Enhancing Savings through Digital Means

May 8, 2019
Tags :
  • CDNS,
  • Committees,
  • DFS,
  • Savings deficit

    Pakistani individuals, firms and government are not generating enough savings to meet the economy’s investment requirements. This lack of domestic savings results in an inherent dependence on “foreign inflows” in the form of remittances, issuance of sovereign bonds/loans and flows under Foreign Direct Investment (FDI). Non-participation in the formal banking channels and use of informal saving mechanisms by the masses left a large pool of savings out of the equation. Targeted policy measures are required to enhance domestic savings in Pakistan to decrease economy’s reliance on foreign inflows, which are prone to cyclical movements and external shocks. Extended outreach of digital financial services to the masses, focusing more on women segment and rural areas, would channel a large pool of resources in the formal sector to offset reliance on foreign inflows.

    As per recent stats, Pakistan’s savings to GDP is reported at 6.1%, meanwhile, the investment rate stood at 16.4% of GDP in FY18. This continuing trend results in a saving-investment gap, depicted in the form of current account deficit, which crossed 5% of GDP in FY18 and is met through (see the graph below).



    (Source: Pakistan Economic Survey, 2017-18)

    There are several factors behind Pakistan’s low savings rate, which also lags regional average. On the supply side, the conventional banking serves only about a quarter of the adult population with its formal financial services[1]. As of June 2018, there were 53 million accounts with deposits worth Rs12.6trillion[2]. About a third of that sum was held in current accounts and just below half of overall deposits was held by individuals.



    These banking-sector deposits equate to about one third of the country’s GDP. This is comparatively less than the peer average of 59%[3]. Iran’s banking deposits to GDP ratio stood at 80% followed by India 66%, while Bangladesh and Sri Lanka reported their bank deposits at 45% and 44% of their respective GDP.[4]

    Among other formal saving avenues, there is National Savings Schemes (NSS)[5], where recent mobilization stood at Rs 203 billion as of June 2018[6]. That’s about the same value as the outstanding micro-deposits in the microfinance sector. The growing Microfinance segment is composed of over three dozen microfinance providers (microfinance banks and microfinance institutions). As of September 2018, these organizations collectively had a savings portfolio of Rs240 billion, deposited by nearly 35 million savers[7]. Pakistan Post also has a huge prospect to tap savings in rural areas.

    On the demand side, around 79% of the adults do not have bank account and save in the form of cash or through informal savings mechanisms[8]. Usage of formal financial services – and saving products – is limited due to reasons that go beyond limited access points. As per a World Bank survey (2017), only 33 percent of adult Pakistanis reported that they had saved any money in the past year[9]. People seem to save more for future consumption-related spending (primarily for durable goods) than they do for long-term investment such as education. Only 9 percent of Pakistanis save for old age and just 15 percent save to start, operate, or expand a farm or business as shown by World Bank’s Findex Survey (2017). The same survey showed that close to a half of survey respondents didn’t have accounts because of “insufficient funds”[10].



    Digital financial services

    Digital transaction accounts (DTAs – or m-wallets, in Pakistan’s case) have been operating in Pakistan for nearly a decade now. Thanks to a series of policy blueprints – starting with the Financial Inclusion Program (2010), graduating to National Financial Inclusion Strategy (2015), and now an enhanced NFIS (2018) – the Branchless Banking (BB) segment has really expanded this decade. As of June 2018, there were 10 BB service providers, providing services through 400,000 agent locations and nearly 40 million m-wallets[11].

    But the same level of success could not be achieved when it comes to raising small deposits. At just over Rs15 billion, deposit generation trough DTAs has stagnated in the recent years, despite significant growth in m-wallets. Even within this pie, bulk of the deposit value belongs to BB agents, who use this medium for their own liquidity management. In any case, the value is miniscule, especially when compared to almost a trillion-rupee worth of transactions that flowed through the BB system in the Apr-Jun 2018 period[12].

    The failure of the service providers to retain customer attention is manifested in the fact that about half of the m-wallets/BB accounts opened thus far are in “inactive” mode. The SBP defines “active accounts” as those that were either opened in the last 180 days or used at least once in the last 180 days – a very lax definition.

