A bank account doesn't change your life

Four out of five Pakistanis are outside the banking system

Muzamil opens the episode with a number that frames everything that follows: Pakistan’s bank population sits somewhere between 12 and 20 percent. Four out of five people have never held a bank account, let alone understood that money can move without cash changing hands. Before the conversation can get to digital currencies or transparent economies, Muzamil argues, someone has to explain why that majority never got banked in the first place, and what it would actually take to bring them in.

That someone is Kabeer Naqvi, President and CEO of U Microfinance Bank Limited. Kabeer opens by drawing the line between a microfinance bank and a commercial one: on the deposit side, U Bank looks like any other bank. On the lending side, it is mission-driven, built specifically to serve the roughly 80 percent of Pakistan that commercial banks were never designed to reach. The distinction, Kabeer explains, comes down to underwriting. Commercial banks lend against audited statements and salary slips. U Bank lends against income proxies: a relationship officer visits a farmer, counts the livestock, estimates the crop, and manually builds a cash flow projection before deciding whether to lend, secured or unsecured. “That skill now needs to be taken to scale,” Kabeer says, “because we were doing this manually.”

The bank of the masses, not the app

Every other player in Pakistan’s microfinance conversation has told Muzamil the same story: financial inclusion equals an app, and the rest follows. Kabeer disagrees, and the numbers back him. “When I took over in 2015, U Bank had a 600 million rupees loan book and 1 billion rupees of deposit,” he tells Muzamil. “Right now, in seven and a half years, we are 62 billion in loans from 600 million, and we are almost 100 billion in deposits.” The bank has reached 300 branches and is opening 100 a year, betting on brick and mortar precisely because Pakistan’s roughly 17,500 bank branches cluster in tier-one and tier-two cities, leaving the last mile without any human presence at all.

For Kabeer, credit at that last mile still requires a person: someone to build the cash flow, evaluate the risk, and come back for both collection and the next loan. Digital and physical are not competing strategies in his view, they’re sequenced ones. A first-time customer opens an account in their village, through a human, and only later graduates toward a fully digital relationship. Muzamil pushes back gently, noting how radically this differs from the digital-first narrative he has heard from other founders in the space, and Kabeer holds his ground: understanding the poverty pyramid, he says, matters more than chasing app downloads that don’t represent sustainable change.

A second engine: treasury, gold, and the discipline Covid taught

U Bank’s balance sheet tells a story most microfinance banks can’t. On a 62 billion rupee loan book, the bank carries roughly 125 billion rupees in treasury assets, funded by deposits and borrowings and invested the way a commercial bank would invest. Kabeer traces the decision back to Covid, when the bank realized it couldn’t be a “one trick pony” dependent entirely on rural lending income. Today, 30 to 35 percent of U Bank’s profitability comes from non-microfinance income, and total assets have crossed 200 billion rupees, the largest balance sheet in the industry even though two competitors still carry a larger loan book.

The other engine is gold. “U Bank’s loan book right now, 57 percent of it, is backed by actual gold,” Kabeer tells Muzamil, describing how the bank began accepting gold that Pakistani households have historically kept as a dead asset, sitting unused in a drawer. Monetizing it let U Bank lend more aggressively while improving its capital adequacy fivefold, and gave clients a locker service and liquidity they never had before.

What the credit forms don’t say out loud

Kabeer’s most pointed story in the conversation has nothing to do with balance sheets. Reviewing loan files after joining U Bank, he found that men and women with identical cash flows were being approved for different loan sizes, with no credit-based justification. “Nobody had a real answer,” he says. “The credit team did not have an answer. So what I did as a lesson, called all the ladies, topped up their loans and made it equal to the men.” He also removed a line on the loan forms requiring women to get their husband’s permission, something he calls no requirement of Pakistani law at all.

Muzamil connects this to a pattern he has observed independently: women’s phones registered in their husbands’ names, or handed over for an hour a day so they can be “included” on paper. “Everybody talks about women’s empowerment,” Muzamil says, “but until we address these social issues in a very brave manner, we can’t move forward on financial inclusion, because there’s no financial inclusion without social inclusion.” Both men return to committees, Pakistan’s informal rotating-savings system, as a related failure: unregulated, untaxed, and structurally unfair to whoever joins last.

