The Pakistani Islamic fintech sector is expected to get a boost as the Securities and Exchange Commission of Pakistan (SECP) will be accepting applications for testing in the fourth cohort of the regulatory sandbox from the 2nd May 2023 and will remain open for application submission until the 31st May 2023, as the regulator looks to continue promoting innovation in the Islamic fintech sector and encouraging start-ups.
The upcoming fourth cohort is divided into two segments: Islamic finance and conventional finance. In the Islamic finance segment, ideas related to Shariah compliant digital finance (eg crowdsourced finance, liquidity management solutions, micro and nano finance), Shariah compliant products (eg small-ticket savings and Sukuk fractionalization), new Takaful models and digital intermediation in regulated Islamic financial services will be preferred.
In the conventional finance segment, the SECP will give preference to ideas related to robo-advisory, artificial intelligence-based automated fund management, asset fractionalization and single-window lending platforms.
Furthermore, the SECP noted that female entrepreneurs and teams with leading female participants are highly encouraged to apply.
Approved applicants, after evaluation, will be allowed to test and experiment with their innovative ideas and solutions generally for a period of six months.
Upon completion of the experimentation period, the entities testing in the sandbox will submit a detailed completion report. The SECP shall determine the future course of action with regards to the tested solutions based on the test results.
According to the SECP, its regulatory sandbox is a tailored regulatory environment for conducting limited scale, live tests of innovative products, services, processes and/or business models in a controlled environment for a limited period of time to assess their viability to be launched on full-scale and to determine the compatible and enabling regulatory environment that will be conducive for the innovative solutions.
The regulatory sandbox is primarily applicable for new products, services or business models which have not been addressed under existing laws and regulations, or these new ideas bring an innovative approach to the market and there exists considerable uncertainty in terms of unexpected adverse outcomes or that the existing regulatory framework does not fully address the solutions proposed to be experimented through the regulatory sandbox.
The SECP, to promote innovation in the financial sector and to encourage start-ups, issued the Regulatory Sandbox Guidelines in 2019. The IFN Fintech Landscape lists 11 Islamic fintech companies operating in Pakistan.
According to the World Bank, regulators globally have embraced the regulatory sandbox as a means of providing a dynamic, evidence-based regulatory environment to test emerging technologies. As of November 2020, the World Bank reported that there are a total of 73 regulatory sandboxes in 57 jurisdictions around the world.