    To contain account inactivity, the service providers clearly need to offer better saving products to channel micro deposits and to sustain the recent encouraging trend of enhanced usage of m-wallets vis-à-vis OTC transactions. Besides, the focus needs to shift from “number of accounts opened” to “usage of accounts”. In that regard, service providers should increasingly incentivize account usage, instead of just offering commissions to their sales-force and incentives to potential customers to open m-wallets.



    Learning from abroad: get their foot in the door

    Progressive mobile money operators in other developing countries have successfully lured customers to their platform by offering convenient saving accounts.

    Their experience suggests that attractive “saving” schemes can act as a “foot in the door” for unbanked and under-banked population to enter the mobile money ecosystem. For instance, Kenya’s Safaricom have had success with their M-Pesa platform’s M-Shwari deposit accounts[13]. Perhaps Pakistani BB operators can also look into replicating that success by i) levying zero service charges on transferring money from one operator’s wallet to another operator’s wallet and ii) providing a guaranteed minimum saving rate on normal saving accounts; and iii) introducing Digital ROSCAs for the tech-savvy segment

    Meanwhile, there is room for digitization of public savings platforms. Karandaaz is digitizing Central Directorate of National Savings (CDNS)’s banking systems and data and enabling alternate delivery channels to better the capacity of CDNS to extend financial services to low-income and excluded segments. These include the digitization of about a third of 376 National Saving Centers, launch of Qoumi Bachat Digital (a mobile app) so that users can keep track of their savings, and a digital complaint resolution mechanism for swift remedies[14]. Besides, Karandaaz has also provided technical assistance to Pakistan Post for digitizing its money order service to expand product portfolio, enhance outreach and provide convenience to its customers. Beyond that, digital savings can also be mobilized if the government’s public transfers – salaries, pensions, welfare payments, etc. – are digitized to a significant extent, as targeted in the current government’s National Financial Inclusion Strategy (NFIS)[15]. Karandaaz Pakistan is working jointly with major government stakeholders to digitize aforementioned payments[16].

    [1] Financial Inclusion | State Bank of Pakistan(URL: http://www.sbp.org.pk/Finc/About.asp)

    [2]tate Bank of Pakistan | Distribution of Deposits by Type of Account (URL: http://www.sbp.org.pk/publications/anu_stats/2017/Part-1/Deposits.pdf)

    [3] Peer average included stats of Iran, India, Bangladesh & Sri Lanka

    [4] Calculations based on data from the SBP and the IMF

    [5] http://savings.gov.pk/

    [6]> Savings Mobilized by National Savings Schemes | State Bank of Pakistan(URL:http://www.sbp.org.pk/ecodata/savings.pdf)

    [7] Pakistan Microfinance Network | MicroWatch – Issue 50 (Oct-Dec 2018)(URL: http://www.microfinanceconnect.info/assets/articles/4e39dc8d9575656f67b4ddc7f7cd7629.pdf)

    [8] Financial Inclusion Insight (FII) Survey 2017

    [9]World Bank | Global Findex Database (2017) (URL: https://globalfindex.worldbank.org/sites/globalfindex/files/2018-08/Global%20Findex%20Database.xlsx)

    [10]World Bank | Findex Database (2017)

    [11] Branchless Banking Newsletter: Apr-Jun 2018 | State Bank of Pakistan (URL: http://www.sbp.org.pk/publications/acd/2018/BranchlessBanking-Apr-Jun-2018.pdf)


    [13]Safaricom Twaweza | M-Shwari and KCB M-Pesa (URL: https://www.safaricom.co.ke/personal/m-pesa/do-more-with-m-pesa/loans-and-savings#KCB-M-PESA-ACCOUNT)

    [14] Business Recorder Research | Interview with the Director General, National Savings (April 2, 2018)(URL: https://fp.brecorder.com/2018/04/20180402357037/)

    [15] Enhanced National Financial Inclusion Strategy, 2018 | Ministry of Finance(URL: http://finance.gov.pk/NFIS.pdf)

    [16] https://profit.pakistantoday.com.pk/2019/03/11/karandaaz-the-gates-funded-nonprofit-seeking-to-bank-the-pakistani-unbanked/

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