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Advantages of Using the Formal Financial Sector

For all the financial service providers available in Pakistan, each is different and has several advantages and disadvantages. It is very important to know these services before making a decision to access any or all of them.

Advantages and Disadvantages of different types of Financial Services

Advantage

Financial Service

Disadvantage

Access

Proximity

Speed

If registered, operates within laws

Social aspect / group support

Microfinance Institution (MFI)
mfi

Loan size is typically small

Cost of borrowing can be high

Some offer no savings services

Some require mandatory group membership

Access

Proximity

Frequency

Social aspect / group support

Lump sum of money at a specified time

Savings and Credit Associations
scassociations

High risk (due to dishonest members or group conflicts)

Unreliable

Limited funds to meet borrowing needs

Lack of financial knowledge

Money easy to access

No banking costs

No transportation costs

Easy to manage

Mattress account
mattress

 

Money doesn’t grow

Less incentive to save

Money at high risk for theft or natural calamity like earthquake

No access to financial experts

No credit record

Less control over spending

No transaction records

Security

Peace of mind

Insurance expertise regarding variety of products

Insurance company
insurance

High monthly payments

High increases each year

Products difficult to understand

Must read conditions

Long waiting period for payment

Money available immediately

Available at your doorstep

Moneylender
moneylender

Very expensive

Risky – operates by intimidation

Not protected by government laws

Easy to get into deep debt