of the financial inclusion landscape from the jump population.24 in inclusion data in Pakistan between 2008 and • If MFBs reached 12.5 million accounts by 2020, 2015. This needs to be built upon. Also, industry the commercial banks would then need to reach experts believe that the prevailing incentive another 21.5 million accounts held by women. structure for agents is skewed toward OTC transactions. Affecting change in these structures Overall, reaching the NFIS target women’s can have a positive impact on women’s use of inclusion implies that the financial sector— m-wallets, although the potential is currently Table 7: Growth Projections for Savings: Number of Accounts Held by Women (in Millions), 2015–2020 Baseline 2015 2016 2017 2018 2019 2020 Accounts with 12.3 14.1 15.9 17.8 19.6 21.5 Commercial Banks Accounts with 3.3 3.3 4.3 6.2 8.5 12.5 Microfinance Banks TOTAL 15.6 17.4 20.2 24.0 28.1 34.0 Source: Pakistan Microfinance Network, Projections and Microfinance Growth Strategy 2020. 24 25 percent of the 45.3 million adult females in 2015 = 11.3 million women. III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 42 limited by low levels of mobile ownership 5. Retail investments and saving plans by asset among women in Pakistan. Only 30 percent managers: Due to a decrease in the savings rates of women own a mobile phone, and there are on deposits, mutual funds being offered by asset social stigmas attached to women using phones managers could be attractive to women. However, independently. Khan (2016), using the Financial given women’s preference for familiar products, Inclusion Insights 2015 (FII) survey for Pakistan, fund managers need to design products and finds that 18 percent of nonusers did not use a marketing material to suit women’s preferences. phone because they were “not allowed to use by Mutual funds are already starting to focus on family”; Khan suggests that promoting female expanding their retail client base, and considering mobile money agents and countering the stigma women as a priority segment could be a win-win through advocacy efforts may help overcome for both the mutual funds and female savers. these social biases. Long-Term Drivers 2. Deposit Insurance: SBP is set to launch deposit 1. Islamic saving instruments: A substantial number insurance, which should help mitigate the of women avoid placing their savings with banks trust issues women have concerning financial due to faith-based sensitivities. Islamic banking institutions, which were among the top three could attract these women clients to formal reasons for not saving formally cited across channels. In addition, shariah-compliant mutual several socioeconomic groups of women. funds and saving plans being offered by asset The launch of deposit insurance would need managers can also be targeted toward women. to be complemented with a publicity and (See Box 10.) awareness campaign that could reach different socioeconomic groups in order to have an impact 2. Innovation: The approach of feminizing on demand. products will not be fruitful in the long term; a more strategic approach is needed by financial 3. Partnerships to tap rural markets: The rural institutions for effectively meeting women’s market is largely untapped, and its potential is saving needs. Moreover, both long- and short- high, especially in Punjab and Sindh. Concerted term products with attractive returns need to be efforts are needed to tap this market segment offered to lure women away from saving through through appropriate, affordable products based informal channels in illiquid or nonproductive on a good understanding of the needs of rural assets like gold and real estate. Doing so requires women. Partnerships between rural NGOs innovation. Making funding available to test new that have a grassroots presence and financial products, new processes, and new segments and institutions can play an important role in reaching then documenting and disseminating the findings these women and building trust. could catalyze the expansion of services to 4. Conversion of savings locked in prize bonds: new sectors. Investment in prize bonds has grown significantly 3. Shift in perceptions: There is a trust deficit among in the past few years, especially in small towns. women when it comes to financial institutions. There is a need to understand what makes Many also feel these institutions are not relevant these instruments attractive to women and to to them and that opening an account will bring offer savings products that can convert these them no benefit. Shifting these perceptions will monies into deposits. Digital financial services be important for building long-term, sustainable can provide an opportunity for capturing these relationships with women clients. savings through customized and innovative product design as well as partnerships with the Central Directorate of National Savings. