The role of digital platforms in facilitating trade and financial inclusion in Pakistan

Overview

A digital platform serves as an online marketplace, facilitating business transactions and commerce among various market participants. The facilitation of such exchanges and transactions has encouraged innovation and developed a structure that utilizes digital technologies to generate efficient connections between global users. The internet and other digital technologies have provided a basis for the development of robust online networks or digital marketplaces, which have the potential to significantly reduce information costs,, and diminish production and transaction expenses. Accenture (2021) reported that enterprises that significantly increased their investment in data-intensive technologies amid the COVID-19 pandemic experienced revenue growth much faster than those that were slower to innovate. Furthermore, digital platforms provide basis for growth as KPMG (2017) examined that higher revenue growth had achieved by those small and medium business in India who are engaged with digital technologies.          

Key findings

Key informant interviews of small and medium business and public sector representatives were done during the study on ‘Scope of Digital Trade Integration for Pakistan and Central Asian States (2023)’ for CAREC Institute. The key findings were discussed in the detailed report, however some of the findings specific to Pakistan are being discussed in this article.   

Small business constitutes more than 90% of estimated 3.2 million business enterprises in Pakistan (National Financial Inclusion Strategy, 2015). Small businesses are also contributing 30% towards the GDP and employ more than 80% of the non-agricultural workforce. According to an estimate, digital transformation can assist Pakistan to unlock around $ 59.7 billion in annual economic value by 2030 (Access Partnership, 2021). However, sellers in digital retail and e-commerce are facing challenges including poor quality of delivery services, unavailability of skilled personnel, and lack of support incentives by the government (Ahmed, 2019).

Digital financial services, including mobile banking and e-wallets, have increased the financial inclusion in Pakistan and brought millions of unbanked and underbanked people into the formal economy. Platforms such as Easypaisa and Jazzcash provided individuals, especially those living in remote and underserved regions, with access to financial services such as making digital payments and having opportunities to actively participate in economic activities through engaging in e-commerce (Manzoor et al. 2021).

Platforms such as Daraz and Telemart provide small and medium-sized enterprises (SMEs) with prospects to access global markets. Evolution of e-commerce enterprise such as Daraz indicates that there is significant potential of e-commerce related activities in Pakistan (Javed, 2020). These platforms have decreased entry barriers for businesses through lowering overhead costs and connecting sellers with local and international clients, paving the way for growth of businesses. Karachi Chamber of Commerce and Industry (KCCI, 2019) projected that e-commerce enterprises such as Daraz have potential to create both direct and indirect jobs in Pakistan.

Rozee.pk, Upwork, and Fiverr are major platforms offering freelancers and gig workers extensive economic opportunities through which individuals are earning income. These platforms play a significant role in overcoming unemployment challenges, especially among youth and women, by creating flexible work opportunities. Fields such as IT, design, customer services, and writing are popular areas in which freelancers are offering their services. The earnings of full-time freelancers in Pakistan are projected to reach around $ 1 billion by 2030 (Ignite, 2018).

.‘Raast’, an Instant digital payment system by State Bank of Pakistan is providing transparent financial transactions among businesses, government entities, and individuals at secure and efficient manner (Javed and Ahmed, 2022). Recently, financial transactions amounting Rs. 1 trillion through Raast were done in just 16 days in comparison with the first Rs 1 trillion transacted in more than 365 days two years ago (Siddiqui, 2024). This indicates that adoption of digital payment solutions has grown exponentially in Pakistan where individuals and businesses are using such platforms more often. The growth is an indicator of increasing access to formal financial services, especially for underbanked rural populations. This will help in decreasing the size of informal economy and cost of doing business for traders.

However, there are various challenges that need to be addressed to provide robust growth opportunities for these digital platforms. Digital divide has been a major issue in Pakistan where individuals residing in rural areas have limited access to internet and related services as compared to their urban counterparts (Javed and Javed, 2022). The digital divide can also be observed in terms of better infrastructure availability in urban areas compared to rural regions. One example is the presence of technology parks in only three urban cities i.e Islamabad, Lahore and Karachi (Javed, 2020). Lack of digital literacy among the population is also an important factor that restricts the wide usage of such platforms. Certain regulatory mechanisms are in place that hampers the ease of doing business. For instance, there is no single digital regulatory authority, whereas complex tax regime is also a challenge for enterprises to actively operate in digital economy (UNESCAP and SDPI, 2021). Payoneer is an international multicurrency platform which is used by freelancers, remote workers, business owners and other relevant stakeholders. The platform allows to receive payments from overseas customers against provision of the goods and services. However, freelancers are paying higher transaction fees for using Payoneer as processing being handled by an additional carrier in Pakistan along with a bank (Ignite, 2018).

Recommendations

To improve the growth and competitiveness of digital platforms in Pakistan, it is imperative that government should take extensive measures to digitalize economy-wide business transactions, adopt a cashless payment system for public services, and increase digital financial inclusion and services. State Bank of Pakistan can incentivize the expansion of branchless banking network (including mobile money agent) in rural areas to increase financial inclusion and accessibility of individuals to digital platforms and services.  

State Bank of Pakistan can ease the licensing and regulatory requirements for enterprises specially for small businesses who intend to use digital platforms. A Strategic Trade Policy Framework of the Ministry of Commerce can incentivize public and private enterprises to adopt digital transformation on a priority basis. The Ministry of Commerce can provide financial incentives, training programs, establishing internet and other digital infrastructure, and policy support in this regard. Access to digital platforms can be increased through improving the digital infrastructure beyond the major cities. This will help people living in rural and semi-urban areas to access digital platforms, whereas it will also promote the growth of e-commerce businesses. 

References

Accenture. (2021). Make the leap, take the lead. Accenture.

Access Partnership. (2021). Unlocking Pakistan’s digital potential: The economic opportunities of digital transformation

Ahmed, R. (2019). Ecommerce in Pakistan: Challenges and opportunities. Wuhan International Conference on e-Business 2019 Proceedings, 75.

Ignite. (2018). Study for assessment of Pakistan’s freelancing ecosystem & digiskills.pk. Final Report, Ignite.

Javed, A., and Ahmed, V. (2022). Digital trade as engine of growth for Pakistan. Pakistan Journal of Social Issues, Vol. XIII.

Javed, A., and Ahmed, V. (2024). Scope of digital trade integration for Pakistan and Central Asian states: An action plan. CAREC Think Tank Network Paper.

Javed, M., and Javed, A. (2022). Covid-induced inequalities: Education, health services, digital access, and female labor force participation: Case study from Pakistan. CAREC Institute.

Javed. (2020). Prospects and problems for e-commerce in Pakistan. Asian Journal of Economics, Finance, and Management, Vol. 2 (4). 

KCCI. (2019). E-commerce: A plausible solution to Pakistan’s economic woes. Karachi Chamber of Commerce & Industry.

KPMG. (2017). Impact of internet and digtisation on SMBs in India. KPMG.

Manzoor, R., Javed, A., Ahmed, V., and Rauf, A. (2021). Digital financial services in Pakistan: Opportunities, challenges, and suggestions. Journal of Finance & Economics Research, Vol. 6 (2): 1-16.

Siddiqui, S. (2024). Raast payments hit Rs 1 tr in 16 days. Express Tribune, Retrieved from https://tribune.com.pk/story/2504018/raast-payments-hit-rs1tr-in-16-days

UNESCAP and SDPI. (2021). National study on digital trade integration of Pakistan. United Nations Economic and Social Commission for Asia and the Pacif, and Sustainable Development Policy Institute.