The State Bank of Pakistan (SBP) has unveiled a draft of its Digital Bank Regulatory Framework, laying the foundation for virtual banks to take foot in the Islamic Republic of 216 million people.
Consulting its regional and internal peers across 15 different markets which house digital banks in one form or another, the SBP — with the help of three purpose-driven industry working groups — has proposed a framework covering licensing and supplementary regulations for digital banks. The SBP has identified two types of digital bank licenses: digital retail bank (DRB), to serve the retail market exclusively; and digital full bank (DFB), which may deal with corporate, commercial and retail customers.
The proposed rules also cover Islamic digital banks, which require applicants to submit an additional document outlining the constitution and members of the proposed bank’s Shariah board.
Under the proposed policy, electronic money institutions (EMIs) also have the option to convert into a DRB.
The central bank has defined a digital bank as an institution serving the market primarily through digital or electronic channels without brick-and-mortar branches; while it is mandatory for the access points of customers to be primarily digital and electronic channels, digital banks are allowed to operate sales and service centers, branchless banking agents and other banks’ branches to manage branding, customer complaints and cash transactions.
| Type of digital bank | Minimum capital requirement (MCR) at grant of restricted license or pilot stage (PKR billion) | MCR at commercial launch (PKR billion) | MCR during each financial year after commercial launch/DFB license (PKR billion) | ||
| Year 1 | Year 2 | Year 3 | |||
| DRB | 1.5 | 2 | 2.5 | 3 | 4 |
| DFB | 6.5 | NA | 8 | 10 | NA |
Source: SBP
The SBP is seeking market feedback on the exposure draft until the 25th April 2021.
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The release of the digital bank framework comes as the Pakistani government is aggressively pushing for a progressive digital transformation agenda. The SBP over the last year has rolled out a series of digital initiatives to support both the Islamic and conventional banking sectors including the Roshan Digital Account, the National Payment System Strategy and the Raast instant payment system, among others.