Financial sector needs AI boost to reach unbanked millions: FINCA chief

KARACHI: The financial sector can be enabled to provide more dynamic solutions that cater to the unfulfilled demands of Pakistanis by investing in and doing research on artificial intelligence-based solutions and big data-modeled embedded financial products, says Jahanzeb Khan, the chief executive officer of FINCA Microfinance Bank in an interview with The News.

Q: What do you think of financial inclusion and its future in Pakistan?

A: Pakistan is a developing economy, the need for inclusivity must be prioritised for desired progress. Digital financial tools have enabled more than 60 million consumers via mobile banking wallets that were previously excluded from the formal economy. Formal access to financial services mitigates the exploitation of vulnerable segments. However, plenty needs to be done to protect marginalised communities and enable them to contribute to the formal economy.

The landscape of financial services in Pakistan continues to evolve beyond traditional branchless banking and mobile financial services, extending from EMI licenses to the recent award of digital bank licenses. However, challenges remain. Incremental investments are required primarily by the private sector in conjunction with regulatory authorities to further strengthen service offerings to target nearly 100 million unbanked individuals.

Artificial Intelligence (AI) has entered the digital ambit which will accelerate velocity of change required in financial services. Disruptive AI-based solutions will be able to provide customised solutions and strategies for targeted segments with faster time-to-market. Research and investment in AI-based solutions, coupled with big data-modeled embedded financial products, can empower the financial sector to deliver more dynamic solutions that address the unmet needs of rural Pakistanis.

Q: How does FINCA Microfinance Bank work and what benefits the customers are getting from the bank?

A: At the core of FINCA's philosophy is the belief that access to financial services is a fundamental right, particularly for those underserved by conventional banking institutions. In contrast, FINCA is dedicated to empowering low-income individuals and communities by offering them innovative and impactful financial services.

Presently, FINCA is extending its services through a network across 115 cities in Pakistan, providing small loans and savings accounts to millions of rural clients who lack access to traditional banks. Women continue to experience a significant gender gap in financial inclusion. We, at FINCA, have been playing our part to improve this through our financial offerings.

FINCA’s most significant impact has been in reaching vulnerable populations. Our outreach to vulnerable individuals more than doubled in the last couple of years. Our ecosystem of services effectively targets and supports economically vulnerable individuals, preventing further poverty. More than 70 percent of the rural population in Pakistan is still financially excluded. Our bank has been able to empower those ignored consumers and provided them access to capital with 50 percent of our lending client base belonging to rural areas.

Q: What challenges did you face when putting women's microfinance initiatives into action, and how did you overcome them?

A: Implementing microfinance initiatives for women has been a journey marked by both progress and challenges. 75 percent of the women are not employed formally and only 13 percent of the total women population is formally banked versus the global average of more than 60 percent in developing countries. While there is recognition of the importance of enablers that enhance financial inclusion, such as access to smartphones, digitalised government payments, and simplified know-your-customer procedures, it is also acknowledged that addressing gender-specific obstacles requires a more comprehensive, systems-level change.

In many countries, including Pakistan, social norms deeply rooted in gender biases pose specific challenges to serving women with financial services. One of the critical challenges encountered is the need for a holistic effort to bridge the gender gap in financial inclusion. Financial sector leaders play a pivotal role in leading and championing such efforts, fostering intentional changes that consider the distinct characteristics of women, including digital and financial literacy levels, livelihoods, and mobility.

Gender-disaggregated data on women's use of financial services becomes a crucial guidepost for the sector, enabling evidence-based strategies to empower women economically. Furthermore, creating job opportunities and stable income sources for women has proven to significantly reduce the financial inclusion gender gap.

Having provided loans to around 100,000 female customers, we are dedicated to expanding opportunities for women. The bank's efforts extend beyond financial assistance, with a notable emphasis on financial literacy for females. Over the last 5 years, more than 10,000 women have benefited from nationwide financial literacy sessions, underscoring FMBL's sustained commitment to enhancing their overall financial well-being.

Q: In what ways do the digital initiatives of FINCA Microfinance Bank seek to alleviate poverty and promote financial inclusion, specifically for marginalised populations like women and rural residents?

A: Our mobile application, FINCA Pay, serves individuals in low-lit, low-tech environments to college students, farmers, and blue-collar factory workers. FINCA Pay aims to create a digital means of enabling financial inclusion for millions of Pakistanis living in rural areas who lack access to the formal banking sector. Less than 30 percent of the country's population is financially included, with an estimated inclusion rate of only 13 percent for women. The cash-driven economy, measured by currency in circulation, peaked at over 40 percent last year before beginning to taper down to 27 percent. Ultimately, the purpose of this digital transformation initiative is to enable the financially excluded and provide them with means to save and gain access to credit ultimately alleviating poverty and uplifting the masses through financial inclusion.

By leveraging fintech, the FINCA Pay mobile app enables thousands to access mobile financial services from the comfort of their homes, at their fingertips, when they need it. Additionally, FINCA offers Bizzpay - a B2B service for clients with blue-collar workers, facilitating the digital dispensation of wages to FINCA Pay wallets. The purpose of this financial services ecosystem is to enable touch-tech services and provide ease of use with convenience, particularly to the most vulnerable clients within the comfort of their homes. While currently a minimal viable product, this digital platform will empower consumers to learn, save, pay, borrow, educate their children, and protect themselves against macroeconomic shocks through insurance.