ISLAMABAD, July 11: A 20-year “Special Fund” is being established at the State Bank of Pakistan (SBP) to provide a long-term source of funds for capacity building initiatives of various stakeholders, including government organisations, regulatory authorities, retailers and potential clients.

Official sources told Dawn on Wednesday that the SBP would have the possession, management and control of the fund, its undertakings, properties and assets.

The Asian Development Bank (ADB) has agreed to initially extend $20 million for the fund but an equal amount in local currency will also be made available by the federal government as part of the counterpart funding.

The fund will be established as an endowment fund, whereby the income generated from it will be used for supporting the activities on a grant basis, and the initial $20 million equivalent capital contribution will remain in place for the life of the fund.

The fund will establish its own rules, subject to the ADB concurrence, specifying among other things, the selection criteria for the capacity building initiatives and literacy programmes it will support, including general percentage allocations to be applied among the different categories of activities; the investment strategy for the fund; and accounting and auditing procedures.

It is expected that the initial capital of the fund and the unutilised income generated from the fund would be invested by SBP in approved government securities.

The Fund will be administered and managed by a governing body consisting of five voting members and one observer. The governing body will comprise of an SBP nominee, CEO of Pakistan Poverty Alleviation Fund (PPAF), CEO of the Pakistan Micro-finance Network, Pakistan Banking Association (PBA) nominee, a representative from the education sector to be nominated by the other four voting members and an ADB observer with non-voting status.

The governing body's responsibilities shall include selection of the capacity building initiatives and literacy programmes to be financed by the fund.

The central bank will prepare the fund rules, including provisions on fund management, accounting and auditing procedures, investment policy, grant selection criteria and a minimum percentage of funds available for literacy.

The secretariat of the fund will be located at SBP headquarters. In order to promote transparency and greater accountability, the fund will have a dedicated public website, hosted by SBP, which will list application criteria for accessing grants from the fund for literacy and capacity building programmes and provide the necessary forms and instructions for application and the contact information for queries and the submission of applications. The governing body will be responsible for publishing on a quarterly basis on the SBP public website the listing of recipients of funds and detailed information on the capacity building and training activities that are financed by the fund. The fund's annual work plan will also be published by the committee on the website and updated quarterly for any changes.

The fund account will be audited annually in accordance with internationally acceptable accounting norms and practices.

The objective is to also support national, provincial, and district level micro-finance banks (MFBs) in rural and remote areas to support development of product and service innovation, including savings, remittances and Islamic financial services.

Financial service providers adopting and integrating new technologies and applications, including mobile money transfer and VSAT technologies, for improving access to financial services will be assisted.

Financial service providers are defined as entities providing financial services to MFBs, non-government organisations (NGOs), rural support programmes (RSPs), Islamic banks, leasing companies, and commercial banks.

The government and regulatory authorities will be supported to develop an inclusive financial sector and implementation of measures under the improving Access to Financial Services Programme (IAFSP) of the ADB.

Literacy programmes are expected to improve access to financial services by the poor and will be conducted for clients and potential clients of financial services providers.

These service providers will directly conduct literacy programmes, or could sub-contract provision of the required services to undertake literacy programmes. This support will enable financial institutions to concentrate on the core business of financial services, while at the same time providing key support for literacy, which enables clients and potential clients to better access finance and utilise the finance effectively.