Summit in Karachi calls for comprehensive digital policy for economic growth
Amid concerns over Pakistan’s
cash-driven economy, banking experts at a recent summit in Karachi called for a
comprehensive digital policy to complement fiscal and monetary strategies, fostering
a more inclusive financial system.
Despite the banking sector’s strong
profitability, largely due to heavy investments in government securities,
experts stressed the urgent need to bridge the gap between the financial system
and society. A significant portion of Pakistan’s population remains outside the
banking net, hindering economic growth.
The
Case for Digital Payments
Speakers emphasized the importance
of rapid digitization in financial inclusion, highlighting that only 20% of
transactions in Pakistan are digital. Naveed Sultan, a professor at Imperial
College Business School, underscored the need for a new financial system for
economic development. Citing successful models from China, India, Malaysia, and
the UAE, he pointed out that 8% of the global population controls 76% of the
world’s wealth, a disparity that digital financial inclusion could help
address.
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A
Call for a National Digital Policy
Bankers at the summit argued that
digital policy should be as crucial as fiscal and monetary policies. While COVID-19
accelerated digital banking adoption, cash transactions—especially
cash-on-delivery (COD)—continue to dominate.
The Pakistan Banks’ Association
(PBA) remains optimistic about Pakistan’s digital transformation. It noted
that:
- Financial institutions are reducing reliance on paper
documentation
- Consumers are becoming more financially literate
- Regulators are adopting inclusive policies
- The public is increasingly inclined to use digital
banking
“With commitment from all
stakeholders, infrastructure upgrades, and government support, Pakistan is
well-positioned to embrace digital banking,” the PBA stated.
Challenges
in Digital Adoption
Pakistan’s slow payment system
digitization has resulted in a high cash circulation of Rs9.5 trillion.
According to State Bank Deputy Governor Saleem Ullah, this massive cash flow
could be integrated into the banking system with digital solutions.
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Centers
The cash-to-GDP ratio remains high
at 35%, compared to:
- 10% in Kenya
- 15% in Bangladesh
- 16% in India
United Bank Limited (UBL) CEO
Mohammad Jawaid Iqbal attributed Pakistan’s high cash reliance to a lack of
trust in financial documentation. He emphasized that digital banking offers a
solution, attracting customers through convenient and user-friendly platforms.
Pakistan’s
Digital Banking Framework
In January 2022, the State Bank of
Pakistan (SBP) introduced a digital banking framework, setting licensing and
regulatory guidelines for digital banks. The framework offers two categories:
- Digital Retail Bank (DRB) – Serving individual
consumers
- Digital Full Bank (DFB) – Catering to both retail and
corporate clients
Despite these efforts, few Pakistani
banks offer digital loan applications, and even fewer provide instant credit
approvals.
Lessons
from Global Leaders
Corey Thompson, Global Head of
Digital Banking at Mashreq Bank, highlighted China’s 90% cashless transaction
rate as a model for success. He noted that India and Malaysia are rapidly
advancing, while the UAE has built a mature digital economy despite its smaller
size.
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Need
for an Action-Oriented Roadmap
Experts at the summit agreed that Pakistan
must institutionalize a Digital Policy to accelerate financial inclusion and digitization.
The SBP’s Strategic Plan (2023-28) already prioritizes making digital payments
as efficient and cost-effective as cash, yet cash remains the dominant choice,
restricting economic progress.
To drive change, experts called for national-level
policies and an action-oriented roadmap to foster a robust digital ecosystem.
Without this shift, Pakistan risks falling behind in the evolving global
financial landscape.
Source: Dawn