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Business Recorder
5 days ago
- Business
- Business Recorder
Digital rupee set to transform Pakistan's financial landscape
Pakistan is undergoing a profound digital transformation towards digital finance in the financial system with the pilot initiation of a Central Bank Digital Currency (CBDC) by State Bank of Pakistan (SBP). RAAST is a real-time payment system in the country and the officials of SBP have stated that since its inception in 2021, it has handled more than Rs 8 trillion worth of transactions. The CBDC is not just a channel to transfer money like RAAST – it represents the money itself, issued by the central bank. Pakistan has a mobile phone penetration rate of over 82 percent and the expected remittance inflow of an estimated 38.3 million during the fiscal year 2024-25. It stands ready to use CBDC to enhance financial inclusion by cutting transaction fees, digitalisation of welfare payments, and including millions of unbanked citizens into the formal economy. The economic consequences of embracing CBDC are the trade-offs between high short-term expenditure and efficiency, inclusion, and transparency in the long run. According to the SBP annual report of 2022-23, Pakistan spends over Rs 28 billion annually in cash-management-related activities annually in Pakistan, including storage and maintenance of cash, printing, banknotes processing, distribution, and ATM-related maintenance, despite cash accounting being approximately 62 per cent of transaction volume at the mid of 2023. These expenses may be significantly lower as the use of programmable digital rupees that can be stored on a secure mobile wallet can substantially replace physical money in the system that the central bank can issue as digital form of legal tender. The cost of using traditional payment channels of paying via ATM withdrawals, or clearing a cheque is still expensive and time consuming. As of 2022, the fees for using ATM vary between Rs 20- 23 service fee per transaction, and a cheque clearing process may require two days of business, with challenges to control over liquidity and maintaining cash flow. In addition, the latest Global Findex report published by the World Bank in 2021 revealed that the number of Pakistani adults who are not using any financial service is more than 100 million, clarifying the drawbacks of the traditional financial system of Pakistan. According to State Banks data of 2024, RAAST has facilitated transactions of over 160 million, across bank accounts and electronic wallets, which has made instant and free financial transfers. It has been doing this since its introduction in the year 2021. With that being said, experts share that RAAST is unlikely to make money even though it serves as a payment rail. Contrary to these, CBDC represents sovereign digital currency, fully supported and actually issued by the SBP, and is not dependent on the balance sheets of commercial banks. The trend follows the general pattern abroad, with such nations as China and the Bahamas developing their virtual currencies to supplement or minimize the use of the conventional banking system. According to a report published by the International Monetary Fund (IMF) in March 2022, China Digital Yuan pilot was commended, stating that CBDCs can enhance financial inclusion with access to safe, convenient digital payment instruments, many of which Citizens, who lack bank accounts, or maintain them at under-staffed or under-equipped institutions, receive limited benefit. Relatively, the Sand Dollar project has been introduced in the Bahamas back in 2020 and has helped in scaling up financial services to previously inaccessible areas in the islands. The legal foundation of CBDC in Pakistan was put in place by the Digital Currency Regulatory Framework (DCRF) act of 2024 that authorized the issuance of digital legal tender by the SBP, cyber security and data privacy requirements, and digital banking licensing. According to the 2023 report published by Bank for International Settlements, unless there is a robust regulatory framework in place, CBDCs can subject users to privacy violation and financial fraud, and therefore it is quite important that Pakistan is already making steps towards setting a regulatory framework. To complement this scenario, the government of Pakistan enacted the Act of Virtual Assets, 2025, which was a historic bill that formed the Pakistan Virtual Asset Regulatory Authority (PVARA). The mission of PVARA is to control and oversee the ecosystem of virtual assets that entail, but are not limited to crypto currencies, tokenized assets, and other digital financial products. The mission of such body of authority is to furnish an orderly legal framework that facilitates innovation without jeopardizing investors and alleviating the risk of money laundering, financing of terrorists, and fraud. The Virtual Assets Act has given the PVARA power to license the providers of services involving virtual assets, strict observance of anti-money laundering (AML), and the knowledge-your-customer (KYC) requirements, and established transparency and accountability in the digital asset market. With the formation of PVARA, Pakistan joins an increasingly long list of nations implementing serious sets of rules to handle digital assets such as Singapore Monetary Authority of Singapore and the UK Financial Conduct Authority. This is a step that is also compliant with international requirements as