Pakistan's Banking and Insurance Sector

Pakistan's financial system has been ranked 34 out of 52 countries in the World Economic Forum's first Financial Development Report, which was released in Pakistan through the Competitiveness Support Fund (CSF) in December, 2008.

A financial system is a structure that channels funds from savers/investors to those who require funds for building infrastructure, starting and running businesses, building or improving houses, consumer financing of big-ticket items like automobiles, etc. Financial systems are crucial for the allocation of resources in a modern economy. Currently, Pakistanis save about 15% of the GDP to provide a pool for domestic investments from private savings, which amount to nearly $ 25 billion a year. In addition, Pakistani expatriates remit nearly $ 8 billion a year that flow into Pakistan's economy through the banking sector.

The WEF report is a comprehensive analysis of financial systems and capital markets in 52 countries that explores key drivers of financial system development and economic growth in developing and developed countries and serves as a tool by which countries can benchmark themselves and establish priorities for financial system improvement.

Arthur Bayhan, Chief Executive of the Competitiveness Support, told the media: "I am very happy to see that financial system in Pakistan is well reformed and competitive vis-à-vis Asia and Europe. Pakistan is ranked ahead of the Russian Federation (35), Indonesia (38), Turkey (39), Poland (41), Brazil (40), Philippines (48) and Kazakhstan (45)."

The United States narrowly edged the United Kingdom to take the top position in the Financial Development Index. The United Kingdom was second while China ranked 24 and India 31.

The Financial Development Index is based on three main pillars - Factors, Policies and Institutions, Financial Intermediation and Capital Availability and Access. These are further divided into sub - pillars.

Under Factors, Policies and Institutions pillar, Pakistan ranks 49th in institutional environment, 50th in business environment and 37th in Financial Stability. In the Financial Intermediation Pillar Pakistan ranks 25th in banks, 42nd in non banks and 17th in Financial Markets. Under Capital Availability and Access, Pakistan ranks 33rd.

Indicators showed that in business environment Pakistan had development advantage in Cost to Export, ranking 6th, Cost of closing business 5th.

In Financial Stability Change in Real Effective Exchange rate ranked 20th, External debt to GDP 10th, Frequency of banking crises 1st, stability index 15th.

In corporate governance Pakistan ranked at the very top in shareholder rights index, 14th in strength of investor protection.

In the Non banks pillar, Pakistan ranked 9th in the Real growth of direct insurance premiums. In equity market movement Pakistan ranked at the top again in equity market turnover.

Importance of Financial Services Sector:

Banks are often described as a nation's economic engine, in part because they provide financial intermediation functions between savers/investors who are looking for safety and growth and consumers/businesses who are looking for access to credit and capital.Banks also play a major role as instruments of the government's monetary policy aimed at regulating interest rates and money supply in the economy. The current economic crisis in the United States and Europe, marked by the ongoing weakness of major banks and the resulting credit and capital crunch, underlines the critical importance of the banking sector in national and global economies. Recognizing the crucial importance of the financial sector in global economic recovery, the Obama administration is allocating the bulk of the stimulus money to restore the health of major U.S. banks.

Banking in Pakistan:

In Pakistan, the total banking sector serves around 6 million borrowers and 25 million depositors, implying a penetration rate of 3.6 percent and 15 percent respectively. In terms of access to microfinance, which means the availability of small loans, micro deposits and micro-insurance services to low income households, the current penetration rate is only 10 percent. In other words, 85 percent of Pakistan's population does not have access to any regulated financial services institutions at all, which inherently creates an uneven and an inequitable economic world, where the majority of people are financially marginalized. This situation drives the poor to rely on informal sources of funding like the unscrupulous moneylender, where the calculus of the relationship works to the detriment of the borrower. Well regulated banking and microfinance sectors are, therefore, absolutely necessary to give hope to the poor in breaking the vicious cycle of dependence and poverty.

Between 2002 and 2007, Pakistan's accelerated economic growth was underpinned by a strong banking sector. Classified as Pakistan’s and region’s best performing sector, the banking industry’s assets rose to over $60 billion, its profitability remains high, non-performing loans (NPLs) are low, credit is fairly diversified and bank-wide system risks are well-contained. Almost 81% of banking assets are in private hands. Likewise, the present foreign stake comes to 47% of total paid-up capital of all the financial institutions regulated by Pakistan's central bank, the State Bank of Pakistan.

In 2008, Pakistan's Muslim Commercial Bank (MCB) was ranked by Asia Money as the most profitable bank in Asia with 32.5% return on equity (ROE). Other Pakistani banks ranked in the top 10 included Allied Bank ranked fourth with 29% ROE and United Bank ranked 6th with 24.8% ROE.

