Chinese investors, who had previously poured billions of rupees into Pakistan’s digital lending sector, are now pulling out of the market following a series of crackdowns on loan apps operating in the country. The exit of these investors marks a significant shift in Pakistan’s fintech landscape, particularly in the digital lending space, which saw massive growth in 2022.
Sources close to the matter revealed that Chinese investors were the primary financial backers of many of the digital lending apps that caused the sector to boom over the past few years. However, after facing mounting scrutiny and regulatory challenges, these investors have decided to withdraw their funding, further complicating the future of Pakistan’s digital lending industry.
At its peak, the digital lending sector had seen explosive growth, with millions of Pakistani consumers turning to online apps to access small loans. These loans, often as small as Rs. 20,000, came with high-interest rates and aggressive recovery tactics. While some of the digital lending apps were licensed by the Securities and Exchange Commission of Pakistan (SECP), others operated illegally, exploiting regulatory loopholes and targeting vulnerable borrowers. The lack of strong enforcement from the SECP and the State Bank of Pakistan (SBP) allowed many unregulated loan apps to flourish.
However, the situation began to change as the SECP tightened regulations on digital lending platforms. According to the SECP, 104 companies had received licenses to operate as lending institutions from 2020 to 2025, although five licenses were revoked during this period. Despite the crackdown on unlicensed apps, over 20 million borrowers had reportedly taken out loans from these platforms, amounting to billions of rupees. Additionally, more than 15 million people had downloaded apps from the eight largest lending companies available on the Google Play Store.
The tipping point for the crackdown came in July 2023, after a tragic incident in Rawalpindi. Muhammad Masood, a resident of the city, committed suicide after being harassed and blackmailed by one of the illegal lending apps. The incident highlighted the harmful practices of some loan providers, which included gaining access to sensitive personal information—such as family contacts, mobile phone data, and social media accounts—without the borrowers fully understanding the consequences.
Following this event, the Federal Investigation Agency (FIA) launched a nationwide operation against illegal loan app companies. During 2023, the FIA registered 74 cases based on complaints from affected individuals. The operation also led to the arrest of 17 suspects linked to these illegal digital lending platforms, and over three dozen accounts associated with unregulated loan providers were blocked. As part of its crackdown, the FIA was able to access the bank accounts of digital lending companies and initiated coercive actions against employees and executives of registered firms.
This growing regulatory scrutiny has prompted the Chinese investors, who had been major backers of Pakistan’s digital lending boom, to pull their investments from the country. The exit of these investors could leave a significant gap in the market, especially at a time when the digital lending sector is trying to recover from the regulatory pressure.
Despite these challenges, the regulatory actions could lead to a more responsible and transparent lending environment. The tightening of regulations and the enforcement of stricter consumer protection measures may help reduce exploitative practices, ultimately creating a safer digital lending ecosystem. However, the withdrawal of Chinese investment raises questions about the future of fintech innovation in Pakistan, particularly in the realm of digital loans, which had seen significant promise before the crackdown.
As Pakistan continues to tackle the complexities of regulating the digital lending sector, the future of these platforms remains uncertain. The government’s ability to strike a balance between consumer protection and fostering innovation will be key to the sector’s long-term success.