- The use of blockchain, cryptocurrencies, crypto gaining momentum
- Technology progress is steady in financial services
Interview with Mr. Jawad Tahsin — Vice President & Unit Head Shariah Compliance Department, Meezan Bank Limited
PAGE: Tell me something about yourself, please.
Jawad Tahsin: I have been working in the banking industry of Pakistan for around 11 years. I am a business graduate from the Institute of Business Administration (IBA), Karachi with majors in MIS and Finance. Right now, I am working as Vice President & Unit Head Shariah Compliance Department at Meezan Bank Limited. Prior to this, I worked at Faysal Bank as a Product Manager of Islamic Assets.
My Experience in banking mainly comprises working in Product Development and Shariah Compliance departments respectively. I have closely worked on and reviewed the recent digital initiatives as implemented by the State Bank of Pakistan including Islamic Roshan Digital Account and Islamic Naya Pakistan Certificates. Additionally, I have also worked on various Shariah-compliant digital financing products developed and implemented in my employer bank.
PAGE: Could you give your perspective on digital banks in Pakistan?
Jawad Tahsin: The landscape for digital banks in Pakistan looks promising due to cryptocurrencies. With approximately 64% young population in the country, most of them interested in cryptocurrencies, and a banking population of less than 30%, the sky is really the limit. There is so much potential for digital banks and they can really play an important part in improving financial inclusion in the country.
So far the State Bank of Pakistan (SBP) has taken the right step and issued 5 digital banking licenses for setting up new digital banks in the country. However, out of these 5 banks, only 2 licenses have been issued for Islamic digital banks. In a country with a 96% Muslim population with strong religious roots, interest is one of the important reasons why conventional banks’ penetration in the financial sector is still low.
And furthermore, in the context of the recent Federal Shariat Court decision regarding the conversion of the banking sector by 2027, it was understandable that all 5 digital banking licenses should have been issued for Islamic Digital Banks since they anyway would need to be converted by 2027. However, nonetheless, it would be interesting to see how these new digital banks perform in Pakistan since most digital/neo banks globally have struggled for profitability except for a few examples like starling bank etc. In my opinion, it is advisable that these new banks should avoid flashy gimmick-based marketing and focus on value-driven word of mouth which they can generate through an easy onboarding process, scaling up their payment infrastructure, deposit stickiness and transition to financing as soon as possible.
PAGE: What is your standpoint on the technological progress of the financial services industry in Pakistan?
Jawad Tahsin: Pakistan has made steady progress. In 2020 for the first time ever, the State Bank of Pakistan allowed the banks to open deposit accounts remotely for non-resident Pakistanis as in the case of Roshan Digital Account. The introduction and launch of Raast and the recent announcement by SBP of launching out own digital cryptocurrencies (one of the very few countries to do so) just reflects the steady technological progress in the financial services industry.
However, the technological progress of financial services in the country is interlinked with the financial literacy of that country. With approximately 26% financial literacy, Pakistan is ranked one of the lowest in the world. Pakistan also has only 253,000 stock investors (one of the lowest percentages in the region). There is no point in technological progress if the target audience is not literate enough to use it. So, I believe that technological progress of the financial services industry is important but simultaneously the masses should also be made financially aware and for that purpose, technology can also be used effectively to educate people on cryptocurrencies.
PAGE: Has branchless banking altered the financial landscape of Pakistan?
Jawad Tahsin: Yes, they definitely have and have played a significant role in increasing financial inclusion in the country. But still, a lot is yet to be done and our branchless banking giants should aspire to achieve what M-Pesa has been able to achieve in the Africa region.
In my opinion, the biggest achievement to date of branchless banking is the transformation in the world of payments in Pakistan which has helped the country take a huge stride towards a cashless economy using cryptocurrencies. However, not much progress was made in customer credit, deposit mobilization, and deposit stickiness, etc.
And I believe one of the important reasons for this underachievement was the absence of any major Islamic branchless banking platforms due to which the predominant faith-sensitive customers did not consider branchless banking as a serious deposit/ saving avenue and only considered it to be a payment platform. With the advent of Neo/Digital Banks, the use cases for branchless banking are dying out and it is only natural that their place would be taken up with Neo/ Digital Banks of the future.
PAGE: Could you give your views about the technological advancements in the banking sector?
Jawad Tahsin: Change is a continuous process and there is no doubt banking 5 years from now would be very different from what we see and experience today due to the invasion of cryptocurrencies. Cash has started to become irrelevant and its irrelevancy will only increase over time. The use of blockchain technology and cryptocurrencies is gaining momentum and it is expected that in the near future, the Shariah Scholars would be able to give clear guidelines on the legitimacy of cryptocurrencies which may result in 180 degrees shift in the way money is perceived and used in an economy.
Credit Decision making is expected to become quick and decision-making would be done using algorithms that would use unconventional data points extracted through various sources and behavioral patterns instead of documentary evidence. Banks are sitting on loads of data that they have not yet been able to effectively use to their advantage. However, with the advent of Data Analytics and Business Intelligence tools, banks have started to analyze this data and seek valuable insights from it and it is expected that with the use of these data, banks would be moving from mass standardization products to mass customization and the one product fits all strategy would become obsolete.