Pakistan's foreign reserves hit a record high of $16.5 billion in October 2007 but fell to $6.6 billion in November, largely because of a soaring import bill. As the commodity prices rose and inflation in Pakistan reached near 25%, the State Bank of Pakistan was forced to raise its discount rates to as high as 15%. However, there has been a dramatic decline in the cost of imports such as oil during the last few months, spelling relief for Pakistan and other non-OPEC developing nations. The price of oil has dropped to about a quarter of what it was last summer.

Pakistan signed a $7.6 billion loan agreement with the International Monetary Fund in November to stave off a balance of payments crisis. It received its first tranche of $3.1 billion that month. In its first assessment since November, IMF has expressed satisfaction with Pakistan's progress. “Initial developments under the program have been positive,” IMF spokesman David Hawley told a regular news briefing, according to Pakistan's Dawn newspaper. “The foreign exchange rate has appreciated somewhat and preliminary information suggests that end-December targets for net international reserves and net domestic assets at the State Bank of Pakistan were met,” he added.

Pakistan's economy deteriorated sharply over the course of 2008, as inflation surged, and the current account deficits jumped on the back of rising oil and food prices, according to a World Bank report.

The report titled ‘Global Economic Prospects 2009’ says political turmoil and ongoing security concerns have also taken a toll on Pakistan’s economy, while the global financial crisis added substantial downward pressures on its financial markets. Pakistan and the International Monetary Fund agreed to lower the target for the gross domestic growth this fiscal year to 2.5 per cent from 3.5 per cent but many analysts said even achieving this target would be very ambitious.

The general deterioration in regional trade balances has been offset by large remittance inflows, which represent a sizable, and generally increasing share of GDP: during 2007, 14 per cent in Nepal, 8 per cent in Bangladesh and Sri Lanka, 4 per cent in Pakistan, and 3 per cent in India.

Given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis are expected to be temporary. A relatively rapid rebound is expected in 2010, with a projected revival of GDP growth to 7.2 per cent.

During 2001-2007, former Prime Minister Shaukat Aziz, a banker by training and extensive experience in New York, understood the role of banking, finance, investment and consumer credit in economic growth of a nation. He focused on building strong banking, investment and finance sectors in Pakistan to underpin its economy. He strengthened capital availability, an essential and increasingly important economic input, in addition to labor and land improvements. With higher education budget up 15-fold and overall education spending up 36% in two years, he focused on education to improve the availability of skilled labor to fill new jobs. He pushed land development and public and private construction spending to improve infrastructure and facilities to attract greater business investment and create jobs. Mr. Aziz was largely successful in his efforts.

In general, there are primarily two types of banks in Pakistan: Commercial Banks and Investment Banks. Both types of banks provide financial services essential for Pakistan's economy to function and grow.

Commercial Banks:

Commercial Banks are privately-owned institutions that, generally, accept deposits and make loans. Deposits are money people entrust to an institution with the understanding that they can get it back at any time or at an agreed-upon future date. A loan is money let out to a borrower to be generally paid back with interest. This action of taking deposits and making loans is called financial intermediation. A bank's business, however, does not end there.

Most people and businesses pay their bills with bank checking accounts, placing banks at the center of our payments system. Banks are the major source of consumer loans -- loans for cars, houses, education -- as well as main lenders to businesses, especially small businesses. When banks are strong and the credit flows, it helps the overall economic growth. When banks are in crisis, the impact on business and consumers multiplies the weakness in the economy.

Following is an incomplete list of commercial banks in Pakistan:

* Allied Bank of Pakistan, Karachi
* Arif Habib Bank Limited, Karachi - (Formerly Arif Habib Rupali Bank)
* Askari Bank, Rawalpindi
* Atlas Bank, Karachi
* Bank AL Habib, Karachi
* Bank Alfalah, Karachi
* Crescent Commercial Bank, Karachi.
* Faysal Bank, Karachi
* Habib Bank, Karachi
* Habib Metropolitan Bank, Karachi
* JS Bank
* KASB Bank, Karachi
* MCB Bank Limited (formerly Muslim Commercial Bank), Islamabad
* Mybank Limited, Karachi
* NIB Bank, Karachi
* PICIC Commercial Bank, Karachi
* Saudi Pak Non-Commercial Bank, Karachi
* Soneri Bank, Karachi
* Union Bank, Karachi - Standard Chartered Bank has acquired Union Bank
* United Bank, Karachi
* Bank Of Punjab, Lahore
* Citi bank,Islamabad
* Standard chartered Bank Ltd,Karachi
* ABN Amro Bank Ltd,Karachi Now merged in RBS (Royal Bank of Scotland)
* HSBC Ltd,Lahore

Investment Banks:

Investment banks provide four primary types of services: raising capital (private equity or public offerings of shares), advising in mergers and acquisitions, executing securities sales and trading, and performing general advisory services. Most of the major Wall Street firms are active in each of these categories. Smaller investment banks may specialize in two or three of these categories.

