City Research Online City, University of London Institutional Repository Citation: Jafri, J. (2019). Bifurcated banking: the political economy of inclusive finance in Pakistan. (Unpublished Doctoral thesis, City, University of London) This is the accepted version of the paper. This version of the publication may differ from the final published version. Permanent repository link: https://openaccess.city.ac.uk/id/eprint/23914/ Link to published version: Copyright: City Research Online aims to make research outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain with the author(s) and/or copyright holders. URLs from City Research Online may be freely distributed and linked to. Reuse: Copies of full items can be used for personal research or study, educational, or not-for-profit purposes without prior permission or charge. 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City Research Online: http://openaccess.city.ac.uk/ [email protected] BIFURCATED BANKING: THE POLITICAL ECONOMY OF INCLUSIVE FINANCE IN PAKISTAN JUVARIA JAFRI A thesis submitted to City, University of London for the degree of DOCTOR OF PHILOSOPHY Department of International Politics, School of Arts and Social Sciences, City, University of London June 2019 0 1 TABLE OF CONTENTS TABLE OF CONTENTS ......................................................................................................................................... 2 LIST OF FIGURES AND TABLES ....................................................................................................................... 4 ACKNOWLEDGEMENTS ..................................................................................................................................... 6 ABSTRACT .............................................................................................................................................................. 7 0. BIFURCATED BANKING: THE POLITICAL ECONOMY OF INCLUSIVE FINANCE IN PAKISTAN ............................................................................................................................................................... 8 0.1 BACKGROUND AND OVERVIEW ........................................................................................................................ 8 0.2 RESEARCH QUESTIONS AND THEMES ......................................................................................................... 11 0.3 CONCEPTUAL FRAMEWORK ............................................................................................................................. 18 0.4 DATA SOURCES ....................................................................................................................................................... 19 0.5 CASE SELECTION AND METHODOLOGY ...................................................................................................... 20 0.6 CONTRIBUTION TO SCHOLARSHIP ................................................................................................................ 22 0.7 OUTLINE ..................................................................................................................................................................... 23 PART ONE ............................................................................................................................................................. 26 1. ACCESS, EXCLUSION AND THE SPACE IN BETWEEN: A GREY AREA ....................................... 27 1.1 INTRODUCTION ...................................................................................................................................................... 27 1.2 INCLUSIVE FINANCE: A CONCISE HISTORY ............................................................................................... 28 1.3 ATTRIBUTES OF INCLUSION: A GREY AREA BETWEEN FINANCIAL EXCLUSION AND MAINSTREAM FINANCE? .................................................................................................................................................... 31 1.4 FINANCIAL CITIZENSHIP FROM INCLUSIVE FINANCE? ....................................................................... 43 1.5 SUMMARY .................................................................................................................................................................. 45 2. DEVELOPMENT AS INCLUSION AND DEVELOPMENT AS FINANCE ......................................... 47 2.1 INTRODUCTION ...................................................................................................................................................... 47 2.2 DEVELOPMENT AS INCLUSION ....................................................................................................................... 48 2.3 FROM MODERNISATION TO MDGS ................................................................................................................ 51 2.4 FINANCE FOR DEVELOPMENT AND THE FFD AGENDA....................................................................... 58 2.5 INCLUSIVE FINANCE EITHER AS FINANCIAL DEEPENING OR FINANCIALISATION? ............ 65 2.6 SUMMARY .................................................................................................................................................................. 70 3. SHADOW FINANCIAL CITIZENSHIP: A CONCEPTUAL FRAMEWORK TO STUDY BIFURCATED BANKING ................................................................................................................................... 72 3.1 INTRODUCTION ...................................................................................................................................................... 72 3.2 BIFURCATED BANKING AS AN ISSUE OF FINANCIAL CITIZENSHIP............................................... 73 3.3 SHADOW BANKING ............................................................................................................................................... 75 3.4 THE CASE FOR SHADOW FINANCIAL CITIZENSHIP ............................................................................... 85 3.5 FINANCIAL CITIZENSHIP .................................................................................................................................... 86 3.6 THE SOCIAL CONTRACT AND BIFURCATED BANKING FOR THE POOR ....................................... 98 3.7 SUMMARY ............................................................................................................................................................... 105 PART TWO ........................................................................................................................................................ 107 4. BIFURCATED BANKING IN PAKISTAN: ORIGINS AND STRUCTURES .................................. 108 4.1 INTRODUCTION ................................................................................................................................................... 108 4.2 DUALISTIC FINANCE IN PAKISTAN ............................................................................................................ 108 4.4 SUMMARY ............................................................................................................................................................... 135 5. BIFURCATED BANKING: GAPS AND RESPONSES ........................................................................ 137 5.1 INTRODUCTION ................................................................................................................................................... 137 2 5.2 FINANCIALISED DEVELOPMENT AND THE REGULATION OF MICROFINANCE.....................138 5.3 STRUCTURAL AND MACROECONOMIC ISSUES .....................................................................................148 5.4 SHADOW BANKING IN PAKISTAN ...............................................................................................................150 5.5 SUMMARY................................................................................................................................................................151 6. SHADOW FINANCIAL CITIZENSHIP: PRACTICES, PROCESSES AND PRODUCTS .............. 153 6.1 INTRODUCTION ....................................................................................................................................................153 6.2 SHADOW BANKING FOR ‘SUSTAINABILITY’ ...........................................................................................154 6.3 FMFB AND TMB: SHADOW BANKING EVOLUTIONS ...........................................................................156 6.4 FINANCING STRUCTURES AND STRATEGIES .........................................................................................160 6.5 SHADOW FINANCIAL CITIZENSHIP IN PAKISTAN ...............................................................................168 6.6 SUMMARY................................................................................................................................................................170 7. EVOLUTIONS IN SHADOW FINANCIAL CITIZENSHIP AND TRANSFORMATIONS IN FINANCING DEVELOPMENT ........................................................................................................................ 172 7.1 INTRODUCTION ....................................................................................................................................................172