Pakistani fintech companies tap into informal banking sector to enhance financial inclusion

RAWALPINDI: Pakistan's informal financial realm, created by ordinary individuals to manage their money and savings through mutual assistance, is now being tapped by digital companies who claim to be striving for greater economic inclusion, especially for the country's female population.
Informal financial solutions like rotating credit and savings associations, or "committees" in local parlance, allow people to come together each month and contribute a fixed amount to generate a pool of money which is then handed over to a member on a rotational basis until everyone involved has taken the lottery.
According to the 2018 research by a fintech company, Oraan, the method is used by 41 percent of the population in Pakistan, mostly women, to manage their finances.
Oraan, a digital application which puts committee parties into the hands of its users, has been downloaded by thousands of people, 84 percent of them women, since its launch in 2018.
"Financial options for women in Pakistan are limited," the company's chief executive officer Halima Iqbal told Arab News over a conference call on Friday. "So, we started exploring things from that perspective and asked ourselves: If women cannot access financial services easily, how were they banking?"
Research pointed out that alternative banking solutions were the most popular tool to access finance, especially for women.
"We paid attention to how people were interacting with money in these spaces and what the inefficiencies were," she continued. "That's how Oraan came into being."
Unlike the traditional way, Oraan matches individuals with communities based on their budgets and needs, eliminating the requirement for an existing social group to join a committee.
This not only helps it provide an important financial service but also builds communities and multiplies possibilities for financial inclusion for its users.
"It's interesting to note that a product like a committee can create greater financial inclusion since it provides an easy entry point into the world of financial management," commented Farwah Tapal, the organization's chief operating officer.
Sana Tawfik, senior research analyst at Arif Habib Limited, spoke to Arab News about how banks could move toward informal banking solutions in the digital sphere.
"Our research shows that only nine percent of Pakistanis save for retirement," Tawfik told Arab News over the phone, "and people who engage with committees are only receiving lump sums as opposed to return on investments."
"Overall banks should look into the digitization of informal banking such as committee parties as something that the country should be moving toward because the numbers show people are familiar with it and it is a customer behavior they can build on."