Last updated: July 23, 2019
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Financial inclusion is classify that individual and business have access to affordable and useful financial services which meet their needs such as transactions, saving, credit, insurance, and payments delivered in a secure, responsible and sustainable way. In Pakistan, since the early 1990s, uniformity in economic policy united with strong financial sector reforms has resulted in a level of macroeconomic constancy and enhanced access to financial services. But in spite of optimistic developments, Pakistan’s financial sector has not yet reached adequate width or depth (PIC, State Bank of Pakistan).

Pakistan launched its National Financial Inclusion Strategy (NFIS) in May 2015, which is the roadmap to help a country to achieve its Financial Inclusion goals. The goal of Pakistan is to inflate universal financial access to at least 50% of adults including youth and women, and also to raise the ratio of MSME credit in bank lending to 15% by 2020. The financial inclusion strategy of Pakistan focuses on four major areas, to endorsing digital transaction accounts and attainment scale through bulk payment system, to expand and diversify  access points, to increase the level of digital financial awareness and capability, to improve the financial capacity if financial services providers. The rapid growth of financial inclusion also increases the level of cybersecurity of the country. The interconnected world is threats to cybercrime, as evidence the symantec reports by 2016 the smart devices become more common, which is more prone to cyber-attacks, the estimation of this report about 6.4 billion devices are connected to internet, which will increase to 20.

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8 billion by 2020. According to the researchers of Symantec report hundreds of millions of internet connected devices are potentially susceptible to click fraud, botnets, data theft and even ransomware. A report of PwC US highlight the top issues for financial services providers in which cybersecurity is a big challenge for financial world that have come to rely so closely on digital technology, the most common cyber threats for financial worlds are Phishing, Ransomware, DDoS attacks. Likewise in May 2017 during the worldwide Wanna Crypt ransomware attacks that exaggerated about two hundred thousand computers in at least one hundred and fifty countries, within telecommunications, hospitals, railways, automobile  and utilities, sectors; as well as during June 2017 Petya ransomware that affected computers within sixty four countries. While the collision of the recent ransomware attacks on financial institutions, the financial services area has usually been the major target due to both the enchantment of financial gain and access to secret financial data.

Many researchers have conduct research on financial inclusion as well as cybersecurity in different countries and worldwide. (Mlachila, 2013a) Indicates that the development of financial sector contributed to rally the growth of economy but financial services are gathered from major urban areas. Verdicts of (Demirgüc¸-Kunt, 2012b) the absence of Financial inclusion system, poverty traps can appear and obstruct economic development since access to financial tackles allows peoples to invest in their education, financial projects and become businesspersons. Increasing the role of familiar financial institutes can boost access of the wider population of financial tools but this obliges good understandings of the phenomenon. (Salleh, 2013)  Explore in their study that Financial circumstances and defies changes from era to era, and there is necessitate for zakat institutions to incessantly adapt and innovate their looms. The study of (George Okello, 2016) discovers that a person’s regulative, normative and procedural and declarative cognitive frames considerably influence financial inclusion of deprived households in rustic Uganda. (Rachel Mindra, 2017)  Argue in their study about the financial self-efficacy and financial inclusion.

(Bain, 2016) Evaluate that cyber-threats and financial controllers’ expectations for cyber-security are continuously evolving, recent direction and enforcement efforts by the US, UK and EU demonstrate the need for financial establishments to extend effective cybersecurity programs that tackle current regulatory compliance necessities and prepare for emergency cyber responses. Findings of (Artie W. Ng, 2017)  explore that  the adopting a strategic approach that seizes prospects associated with Finance technology, the financial controller tie together inclusive risk-based mechanism to squeeze exposures to cyber hazards while encouraging institutionalization of cybersecurity between the regulated compacts with strategic reins. (Stephen A. Ojeka, 2017) Wrap up that, the currently represents audit committee in term of its individuality is seen not to be efficient enough to provide oversight impact on cyber security in the Nigerian listed firms. The cybercrime and security survey in 2010, phishing, malware injection, bots attacks, computer data theft have become common attacks to acquire sensitive information and consequently cause so ample damages (Richardson, 2011). The technological measures can reduce the chances of attacks, such as antivirus software, regulations and security policies but usually users ignore the policies (Warkentin, 2009). Therefore, to understand that the financial inclusion is the major area of research for any country due to technological advancement worldwide, as well as digitalization can be threats from different cyber-attacks and the financial sector may affect, in August 2017 (AFI) Alliance for Financial Inclusion and with the collaboration of  (BNM) Bank Negara Malaysia organize a policy forum which provide the opportunity to researcher to investigate the related issues at the connection of cybersecurity and digital financial inclusion.

