Digital entrepreneurship is Pakistan’s great development leap forward
Pakistan is all set to launch its first ever all-digital, non-brick-and-mortar banks. This signifies a major shift in digitalization of the economy that will change the way millions of citizens handle their finances and businesses and therefore impact national economic development.
In recent decades, banking has witnessed a boom in Pakistan as the country shifted into a free market mode in a departure from a traditional state-controlled economic system and embraced consumer financing with a vengeance. In recent years, including the last two Covid years, even the economic downturn hasn’t dampened the prospects for growth. According to the Pakistan Banking Perspective Report 2021, the 2020-21 fiscal year has improved the banking sector in the country with an overall increase in profitability by 30.7 percent as total assets and deposits grew by 14 percent.
And yet, in parallel, other phenomena have been unfolding that have had a bearing on the Pakistani policymakers’ decision to award five licenses to digital banks with no physical bank branches. One is the explosion in access and affordability of the Internet that has allowed a digital society to become entrenched. According to the Pakistan Telecommunications Authority, at the start of 2022, the country had over 188 million mobile phone users with more than 107 million using 3G/4G Internet.
Also, the digital economy has grown phenomenally. According to the State Bank of Pakistan (SBP), the central regulator of the banking sector, mobile-based digital payments topped Rs100 billion in 2020 and is expected to cross Rs1 trillion by 2025. Clearly, there is a walloping increase in digital transactions and volumes demanding a rapid escalation in banking services to cater to this growth.
This has led to the decision to formally launch digital banks where total banking will be done online. Preceding this measure, Pakistan in 2021 introduced several other steps that should help millions in Pakistan to shift to totally digital banking.
Pakistan is already among the top 20 global digital societies in terms of Internet access and use, as well as among the top 10 largest digital freelancing markets.
The first was the country’s premier native state-launched digital payment platform Raast, allowing for real-time transactions by linking all of the country’s 26 commercial banks. It has taken off like a rocket. The second was making tax payment mandatorily digital. This has started improving tax revenues. The third was allowing brick-and-mortar commercial banks to allow self-help opening of bank accounts digitally.
The government expects the new digital-only banks to strengthen the greater digitalization of the Pakistani economy by bringing more people into the fold of banking. According to SBP, there are currently less than 60 million bank account holders in Pakistan, a country of over 220 million people, while barely 27 percent of women have one. The digital banks hope to dramatically alter this landscape by bringing in tens of millions into the system by lowering the costs of banking and making transactions instant and verifiable on people’s mobile phones.
The government’s greater digitalization of the banking sector is also driven by two stark statistics: Only 600,000 Pakistanis own a credit card but 40 million have debit cards that allow digital operations of bank accounts. Clearly, Pakistanis favor digital handling of physical bank accounts. So, by making banks completely digital, the number of digital bank account holders could cross the 100 million mark by 2025, including over 50 million new account holders.
The digital banks will be a boon especially for a segment not prioritized by brick-and-mortar banks: the cottage industry and the small and medium enterprises (SMEs) and individual entrepreneurs who find both banking and access to credit cumbersome and unfriendly. Five new digital banks, which will start operations before the start of the new fiscal year 2022-23 in July, will allow a larger range of financial services without any physical interface. This will revolutionize entrepreneurship in Pakistan.
This bodes well for a digitally entrepreneurial Pakistan which is already among the top 20 global digital societies in terms of Internet access and use, as well as among the top 10 largest digital freelancing markets. In 2021, the country’s burgeoning digital tech start-ups generated over $375 million in investments from international players indicating that the Pakistani brand of digital entrepreneurship is finally catapulting into the big league.
The challenge for Pakistan, going forward, will be not to trip over its own major success story in the making. To ensure sustainability of this development, greater engagement between policymakers and the SME sector, especially women entrepreneurs, will be needed to allow for more representative and needs-based digital banking services for optimal results. Better development communication by the state to improve public awareness about the burgeoning digital economy sector and improve digital literacy of the bureaucracy to support the tech sector will also help. A tech-led Pakistan with digital entrepreneurship is surely the best version of Pakistan yet.
- Adnan Rehmat is a Pakistan-based journalist, researcher and analyst with interests in politics, media, development and science.