Sunday, September 3, 2017

Pakistan: Impact of Labor Force Expansion on Savings, Investments and GDP Growth

Pakistan's labor force expansion is the 3rd biggest in the world after India and Nigeria, according to UN World Population Prospects 2017. Rising working age population and growing workforce participation of both men and women in developing nations like Pakistan will boost domestic savings and investment, according to Global Development Horizons (GDH) report. Escaping the low savings low investment trap will help accelerate the lagging GDP growth rate in Pakistan, as will increased foreign investment such as the Chinese investment in China-Pakistan Economic Corridor.

Pakistan's Total Fertility Rate 2.62 Children Per Woman. Source: Washington Post 


Labor Force Expansion:

The latest Census 2017 results show that Pakistan's population growth rate has declined to 2.34% between 1998 and 2017, down from 2.61% (from 1981 to 1998) and 3.4% (from 1961-81). Life expectancy has increased from about 62 years in 1998 to 66.5 years now. The total fertility rate has declined from 4.6 children per woman in 1998 to to 2.62 children per woman in 2017.  At the same time, Pakistan's labor force is growing at a rate of 3.6% a year, faster than the 2.34% overall population growth. Given Pakistan's human capital growth in recent years, it is a welcome situation that is expected to produce significant demographic dividend for the country.

Source: World Bank Report "More and Better Jobs in South Asia"

Pakistan's working age population in 15-64 years age bracket is expected to increase by 27.5 million people to 147.1 million in 10 years, according to Bloomberg News' analysis of data reported in UN World Population Prospects 2017.  Pakistan's increase of 27.5 million is the third largest after India's 115.9 million and Nigeria's 34.2 million increase in working age population of 15-64 years old. China's working age population in 15-64 years age group will decline by 21 million in the next 10 years.

Source: Bloomberg

Pakistan's labor force growth will continue by adding 80 million workers n 30 years' time, third only to India's 234 million and Nigeria's 130 million additional workers in 15-64 years age group. China's work force will decline by 171 million workers in this time period.

Source: Bloomberg

Savings, Investment and GDP Growth:

Currently, about a third of Pakistan's population is below the age of 15, dependent on working age adults. This high ratio of dependent population results in low savings, low investment and consequent slower economic growth and sub-par socio-economic development.

Pakistan's national savings was about 10% of GDP in 1960s. It increased to above 15% in 2000s in Musharraf years, but declined afterwards. It is well below the savings rates in South Asia region with India's 30%, Bangladesh's 28%, and Sri Lanka's 24.5%.

Higher levels of inequality in India, Bangladesh and Sri Lanka account at least partially for their higher savings rates than Pakistan's because people in higher income groups tend to save more of what they earn. But the other probably more important reason for Pakistan's lower savings rate is the larger percentage of children under the age of 15 who do  not work and depend on their parents' incomes.

Summary:

Pakistan's labor force growth is forecast to be the 3rd biggest in the world after India's and Nigeria's, according to UN World Population Prospects 2017. Rising working age population and growing workforce participation of both men and women in developing nations like Pakistan will boost domestic savings and investment, according to Global Development Horizons (GDH) report. Escaping the low savings low investment trap will help accelerate the lagging GDP growth rate in Pakistan as will increased foreign investment such as Chinese investment in China-Pakistan Economic Corridor over the next several decades.
Here's a discussion on this and other subjects:

https://youtu.be/ucopTLFQdKY




Related Links:

Haq's Musings

Pakistan's Population Growth: Blessing or Curse?

Pakistan's Expected Demographic Dividend

World Bank Report on Job Growth in Pakistan

Underinvestment Hurting Pakistan's GDP Growth

China-Pakistan Economic Corridor

Musharraf Accelerated Growth of Pakistan's Financial and Human Capital

Working Women Seeding a Silent Revolution in Pakistan

11 comments:

PTI said...

how much is our labour force currently and what's the unemployment rate?

Riaz Haq said...

PTI: "how much is our labour force currently and what's the unemployment rate?"

Pakistan's current workforce is about 120 million and unemployment rate is about 5.9%.

Most employment in Pakistan, like other countries in South Asia region, is in informal sector and it's difficult to track it exactly.

However, the level of employment depends on savings and investment needed to create jobs.

