In a bid to boost retail participation in the capital market, the Securities and Exchange Commission of Pakistan (SECP) is banking on digital asset management companies (AMCs) to bridge the chasm. To this end, the regulator has released a concept note outlining the role of digital AMCs.
Defining digital AMC as a licensed non-banking finance company (NBFC) offering asset management services digitally, the SECP would allow existing AMCs to convert themselves completely into a digital AMC in addition to welcoming new NBFCs.
To grow this space, the regulator has lowered the barrier to entry, proposing a minimum equity requirement of PKR50 million (US$219,198) instead of PKR200 million (US$876,790) as required of conventional AMCs. Digital AMCs will be allowed to provide all conventional services including launching collective investment schemes, online account opening as well as redemption of units and inter CIS conversions through digital means, removing physical interaction altogether.
This concept note is the SECP’s latest effort in a string of measures to promote digital asset management services as it sees technology-enabled avenues as key to financial inclusion.
It already issued guidelines for mutual fund digital distribution platforms and welcomed four of such platforms. The SECP also outlined specifications pertaining to digital account opening by AMCs and digital distribution platforms to promote digital onboarding of mutual fund investors. Since then, AMCs have attracted some PKR325 million (US$1.42 million) in investment through digital onboarding.
Pakistan’s mutual fund investor base is described by the SECP as “under-penetrated”. There are approximately 320,000 investors in mutual funds, or a mere 0.14% of its population, served by the 21 AMCs in the country which collectively manages some PKR1.2 trillion in assets. The number is dismal compared with neighboring India which has over 18.5 million mutual fund investors, or about 1.33% of its total population.
“In order to encourage growth, competition and innovation in the sector, there is a strong case for leveraging technology in an effort to expand financial access to grassroot level,” noted the SECP. The regulator is pursuing a “completely digital asset management ecosystem” comprising mutual fund distribution platforms, digital investment advisors and digital asset management companies.
“The development of a complete digital ecosystem will cater to the needs and expectations of the younger generation who are more tech-savvy and prefer digital investment platforms,” the SECP believes. “With continuous facilitation and engagement, this evolution will encourage prospective investors to enter a space with a promising future and should also promote healthy competition among asset management service providers leading to improved customer service, product offerings and return on investment.
Pakistan has a thriving Islamic asset management sector. As at the end of June 2022, Shariah compliant assets account for 28.9% of total industry assets which stood at PKR2.17 trillion (US$9.51 billion).