SBP launches financial innovation programme

KARACHI:

State Bank of Pakistan (SBP) Governor Shahid Kardar announced on Monday the launch of the UK Aid-sponsored £10 million Financial Inclusion Programme (FIP) in Pakistan.

Kardar also unveiled the first round of Financial Innovation Challenge Fund (FICF) on Government to Person Payments (G2P), saying the government intends to use enhanced payment mechanisms to increase financial inclusion by enticing recipients of government payments into the sphere of banking and financial services.

“Banks, public sector institutions, microfinance institutions, government agencies, pension funds and academic institutions are invited to apply to promote G2P through bank accounts at branchless banking outlets and also provide other financial services to the G2P beneficiaries,” he said while speaking at the ‘Branchless Banking: Government to Person Payments (G2P) Conference 2011’.

Kardar said that in Pakistan G2P had typically been location-specific cash payments. “This system is due to limited options, as recipients lack bank accounts and banks have few accessible branches for cash disbursement,” he said and added that with the rise of branchless banking models, there were new technology-based payment options, which were convenient, safe, and affordable.

According to Bankable Frontier Associates David Porteous, “Pakistan is a laboratory of G2P approaches.” FICF fosters innovations to test new markets, has a lower cost of delivery, enables systems and procedures to be more efficient and provides new ways of fulfilling unmet demand for services.

The fund will also hold specialised contests geared towards innovation that the market wishes to undertake to alter the scope and reach of financial services. These will be open to banks, non-financial institutions, telecom companies, NGOs and academic institutions. “A non-government body will be leading the development in this initiative,” explained Haroon Sharif of the Department of International Development (DFID).

Sharif said that SBP came forward for implementing a market-led system and G2P payments through Blackberrys will reduce corruption and transaction costs, while increasing efficiency.

Porteous said branchless banking models would be highly valued by clients as they saved them money and proved convenient, as customers did not have to make repeated trips to branches.

He added that clients were eager and willing to learn about models for financial inclusion. “Response from them is likely to be favourable,” said Porteous. Most institutions on average agree and believe that even accounts of small balance customers can become profitable over time, he explained.

However, Porteous pointed out some obstacles such as the requirement for a minimum number of branches, explaining that branchless banking and financial institutions should not be judged by the number of branches they have.

He hoped that the government would reconsider its regulations. Pakistan has all the signs of being able to become an elaborate pervasive cash handling network, Porteous said, adding that this was “a commercially viable business proposition.”

Published in The Express Tribune, May 10^th, 2011.