Eighty percent of the global economy is already off the books, and so the global pandemic poses different challenges to Pakistan alongside ones it poses the whole world, says president and CEO of Telenor Microfinance Bank Mohammad Mudassar Aqil.
Mobile banking services are digital wallets and money transaction systems that allow their clients to use their phone numbers and national identity cards for various monetary dealings. People can pay their utility bills, shop online, get mobile top-ups and do countrywide cash transfers.
Over Skype, amid the lockdown caused by Covid-19, Aqil said that mobile banking services can not only jump in to bridge the gap but also facilitate a documented cashless system. “We have been preparing and building capacity for such a situation for months to come now.”
Aqil said that there are six million micro, small and medium businesses in Pakistan, “but only 350,000 of them take formal credit from the bank.” Almost 5.6 million of them don’t even have access to any of the contingency funding.
He explained that these 5.6 million businesses are the most vulnerable as they will face a severe liquidity crunch, an acute shortage of funding or cash flow, once the economy gets back to routine after the pandemic is contained. “Because if you owed someone money you wouldn’t have that money to give to them and if someone owed you money they don’t have it to give it to you.”
They have to realize, he said, that having a banking relationship would have been to their advantage in terms of helping themselves get back on their feet.
He said there is an undocumented economy problem in Pakistan which has really become “exposed in a very pronounced way” in this current crisis. “To steer out of these challenging times, digital payments can offer real-time solutions.”
He stressed that it is about time Pakistan took an exponential leap. “Incremental growth, while we face a problem of epic proportions, will not work now.”
Regarding people belonging to the lower income category and unfamiliar with the technicalities of the financial sector, Aqil said that they can easily be informed and persuade into opening a digital wallet. “Even with their basic phone they can dial a code and open a bank account.”
Ninety percent of people can fulfill all of the requirements without ever seeing a bank branch, he added. The government can easily document them into the system and their data can also help them in the future when it comes to finances.
According to the latest data, the e-wallet has recorded a 35% increase in new activations. Old customers using the service again have gone up by 25% as well. On the other hand, the number of daily transactions from the Easypaisa application has gone up by 17% since the lockdown.
The company said that they have seen an overall increase of 184% in bank transfers via e-wallets and about 15% growth in airtime and bundle subscriptions in overall transactions.
For government, Aqil suggested that it should incentivize digital payments and digitize its own payment mechanisms. “The use of cash is cheaper than other documented methods,” he said, referring to payments via debit and credit cards, the volume of which, he said, is too small at the moment. “You have to pay the merchant discount rate (MDR) etc., for the digital payment methods so it’s time we reversed the equation.”
By incentivizing digital payments and discouraging cash transactions, the government gets to document the economy and all this money in the cash circulation will be banked, Aqil said. Cash circulation in Pakistan, as a percentage of total deposits, is almost one-third, “one of the highest in the world”. He said that when this money begins to function by means of banks, it will productively contribute to the economy. Aqil said Telenor Microfinance Bank is shortly going to announce a solution for all sorts of businesses to help digitize.
Most shopkeepers and store owners prefer dealing in cash over documented payment systems which, perhaps saves them from having to document their own income. Aqil proposed that if the government and regulatory bodies could make it a condition that all registered shops have at least one digital payment system in place, things will start getting better on their own. “When people know they can pay for everything online, they will eventually stop carrying cash.”