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Financial Inclusion

The Gender Gap in Financial Inclusion – What do the Numbers Say

If you’ve been tuning into Pakistan’s economic conversations, you’ve probably come across a term called “Financial Inclusion.” So, what exactly is it? Financial inclusion means making sure that everyone, wherever they are, can easily access basic financial services like bank accounts, savings, loans, and insurance. It’s all about giving everyone the chance to utilize and reap the benefits of the formal financial system to handle their finances, save for the future, and boost their financial health.

This term has been thrown around so frequently due to the disparity between the discussions and actual progress in access to financial services. Various sources provide differing accounts of the current status. 

The World Bank’s Findex report for 2021 indicated that 21% of the adult population in Pakistan was financially included. According to the Karandaaz Financial Inclusion Survey (K-FIS), this number increased to 30% in 2022. However, recent statements from the State Bank of Pakistan (SBP) suggest that as of June 2023, there were approximately 177 million bank accounts in Pakistan. Of these, 83 million are unique accounts, making up 60% of the 137 million adult population.

Credit where it is due, the State Bank of Pakistan (SBP) has been leading the charge to fast-track the financial inclusion drive. Its efforts include the implementation of the National Financial Inclusion Strategy (NFIS) in 2015, along with recent initiatives like the Banking on Equality Policy launched in 2021 to boost women’s financial inclusion. Additionally, they rolled out the Digital Onboarding Framework in 2022 to streamline digital account opening processes and authorized the establishment of the first five Digital Banks in Pakistan.

But here’s the thing – the regulator is falling behind its targets.Financing options

While this topic could fill a series of blogs, our attention right now is on a specific issue that is very close to our heart – the financial inclusion of women.

Look Away! Not a Pretty Picture

Rather than delving into the narrative, let’s just get straight to the facts:

  • Women are often excluded from economic participation in the country, leading to Pakistan’s low ranking of 142nd out of 146 economies in the Global Gender Gap Index 2023.
  • Women make up only 24% of the workforce in Pakistan, while across the border, in India, the number is higher at around 33%. 
  • In 2022, 47% of adult men had registered financial accounts compared to only 13% of women as per K-FIS.
  • At the microfinance level, it’s even more evident that women borrowers receive much smaller loan amounts compared to men, with outstanding loans for women being half that of men. Additionally, women savers make up only 14% of the total savings in microfinance institutions.
Economic Participation - Financial Inclusion
Source: Pakistan Microfinance Network

But Why So?

There are a multitude of reasons that explain the abysmal state of financial inclusion for women. It isn’t possible to cover the breadth of the problems but highlighting some key issues would serve the purpose. 

Impediment 1: Insufficient Supply of Finance for Women

Shallow Financial Markets: Credit to the private sector in Pakistan has been on the decline with the trend only accelerating in the past two years.

Limited Role of Commercial Banks: Commercial Banks have largely ignored the cause of women financial inclusion as their interest lies elsewhere.

Low SME Credit to Women: Less than 5% of SME credit goes to businesses owned and managed by women, according to the Asian Development Bank (ADB).

Shift in Microfinance Lending: Microfinance banks have moved away from women-focused group lending towards larger enterprises.

Funding Shortfall: Non-banking microfinance companies have seen their funding fizzle out making it difficult for them to work towards the financial inclusion goal. 

Impediment 2: Policy Predicament

  • Lack of Enabling Policy and Regulatory Environment: Gender-blind legal and regulatory frameworks impede women’s participation in the finance sector.
  • Lack of Sex-Disaggregated Data and Research: Policymakers lack the necessary data to establish the baseline for women-led businesses, including microenterprises and SMEs.

Impediment 3: Female Entrepreneurship

  • Low Level of Female Entrepreneurship: The eight barriers to female entrepreneurship include literacy, mobility, access to information, access to finance, cultural attitudes, time constraints, capacity constraints, and limited business networks and linkages.
  • Unified Access to Incentives: Difficulties in providing unified access to incentives like refinancing schemes or tax benefits for women-owned and/or managed businesses.
  • Low Literacy Rates: General literacy for women of working age was only 51% in 2021, compared to 73% for males, undermining women’s entrepreneurship.
  • Digital Inclusion: Women are lagging behind on the digital front in terms of mobile ownership, access to the internet and other indicators.
Female Entrepreneurship - Financial Inclusion
Source: GSMA

For the Sake of Capitalism – Fix it!

We would love to comment on the socio-economic factors that feed into the disparities mentioned above. But, that has had its fair share of coverage. What needs to be highlighted instead is the “Why” part of the story.

Research shows that women’s increased use of formal financial services can create significant economic opportunities. The IMF estimates that Pakistan could increase its GDP by 30% by fully empowering its female labor force. 

The financial sector should be motivated by the significant opportunity presented. As per a market sizing study by Data2x, Financial Service Providers (FSPs) targeting the women’s market in Pakistan could potentially generate an annual revenue opportunity of $650 million (Rs. 101 billion). 

Women's Market Opportunity in Pakistan
Source: Data2x

There are various opportunities across different segments of the female population, with those earning more than $97 per month indicating a $124 million opportunity on its own. Additionally, the majority of women who earn less than $32 per month, whether in the formal or informal sectors, represent a $320 million opportunity. 

Considering this, there is also potential for fintech companies to leverage this opportunity and fill the gap left by the financial sector.

This post is authored by Ahtasam Ahmad, Research and Insights Lead at invest2innovate (i2i)
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