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Express Tribune
16-06-2025
- Business
- Express Tribune
Digitalisation: avenues, hurdles
Listen to article The global financial landscape is undergoing a profound transformation with the advent of digital currencies, mobile banking, and fintech innovations. These advancements are reshaping economies by promoting financial inclusion, enhancing transparency, and reducing reliance on cash-based transactions. In Pakistan, a country with a significant cash-based economy, the push toward digitalisation of currency and financial inclusion is gaining momentum. The government and financial regulators, led by the State Bank of Pakistan (SBP), have introduced policies and regulations to encourage digital payments and discourage cash transactions. These efforts aim to modernise the economy, combat the informal sector, and integrate millions of unbanked individuals into the formal financial system. However, the transition to a digital economy is not without challenges, including infrastructural limitations, regulatory complexities, and socio-economic barriers. This article explores the digitalisation of currency in Pakistan, its role in promoting financial inclusion, the laws and regulations designed to reduce cash usage, and the advantages and disadvantages of this shift. Financial inclusion, a key objective of digitalisation, aims to provide affordable and accessible financial services to underserved and unbanked populations. According to the World Bank, 1.4 billion people globally remain unbanked, with Pakistan accounting for a significant portion mainly due to illiteracy, no access to banks or the inability of Pakistan Post to offer banking services like Singapore Post, hence Pakistan has a large informal economy, especially in rural areas. Digital financial services, such as mobile banking and digital wallets, have proven effective in bridging this gap by enabling low-cost transactions, savings, and credit access without the need for physical bank branches. In Pakistan, the digitalisation of currency aligns with the government's vision of a "Digital Pakistan," launched in 2019, which seeks to leverage technology to enhance economic growth and governance. The SBP's National Payment Systems Strategy (NPSS), introduced in 2019, and subsequent regulations have laid the groundwork for a cash-light economy. However, the transition requires balancing innovation with regulation, addressing infrastructural challenges, and ensuring equitable access for all citizens. Pakistan's economy is heavily cash-dependent, with cash transactions accounting for an estimated 80-90% of all payments, particularly in rural areas and the informal sector. According to the SBP, the informal economy constitutes approximately 30-40% of GDP, driven by cash-based businesses, unreported income, and limited banking penetration. Only 26% of Pakistan's adult population had access to formal financial services in 2021, per the World Bank's Global Findex Database, leaving millions reliant on cash for daily transactions. This reliance on cash poses several challenges. Transactions are difficult to track, enabling tax evasion and the growth of the black economy. The Federal Board of Revenue (FBR) estimates that Pakistan's tax-to-GDP ratio, at around 10%, is among the lowest in the region, partly due to unreported cash-based activities. Cash facilitates illicit transactions, including money laundering, terrorist financing, and corruption, undermining economic stability and security. Handling physical cash incurs significant costs for printing, transportation, and security. For businesses and individuals, cash transactions are time-consuming and prone to theft or loss. The lack of access to banking services excludes millions from savings, credit, and insurance, perpetuating poverty and inequality, particularly among women, rural residents, and low-income groups. The digitalisation of currency offers a pathway to address these issues by promoting transparency, reducing costs, and integrating the unbanked into the formal economy. The Pakistani government and the SBP have introduced a range of policies and regulations to encourage digital payments and reduce cash usage. These measures are part of a broader strategy to modernize the financial system, enhance tax compliance, and promote financial inclusion. Key initiatives include: StBP's National Payment Systems Strategy (NPSS), launched in 2019, aims to create a robust, interoperable, and inclusive digital payment ecosystem. Key components Raast instant payment system: Introduced in 2021, Raast is Pakistan's first instant digital payment platform, enabling real-time, low-cost transactions across banks and digital wallets. Raast supports person-to-person (P2P), person-to-business (P2B), and government-to-person (G2P) payments, reducing reliance on cash for small transactions. By 2024, Raast had processed over 200 million transactions, with a focus on financial inclusion for rural and underserved populations. Electronic money institutions (EMIs): The SBP's EMI Regulations (2019) allow non-bank entities, such as fintech companies, to offer digital payment services, including mobile apps and e-wallets. Licensed EMIs like JazzCash and Easypaisa have expanded digital financial services to millions, particularly in rural areas. Interoperability and open banking: The NPSS mandates interoperability among