Interventions for inclusion.

IT has now been well-recognised that relying on markets and competition, as opposed to directed government control or privilege, is the best way for countries to achieve sustainable prosperity for their citizens. However, the rise of wealth inequality in recent years, as starkly illustrated by the French economist Thomas Piketty in his bestseller Capital in the Twenty-First Century, has made it equally important to recognise that markets - more often than we may have thought - fail to provide resources in an equitable manner for a country's citizens to feel they have a level playing field to aspire to raise their living standards. In such cases, the government or the regulator must lean in to address the market failure.

A key illustration of such market failure is equitable access to finance: the ability to bank with ease for everyone. Over the past several decades, Pakistan's banking system has not risen to the challenge of providing a level playing field in access to finance to different sections of society. This is particularly so for housing finance for those who did not have the good fortune of being born into a household of means. In most economies, one of the principal components of household wealth is home ownership. Consequently, programmes that promote affordable finance for owning a home for the less well-off are key for reducing the glaring wealth gap between the haves and the have-nots in our country.

Read: Inequality, not poverty

A simple example is useful. A typical employee in his or her 30s with a spouse and two children providing a service (secretary, driver, etc) in a mid-sized company in a large city likely does not own their own home. The rent for their modest home would easily be in the Rs20,000 per month range which would likely increase 10 per cent yearly. If her or his salary does not rise at a commensurate pace, their rent will eat up a growing share of their total household budget, crowding out the ability to save or provide for other needs of the family.

If the same employee were to get financing so that he/she could buy their modest home (that is a mortgage) for about the same monthly instalments as rent, at least two key benefits would accrue. First, mortgage payments are typically fixed in rupee terms over the life of a loan. Thus, the share of housing expense in the household budget should shrink over time, allowing the family to better cater for their other needs to raise their living standards. Second, by...