Financial citizenship and shadow banking in Pakistan: a study of two deposit-taking microfinance banks

Abstract

I apply a financial citizenship lens to the Pakistani banking sector to consider how inclusive finance resolves the issue of uneven financial access. For this, I draw attention to how inclusive finance is a form of shadow banking. The case of Pakistan shows that policies of inclusive finance create a heterogeneous formal financial space. Institutionalized forms of inclusive finance result in a banking system that offers uneven access to finance because it contains separate parts for different clients. Such a system is defined by mainstream commercial banks based on a traditional bank intermediation model on the one hand, and inclusive finance based on a disintermediated, or shadow banking model, on the other. My study uses the example of two deposit-taking microfinance banks to show how contemporary financial systems in the Global South tend to contain an ‘outside’ as well as an ‘inside’. As such, I draw attention to how shadow banks shape inclusive finance and limit financial citizenship, causing uneven access to finance, characterized by inequities in (1) rates, (2) requirements, and (3) surveillance. These inequities complicate and limit financial citizenship in spaces where shadow banking subsumes inclusive finance.