a lot of merit. there is a direct incentive to be more discerning in identifying risk differentials among a set of opportunities and going about managing these risks in a prudent manner. efficient utilization of capital is the prime goal of pillar i ( mcr ) of the accord. once the basel framework is in place, banks with superior risk management skills would be able to get a competitive advantage over their counterparts. recognizing this, pakistan ’ s roadmap for implementation of basel ii accord advocates that banks adopt the standardized approach from january 2008 – progress on this front varies from bank to banks. bank ’ s ability to move towards basel ii would require them to address a number of challenges. there is, among others, need for ; ( i ) collective action to encourage corporate sector to become credit rated ; as in absence of recognized credit rating of borrowers, banks would end up allocating more capital than warranted and this would render them uncompetitive, ( ii ) development of allied and support infrastructure that facilitates the process e. g. the internal control and it systems within the banks is absolutely imperative if the framework is to succeed, ( iii ) presently the basel ii framework requires banks to apply a capital charge of 15 % of average positive gross income of last three years for operational risk ( under bia ) there is a need to clearly distinguish between a strong versus weak operational risk environment, ( iv ) availability of historical data, for the purpose of carrying out quantitative analysis, and ( v ) intensive capacity building of industry and sbp. to discuss these and other challenges sbp has set up a working group to first assess the current state of preparedness of the industry on a standard and agreed template for basel ii compliance and identify joint collaborative action to facilitate smooth transition. developing rating industry and encouraging entry of raters which have been identified under basel accord - ii would be critical for an effective implementation of basel ii for pakistani banks. sbp would have to draw its own understanding and linkages with the raters to ensure it is applying standards for weighing risks effectively across industry. sbp is in the process of developing a “ banking supervision risk assessment model ” ( bsra ) which will help sbp to better quantify the credit and market risks of the individual banks in terms of “ value at risk ” and forecast banks ’ position under various stress scenarios on a quarterly basis. bsra model would use information from the data warehouse ( data received through reporting chart of accounts ( roca )

emmanuel tumusiime - mutebile : financial innovation and inclusion – challenges and implications for monetary policy and financial stability opening remarks by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the comesa ( common market for eastern and southern africa ) committee of central bank governors symposium on “ financial innovation and inclusion – challenges and implications for monetary policy and financial stability ”, kampala, 24 may 2013. * * * governors of comesa central banks secretary general of comesa resource persons senior central bank officials ladies and gentlemen, good morning everyone. i am delighted to welcome you to this comesa committee of central bank governors symposium on the theme, “ financial innovation and inclusion : challenges and implications for monetary policy and financial stability ”. during our 18th meeting held in kigali in december 2012, we recognised new challenges in the financial sector and decided to organise a symposium to share experiences and to explore ways of facilitating financial innovation and inclusion with due consideration of the page attendant effects on the efficacy of monetary policy and financial stability. today, we have a panel of experts who will enrich our understanding of the challenges posed by financial innovation and inclusion on monetary policy and financial stability. i am confident that the presentations and discussions during this symposium will fill any existing knowledge gaps on these issues. we will undoubtedly leave this forum with a strategic vision on the role that central banks should play in shepherding the development of financial innovation and inclusion. fellow governors, ladies and gentlemen, allow me to make a few remarks on this very important topic as a precursor. to date, our financial systems have experienced rapid financial innovation, driven mainly by advances in information and communication technology. both the banked and unbanked public can move money and effect payments much faster and with greater convenience. of all the innovations, mobile money growth has developed and proliferated across the region at such a remarkable pace that it should attract keener regulatory oversight. yet, regulation and supervision of innovations is often a double edged sword. on one hand, suboptimal regulation restrains the pace and extent of innovation. on the other hand, smart regulation provides a safe and secure environment. our discussions should shed light on the threshold beyond which the extent of new financial services makes them systemically important, and below which freedom unleashes creativity. moreover, because ict has delivered services to the unbanked who had no access to financial services before, it carries the hope of facilitating development. nonetheless, financial