ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) Chairman Aamir Khan on Thursday said that the assets of the overall Non-Banking Finance Companies (NBFCs) sector grew by 79 percent during the past 10 years, which is comparable to the growth of the banking sector at the rate of 72 percent.

During the same period, the assets of members of Non-Banking Finance Industry (NBFI) and Modaraba Association have increased from Rs69 billion to Rs91 billion, reflecting a growth of 24 percent, he added.

Addressing the launch of Year Book of NBFI Modaraba Association of Pakistan, the SECP chairman stated that the financial markets, the world over are experiencing turbulent times. Although the conditions are equally challenging for NBFCs and Modarabas, the sector, given its unique position, has the potential to support the growth of the economy, by serving as a conduit between businesses and the capital markets.

Khan, who joined the event virtually from the federal capital, also shared that the association needs to do more with respect to spreading coverage of services, and target the underserved and unserved micro and small businesses that make up the backbone of Pakistan’s business landscape.

Simultaneously, the recent changes in financial services technology and supporting regulatory environment, has generated tremendous interest in this sector. In the past one year alone, the SECP has issued eight new licenses for the NBFCs engaged in digital lending. However, this overall upsurge in numbers is not reflected in the membership of the association, which has remained steady over the years.

As a regulator, the SECP is working towards two primary objectives.

First, fostering competition through introduction of new products and entrants in the market. In the past two years, the SECP has issued 62 new licenses, which include lending NBFCs, investment advisory, Housing Finance companies, REIT management companies, CRCs, and PE and VC firms.

Second, encouraging innovation and the use of technology: The regulatory sandbox program, introduced two years ago, is now into its third cohort. The sandbox has yielded a number of successful business models and fast-tracked the modernization of legislative framework, including enabling frameworks for P2P lending and real estate fractionalization, which are both in the final stages.

There is a need to promote a culture of innovation in the NBFI space, through a robust and ongoing exchange between the present and potential market participants, he said.

Through the regulatory sandbox program, the SECP has encouraged new creative solutions and products, while simultaneously being able to align our regulatory actions with ongoing developments. The association, perhaps can use the same philosophy for product diversification and developing niche specializations.

Third, focus on the use of technology cannot be overlooked; Lessons need to be learned from the recent growth spurts in the digital NBFC lending space, and introduction of digital distribution platform (EMLAAK).

Through provision of information and services to end-users quickly and efficiently, such products hold enormous potential in our local market.

There is a case for learning from an NBFC that is being setup to eventually provide pre and post-harvest agri-financing, leasing of agri-equipment, crop insurance, pre-harvest information, such as crop suitability, soil condition, weather patterns, etc.

The agriculture and livestock value chains face significant challenges, and consequently, present abundant opportunities for the NBFC sector.

The SECP would strongly encourage the NBFIs and Modarabas to explore these areas, as the future of financial services is digital, and those that do not adapt, would definitely be at a competitive disadvantage.

There is a need to spread the outreach to new and under-and-unserved areas and segments. To be successful, such ventures will require methodical research with a customer-centric mindset, willingness to collaborate, ability to leverage technology and use of digital mediums for spreading education and creating awareness, Khan added.

Copyright Business Recorder, 2022