A flight of fancy

“What gets measured gets managed”. Management guru Peter Drucker wrote that line in his seminal book on management 65 years ago. The statement holds even truer today. The donor community’s quest for more quantified criteria for “development” is inadvertently incentivizing implementation bodies to “influence” what goes as data into benchmarks, indicators and indices, just to keep funds rolling.

A similar flight of fancy is at work in what the donors refer to as “financial inclusion”. Lacking empirical evidence, this new development fad is at best aspirational in its drive to connect the world’s marginalized communities with the financial system using mobile phones. Many global and some local non-profits are gung-ho about the development impact of digital financial services. That’s imagination at work.

The difference here is that financial inclusion indicators haven’t yet become as complicated as other development barometers. In fact, many donors and national agencies have limited financial inclusion’s scope to “uptake” – quantified as number of accounts that are “active” in past 90 days. The definition doesn’t incorporate “usage” of accounts, something which can inform about the impact of these accounts on the lives of those who are supposedly the primary target audience.

But the sector faces the fundamental problem associated with measuring what counts. Measuring the number of active accounts can set off a mad race to meet the targets at any cost. It can culminate in hazardous situations where the target audience’s confidence is undermined in digital financial services. One alarming indecent recently came to light in India, where the “one rupee scam” threatened the edifice of the Modi government’s financial inclusion drive under the ‘Jan Dhan Yojana’ scheme.

To encourage account uptake, the comprehensive JDY scheme offered bank accounts without a minimum-balance requirement in August 2014. Within two years, over 200 million new bank accounts were opened, but many became dormant shortly after. To reduce the number of zero-balance accounts, some banks asked their staff to make one-rupee deposits from their own pockets. It was to make the accounts “active” and to meet the government targets, upon which grants and reputations hinged.

Over here in Pakistan, something seems off when one looks at the central bank’s quarterly newsletters on branchless banking. As per the latest BB publication, BB accounts – or m-wallets – had reached 47.16 million, as of December 2018. That looks like an impressive feat, until one notices that over 27 million of those accounts were classified as “inactive”.

The interior is perhaps not as pretty as the façade when one wonders if a majority of the 19 million active accounts at December-2019 end would have become dormant in a few months, only to be replaced by new accounts that will also meet the same fate later on. This data looks like a recycling bin. One problem is that the SBP has a very lax definition of “active accounts,” compared to the global norm of 90 days.

An “active” account is classified by the SBP as one which was either opened in last 180 days or which had performed at least one transaction in last 180 days. Internally, BB providers have strict threshold for active accounts, for it affects their revenues. In that respect, Pakistan’s main financial inclusion indicator – number of active m-wallets or BB accounts – looks like a smokescreen.

At the very least, SBP must publish a credible number of active accounts. Otherwise, it risks undermining the government’s financial inclusion strategy, which is targeting 65 million active digital transaction accounts by 2023 (including 20mn accounts for women). It is time to get the “uptake” right so that policy focus can move towards “usage” patterns. The latter can provide various datasets that are essential to understand how and why people use digital financial services and any developmental impact thereof.