Rob Katz

Guest Blogger: Power, Politics, and Money in Pakistan

James DaileyGuest blogger James Dailey consults with Sevak Solutions and is CTO of Microfinance Clearinghouse.? He was founder of the Microfinance Open Source initiative while at Grameen Foundation.?

Pakistan is home to at least 160 million souls, many of them at the “base of the pyramid” and altogether a more complex and interesting place than that painted by the international media, which focusses on the threat of Terrorism.? These are some impressions: A ferris wheel a short distance from the centuries old fort in Lahore; a ski lift outside of Islamabad that is a way to see pretty views where middle class families go; traffic clogged streets with elaborately decorated hauling trucks and an exuberiance of local trading; women dressed in colorful materials and women in head-to-toe black; men in western slacks and those in more traditional garb with longish beards; dry-dry mountains and fields; and fertile Punjab (five rivers) lands.? It is not a major tourist destination, but it is a fascinating land and people, with eons of culture rubbing up against cosmopolitan sophistication.The politics are also more complex.? In the few weeks I have been here, a growing controversy has been brewing over the – shall we say effective – dismissal of the Supreme Court Chief Justice, with the largest anti-government demonstrations in many? years.? Initially a constitutional issue, it has taken on more ominous political implications.?

Also, euphemistic “power management” or “load shedding” are scheduled power blackouts to deal with a 500MW electrical capacity shortfall, and this headed into the hottest period of the year when temperatures regularly exceed 105F (41C).? Here in Karachi, riots are expected, maybe even today, if the outages last more than a few hours, as power management is, again, a highly politicized issue.

Microfinance reaches over 1 million people in Pakistan, more than a drop in the bucket but far less than the need for financial services for the tens of millions who live below or slighly above the official poverty line.? My work here is directed at scaling up these microfinance providers utilizing the convergence of banking services and mobile phone carriers.? This is the exciting future, ubiquitous communications via mobile phones enabling entirely new service models, via banking agents, for a variety of financial services to…well, everyone not currently reached by banks.? The work, funded by USAID and executed by ShoreBank International, is also aimed at helping the earthquake victims of October 2005; massive devastation of lives and livelihoods, which is still strongly felt today.

A March 2007 report by the World Bank notes that Microfinance lending is highly concentrated in densely populated urban and peri-urban areas. True, but the picture that emerges is more complex, with rural community development agencies (called Rural Development Support Programs), providing the lions’ share of service to households beyond the population centers, and a few organizations, namely KASH Foundation and First Microfinance Bank providing the vast majority of sustainable microfinance in the urban and peri-urban environment.? Still, despite all of this excellent work, microfinance providers meet less than 5% of the total market need I would estimate.? Thus the need for new models.

To reach the tens of millions of people with financial services via traditional brick and mortar branches and outreach techniques will take too long, and most compelling, misses the opportunity for microfinance to take advantage of what is clearly achieving scale – namely the mobile phone network.? Highly competitive, the telecoms are beginning to look at new value-added services, such as micropayments, international remittances, and other transactions.? Thus the opportunity for “branchless banking” a concept gaining (sic) currency in a number of countries.? The State Bank of Pakistan recognizes this, asking CGAP (World Bank) to advise them on what regulatory barriers exist and how to change them.?

Ironically, such barriers to expanding financial services, which should build more prosperity and help prevent Terrorism, are the long arm of US-originated “know your customer (KYC)” and “combatting financing of terrorism (CFT)” laws.? This is not a Hobson’s choice – we can find good policies to serve both interests.

Tied up with the power situation is the demand side – 7-8% annualized economic growth over the past few years is really the culprit with a huge surge in demand for air conditioners and refrigerators the proximate cause.? It is not all that surprising to see a power shortage, and augers ill for the planet, which cannot afford the kind of wasteful use of electricity that one sees in America.? (Motor vehicle sales are also growing, at least nine fold over the last few years.)? So, for now, economic prosperity means more CO2 emissions, more demand for fossil fuel supplies.? This is where sustainable development could be pioneered (for export back to the more wasteful northern countries I hope), with products and services aimed at improving quality of life with fewer negative externalities, but only if such externalities get into the economic equations.

Poverty, political turmoil, a rich history, air and water pollution, an emerging middle class, cell phones, energy … lots of competing and often contradictory impressions.? Probably the only thing I know for certain is that I have barely scratched the surface.? I’ll be back, In-sha’allah (god willing).?