The Financial Infrastructure of Pakistan

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.

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WHAT is NFT Treasure?

Greed blinds people, making them easy prey for scams like NFT Treasure. This scheme, just like before, is nothing but a fraud designed to loot hard-earned money from innocent Pakistanis. It will run for a short time, lure in thousands of investors with false promises, collect a massive amount of money, and then vanish just like every other Ponzi scheme before it.

Every year, countless pyramid schemes emerge in Pakistan, all following the same pattern. They attract people with fake success stories, unrealistic profit margins, and flashy advertisements. The sad reality is that despite witnessing so many financial scams in the past, Pakistanis continue to fall for them.

The root cause is not just greed but also ignorance. A lack of financial awareness makes people easy targets, while desperation for quick wealth blinds them to the obvious red flags. Instead of questioning the legitimacy of such schemes, they rush in, hoping to make easy money only to be left with nothing when the scam collapses.

The cycle repeats every year. A new name, the same fraud, and yet another wave of victims. People never learn, and that’s why these scams keep thriving.

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A Costly Lesson in Crypto

The cryptocurrency market has been a rollercoaster ride for millions around the world. While some have made life-changing profits, others have lost everything, struggling to recover both financially and emotionally. It’s a space filled with excitement, risk, and sometimes, heartbreaking consequences.

One young Chinese recently shared his painful experience (his screenshots are attached), revealing the darker side of investing:

"I'm sorry, Mom and Dad. I may never be able to afford a wife in this lifetime because I've lost all my money in the crypto market. I can't sleep well at night, I don't want to play anymore, but I want to break even. If I work as a screw worker for a month and earn an extra five thousand, can I still break even?"

This post speaks volumes about the dangers of entering the financial markets without proper knowledge, risk management, or a long-term strategy. Many people, especially young investors, see crypto as a quick way to make money. Influencers, social media hype, and success stories of overnight millionaires create an illusion that investing is easy. But the reality is far more complex.

The Emotional Toll of Financial Loss

Losing money in investments is not just a financial setback; it takes a serious toll on mental health. Anxiety, stress, sleepless nights, and depression are common among those who suffer big losses. This young man’s message reflects the deep regret and helplessness many feel when they realize their financial situation has spiraled out of control.

Many traders enter the market with the mindset of "playing a game" or "taking a bet," hoping for fast profits. But the crypto market is highly volatile and unpredictable. When losses start piling up, the desperation to recover often leads to even riskier decisions—borrowing money, making emotional trades, and chasing losses. Unfortunately, this cycle often leads to even greater financial ruin.

The Importance of Smart Investing

This story serves as a crucial reminder that investing requires careful planning and discipline. Here are some key lessons to take away:

1. Never invest more than you can afford to lose – Treat investments like a calculated risk, not a gamble. If losing that money would ruin your life, you’re investing too much.

2. Have a long-term perspective – The market moves in cycles. Short-term losses don’t mean failure unless you panic and sell at the wrong time.

3. Diversify your investments – Putting all your money into one asset is extremely risky. Spreading your investments across different areas reduces risk.

4. Learn before you invest – Understanding market trends, risk management, and investment strategies can make all the difference. Blindly following trends or influencers is a recipe for disaster.

5. Protect your mental health – Financial loss is hard, but your well-being matters more. If investing is causing stress and sleepless nights, it’s time to step back and reevaluate.

Moving Forward After a Loss

For those who have lost money, like this young man, it’s important to remember that financial recovery is possible. It may take time, effort, and discipline, but there is always a way forward. Instead of chasing losses, focus on rebuilding with smarter financial habits.

• Learn from mistakes and avoid repeating them.
• Start with small, safer investments before taking bigger risks.
• Build a stable income source before investing again.
• Seek advice from experienced investors or financial experts.

At the end of the day, money can be earned again, but peace of mind and mental health are irreplaceable. Let this young man’s story be a lesson for all—invest wisely, think long-term, and never let money control your happiness.