The list of investment banks in Pakistan includes the following:

* Al-Towfeek Investment Bank Limited
* Arif Habib Securities
* Invest Capital Investment Bank Limited
* Atlas Investment Bank Limited
* Crescent Investment Bank Limited
* Escorts Investment Bank Limited
* First Credit and Investment Bank Limited
* First International Investment Bank Limited
* Fidelity Investment Bank Limited
* Franklin Investment Bank Limited
* Islamic Investment Bank Limited
* Jahangir Siddiqui Investment Bank Limited
* AMZ Securities
* Orix Investment Bank (Pakistan) Limited
* Prudential Investment Bank Limited
* Trust Investment Bank Limited

Insurance Sector:

Pakistan's insurance sector is quite small, but it does serve its capital raising and investment purpose. The sector includes life insurance, property and casualty insurance and health insurance, as well as microinsurance offered by several microfinance companies and NGOs.

According to the Insurance Association of Pakistan (IAP), gross non-life premiums of business underwritten in Pakistan totaled Rs. 33.96bn (US$428mn) in 2008, a rise of 3% over the previous year. Net premium revenue increased by 10% to Rs. 22bn (US$264mn), while underwriting profits recovered from PKR600mn to PKR2bn (US$24mn). Net claims decreased by 3.5% to Rs. 13.8bn (US$166mn). However, the total assets of IAP members fell by Rs. 7bn to Rs. 92bn (US$1.1bn). This was due mainly to investment losses amid the dismal performance of both the Karachi stock market and the wider national economy. The number of people employed in the sector also fell, according to the IAP’s figures. In 2007 there were 3,540 insurance workers, but only 3,473 in 2008. The non-life sector remains fragmented, with fierce competition between the three larger companies and dozens of small insurers writing premiums of below Rs. 1mn per annum.

The overwhelmingly dominant player in the life sector remains the State Life Insurance Corporation of Pakistan (SLIC). Although it has been targeted for privatization by successive governments, SLIC remains in state hands. However, the government’s stand-by loan agreement with the International Monetary Fund might accelerate the process of disinvestment. SLIC’s results provide an accurate picture of the overall growth of the life sector in Pakistan.

The most significant feature of SLIC’s 2008 performance was a sharp upward movement in first year premium subscriptions. These increased by 34% to Rs. 5.16bn (US$61mn), a rapid acceleration from the decade-average growth rate. Renewals grew much less rapidly, at 16% to Rs. 13.4bn (US$160mn). The surge in interest for life insurance may reflect the dwindling prospects for personal security in Pakistan. This might conceivably mark an improvement in the hitherto dismal prospects for the life sector. As the publisher noted in their last report, life density remains extremely low despite efforts by SLIC to extend its operations into rural areas.

A number of non-profit and commercial microfinance players, including Agha Khan Microfinance, Acumen Fund and Munich Re, are promoting micoinsurance for the rural and urban poor in Pakistan. Such policies are offered to recipients of microloans to protect households that are climbing out of poverty from catastrophic losses such as the death of the breadwinner, severe or chronic illness, or loss of assets including livestock, crops or housing. These sorts of events can push poor or vulnerable households back into the depths of poverty.

Here are some of the key players in micoinsurance:

1. SAFWCO Sindh Agricultural and Forestry Workers Coordinating Organization
2. DAMEN Development Action for Mobilization and Emancipation (DAMEN)
3. TRDP Thardeep Rural Development Prigram
4. PRSP Punjab Rural Support Program
5. NRSP National Rural Support Programme
6. SUNGI Sungi Development Foundation
7. KASHF Kashf Foundation

Finance Expo 2009:

Finance Expo Pakistan 2009 Exhibition was held last week in Karachi to showcase the most competent, dynamically growing and innovative companies that demonstrate the latest financial systems and methods stimulating the development of the banking and finance industry.

The Expo was an opportunity to network with decision makers, economists and experts of Banks, Takaful, Modaraba, Insurance Companies, Asset Management Companies, Stock Exchanges, Security Companies, Financial Education Institutes, & Leasing Companies and also of the fast growing industries like IT & Telecom, Oil & Gas, Alternative Energy & Power Industries, Agriculture, Pharma, Textile, Builders & Developers, Auto as well as Media.

The event is a platform for banking and financial institutions to come together and share ideas and the challenges presented to this rapidly growing industry.

The exhibition and conference highlighted the value that banking, financial institutions and other revenue generating industries bring to boost the economy of Pakistan. Moreover, the Event presents opportunities for displaying products, services and solutions towards the potential buyers.


