State Bank of Pakistan is a premium public sector/regulatory institution that over the last 30 years has taken progressive actions in taking responsible fiscal and monetary measures to develop financial market, create financial efficiency, organize the economy (in partnership with Ministry of Finance) and protect the consumer from financial frauds and risks. SBP has also taken progressive measures to enable the growth of Digital Financial Services to reduce financial services cost, wider financial inclusion, financial efficiency and integrating financial value chains into the formal sector. Development agencies, Public Sector Social Benefits Institutions and large Financial and Telco institutions have been pushing financial inclusion with the help of SBP that has seen a decent growth in the development of digital payment infrastructure and market driven outreach, however, the financial inclusion in informal value chains remained disenfranchised from the digital financial sector. This is primarily due to several reasons as listed below;
- Individual/Consumer centric market approach by Financial Institutions and Development agencies
- Bank led approach towards financial inclusion
- Business models and uneven/ineffective tax policy that allow informal value to chains to continue working in opaqueness
- Use cases that ignore tradition, cultural context and institutional railroads already embedded in community/business value chains
The pervasiveness of consumer goods retail/distribution, agro distribution, construction sector and religious networks in the entire country as opposed to Government agencies and Financial/Telco institution is incomparable. The institutional structure (formal/informal) that enables the consumer good retail operations, agro distribution, construction and religious network has remained largely disenfranchised from the digital financial landscape. Financial institutions target their infrastructure, marketing and commercial proposition for consumers/individual while ignoring the unique needs of the value chains of the most pervasive segments of the business and society. Without being embedded into the value chains of agro, retail and construction value chains it would not be possible for financial inclusion to scale in an asymmetric, diverse and low literacy/per capita income country.
Haball as Pakistan’s first B2B Fintech and Corporate aggregator approached the SBP Innovation Challenge Facility under National Financial Inclusion Strategy Directorate to present an institutional/corporate top-down approach towards financial inclusion that required the digitization of supply chain for payments and financing. The core assumption was that the pervasive ability of corporate supply chains to reach out to markets for selling goods need to be used as platforms for digital financial inclusion. Irrespective of level of formality each sector has, payments and financing were a universal requirement. A platform that can connect the stakeholders in each value chain for payments and financing would impose on its beneficiaries the need to be included financially by digital means along with exposing themselves in terms of tax transparency.
The NFIS SBP team operates under the SBP Micro Finance and Agri Credit Department that has deeper insights on the problems of specific value chains and guided Haball in the ideation and implementation of a platform that is inclusive and agnostic and seeks to digitize entire supply chains for all the corporate and financial institutions. Furthermore, the SBP-NFIS team stressed on the need for financing and agnostic retail enablement as the key infrastructural measure that allows financial institutions to access Retail segment for financing and servicing their payment needs.
The grant funded by UK-DFID envisioned setting up a digital supply chain payments and financing platform for Manufacturers, Distributors, Retailers, Micro-finance Wallet providers, PSO/PSP, Banks, Islamic funds and Takaful providers.
Upon kick off the project saw enthusiastic participation from two of the largest consumer good corporations in Pakistan. Whereas, Meezan Bank acted as a payments and financing provider. As the pilot platform was socialized amongst other stakeholders it saw the participation of 1link, NIFT, Easypaisa, Jazzcash. The pilot program saw several bi-lateral arrangements being contracted between Haball and FI/MFI and Corporations. Non program related agreements also came into effect by virtue of the platform’s availability. The biggest success that was an unintended outcome of the program was a Global Bank signing Haball as a Digital Supply Chain payments partner.
Corporations saw the platform as disintermediation intervention to reduce dependency on the channels of a single bank, reduce financial costs of collections and get retailer transactional visibility whereas the Distributor saw this as a means of convenient/cheap payments to Manufacturers, reduction in Retail field operations team and reduction in the cost of collection. The retailer saw this as convenience as retailers are usually sole proprietorship run by the owner or his family member and needs to clear cash before closing shop. Manufacturing corporations also saw that Islamic finance has greater acceptability and that it fuels up the supply chain liquidity to buy more of their product especially during promotions/peak seasons. Banks and Wallet providers see Haball as a neutral-agnostic platform for increasing deposit share and supply chain entrenchment. PSO-PSP (licensed under SBP) saw the digital supply chain platform as an aggregator of B2B/C2B transactions. Islamic Banks/Funds saw it as a vehicle to reduce the operational cost of financing and getting data assurance as invoice data backed by the reliability of an actual digital payments.
Project faced substantial delays due to corporate participation and delayed bank responses on integration/enablement. Financial Literacy program faced on the ground delay due to COVID-19 outbreak safety precautions. However, through critical support from SBP NFIS team the project deliverables and additional scope to make the pilot successful. COVID-19 outbreak created severe operational challenges as Haball’s office and program participant offices were shutdown and work team moved to “work from home”. While COVID-19 outbreak created operational challenges and delays, it proved as a catalyst for financial institutions and corporations to adopt digitization of supply chain payments to avoid future disruptions in supply chain.
As the CEO and Founder of Haball and on behalf of Haball’s shareholders, employees and partners, I am extremely confident that with the help of SBP and the financial industry this intervention will result in the achievement of key economic objectives; financial efficiency, inclusion and transparency. Our periodic and collaborative approach from ideation to implementation with SBP ICF team was the key success factor in driving the project to completion. The pilot implementation was a means to understand the dynamics of supply chain payments and financing and what approach would help in digitizing this sector. Candid feedback and reporting of project activities led to developing joint approach in design and implementation. Payments Systems Department- SBP timely intervention on the outbreak of COVID-19 Created an enabling environment by means of resolving settlement lead times, micro finance agent/wallet participation and provisioning Islamic supply chain financing.
Going forward, it would benefit the nascent digital financial services industry in growing with the help of a progressive and nurturing regulator by means of such incubation/acceleration provided to solve the problem of financial efficiency and economic transparency.