The Asian Development Bank (ADB) has urged the Pakistani government and regulatory authorities to act swiftly in developing frameworks for digital financial services that can address existing barriers, foster trust, promote adoption, and ensure interoperability. This call comes as part of a new insight report titled “From Cash to Digital: Advancing Financial Inclusion in Pakistan,” which highlights the urgent need for a comprehensive digital financial ecosystem that benefits both consumers and businesses.
ADB’s report stresses that the rise of digital financial services offers a unique opportunity to drive financial inclusion, particularly in countries like Pakistan, where a large portion of the population remains unbanked. In Pakistan, only 21% of adults have access to a bank account or mobile money services, and many still rely on informal networks for their financial transactions. This underlines the need for effective frameworks that can bridge the financial inclusion gap, ensuring that digital payments and services are accessible to all citizens.
To accelerate the adoption of digital finance, the ADB recommends that regulatory bodies incentivize merchants to embrace digital payment systems. One such strategy could include offering working capital loans to merchants based on their steady, digitally documented financial performance. This would not only streamline the payment process but also help small businesses gain access to crucial financial resources. The report highlights the transformative potential of digital finance to empower women and marginalized communities, who are often disproportionately affected by financial exclusion.
Currently, women in Pakistan are significantly less likely to have access to banking services compared to men. According to the report, digital finance represents a major opportunity to close this gap, offering faster, safer, and more accessible transaction methods. The ADB stresses that improving financial inclusion for women should be a key priority, with targeted initiatives to ensure they benefit from digital financial services.
A key player in Pakistan’s shift towards digital finance has been mobile money, which has proven to be a game-changer in improving financial access. With the country’s low number of commercial bank branches—just 10.8 per 100,000 adults—mobile money offers a more convenient and cost-effective alternative. This service eliminates the need for physical visits to bank branches, enabling people to perform financial transactions directly from their mobile phones. The ADB report points to mobile money’s ability to lower transaction costs, increase efficiency, and bring financial services to rural and underserved areas.
Pakistan’s digital financial landscape has evolved significantly over the past 15 years. Financial institution accounts grew by 127% between fiscal year 2019 and 2024. However, even with this impressive growth, about two-fifths of Pakistan’s adult population remains without access to formal financial services. This demonstrates the gap that still needs to be addressed for digital finance to reach its full potential.
The introduction of the Raast payment system in 2021 has been a major milestone in Pakistan’s digital financial evolution. Raast has simplified both person-to-person (P2P) and person-to-merchant (P2M) transactions, providing instant and free digital payments for individuals and businesses. The system has seen rapid adoption, with over 102 million P2P transactions in 2023, a significant increase from 7.9 million in 2022. As of September 2024, daily transactions on Raast reached three million, and the platform had 39.5 million registered users. The system has also helped reduce transaction fees and settlement times for businesses, especially small and medium enterprises.
Despite these advancements, the ADB report underscores that full adoption of digital financial services remains a work in progress. A supportive regulatory environment is crucial for scaling these services, especially in rural areas where banking infrastructure is limited. The ADB recommends that the government not only focus on encouraging digital payments through incentives but also lead by example, using digital platforms for tax payments, pensions, and other government services. Furthermore, it calls for stronger data protection laws and regional coordination on digital regulations to build trust in the digital economy.
As Pakistan continues to expand its digital financial ecosystem, the ADB emphasizes the importance of promoting financial innovation, consumer protection, and inclusivity, especially for women and underserved communities. By strengthening these areas, Pakistan can unlock the full potential of digital finance, driving greater economic growth and inclusivity for all its citizens.