KARACHI: Amid growing concerns over Pakistan’s cash-dominated economy, bankers at a recent summit in Karachi called for a comprehensive digital policy to complement fiscal and monetary policies, paving the way for a more inclusive financial system.
While Pakistan’s banking sector remains highly profitable due to heavy investments in government securities, speakers at the summit emphasised the urgent need to connect the financial system with society. They argued that a large portion of Pakistan’s population remains excluded from banking services, limiting economic growth.
Speakers noted that the speedy digitisation of payment systems is essential for financial inclusion, yet digital payments account for only 20 per cent of transactions in Pakistan.
Naveed Sultan, a professor at Imperial College Business School, stressed that a new financial system was critical for economic development. He pointed to successful models in China, India, Malaysia and the UAE, stressing that 8pc of the global population controls 76pc of the world’s wealth — a disparity that could be addressed through large-scale financial inclusion.
Call for comprehensive digital policy to complement fiscal, monetary policies
Bankers at the summit argued that digital policy should be given equal importance as fiscal and monetary policies, as expanding digital banking could revolutionise access to financial services.
They noted that the Covid-19 pandemic accelerated digital banking adoption, but cash transactions, particularly cash-on-delivery (COD), continue to dominate.
The Pakistan Banks’ Association (PBA) remains optimistic about the country’s shift towards a global digital banking landscape.
It said that financial Institutions are adapting to the changes and adjusting their operating procedures by minimising paper documentation; people are financially more literate; the regulators are inclusive and adaptive; and the masses appear to be more inclined to adopt digitalised banking as a part of life.
“With the commitment of all stakeholders to ensure efficiency, transparency and reduced risk for bank customers, along with the government’s support to upgrade the infrastructure, Pakistan is getting well positioned in the digitalised age of banking,” the PBA said.
Due to the slow digitisation of the payment system, Pakistan’s cash in circulation was as high as Rs9.5 trillion. “It can be effectively channelled into the banking payment system with digital as a lever,” said State Bank Deputy Governor Saleem Ullah, as quoted by A. F. Ferguson & Co.’s 2024 banking publication ‘Road to Sustainability’.
The cash-to-GDP ratio remains high in Pakistan at 35pc, compared to 10pc in Kenya, 15pc in Bangladesh, and 16pc in India.
United Bank Limited (UBL) CEO Mohammad Jawaid Iqbal attributed high cash reliance to a lack of trust in documentation. “Digital banking offers an opportunity to reduce cash dependency by attracting customers through convenient, customer-centric digital channels,” he said.
The State Bank of Pakistan (SBP) launched its digital banking framework in January 2022, introducing separate licensing and regulatory guidelines for digital banks. Under this framework, banks require specific digital banking licences and existing banks, including microfinance institutions, can apply for conversion to digital banks.
The framework offers two categories: Digital Retail Bank (DRB) catering to individual consumers, and Digital Full Bank (DFB) serving both retail and corporate customers.
Despite these initiatives, very few Pakistani banks offer digital loan applications, and an even smaller number provide instant credit approvals.
Corey Thompson, Global Head of Digital Banking at Mashreq Bank, underscored the success of digital transformation in China, where 90pc of transactions are cashless. He noted that India and Malaysia are rapidly progressing, while the UAE has achieved a mature digital economy despite its small size.
Speakers at the summit agreed that Pakistan must institutionalise a Digital Policy to accelerate digitisation and financial inclusion. They urged national-level policies and an action-oriented roadmap to promote digital adoption.
The SBP’s Strategic Plan (2023-28) already aims to make digital payments as convenient, efficient, and cost-effective as cash. However, cash remains the preferred medium, hindering economic growth.
“Unfortunately, cash continues to prevail as the medium of choice impacting our overall economic growth. To achieve targeted objectives, it may be beneficial to institute national-level policies enabling digital adoption and fostering the digital ecosystem alongside an action-oriented roadmap,” according to banking publication ‘Road to Sustainability’.
Published in Dawn, March 2nd, 2025