In spite of the international economic crisis, continuing political turmoil and rising militancy in Pakistan, the financial services sector has held up fairly well in the last year. Its future, however, remains tied to a measure political stability in the country that allows economic activity to occur unhindered. Let's hope the nation's political and ruling elites can find a peaceful way forward with competent team to lead the nation's business and economy.

Related Links:

Haq's Musings

Banks Thrive amid Pakistan Prosperity

Introduction to Banking and Economy

Introduction to Investment Banking

Comparing Bank Lending in India and Pakistan

Pakistan's Banking Reform


Riaz Haq said…
What a difference a year makes with the departure of Musharraf and a new democratic dispensation in Islamabad.

Pakistan has slipped in every category from 2008 rankings, according to the 2009 WEF financial development report.

2009 report on financial development index shows Pakistan slipping from 34 to 49 (out of 55 countries evaluated). Behind the Russian Federation (40), Indonesia (48), Turkey (44), Poland (39), Brazil (34), Kazakhstan (47) and surely INDIA (38).

corporate governance Pakistan (48/55)
shareholder rights index (47/55)
strength of investor protection (16/55)

Pakistan (49th), the Philippines (50th), and Bangladesh (54th) round out the representation of Asian countries in the FDI, all falling within the bottom 10 countries of the Index. A high degree of political and economic instability are probably contributing to weak scores across Pakistan’s institutional (52nd) and business (50th) environments; likewise, the country shows a very high risk of sovereign debt crisis (54th).

This report talks about 7 pillars that determine financial development index. And then the report goes and ranks 55 countries on these pillars. Putting below the ranks (out of 55) of Pakistan on each of those 7 pillars

1st pillar: Institutional environment Pakistan (52/55)

2nd pillar: Business environment Pakistan (50/55)

3rd pillar: Financial stability India Pakistan (48/55)

4th pillar: Banking financial services Pakistan (46/55)

5th pillar: Non-banking financial services Pakistan (51/55)

6th pillar: Financial markets Pakistan (25/55)

7th pillar: Financial access Pakistan (50/55)
Riaz Haq said…
Here are some excerpts from a Businessweek story on microfinance in India:

Savita Ramesh Rathore stands at the door of her dimly lit workshop in Mumbai's Dharavi slum, filled floor to ceiling with bundles of old clothes, and talks about the cost of her son's wedding last year. "Jewels, clothes, food, the town hall," says Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($647) from moneylenders charging 60 percent interest and took additional loans from friends. Three months ago she got a 10,000-rupee loan from urban lender Hindusthan Microfinance at an interest rate of just over 20 percent to repay some of that debt.

Rathore is one of 25 million Indians who have taken so-called microfinance loans, often without adequate documentation or collateral, according to research firm Micro-Credit Ratings International. As Hyderabad-based SKS Microfinance plans to become the first microlender in the country to go public, an industry credited with helping alleviate poverty is suddenly provoking comparisons to subprime lenders in the U.S.

"Globally, microfinance is showing characteristics of the Western financial markets before the collapse," says Sanjay Sinha, managing director at Micro-Credit Ratings in Gurgaon. "In the U.S., homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises."

Microfinance firms make loans in poor areas largely shut off from traditional banking services. The past two years have been marked by surging defaults in some countries. Microfinance markets in Nicaragua, Morocco, and Pakistan have seen default levels climb to more than 10 percent, the threshold that marks a "serious repayment crisis," according to a February report from policy and research firm Consultative Group to Assist the Poor.

India, where more than 600 million people live on less than $1.50 a day, is the world's largest microfinance market. Most microfinance loans in India range from 5,000 to 20,000 rupees ($108 to $431), with interest rates ranging from 18 percent to 33 percent. Although Indian microfinance firms have reported bad-loan ratios of about 2.5 percent on average, levels may be higher because some lenders roll over loans to struggling borrowers to avoid defaults, says Micro-Credit's Sinha.

Microfinance lending in India may surge by about 40 percent annually over the next few years, says Sinha. SKS, betting the potential for growth will attract investors, is seeking regulatory approval for an initial public offering. Basix Group, which focuses on poor households in rural areas and provides loans averaging about 3,000 rupees, may sell shares in an IPO next year, says Chairman Vijay Mahajan. Others are likely to follow. Until now, microfinance companies have relied on loans and grants from banks, insurers, and foundations for funding, he says.

Micro-Credit's Sinha worries that growth in the microfinance market is masking an erosion of lending standards that may spark rising defaults. India doesn't have a nationwide system for tracking borrowers' credit histories, making it hard for lenders to check whether clients have multiple loans. "There is significant investor interest in microfinance companies' public issues, but it's being driven by irrational exuberance," says Sinha.
Riaz Haq said…
Here are a few excerpts from a recent NPR discusion of microfinane:

In 2006, Muhammad Yunus was awarded the Nobel Peace Prize for his work lending very small amounts of money to very poor people. Since then, microfinance institutions have popped up all over the world. Some organizations are using investors to make significant profits from this work, drawing criticism from traditional non-profit organizations. Host Neal Conan talks with Vikram Akula, the founder of SKS Microfinance, a for-profit microfinance organization in India, and Grameen Foundation president and CEO Alex Counts, about the pros and cons of fighting poverty for a profit.
CONAN: I just wanted to bring Alex in on that point. From what you understand about the regulatory system in India, is are the rates being charged by SKS out of line, do you think?