spelt out by the Financial Action Task Force (FATF) who requires countries to ensure that they oversee the safety of the virtual assets and the service providers. Among pilot projects it is considering are direct payment of social safety net programs like BISP and Ehsaas via CBDC wallets, programmable utility payments, and cross-border remittance corridors that could help to push the estimated $8 billion of annual informal remittance outflow in Pakistan, the World Bank reported in 2023. There are success stories like eNaira that is being launched in Nigeria, where the Central Bank of Nigeria (2023) notes that eNaira has ended up solving the government-to-person payments, and lowered leakages. The rollout of CBDC also supports Pakistan's project URAAN, specifically its E-Pakistan pillar focused on digital governance and inclusion. By offering digital cash accessible via mobile phones, CBDC could help bridge gaps in financial access, reduce the size of the informal economy, and enhance tax transparency, as detailed in the Planning Commission of Pakistan's 2024 documentation. Globally, United Nations Development Programme (UNDP) experts view CBDCs as tools to advance Sustainable Development Goals by promoting financial inclusion and reducing poverty. In its 2022 report, the UNDP emphasized that 'digital currencies can accelerate economic development by integrating marginalized populations into the formal financial system.' To ordinary Pakistanis, living in remote locations or low-income families, CBDC wallets may be their entry point into the formal finance realm. A daily-wage earner or a small-business owner or shopkeeper who may only have a simple mobile phone could access welfare, pay utilities, start savings-all without having to open a traditional bank account. In conclusion, while Pakistan faces significant costs in developing CBDC infrastructure, including cyber security safeguards and institutional reforms, the potential benefits are transformative. These include drastically reduced cash handling costs, faster and cheaper payments, greater inclusion of unbanked populations, and improved government accountability. The CBDC is not intended to replace existing payment systems immediately but to complement platforms like RAAST. Together, these tools can form a resilient digital financial architecture essential for Pakistan's economic modernization. (The writer is an Assistant Professor of Finance at the Pakistan Institute of Development Economics (PIDE). He can be reached at [email protected].) Copyright Business Recorder, 2025
Business Recorder
26-06-2025
- Business
- Business Recorder
Friction for cash, ease for digital: Pakistan's road to documenting the economy
Pakistan stands at a pivotal economic crossroads. With our national instant payment system RAAST processing 371 million transactions worth Rs8.4 trillion in first quarter of 2025 — a 164.5% increase in volume and a 146% surge in value from the previous year — it is enabling real-time digital payments, reducing cash dependency, and significantly improving transaction transparency. Yet, an estimated 37.5% of gross domestic product (GDP) remains in the shadow economy, representing a significant untapped opportunity. Digital payments are essential for a modern economy, enabling efficient government services and expanding financial inclusion. The challenge lies not in enforcement, but in making formal systems accessible and affordable. Global examples like Brazil and Kenya demonstrate the benefits of payment digitisation; in these countries, digital reforms not only improved convenience for citizens, but also redefined governance, expanded financial inclusion, and enhanced transparency. These outcomes aren't outside the realm of possibility for Pakistan either. With over 143 million broadband users the country has the potential to transform into a cashless economy. Mobile wallets now outnumber traditional bank accounts, and branchless banking infrastructure is robust, yet 90% of e-commerce is still cash-on-delivery. Even many government disbursements rely on paper-heavy, fraud-prone systems. Pakistanis clearly will adopt digital when it's easy, trusted, and backed by institutional will. But Pakistanis do adopt digital when given reliable and accessible solutions, and we've seen that firsthand. The country has one of the world's largest digital payments networks, with over 123 million branchless banking accounts and maintain a distribution reach 37 times greater than the traditional banking network. Pakistan govt's budget steps may hinder cashless economy drive: TOAP Its 704,000 agent touchpoints represent a parallel financial ecosystem that has enabled access to services in every corner of the country, especially the under-served areas. One recent example illustrates the impact of digital intervention. During the Prime Minister's Ramazan Relief Fund programme, JazzCash disbursed funds to over 1.1 million beneficiaries, of which more than 600,000 were via wallets. Not only were there zero leakages through this channel, but it also offered recipients, especially women in rural areas, more convenience, dignity, control, and visibility over their finances compared to the CNIC-based method where they often to wait in queues. We've also seen how policy direction paired with existing infrastructure can drive rapid adoption. After Frontier Works Organisation (FWO) mandated digital toll payments, JazzCash M-Tag volumes grew significantly in transaction count within