INCLUSIVE GROWTH THROUGH FINANCIAL INCLUSION: EVIDENCE FROM PAKISTAN

Abstract

For developing nations the era is of inclusive growth and the key for inclusive growth is financial inclusion. Financial inclusion has appeared as a significant tool to attain inclusive growth for poverty reduction since 2005, a year that the United Nations has declared International Microcredit Year. Financial inclusion is often considered as a critical element that makes growth inclusive as access to finance can enable economic agents to make longer-term consumption and investment decisions, participate in productive activities, and cope with unexpected short-term shocks. Since agriculture sector is the predominant sector in Pakistan’s economy, any internal or external shock that happens to this sector is likely to affect the country’s growth performance and a large segment of the country’s population. It is also well-known that agriculture sector depends more on credit than any other sector of the economy, because of seasonal variations in farmers’ returns and a changing trend from subsistence to commercial farming (Sarker, et al. 2015). The present study is an attempt to understand the behavior and determinants of financial inclusion in Pakistan specifically in agricultural sector, channeled through agricultural finance by the banking system. ARDL cointegrating bounds approach was used for the econometric analysis. Result of financial inclusion is significant and is supporting the claim of previous empirical studies. It is empirically elaborated that 1% provision of agricultural credit will significantly boost the agricultural growth by 0.18% on average. With financial inclusion this study has used three crucial inputs of agriculture; labor, fertilizer and land. Results show that agricultural growth has elastic relationship with these inputs, prompting that there should be a constant monitoring of these inputs in order to counter any decrease in these inputs. While doing so role of State bank for the last ten years is also analyzed in facilitating financial inclusion and initiatives taken by SBP are elaborated in detail. Policy recommendations are also given keeping in mind the initiatives taken by State Bank of Pakistan and for boosting up agricultural credit and inclusive finance in Pakistan.