Determinants of and Detriments to Financial Inclusion in Pakistan

Feb 12, 2020
Tags :
  • BMGF,
  • Digital Financial Services,
  • Digital Inclusion.,
  • Access to financial services has been a subject of increasing policy debate in developing countries. Financial inclusion is important as it reduces poverty and inequality, allows poor people to smooth out their consumption and invest in their futures through education and health[1].  Numerous research studies show that income, employment status, ethnicity, race and marital status play an imperative role in determining the level of ownership of various financial products. Similarly, Hogarth and O’ Donnell (1997) also showed that age, gender and household size have a significant impact on the ownership of banking products in developed countries.[2] This implies that understanding the determinants of financial inclusion is important to design focused interventions for financially excluded segment of the society.

    State of Financial Inclusion in Pakistan

    According to the World Bank’s Global Findex Survey 2017[1], 21% of the population in Pakistan is financially included (percentage of adults with accounts). Figure 1 below provides a comparative picture of the state of financial inclusion in South Asia; progress in the numbers for Pakistan has been quite low compared to regional counterparts India and Bangladesh.

    Source: The Global Findex 2017 (

    Fortunately, the government of Pakistan is increasingly focusing on digital transactions to drive financial inclusion in the country. The government is engaged to overcoming the formidable challenges and promoting financial inclusion in Pakistan, the enhanced National Financial Inclusion Strategy, 2018 targets at 65 million digital accounts by 2023[1].

    Determinants of Financial Inclusion in Pakistan

    By using the Global Findex Database 2017 for Pakistan and employing a probit regression model (a methodology consistent with Alexandra Zins and Laurent Weill model, used to examine the determinants of financial inclusion in Africa[1]), this blog estimates the determinants of financial inclusion, with formal accounts ownership as a proxy. Furthermore, given the relevance of Digital Financial Services in Pakistan to promote financial inclusion, the model also extends to examine the determinants of digital financial inclusion using mobile money account ownership as a proxy.

    Thus, the main empirical specification focuses on two dimensions of financial inclusion:



    Gender: The regression results show a clear and negative relationship between gender and financial inclusion. In statistical terms the probability of having a bank account decreases by 85 percent if an individual is a female. Similarly, being a woman reduces the probability of having a mobile money account by 10%.

    Age: With age, a non-linear relationship exists for both formal account and mobile money account. This implies that as age increases, the probability of having an account increases, however, this diminishes after a certain age.

    Income level: Income has a positive association with financial inclusion meaning that individuals in the lowest income quintile are 28 percent less likely to be financially included than those in the top income quintile.

    Education: Higher levels of education among the respondent increase the probability to have a formal bank account by 129 percent compared to those individuals with primary or lower level education; for secondary level education the probability increases by 56 percent. The results are very similar in case of mobile money account – for a person who has tertiary education, the probability of having a mobile money account increases by 6 percent.

    Detriments to Financial Inclusion

    Additionally, the Findex dataset also measures the barriers to financial inclusion: distance, cost, lack of documentation, lack of trust, lack of money, religious reasons, family member having an account and thus no need for financial services.

    Using probit estimates, the analysis is further extended to understand the determinants of the barriers to financial inclusion. The regression findings reveal that for women; cost, religious reasons, lack of money are important barriers to financial inclusion while distance, lack of documentation, lack of trust, lack of need are comparatively less significant ones.


    Age: Distance, cost, lack of trust, religious reasons, lack of money become more problematic with age. Whereas, lack of documentation seems to be a decreasing problem with age. With increasing age, financial inclusion increases, however, after reaching a certain age it diminishes.

    Income: For the poorest (bottom 20%), distance, cost, lack of money are important barriers to financial inclusion.

    Gender: The probability of being financially included also decreases if respondent is a female, in the bottom two income quintiles and de to religious reasons.


    To summarize, being a woman, poor and less educated are the main reasons for both traditional and digital financial exclusion in Pakistan. Women face several barriers – poor awareness, lack of financial education and inability to meet KYC requirements explains this gender gap[1]. Poor are incapable of providing guarantees and collaterals and hence are unable to borrow.[2] The comparative analysis for traditional and digital financial inclusion show similar results, however the magnitude is smaller for digital banking. From a policy and product design perspective, these findings are interesting and suggest that in order to achieve the financial inclusion targets that the National Financial Inclusion Strategy envisages, focused Policy and Regulatory interventions for the excluded and marginalized groups are imperative to overcome these barriers to financial inclusion in Pakistan.


    [2] Hogarth, J. M., & O’Donnell, K. H. (1997). Being accountable: A descriptive study of unbanked households in the US. In: Proceedings of the Association for Financial Counselling and Planning Education, pp. 58–67

    [3] World Bank Global Findex 2017)


    [6] Demirüc-Kunt, A.; Klapper, L.; Singer, D.; Ansar, S.; Hess, J. Measuring financial inclusion and the fintech revolution. In The Global Findex Database 2017; The World Bank: Washington, DC, USA, 2018.

    [7]Allen, F.; Demirgüç-Kunt, A.; Klapper, L.; Peria, M.S.M. The foundations of financial inclusion: Understanding ownership and use of formal accounts. J. Financ. Intermed. 2016

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