a year. Pakistanis clearly will adopt digital when it's easy, trusted, and backed by institutional will. In a significant move underscoring this commitment, Prime Minister Shehbaz Sharif has constituted a high-level steering committee, including key federal ministers, the State Bank Governor, FBR Chairman, and leaders from major banks and payment platforms, to accelerate the adoption of digital payments and realise a cashless Pakistan. Meeting weekly, the committee is responsible for coordinated, institutionalised reforms to formalise the economy, reduce reliance on cash, and ensure greater convenience for citizens, launching a series of ambitious initiatives to expand and incentivise digital payments across the country. We need to capitalise on this unprecedented high-level push and move Pakistan decisively toward a cashless economy through a coordinated strategy anchored in five critical interventions. First, digital payments acceptance must be mandated nationwide. This requires strict district-level enforcement to ensure all merchants accept digital payments, alongside enhanced RAAST merchant account limits to support widespread adoption and usage. Second, digital payments should be incentivised through targeted fiscal measures. Reducing the sales tax to 5% on all digital payments, providing Federal Excise Duty exemptions on merchant discount rates, and granting a three-year tax audit break for businesses embracing digital acceptance would make digital transactions more attractive. Additionally, exempting duties on payment acceptance devices for two years would lower the cost of entry for merchants. Third, the government must accelerate the digitalisation of its own payments. Mandating RAAST QR codes for all citizen-to-government (C2G) payments, transitioning the Benazir Income Support Programme fully to digital wallets, and adopting digital wallets for all government disbursements—including social welfare, Zakat, and pensions—will ensure that public funds are delivered efficiently, transparently, and securely. Fourth, cash payments should be made more expensive to discourage their use. This can be achieved by introducing a surcharge on over-the-counter government cash payments, capped at Rs100, and by limiting cash-on-delivery transactions to Rs10,000. Furthermore, mandating digital payment acceptance across all logistics companies will help reduce the dominance of cash in e-commerce and related sectors. The question is not whether we can become a cashless society, but whether we possess the collective will to seize this opportunity decisively. Finally, robust data monitoring and public awareness must underpin these efforts. Live dashboards at the Prime Minister's Office should track progress in real time, while financial institutions must be assigned specific, time-bound targets. A national awareness campaign is also crucial to educate the public and drive widespread adoption of digital payments. Above all, the objective is to create friction for cash and ease for digital. The rapid adoption of M-Tags after toll digitisation demonstrates that when digital payments are more convenient and cost-effective, Pakistanis will make the switch. Implementing these measures decisively can unlock the country's digital potential and bring the informal economy into the formal fold. This digital transformation will come at a price, but the cost of inaction is far greater, which we are already bearing. Due to the sheer size of our informal economy, Pakistan's tax-to-GDP ratio hovers around 10%. Formalising the economy through digital means is our best shot at raising that without imposing new taxes. Examples from other markets demonstrate that the government-backed digital payment initiatives have a huge multiplier effect. When citizens receive government benefits digitally, they become active participants in the digital economy, driving merchant acceptance and creating network effects benefiting the entire ecosystem. The transition to a cashless society represents more than a technological upgrade, it constitutes an economic imperative determining Pakistan's global marketplace competitiveness. In Pakistan too, we have seen firsthand how branchless banking and fintech players have enabled digital transformation in the remotest areas by ensuring smooth access to the most basic financial services. The technology exists, the distribution infrastructure is developing rapidly, and the public has demonstrated high readiness for adoption when solutions are convenient and reliable. The question is not whether we can become a cashless society, but whether we possess the collective will to seize this opportunity decisively. While we welcome recent measures in the federal budget aimed at promoting formalisation and enforcement, policymakers must remain vigilant about persistent leakages through cash transactions. A gradual, well-calibrated approach is essential to ensure that digital payments do not inadvertently become more expensive than cash, which would undermine adoption. Digital transactions offer transparency, while cash enables concealment of income—policy should therefore focus on penalising cash usage and incentivising digital payments. Otherwise, the risk is that suboptimal measures will drive transactions back into the cash economy, contradicting the government's vision for a digital Pakistan. The writer is CEO of Jazz; Chairman of Mobilink Microfinance Bank; and member of the Prime Minister's Cashless Economy Committee.
