Pakistan has witnessed a rapid surge in its financial technology (fintech) industry, resulting in exponential growth and increased opportunities for financial inclusion. Traditional banking practices are increasingly being replaced by mobile wallets, with bank branch operations largely transitioning to smartphones. According to reports from the State Bank of Pakistan (SBP), the number of branchless banking accounts has soared from 85 million in 2022 to 117 million by March 2024. Prominent mobile wallet applications like Easypaisa, Jazz Cash, and Sadapay have been pivotal in facilitating this transformation.
Despite this digital revolution, Pakistan faces significantly low digital and financial literacy rates. A report by S&P Global indicates that only 26 percent of Pakistani adults are considered financially literate, compared to an average of 35 percent in Sri Lanka. The Global Findex Database also highlights that Pakistan is among the seven economies where over half of the world’s unbanked adults reside. Between 2011 and 2021, account ownership in India increased from 35 percent to 78 percent, while in Pakistan it rose modestly from 10 percent to 21 percent. The gender disparity is stark, with only 13 percent of Pakistani women having bank accounts, a rate that is 50 percent lower than that of men. Additionally, only 40 percent of women have mobile phones in Pakistan, compared to 90 percent of men.
The rapid growth of the fintech sector, combined with low financial literacy, poses several challenges for Pakistan. The first challenge is the vulnerability of individuals to fraud and phishing scams, as a lack of understanding of financial services makes them susceptible to fraudulent schemes. Furthermore, incomplete comprehension of available financial tools leads to their underutilization, preventing individuals from improving their financial circumstances. The fear of fraud, paired with insufficient knowledge, results in mismanagement of finances, high levels of debt, and reduced savings, exacerbating existing economic disparities. Thus, addressing these challenges is crucial to ensure that the fintech industry benefits everyone.
Despite these hurdles, the fintech industry offers numerous advantages for Pakistan. It provides individuals in rural areas, where traditional banking is scarce, the opportunity to engage with and learn from the fintech community. The use of mobile wallet applications and other fintech services simplifies transactions and helps maintain transaction records. On a broader scale, fintech services facilitate documentation and accountability for transactions and payments. Increased adoption of e-payments, from street vendors to established organizations, is likely to enhance transaction velocity in the economy. However, these benefits cannot be fully realized without addressing the issue of financial illiteracy.
Rather than solely focusing on creating more applications and fintech platforms, the solution lies in developing a financially literate population. A hierarchical approach may be beneficial for achieving this goal. The Government of Pakistan’s National Financial Literacy Program for Youth (NFLP-Y) serves as a promising starting point to enhance financial literacy. However, the program’s effectiveness depends on its integration into school curricula to instill the importance of financial management at an early age. Furthermore, mobile wallet applications and fintech platforms should prioritize education as part of their corporate social responsibility (CSR) initiatives, creating programs aimed at marginalized groups. The Benazir Income Support Programme (BISP) has launched the “Benazir Social Protection Account” to empower women by providing greater access to banking services and promoting financial inclusion. Similarly, the Banking on Equality Policy aims to narrow the financial gender gap in Pakistan. Microfinance organizations like Akhuwat exemplify a model where microfinance is combined with education, teaching individuals the mechanics of microfinance and business operations.
It is vital to ensure consumer protection without stifling innovation, as this is essential for building trust. By integrating government initiatives, CSR programs, and media engagement, Pakistan can cultivate a financially literate population. Ultimately, while the Pakistani fintech industry has made considerable progress, financial illiteracy remains a significant barrier. Bridging this gap is crucial to ensure that the benefits of fintech are accessible to all, fostering a more inclusive and resilient economy.
