Pakistan Needs Increased Digital Literacy and Roaming Agents: World Bank

The World Bank (WB) has said that leveraging mobile wallets for the growth of Pakistan’s solar home systems (SHS) requires regulators, telecom companies, banks, and other sector stakeholders to collaborate to address barriers, including technology limitations, the need for roaming agents, and low digital literacy that limit mobile wallet uptake.

It was stated in WB’s latest report, ‘Leveraging Digital Finance to Scale the Solar Home Systems Market in Pakistan,’ that millions of people in Pakistan use mobile banking payments, but transaction levels and activity rates remain low.

The report showed that there were over 221,525 active branchless banking agents in Pakistan, serving nearly 67 million accounts during Q1 of the fiscal year (FY) 2022-21. Of these, only 43 million (64 percent) were active accounts with total deposits of Rs. 56 billion, which is a small fraction of the nearly Rs. 18 trillion in total bank deposits in Pakistan during the same period. The average mobile banking transaction was just over Rs. 3,000, with 594 million transactions during the quarter. The total volume of transactions processed by the mobile banking network in Q1, FY21 was Rs. 1.8 trillion.

To effectively scale the SHS market in Pakistan’s context, the use of mobile wallets needs to increase significantly across all target markets. Simultaneously, local microfinance businesses must align their operations with the needs of the SHS market, integrate more technology solutions into business operations, and develop competencies for the digitizing of loan payments through the use of mobile money.

For the microfinance industry, mobile money can minimize the transaction costs of their portfolios while keeping payment friction to a minimum, effectively circumventing the operational limitations that prevent microfinance institutions (MFIs) from extending their portfolios or targeting new markets in Sindh and elsewhere.

As mentioned above, leveraging mobile wallets for the growth of the SHS market in Pakistan requires regulators, telecom companies, banks, MFIs, SHS businesses, and other sector stakeholders to collaborate to first address the following barriers that limit mobile wallets uptake in Pakistan.

Technology limitations: Limited access to unstructured supplementary service data (USSD), a communications technology that delivers mobile financial services to low-income customers, is a major factor contributing to slow growth in mobile wallet accounts. The State Bank of Pakistan recently launched the Asaan Mobile Account (AMA) program to correct this market failure.

The need for roaming agents: Roaming agents for mobile banking services are currently not allowed in Pakistan under normal circumstances. This limits the utility of mobile banking for rural populations that rely mostly on over-the-counter (OTC) transactions for cash deposit and withdrawal services.

Low digital literacy: Although the new Unstructured Supplementary Service Data (USSD) directive will correct an important market failure limiting the growth of the mobile banking sector, potential customers in rural areas will need significant hand-holding such as help with understanding the benefits of the technology, assistance with registering a mobile banking account and learning to use it for simple transactions before there is large-scale adoption of mobile banking in these areas.

Insufficient use cases for low-income customers: There is a large-scale adoption of mobile banking in Pakistan, which requires ‘push’ strategies that incentivize or compel rural populations to adopt mobile banking.

Solar home systems (SHS) have emerged as a leading decentralized renewable energy technology over the last decade to meet the electricity needs of off-grid populations in developing countries.

SHS technology addresses the rural electrification gap without costly extensions in transmission networks, providing an alternative to conventional off-grid energy sources such as kerosene, diesel, and battery-operated torches. While the earliest and largest SHS markets are based in East Africa, SHS provision is now established as a global business with growing markets in West Africa, South and Southeast Asia, and Latin America.

The off-grid solar sector as a whole was a $1.75 billion annual market in 2020 that served 420 million users. More than 1.6 million SHS units of various capacities were sold globally in 2020 and SHSs, which currently represent about 17 percent of unit sales in the off-grid lighting and appliances sector, are expected to increasingly drive sector growth in the future.

This brief analysis was compiled by the World Bank to assess the potential for the use of mobile banking to scale the SHS market in Pakistan. The findings will support the implementation of the Sindh Solar Energy Project by the Government of Sindh and will present the World Bank’s advice to various federal and provincial government agencies on increasing access to electricity. Initial research for the assessment was carried out in 2019 and updated in June 2021 to reflect recent industry developments.

The report explores the synergy between mobile banking services and SHS businesses and develops a use case for mobile wallets in SHS provision through a case study of the SHS market in Sindh.

The report draws heavily on international experiences to establish the efficacy of mobile wallets for the scaling of SHSs and addresses the following important knowledge gaps in Pakistan’s context: to what extent are mobile banking (in general) and mobile wallets (in particular) used to collect SHS financing payments in Pakistan? Are there any immediate barriers that limit the use of mobile wallets in SHS, and how can they be addressed? As a corollary, the report also documents the incidence of both mobile wallet and over-the-counter (OTC) transactions and barriers that limit the overall growth in mobile wallets.