The aarti isn’t the villain

When Muzamil raises the rural middleman, the aarti, as the figure most commonly blamed for squeezing farmer margins, Kabeer resists the easy answer. His experience as a practitioner points the other way: the aarti has been embedded in the value chain for three or four hundred years, understands the market, and, critically, doesn’t abandon a farmer during a bad season the way a bank’s prudential regulations sometimes force it to. Rather than eliminating that layer, Kabeer argues for formalizing it, bringing aartis into limited-liability structures with tax numbers so banks can finance them directly and route technology and better seed through a relationship that already works.

The trade-off is real, and Kabeer names it directly: interest economics only work at scale. A farmer’s margin on a small loan is thin, and yields for lenders in rural finance run higher than urban lending precisely because compliance and operational costs don’t shrink with loan size. “We need to get out of drawing room discussions or coffee shop discussions,” Kabeer tells Muzamil, “and go where the rubber meets the road,” a warning aimed at anyone entering the space on assumptions rather than fieldwork.

From seven days to under an hour

The digital layer, when Kabeer does describe it, is built to sit on top of the human one rather than replace it. U Bank’s relationship officers carry biometric devices into the field, open a level-two mobile wallet on the spot, and feed the cash-flow data they’ve already collected into an in-house AI system called U-Bot, built with a local university. U-Bot returns an approval or rejection in real time; if approved, the loan lands directly in the client’s wallet. What used to be a seven-day, cash-based approval cycle now closes in under an hour, without weakening KYC or anti-money-laundering checks, because the same infrastructure that served 20,000 loans can plausibly serve 60,000.

Kabeer is careful to frame this as capacity-building rather than showmanship. “Demand is directly proportional to increase in outreach in microfinance, I can tell you,” he says to Muzamil, arguing that Pakistan’s constraint isn’t appetite for credit, it’s the industry’s ability to reach people at all.

A bank account doesn’t change your life

The sharpest turn in the conversation comes when Kabeer challenges the entire premise of counting financial inclusion by account numbers. He describes a customer sending 5,000 of every 10,000 rupees home through a shopkeeper in 2008, when Tameer Bank first launched Easypaisa, never opening a wallet or a savings account. Fifteen years later, that same person may earn twice as much and still send money the same informal way. “Put your hand on your heart and ask yourself,” Kabeer says, “does owning a bank account change your life?” He answers his own question bluntly: he can show account numbers, but livelihoods changing is a different, harder claim, and one he isn’t yet proud to make at scale.

The stakes, in his telling, are national. Roughly 9 trillion rupees sits outside Pakistan’s formal financial system, up from 5.25 trillion when Kabeer joined U Bank in 2015. Pulling that money into productive use, he argues, is where the real GDP multiplier lives, not in wallet downloads padded by marketing spend. U Bank’s own four to five lakh clients are, in his words, not nothing, but nowhere near enough against a country of 250 million, and he’s explicit that no single institution, including his own, can solve this alone.

Why the interest rate isn’t the number that matters

Muzamil raises the criticism Kabeer says he hears constantly: how does a bank justify charging the poorest borrowers such high rates? Kabeer walks through the arithmetic rather than deflecting it. Cost of funding for U Bank runs around 22 percent given Pakistan’s benchmark rates; operating costs in far-flung rural branches, driven by compliance, core banking systems, and branchless-banking requirements, add another 13 to 14 percent. Charge a client an effective rate of 37 to 38 percent, and the bank is left with a margin of 3 to 4 percent before covering potential loan losses. By comparison, he cites research putting the aarti’s effective margin on a farmer at 150 to 160 percent. “Percentages become irrelevant when the loan sizes go down,” Kabeer tells Muzamil. “You need to talk about money terms.” A 60,000 rupee loan that nets 5,000 rupees after costs is the real transaction, not the headline percentage.