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 43 Box 10: Islamic Finance Products for Women – Examples from Other Countries The Islamic finance industry has been growing rapidly around the world and now covers a broad range of product types, such as ijarah (leasing), mudaraba (profit sharing), musharakah (partnerships), and takaful (Islamic insurance). We showcase here some examples of products that have been particularly designed for women or have proven to be attractive to women. Bangladesh A Rural Development Scheme (RDS) operates mainly for the poor women of the rural areas of Bangladesh under the Islamic Bank Bangladesh Limited (IBBL). As of 2012, RDS had disbursed approximately US$577 million, benefitting 625,000 women in over 13,000 villages across 61 districts. IBBL plans to extend the RDS program to all of its 266 branches across the country’s 64 districts in the coming years. The scheme works as a fund whereby each member of the group has to deposit a minimum of Tk.2.00 (Bangladeshi Taka) per week in the Centre Fund. This fund is kept by opening a Mudaraba Savings Account in the name of the respective center, and branches of IBBL have been encouraged to invest their deposits in their respective areas. United Arab Emirates (UAE) Abu Dhabi Islamic Bank (ADIB) offers specific products and services tailored for women in UAE under its Dana banner, which it launched to upgrade its existing services in women’s banking. It offers deposit, savings, and investment accounts to women along with credit cards, various financing modes, and women-specific offers and promotions. Dubai Islamic Bank (DIB) is the largest Islamic bank in UAE and has over 35 years of experience in Islamic banking. DIB has an extensive list of products and services, from conventional banking products to insurance (takaful). It offers women roughly eight different types of accounts, which include deposit and savings accounts, and around four different types of credit cards. Financing includes home, auto, and education loans along with personal/running finance. Finally, DIB has a wide range of takaful products that include life, health, education, and savings/investment insurance. Indonesia Maybank Indonesia is one of the largest private banks offering Islamic products and services to women in the country. It has been offering takaful and financing to women, in addition to savings and deposit accounts and credit cards. Takaful Persona Lady and Premier Lady Savers are the bank’s flagship products. Sources: UNDP, Poverty Reduction: Scaling Up Local Innovations for Transformational Change (2012); Dubai Islamic Bank: http://www.dib.ae/johara-ladies; ADIB: http://www.adib.ae/en/Pages/ms_personal_dana_about.aspx III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 44 Projections and Growth Drivers for available documentation of their experiences or Insurance of the current status of those product lines. Future use of technology is likely to be informed by The insurance industry has struggled to make past experiences, and research on successful and inroads in Pakistan and continues to have low unsuccessful experiments would help the sector penetration levels, especially among women. Only avoid past mistakes. 1 percent of women use any form of insurance, and growth in the industry is unlikely without major 2. Customization of products: The tendency to product or process innovation. That said, there think of women as one big market segment are some pilots underway that use technology and leads to the development of generic products mobile platforms as conduits and could enable the that in the end meet no one’s needs. The female insurance sector to break out of its stagnation. economy is growing in Pakistan and it is likely to continue growing in the coming decades. To Micro-insurance and life insurance are the most tap into this potential market, insurers should likely products to be able to contribute to this understand the various needs of women and the growth. Table 8 presents growth projections for varying submarkets among women and design an micro-insurance only, due to the paucity of baseline appropriate variety of products. data for other subsectors; these projections have been developed by the microfinance industry 3. Partnerships: MFPs and insurance companies through the PMN. The industry aims to more than can partner to extend insurance services to double its micro-insurance outreach to women in women at the base of the pyramid. MFPs that the five-year period of 2015–2020. have predominantly women clients can offer While we are constrained in developing projections dovetailed and standalone insurance products for the broader insurance industry’s outreach to acting as agents of insurance companies, as in the women, we next identify drivers of growth that case of DAMEN (documented in Showcase 2, apply across the industry. boxed in Section 2 of this report.) Low Hanging Fruit: Short-Term Drivers 4. Disaster risk insurance: The areas where insurance penetration was relatively higher 1. Leveraging of technology: Digital channels like among women were regions struck by disasters telesales can be used to extend insurance products. in the recent past. Women and households Telecom companies have access to a wealth of vulnerable to climate change and natural disasters data that can be mined to develop better insurance