Introduction

State Bank of Pakistan is implementing the Financial Inclusion Program (FIP), sponsored by the UK Aid, with the aim to improve access to financial services in Pakistan. FIP has adopted a multi-pronged approach towards tackling financial exclusion by combining market forces and public sector principles. A noteworthy tool of this approach is to catalyze on innovations to widen the reach of financial services in Pakistan.

FIP has earmarked GBP 10 million in grants under the Financial Innovation Challenge Fund (FICF) to help the financial sector reach the excluded with use of innovations. Specifically, FICF aims to foster innovations to test new markets, lower cost of delivery, enable systems and procedures to be more efficient and provide new ways of meeting the unmet demand for financial services. The fund holds specialized challenge rounds focusing on innovations that market wishes to undertake to alter the scope and reach of financial services.

Objectives

The following are the objective of FICF:

• Spur innovation and innovative practices that increase access to financial services by the unbanked or the financially excluded. The fund provides support for pilots and up-scaling of financial services vis-à-vis seed capital.
• Leverage FICF funds to attract private investment. Additional capital will help create a bridge between pilot and roll-out of an innovation.
• Create linkages between successful projects and other FIP funds to ensure that pilots can be brought to scale through donor and private sector partnership and coordination.
  

Scope

The broad scope of the fund is to facilitate the spread of financial services through innovation. Innovation may come in the following forms:

• A product or service completely new and novel proposed by the applicant; or
• A product or service that has been tested and proved successful somewhere in the world but is new to Pakistan; or
• An innovation that has been tested in Pakistan by organizations and has proved successful and the applicant organization wishes to test it with a new partner or in a different location.

Innovations may hinge on either technological advances such as mobile phones or non-technological advances such as introducing value chain financing or warehouse receipts system for farmers to serve as collateral for loans. However, in order to encourage market based innovations, the Fund is expecting that the market will take the lead in developing scalable and sustainable ideas. Innovations may be broad-based and occur in products, delivery systems or marketing. Specific themes covered under FICF are announced in the form of periodic challenge rounds.

The 1 st Challenge Round was held on promoting “Financially Inclusive Government to Person (G2P) Payments” through branchless banking models. Under the first round, FICF is supporting a number of pilots for adoption of innovate approaches to deliver financially inclusive G2P Payments, covering the entire spectrum of G2P payments including, salaries, pensions and welfare payments.

The 2 nd Challenge Round was held on promoting innovative rural and agricultural financial services. Through this round the Fund aims to support pilots for promotion of broad based financial services using innovative products and channels for people who are not currently participating in the formal financial markets.

Now, the 3 rd Challenge Round is unveiled on promoting Islamic Financial services to meet the latent demand for Shariah compliant financial services in Pakistan. This round aims to develop education and research infrastructure for promoting Islamic Finance in partnership with leading higher education institutions. The initiative will develop the industry’s human capital base in the form of Islamic finance professionals, specialists including Shariah scholars, economists and researchers to realize/meet the growing demands for Shariah compliant products and services in Pakistan.