The State Bank of Pakistan (SBP) has launched a Challenge Fund for SMEs (CFS) to support banks and financial technology providers (Fintechs) with a digital solution to develop new or amend existing financial products & services and delivery platforms that will enhance access to finance to SME sector.
Commercial banks will receive a grant from the banking regulator after submitting their proposal about products and services for promoting SMEs. The challenge fund is aimed to spur innovations for SME banking by leveraging the use of technology (including FinTech).
Digital SME banking includes a broad range of financial services accessed and delivered at affordable cost through digital channels. It can be helpful to provide affordable financing options to encourage entrepreneurship. It is estimated that the market potential of Digital Finance Services (DFS) in Pakistan will cross US$ 36 billion by 2025, providing a 7 percent boost to the GDP, creating 4 million new jobs, and resulting in US$263 billion in new deposits.
This potential can only be achieved through a robust and efficient DFS ecosystem. Currently, Pakistan possesses a nascent DFS ecosystem that needs to be nurtured at both government and industry levels. The CFS aims to support banks and financial technology providers (Fintechs) with a digital solution to develop new or amend existing financial products & services and delivery platforms that will enhance access to finance to SME sector.
The challenge fund is aimed to provide affordable financing options to encourage entrepreneurship. The scope of CFS will focus, but not be limited to the following areas:
- Loan Origination and Processing System for SMEs.
- Developing digital products (digital scorecards, digital supply chain products, digital onboarding of SMEs for account opening, etc.).
- Creation or enhancing digital platforms that offer financial education, helping customers make informed decisions about their banking and financial management.
- Upgradation or development of digital banking platforms, including mobile banking apps, online banking systems, and customer portals.
- Any other unique idea relating to technological innovations that address the issues faced by SMEs to avail financing.
The above-mentioned areas will focus on enhancing financing to the SME sector with more focus on marginalized segments such as startups, women-led SMEs, and underserved areas.
Commercial Banks (conventional & Islamic) and other SBP-regulated entities can apply for CFS. Banks can also apply in partnership with Fintechs/EMIs. However, lead responsibility will rest with the applicant bank Grant size will be determined according to the financing requirements of the proposal under consideration. However, each grantee will contribute 15 percent of the total cost.
Depending upon the quality and innovations of the proposal, the grant size can vary from project to project basis. However, one bank will get one grant only. The duration of the projects should ideally be not more than 8 months, according to SBP.
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