require products to protect them. products and better underwriting policies. These channels can be especially effective at reaching Long-Term Drivers young and “time-poor” women. Technology can also enable delivery of after-sales services and 1. Creating understanding about insurance: There premium payments. Also, while several pilots of is little awareness among women in Pakistan micro-insurance products have been rolled out about insurance products and how they can help by telecom companies in recent years, there is no mitigate risks. Women find these products to be Table 8: Growth Projections for Micro-Insurance Policies Held by Women (in Millions), 2015–2020 Baseline 2015 2016 2017 2018 2019 2020 Micro-insurance 2.1 2.3 2.3 2.9 3.6 4.4 Source: Pakistan Microfinance Network, Microfinance Growth Strategy 2020. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 45 too complex and often substitute their savings transactions, growth rates remain high, reaching for insurance. Among the top three reasons to nearly 30.3 million user transactions per month. save, among women in Pakistan, are “[to] meet The introduction of biometric technology and SIM expenses related to medical emergencies” and verification in account opening has also pushed the “[to] provide for the family in case of [their] number of m-wallets upwards in recent months. own demise.” Creating an understanding of As estimated above, currently women undertake how insurance differs from savings and creating about 6.7 million payment transactions per month awareness about its value-add are both important using branchless banking platforms, and the single for enabling uptake. most common use of these platforms is for paying 2. Building awareness of client protection utility bills. As women become familiar with these mechanisms: Women’s low levels of trust with payment platforms, we can expect not only that more regard to insurance providers also need to be women will use the services but also that they will addressed. Organizations need to strengthen their diversify their usage. According to a GSMA report, own frameworks of client protection and provide women require five to 10 interactions before they clients with speedy and effective recourse become comfortable with the use of a mobile money mechanisms, and the industry and regulators also service (GSMA 2014, p. 8). Growth in the overall need to raise awareness of the mechanisms they number of branchless banking transactions over the have put in place to protect the public. 2014–15 period stood at about 35 percent, as per the SBP (SBP 2016e, p. 121). We can expect these 3. Improving gender balance in the industry: In growth rates to taper down as market penetration comparison to other types of financial service increases. Our projections for mobile payments by providers, the gender balance within the women are thus based on a goal of doubling the insurance industry is highly skewed toward men. number of transactions by 2020. This would mean As the experience of institutions like the Kashf reaching about 13.4 million transactions by women Foundation and Habib Bank Limited shows, per month (Table 9). success in reaching more women is affected by the gender balance within the organizations. Low Hanging Fruit: Short-Term Drivers Affirmative recruitment and staff development 1. G2P payments: G2P (government-to-person) policies could be considered to improve gender payments provide an excellent avenue to increase balance in insurance companies. the spread and adoption of branchless banking channels. The potential of this shift is clear from Projections and Growth Drivers for the rise in the inclusion of women in Baluchistan Digital Payments due to digitizing BISP payments. According to a CGAP study conducted in 2013, cash transfers Usage of mobile money and digital financial make up 11 percent of government flows, while services has consistently grown in the past few salaries account for 68 percent and pensions years in Pakistan. Measured by the number of 21 percent (CGAP 2013). According to CGAP Table 9: Growth Projections for Mobile Payments by Women (Number of Transactions per Month, in Millions), 2015–2020 Baseline 2015 2016 2017 2018 2019 2020 Mobile Payments 6.7 7.7 8.7 10.4 12.2 13.4 Source: Pakistan Microfinance Network, Microfinance Growth Strategy 2020. III. SIZING THE WOMEN’S MARKET FOR FORMAL FINANCIAL SERVICES IN PAKISTAN 46 estimates, up to 75 percent of the cash flows 3. Increase in POS terminals: An increase in POS could be digitized by 2018. This means reaching terminals from the present low of 50,000 would out to 11 million individuals, out of whom lead to an increase in use of electronic payments. 