Pakistan's employment growth was the highest in South Asia region in 2000-2008, followed by Nepal, Bangladesh, India, and Sri Lanka in that order, according to a recent World Bank report titled "More and Better Jobs in South Asia". It was possible because Pakistan's savings and investment were relatively high but declined after 2008.

http://2.bp.blogspot.com/-20R8NmQSimg/Tn4J3lIXszI/AAAAAAAACBs/HML56iWALS8/s1600/South%2BAsia%2BEmployment.jpg

http://www.riazhaq.com/2011/09/pakistan-tops-south-asia-jobs-growth.html

Riaz Haq said...

Banyan: Massive #Chinese investment is a boon for #Pakistan. #CPEC #China https://www.economist.com/news/asia/21728619-china-pakistan-economic-corridor-project-carries-risks-massive-chinese-investment-boon … via @TheEconomist

Never has Pakistan been so wooed. The original promised dowry, of $46bn in Chinese grants and soft loans for infrastructure projects, has only grown, to $62bn. This munificence is dubbed the China-Pakistan Economic Corridor (CPEC), launched amid fanfare in 2015, on a visit to Pakistan by President Xi Jinping.

Most of the money is earmarked for power plants to improve Pakistan’s notoriously unreliable electricity supply. The rest is going on roads, railways, dams, industrial zones, agricultural enterprises, warehousing, pipelines and a deepwater port in the coastal settlement of Gwadar. Some of the promised money is bound not to materialise, and the claim by the interior minister, Ahsan Iqbal, of “benchmarking” Singapore and Hong Kong when turning remote, dusty Gwadar into a container-shipping hub speaks more of hope than experience. Yet over $14bn has already been spent. CPEC is very different from earlier schemes, when co-operation was promised only to run into the sands.

For Pakistan, the scale of ambition is unprecedented—a “game- and fate-changer” as overwrought locals put it. If CPEC gets electricity and goods flowing efficiently, then growth could jump by over two percentage points a year, by one estimate. Better yet, CPEC could shift the national narrative—too often dominated by coups, extremists and a chippy kind of nationalism—towards economic construction.

What is in it for China is often misunderstood, especially by Sinophobes in Delhi, Tokyo and Washington. They make much of the “corridor” in the plan, concluding that China’s chief aim is to gain access to the Indian Ocean, the better to encircle India. In fact, argues Andrew Small of the German Marshall Fund, an American think-tank, improving transport links through the mountainous neck of land that joins Pakistan to Xinjiang province in China’s far west is one of CPEC’s lesser aims. Yes, Gwadar, as a port on the Indian Ocean, interests the Chinese navy, but would have done so regardless of CPEC. Most of CPEC’s investments are aimed at improving Pakistan’s domestic economy.

China does have strategic motives, of course. A more dynamic Pakistan would certainly act as a counterbalance to the deepening security relationship between India and America, which also provides military aid to Pakistan. Then there is Islamist militancy, which spills back into Xinjiang; development might, as Li Keqiang, China’s prime minister, put it, “wean the populace from fundamentalism”. China needs new markets for its products, as well as new terrain for infrastructure and industrial projects. Most importantly, CPEC has become the main plank of Mr Xi’s ambitious “belt-and-road” initiative, whereby improved infrastructure will help to strengthen economic ties and thus spread China’s influence through Asia and beyond. As Mr Small points out, CPEC has to be seen to work for the broader scheme to seem both credible and appealing.

Even if CPEC is not the neo-imperialist exercise its critics make it out to be, it still has its flaws. The IMF warns that Pakistan may struggle to repay China’s loans, which could in turn prompt a balance-of-payments crisis. Pakistan’s central bankers have in the past deplored a lack of transparency surrounding CPEC contracts; suspicion abounds that Pakistani taxpayers have been shortchanged. And security is a problem. Just one example is the new Chinese-funded road to Gwadar, which runs through an area long gripped by insurgency in the remote, backward province of Balochistan. Mr Iqbal argues that the road and the development it is bringing will help extinguish the conflict. It might equally pour fuel on it, if locals feel excluded.

Riaz Haq said...

The rising number of its billionaires masks #India’s widening income #inequality. #Modi #BJP https://qz.com/1070450 via @qzindia

India is staring at a staggering income-inequality crisis.
A research paper published by French economist Thomas Piketty and Lucas Chancel—based on the latest income tax data—suggests that inequality in India may be at its highest level since 1922, when India introduced the income tax.
The share of national income held by the top 1% of the country’s population has increased dramatically, particularly since the 1980s, the economists say in their paper published on Sept. 05 (pdf).

