ISLAMABAD, March 25: The Asian Development Bank (ADB) has emphasized the importance of rapid action by the Pakistani government and regulatory authorities to establish comprehensive frameworks for digital financial services, aiming to address existing barriers and promote broader adoption.
Here’s a summary of the key points from the ADB’s report titled “From Cash to Digital: Advancing Financial Inclusion in Pakistan”:
There is an urgent need for regulatory frameworks. The ADB calls for the government and regulators to act swiftly in creating frameworks for digital financial services that address cost barriers, promote trust, incentivize adoption, and ensure interoperability while protecting consumers and businesses.
This is essential to drive the expansion of digital finance across Pakistan.
Promoting Merchant Adoption:
To encourage merchants to adopt digital payments, the ADB recommends offering working capital loans based on digitally documented financial performance.
This would incentivize more retailers to transition to cashless transactions and embrace digital payments.
Financial Exclusion Challenges:
With over a billion people unbanked in developing Asia, Pakistan faces a similar challenge, with only 21% of adults having access to a bank account or mobile money provider.
Women, in particular, are disproportionately affected, as they are half as likely as men to have access to banking services. Digital finance is seen as a major opportunity to bridge this gap, offering faster, safer, and more accessible transactions.
Digital Financial Services Growth:
Mobile money is highlighted as a key tool for improving financial access, particularly in areas where physical banking infrastructure is lacking.
Pakistan has one of the lowest ratios of commercial bank branches per 100,000 adults in the region (only 10.8).
The COVID-19 pandemic accelerated the adoption of mobile and cashless banking, with mobile and online transactions increasing from 17% in early 2020 to 75% by September 2024.
Raast Instant Payment System:
Pakistan’s Raast system, launched in 2021, is a significant development in the digital finance landscape.
This instant payment system enables free and reliable digital payments for individuals and businesses. It has seen rapid adoption, processing over 102 million person-to-person (P2P) payments in 2023, and daily transactions reaching 3 million.
Raast also introduced person-to-merchant (P2M) transactions, benefiting small and medium enterprises (SMEs) by reducing fees and improving settlement times.
Retail Sector Opportunities:
Pakistan’s retail sector, which contributes almost 18% of GDP, presents a major opportunity for digital finance growth. However, the sector has traditionally been untaxed.
Recent efforts, driven by pressure from the IMF, include the implementation of point-of-sale (POS) registers and the Tajir Dost scheme, which aims to simplify tax compliance for businesses while ensuring greater tax collection.
Challenges and the Path Forward:
While digital financial services are growing in Pakistan, the ADB notes that full adoption is still a work in progress.
A supportive policy and regulatory environment will be critical to extending digital finance, particularly to rural and under-banked regions.
The government is urged to implement policies that encourage innovation, such as offering digital payment solutions like tap-and-pay and buy-now-pay-later (BNPL) schemes, and using digital methods for tax payments and other services.
Women’s Financial Inclusion:
The ADB underscores the importance of increasing women’s financial inclusion, as they are often excluded from formal financial systems.
Targeted efforts to address this disparity are seen as essential to building a more inclusive financial ecosystem.
Data Protection and Cybersecurity:
The report also highlights the need for stronger data protection laws, with fewer than half of developing Asian countries having robust data protection frameworks.
As digital finance grows, ensuring the security of personal and financial data will be critical for building trust in the system.
The ADB’s report stresses the importance of a cohesive and supportive framework to accelerate the adoption of digital financial services in Pakistan.
By addressing barriers, fostering innovation, and promoting inclusion—particularly for women and underserved populations—Pakistan can unlock the full potential of digital finance, enhance financial inclusion, and drive economic growth.