Mr. COUNTS: Actually, no. In fact, SKS, we have some disagreements with their approach, but I would say that by global standards they are quite an efficient organization, pass many of those efficiencies on to the poor, and the trend is in the right direction. I think people are can afford those, running certain types of businesses.

But I do think there's a larger point, which is that, you know, there's in microfinance and outside of it, there's a lot of wishful thinking about people being able to make a lot of money and do a lot of good for the poor, and yet in reality there are not the accountabilities in terms of doing right by the poor, that there are in terms of making money.

And this is why we've, through Grameen Foundation, have been trying to take a model developed by the Grameen Bank, which we call the Progress out of Poverty Index, a kind of self-accountability tool for how the poor moving out of poverty. It is now the most widely used tool in the industry. We've long hoped that SKS would adopt it or any other tool that does the same purpose, and they've not elected to do that.
And in case of Vikram, according to analysis that I've seen, his own personal stock options, there something in the range of $60 million. And I don't begrudge him that - those resources at all, but it does provoke a kind of a backlash. And that backlash is right now threatening the microfinance sector throughout India. And it's something a lot of us are worried about. And we think it didn't need to happen if people had been a little more thoughtful about how they rolled out this model.
CONAN: The concern, and I don't again, would not put words in Alex Counts's mouth. But the concern is that sometimes profits become the goal, as opposed to the goal of eradication of poverty.

Mr. AKULA: Well, I think there's a distinction that one has to make between sort of what happens in theory and what's actually happening in fact.

You know, Neal, you had started with the question of, you know, wouldn't competition bring down prices over time. And in fact, that's exactly what we're seeing in India.

If you look at SKS, we were, at one point, as high as 40 percent interest when we started out, because we needed to charge that much to break even. We've lowered it to 31, 27 and now 24.5 percent. And what's interesting is at the same time, our return on equity went up from five to 12 to 18 to 21 percent, where it stands now.

So the actual history, the actual facts that suggest that competition does lower price over time, you know, as you get more and more, you know, players in, and simultaneously because of our volumes and our efficiency, you can actually provide even greater, you know, shareholder return.

I think the real question to ask is: Look, if the market works forthe middle class, it works for the wealthy, if competition gives choice and, you know, better pricing, why should the poor have anything less?
Riaz Haq said…
Here are some excerpts from a BBC report on allegations against Mohammad Yunus:

A documentary maker has alleged that cash was diverted from Professor Yunus' Grameen Bank to other parts of Grameen.

In a statement, the bank said that the allegations were false.

It said that a full explanation with more details would be provided at the "earliest convenient time".

The bank was set up by Professor Yunus to provide micro-credit - or small loans - to the poor.

The move by the Norwegians - who insist that no criminal activity has taken place - comes at a time when the reputation of the micro-credit industry has been under attack.

The original aim of the micro-credit concept was poverty reduction, but in recent years some micro-financial institutions have been criticised over exorbitant interest rates and alleged coercive debt collection.

In the south-eastern Indian state of Andhra Pradesh, for example, micro-loans have been blamed for a series of suicides among struggling farmers.

It is estimated some 250 organisations in the state have handed out loans totalling more than £1.65bn (£883m), only a small proportion of which have been paid back.

The Grameen Bank's denial followed the release of a documentary by Danish filmmaker, Tom Heinemann, who claimed Professor Yunus and his associates diverted nearly $100m of grant money to another company - Grameen Kalyan - which was not involved in micro-credit operations.

Mr Heinemann said he stumbled upon the documents and letters relating to the alleged transfer while doing research for his documentary on micro-credit.

"I got most of the documents from the archives of Norad, the Norwegian aid agency in Oslo," he said.

The Grameen group of more than 30 companies headed by Professor Yunus is divided between those not operating for profit and those which do.

Mr Heinemann's report alleged that after the Norwegian authorities raised objections to the alleged transfer of funds, the Grameen bank returned about $30m. The aid money was from Norway, Sweden and Germany.

Professor Yunus, known as the Banker to the Poor, and the Grameen Bank were awarded the Nobel Peace Prize in 2006 "for their efforts to create economic and social development from below".

The economist founded the bank, which is one of numerous organisations now providing loans to the poor - especially women - in Bangladesh.

The micro-credit lending model has been replicated in other parts of the world.