Business Recorder
24-06-2025
- Business
- Business Recorder
Digital payments: Pakistan PM forms three high-powered panels
ISLAMABAD: Prime Minister Shehbaz Sharif on Monday launched a sweeping push towards a cashless economy, directing formation of three high-powered panels to fast-track digital payments across the country and tighten the government's grip on financial transparency. The new committees – the Digital Payments Innovation and Adoption Committee, the Digital Public Infrastructure Committee, and the Government Payments Committee – have been tasked with crafting policy to accelerate digital transactions between citizens, businesses and the state, while also activating the long-dormant Pakistan Digital Authority and drafting a national digital master plan. The prime minister, while chairing a high-level meeting, said that shifting from cash to digital was not optional but essential for a transparent economy. PM forms body to promote cashless economy, digitization 'The developed nations are racing ahead with cashless systems. Pakistan can't afford to be left behind,' he added. In a significant directive, Sharif ordered the expansion of the RAAST digital payment system from the federal level to all provinces. 'A digital transaction ecosystem is the backbone of a modern economy,' he said, stressing those digital payments must become more affordable and accessible than cash to win public trust. The officials briefed the prime minister that over 40 million users are currently on RAAST, Pakistan's flagship digital payment rail, with all federal financial transactions already routed through the system. Steps are underway to bring provincial governments onboard. The prime minister also signalled a pivot in government policy, ordering that all transactions between public and private sectors be moved to a cashless model – a potentially sweeping change for a largely informal economy. The meeting was told that the Digital Public Infrastructure Committee will operate under the Ministry of IT, while the Cashless Pakistan Steering Committee has been formed under the Prime Minister's Secretariat. In a bold pilot move, the meeting was informed that the Ministry of IT plans to make Islamabad Pakistan's first fully cashless city under the Smart Islamabad project – a digital litmus test for the rest of the country. Sharif emphasised that channelling funds through formal banking systems could help finance development projects and attract investor confidence. The inclusion of fintech in the broader ecosystem was also highlighted as a strategic pillar. The meeting was attended by key members of Sharif's cabinet, including ministers for economic affairs, IT, petroleum, and climate change, along with the governor of the State Bank of Pakistan (SBP) and heads of major regulatory bodies. Copyright Business Recorder, 2025
Business Recorder
24-06-2025
- Business
- Business Recorder
Digital payments: PM forms three high-powered panels
ISLAMABAD: Prime Minister Shehbaz Sharif on Monday launched a sweeping push towards a cashless economy, directing formation of three high-powered panels to fast-track digital payments across the country and tighten the government's grip on financial transparency. The new committees – the Digital Payments Innovation and Adoption Committee, the Digital Public Infrastructure Committee, and the Government Payments Committee – have been tasked with crafting policy to accelerate digital transactions between citizens, businesses and the state, while also activating the long-dormant Pakistan Digital Authority and drafting a national digital master plan. The prime minister, while chairing a high-level meeting, said that shifting from cash to digital was not optional but essential for a transparent economy. PM forms body to promote cashless economy, digitization 'The developed nations are racing ahead with cashless systems. Pakistan can't afford to be left behind,' he added. In a significant directive, Sharif ordered the expansion of the RAAST digital payment system from the federal level to all provinces. 'A digital transaction ecosystem is the backbone of a modern economy,' he said, stressing those digital payments must become more affordable and accessible than cash to win public trust. The officials briefed the prime minister that over 40 million users are currently on RAAST, Pakistan's flagship digital payment rail, with all federal financial transactions already routed through the system. Steps are underway to bring provincial governments onboard. The prime minister also signalled a pivot in government policy, ordering that all transactions between public and private sectors be moved to a cashless model – a potentially sweeping change for a largely informal economy. The meeting was told that the Digital Public Infrastructure Committee will operate under the Ministry of IT, while the Cashless Pakistan Steering Committee has been formed under the Prime Minister's Secretariat. In a bold pilot move, the meeting was informed that the Ministry of IT plans to make Islamabad Pakistan's first fully cashless city under the Smart Islamabad project – a digital litmus test for the rest of the country. Sharif emphasised that channelling funds through formal banking systems could help finance development projects and attract investor confidence. The inclusion of fintech in the broader ecosystem was also highlighted as a strategic pillar. The meeting was attended by key members of Sharif's cabinet, including ministers for economic affairs, IT, petroleum, and climate change, along with the governor of the State Bank of Pakistan (SBP) and heads of major regulatory bodies. Copyright Business Recorder, 2025