The main purpose of this paper is to investigate the determinants of financial inclusion in Pakistan by using the data of World Banks’ Global Findex 2014 to answer the questions about financial inclusion, and how to secure the digital financial inclusion system to cybercrimes and find the policies for cybersecurity to safeguard the FI system. This paper is organized as follows. Section 2 is based on related literature; Section 3 delivers the descriptive statistic of sample, Section 4 Presents the estimations of collected data, Section 5. The results and discussion are presented in this section, Section 6 Concludes the paperIn this section we provide the overview of literature on Financial Inclusion, cybercrimes and cyber security.

(Asli Demirguc-Kunt, 2015) (Global Findex) database, launched by the World Bank in 2011, offers equivalent indicators showing how people about the world save, borrow, payments, and manage risk. The 2014 edition of the database exposes that 62% of adults worldwide have an account at a bank or alternative type of financial institution or with a mobile money supplier. Amongst 2011 and 2014, 700 million adults developed account holders although the numeral of those starved of an account the unbanked fallen by 20% to 2 billion. What throng this surge in account ownership? An evolution in account penetration of 13% facts in emerging economies and inventions in technology enlarge access to financial services in Sub-Saharan Africa. Laterally with these gains the data also demonstrate that big prospects, endure to escalation financial inclusion exclusively amid women and poor people.

Governments and the private sector can play an essential role by unsteady the payment of wages and government necessities from cash into accounts. There are moreover huge predictions to margin greater use of accounts, empowering those who formerly have one to benefit more fully from financial inclusion. In developing economies 1.3 billion adults with an account pay utility bills in cash, and more than half a billion pay school fees in cash.

Digitizing payments like these would enable account holders to make the payments in a way that is easier, more affordable, and more secure. (Alexandra Zins, 2016)Examine the determinants of financial inclusion in Africa, and findings of this study is that being a man, richer and educated favor the financial inclusion with high influence of income and education, mobile banking is driven by the same determinants than traditional banking, and the determinants of informal finance are differ from formal finance. Similarly (Allen, 2016) by using the 2012 world bank global findex database,  find that owning an account at a formal financial institution is higher for richer, educated, older, urban, married, employees or separated individual, and the borrowing formally increase for educated, older, married and richer men. The study of (Kostov, 2015)in “Mzansi” accounts in South Africa to explore the role of family’s behavior decision process, and found that ambition and financial literacy are the essential determinants of the decision process. Via 2012 global findex on 98 emerging countries, (Demirgue-Kunt, 2013b) discovered that gender gap also an imperative determining factor toward account ownership, formal credit and formal saving. Being a woman would rise the probability of being financially debarred.

Higher hitches to present security or personal assurances, lower financial knowledge and business experience, the husband ‘adverse credit history and restrictions felt in the financial system are some of the main reasons for such gender gap in formal financial inclusion. Nevertheless, the existence of such perception in informal finance is less positive. Really, in some countries, women are more probable to use informal financial services. The analysis of this issue within 9 countries of Africa by (Aterido, 2013) but do not find significant gender perception. The gender gap in Africa appears therefore to be related with women contribution outside the financial sector; women would be distinguished in other areas of the economy, like formal employ, education and within the household. Furthermore, they endorse that African women are supplementary likely to resort to casual financial services. The study of (George Okello, 2016) discovers that a person’s regulative, normative and procedural and declarative cognitive frames considerably influence financial inclusion of deprived households in rustic Uganda. Research creates a structure for observant institutional frames for financial inclusion of poor family circles in rural Uganda.

These frames conclude the behaviors and actions of poor households and thus their financial decisions and choices in the financial market. The explorations of (Sharma, 2016) recommend that financial inclusion is a driver of economic growth. Regression results of the study confirm the positive significant relationship between the financial inclusion and GDP. Additional, GCA exposes bidirectional causality among geographic outreach and economic growth, and unidirectional causality amid the number of deposit and GDP even though no causality was originate linking the usage of banking services and economic scenario. A Literature review and Knowledge sharing based study of (Sinclair, 2013) evident that consent exists between British stakeholders on what is known regarding the key aspects, scale and some of the causes of numerous magnitude of financial exclusion.

