The Financial Infrastructure of Pakistan: A Comprehensive Overview (2025)
(Research and data compiled by Abdullah Mahmood. Errors, if any, are due to omission.)
Introduction
Pakistan's financial infrastructure in 2025 is a complex and evolving system that includes a wide range of institutions, regulatory bodies, and digital innovations. Over the past decade, the country has made significant progress in expanding financial inclusion, promoting Islamic banking, and developing secure, tech-driven solutions. This comprehensive overview explores all key sectors of Pakistan's financial system, including commercial banking, Islamic finance, digital payments, SME financing, remittances, monetary policy, fintech, and regulatory structures.
Banking Sector Overview
Structure and Composition
As of mid-2024, Pakistan’s banking sector includes 55 banks and Development Finance Institutions (DFIs), operating through more than 18,450 branches. The sector has demonstrated robust growth, with an 11.5% expansion in the first half of 2024, largely driven by asset growth, increased investments in government securities, and a surge in deposits.
Profitability and Asset Quality
In 2023, the banking sector's after-tax profit rose to Rs. 642.2 billion, nearly double the previous year's earnings, largely due to the high policy rate and increased returns on government securities. Non-performing loans (NPLs) remained under control, with a slight increase, while the provisioning coverage ratio improved to 105.3% by June 2024. This reflects banks' prudent risk management and stronger balance sheets.
Capital Adequacy and Solvency
The Capital Adequacy Ratio (CAR) improved from 17.8% in 2023 to 20.0% in mid-2024. This increase indicates a well-capitalized banking sector capable of absorbing shocks. The adoption of IFRS-9 and stronger supervisory mechanisms by the State Bank of Pakistan (SBP) have further enhanced the sector's solvency.
Islamic Banking
Growth and Market Share
Islamic banking in Pakistan has grown rapidly. By the end of 2024, Islamic banking assets reached nearly Rs. 10 trillion and deposits crossed Rs. 8 trillion. There are now over 4,500 Islamic banking branches across the country. The market share of Islamic banking in total assets stands around 22%, showing strong public demand for Shariah-compliant products.
Regulatory Developments
Following the Federal Shariat Court’s ruling in 2022 to eliminate Riba (interest) from the economy, a constitutional amendment was passed in 2024, targeting a fully interest-free financial system by January 1, 2028. The SBP has issued multiple guidelines to streamline Islamic finance, including a mandate that Islamic banks must pay at least 75% of gross yield as profit on savings deposits.
Financial Inclusion and Digital Transformation
National Financial Inclusion Strategy (NFIS)
The NFIS was launched in 2015 with the target of increasing formal financial account ownership among adults from 16% to 75% by 2028. As of 2023, the inclusion rate had reached 64%. The strategy focuses on improving access to financial services for women, rural populations, and youth. Key pillars include digital payments, rural financing, SME access, and consumer protection.
Digital Payment Systems
Pakistan has made tremendous progress in digital finance. The Raast payment system, launched by SBP, now facilitates peer-to-peer (P2P) and person-to-merchant (P2M) transactions. As of early 2025, SBP mandated that all e-commerce platforms and major payment gateways integrate with Raast P2M. Leading players like Payfast, 1Link, and Easypaisa are already integrated. This digitization helps reduce cash dependency and supports the formal economy.
Remittances and Cross-Border Integration
Remittances are a key pillar of Pakistan’s foreign exchange earnings. In 2024, remittance inflows from abroad crossed $35 billion. To enhance efficiency, SBP signed an MoU with the Arab Monetary Fund to integrate Raast with the “Buna” regional payment system, making remittance flows from GCC countries faster, safer, and cheaper.
Small and Medium Enterprises (SMEs)
Financing Initiatives
SMEs contribute nearly 40% to Pakistan’s GDP and employ over 80% of the non-agricultural labor force. To promote SME financing, SBP revised exposure limits in 2023 and introduced a risk-sharing scheme that offers partial credit guarantees. The goal is to double SME lending to Rs. 1.1 trillion by 2029. SBP has also allowed simplified KYC procedures for smaller enterprises.
Challenges
Despite these measures, SMEs face difficulties in accessing affordable credit due to high interest rates and collateral requirements. Furthermore, financial literacy and limited formal documentation remain major hurdles.
Non-Bank Financial Institutions (NBFIs)
Growth and Diversification
NBFIs include leasing companies, investment banks, housing finance companies, and modarabas. These institutions are playing an increasingly important role, particularly in real estate and consumer financing. In 2021, growth in NBFIs stood at 190%, and the trend continued into 2023-24 with diversification into agri-finance and micro-mortgages.
Microfinance Sector
Microfinance has seen strong growth with providers like Khushhali Bank, FINCA, and U Microfinance Bank expanding their reach. The sector caters to underserved populations in rural areas and supports small entrepreneurs. Innovative digital lending products and mobile wallet integration have helped microfinance institutions (MFIs) increase their outreach in remote regions.
Regulatory Framework and Supervision
Legal and Regulatory Environment
The regulatory environment is governed primarily by the State Bank of Pakistan Act, 1956; the Banking Companies Ordinance, 1962; and the Microfinance Institutions Ordinance, 2001. These laws establish a strong framework for the licensing, supervision, and governance of banks and financial institutions. Pakistan has also adopted international standards such as Basel III.
Supervisory Measures
To address emerging risks, SBP has established dedicated departments such as the Cyber Risk Management Department (CRMD) and the Financial Institutions Resolution Department (FIRD). These units monitor cybersecurity and ensure timely intervention for distressed institutions, respectively.
Monetary Policy and Interest Rates
Policy Rate Adjustments
In 2023, Pakistan maintained a high policy rate of 22% to manage inflationary pressures. However, by the end of 2024, the rate was gradually brought down to 13% to stimulate growth and support credit expansion. This easing cycle was aligned with declining inflation and currency stabilization.
Impact on Deposits and Lending
The high-interest rate environment during 2023-24 encouraged deposit growth, reaching Rs. 31.4 trillion by November 2024. However, private sector lending remained sluggish, partly due to high borrowing costs and economic uncertainty.
Fintech Ecosystem
Growth and Innovation
Fintech startups have expanded rapidly in Pakistan, offering digital wallets, peer-to-peer lending, wealth management apps, and e-commerce payment solutions. By 2025, there are over 250 active fintech firms. Popular platforms include Easypaisa, JazzCash, Nayapay, and SadaPay. These firms are helping bring banking services to the unbanked and underbanked populations.
Digital KYC and E-Money Institutions
SBP introduced a digital Know-Your-Customer (KYC) framework that allows banks and fintechs to open accounts via mobile apps and biometrics. Several Electronic Money Institutions (EMIs) have been licensed and are offering innovative services such as prepaid cards, utility bill payments, and budget planning tools.
Insurance and Takaful Sector
Conventional and Islamic Insurance
Pakistan’s insurance penetration remains low at around 0.9% of GDP. However, the sector is gradually expanding, with a growing preference for Islamic insurance (Takaful). The Securities and Exchange Commission of Pakistan (SECP) regulates this sector and has introduced digital insurance models to boost coverage and efficiency.
Pension and Capital Markets
The National Savings Scheme (NSS), Voluntary Pension Schemes (VPS), and Employees Old-Age Benefit Institution (EOBI) form the backbone of Pakistan’s pension system. Meanwhile, the Pakistan Stock Exchange (PSX) has launched new products like ETFs and Sukuk listings to attract investors. Capital market reforms are being implemented to boost transparency and liquidity.
