The Securities and Exchange Commission of Pakistan (SECP) has granted approval for the launch of a peer-to-peer lending platform under the first cohort of its technology-driven initiative ‘Regulatory Sandbox’.

The move is aimed at supporting and encouraging a financial technology revolution in the country, a press release said on Wednesday.

"Peer-to-peer lending is an innovative, alternative digital platform that connects borrowers with individual lenders, who come together to meet the former's loan requirements.

"Peer-to-peer lending helps borrowers give out short-terms loans that enable small and medium enterprises (SMEs) to scale up their businesses, eventually allowing them to qualify for bigger bank loans," the statement said.

The current approval for testing and experimenting with such a platform by the SECP is also attributed towards the development of an ecosystem for SME financing to achieve higher growth prospects and to create new employment and business opportunities, it said.

"During the testing phase, the platform shall operate within pre-defined parameters and is subject to certain terms and conditions. Further, specific eligibility criteria shall also apply on the selection of each lender/borrower.

"These terms and conditions have been imposed to address the inherent risks involved in operating such platforms in the absence of a regulatory framework. However, these terms and conditions shall be reconsidered parallel to the results of the experimentation stage," the press release said.

This will help the SECP devise a much-needed enabling regulatory framework, the statement added.

The SECP ‘Regulatory Sandbox’ is a framework for accommodating the provision of financial services that leverage new technologies. It allows FinTech firms to test their services and facilitate adoption of new technology in a live environment within the limited, well-defined scope.