Reacting to the latest report, the Norwegian authorities say they have no suspicions of tax fraud or corruption committed by Grameen Bank.

"Having said that, the Government of Norway finds it totally unacceptable that aid is used for other purposes than intended no matter how praiseworthy the causes might be," Norwegian International Development Minister Erik Solheim said in a statement e-mailed to the BBC.

Mr Solheim said that he had asked the Norwegian Agency for Development Co-operation for a full report on the matter.

"At the same time it is important to stress that we are firm believers in micro-finance as a tool in the fight against poverty," he said.

The documentary "Caught in Micro Debt" was shown on Norwegian National Television earlier this week.

"I travelled to Bangladesh, India and Mexico to find out whether micro-credit loans have really helped the poor. But I found out that poor people are getting into more and more debt because of micro-credit loans," Mr Heinemann told the BBC.

He said that he was not accusing Professor Yunus of misusing the money or personally benefiting from the transfer.
Riaz Haq said…
Here's Newsweek on India's Microfinance Blues:

Small borrowing has big problems. Last month’s $221 million rescue loan to a group of troubled Indian microfinance companies—with some $2 billion on the line, nearly eight of 10 borrowers were in default—has stirred a crisis of faith in development circles. Critics complain that private banks, lured by the sizzling market in making small loans to the poor, betrayed the neediest by creating a mutant, developing-world subprime monster with 20 to 30 percent interest rates. Now there are fears it could spread.

Microcredit has ballooned into a $38 billion industry, but there’s less and less consensus over its efficacy. Abhijit Banerjee of MIT discovered that only about 5 percent of the 7,200 households that took money from Indian firm Spandana Sphoorty Innovative Financial Services managed to launch a business. Studies have reached similar conclusions in Morocco, the Philippines, and Bangladesh. “Most poor people do not have the basic education or experience to understand and manage even low-level business activities,” writes U.N. economist Anis Chowdhury. “They are mostly risk-averse, often fearful of losing whatever little they have.”
Riaz Haq said…
Here's a piece from Newsweek about improving access to fnancial services by the poor in developing nations through in-store banks:

Today, hundreds of millions among the world’s poor have access to microloans—small sums of money borrowed from financial firms, sometimes at sky-high interest rates. What they haven’t been able to acquire is something far more basic: a savings account. Few banks in developing countries have found ways to profit in poor, rural areas, leaving people with a dearth of safe options for accumulating cash. According to one recent survey, nearly 90 percent of adults in emerging markets store money at home, with friends, or with a local co-op.

Now a solution has emerged: across the developing world, a small but growing number of banks have set up shop in convenience and retail stores that already cater to the rural poor. Latin America in particular has embraced this new kind of piggy bank, which McKinsey & Co. says costs 25 percent less to run than a traditional bank branch. In Mexico, more than 5,000 in-store banks have sprung up over the past year; and in Brazil, about 1,600 municipalities have no banks other than these hybrids. Meanwhile, the Mexican government, working with development bank Bansefi, is mulling a plan to link savings accounts to smart cards. The cards, which are distributed to some welfare recipients, can be used at Diconsa, a network of stores that cater to the rural poor. The plan could bring an easier way to save to millions. In the U.S., most have easy access to savings accounts, but McKinsey says these hybrid banks could still help some among the rural poor.
Riaz Haq said…
Here's a disappointing report from about Pakistan missing its target of 3 million borrowers by the end of 2010:

KARACHI: The microfinance sector in Pakistan failed to achieve its target of three million borrowers at the end of 2010, said the State Bank of Pakistan in a recent report.

Microfinance Strategy of 2007 set a target of three million borrowers to be achieved by the end of 2010 from 0.9 million borrowers at end-2006.

“The current outreach of two million borrowers is only seven percent of the potential market,” the central bank said in a report on ‘Strategic Framework for Sustainable Microfinance in Pakistan’ released recently.

It said that microfinance in Pakistan has failed to make major breakthroughs to become a dynamic participant within the overall financial sector and to reach millions of underserved people.

The sector achieved an impressive growth rate of 43 percent per annum in 2007 and 2008, but the growth decelerated in 2009 and 2010, it added.

The report said that microfinance in Pakistan has come a long way since 2000 and is gradually mainstreaming into the formal banking system. Eight microfinance banks (MFBs) have been established, three of them transformed from microfinance institutions (MFIs). Two of the world’s largest MFIs have started operations in Pakistan, reflecting private sector participation and institutional diversity.

Pakistan has one of the lowest financial penetration levels in the World with 56 percent adult population totally excluded, and another 32 percent informally served.

“Despite considerable support from the government, donors and the State Bank of Pakistan, the microfinance sector has only been able to tap a small fraction of the potential market,” the report said.

