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Telecoms expanding the outreach of the financial sector

Published on 22nd Aug, Edition 34-35, 2016


Scope of alternative delivery channels expands with inclusion of 3G and 4G

State Bank of Pakistan (SBP) has revamped Branchless Banking Regulations to keep pace with the international branchless banking practices and to achieve the targets set out in National Financial Inclusion Strategy (NFIS) of Pakistan. This regulatory framework outlines the minimum requirements to be adopted by banks offering branchless banking in the market place.

According to revised Regulations, the Board of Directors of banks would be responsible to provide the strategic direction and maintain an oversight while senior management will institute necessary internal controls and ensure adherence to applicable laws and regulations.

Scope of alternate delivery channels and technologies has been expanded through revised Regulations to include 3G and 4G spectrum, POS terminals, Internet banking and ATM/debit cards etc. for providing branchless banking services.

The transaction limits for Level-0 and Level-1 branchless banking accounts have been increased to encourage opening of more branchless banking accounts for the objective of financial inclusion. Branchless banking Level-3 accounts have been merged with Level-2 accounts for facilitation and operational ease of customers and the banks.

Level-1 Accounts shall be opened either through traditional account opening process or through Biometric Verification System. Further, State Bank has also allowed opening of remote accounts for Level 0 customers to promote financial services among all segments of society

State Bank has also introduced Person to Inter Bank Funds Transfer (IBFT) service with and without biometric system. The limit for Person-to-Person (non account holders) transactions conducted through biometric verification system has also been increased.

State Bank of Pakistan has always promoted financial inclusion in the country by expanding outreach of banking services to all segments of the society. In this regard, SBP has launched NFIS in 2015 wherein a target of 50 percent growth in bank accounts by adult population by the year 2020 has been set out to enhance the outreach of basic financial services to unbanked/underserved population. Branchless banking is the main driver and most effective tool for achievement of targets set in NFIS.

Tax relief to boost Shariah compliant businesses

Two percent tax cut announced for all Shariah-compliant companies, effective from July 1, 2016 is bound to give a big boost to Islamic Finance and Islamic Banking Industry in Pakistan besides transforming the conventional businesses into Shariah-based companies.

Resultantly, the tax relief expected to have multi-dimensional effect on the economy as the number of Islamic companies sure to attract to shifting their financial matters from conventional to Islamic banks and Islamic modes of financing. As a result of the relief in taxation Islamic banking industry is expected to have a multiplier effects in size, volumes, spreads, profits and numbers.

It may be mentioned that with a view to incentivize listed manufacturing companies, the federal government has introduced a two percent rebate for Shariah-compliant companies through the Finance Act 2016. The Finance Act also covers the entire national budget for fiscal 2017 that includes the period from July 1 to June 30, 2017.

The tax rebate, decided upon on the suggestion of the Securities and Exchange Commission of Pakistan (SECP – the financial market regulator) — is part of the reforms being introduced for elimination of ‘Riba’ and for promotion and development of Islamic capital market,” the official announcement said. “In this connection, a new clause 18 (b) has been inserted in the Second Schedule Part-II of the Income Tax Ordinance, 2001 through the Finance Act 2016.

The latest decision to expand the program followed a report by the State Bank of Pakistan (SBP), which confirmed a continuing spread of the Islamic banking system in Pakistan. In a short span after its introduction, the Islamic banks by now have a 13 percent share of the conventional banking in the country. “The spread of the Islamic banks is steady and fast,” a senior conventional banker said.

According to informed sources the SBP, and the Federal Board of Revenue (FBR), which are preparing a list of the companies seeking to get the tax rebate after screening of their operations. The stock market-listed companies depriving their income from the manufacturing activities and having declared their taxable income for three consecutive years and which have had paid dividends for the past five consecutive years can qualify and apply for the tax rebate.


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