Pakistan’s Fintech Industry: Getting the Edge
By: Khizrum Ahmed
Tags: Pakistan, Future, Fintech, Banking, Policy

Photo by Hassan Anwer on Unsplash

Fintech is the abbreviation of Financial technology, meaning that both the terms have equal importance in implementation. Yet, when it comes to Pakistan the technology angle becomes a bit less important, as there are other angles that take precedence over it. As I have mentioned before in my previous articles that since Pakistan was added into FATF’s grey list, the regulations and their compliance, have become quite strict. The legal and compliance requirements, have resulted in the current fintech oriented startups to operate like Public Limited companies. These companies are often bloated from the start, often having positions like Chief Legal Officer, Chief Compliance Officer and a dozen directors, who are probably there just to fulfil the requirements.

One of the biggest reasons that why entering the Fintech scene in Pakistan is quite difficult, is because we as a country have only recently started recognizing the phenomenon that is Tech Startups. Tech Startup scene that probably started with Intel at the end of 1960s in Silicon Valley, only began to find a footing in Pakistan in the previous decade. Pakistan has been an agrarian society from the day of her independence, and there is a major gap in policy frameworks for industries like Fintech. Imagine if someone wanted to start a company like Experian, which can help you improve your credit scores based on your Netflix or amazon subscriptions, so do we have the required policies to accommodate that startup? This is a reason which is why Pakistan in the broader scale lost on the opportunity of Bitcoin.

One of the Bitcoin related causalities was UrduBit, which was a crypto exchange operating in Pakistan. They had to mainly discontinue their services because the regulators couldn’t find a way to accommodate cryptocurrencies in our present system. Likewise, there have been casualties in other applications of Fintech like crowdfunding, as again previously we as a country lacked the correct policy frameworks to work it out. Imagine all the exciting startups that could have prospered with support of a crowdfunding platform like Kickstarter in Pakistan, to put this into perspective, Markhor, a company owned by a Pakistani couple, did one of the biggest campaigns on Kickstarter in USA.

The existing Financial framework operates in an expensive way. One can obtain a license from SBP to operate its intended Financial service, for example, if you want to start a Microfinance Bank in Pakistan, you are required to provide a paid-up capital of PKR 1 Billion/-, and if you want to be a Payment Service Operator/ Payment Service Provider, the amount goes down to PKR 200 Million /-. This is another major reason why that we have so few people in this space, as often young, energetic and ambitious Tech startup founders, don’t have the basic capital to be even considered in this space.

Now on the positive side, SECP started its regulatory Sandbox in 2020 to facilitate the policy making on the go. It has a crowdfunding platform among other participants in its first cohort, but the process is expected to be lengthy, because it would include various evaluations before a bill could be passed in the parliament. This whole process could also suffer from political instability, as if the government changes any temporary development in the sandbox, can be completely overruled owing to the different perspective of the different government.

Now, the question is that how do you get an edge in the Fintech Industry in Pakistan? The answer is simple that if you can only fulfill the huge regulatory requirements in Pakistan, you are already way ahead. It doesn’t matter if you’re the most innovative or you have the most impressive tech, the only thing that counts is that do you have the approval. One of the biggest examples is the Tameer Microfinance bank, as having little to no competition they were easily able to win this market. Therefore, in Fintech Industry even if it takes you two years to straighten out the legal aspects, you’re still good enough. You might not make sense to venture capitalists, who are looking for traction, growth and big numbers instantly, but just finding the right start would be enough of an indicator for your success.