Pakistan to connect Raast payment system globally

Pakistan’s central bank is all set to connect Raast—the world’s most advanced instant payment system—to 60 countries within one year, including Middle Eastern nations, with the aim of significantly boosting inflows of workers’ remittances sent home by overseas Pakistanis.

The bank has received technical assistance from the International Monetary Fund (IMF) and the World Bank to introduce digital currency in the future. Currently, it is at the evaluation stage, assessing the need and process for launching the currency in the country.

State Bank of Pakistan (SBP) Deputy Governor Saleem Ullah noted that the country’s banking system, including the central bank, has collectively failed to provide the necessary financing to the Small & Medium sized Enterprises (SMEs) sector, which is the backbone of the domestic economy.

Speaking to the media on the sidelines of the DiGiBAP 2024 conference, he said the central bank has begun the process of connecting Raast globally, starting with 60 countries within a year. He underscored that connecting Raast to the Arab regional payment system, ‘Buna’, is a priority due to the large number of Pakistani expatriates (around 9 million) working there.

Buna connects the Arab world with global commercial and central banks to facilitate cross-border payments. The integration of Raast with Buna is expected to significantly increase inward remittances by reducing the cost of cross-border financial transactions.

The inflow of workers’ remittances surged by 11% to over $30 billion in the fiscal year ended June 30, 2024, compared to the previous fiscal year.

Saleem Ullah said the central bank has been working on introducing digital currency in Pakistan for a long time, though it remains in the evaluation stage.

At the conference, he highlighted that outstanding financing to the SME sector remains less than 4% of private sector credit, around Rs580 billion. He described the low financing to this crucial sector as a “collective failure” of the local banking system and the State Bank of Pakistan (SBP).

The SME sector’s share in Pakistan’s GDP is 40%, with 24% in exports and 80% in employment nationwide. The aim is to double the outstanding financing over the next five years, he said.

The banking sector regulator, SBP, failed to introduce SME-friendly financing policies. Now, the central bank has proposed changes to SME financing rules, conducting an SME census, and providing a 20% risk coverage facility on SME financing to enable banks to issue loans to around six million SMEs in the country. Saleem Ullah said the government will allocate budget funds for risk coverage facilities, 20% for small enterprises and 10% for medium enterprises, through a specialised scheme.

A task force, in collaboration with the Pakistan Banks’ Association on SMEs, has been constituted to provide practical recommendations for better funding flows to entrepreneurs. These include defining SMEs and developing a credit coverage mechanism.

The deputy governor of SBP stressed that banks and financial institutions should leverage technology to reduce transaction costs and make services simpler, efficient, and convenient, thereby effectively providing financial access to SMEs.