Are banks allergic to innovation?

Take the following quote: "We believe that expanding our reach into the countrys rural areas and into the small and medium enterprises is the way forward for our bank". Add to it the name of the head of your favourite bank, and you will have the response most quoted when banks operating in Pakistan are questioned about their future growth plans.
When it comes to alking the talk; most bank presidents can put politicians to shame. However, walking the walk appears to be too much to ask of the same verbose venerables. Too harsh an assessment? Consider the following:
As part of its on-going Financial Inclusion Programme, the UK-based Department for International Development (DFID) has proposed a financial innovation and challenge fund that would provide £10 million in funding to any innovative programme or scheme that can help bring more Pakistanis into the fold of the formal financial sector.
The money will be split between three projects deemed most innovative and potentially beneficial by a panel of judges. The donors will not only share the risk on the chosen projects, but may also provide additional funding if deemed viable.
The proposition has attracted insurance and leasing companies, MFIs, MFBs and even telcos and Pakistan Post. Eager to gain valuable insights to the unbanked populace with donors footing the bill, these aspirants have flooded DFID with wide-ranging and novel proposals.
One would assume that the lure of funding along with support from the State Bank of Pakistan would entice the biggest players in the financial sector to hoist their sails and eagerly embark on voyages of discovery through the 85 percent of the population that remains unbanked to-date.
However, the commercial banks that constitute over 95 percent of the total financial sector appear unmoved by the offer. Consultations between banks and other stakeholders yielded little besides a long list of hurdles, keeping the financial giants at bay.
Banks fear of drowning funds in unbanked, rural segments has only been compounded by losses suffered during the recent flood. Commercial and Islamic banks also highlighted the lack of legal cover for non-securitised lending.
"A number of banks cited onerous reporting requirements as a disincentive to participate in donor-driven initiatives channelling small amounts of funding," added a report issued by DFID.
Representatives of various commercial and Islamic banks also alluded that the £10 million-giveaway is not lucrative enough to warrant serious consideration.
The concerns raised by banks in this regard are valid. However it is equally true that the same institutions have done precious little to address these hurdles, despite the accommodating stance of the central bank. Nor have banks pushed the agenda, asking the government to remove the hurdles on war footing.
Perhaps, they think that a few random press releases and sombre speeches are enough advocacy on their part while they
e busy lending their funds only to big ticket corporates or to the government.
Late last year, the central bank chief Shahid Kardar lamented that the countrys bankers are engaged in "lazy banking". The DFID report echoes similar sentiments, highlighting that commercial banks appear comfortable with parking their investments in risk-free options such as treasury bills.
The quick ascent of branchless banking has already dispelled any notion that any financial innovation that helps reach out to traditionally unbanked segments is necessarily bound to fail. Whether commercial banks will follow the me-too approach in branchless banking, or come up with newer ways of financial inclusion, or both, is up to their ingenuity and of course their guts.