The State Bank of Pakistan (SBP) has taken a significant step in fostering financial innovation and inclusion by granting in-principal approval (IPA) for the establishment of five digital retail banks (DRBs). This move is aimed at providing affordable digital financial services and expanding access to financial services in Pakistan.

Earlier in January 2023, SBP issued no-objection certificates to five successful applicants for setting up digital banks in the country. After meeting the necessary requirements, these entities have now received in-principal approval to prepare for the operational launch of digital financial services.

The five approved digital retail banks are HugoBank Limited, KT Bank Pakistan Limited, Mashreq Bank Pakistan Limited, Raqqami Islamic Digital Bank Limited, and Telenor Microfinance Bank Limited. These digital banks will operate primarily online, offering services that were traditionally available only at physical bank branches, with a focus on serving individual customers and small to medium-sized businesses.

The Governor of SBP emphasized the importance of introducing DRBs in Pakistan, highlighting the positive impact they will have on the financial system. He also acknowledged the challenges faced by such financial players and discussed key regulatory initiatives to support the growth of the digital financial ecosystem. SBP is fully committed to facilitating a digitally empowered future for banking in Pakistan.

The introduction of digital banks is expected to contribute to the development of a digital ecosystem, enhance customer experiences, and provide affordable digital financial services, including credit access to underserved segments of society. The in-principal approvals granted to these DRBs will enable them to proceed with achieving operational readiness across various functions, ensuring compliance, risk management, cybersecurity, and more.

Earlier this year, SBP issued no-objection certificates to these proposed DRBs, allowing them to incorporate as public limited companies with the Securities and Exchange Commission of Pakistan (SECP). The selection of these institutions followed a rigorous evaluation process, considering factors like fitness and propriety, financial strength, business plans, IT strategies, and more. Once they achieve operational readiness, these institutions will seek final approval from SBP to commence their banking operations.