State Bank of Pakistan (SBP)

The State Bank of Pakistan (SBP) is the central bank of Pakistan. It issues the Pakistani rupee, sets monetary policy, manages the country's foreign exchange reserves, acts as banker to the government, and licenses and supervises banks, microfinance banks, development finance institutions, exchange companies and payment system operators. Its head office is in Karachi.

For payments and remittance businesses the SBP is the main authority in Pakistan. It decides who may hold customer funds, issue electronic money, operate a payment system, deal in foreign currency or pay out inward remittances, and it runs the country's large-value and instant payment infrastructure. Capital markets, insurance and non-bank finance companies are overseen by a separate securities regulator.

At independence in 1947 Pakistan had no central bank of its own, and the Reserve Bank of India continued to act for both countries for a transitional period. The State Bank of Pakistan was inaugurated on 1 July 1948 by Muhammad Ali Jinnah. Its constitution was replaced by the State Bank of Pakistan Act of 1956, which, with later amendments, remains its governing law. The bank was nationalized in the 1970s along with the commercial banking sector.

Reforms in the 1990s and afterwards gave it greater independence in monetary policy and supervision. Amendments passed in early 2022, linked to a program with the International Monetary Fund, made domestic price stability its primary objective, restricted government borrowing from the central bank and strengthened the tenure of its leadership.

The SBP is led by a Governor appointed by the President of Pakistan and is overseen by a Board of Directors. Interest rate decisions are made by a Monetary Policy Committee. Operational work such as currency management, government banking and the handling of foreign exchange cases is carried out through a subsidiary, the SBP Banking Services Corporation, which runs field offices across the country.

• Monetary policy. It sets the policy interest rate and manages liquidity with the aim of price stability.
• Currency. It has the sole right to issue banknotes.
• Banking supervision. It licenses and supervises commercial banks, Islamic banking institutions and microfinance banks, and sets capital and conduct rules.
• Foreign exchange. It administers exchange controls under the Foreign Exchange Regulation Act of 1947, manages foreign exchange reserves and licenses exchange companies, the country's equivalent of the bureau de change.
• Banker to government. It holds government accounts and manages public debt issuance.

The Payment Systems and Electronic Fund Transfers Act of 2007 gives the SBP authority to designate, license and oversee payment systems and their operators. The bank itself operates the real-time gross settlement system, known as PRISM, for large and interbank payments. In 2021 it launched Raast, an instant payment system built with international development support, first for bulk payments such as salaries and dividends and later for person-to-person and merchant transfers using a mobile number or other alias. Raast provides instant account-to-account payment at little or no cost to users.

Private operators run the interbank card and cash machine switch and the check clearing house under SBP oversight. The central bank has also created licensing categories for non-banks. Regulations issued in 2019 allow an electronic money institution to offer wallets and prepaid instruments, and separate rules cover payment system operators and payment service providers.

Pakistan was an early adopter of branchless banking. Regulations first issued in 2008 follow a bank-led model, in which a licensed bank or microfinance bank, often partnered with a telecom operator, offers mobile wallets through retail agents. Accounts are opened at different levels with graduated identity requirements and transaction limits, and customer identity is verified against the national identity database, usually by fingerprint. The largest mobile money services in the country operate under this framework.

In 2022 the SBP introduced a licensing framework for digital banks, which have no branch network, and later gave approval to a small number of applicants to begin setting up. It maintains a national strategy for financial inclusion with targets for account ownership, particularly among women.

Money sent home by Pakistanis working abroad is one of the country's largest sources of foreign currency, and the SBP actively manages the channels it arrives through. The Pakistan Remittance Initiative, set up in 2009 with government ministries, encourages banks and overseas money transfer operators to deliver home remittances through formal channels, in part by reimbursing certain costs so that transfers are free to the sender above a minimum amount. The Roshan Digital Account, introduced in 2020, lets non-resident Pakistanis open accounts remotely and invest in Pakistan.

Outward payments are tightly regulated, and banks need to follow SBP rules or seek approval for many transactions. Enforcement against unlicensed currency dealing and hawala, known locally as hundi, has been a recurring priority, especially when the gap between the official and open market exchange rates widens.

The SBP sets anti-money laundering and counter-terrorist financing rules for the entities it regulates and inspects their compliance. Pakistan was placed on the increased monitoring list of the Financial Action Task Force in 2018 and removed in October 2022 after completing two action plans, a period during which the central bank tightened customer identification, sanctions screening and penalties across the banking and exchange sectors.

• State Bank of Pakistan