banks, fintechs, and payment service providers, ensuring seamless digital transactions. The SBP's Open Banking Framework encourages data sharing to foster innovation and competition. Taxation and cash transaction limits To discourage cash usage and enhance tax compliance, the FBR has introduced measures to limit cash transactions and incentivize digital payments: Section 21(l) of the Income Tax Ordinance, 2001: This provision disallows tax deductions for business expenses exceeding PKR 250,000 if paid in cash, encouraging businesses to use banking channels. Withholding tax on cash withdrawals: Under Section 231A, a 0.6% withholding tax is imposed on cash withdrawals exceeding Rs50,000 per day from bank accounts, incentivising digital transactions to avoid additional taxation. Point of Sale (POS) integration: The FBR's POS Integration Rules (2021) require large retailers (Tier-1) to install POS machines linked to the FBR's system for real-time transaction reporting. Non-compliance results in penalties, pushing businesses toward digital payments. Tax incentives for digital transactions: The FBR offers reduced tax rates for merchants accepting digital payments, encouraging the adoption of card and mobile-based transactions. The digitalisation of currency in Pakistan, supported by initiatives like Raast, EMI regulations, and tax policies, holds immense potential to transform the economy. By promoting financial inclusion, enhancing transparency, and reducing the costs of cash handling, digital payments can drive economic growth and integrate millions into the formal financial system. However, challenges such as the digital divide, low financial literacy, and cybersecurity risks must be addressed to ensure an equitable transition. Pakistan's laws and regulations to discourage cash transactions, including POS integration, cash withdrawal taxes, and AML/CFT measures, are steps in the right direction. Yet, their success depends on robust implementation, public awareness, and infrastructural improvements. By learning from global models like India's UPI and investing in inclusive policies, Pakistan can build a digital economy that benefits all citizens, from urban elites to rural farmers. As the country moves toward a cash-light future, it must balance innovation with regulation, ensuring that the benefits of digitalisationfinancial inclusion, transparency, and efficiencyare accessible to all. The journey is complex, but with strategic reforms and collective effort, Pakistan can harness the power of digital currency to create a more inclusive and prosperous economy. THE WRITER IS A TRADE EXPERT WITH OVER 35 YEARS OF EXPERIENCE IN INTERNATIONAL TRADE, A COMMODITIES CONNOISSEUR & FORMER VICE PRESIDENT OF KCCI
Khaleej Times
20-05-2025
- Business
- Khaleej Times
Surge in bank account ownerships positions UAE among most banked nations
The UAE has emerged as one of the world's most banked nations on the back of remarkable surge in bank account ownerships, according to a new independent survey. The YouGov study, commissioned by the personalised financial marketplace Daleel, reveals that 94 per cent of UAE residents now hold a personal bank account, a notable increase from 85 per cent in 2021, according to the World Bank's Global Findex Database. This positions the UAE among the world's most banked nations, rivaling the United States and reflecting the success of the UAE's ambitious financial inclusion strategies under the 'We the UAE 2031' vision and the UAE Digital Economy Strategy. The YouGov survey, which explored how UAE residents engage with financial services — from product research to confidence in their financial tools — highlights both progress and challenges in the nation's financial landscape. 'The UAE's near-universal bank account ownership is a testament to its forward-thinking policies,' said PK Shrivastava, CEO of Daleel. 'However, there's a clear opportunity to offer more personalized financial products to move beyond the 'one-size-fits-all' model.' The UAE's rise in account ownership aligns with its strategic goals to enhance digital transformation and financial inclusion. According to the Central Bank of the UAE (CBUAE), total bank deposits grew by 1.2 per cent, from Dh2,840.7 billion in January 2025 to Dh2,874.6 billion in February 2025. This growth was driven by a 0.8 per cent increase in resident deposits, reaching Dh2,625.5 billion, and a 5.1 per cent surge in non-resident deposits, totaling Dh249.1 billion. Within resident deposits, government-related entities saw a 3.8 per cent rise, private sector deposits increased by 1.4 per cent, and non-banking financial institutions recorded a 5.6 per cent uptick, though government sector deposits fell by 4.0 per cent. These figures underscore the UAE's robust financial ecosystem, supported by initiatives like the CBUAE's Financial Inclusion Framework, which promotes accessible banking services. The UAE's digital banking infrastructure, including mobile banking apps and fintech innovations, has also played a pivotal role in expanding access, particularly for underserved communities. Despite high account ownership, the survey reveals a significant confidence gap in financial products. While two-thirds of account holders trust their current accounts, 76 per cent lack confidence in at least one financial product they use. Specifically, 65 per cent of mortgage holders doubt they have the optimal plan, 62 per cent question their personal or auto loans, and 50 per cent are uncertain about their credit card choices. This uncertainty often stems from product complexity, opaque terms, and insufficient consumer education. Behavioural trends also emerged from the survey. Women are twice as likely as men to periodically review their financial products, reflecting greater diligence in seeking better options. Meanwhile, 90 per cent of respondents regularly review or switch products, with many prioritising tailored solutions. Emirati nationals stand out as the most proactive, with 80 per cent annually reassessing their financial portfolios. The findings signal a growing demand for transparency and personalisation in the UAE's financial sector. 