“The top 1% of earners captured less than 21% of total income in the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today,” the paper says.
Piketty is widely recognised for his work on income inequality, particularly through his bestselling book Capital in the Twenty-First Century. Chancel is the co-director of the World Inequality Lab and of the World Wealth & Income Database (WID.world) at the Paris School of Economics.
Their study shows that income inequality was the lowest in the 1970s and 1980s, a period when India was still a government-controlled economy and its GDP growth was quite low.
“Over the 1951-1980 period, the bottom 50% group captured 28% of total growth, and incomes of this group grew faster than the average, while (the) top 0.1% incomes decreased,” their paper says. “Over the 1980-2014 period, the situation was reversed; the top 0.1% of earners captured a higher share of total growth than the bottom 50% (12% vs. 11%), while the top 1% received a higher share of total growth than the middle 40% (29% vs. 23%).”

Last year, a report by Credit Suisse Research Institute said that the top 1% of the country’s population held 58.4% of its wealth, up from 53% in 2015. Within the BRICS group, only Russia’s wealthy controlled more of their country’s wealth. Since 2010, India has added a billionaire every 33 days and Indians’ share in the global billionaires’ club has grown from 1% to 5% over the last 20 years.
Meanwhile, Piketty has also reiterated his demand for more transparency in sharing income tax data. Access to data is crucial in measuring inequality and understanding the distribution of wealth. India used to publish the All India Income Tax Statistics until 2000. In 2016, the income tax department released tax tabulations for the period between 2012 and 2014.

https://qz.com/1070450/the-rising-number-of-its-billionaires-masks-indias-widening-income-inequality/

http://wid.world/document/chancelpiketty2017widworld/

Riaz Haq said...

INDIA - Bloomberg reports that India's Youth will be the World's Future by having the strongest workforce in the world.

Half of India's population are millennials, under the age of 25 whereas two-thirds of the country's population is below the age of 35.

India's workforce is expected to increase to a billion people between the ages of 16 and 54.
The workforce is expected to derive from North India where Uttar Pradesh has a fertility rate of nearly 3 whilst its neighbouring state, Bihar boasts a fertility rate of 3.3. Taking into account Bihar's already 100 million population, the state is expected to contribute generously to the establishment of a leading workforce.

India's current demographic transition is occurring on a large scale.

Compared to China's generation mainly in their 50's who have removed their country from poverty to middle-status income, India's population in their 20's are expected to do the same.

Similarly, South Africa's increasing workforce have been trained and prepared for the workplace by Workforce Holdings this year. Independent Online reported in March that diversified services company, Workforce Holdings have trained nearly 15 000 individuals in preparation for the workplace.

The group provides a number of work-related services including temporary as well as permanent recruitment. 1 100 permanent staff are employed by Workforce Holdings and the company has 32 000 temporary contractors weekly.

Workforce Holdings is also listed on the AltX board of the JSE.


https://www.iol.co.za/business-report/india-may-soon-knock-out-chinas-workforce-11135871

Riaz Haq said...

Raghuram Rajan flags India's biggest worry that could cost Modi a win in 2019 elections: Slow Job Growth

http://economictimes.indiatimes.com/news/economy/policy/raghuram-rajan-flags-indias-biggest-worry-that-could-cost-modi-a-win-in-2019-elections/articleshow/60434472.cms

"Remember that we have what we call the population dividend. A million new people entering the labor force every month," Rajan said. "If we don’t provide these jobs that are required, you have a million dissatisfied entrants. And that could create a lot of social mischief."

Rajan is right in this aspect. India will have the world’s biggest labor force by 2027 and the millennial generation is crucial to anchor one of the fastest paces of economic growth. However, fresh employment opp ..

Under Modi, just over 10,000 jobs a month are being created instead, according to government figures from 2015.

Read more at:
http://economictimes.indiatimes.com/articleshow/60434472.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Riaz Haq said...

Pakistan Govt not going to IMF for any bailout: Finance Division spokesman



https://www.samaa.tv/economy/2017/09/govt-not-going-imf-bailout-finance-division-spokesman/

The spokesman of the Finance Division gave following comments in response to the report:

The fact that Pakistan’s economic indicators are positive has been acknowledged internationally. Recently, the Asian Development Bank (ADB) stated that Pakistan enjoyed growth despite trade contraction.

