The State Bank of Pakistan (SBP) has granted in-principle approval to five digital retail banks (DRBs) to operate in the country. These are HugoBank Limited, KT Bank Pakistan Limited, Mashreq Bank Pakistan Limited, Raqami Islamic Digital Bank Limited, and Telenor Microfinance Bank Limited. The move is aimed at fostering innovation, financial inclusion, and availability of affordable digital financial services for the citizens of Pakistan.
SBP Governor Awards IPAs to Proposed DRBs
In a ceremony held at the SBP Museum Building in Karachi on Wednesday, SBP Governor Jameel Ahmad officially awarded IPAs to the five proposed digital banks. The event was attended by sponsors of proposed DRBs, CEOs of incumbent banks, payment system operators/providers, electronic money institutions, fintechs, and SBP’s top management.
During his keynote address, the SBP governor highlighted the significance of introducing DRBs in Pakistan and the profound benefits they bring to the financial system. He acknowledged the challenges faced by such innovative financial players and highlighted SBP’s commitment to support stakeholders in building a digitally empowered future for banking in Pakistan.
Ahmad assured the financial fraternity of SBP’s dedication to making the financial system more inclusive, more innovative, and more responsive to the needs of Pakistani citizens. He expressed his expectation that digital banks would help develop a digital ecosystem, enhance customer experiences, and provide affordable digital financial services, including credit access to unserved and underserved segments of society.
Proposed DRBs to Achieve Operational Readiness
Earlier, while welcoming the participants, Deputy Governor Dr. Inayat Hussain explained that the IPAs would enable proposed DRBs to achieve operational readiness in various functions, including governance, risk management, compliance, consumer protection, cybersecurity, product development, technological infrastructure, and relevant policies.
Sponsors of the proposed DRBs commended SBP’s initiative and emphasised that digital banks would offer a faster, more cost-effective, and efficient solution to meet the financial needs of unserved and underserved populations in Pakistan. They expressed confidence that digital banks would become an integral part of the financial ecosystem, advancing the broader agenda of financial inclusion.
SBP’s Framework for Digital Banks
SBP had issued a framework for digital banks in December 2022, which outlined the eligibility criteria, minimum capital requirements, permissible activities, governance standards, and regulatory reporting requirements for such entities. The framework also provided incentives for DRBs to promote financial inclusion by offering lower capital requirements for those who target low-income customers and rural areas.
According to the framework, DRBs are expected to leverage technology to offer innovative and convenient banking solutions to customers through digital channels such as mobile applications, web portals, ATMs, etc. DRBs are also required to comply with SBP’s regulations on anti-money laundering/combating financing of terrorism (AML/CFT), consumer protection, data protection, and cybersecurity.
SBP had invited applications from interested entities for establishing DRBs in January 2023 and received 12 applications by March 2023. After a rigorous evaluation process based on the criteria specified in the framework, SBP had granted no objection certificates (NOCs) to five successful applicants in June 2023. Following the fulfilment of necessary requirements, these entities have now received in-principle approval to begin preparations for the operational launch of digital financial services.
