How Pakistan's Foreign Exchange Law Creates a Structural Ceiling for Digital Finance

Pakistan's primary foreign exchange statute was promulgated in 1947 for a post-partition emergency. It was not designed for digital wallets or cross-border fintech products. The friction between that original design and modern digital finance is structural, and it defines what Pakistan's fintech sector can and cannot become.

The statute's original design

At a time when hard currency was scarce, the Foreign Exchange Regulation Act (‘FERA’) was introduced in 1947 as an emergency instrument aimed at controlling flows, protecting reserves, and confining foreign currency within the banking system. That core architecture has not been revisited since. Section 2 of FERA still frames "foreign exchange" in terms of deposits, credits, and balances payable in foreign currency. This language was built for physical currency and correspondent banking, with nothing that anticipates digital wallets or platform-based remittance. Digital finance has the opposite instinct to FERA: open, fast, and by design borderless. The friction that results cannot be closed through better implementation. It is built in.

The Authorised Dealer constraint

Read together, Sections 3 and 4 create the Authorised Dealer (‘AD’) structure that has been most consequential for Pakistan's fintech sector. It restricts dealings in foreign exchange to persons authorised by the State Bank of Pakistan (‘SBP’), in practice, banks operating as AD. Every other entity, every fintech, every payment company, every digital wallet, effectively requires SBP’s prior permission for any transaction touching foreign currency.

In practice, any fintech wanting to build a cross-border product must route every foreign currency flow through an AD bank, which is simultaneously a regulatory gatekeeper, a commercial counterparty, and a competitor. That dependency creates a cost floor fintechs cannot undercut and a speed ceiling they cannot break through. It also means that the product offerings are restricted to what the AD bank is willing to support. 

Comparable markets have already revisited this design. India's Foreign Exchange Management Act, 1999 (‘FEMA’) created a tiered AD structure with specific lanes for non-bank entities. The Reserve Bank of India's (‘RBI’)      Payment Aggregator-Cross Border framework explicitly licenses non-bank entities to facilitate cross-border transactions for e-commerce, with AD banks maintaining settlement accounts while fintechs operate the service layer. The UAE went further: non-bank payment service providers can obtain licences granting foreign exchange permissions appropriate to their business model, without routing every transaction through a bank. In both frameworks, fintechs are participants in the architecture. Under FERA, they are supplicants to it.

The freelancer economy: the most visible cost

Pakistan's freelancer economy is among the world's top five, with over 2.3 million active freelancers who generated approximately USD 856 million in foreign exchange in the first three quarters of the financial year 2025-26. This valuable inflow is what Pakistan's monetary policy should be trying to encourage. But FERA's architecture makes capturing it unnecessarily difficult.

Section 10 requires that any person entitled to receive foreign exchange comply with SBP's directions on repatriation and conversion. In practice, freelancers receiving USD must route funds through banking channels, convert at rates determined by the AD framework, and satisfy documentation requirements built for a very different transaction profile. Mandatory repatriation timelines, forced conversion, and banking relationships not designed for high-volume, low-value freelance payments combine to push a significant share of this activity toward informal channels, precisely the outcome a foreign exchange framework is meant to prevent.

In January 2025, RBI amended India's foreign exchange management regulations to allow exporters to open foreign currency accounts abroad and collect export payments without immediate repatriation. Pakistan has not moved in that direction. The result is a framework that structurally disadvantages the very economic activity it should be designed to support.

Progress made and its hard limits

Pakistan has progressed in one aspect. The Virtual Assets Act, 2025 (‘VARA’), and an accompanying SBP circular provide licensed virtual asset service providers with formal banking access and place them within a defined supervisory perimeter. But Section 5(1) of VARA explicitly preserves FERA's precedence, and the AD monopoly is untouched. Digital assets have been legalised, but foreign-currency digital assets remain structurally constrained by the same provisions that constrain everything else.

No sandbox for the FX layer

SBP operates a regulatory sandbox, but it does not extend meaningfully to products that require foreign exchange permissions to function. A fintech wanting to test a cross-border payment product or a foreign-currency-denominated savings instrument has no formal pathway to experiment at limited scale. The sandbox addresses domestic innovation, but the FX layer is outside it.

This matters because comparable frameworks treat the sandbox as a tool for exactly this kind of problem. The RBI's dedicated Fintech Department tests innovations with cross-border and payment dimensions within its sandbox. The Monetary Authority of Singapore has supported experimentation in cross-border and multi-currency payment models. In the absence of an equivalent pathway in Pakistan, the cost of testing a foreign-currency product is the cost of full compliance, which inevitably discourages innovation. 

Where this leaves the sector

FERA addresses real monetary policy concerns. But the question is whether a statute designed for post-partition emergency conditions is the right instrument for addressing those concerns in a digital economy, and whether the answer to that question should continue to be deferred.

India replaced FERA with FEMA in 1999. The UAE built a licensing architecture that separates monetary authority from product permission. Singapore designed its Payment Services Act, 2019, around what digital finance actually looks like. These were deliberate regulatory choices.

Pakistan's fintech sector has grown enormously despite the constraints. But there is a difference between growth within a ceiling and growth that breaks through one. The products that would put Pakistani fintechs in a genuine regional and global competitive conversation remain structurally harder to build here than anywhere comparable. That is not a market failure. It is a policy choice. And like all policy choices, it can be revisited.

Zainab Samantash is the Head of Legal Affairs & Company Secretary at JazzCash. The views expressed here are personal and do not reflect those of JazzCash or any institution.