There is growing interest in understanding the impact of regulatory changes on financial inclusion. While a regulatory impact assessment (RIA) has become an integral part of law making in many OECD countries, it is still a relatively new concept in emerging and development economies and there is little precedence of conducting an RIA on regulatory changes that have a specific focus on advancing financial inclusion.
This study looks at Pakistan’s nearly decade-old experience with regulating digital financial services (referred in the local context as branchless banking) as a test case for the RIA Lite methodology, which combines elements of analyzing supply- and demand-side data, reviewing relevant legal documents, and interviewing experts from the central bank and from the industry. The methodology is simple to implement, and still gives stakeholders a sense of the effectiveness of regulatory changes and can provide evidence-based recommendations for future policy changes. For those familiar with CGAP’s work on I-SIP, it won’t come as a surprise that the benchmark used in the analysis is to what extent Pakistan’s branchless banking regulations have contributed to the achievement of the central bank’s key regulatory objectives: inclusion, stability, integrity, and protection.
The findings of the RIA Lite show how the regulation of branchless banking in Pakistan has affected each of the I-SIP objectives and why. For example, it had a highly positive effect on financial inclusion with sudden changes in the growth of transactions and its composition (over-the-counter transactions vs. wallet-based transactions) because it traced back to specific changes in the regulatory environment. The paper summarizes the findings for each of the I-SIP objectives and illustrates the findings with the extensive use of charts.
Pakistan’s branchless banking regulation was a first test case for RIA Lite. This case showed the utility of the methodology to assess financial-inclusion related policy changes. The report ends with a list of open questions about the RIA Lite methodology that future RIA case studies might be able to answer.