Understanding the EMI Registration Process in Pakistan

Understanding the EMI Registration Process in Pakistan: Timelines, Capital Requirements, and Fees

The rise of digital payments has transformed financial services globally, and Pakistan is no exception. To facilitate innovative, low-cost, and user-friendly digital payment solutions, the State Bank of Pakistan (SBP) has established a regulatory framework for Electronic Money Institutions (EMIs). These non-banking entities are authorized to issue electronic money (e-money) instruments like mobile wallets, prepaid cards, and contactless payment devices. If you’re considering launching an EMI in Pakistan, understanding the registration process is crucial. This blog provides a comprehensive guide to the EMI registration process, including timelines, capital requirements, and associated fees, based on the SBP’s Regulations for Electronic Money Institutions (revised June 21, 2023).

What is an EMI?

An EMI is a non-banking entity licensed by the SBP to issue e-money, which is a monetary value stored electronically and accepted as a means of payment for goods, services, bill payments, and fund transfers. EMIs play a pivotal role in promoting cashless transactions, financial inclusion, and digital payments in Pakistan by offering services like mobile wallets and payment aggregation.

The EMI Registration Process: Step-by-Step

The SBP has outlined a structured, multi-stage process for obtaining an EMI license, ensuring that only financially sound and operationally ready entities enter the market. The process is divided into four stages: Initiation Phase, In-Principle Approval, Pilot Operations, and Commercial Operations. Below is a detailed breakdown of each step.

Step 1: Pre-Application Preparation (Initiation Phase – Optional)

  • Objective: Engage with SBP to discuss your business model and demonstrate readiness before filing a formal application.
  • Tasks:
  • Register your company with the Securities and Exchange Commission of Pakistan (SECP)as a public or private company with a head office in Pakistan.
  • Ensure financial resources, including a minimum initial capital of PKR 200 million.
  • Develop robust policies, procedures, IT systems, and controls to support EMI operations.
  • Prepare a business feasibility/planas per SBP’s format (Annexure G), covering strategic, operational, and financial projections.
    • Submission:
  • Contact SBP via email at psdpolicy@sbp.org.pkto initiate discussions.
  • Submit initial documents, including:
    • SECP Certificate of Incorporation, Memorandum of Association (MOA), and Articles of Association (AOA).
    • Business feasibility/plan.
    • Details of sponsor shareholders, Directors, and CEO (CVs, verified CNICs/passports, financial statements, or net worth certificates).
    • List of associated companies and subsidiaries.
  • Outcome: If successful, SBP issues a No Objection Certificate (NOC)valid for 60 days, allowing you to apply formally via the Regulatory Approval System (RAS).
  • Timeline: Varies based on preparation; typically 1–2 months for document compilation and discussions.

Step 2: Filing the Formal Application (In-Principle Approval)

  • Objective: Obtain SBP’s In-Principle Approval to prepare for pilot operations.
  • Submission:
  • File the application electronically through SBP’s RASor via surface mail (if RAS is unavailable) to:
    • The Director, Payment Systems Policy & Oversight Department, State Bank of Pakistan, 4th Floor, Main Building, I.I. Chundrigar Road, Karachi-74000.
  • Required documents (Annexure C):
    • Certified copies of SECP registration, MOA, and AOA.
    • Non-refundable application processing fee receipt of PKR 200,000(deposited at SBP BSC Karachi Office).
    • Detailed business feasibility/plan (Annexure G).
    • Trust agreementfor safeguarding customers’ funds, detailing:
  • Funds safeguarding arrangements.
  • Investment policy for trust account.
  • Terms, roles, responsibilities, reconciliation, and settlement procedures.
  • Signed by at least two signatories from the EMI and trust bank.
    • Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance mechanisms.
    • Agent and outsourcing arrangements (if applicable).
    • Fit and Proper Test (FPT)documents for sponsor shareholders, Directors, CEO, and Key Executives, including:
  • Annexure D, D-1, D-3, D-5 forms.
  • CVs, verified CNICs/passports, recent photos.
  • Income/wealth tax statements or net worth certificates (for individuals).
  • Audited financial statements or net worth confirmation (for legal entities).
    • List of associated companies, subsidiaries, and contact details.
  • Note: No changes in shareholding or ownership structure are allowed without SBP’s prior approval.
  • Timeline: SBP decides within 60 daysof receiving a complete application.
  • Outcome: If approved, you receive In-Principle Approvalwith conditions to fulfill before pilot operations. If rejected, you may reapply after one year.

Step 3: Preparing for Pilot Operations

  • Objective: Achieve operational readiness to conduct limited-scale live transactions.
  • Tasks:
  • Fulfill conditions in the In-Principle Approval, including:
    • Establishing IT systems, controls, and infrastructure.
    • Finalizing the trust agreement for safeguarding customers’ funds.
  • Meet capital and security deposit requirements(see below).
  • Submit an undertaking(Annexure H) committing to capital and security deposit compliance.
  • Open accounts with SBP BSC:
    • Email DAU@sbp.org.pkand mtb.ko@sbp.org.pk (copying psdpolicy@sbp.org.pk) to request current and Subsidiary General Ledger Account (SGLA) opening.
    • Submit account opening forms and documents (e.g., notarized CNIC of CEO, SECP certificates, In-Principle Approval copy) as per Annexure I.
  • Timeline: 2–4 months, depending on readiness and compliance.