Delinquency, he says, sits at 3.5 percent on 60 billion rupees disbursed in the prior year, a number he calls acceptable given the environment. He’s also direct about the industry’s reputational scars, referencing a major microfinance fraud that surfaced around 2017 and 2018 without naming the institution, and arguing that a single bank’s weak underwriting shouldn’t be read as a verdict on the entire sector. “We need tehqeeq,” he says, using the Urdu word for rigorous investigation, insisting that Pakistan’s stressed economy is a real, shared condition, not evidence that microfinance itself is broken.

Small bank, big bank is the wrong question

Kabeer pushes back on a phrase he says younger staff at U Bank use without thinking: “chhota bank,” a small bank, as shorthand for microfinance. He recounts sitting an employee down and asking them to define it, then rewiring the answer himself: the addressable market is 80 percent of the country, the goal is raising income levels rather than enabling consumption, and none of that is small. “It’s the vision that’s big or small,” he says, “not the bank.” He extends the same logic to unit economics: because U Bank owns both a lending engine and a treasury engine in every branch, a rural branch breaks even in 9 to 12 months and turns profitable afterward, something a deposit-only commercial branch in the same location could never do.

He also lays out where regulation needs to move next, telling Muzamil he’d rather see microfinance banks scheduled like commercial banks, with access to discount windows and the ability to serve the full “missing middle” between micro and small enterprise, than see them funneled toward a narrower digital-bank license. Pointedly, when asked why U Bank hasn’t simply become a digital bank, Kabeer’s answer is that the license caps deposits and branch count in ways that would shrink, not grow, what U Bank has already built.

Building the rails other fintechs plug into

Kabeer is explicit that U Bank isn’t trying to own every layer of the value chain itself. “We want to be the darling of fintechs,” he tells Muzamil, arguing that only a licensed bank can legally hold public deposits, so a bank willing to open its APIs and balance sheet becomes the natural partner for startups that can’t. U Bank works with imagery and crop-timing partners to time loan collection to actual harvests rather than guesswork, and it deliberately didn’t build its own insurance company, choosing to distribute through insurers instead. On the lending side, Kabeer describes early, informal handoffs with commercial and Islamic banks: clients whose needs outgrow U Bank’s roughly 3 million rupee loan cap get referred upward, though he’s candid that no industry-wide infrastructure or regulation yet supports that handoff at scale.

The piece he wants most from regulators is portable credit history: a client’s KYC and repayment record following them from one institution to the next, the way a credit score would in a more developed system, rather than every new relationship starting from zero.

Floods, climate, and staying when others leave

Asked about the 2022 floods, Kabeer describes being in Nagar Parkar to open a branch when the rain started, and watching the damage unfold in real time. U Bank restructured roughly 5 billion rupees of loans in flood-affected areas, supported by a State Bank scheme that allowed refinancing and shared some of the interest and principal losses. What stayed with Kabeer wasn’t the balance sheet impact but the client response: people who could have defaulted instead stayed loyal, aware the bank hadn’t abandoned them. That, he tells Muzamil, is relationship banking a purely digital product can’t replicate.

Climate change, in Kabeer’s account, is already visible in the loan book. Repayment cycles tied to Rabi and Kharif crop calendars began slipping two years before this recording, as farmers reported crops not ready on schedule. He calls it a problem no single institution or industry can manage alone, and argues Pakistan needs a national-level, decade-long strategy on water, crops, and climate rather than reactive fixes after each disaster.

A 27-year bet on Pakistan

Muzamil closes by asking Kabeer, who was among the founding team at Tameer Bank before joining U Bank, to project Pakistan 27 years out, stripped of hedges and hopes. Kabeer’s answer leans on demographics rather than optimism for its own sake: a young population, comparisons to countries like Taiwan that converted a youth bulge into growth through vocational training, and resources he says the country hasn’t fully used yet. He’s careful not to overclaim, but lands on a direct prediction: Pakistan, in his view, will be materially better off in 27 years, provided the country produces the scholars, national heroes, and nation-building initiatives it currently lacks.

Muzamil ends the episode where he began it, on the size of the gap between urban commentary and rural reality, thanking Kabeer for staying close to the ground in an industry where it would have been easier not to.