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Binance’s Double Standards on Referrals

For years, people have criticized Pi Network for using a referral system to grow. Many in the crypto world, including Binance supporters, called it a weak and unsustainable model. But now, Binance has introduced its own referral program, showing that even big platforms see the power of referrals. This raises questions about why Binance is doing what it once criticized.

Binance has always presented itself as a leader in the crypto industry, often speaking against referral-based growth strategies. But by launching its own referral program, it is following the same path. The difference is that Binance now makes it look more "official" because of its strong position in the market.

The real issue here is not just that Binance changed its stance, but why it did so. Binance already has millions of users and is a well-known platform. Unlike new projects that need referrals to grow, Binance doesn’t have that problem. So why is it suddenly pushing referrals? The answer is simple—competition is growing, and Binance wants to stay ahead by keeping users engaged.

This situation shows the double standards in the crypto world. When smaller projects use referrals, they get criticized. But when big platforms like Binance do the same, it is seen as a smart business move. If Binance now believes referrals are useful, it should also admit that others were not wrong for using them.

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Binance Futures: Trade & Earn, But Risky

Binance Futures is a platform where you can trade cryptocurrency contracts, allowing you to speculate on the future price of digital assets without owning them. Here's how you can earn from it:

Going Long: If you believe a cryptocurrency's price will rise, you can open a long position. For example, if Bitcoin is at $30,000 and you expect it to increase, you can enter a long contract. If the price rises to $35,000, you profit from the $5,000 increase.

Going Short: If you anticipate a price drop, you can open a short position. For instance, if Bitcoin is at $30,000 and you expect it to fall, you can enter a short contract. If the price decreases to $25,000, you gain $5,000 from the decline.

Leverage: Binance Futures allows you to trade with leverage, meaning you can control a larger position with a smaller amount of capital. For example, with 10x leverage, a $1,000 investment can control a $10,000 position. This can amplify profits if the market moves in your favor.

However, there are significant risks:

High Risk of Loss: Leverage amplifies both gains and losses. Using 10x leverage means a 10% adverse market move can wipe out your entire investment.

Liquidation: If the market moves against your position beyond a certain point, your position may be automatically closed (liquidated), resulting in a loss of your invested capital.

Market Volatility: Cryptocurrency markets are highly volatile. Sudden price swings can lead to rapid losses, especially when using leverage.

Example: Suppose you open a long position on Ethereum at $2,000 with 5x leverage, meaning you're controlling a $10,000 position with $2,000 of your capital. If Ethereum's price rises to $2,200, a 10% increase, your profit would be $1,000 (50% of your initial capital). Conversely, if the price drops by 10% to $1,800, you would lose $1,000, which is 50% of your initial investment.

While Binance Futures offers opportunities to profit from both rising and falling markets, it's essential to understand the high risks involved, especially when using leverage. Ensure you have a solid risk management strategy and only trade with funds you can afford to lose.

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Why Printing Money Fails?

Why Can’t a Country Just Print More Money to Make Everyone Rich?

It’s a question many people wonder about: if a country can print its own money, why not just print a lot of it and make everyone rich? On the surface, this idea sounds simple and appealing, but in reality, it doesn’t work that way. Let’s break this down in easy terms.

The Value of Money

Money works because it has value. That value comes from trust – trust that the money can buy goods and services. If too much money is printed without an increase in goods and services, the value of the money decreases. This is called inflation.

Imagine this: You have 10 apples and 10 coins in an economy. Each apple is worth 1 coin. Now, if suddenly 20 coins are printed but there are still only 10 apples, what happens? The price of each apple rises to 2 coins because there’s more money chasing the same number of goods. 

The result? Your coins lose purchasing power, and prices go up. People aren’t actually richer; they just have more worthless money.