Step 4: Pilot Operations

  • Objective: Test operations with limited-scale live transactions.
  • Requirements:
  • Maintain minimum capital and security deposit.
  • Conduct transactions within specified limits (e.g., PKR 50,000 monthly load limit with CNIC verification, PKR 200,000 with biometric verification).
  • Submit transaction and operational data to SBP as requested.
  • Refrain from investing 75% of the last three months’ daily average outstanding e-money balance in government securities.
    • SBP Oversight: Off-site evaluations or onsite inspections may occur.
    • Duration: Minimum 60 days, maximum 180 days.
    • Timeline: 2–6 months.

Step 5: Commercial Operations (Go Live)

  • Objective: Obtain a full license to operate commercially.
  • Submission:
  • Apply with documents (Annexure A), including:
    • Compliance status of pilot operations’ conditions.
    • External Auditor’s Report on pilot results, highlighting gaps and corrective measures.
    • Audited financial statement certifying initial capital.
    • Clearing and settlement arrangements.
  • Outcome: If approved, SBP grants a Commercial Operations license. SBP may designate the EMI as a designated payment systemunder the PS&EFT Act, 2007.
  • Timeline: Varies based on pilot performance and SBP review; typically 1–3 months post-pilot.

Capital Requirements

EMIs must maintain adequate capital to ensure financial stability. The requirements are:

  • Initial Capital: PKR 200 million, with at least 50% subscribed and paid up in cash.
  • Ongoing Capital: Based on Average Daily Outstanding E-Money Balance (OEB):
  • Up to PKR 4 billion: PKR 200 million.
  • PKR 4–10 billion: PKR 200 million + 5% of OEB above PKR 4 billion.
  • PKR 10–20 billion: PKR 500 million + 7.5% of OEB above PKR 10 billion.
  • Above PKR 20 billion: PKR 1.25 billion + 10% of OEB above PKR 20 billion.
    • Security Deposit: 10% of required capital(e.g., PKR 20 million for initial capital), split as:
  • 5%in a non-remunerative current account at SBP BSC.
  • 5%in Government securities under lien.
    • Compliance: EMIs must submit an undertaking (Annexure H) and reinvest maturing securities to maintain the security deposit.

Associated Fees

The direct costs associated with the EMI registration process include:

  • Application Processing Fee: PKR 200,000(non-refundable), payable at SBP BSC Karachi Office during In-Principle Approval application.
  • Capital Requirements:
  • Initial capital: PKR 200 million.
  • Security deposit: PKR 20 million(10% of initial capital).
    • Indirect Costs:
  • Legal and Compliance: Fees for SECP registration, document preparation, and legal consultations (variable, depending on firm).
  • Audit Fees: Costs for audited financial statements and External Auditor’s Report for pilot operations (variable).
  • IT and Infrastructure: Investment in systems, controls, and agent networks (varies by business scale).
  • Operational Costs: Staffing, marketing, and pilot operations expenses (variable).

Note: Indirect costs depend on your business model, scale, and third-party service providers. Consulting with legal and financial advisors can help estimate these expenses accurately.

Key Timelines Summary

  • Initiation Phase (Optional): 1–2 months for preparation and NOC (valid for 60 days).
  • In-Principle Approval: 60 days for SBP decision.
  • Pilot Operations Preparation: 2–4 months.
  • Pilot Operations: 60–180 days.
  • Commercial Operations: 1–3 months post-pilot, subject to SBP review.
  • Total Estimated Timeline: Approximately 6–12 months, depending on readiness and compliance.

Tips for a Successful Application

  1. Ensure Compliance: Adhere to AML/CFT, governance, and customer due diligence requirements to avoid delays or rejection.
  2. Prepare Thorough Documentation: Provide accurate, complete, and verified documents, especially for FPT and business plans.
  3. Engage Experts: Work with legal, financial, and technical consultants to streamline the process and meet SBP standards.
  4. Monitor Timelines: Plan for each stage to avoid exceeding the maximum pilot duration or missing submission deadlines.
  5. Safeguard Funds: Establish a robust trust agreement to protect customers’ funds, a critical SBP requirement.

Why Register as an EMI in Pakistan?

Registering as an EMI offers significant opportunities:

  • Market Potential: Tap into Pakistan’s growing digital payments market, driven by increasing smartphone penetration and financial inclusion initiatives.
  • Innovation: Offer innovative solutions like mobile wallets and contactless payments to meet consumer needs.
  • Regulatory Support: Benefit from SBP’s enabling framework, which encourages non-banking entities to drive digital transformation.

However, the process requires careful planning, substantial investment, and strict compliance. The SBP retains the authority to reject applications or revoke licenses for non-compliance, emphasizing the need for diligence.

Conclusion:

The EMI registration process in Pakistan is a structured pathway designed to ensure that only capable and compliant entities operate in the digital payments space. With a minimum capital requirement of PKR 200 million, a PKR 200,000 application fee, and a timeline of 6–12 months, aspiring EMIs must prepare thoroughly to meet SBP’s standards. By understanding the steps, timelines, and costs outlined above, you can navigate the process effectively and position your business for success in Pakistan’s dynamic fintech landscape.

Contact Baakza & Bansari today for assistance regarding EMI registration !