7 million are cash transfer beneficiaries who are mostly women clients. This move alone could Long-Term Drivers be one of the game changers in reaching out 1. Mobile ownership: Currently, only 30 percent of to the unbanked and expanding outreach to the women own a mobile phone in Pakistan. Growth last mile. in mobile ownership in coming years will also enable further growth in the use of mobile money 2. E-commerce: Though Pakistan may be a late services. entrant into the e-commerce sector, the market is now expanding rapidly. The combined increase 2. User-friendly interfaces: By diversifying the types in internet outreach, the launch of 3G and 4G of interfaces customers can use to access mobile LTE services, and the increasing availability of money accounts, service providers can target affordable smartphones are all contributing to different market segments. Graphic interfaces this growth. While established global players like that are easy to use for women with low levels Amazon have yet to launch in Pakistan, a number of literacy and little familiarity with data services of local and international portals are providing could improve the chances that women will use online shopping services. Currently, an estimated 3 mobile money. Additionally, well-designed apps percent of the population is using online shopping, could dramatically enhance the user experience with nearly 95 percent of the transactions being by providing rich user interfaces and enhanced handled through cash on delivery. There is thus a functionality. huge potential for branchless banking to provide payment solutions and capture this fast-growing 3. Agent network: The maturity of the agent network segment. The increasing sophistication of these and its ability to deal with a large number of payment solutions in service delivery, innovation, transactions and big volumes are important for the and product development is likely to attract more adoption of these channels by women clientage. players to this field including established global players. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 47 SHOWCASE 3: STRATEGIES In order for women’s financial inclusion to advance at rates projected in this paper, retail institutions must start treating women as viable customers and as an integral part of their business strategy. Some financial institutions have begun to do so. We document two such cases here. Habib Bank Limited’s Nisa Program: Becoming the ‘Bank of Choice’ for Women Habib Bank Limited’s Nisa (meaning woman) is a banking platform, launched in 2015 by one of the largest banks in Pakistan, based on the recognition that most women remain un-served or underserved. The products currently available in the market for women are limited in scope, with restricted market reach. This leaves a large portion of a business segment completely untapped. By providing products and services according to the financial needs of its women customers, Habib Bank is determined to grow its client and deposit base, thus making this effort a matter of good business sense. Additionally, bringing women into the banking fold serves their financial inclusion well and will have an impact on the economy at large. Nisa’s aim is to understand women’s financial needs, educate women, and develop products and services that cater to them. Building on its current strong base of 2.0 million female customers, Habib Bank Limited aims to become the bank of choice for women across the nation. With support from IFC, the bank undertook research to answer the questions, “How are women different?” and “How can this be leveraged for growth?” The resulting knowledge has been used to design the program’s interventions. To date, these have included the following: • Encouraged internal diversity by building a critical mass of female employees: This has involved lowering age criteria, implementing sexual harassment laws, and undertaking new human resource recruitment initiatives and female-focused job advertisements in print and online media. • Gender sensitization training across its staff to begin influencing staff attitudes toward women customers and colleagues. This, Habib Bank Limited says, is good business sense as it affects customer service. • Developed a segment focus: A Women’s Market Unit plays a leadership role in executing the Nisa program and identifying/developing products and services targeted at women. Some of the products rolled out include women-identity-based customized debit cards and cheque books, women-oriented lifestyle and dining dis- counts, and preferred pricing on financial products and locker services for NISA customers. SECTION TITLE 48 SHOWCASE 3: STRATEGIES (continued) EasyPaisa: Strategic Partnerships to Expand Access As Pakistan’s first and largest branchless banking solution, EasyPaisa is positioned to serve women in different segments of society. It already has an active customer base of 15 million, many of whom are women. With innovation at the heart of EasyPaisa’s business strategy, the platform is constantly seeking ways to expand its engagement with new customer segments. While the mode of branchless banking itself enables inclusion of previously excluded women by providing them with instant, safe, and convenient access to funds within their own communities, EasyPaisa has also taken the lead in developing strategic partnerships that target women. Highlighted here are some of these partnerships with the government. EasyPaisa has developed a cash-distributing solution for the Benazir Income Support Programme (BISP) that overcomes