It is also evident that the argument which persevere over other aspects of financial exclusion – such as require for further regulation of financial services – reflect unusual values and beliefs about how financial markets and services control as much as the evidence itself. Dissimilarity over the causes and apposite responses to financial exclusion is also evident at the EU level, which is conventional, given the distinction in the extent of the problem, the circumstances which narrate to exclusion, and distinction between political philosophies and policy establishment. The result of  (Akudugu, 2013) demonstrations that the formal financial market of Ghana has been capable to cover only 40% of the population which means an overpowering 60% of the population is still unbanked. In other words, two in five adult individuals are incorporated in the formal financial sector of Ghana with the enduring three in five being debarred. Factors such as age, literacy, wealth class, distance, lack of documents, and lack of trust for formal financial institutions, money deficiency and social networks as replicated in family relations are the important determinants of financial inclusion in Ghana. Limited researches have been conducted on cybersecurity and its awareness and causes. According to (Arora, 2006) most people seem to deliberate the Internet to be a safe environs and use it on a diurnal basis using their smart phones, tablets and computers, there are a large number of attacks on a daily basis.

Cyber attacks, hacks and security ruptures on the Internet are no longer an exception anymore. This integers increasing and establishments are sustaining higher costs in allocating with these cybersecurity cases. While most cyber attacks are inoffensive, the effect of some is severe. Cybersecurity ruptures can range from no or partials way to DDoS, the thieving of data, handling of data, identity stealing or even taking over control of organisms and damage the physical world. With the assumption the Internet of Things (IoT) in regular life, an cumulative number of physical entities feature an IP (Internet Protocol) address for internet connectivity and use the Internet for communication (Hernández-Ramos, 2013). Information and communication systems and the physical structure have developed knotted, as information technologies are auxiliary integrated into devices and networks (Ten, 2008). In these cyber physical systems, the greatest impact occurs when an intruder gains access to the supervisory control access and launches control actions that may cause catastrophic damage (Ten et al., 2008).

The necessity for cybersecurity is pleasant gradually significant due to our requirement on Information and Communication Technology (ICT) transversely all features of our cyber physical culture. Cybersecurity is crucial for individuals, for public and non-public establishments, but warranting security often demonstrates to be difficult. The websites of many governments have limited security (Zhao, 2010) and valor be easily hacked. In 21st century almost every devices, such as mobile phones, health devices, home machines, Vehicles, and even some infrastructures such as traffic lights, connected to Internet, but we endure to determine security failures, as well as malware, humble encryption and way out that allow illegal access. The study of (Lam, 2016)recommends that to escalation security, the key is not so much to hold the benefactor of these devices exclusively liable for the harm as to stability the speculation inducements between the provider and the users.

(Shukla, 2016)Develop and parallel three distinctive models for cybersecurity investment in competitive and cooperative situations to defense against probable and ongoing threats. They present a Nash equilibrium model of non-cooperation in terms of cybersecurity levels of the firms tortuous, which is expressed, examined, and resolved using disparity discrimination theory. The equilibrium of this model then turns as the divergence point over which negotiating takes place in the location of the second model, which harvests a cooperative resolution in which the firms are assured that their expected utilities are no inferior than those accomplished under non-cooperation. Nash bargaining theory is applied to claim for information distribution and to enumerate its monetary and security remunerations in terms of reduction in network vulnerability to cyber attacks. The third model 0d their paper also concentrations on cooperation among the organizations in terms of their cybersecurity levels, but from a system-optimization perception in which the sum of the anticipated utilities is exploited. Qualitative possessions are providing for the replicas in terms of presence and exclusivity results along with numerical solutions to two cases concentrating on retailers and financial service firms, since these have been substance to some of the most detrimental cyber attacks. Center for Strategic and International (Studies, 2014) report that the world economy persistent 445 billion dollars in victims from cyber attacks in 2014. The US ached a forfeiture of 100 billion dollars, Germany vanished 60 billion dollars, China lost 45 billion dollars, and the UK reported a loss of 11.