The external sector which was under strain in the last two years due to falling exports and declining remittances has now started showing positive and impressive growth both in exports and remittances.

In August 2017, exports have witnessed a growth of 12.89 percent over the same period of 2016, while over previous month the exports are higher by 14.41 percent and imports are only 2.42 percent and during July-August, FY 2018 exports have registered a growth of 11.80 percent.

Similarly, workers’ remittances have shown a growth of 13.18% during July-August, FY 2018 and on month on month basis higher by 26.8 percent in August 2017.

These all bode well that pressure on current account will ease, going forward. The growth in FDI is also on upward trajectory. During July 2017, FDI posted a stellar growth of 162.8 percent.

With regard to taxation, it is to be noted that the share of direct taxes in total taxes has increased over the years.

In 1990-91 the direct taxes were just around 20% of total taxes, rose to 31.1 percent in 2004-05, 38.2 percent in 2012-13 and 39.1 percent in 2015-16.

In FY 2016-17 the share of direct taxes reached 40% and it has become the single largest tax collected by FBR.

The government is focused on further increasing the share of direct taxes through various policy and administrative reforms including broadening of tax base.

Substantial progress has been made to bring potential taxpayers in the tax net during the last four years. As a result of these efforts the number of income tax return filers which was around 766,000 for the tax year 2012 has risen to 1.26 million in the tax year 2016 and would further increase in coming years.

The reforms program has started paying dividends in shape of higher tax revenues, an efficient, modern, transparent and taxpayers’ friendly revenue organization.

The revenue collection has witnessed a substantial increase during last four years. The net collection increased from Rs 1,946 billion in 2012-13 to Rs 3,362 billion in FY 2016-17, registering an overall growth of around 73%.

In absolute terms revenue collection has been increased by Rs 1.4 trillion. The tax-GDP ratio of the country has reached 12.5 percent in FY 2016-17.

With regard to debt, the claim that PML(N) government borrowed record Rs 10.8 trillion is incorrect and based on incorrect projections. The actual increase in present Government’s 4 year tenure is around Rs 6.1 trillion.

Even if the year 2018 is added as projected, the total debt increase in 5 years is expected to remain around Rs 7.5 trillion until 2018. The statement is only intended to mislead the general public by propagating increase in total debt by Rs 10.8 trillion by the current government, which is based on mere projections and may include PSE debt and other external debt and liabilities as well, which are not part of total government debt.

Moreover, the contention of large borrowing from external sources is incorrect. Out of total debt, external debt proportion fell from 21.4 percent of GDP in 2013 to 20.6 percent of GDP in 2017. Against the total external debt, the largest component is multilateral and bilateral concessional debt, which constitutes around 85 percent.

External debt sustainability has increased manifold during the tenure of present government as recent debt sustainability analysis shows that external debt would remain on a downward trend over the medium term and staying well below the risk assessment benchmarks.

Riaz Haq said...

'No Need to Panic,' Says #India's Jaitley as Firms Defer Spending Amid Slowing #GDP Growth. #Modi #DeMonetisation

https://www.bloomberg.com/news/articles/2017-09-24/-no-need-to-panic-says-india-s-jaitley-as-firms-defer-spending

Companies are going to be ‘hard nosed’ about spending: L&T CFO

Economy decelerated to 5.7% last quarter, slowest since 2014

Asia’s third-largest economy expanded at the slowest pace in three years in the quarter ended June 30 as Prime Minister Narendra Modi’s move to ban 86 percent of the nation’s cash and the country’s biggest tax reform disrupted businesses. Meanwhile loan growth is languishing near the lowest level since 1992 as companies struggling with bad debt and idle capacity await evidence of a pick up in demand before they buy machinery or hire more workers.

“Private sector is going to be hard nosed when it comes to committing investment,” Larsen’s Shankar Raman said in an interview at the sidelines of the forum on Friday. “We have already committed investment and have not seen returns flow through, so no board in their right mind will like to sanction further investment, unless there is a viable business plan around it.”

Indian factories were running at about 74 percent of capacity in October-December, business sentiment in manufacturing worsened in the April-June period and consumer confidence dipped in June. The Nikkei India Composite PMI Output Index contracted for a second month in August, a report showed earlier this month.

"We have to push for more reforms. We have to set our house in order," Niti Aayog’s Kant said at the forum. “Government alone cannot create infrastructure. Private sector participation is a must.”

