Talk about financial inclusion

It is early to say whether the donor-led, government-sanctioned, and private-sector-supported financial inclusion mantra will do any good to the lives of those locked out of the financial system. Like some other developing countries, the apparent sincerity in Pakistan resulted in the launch of the National Financial Inclusion Strategy (NFIS) in 2015. Many top-level meetings have been held since, to review progress.

Financial inclusion is the latest buzzword. The phrase now regularly features in federal governments communications to visiting dignitaries, donors and multilateral lenders. But is the financial inclusion really happening?

Sure, the headline financial inclusion indicator measured in terms of bank accounts held by adults is showing gradual improvement. The NFIS targets 50 percent adult having bank accounts by 2020. But there are some issues with this accounts-based approach.

One, currently there is no baseline available that can track how many of new accounts are being opened by those who have not had bank accounts before due to exclusionary reasons. Two, account usage how people interact with financial products needs to be monitored for low-income classes, because the link between access to finance and development outcomes is not clear cut and needs to be studied.

Best to this columns information, such data are not being captured in Pakistan right now. But local stakeholders arent the only ones lacking here. It turns out that even the donors have no precise definition for financial inclusion. Resultantly, there is no conclusive, empirically-defensible relationship between digital accounts/bank accounts and pro-poor development outcomes.

But not having a precise, all-encompassing definition of financial inclusion and a system to capture such data hardly stops local and overseas decision-makers from launching yet new projects and products under the umbrella of financial inclusion. Now, reportedly, federal government is launching a Pakistan Financial Inclusion and Infrastructure Project.

Under the lead of the National Savings Directorate, the Pakistan Microfinance Investment Company, and the State Bank of Pakistan, this project will reportedly aim to increase access to finance for households and businesses, especially through digital means. Some $130 million of financing will reportedly be sought from the World Bank.

On the face of it, bringing together a saving channel and a micro-lending conduit to deepen access to credit is a good idea. But will its focus be on real financial inclusion? It might very well be, by bringing in new micro-borrowers into the system that were previously unable to finance their needs and by providing adequate loan amounts to existing clients.

But such projects shouldnt stop at that. They must go further, capture the inclusion element, study and track how access to finance is, if at all, changing lives of the recipients in meaningful ways, and then make policy adjustments accordingly.

Failing to do that doesnt indict the good intent of the policymakers. It is just that by taking a systematic approach they will have credibility when making claims about such measures putting a big dent in poverty. Otherwise, all this talk about financial inclusion would continue to be passionate assertions.