The issue of the central bank’s independence and its possible impact has diverted the intentions of many people especially prime-time TV anchors and politicians. Another major development took shape last Friday: the State Bank of Pakistan (SBP) unveiled the Digital Bank Regulatory Framework draft. It lays out the regulations and procedures by which challenger banks will come into being and function.
We have seen many regulatory regimes introduced over the past few years, having a goal to promote digital financial services. First came the Payment Service Operator/Provider rules, which enabled routing, clearing, and processing of electronic transactions and included entities like 1LINK.
Then the Electronic Money Institutions (EMI) Regulations were brought in, eliminating fintech players’ dependence on banks for the distribution of e-money. However, their mandate was still limited and they had to turn to those financial institutions often for settlement. Currently, none of the entities with approval has commercially launched yet. With the latest policy draft, a proper full-stack digital bank capable of lending and investing is being envisioned.
In fact, the draft document lays out a plan for EMIs to transition to a digital bank and requires at least one year of delivering digital financial services. Other possible sponsors can be existing local or international development finance institutions (DFIs)/microfinance banks (MFBs) with their eligibility criteria specified.