Future of banking: digital, Shariah, crypto – Pakistan & Gulf Economist

• Digital adoption, blockchain potential, and Islamic finance growth define Pakistan’s evolving banking sector 2025

Interview with Muhammad Raza, SEVP & Group Head of General Services & Customer Support at Meezan Bank. 

PAGE: Tell me something about yourself, please:

Muhammad Raza: I currently serve as Senior Executive Vice President and Group Head of General Services and Customer Support at Meezan Bank. My career spans more than 34 years, beginning at MCB before I joined Meezan Bank in February 2003. That moment was particularly historic, as I took charge as Branch Manager of the bank’s very first branch in Karachi, located in Gulshan-e-Iqbal. Since then, I have been deeply engaged in the evolution and expansion of Islamic banking in Pakistan.

Academically, I hold a Bachelor’s degree in Engineering from NED University and a Master’s in Business Administration from IoBM. In addition, I have pursued multiple professional qualifications, including an Associate Diploma from the Institute of Bankers, Pakistan; a Postgraduate Diploma in Islamic Banking and Finance from the Centre of Islamic Economics; and completion of the Islamic Scholar Course from Al-Furqan Scholars Academy.

Over the course of these decades, I have gained broad-based experience across retail and consumer banking, with more than 23 years dedicated specifically to Islamic banking. My portfolio covers strategy, innovation, transformation, branch banking, liability sales, product development, service quality, consumer finance, wealth management, collections and recovery, training, administration, and engineering. Alongside my banking career, I am also a certified trainer, conducting both in-house and external training programs.

Beyond the institution, I have contributed to the industry at large, serving on committees at the State Bank of Pakistan, as a member of the Pakistan Banks’ Association Consumer Subcommittee, and as former Chairman of the Mortgage Forum of the PBA. With a strong grounding in Shariah, developed through years of collaboration with scholars and Meezan Bank’s Shariah Department, I view my journey not only as a professional career but as a mission—to help Islamic banking establish itself as a leading force in Pakistan’s financial system.

PAGE: What is your perspective about the banking sector of Pakistan?

Muhammad Raza: My perspective on Pakistan’s banking sector is one of cautious optimism. The industry has shown remarkable resilience, even as the broader economy grapples with volatility and external pressures. According to KPMG’s Pakistan Banking Perspective 2025, the sector recorded profit growth of 8.2 percent despite declining interest rates, reflecting underlying operational strength and solid capital buffers. The asset base expanded by roughly 11 percent, while deposits rose nearly 18 percent. Liquidity has remained stable, credit growth steady, and customer trust intact. Stress tests conducted by the State Bank further confirm that systemically important banks are well positioned to withstand severe macroeconomic shocks.

Nonetheless, profitability pressures have begun to surface. First-quarter 2025 results showed earnings moderation across major institutions, including Islamic banks, largely due to margin compression. The sector’s heavy exposure to government securities remains a structural vulnerability, tying banking fortunes to sovereign risk. While Moody’s recent upgrade of Pakistan’s banking outlook—from stable to positive—is encouraging, it also highlights this very linkage as a concern. Non-performing loans, though somewhat reduced, still warrant vigilant management. Broader challenges persist: limited access to credit for SMEs and agriculture, over-reliance on government debt instruments, and a relatively shallow capital market.

Amid these constraints, two transformative shifts stand out. The first is the rapid expansion of digital banking and fintech. Pakistan’s instant payment system, Raast, now processes large volumes of peer-to-peer transfers, driving interoperability and broadening financial inclusion. The second is the State’s mandated transition to an interest-free banking environment by 2028—a reform that presents both opportunity and disruption. Success will depend on the sector’s ability to reengineer business models, diversify products, and strengthen regulatory frameworks.

Looking ahead, the future of Pakistan’s banking sector lies in deeper financial inclusion, accelerated digitization, and prudent risk diversification. Banks must embrace technology, extend their reach to underserved communities, and align more closely with national priorities such as green finance and sustainable development. If these priorities are met, the sector can evolve beyond resilience to play a transformative role in the country’s economic trajectory.

PAGE: How would you comment on the microfinance industry and subsequent inclusive banking?

Muhammad Raza: Microfinance has played a pivotal role in extending financial services to low-income households, women, and small entrepreneurs. The regulatory environment has matured considerably since the enactment of Pakistan’s Microfinance Institutions Ordinance in 2001, followed by subsequent updates that introduced clearer institutional categories, lending rules, consumer protection standards, and oversight mechanisms. By 2025, the sector reached roughly 9.3 million active borrowers against an estimated potential demand of more than 40 million. The gross loan portfolio has crossed PKR 500 billion—a sign of scale—yet overall penetration remains modest at about 23 percent.

