The emerging modern blockchain technology is distributed ledger technology which has a great future in Pakistan to revolutionize the industries, services and banking sector. Both the State Bank of Pakistan and commercial banks can deploy it to enhance the efficiency, safety and security, hence ultimately transparency of the banking transactions. So far various sectors are reluctant to adopt it, but the rest of the world has posed numeral models which helped the banking sector for advancement. In the country, the banking sector is regularly addressing many problems which include:
- Lack of financial inclusion: A number of masses have limited access to formal banking services. Whereas, blockchain can be deployed to enhance banking and financial inclusion by facilitating people to open bank accounts, and access financial services and other banking services via mobile apps.
- Fraud and corruption: Financial sector and banks are much defenseless to ever-increasing fraud cases, originating locally and abroad. The blockchain has proved itself an improved security mechanism in banking transactions and has made it much more challenging to commit fraud.
- High cost of currency transmission: Currency transmission is a core source of foreign exchange for the country, but the cost of transferring remittances is very high and problematic. The blockchain is deployed to reduce the cost of currency transmission by modernizing the procedures more efficiently.
Blockchain technology in Pakistan can be deployed to address the underlined challenges and improve the financial and banking sector. Many stakeholders in Pakistan wondering about blockchain implications regarding its future, safety, and government regulations. Some of the core patterns of blockchain can be used in the financial and banking sectors of Pakistan:
- Trade financing: the blockchain is used to frame trade financing procedures. It could assist the business community to trade merchandise and services, in this presence, blockchain lessens the risks, of fraud and bankruptcies.
- State Bank digital currency: The State Bank of Pakistan (SBP) is currently exploring ways to use this modern tool for a central bank digital currency (CBDC); the CBDC is a digital modern version of the fiat currencies which are launched by the central banks.
- Transmissions and remittances: the blockchain can also be deployed to generate a safe & secure and transparent platform for remitting and receiving remittances. It will assist easily for the general public to remit and receive the money, which will ultimately reduce the intermediate cost of remittances.
- Smart contracts: the blockchain also generates smart contracts; these are self-executing agreements that are stored on blockchain networks. It reduces the transaction cost, saves time and easier for stakeholders to automate the banking and financial transactions, such as loan origination, insurance claims, transaction time, identity generation and record keeping.
State Bank of Pakistan has initiated a plan to use blockchain technology to generate CBDC which will be efficient, secure, and more transparent than the conventional current monetary system.
Pakistan’s financial and banking sectors are still in the early stages to adopt blockchain technology, and it has great potential in the near future to revolutionize the way banks operate.
The blockchain would make financial transactions cost-effective, quick, and much safer and it would help to advance financial inclusion. It would assist to automate and streamline various banking procedures which will lead to higher efficiency. It is a very tamper-proof, safe and secure comprehensive framework, that will help to protect the customers’ dataset and financial & banking transactions. It reduces the cost of financial and banking transactions that will benefit banks, customers, and other stakeholders; blockchain also increases transparency and trust in the financial banking sector.
In Pakistan, as historical figures show that each new technology has to face certain limitations and restrictions; so does blockchain technology. Lack of awareness related to this technology amongst bankers and business communities in the country prevails. This challenge needs to be resolved in order to foster the adoption of blockchain technology in the financial and banking sectors.
The legal regulatory environment is still evolving; it is a very safe and secure mechanism. Moreover, the technology of blockchain is not mature and is evolving. This is a challenge which requires in order to ensure that blockchain technology is very reliable and scalable.
In the banking sector, blockchain technology has great futuristic potential to revolutionize the overall financial and banking sectors of Pakistan. It would assist to improve the security, efficiency and transparency of financial and banking transactions. But a number of encounters need to be addressed before this modern technology can be adopted widely in the financial and banking sectors.
The potential of blockchain in the future in the financial and banking sector in Pakistan is very bright, due to its various characteristics and adaptability. State Bank, Ministries of IT, law, and finance are core stakeholders for the smooth implementation and regulations of the blockchain in Pakistan. In globalization, the technology matures and the regulatory environment evolves, more and more financial sectors and banks are adopting it.