The government’s revenue may be threatened in the coming months by the new goods and services tax, implemented July 1. The reform -- one of India’s biggest since the economy opened to foreigners in 1991 -- was a win for Jaitley and promises to unite India’s 1.3 billion people into a massive common market.

However, early hiccups include confusion about the method of filing receipts and the multi-layered tax structure, which contrasts with a single rate in most countries. Businessmen are also claiming hefty tax credits, which could drain government finances.

"I am concerned that after GST and cash ban, which were seen as reforms by investors, India is now seen to be slipping fiscally" said Priyanka Kishore, lead Asia analyst at Oxford Economics, Singapore.

To read more about the impact of GST on companies, click here

Any deterioration in public finances risks the wrath of rating companies such as S&P Global Ratings, which last week downgraded China for the first time since 1999 citing soaring debt. India carries the lowest investment grade rating and a cut to junk status could force some investors to dispose their Indian assets.

"How do you maintain the balancing act between continuing to spend in an economy, continue to maintain your banks and support them, and how do you maintain standard of fiscal prudence?" Jaitley said. "And this is the challenge we are facing."

Jaitley also needs funds to inject fresh capital into India’s struggling banks. The lenders are sitting on $191 billion of souring debt. Under-provisioned banks are also unwilling to lend more, which means investment by private companies may shrink this year.

Jaitley has said he expected strong banks to take over weaker ones especially in the state-run sector. Earlier this year, the government gave the Reserve Bank of India greater powers to go after defaulters and recover loans through a new bankruptcy code.

"We are looking at both consolidation and strengthening," Jaitley said, without providing a timeline.

Riaz Haq said...

Economist K. Basu on reviving #India’s #economy amid declining #investment to #GDP ratio. #Modi @inquirerdotnet

http://opinion.inquirer.net/107391/reviving-indias-economy

In the second quarter of 2017, India’s growth rate fell to 5.7 percent. It is now tied with Pakistan — behind China, Malaysia, and the Philippines — on the list of major economies for which The Economist provides basic economic data. Neighboring Bangladesh, which is not on that list, is now growing at over 7 percent per annum (and Bangladesh’s per capita income now exceeds Pakistan’s).
Given the Indian economy’s massive size and extensive global linkages, its growth slowdown is a source of serious concern both domestically and around the world. But it is not too late for India to reverse the trend. The key is to carefully craft policies that address both short- and long-term challenges.

In the short term, policymakers must address declining demand for Indian products among domestic consumers and in export markets. All signs point to falling consumer and business spending. India’s index of industrial production only grew by a meager 1.2 percent in July, compared to 4.5 percent a year earlier. Output of consumer durables fell by 1.3 percent; a year earlier, it grew by 0.2 percent.
Meanwhile, annual export growth has fallen in recent years to just 3 percent, compared to 17.8 percent in 2003-2008, India’s rapid-growth phase. This is partly a result of a stronger rupee, which has raised the price of Indian goods in foreign markets.
But there is another potential driver of the sharp rise in imports: people may be over-invoicing, in order to shift money abroad. This could indicate that big traders expect a
correction in the rupee’s exchange rate.
This should worry the Indian authorities — and spur them into action. To mitigate the rupee’s appreciation, thereby boosting external demand, the Reserve Bank of India (RBI) must be given greater policy space and autonomy.
My advice would be for the RBI to lower interest rates further, thereby aligning India’s monetary policy more closely with that of the world’s other major economies. While the current tendency toward very low interest rates is not ideal from a global perspective, the fact is that as long as India remains an outlier, it will encourage the so-called carry trade, which artificially drives up the rupee’s value.
The bigger challenge facing India will be to nurture and sustain rapid growth in the long run. It is worth considering the efforts of another major emerging economy: China.
China’s government has identified specific economic sectors to boost. India can adopt a similar approach, with health and education being two particularly promising sectors.
Despite its success, India’s medical tourism industry still has plenty of untapped potential. The income earned from such tourism could help the country shore up its own health system, ensuring that all Indians — including the poor and especially children, among whom malnourishment remains rampant—have access to quality healthcare.

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Yet India’s investment-to-GDP ratio is now slipping, from over 35 percent in the last eight years to below 30 percent today. This can be explained partly by an increase in risk aversion among banks, which are concerned about nonperforming assets. Falling business confidence may also be a factor.
If India implements policies that boost short-term growth, while laying the groundwork for long-term performance, confidence should rise naturally. Once investment picks up, India will be able to recapture its past rapid growth — and sustain it in the coming years. That outcome would benefit not just India, but the entire global economy. –Project Syndicate


Read more: http://opinion.inquirer.net/107391/reviving-indias-economy#ixzz4tf0wqljS
Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook

Riaz Haq said...

