KARACHI: The State Bank of Pakistan (SBP) plans to issue licenses to digital-only banks in the coming months to modernize and strengthen the country’s financial sector, a senior official said on Wednesday.
“We have taken a number of measures to increase digital financial services in the country and one of them is to set up digital-only banks,” Sima Kamil, the central bank’s deputy governor, told Arab News in an exclusive interview on the sidelines of an event, “Ensuring Sustainable Growth and Promoting Digitization,” at the SBP headquarters.
Kamil said the process to start awarding licenses would begin in the next couple of months, adding that the authorities would also consider overseas applicants.
“We have launched a consultative framework and invited opinions,” she continued. “The framework will be announced in the next couple of months and people will be able to apply for licenses to launch digital-only banks.”
Kamil said she expected about eight digital-only banks to emerge in the country after the completion of the process.
“Depending upon the number of applications, we expect to issue licenses to about five to eight banks,” she informed.
Pakistan launched its first state-of-the-art digital payment system, Raast, earlier this year which enabled individuals, businesses and government entities to make instant payments. The system has been active in 30 banks since January 2021.
“Digitization is very important in any economy today,” said the SBP deputy governor. “Unless we effectively digitize, we will not have financial inclusion and documentation.”
She informed it would also become possible to operate the country’s existing digital payment system by using cellphone numbers in the future.
“In the existing system, you need to know the account details of an individual or entity before you can make a digital payment,” she explained. “Soon it will be possible for people, however, to mention a mobile phone number to their bank which can become their alias identity. The financial transactions could then be done using these contact numbers.”
According to the country’s central bank, Pakistan has had low electronic transactions due to limited banking penetration, lack of trust and awareness of digital payment methods and high cost of transactions.
However, SBP Governor Dr. Reza Baqir told an event on Wednesday that “no country can make economic progress unless it aggressively moves toward digitization.”
Baqir also touched upon current economic trends and measures taken by the central bank to stabilize Pakistan’s exchange rate, economic growth and current account deficit.
The SBP governor maintained the current account balance was manageable and there was no need to worry about it.
“There are three things that are worrisome for any economy’s current account: no movement in exchange rates, high level of current account deficit and the low level of reserves,” he continued, adding that Pakistan’s reserves were increasing, its exchange rate was stable and current account deficit was low as compared to the past.
Baqir said Pakistan recorded a current account deficit of six percent in the past and was now expecting it to hover between 2.5 to three percent which was sustainable.