Inflation and Hyperinflation

Printing too much money can lead to hyperinflation, where prices skyrocket uncontrollably. Let’s look at some real-life examples:

1. Venezuela (2016–present):

   The government printed excessive money to cover its debts and provide subsidies. This caused inflation rates to exceed 1,000,000% at one point. A loaf of bread that used to cost a few bolivars became unaffordable for most people. The currency became nearly worthless, and people had to carry bags of cash just to buy basic items.

2. Zimbabwe (2000s):

   Zimbabwe printed large amounts of money to solve its economic problems. This backfired when inflation hit 89.7 sextillion percent in November 2008. People abandoned the local currency and started using foreign currencies like the US dollar instead.

3. Germany (1920s):

   After World War I, Germany printed money to pay war reparations. The result? Hyperinflation. Prices doubled every few days. People burned money for heat because it was cheaper than buying firewood.

What Actually Makes a Country Rich?

A country becomes rich not by printing money but by producing goods and services, creating jobs, innovating, and building a stable economy. For example:

- Japan and Germany: These countries don’t print excessive money, but their economies are strong because they focus on manufacturing and technology.  

- Norway: Norway invests in oil, renewable energy, and education. Instead of printing more money, they build wealth through resources and skilled labor.

What About Countries Like the U.S. Printing Trillions?

You might wonder, "Why can the U.S. print money without major problems?" The U.S. dollar is a global reserve currency, meaning other countries trust and use it for international trade. However, even the U.S. has limits. During the COVID-19 pandemic, the U.S. printed trillions for relief packages. While it helped in the short term, inflation rose significantly afterward, making daily life more expensive for Americans.

The Role of Central Banks

Central banks, like the U.S. Federal Reserve or the State Bank of Pakistan, carefully manage the money supply to keep inflation under control. They balance between having enough money in the economy to encourage growth and not so much that it devalues the currency.

In Simple Terms

Think of money as tickets to buy goods. If you print too many tickets without increasing the goods, the tickets lose their value. That’s why printing more money doesn’t make people rich—it just raises prices and creates instability.

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Turkey's Thodex Scam

The Thodex Cryptocurrency Fraud: A Dark Chapter in Turkey's Financial History

One of the largest financial scandals in Turkey's history is the Thodex cryptocurrency exchange fraud, masterminded by its founder, Faruk Fatih Özer. This scheme unfolded in 2021, leaving thousands of investors devastated.

The Beginning

Thodex, based in Istanbul, emerged as a promising cryptocurrency exchange platform. It attracted over 400,000 active users with aggressive marketing campaigns and promises of high returns on investments. However, the situation took a drastic turn in April 2021 when the platform suddenly announced a temporary halt to trading, citing a "partnership offer." This announcement turned out to be a smokescreen for what was to follow.

The Scam Unravels

Shortly after halting operations, Faruk Fatih Özer fled to Albania, taking with him an estimated $2 billion of investor funds, according to some reports. Official figures vary, with Turkish prosecutors estimating losses at around 356 million Turkish Lira (approximately $13 million at the time). Regardless, the financial impact on investors was catastrophic.

The Aftermath

A massive manhunt ensued, leading to Özer’s arrest in Albania on August 30, 2022. He was extradited to Turkey in April 2023 to face trial. During the court proceedings, Özer displayed no remorse and attempted to defend his actions by claiming the company merely went bankrupt. However, the court found him guilty of multiple charges, including fraud and money laundering.

In September 2023, Özer was sentenced to an unprecedented 11,196 years in prison, a symbolic penalty reflecting the scale of his crimes. This sentence underscored the severity of the financial and emotional damage caused to thousands of investors.

The Address and Operations

Thodex operated from its headquarters in Kadıköy, Istanbul, before its abrupt closure. The platform’s offices were raided by Turkish authorities during the investigation, uncovering evidence of fraudulent activities.

The Lessons

The Thodex case highlights the risks of unregulated cryptocurrency markets and the importance of due diligence when investing. It also serves as a cautionary tale for investors, urging them to verify the credibility of financial platforms before entrusting them with their money.

This fraud remains a stark reminder of how financial innovation, if left unchecked, can be exploited to devastating effect.

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