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Financial Literacy & Why it Matters for a Developing Country Like Pakistan

Sarmaaya Desk
Sarmaaya Content Team

One of the biggest impediments to Pakistan’s socioeconomic progress is the lack of financial literacy. Not being aware of the tools for modern-day finances – which have become surprisingly simpler and easier to access thanks to technology – is making the pursuit of Pakistan’s financial inclusion goals tougher and slower.

Today, we aim to transform Pakistan into a knowledge economy, making IT the top contributor to the country’s exports and job creation. Digitalization of the conventional ways of work is a top priority and financial inclusion of the masses is a key target alongside digital penetration. But for more people to be included in the financial mainstream, it’s imperative that they’re financially literate first.


What is financial literacy?

According to Investopedia, financial literacy is the ability to understand and effectively apply various financial skills, including personal financial management, budgeting, and investing. Annamaria Lusardi, a famed Italian economist, describes financial literacy as people’s ability to process economic information and make informed decisions about financial planning, wealth accumulation, debt, and pensions.


Just as without basic computer literacy you cannot operate a computer, you can not be in effective control of your finances without being financially literate. Naturally, without an understanding of basic financial concepts, you will not be well equipped to make decisions related to financial management. With financial awareness comes the ability to make informed financial choices regarding saving, investing, borrowing, and more.

Where does Pakistan stand?

A country’s financial inclusion statistics provide key insights into its financial literacy situation. Sadly, there’s nothing impressive about the state of people’s inclusion in Pakistan’s financial mainstream. The reason for this financial exclusion is manifold but the key hindrances include distance to a physical financial institution, tedious paperwork required for opening a financial account, and lack of financial knowledge.


According to the World Bank’s 2017 Global Findex database, Pakistan has been ranked the lowest in terms of financial access rate with 100 million unbanked adults. With about 100 million (50% of the population) adults in Pakistan having no access to formal and regulated financial services, we have the lowest financial access in the world among the developing countries.

Besides access to financial services, the percentage of people owning a formal bank account is also estimated at a meager 15% – 20%. When it comes to women’s financial inclusion, Pakistan fares even worse: less than 5% of Pakistani women are a part of the country’s formal financial ecosystem, as compared to South Asia’s average of 37%. These numbers speak volumes of the dire need for financial literacy in Pakistan.


What is the cost of financial ignorance?

In Pakistan’s perspective, being financially excluded and ignorant could mean the difference between an independent and subservient life particularly in the case of rural areas. People there, not having a footprint in the formal financial ecosystem and thus lacking reliable financing channels, usually end up borrowing from often unscrupulous sources. The result is inescapable bondage and oppression.


Even in urban settings, people have no access to formal channels for savings, borrowing, insurance, or simply sending and receiving money. Then comes the more intricate challenges of financial illiteracy even for those who are included in the formal financial ecosystem.


Banking customers must know budgeting, understand interest rates, be aware of the vicious credit-debt cycle trap, and be able to identify theft and fraud issues to perform safe transactions. If they don’t, they inevitably fall prey to compounding interest, running up bigger debts, incurring higher interest rates on loans, and end up borrowing more and saving less money.


How can we boost financial literacy?

Thanks to the digitalization of banking and financial services, access to formal finances is improving significantly. So it’s safe to state that technology is effectively plugging the huge gaps that our financial ecosystem still carries. This is where Sarmaaya comes in to bridge the gap. Here we help new customers to gain access to the financial market; provide analytical portal to keep track of the market along with providing a financial platform that allows asset tracking. Additionally, we aim to impart financial-centric knowledge to the masses via blogs and educational articles, which will thus help our customers to make informed financial decisions.


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Sarmaaya was founded in 2017 by Laeeq Ahmad, and created in response to the non-existence of a web-based platform that could audit traders globally and at the same time; enable traders to share their knowledge with people interested in their strategies.


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