'Consumers need clear, jargon-free information to make informed decisions,' said Ridaa Shah, COO of Daleel. 'In 2025, we expect the UAE's financial industry to prioritise transparency and customization, empowering residents to choose products that align with their needs.' The UAE's fintech sector is responding to this demand. Platforms like Daleel leverage data analytics to offer personalised product recommendations, while banks are investing in user-friendly digital interfaces. The CBUAE's 2024 Consumer Protection Regulations further support this shift by mandating clear disclosures and fair practices. Banking sector analysts said the UAE's near-universal bank account ownership marks a milestone in its journey toward financial inclusion, driven by strategic vision and digital innovation. However, addressing the confidence gap in financial products is critical to sustaining this progress. They said by prioritising transparency, simplifying product offerings, and leveraging fintech, the UAE can empower residents to make smarter financial choices, reinforcing its position as a global leader in financial services.
Al Etihad
11-05-2025
- Business
- Al Etihad
UAE financial inclusion hits new high as 94% residents holding bank accounts
11 May 2025 20:15 KHALED AL KHAWALDEH (ABU DHABI)Financial inclusion hit an all-time high in the UAE, with a new survey showing that 94% of residents now hold a personal bank account. The independent poll - commissioned by Daleel, a Middle East-based personalised financial marketplace - comes amid consistent government efforts to streamline transactions and digitalise the findings of the survey, conducted by YouGov, mark a significant rise in bank account participation from 85% in 2021, as recorded by the World Bank's Global Findex Database. This puts the UAE on par with some of the world's most banked nations, including the US."More people than ever before have access to a personal bank account in the UAE, demonstrating the success of the 'We the UAE 2031' vision and UAE Digital Economy Strategy towards digital transformation and financial inclusion," said PK Shrivastava, CEO of the data reflects growing confidence in financial adoption, Shrivastava noted there is still room for improvement when it comes to personalising financial products."We wanted to understand how people use financial services - from initial research into different products, through to the level of confidence in their choices. It is very positive that there is such a high level of financial adoption, while there is still a huge opportunity for more personalised products instead of 'one-size-fits-all' finance," he near-universal banking, the survey revealed a significant confidence gap in how residents view their financial products. While nearly two-thirds of account holders expressed satisfaction with their bank accounts, 76% admitted to lacking confidence in at least one of their other financial products.A majority (65%) of mortgage-holders reported uncertainty over whether they had secured the best available plan. Similarly, 62% of respondents expressed doubts about the suitability of their personal or auto loans, while half of all credit card users said they were unsure if they had chosen the right data also highlighted a gender gap in financial engagement. Women were found to be twice as likely as men to have never reviewed their financial products, suggesting a need for more targeted financial education and advisory services to support informed decision-making across all demographics. Seeking Better Financial Solutions Encouragingly, the survey found that nine out of 10 people said they periodically review or switch their financial products. An equally high number expressed openness to more personalised financial options, moving away from generic, one-size-fits-all offerings. Daleel said this shows that while confidence may be lacking in some areas, consumers are actively seeking better financial nationals were identified as the most financially engaged demographic, with eight out of 10 reviewing their financial products annually, far exceeding other groups Shah, COO at Daleel, emphasised that consumers need clear, jargon-free information to navigate a growing array of financial products."Consumers need the right information presented in a clear manner that cuts through the technical jargon," Shah said. "Financial products do not need to be so complicated or hard to understand. This year, finance in the UAE will embrace greater transparency and personalisation. Consumers will be able to make faster, more informed decisions and ultimately, we will see a rise in confidence in their chosen financial products," she added.
