Jameel Ahmad: Keynote address - inauguration of Institute of
Business Administration's Finance Lab
Keynote address by Mr Jameel Ahmad, Governor of the State Bank of Pakistan, at the
inauguration of Institute of Business Administration's Finance Lab, Karachi, 14
November 2022.
* * *
As prepared to deliver in the event
Dr. Akbar Zaidi, Executive Director, IBA Karachi; Dr. Abdullah Zafar Sheikh, Dean,
School of Business Studies; Dr. Asad Ilyas, Registrar IBA; Dr. Sana Tauseef,
Chairperson, Department of Finance; Dr. Mohsin Sadaqat, Assistant Professor and
Head of Finance Lab; Mr. Azfer Naseem, CEO, Alpha Capital, IBA's faculty and
Students; and Ladies and Gentlemen. Assalam O Alaikum and Good Afternoon!
It is my pleasure to be here amongst all of you at the inauguration of this Finance Lab
and sharing my thoughts with the distinguished audience. Let me begin by
congratulating the Institute of Business Administration, Karachi and the Alpha Capital
on taking this innovative initiative of establishing this Finance Lab.
I hope this Lab will bridge the gap between industry and academia, and between theory
and practice in the area of finance by providing students an opportunity to immerse
themselves into real-world problems faced by individual corporations and the country's
financial system at large.
There are several key challenges to industry-academia collaboration and concerted
efforts are required to overcome them. Some of the key challenges faced in this regard
are that: (1) universities tend to contribute to theory or empirical research with aims to
get published in academic journals, while businesses are constrained by their mandate
of profitability; (2) businesses typically work on much shorter deadlines and aim for
speedy results, whereas research work is inherently time intensive; (3) not all
corporations have sufficient funds to invest in research on product or process
innovation, market development, and market intelligence.
There is, therefore, a pressing need to establish and strengthen a formal collaboration
mechanism between academia and industry for designing courses and setting research
agenda that serves the objectives of both businesses and academia. In this regard,
Trade Organizations can play an instrumental role in providing a consultative platform
as well as arranging funds to finance academic research, given their ability to identify
key areas of research and pool in required resources.
Ladies & Gentleman, I would like to briefly highlight the status and recent trends in
financial system landscape, wherein this Lab will be operating.
In Pakistan, the state of financial system is marked by low deposit to GDP ratio,
account ownership, and bank assets. The credit to private sector in the country is also
low compared to peer economies, as is the coverage of credit bureaus' optimal use,
which can potentially transform the country's financial system landscape. Similarly, the
country's debt and equity markets are also not deep and diversified. All these aspects
of our financial system may come to define the scope of the Finance Lab, and
challenges it may attempt to address.
Globally, in the recent years, financial system has evolved at a brisk pace with the
increased use of technology and digital transformation of processes and payment
methods. Today, funds can be transferred in just few clicks within and across the
borders, accounts can be opened sitting at home and payment for services can be
made 24/7 without going anywhere. The world is keeping its pace and advancing
toward central bank digital currencies, internationally integrated faster payment
channels, growing fintechs, open banking, and cloud technology. These trends are
radically reshaping every sector of the economy and have also become important
drivers of growth in many countries.
Among these trends, financial institutions are now also exploring Artificial Intelligence
and Data Analytics, which includes machine learning enabled credit scoring models and
credit decisions; artificial intelligence enabled solutions to anti money laundering and
know your customers; and technology usage to analyze and get insights from piles of
available data and take more informed decisions. Developments in big data analytics is
helping financial institutions to dig deeper and get insights about customers' behavior,
needs and wants. Similarly, artificial intelligence is facilitating quick decision-making
using computer algorithms and big data in ways that were unimaginable a few years
ago.
Investing in technology offer immense potential. I am pleased to inform that the SBP
has taken a number of steps to embrace technological innovation. In the interest of
time, I will briefly highlight three such initiatives.
First, SBP has developed a licensing and regulatory framework for setting up digital
banks in Pakistan. A digital bank is defined as a completely digital entity that will
provide all types of banking services and operations, from accounts opening to taking
deposits and lending funds, through digital means without the need for customers to
physically visit any bank branch. The framework mainly aims to enhance financial
inclusion through efficient and cost-effective digital financial services.
Second, SBP is working towards Open Banking regime to facilitate the implementation
of its agenda on financial inclusion and digitization. SBP is exploring areas such as
open Application Programming Interfaces (APIs), and security and data privacy to foster
innovation and financial inclusion. For this, SBP has already developed a technical
sandbox where banks and fintechs will partner on shared data on developing use cases
for financial wellbeing of customers. After this pilot, SBP will be issuing guidelines and
framework on Open Banking.
Third, the SBP has successfully deployed Pakistan's Instant Payment System, called
Raast. This state-of-the-art payment system promises to be simple, free, fast,
interoperable, and secure payment option for customers. The SBP launched Raast in
2021 with bulk payments facility that enables processing Bulk disbursements such as
dividend disbursements, Government to Person payments, mutual funds payments,
Business to Business batch payments, pay-roll payments by corporates etc.
The second use-case of RAAST that is Person to Person payments was launched early
this year in February 2022. This has allowed individuals to transfer payments to other
individuals, family members, and friends across the country. The SBP is now working
on the third use case of Raast, which is Person to Merchant payments. This will enable
individuals to make electronic payments to merchants through alternate channels for
instance, QR codes and Request to Pay, which is a mechanism whereby payee can
initiate request for payment to the payer.
Ladies and gentlemen, academia can play a very important role in the development of
financial markets. In this regard, I would like to highlight few areas for possible
interventions of the academia:
First, SBP and the government's initiative to improve financial inclusion is challenged by
low financial literacy among masses. To improve financial literacy, academia has a
significant role to play in not just educating students but also to wider sections of society
through innovative means. This is an area where the regulators and academia can also
potentially partner and bridge this gap by working towards a common goal of inclusive
growth.
Second, some businesses, such as micro and small and medium enterprises, have
limited awareness about different financing options and do not have the expertise to
present their project proposals and borrowing requirements to banks.
Third, from the perspective of promoting growth and innovation in value chain financing,
academia can play an important role in enhancing their understanding of financial
matters. The Finance Lab may consider collaborating with related disciplines to conduct
studies on business processes, market sizing and value chain assessments of various
products from upstream to downstream and across the thread of bazaars and logistic
chain.
Fourth, in order to encourage lending based on reputational collateral, the Lab may also
encourage collaboration with credit bureaus to test and to create credit scoring models,
especially those based on alternate data or otherwise aimed at the segment of
individuals and businesses that have no collateral and little or no credit history.
Lastly, perhaps the most important consideration for the Finance Lab is how to
encourage savings in the country, where particular emphasis may include increasing
the awareness of individual savers across the country to understand the risks and
returns associated with different avenues, and increasing retail investments in
government debt papers and corporate bonds.
Let me conclude by reiterating my best wishes for the Lab. I hope IBA's Finance Lab
will facilitate financial institutions in Pakistan to rethink and reinvent business models
and provide strong product offerings by embracing technology and adopting customer
centric approach. I hope that the lab would facilitate great collaboration between the
industry and academia to solve topical and long-unsolved problems, and allow students
to expand their horizon beyond the classroom.
Thank you for your attention!