State Bank of Pakistan report January 2016:

While foreign savings are important in financing the
saving-investment gap, the most reliable source of
funds for investment in a country is its own saving –
Pakistan’s record in this aspect is also not encouraging.
National savings as percent of GDP were around 10
percent during 1960s, which increased to above 15
percent in 2000s, but declined afterward (Figure 7).
Pakistan’s saving rate also compares unfavorably with
that in neighboring countries: last five years average
saving rate in India was 31.9 percent, Bangladesh 29.7
percent, and Sri Lanka 24.5 percent.
Similarly, domestic savings (measured as national
savings less net factor income from abroad) also
declined from about 15 percent of GDP in 2000s, to
less than 9 percent in recent years (see Box 1 for methodology of measuring savings). Domestic savings are
imperative for sustainable growth, because inflow of income from abroad (remittances and other factor
income) is uncertain due to cyclical movements in world economies, exchange rates, and external shocks.


http://www.sbp.org.pk/publications/staff-notes/SavingInvestmentStaffNote-Jan-16.pdf

Riaz Haq said...

Informal Savings in Pakistan


https://www.dawn.com/news/1725956


According to research by Oraan, around 41pc Pakistanis saved via committees (or Rosca), whereas Karandaaz puts that figure at 34pc. Assuming the informal economy accounts for roughly 30pc, as suggested by research from the Pakistan Institute of Developing Economics, it translates into annual committees of Rs4 trillion at base prices, using conservative inputs.

While this back-of-the-envelope calculation is far from scientific, it helps contextualise how big the informal savings market really is. Everyone from a widow looking to save up for her children’s education to young adults trying to save up for their marriage, committees are what they turn to.

This phenomenon is not exclusive to Pakistan. According to a note by Middle East Venture Partners (one of the investors in Bykea), “the global market is largely untapped and ripe for disruption with 2.4 billion people using money circles through traditional channels.”

They recently participated in the Egyptian digital committees’ startup MoneyFellows’ $31m Series B.

Apart from the traditional financial institutions’ general apathy towards the customer, committees appeal to an average Pakistani for several reasons: they are a community-based instrument with some level of flexibility and there is no interest involved.

Most importantly, it helps them manage cash flow better due to habitual change. For women, the product enjoys particular popularity since the former financial services are largely inaccessible.

However, since committees are primarily cash-based with virtually no money trail involved, it poses massive risks, as we saw recently when a girl, Sidra Humaid, who ran a network of committees through social media, defaulted on Rs420m of payments.

----

Even beyond this, committees have flaws by design, only amplified by Pakistan’s macros. For instance, the person receiving the first lump sum amount will always be at an advantage since their instalments in the subsequent months would be worth less due to both inflation and rupee depreciation. The recipient of the last payment would see the amount’s purchasing power eroded substantially by the time they get it.

Moreover, due to the community-based nature of the product, the risk of network defaulting is higher as people of usually similar risk profiles would be pooling in their money.

For example, if employees from an organisation have running office committees, delayed salaries or layoffs within the organisation would lead to a bad equilibrium, creating losses for the rest of the group, often resulting in default.

However, there are ways to address some of those challenges. First of all, to (partially) protect your lump sum from depreciation or devaluation, you can enter a committee with a duration of up to 10 months. Given Pakistan’s macros of late, you’d still lose money in real terms but to be fair, that’d most likely be the case in any other instrument as well, including the risk-free government papers.

In fact, contrary to popular perception, there are certain ways to further alleviate the inflation problem. Digital committees have an option of gamifying the experience by rewarding good payment behaviour through loyalty programs and/or brand partnerships to provide discounts on utilities-based services and products.

Secondly, digital committees help create a trail of money which, coupled with a centralised authority (the platform itself), brings in accountability and recourse in the event of a default. The receipt and/or ledger helps with basic accounting in committees creating transparency for people within the group.

The third benefit of digital committees is the security factor. The participant has to go through a know-your-customer and credit check process to make sure there is no fraudulent behaviour that could negatively impact the group, along with the participant’s ability and willingness to pay to create an overall environment for responsible finance.