Banking needs inclusion, innovation, confidence

• Expanding financial inclusion, embracing digital transformation, and strengthening transparency are urgently needed reforms

Banks are more than financial institutions; they are the lifeblood of modern economies. In Pakistan, where economic volatility is often part of the landscape, banks play a crucial role in shaping stability and steering growth. From channeling savings into investments to supporting businesses and individuals, the banking sector is an indispensable pillar of the economy. Yet, in an environment marked by inflation, currency fluctuations, and global uncertainties, banks in Pakistan are tasked with balancing profitability with responsibility. At its foundation, the banking sector serves as a bridge between savings and investment, collecting deposits from individuals and channeling them into productive ventures through loans and financing. In Pakistan, commercial banks dominate the landscape, holding nearly 95% of the financial sector’s assets and positioning themselves as key drivers of economic development. By providing trade finance, extending credit, and ensuring reliable payment systems, banks keep the wheels of economic activity turning. From the small shopkeeper seeking working capital to a student pursuing education on credit or a corporation financing a major infrastructure project, the banking system supports growth at every level of society. Notably, Islamic banking has expanded rapidly, now accounting for over one-fifth of total banking assets. Its rise not only reflects strong cultural and religious demand but also extends financial access to individuals who were previously reluctant to engage with conventional banking models.

A stable economy requires the participation of citizens across income brackets, and here banks play a pivotal role. Pakistan still struggles with a low financial inclusion rate only about 30% of adults have access to formal financial services. To bridge this gap, banks are adopting digital channels, branchless banking, and mobile wallets. Initiatives like Easy paisa and Jazz Cash, supported by banking partnerships, have transformed the financial landscape, enabling millions to transfer money, pay bills, and save securely without ever stepping into a bank branch. By expanding financial access, banks are helping to stabilize household incomes and reduce reliance on informal moneylenders who often exploit vulnerable groups. Despite their progress, banks in Pakistan operate in a challenging environment. Persistent inflation, high interest rates, and currency depreciation test the resilience of both lenders and borrowers. Non-performing loans (NPLs) remain a concern, especially in sectors exposed to global shocks like textiles and agriculture. Moreover, political uncertainty and regulatory pressures often constrain long-term planning. Banks must strike a delicate balance between ensuring profitability and supporting economic stability. The State Bank of Pakistan (SBP) plays a vital role here, using monetary policy and regulatory frameworks to guide the sector while maintaining public trust.

Technology is reshaping banking worldwide, and Pakistan is no exception. The adoption of artificial intelligence, block chain, and digital payment solutions is opening new frontiers for efficiency and customer engagement. Banks are increasingly investing in cybersecurity, mobile apps, and automated services to attract a younger, tech-savvy population. This digital shift not only reduces transaction costs but also promotes transparency and accountability two factors that enhance economic stability in the long run. Beyond finance and technology, Pakistani banks are also beginning to align with global sustainability goals. Green financing, renewable energy loans, and environmentally responsible projects are slowly gaining traction. If expanded, these initiatives could help Pakistan address its climate challenges while creating long-term economic stability. Additionally, corporate social responsibility (CSR) programs in education, health, and community development strengthen the social fabric, reinforcing the idea that banks are not merely profit-driven entities but partners in national progress.

Banks in Pakistan, therefore, go far beyond handling deposits and issuing loans. They are stabilizers during turbulence, catalysts for innovation, and enablers of inclusion. While challenges like inflation, political instability, and low financial literacy remain significant, the sector has shown resilience and adaptability. By embracing digital transformation, promoting financial inclusion, and aligning with sustainability goals, Pakistan’s banks can continue to shape not just economic stability, but also long-term prosperity. In an era of global uncertainties, a strong and forward-looking banking system may well be the anchor that keeps Pakistan’s economy steady. Looking ahead, the sector’s greatest task will be to build deeper public confidence by prioritizing transparency, strengthening customer protection, and expanding access to underserved communities. Greater collaboration between banks, regulators, and the private sector can open pathways for entrepreneurship, job creation, and investment in critical areas such as infrastructure, renewable energy, and technology. If guided with vision and responsibility, Pakistan’s banking system has the potential not only to safeguard stability but also to transform into a regional financial hub. In many ways, the strength of the nation’s economy will depend on how effectively its banks evolve to meet both domestic needs and global challenges.

The Author is MD IRP /Faculty department of H&SS- Bahria University Karachi