Client Name

State Bank of Pakistan

Faculty Advisor

Dr. Hilal Anwar Butt

SBS Thought Leadership Areas

Investment Decision Making

SBS Thought Leadership Area Justification

Escrow banking relate heavily to risk mitigating processes which also exist in other areas under "investment decision making" for example, stocks, bonds, and other investments have to be risk mitigated to increase profit while reducing risk. Similarly, escrow banking is a risk mitigating process. Individuals and companies decide on using escrow banking when there is high risk and no trust, to reduce the overall risk they use escrow banking for their investment needs. Secondly, escrow banking is funnel to major investments for example, real estate, securities, mergers and acquisitions, project based funding & e-commerce related transactions. Furthermore, our feasibility study provides an impact on market efficiency and financial infrastructure. Whenever there is an official risk mitigating process (of any sort) through proper channels, market efficiency is being added to the market. For example, banks acting as neutral third parties in escrow real estate transactions.

Aligned SDGs

GOAL 9: Industry, Innovation and Infrastructure

Aligned SDGs Justification

Our project proposes new financial infrastructure relating to escrow mechanisms integrated within conventional banking. This is a form of financial innovation that supports risk reduction, transparency, and smoother trade and investment flows. For example, during our project we interviewed construction companies who would highly benefit with the implementation of escrow banking by increasing trust and reducing risk causing a direct growth in industry and infrastructure.

NDA

No

Abstract

This Experiential Learning Project (ELP) examines the feasibility of the implemention of the Escrow Banking Services in Pakistan’s real estate sector which is a market known for its informal practices, the regulatory loopholes, and the frequent investor fraud. Escrow banking involves a neutral third-party financial institution which is responsible for holding transaction funds until the specific legal or contractual milestones are achieved, thereby ensuring the protection for both the buyers and the sellers.

The primary objective of this project is to assess whether the escrow mechanisms, as they are successfully implemented in countries such as the UAE, India, Bangladesh, and Vietnam, can be adapted and incorporated into Pakistan’s unique economic and legal context. The methodology includes the benchmarks of international practices, the analysis of Pakistan’s current institutional and legal infrastructure, conducting expert interviews, and the proposal of a phased implementation strategy.

The findings in the report indicate that while the escrow usage in Pakistan is currently limited and informal, there is still a substantial potential for the impact, especially in the high-risk real estate transactions. However, the key challenges include the absence of a centralized regulation, the lack of public awareness, the fragmented property laws, and a deeply entrenched informal economy.

The report also recommends a structured approach which includes drafting a dedicated Escrow Services Act, the establishment of a unified real estate authority, the integration of fintech platforms, and the creation of digital escrow solutions with Shariah-compliant options. A five-phase implementation roadmap is proposed to gradually build the infrastructure, the public trust, and the institutional capacity.

Aligned with the Investment Decision Making thought leadership area, this project also highlights how the escrow banking can improve the investor confidence, the promotion of transparency, and the contribution to formalizing a critical sector of Pakistan’s economy.

Document Type

Restricted Access

Document Name for Citation

Experiential Learning Project

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