At the same time, the industry is under financial strain. In the third quarter of FY24, microfinance banks collectively posted a net loss of PKR 1.1 billion, while their capital adequacy ratio fell to 2.8 percent—well below regulatory requirements. In response, many institutions have pivoted toward urban “nano-loans” delivered through digital channels. While this model improves efficiency and outreach, it also risks sidelining rural clients and women-led enterprises, both of which remain central to the mission of inclusive finance.

There are, however, reasons for optimism. In March 2025, the World Bank approved a USD 102 million “Resilient and Accessible Microfinance (RAM)” project designed to strengthen the sector, with particular focus on climate-vulnerable communities. Looking ahead, inclusive banking in Pakistan must evolve beyond short-term credit provision. It will need to integrate financial literacy, digital access, savings, insurance, and long-term sustainability—ensuring that the institutions serving the most vulnerable can themselves remain resilient.

PAGE: What is your standpoint on cryptocurrency?

Muhammad Raza: Cryptocurrency remains a debated subject in Pakistan. As of 2025, trading in unregulated digital currencies is still not legally recognized by the SBP, but the government has shown openness to innovation. In March 2025, the Ministry of Finance launched the Pakistan Crypto Council (PCC) to explore digital asset regulation, signaling a shift from prohibition to structured dialogue.

My standpoint on cryptocurrency is cautious, risk-aware, and Shariah-led, with a clear emphasis on limiting exposure to speculative trading while exploring permissioned, asset-backed applications. The underlying blockchain technology holds strong potential in Pakistan for trade finance, remittances, asset tokenization, and smart contracts. However, the risks are equally significant—volatility, fraud, money laundering, lack of investor protection, and unresolved Shariah compliance concerns.

I believe Pakistan should take a cautious but progressive approach: launch regulatory sandboxes, pilot projects in lower-risk areas (such as tokenized sukuk or blockchain-based remittances), and gradually build a legal framework that protects investors while fostering innovation. For now, safer investment opportunities lie in Islamic instruments (sukuk), capital markets, and green finance—all of which align with Pakistan’s long-term economic goals.

PAGE: What is your standpoint on the use of technology in banking?

Muhammad Raza: Technology has moved from being an enabler to becoming the backbone of banking. In Pakistan, digital adoption has accelerated rapidly: financial inclusion jumped from 16% in 2015 to nearly 64% in 2023, largely driven by digital wallets, branchless banking, and mobile apps. Banks are now investing heavily in digital platforms. At the same time, SBP’s push for digital onboarding and instant payment systems is reshaping how customers interact with banks.

The benefits are undeniable: lower transaction costs, broader outreach, data-driven risk management, and enhanced customer experience. Yet risks remain — cybersecurity threats, privacy concerns, and the digital divide in rural areas. To succeed, banks must adopt a “digital- first but inclusive” mindset, balancing innovation with security, regulation, and accessibility for all segments of society.

Over the past year, we have introduced initiatives such as cash deposit machines for round-the-clock service, digital student accounts to expand financial inclusion, automation of Islamic finance processes, and integration with platforms like Payoneer for seamless cross-border payments. At the same time, we have strengthened fraud management, cybersecurity, and IT governance to ensure reliability and customer protection. For us, technology is not just about digitization—it is about creating secure, inclusive, and innovative solutions that align with both customer needs and Pakistan’s vision for a digital, cashless economy.

PAGE: How do you see the growth of Islamic banking in Pakistan?

Muhammad Raza: Islamic banking is one of Pakistan’s biggest success stories. By March 2025, Islamic banking assets account for over 24% of the industry’s total assets and 22% of deposits, compared to just 2% in 2002. The sector now comprises 22 institutions (5 full-fledged Islamic banks and 17 conventional banks with Islamic branches) operating more than 4,600 branches nationwide.

This growth is backed by strong demand — surveys show that over 75% of Pakistanis prefer Islamic banking if available. Policy momentum is also strong: in line with the Federal Shariat Court’s 2022 ruling, SBP has issued a roadmap to fully Islamize the banking system by 2027.

The opportunities are immense. Expanding sukuk markets are providing liquidity instruments, while digital Islamic platforms like Meezan’s Roshan Digital Accounts are attracting both domestic and overseas customers. Moreover, Islamic finance can play a vital role in sustainable finance, especially through innovative instruments like Green Sukuk.

However, challenges remain: a shortage of Shariah-compliant liquidity tools, a need for more trained professionals, and operational complexities in converting conventional institutions. The way forward is to diversify products, strengthen Shariah governance, and integrate technology to deliver inclusive, efficient, and transparent solutions.

If managed well, Islamic banking in Pakistan could become not just the dominant domestic model, but also a global case study in large-scale Islamic finance transformation.