Synopsis of Pakistan

Pakistan is home to over 225 million people with an adult population of 60%, making it the 6TH largest populated country in the world, but with an overwhelming majority of 77% unbanked individuals. It is a predominantly cash based economy; the currency in circulation is PKR 5.3 trillion and rising annually on a year-to-year basis (SBP,2019).

Pakistan is home to over 225 million people with an adult population of 60%, making it the 6TH largest populated country in the world, but with an overwhelming majority of 77% unbanked individuals. It is a predominantly cash based economy; the currency in circulation is PKR 5.3 trillion and rising annually on a year-to-year basis (SBP,2019).

According to Access to Finance survey, only 23% of the adult population has access to formal financial services, while a mere 16% have a bank account. This means that approximately 100 million eligible people are waiting at the door despite the congenial conditions for Digital Financial Services (DFS) given in the figure below:

In a recent report, the World Bank is bullish on the potential of DFS of Pakistan, estimating it at significant $36 billion and projecting that the country could see a straight 7% boost to the GDP if a real-time retail payments gateway was introduced, along with creating 4 million new jobs and resulting in USD 263 Billion new deposits by 2025. The recently launched Digital Pakistan Program and National Micro Payment Gateway will further galvanize the potential of DFS and nurture financial inclusion.

Dilemma of financial exclusion

The dilemma of financial exclusion is primarily attributed to the lack of access to formal financial services to save or invest money, and credit. According to a World Bank report, 27.5 million Pakistani adults cite distance to a financial institution as a major barrier to accessing financial services. The branch ratio of Pakistan is 10 branches per 100,000 adults, which is very low compared to the average of 16.38 in Asia. The influx of branchless banking providers in the country have also added 182,000 (approx.) active agents since 2008 but this has only marginally resolved the problem of scarcity of financial distribution points.

The dearth of financial service providers jeopardizes financial inclusion as it causes limited product choice, high fees and tedious on boarding processes. According to a Karandaz report, banks offer 80% of the financial services but serve only 15% of the population.

These are the barriers in building a resilient digital economy result in a momentous amount of wealth being kept outside the financial system. This prevents individuals from engaging in economic activities that could transform their lives and slows economic growth. Now the question arises who is going to serve this unbanked segment?

Serve the unbanked folks

The world is witnessing a paradigm shift from banking to the Fintech era, the exogenous drivers making it intrinsic to allow non-banks to enter in the financial market to cater to the needs of faster, more practical and low-frill payment solutions with secure transparent environment. Regulators around the globe are being responsive to harmonize with the intuitive need of inauguration of non-banks in the financial market.

The European Commission has taken the lead by promulgating the Payment Service Directive-2 (PSD2) that set the example for other regulators to promote the participation of non-banks. The Central Bank of Nigeria also came up with a licensing model for non–bank DFS providers and issued 20 licenses from 2011 to 2017. The Reserve Bank of India launched a new category, “Payment Bank” for non-bank DFS providers in 2014. Since then 11 licenses have been issued.

World Bank Country Director for Pakistan Illango Patchamuthu said, in order to unlock Pakistan’s $36 billion digital finance potential, it will take “high-level commitment, faster payments gateway, lower costs, fast track licensing for fintech (financial technology) sector and digitisation of all government payments.”

The SBP also acted to address this need by launching EMI regulations about nine months back, in addition to issuing the in-principle approval to two companies. It is also expected that more fintechs, startups and other companies are preparing to acquire EMI licenses to unlock the potential of Digital Financial Services.

Non bank – Electronic Money Institute (EMI)

An Electronic money institution (EMI) is usually a Fintech that holds a license issued by a central bank or relevant authority. The EMIs, like banks, offer an array of financial services that are flexible and fit to serve large number of segments. EMIs can be instrumental in providing an array of Digital Financial Services particularly to the financially excluded segment of the society.

Emerging economies that have high mobile penetration such as Pakistan are the most fertile territories for EMIs as they generally capitalize the high mobile penetration by offering service through mobile devices, apps, and web services. In Kenya, the share of adults using the M-Pesa mobile-money system grew from zero to 40% within its first three years of launching in 2007—and by the end of 2015 stood at nearly 70% (Mckinsey). EMIs also use agent networks to process Over the Counter Transactions such as cash in or cash out.

State of the art solution

EMIs leverage innovative technologies and state of the art solutions to offer an improved design, upgraded user interface and generally superior experience for the customer. For example, login through fingerprint, face ID and PIN login authentication. EMIs exhibit flexible core banking systems that allow them to constantly integrate new services and enrich their service range.

Service suite

EMIs offer a digital/mobile wallet that can be operated through mobile phone app or web interface, to facilitate over the counter transactions, along with consuming agent networks. A wallet could be used for various payment transactions such as receiving remittances, wages, and government subsidies, making purchases at stores, or paying utility bills and school fees.

Risk based KYC requirement

Being a non-banking entity, EMIs are also free to comply with the full range of prudential regulation. EMIs generally follow risk based KYC/CDD approach that would empower to remove the dilemma of one-size-fits-all approach, enabling them to serve the customer with utmost convenience, opening access to finance for people at all income levels and in remote rural areas.


Using a mobile phone rather than cash saves considerable travel time and cost, reduces the risk of theft, and boosts convenience. It also gives access to a broader range of financial services that can be delivered digitally, such as savings accounts or insurance.

Cost benefits

The EMIs leverage the rapidly spreading mobile and digital technologies; rapid with disruptive power now offer an opportunity to provide financial services at a much lower cost. According to a report by McKinsey, the cost of offering customers digital accounts can be 80-90% lower than using physical branches.

In addition to this, the minimum capital requirement and license fees are also significantly lower as compared to banks.


Considering the potential of DFS in Pakistan, it could be easily anticipated that drastic expansion in the number of EMIs will be witnessed by the nation in the coming few years. EMIs will offer a broader range of innovative digital financial services and solution. The risk based KYC approach and cost benefit will provide them muscles to cater the need of both banked and unbanked segment. It will enhance profitably, boosting financial inclusion and enabling large productivity gains across the economy.

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