Business Recorder
19-06-2025
- Business
- Business Recorder
Karandaaz Financial Inclusion Survey released
KARACHI: Karandaaz Pakistan has released the 2024 edition of the Karandaaz Financial Inclusion Survey (K-FIS), marking a decade of demand-side financial data and providing a powerful roadmap for advancing inclusive finance in Pakistan. K-FIS continues to be the only nationally representative demand side survey that captures people's real financial experiences across gender, geography, and income segments. The 2024 findings reveal a significant leap in financial inclusion, which has increased fourfold, from just 8 percent in 2013 to 35 percent in 2024. This growth is primarily driven by the rise of mobile money, now used by 30 percent of adults, up from less than 1 percent ten years ago. While this progress is encouraging, the report highlights persistent gaps in usage, trust, and equity. Only 14 percent of women report owning a full-service financial account, compared to 56 percent of men. Women's access to mobile phones also remains limited, with only 46 percent ownership compared to 82 percent for men, limiting their ability to avail digital financial services. Geographic disparities persist as well. Punjab (40 percent), Islamabad (38 percent), and Gilgit-Baltistan (33 percent) have made significant strides in inclusion, whereas Balochistan (23 percent) and Azad Jammu & Kashmir (25 percent) continue to lag behind. The adoption of the government-backed RAAST payment system shows promise, with wallet registrations more than doubling from 17 percent to 41 percent in the last two years. Users cited speed (77 percent) and affordability (43 percent) as the main advantages. Addressing the webinar for the launchof report, Waqas ul Hasan, CEO Karandaaz, has said as the K-FIS results reveal, there is a persistent and troubling gender divide. 'Today, 56 percent of adult men in Pakistan have a registered financial account, compared to just 14 percent of women,' he added. He said that Karandaaz envisions a Pakistan where these divides no longer exist and where every individual, regardless of gender, has the tools to participate fully in the formal economy. 'We believe that inclusion is not a one-time achievement, but a continuous journey, and that data, like the one we share today, must guide us,' he added. Despite this progress, formal financial services remain underutilised. A striking 85 percent of adults continue to rely on informal sources — mainly family and friends—for credit. Meanwhile, trust remains a critical barrier: only 9 percent of excluded adults say they trust banks, and just 8 percent trust mobile money providers. Only 36 percent feel comfortable using any financial service. During the keynote address, Syed Samar Hasnain, Executive Director Digital Financial Services, State Bank of Pakistan (SBP), stressed on the significance of demand-side surveys, commenting, datasets are collected regularly on the supply side, from the perspective of financial institutions. However, data collection efforts on the demand side, from the perspective of households and individuals, are limited. Nonetheless, individual level surveys are essential to get invaluable insights regarding financial behavior, he added. The webinar for the launch also featured two important panel discussions. The first one, titled 'From Growth to Gaps – Who's Included, Who's Left Behind: The Next Horizon in Financial Inclusion?,' was moderated by Stephen Rasmussen, former CEO of CGAP, with an expert panel consisting of Jahanzeb Khan, CEO, easypaisa Digital Bank; Mehr Shah, Head of Research, Raqami Islamic Digital Bank; and Umair Ahmad, Senior Joint Director, Agricultural Credit & Financial Inclusion Department, State Bank of Pakistan. The second panel, titled 'Closing the Gender Gap in Financial Inclusion and Building Financial Resilience within Communities,' was moderated by Ali Akbar Ghanghro, Senior Manager, Research & Insights, Karandaaz Pakistan. The panel featured Patrick Reily, Founding Partner, Uplinq Technologies; Hussam Razi, Associate Director, Innovations for Poverty Action; Halima Iqbal, CEO, Oraan; and Nageen Akhtar, Head of Innovation, Bank Alfalah. Copyright Business Recorder, 2025