geographical, cultural, and logistical barriers by bringing financial services to local corner shops and therefore enabling women to register for and get their disbursements without having to travel to a bank. Within the scope of the BISP program, EasyPaisa plays a larger role in providing timely, safe, and convenient disbursements, in empowering women in Pakistan, and also in helping the country eradicate corruption. EasyPaisa disburses to more than 1.2 million women in approximately 36 of the most inaccessible and rural districts. EasyPaisa is the sole partner of Care International in providing financial services to nearly 4,000 women via mobile wallets within its Cash for Work Program. To enable these women to open mobile wallets, EasyPaisa and Care provided them with free handsets along with a Telenor SIM connection. The overall goal for Care’s 2011–26 strategy in Pakistan is to enable 28 million marginalized women to make financial choices that reduce vulnerability and impact their lives positively by giving them control over their productive assets and enabling them to exercise their rights in decision-making processes. EasyPaisa is working as a business partner with Care to help attain the same. EasyPaisa collaborated with the Sindh Education Reform Program in 2014 to supply more than 400,000 girls with ATM cards, which they could use at any ATM machine nationwide. The program operates in 23 remote districts of the Sindh province, where it is providing educational stipends to female students in grades 6 through 10. No fee is charged to the program, but instead a float-based business model has been adopted. STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 49 SECTION TITLE 50 IV. THE WAY FORWARD T he section will be finalized after the will reflect key learnings from the consultative consultative workshop. The overall workshop (including areas for future research background paper will be updated post identified during the workshop and data dis- workshop to incorporate feedback given on the aggregation agenda that emerges from the data analysis and proposed pathways of growth analytical exercise for this background paper). during the workshop. In addition, this section STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 51 References GIZ. 2013. Policy Brief: Advancing African Women’s Financial Inclusion. 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Available at https://www.secp.gov.pk/document/annual-report- 2016/?wpdmdl=20999 STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 53 SECTION TITLE 54 ANNEX A: DEMOGRAPHIC AND INCOME DATA Population Statistics, 2008 and 2015 2008 2015 Total Population 167 million 189 million Adults 50% 50% Female (among Adults) 48% 48% Urban 38% 39% Rural 62% 61% Punjab 56% 56% Sindh 23% 23% KPK 13% 13% Baluchistan 5% 5% Source: World Bank http://data.worldbank.org/country/pakistan) and 1998 Census Monthly Household Income Quintiles, 2008 and 2015 Income Quintiles 2008 2015 1st Less than 9,000 PKR Less than 18,000 PKR 2nd 9-11,000 PKR 18-23,000 PKR 3rd 11-15,000 PKR 23-26,000 PKR 4th 15-20,000 PKR 26-42,000 PKR 5th More than 20,000 PKR More than 42,000 PKR National Average 14,456 PKR 30,999 PKR Source: Pakistan Bureau of Statistics - HIES 2007-08 and HIES 2013-14 STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 55 SECTION TITLE 56 ANNEX B: DIGITAL FINANCIAL SERVICES AND WOMEN’S FINANCIAL INCLUSION: WHAT CAN GOVERNMENTS DO? D igital financial services offer a viable solution to bridge the gender gap in account ownership and increase formal financial activity in both the volume and value of transactions. Digitization can produce a favorable environment that promotes transparent, affordable, accessible, and high-quality financial products and services for women. The outcomes include providing women the ability to save formally, which could increase their formal participation in the economy. Women particularly value privacy and reducing the risk of family members confiscating funds. Digital financial services also reduce travel and waiting time to access banks or make payments for services such as utilities, and they lower the risks of traveling with cash. Improving access to credit, increasing access to insurance, reducing the risks of theft, and lowering administrative and disbursement costs are all ways that digital financial services support women-owned businesses. The financial footprint made possible through digital payments also allows for alternative methods of assessing the creditworthiness of women who do not have traditional credit assets or a financial transaction history. The benefits of digital financial inclusion provide a • Leverage modern technologies, such as powerful basis for governments to act. Governments biometrics, to overcome the lower levels of will unlock an economy where digital payments are technical adoption and literacy among women in widely available to women if they act to: some countries. • Digitize the payments and direct benefit transfers • Create a digital financial identification system. they make and receive. This presents governments with a powerful opportunity to