State Bank Governor unveils first round of Financial Innovation Challenge Fund on Government to Person Payments (G2P)

Banking and Finance

Karachi –– Governor, State Bank of Pakistan Shahid H. Kardar Monday launched GBP 10 million Financial Innovation Challenge Fund (FICF) and unveiled first round of FICF on Government to Person Payments (G2P). Banks, public sector institutions, Microfinance institutions, government agencies, pension funds, academic institutions are invited to apply to promote G2P payment through bank accounts at branchless banking outlets and also provide other financial services to G2P payments beneficiaries, he said.

In key note address at Branchless Banking: Government to Person Payments (G2P) Conference 2011 and launch of Financial Innovation Challenge Fund here, he said FICF will provide grants to foster innovations and test new markets, lower cost of service delivery, enable systems, procedures to be more efficient, provide new ways of meeting unmet demand for financial services. In Pakistan, G2P had typically been made at location specific cash payments. This system is due to limited options, as recipients lack bank accounts, banks have few accessible branches for cash disbursement. With rise of branchless banking models, there were new technology based payment options, which were convenient, safe, affordable.

He said despite recent experiments under Benazir Income Support Program (BISP), Watan Card & World Food Program, there was room for further experimentation. Hence, broader and deeper alliances between government agencies and financial service providers would leverage existing banking and agent networks to engage in distribution of G2P payments. These steps will not only make G2P payments easier but also bring more people under ambit of financially served.

SBP Governor said eventual aim of G2P Payments challenge round was to leverage an enhanced payment mechanism and attract recipients of government payments into sphere of banking and financial services. He spoke of key benefits of automating G2P payments and said this will reduce time lag in delivery and monetary inefficiencies due to leakages, corruption in the system leading to substantial savings, greater government credibility and allow better targeting of subsidies while leveraging national infrastructure for identification, verification; enhance scope of financial inclusion for banks to build financial services on top of payments through basic store of value accounts.

Besides, e-payments also assist small businesses such as grocery stores and agents to create new opportunities in existing business infrastructures and enable small business owners to earn commission for providing an automated service point while additional service helps attract an increased number of customers. Outcomes will not just be direct but also indirect because of externalities, whose benefits would be difficult to quantify but should be around 1% of GDP.

He said SBP had been actively promoting branchless banking as way forward for financial access to low income markets. Two transformational branchless banking initiatives (Tameer EasyPaisa, UBL Omni) have been launched. These models were facilitating bill payment, domestic /home remittances, m-wallets accounts to the financially excluded segments. Combined retail network of two models is currently at 17,000 retail agents and exceeds branch network of banking system.

Kardar said Microfinance Credit Guarantee Facility under Financial Inclusion Program (FIP) had been successful linking wholesale (commercial banks) funding market with microfinance sector. The facility has mobilized Rs. 2.3 billion enabling additional 150,000 microfinance loans to new borrowers. Going forward, it is expected to raise additional funding of up to 3 billion.

He hoped conference would be instrumental in identifying opportunities, synergies, challenges in automating G2P payments. The participation from Consultative Group to Assist the Poor & Bankable Frontier Associates, Bank Oportuidades Columbia and DFID would bring in needed international expertise and best practices to the table.

Deadline to submit an Expression of Interest (EoI) to benefit from FICF is May 30, 2011. EOIs may be submitted electronically on or a hard copy can also be sent to Director Agriculture Credit & Microfinance Department, State Bank of Pakistan, Karachi.

G2P Conference, hosted by SBP in collaboration with UK Aid, World Bank arm, Consultative Group to Assist the Poor (CGAP), has drawn array of public, private sector speakers including international donors, government agencies, banks, telecoms, solution providers. It was addressed by Haroon Sharif of DFID, David Porteous, Director, Bankable Frontier Associates, Carlos Moya, Banca De Lass Oportuidades & Chris Bold of CGAP. Speech of Ms Farzana Raja, Chairperson BISP & MNA, who could not attend due to NA session, was read by Noor Rehman, Director, Payments, BISP.

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