Liberalisation, Financial Risk, and Formal Financial Participation in Pakistan: Hyperinflationary Microeconomic Responses to Moderate Volatility in a Developing Economy

Abstract

With formal financial inclusion much lower than its neighbours, Pakistan has been the focus of intensive efforts to ‘bank’ the ‘unbanked’. Yet, after a drop in deposits in the wake of Pakistan’s 2008 crisis, deposits are still struggling to return to their mid-1990s’ levels. Focusing on distortions in the banking sector, the Central Bank attributes this to ‘crowding out’ amidst a steep rise in the propensity to consume. This study draws on extensive fieldwork, identifying heightened financial risk driven by multifaceted monetary instability since the liberalisation of the rupee and of Pakistani markets. It proposes that heightened monetary risk has translated into a broad-based shift out of ..