Pakistan issues regulations for promoting digital currency

New guidelines of e-money institutions prepared with technical assistance of World Bank

Shahbaz Rana April 02, 2019

ISLAMABAD: Pakistan on Monday issued regulations to promote digital currency as an alternative to cash, as the country struggles to enhance the size of formal economy and to deal with the menace of money laundering and terrorism financing.

Finance Minister Asad Umar launched these regulations, hoping that these would help revolutionise the economy. The new regulations of Electronic Money Institutions have been prepared with technical assistance of the World Bank.

This is for the first time that non-banking entities have been permitted to provide money services without contacting with the banks, said State Bank of Pakistan (SBP) Deputy Governor Jameel Ahmad. Ahmad said that enhancing cyber resilience was the first priority of the regulator.

The deputy governor said that by 2020 the central bank will also issue digital currency aimed at reducing corruption and inefficiency.

It is estimated that the informal economy is almost equal to the size of Pakistan’s formal economy, currently estimated below $280 billion. The government also faces the issue of money laundering and terrorism financing and these regulations are expected to address this challenge as well.

The e-money regulations also cover other regulatory requirements including outsourcing activities, AML/CFT, consumer protection, complaint handling mechanism, oversight and regulatory reporting, said SBP Payment Systems Department Director Sohail Javaad.

Javaad said that there will be mandatory screening of the clients by the e-money institutions to comply with the United Nations Security Council’s anti-terrorism related resolutions. The service providers will have to ensure minimum Rs200 million capital for up to Rs4 billion worth of transactions. They will be allowed to invest 50% of their last three months outstanding amounts in the government securities.

The clients will be allowed to withdraw only up to Rs10,000 per day aimed at promoting digitisation.

The digitisation of the economy will help break the elite capture of the economy, said Umar. He said that so far people having connections in the Q Block - the seat of the finance ministry, and the SBP were making money by blocking innovations.  A recent report of the World Bank says that four classes - the industrialists, civil servants, landlords and the military have captured Pakistan’s economy.

The e-money will ensure fundamental transformation of the economy and digital guys would soon start eating lunch of conventional bankers, said the finance minister.

He cautioned that the central bank should be careful about cybercrimes and ensure full protection of the electronic systems.

The finance minister also urged the central bank to review its policy of confidentiality of the clients of the banks. A thief should not have the privilege of confidentiality, he added.

Umar also said that the e-money institutions will complement the efforts of the government in creating an enabling environment to empower stakeholders in trade and commerce. This will help businesses improve their productivity and contribute towards positioning the nation for global competition, he added.

The finance minister said that the government was determined to transform the country into a knowledge economy by making information technology one of the top contributors in Pakistan’s economy and job creation besides producing world-class knowledge workers in sync with international market trends.

The finance minister termed the launching of electronic money institutions as a game changer for promoting e-commerce and digital economy in the country.

In his address, Ahmad shared the SBP’s initiatives in transforming itself into a modern, digital and fully technology oriented central bank.  These landmark regulations are a testament of SBP’s commitment towards openness, adoption of technology and digitisation of our financial system, he added.

Ahmad said that SBP had issued the regulations for branchless banking about a decade ago that enabled the entry of telecommunication companies into the arena of banking and payments.

The prime objective of branchless banking was to enable the delivery of financial services using telco-based agent network. Over the past few years, branchless banking providers have evolved well and are now offering financial services to a large segment of our population. 

Published in The Express Tribune, April 2nd, 2019.

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