4 billion dollars due to cybersecurity pauses. The think tank also vacant an analysis that showed that of the 2 to 3 trillion dollars produced by the Internet annually, about 15 percent to 20 percent is mined by cybercrime. Challengers in the Cyber Empire include scouts from nation-states who pursue secrets and intellectual property; organized criminals who want to steal identities and money; terrorists who aspire to attack the power network, water source, or other substructure; and hacktivist groups who are annoying to make a political or social statement  (Deloitte, 2014). (Monica Lagazio, 2014) Conduct research on the impact of cybercrime on the financial sector and their consequences show that solid dynamic relationships, amongst physical and immaterial factors, affect cybercrime cost and arise at dissimilar levels of society and value network. Precisely, shifts in financial companies’ strategic priorities, having the safety of customer trust and loyalty as a key detached, together with deliberations related to market placing vis-à-vis challengers are important factors in influential the cost of cybercrime. Most of these costs are not driven by the numeral of cybercrime cases experienced by financial companies but slightly by the way financial companies indicate to go about in defending their business interests and market positioning in theincidence of cybercrime.We use the World Bank’s 2014 Global Findex database to realize our analyses; the survey was carried out by Gallup Inc.

in association with its annual Gallup World Poll. Using randomly selected, nationally representative samples, roughly 1000 people in each economy have been in each economy. The Global Findex database delivers a huge number of indicators on financial inclusion empowering to evaluate the extent of account penetration, the use of financial services, the determinations and motivations, the substitutesto formal finance, etc.

It also provides micro-level evidence – gender, age, income that we use in our assessments.  In line with former literature we emphasis on the three main procedures of financial inclusion. Formal account states to the statistic that the individual has an account either at a financial institute or through a mobile money provider. Formal saving refers tothe datum that the individual saved via an account at a financial institute in the past 12 months.

Formal credit brings up to the fact that the individual borrowed from a financial organization in the past 12 months. All these variables are dummies equal to one if the person responded “yes” and zero if the responded “No”. We have also data on mobile money banking: people were questioned whether they use a mobile phone to recognize transactions, to send or to receive money and pay bill in the past 12 months by using the service such as mobile app or easy paisa.In order to be able to compare the use of traditional banking services and the use of mobile banking services, the variable Account at a financial institute gives evidence if respondents state having a formal account at a financial institution and not with a mobile phone. Respondents give their saving motivation. Three responses are proposed: (a) to start, operate, or grow a business or farm; (b) for old age; and (c) for education or school fees. These three variables are dummies equal to one if people replied “yes”. Individuals also response the following question: “in the past 12 months, have you, by yourself or together with someone else, borrowed money for any of the following reasons?” They could pick among three propositions: (a) for education or school fees, (b) for medical purposes, (c) for farm or business purposes.

We also have data on how much peoples are integrated with informal credit such as family or friend, and another private. To measure the level of cybersecurity in Pakistan we have adopt the questionnaire of global cybersecurity index and cyber threats questionnaire to measure the internal level security from cyber-attacks of financial institutions. The data collected from the scheduled banks of Pakistan, 34 scheduled banks are working in Pakistan, the data accumulated from 21 scheduled banks of Pakistan, which is almost 62% of the sample; the remaining 38% of populations’ data is not available and not accessible. The questions asked from banks’ personals are related to management oversight, physical security, legal security of banks and national level security for financial institutions. These all variables are dummy variables equal to one if answer of personal is “Yes” otherwise Zero.Table 1 presents the descriptive statistics for all financial inclusion indicators which we use in these estimations.

We provide the mean of our sample and compare it with south Asia mean and worldwide which computed by the World Bank, so that we have a benchmark to compare Pakistan with south Asia and worldwide. All the three indicators are lower in Pakistan as compare to south Asia and world, 13% peoples of Pakistan reported having formal account while 46% south Asia and 61% of people worldwide did.  Only 3% of peoples in Pakistan saved money at financial institutions in comparison 13% south Asia and 27 global percent. Lastly Formal credit is also less as compare to south Asia and globally.

Saving motivation is less in Pakistan as compare to south Asia and worldwide, among three motives peoples in Pakistan saved money for business and education or fees because the percentage of that both motives are higher as compare to saving motive for old age. The informal saving in Pakistan is 10% which is high as compare to south Asia and globally, and also higher than formal saving peoples in Pakistan are more concerned with informal saving. 32% of peoples are saved money in past 12 months which is almost nearest to south Asia and less than worldwide. In Pakistan 34% of people borrowed money from friends and family which is higher than worldwide but as compare to south Asia there is slightly difference. 5% of peoples are borrowed money from private lender which is less than south Asia, not a big difference in the comparison with globally.

The ratio of informal credit is also higher than formal credit in Pakistani peoples are more associate with informal credit they preferred to borrowed money from a friend of family as compare to financial institutions. In Pakistan peoples borrowed money for education and business purpose, only 6% of peoples borrowed money for education which is less than south Asia and worldwide. 11% peoples borrowed money for business purpose which is higher than south Asia and as well as globally. In Pakistan 6% peoples have mobile account compared to South Asia’s and globally which is 3% and 2%.