expand women’s • Provide a favorable regulatory environment that financial inclusion, while also reducing economic allows mobile financial services to be offered and leakage caused by corruption, fraud, and other align banking and telecom sector regulations. inefficiencies. In so doing, governments help make • Reform discriminatory policies that, in practice, the business case for private sector innovation make it harder for women to access or adopt digital and investment in commercial services to reach financial services. Examples include requiring low-income women. property or physical assets as collateral where • Adopt and promote a financial customer there are limitations to women’s ownership, or protection framework to ensure that new female requiring the signature of men to open an account customers are treated fairly and have sufficient or to borrow. financial skills so they know and trust digital • Digitize business registration procedures and financial services enough to adopt them. This license fee payments. should include adequate disclosure requirements and legally authorized redress mechanisms. Source: Reproduced from The World Bank, “Digital Finance Solutions to Advance Women’s Economic Participation” (Washington, DC: 2015). STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 57 SECTION TITLE 58 ANNEX C: REGRESSION MODELS T he following regression models were used to inform the construction of the demand projection as outlined in the methodology section of the report. The relevant variables used from each model are highlighted in bold. Variables Parameters         age40p = 1 if age greater than 40 years old, 0 otherwise borrower = 1 if borrowing from formal financial institution, 0 otherwise edu5p = 1 if education greater than matric, 0 otherwise finlit = 1 if financial literacy is high on low, medium, high scale, 0 otherwise finlitmid = 1 if financial literacy levels are medium on low, medium, high scale, 0 otherwise informalborrow = 1 if borrowing from informal sources, 0 otherwise informsaver = 1 if informal saver, 0 otherwise insured = 1 if using insurance services, 0 otherwise mown = 1 if owns mobile phone, 0 otherwise notsingle = 1 if not single, 0 otherwise payor = 1 if using mobile money, 0 otherwise rural2 = 1 if resident in a rural location, 0 otherwise saver = 1 if saving with formal financial institutions, 0 otherwise utility = 1 if respondent pays utility bills, 0 otherwise STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 59 Model 1: Credit Source SS sf MS   Number of obs = 4,470 Model 0.30 6 0.05   F(6, 4463) = 4.04 Residual 55.97 4,463 0.01   Prob > F = 0.005 Total 56.27 4,469.00 0.01   R-squared = 0.0054           Adj R-squared = 0.0041           Root MSE = .11199               borrower Coef. Std. Err. t P>|t| [95% Conf.] age40p -0.001 0.004 -0.310 0.753 -0.009 0.006 edu5p 0.003 0.005 0.500 0.617 -0.007 0.012 notsingle 0.003 0.006 0.470 0.639 -0.009 0.015 rural2 0.003 0.004 0.870 0.383 -0.004 0.010 mown 0.014 0.004 3.890 - 0.007 0.021 _cons -0.003 0.009 -0.350 0.727 -0.020 0.014           Model 2: Savings Source SS sf MS   Number of obs = 4,470 Model 6.28 8 0.78   F(8, 4461) = 52.62 Residual 66.50 4,461 0.01   Prob > F = 0.0000 Total 72.77 4,469 0.02   R-squared = 0.0862           Adj R-squared = 0.0846           Root MSE = .12209               saver Coef. Std. Err. t P>|t| [95% Conf.] informsaver 0.075 0.011 7.030 - 0.054 0.096 mown 0.036 0.011 3.270 0.001 0.014 0.058 finlit 0.053 0.011 4.680 - 0.031 0.075 age40p -0.027 0.011 -2.420 0.016 -0.050 -0.005 edu5p 0.035 0.015 2.340 0.019 0.006 0.064 _cons 0.061 0.009 6.410 - 0.042 0.079 ANNEX C: REGRESSION MODELS 60 Model 3: Insurance Source SS sf MS   Number of obs = 4,470 Model 1.53 9 0.17   F(9, 4460) = 19.47 Residual 39.08 4,460 0.01   Prob > F = 0.0000 Total 40.61 4,469 0.01   R-squared = 0.0378           Adj R-squared = 0.0359           Root MSE = .09362               insured Coef. Std. Err. t P>|t| [95% Conf.] saver 0.0398663 0.004333 9.2 0 0.031 0.048 borrower 0.0457108 0.0114844 3.98 0 0.023 0.068 informsaver 0.005195 0.0029533 1.76 0.079 -0.000 0.01 informalborrow 0.0016038 0.0074529 0.22 0.83 -0.013 0.016 mown 0.0049644 0.0030359 1.64 0.102 -0.000 0.010 finlit 0.00337 0.0031275 1.08 0.281 -0.002 0.009 age40p 0.0029927 0.0031248 0.96 0.338 -0.003 0.009 edu5p 0.0063656 0.0040934 1.56 0.12 -0.001 0.014 _cons -0.006466 0.0026062 -2.48 0.013 -0.011 -0.001             Model 4: Payments Source SS sf MS   Number of obs = 4,470 Model 3.80 7 0.54   F(7, 4462) = 25.53 Residual 94.92 4,462 0.02   Prob > F = 0.0000 Total 98.72 4,469 0.02   R-squared = 0.0385           Adj R-squared = 0.0370           Root MSE = .14585               payor Coef. Std. Err. t P>|t| [95% Conf.] utility 0.057019 0.0045869 12.43 0 0.048 0.066 mown -0.0029705 0.0046348 -0.64 0.522 -0.012 0.006 finlit -0.0142273 0.0066965 -2.12 0.034 -0.027 -0.001 finlitmid 0.0123058 0.006053 2.03 0.042 0.000 0.024 age40p 0.0127001 0.0048659 2.61 0.009 0.003 0.022 edu5p 0.0101757 0.0063914 1.59 0.111 -0.002 0.022 _cons -0.0042129 0.0056259 -0.75 0.454 -0.0152 0.006 STATE OF FINANCIAL INCLUSION OF WOMEN IN PAKISTAN 61