In 1999-2000, various government initiatives were undertaken to lay the foundation for a national microfinance sector. The year 2007 heralded a second phase, in which policy and strategy focus has been on accelerating growth through scalable and sustainable approaches.

In order to promote sustainability and encourage a market-driven formal system, the SBP, with broad stakeholder consultation, formulated a national strategy called “Expanding Outreach of Microfinance” (EMO), which was approved by the government in February 2007.

Traditionally, funding to microfinance in Pakistan has been supported by donors. This form of funding is limited and unsustainable. In order for the industry to grow in a financially stable manner, permanent sources of funding are crucial.

“Unfortunately, there are presently various challenges on availability of appropriate funding sources: Firstly, commercial banks are risk-averse due to, inter alia, tight liquidity conditions and less know-how of the microfinance sector. Secondly, though MFBs have the license to mobilize deposits, these have been unable to do so on a large scale.”

Even though MFB deposits registered 73 percent growth in 2009, they only contribute 40 percent of the entire funding structure.

The high growth rate was the result of lower base, and also concentrated in two leading MFBs (First MicroFinance Bank Limited and Tameer). Around 74 percent of the total deposits belong to one MFB, it added.

The report said that the country has immense potential for micro-savings but the MFBs are still largely credit driven.

MFBs have also been unable to leverage their geographic spread by offering home remittances and inland money transfers. Similarly, the MFBs’ interest in providing micro insurance is also limited.
Riaz Haq said…
Business Recorder report on E-banking growth in Pakistan:

The scope of payment systems infrastructure continued to show a growing trend during the second quarter (October-December) of the current 2010-2011 fiscal year (FY11) as 172 automated teller machines (ATMs) were added to the e-banking infrastructure, bringing the number of ATMs to 4,734 in the country.

According to State Bank's Second Quarterly Report on Payments Systems, released on Friday, 309 more bank branches were upgraded to Real Time Online Branches (RTOBs). Now, 7,036 bank branches are offering real-time online banking out of 9,483 bank branches in Pakistan, the report added.

Similarly, the number of plastic cards (ie ATM, Debit and Credit Cards) also increased by 19.21 percent compared to the previous quarter. At the quarter end, there were 13.19 million plastic cards in circulation. According to the report, the volume and value of overall e-banking transactions in the country during the quarter under review reached 56.42 million and Rs 5.5 trillion respectively showing an increase of 7.30 percent in volume and 17.47 percent in value compared to the previous quarter.

ATMs, being the largest channel for e-banking transactions, showed 5.6 percent increase in number of transactions and 9.5 percent increase in value, which resulted in average value of Rs 8,804 per ATM transaction. It said a significant increase was also recorded in transactions related to real-time online branches (RTOB) as the number of such transactions grew by 10.59 percent and value of transactions increased by 17.97 percent.

The report said this trend was also witnessed in the large value payments settled through Pakistan Real-time Interbank Settlement Mechanism (PRISM), which increased by 12.73 percent in volume and 13.49 percent in value of transactions compared to the previous quarter. The major portion of PRISM transactions, in terms of value was settlements against securities, which accounted for 46 percent of total transactions, followed by Interbank Funds Transfers (38 percent) and settlement of retail cheques multilateral clearing (16 percent).

According to the SBP report, the volume and value of paper-based retail payments during the quarter under review were 88.46 million and Rs 39.07 trillion respectively which increased by 6.63 percent in volume of transactions and 9.75 percent in value of transactions compared to the previous quarter. The contribution of paper-based payments in total retail payment transactions was 61.06 percent in terms of volume and 87.73 percent in terms of value while the rest of the transactions originated from e-banking, it added.

It may be mentioned here that safe, efficient and reliable payment systems are vital part and backbone of financial infrastructure of a country which provide the essential base for financial stability. The primary goal of a payment system is to enable fast and risk-free circulation of money in the economy, an essential pre-requisite for satisfying timely payment obligations and improve liquidity in the financial markets.
Riaz Haq said…
China is opening bank branches in Pakistan as part of trade and investment promotion, according The Nation:

ISLAMABAD (APP) - President Asif Ali Zardari on Friday inaugurated two branches of Industrial and Commercial Bank of China (ICBC) here at a ceremony at Aiwan-e-Sadr.
President ICBC Yang Kaisheng and senior management of the team were present at the ceremony.
Speaking on the occasion, President Zardari said the initiative taken by the Industrial and Commercial Bank of China by opening its branches in Islamabad and Karachi, would begin a new era of cooperation in the banking sector of the two countries.
The opening of ICBC branches will take the economic relations between the two countries to new heights, he added. The President said that the opening of ICBC branches coincided with the anniversary of 60 years of diplomatic relations of Pakistan and China.
The President said by opening bank in Pakistan, Chinese have shown confidence in the financial sector of Pakistan.
He said when the world was passing through a difficult economic phase and the investors were not readily coming forward to make investments, the initiative taken by ICBC was most commendable. The President hoped that ICBC's investment in Pakistan would prove to be profitable and the bank would play a prominent role in channelizing bilateral investments.
The President said the government and State Bank would extend every possible assistance to facilitate ICBC operations in Pakistan. Appreciating tremendous economic progress of China, the President said since becoming President he had visited China six times in order to learn from the Chinese experience of development. "There is so much to learn from the Chinese experience," he remarked.
The President said Pakistan has offered to set up special Chinese investment zones in Pakistan where special tax concessions will be offered. With captive power, tax concessions, low cost labor and access to a huge market the Chinese investors will find Pakistan most profitable place for investment, the President added.
Riaz Haq said…
Here's an excerpt from a recent Washington Post report on Islamic banking in Pakistan:

Business experts say the burgeoning popularity of Pakistan’s Islamic banks — where deposits have gone from about $3 billion to nearly $4 billion in the past year — reflects both a reaction to the turmoil afflicting Western financial systems in recent years and a surge of religious feeling in an overwhelmingly Muslim society in which many people believe their faith is under assault from the West.

“Islamic banks have existed on the fringes of the banking industry for many years, but the global financial crisis has brought them into the limelight,” said a recent report in the Business Recorder, Pakistan’s daily financial newspaper. Today, it said, Islamic banking is “in fashion” and has “earned a shine that continues to attract funds.”

Meezan Bank, the largest of a half-dozen Islamic banks in Pakistan, draws Muslim consumers to its 54 branches by promising “the best of both worlds.” Its brochures advertise quick car loans that are “halal,” or in accordance with religious rules, and new-home mortgages that are “riba-free,” meaning that no interest is charged.

“Interest is a curse that must be eliminated from society,” said Irfan Zulqernain, a Meezan officer who has an MBA and a vision of Islam as a socially transformative force. “We don’t treat money as a commodity, which just makes a few people richer and everyone else poorer. Our way generates economic activity and spreads money throughout society.”

Islamic finance is based on a system of asset leasing and partnerships rather than outright moneylending, which Islam bans. The bank is allowed to turn a profit, but it does so by charging extra fees rather than interest — a distinction that critics say is virtually meaningless and intended solely to make Muslim customers think they are doing the right thing.

Religion as selling point

Banks are not the only businesses to capitalize on the new religious mood among consumers. More and more products are labeled “halal” even when there is no religious blessing involved. At a leading bookstore here in the capital, one of the hottest-selling items is a digitalized miniature version of the Koran that sells for $80.

“This is a precious object for us, and now it as easy to use as a mobile phone. You can just press a button and listen to any verse,” said Samira Imran, a customer who was buying one for her mother. “Our parents like to recite the Koran all the time, but this is a way to connect the new generation as well.”
Riaz Haq said…
Here's an Express Tribune story on rapid growth of branchless banking in Pakistan:

With State Bank of Pakistan demoing a constructive regulatory approach for branchless banking, a number of players are now evolving to offer branchless banking in Pakistan as a viable business model, said a report published by CGAP.

CGAP says that Pakistan has become one of the fastest developing markets for branchless banking in the world.

According to the report, SBP has issued four branchless banking licenses and is considering several others. Meanwhile, the government is planning to further encourage the mobile banking by planning to distribute the government payments through branchless banking.

There are currently two major operators in the market with several to jump in during the next couple of years.

Easypaisa, a joint venture of Tameer Microfinance and it’s parent company Telenor, claims to have over half a million mobile accounts. Easypaisa claims to have processed bill payments and domestic money transfers of worth Rs. 43 billion (US$500 million), unveils the report.

UBL Omni, another branchless banking service launched in April 2010, has reportedly won several contracts to disburse payments for nongovernment organizations and government schemes.

UBL claims to have 5,000 agents, countrywide, disbursing payments to around 2 million recipients.

New players including Mobilink, TCS, Bank Alfalah, Askari Bank and MCB are expected to enter the branchless banking market.

CGAP says that next 12 months will be critical for the newly emerging branchless banking sector in Pakistan. The evolution of the sector will likely yield important lessons for the rest of the world.

You can download the complete report by clicking this link.
Riaz Haq said…
From Clay Seals to Cashless Economy, the money exhibit at the State Bank of Pakistan Museum in Karachi as reported by The Express Tribune:

And this history of monetisation— recounted through a treasure trove of cowrie shells, coins, stamps and notes — is showcased in the State Bank of Pakistan (SBP) Museum & Art Gallery. This pink sandstone structure with looming window shutters and jumbo doors was inaugurated on July 1, and previously housed the Bank of India before partition and the SBP’s library. Inside the mammoth colonial structure, with a refurnished interior boasting spangling spotlights and a renovated brass and glass skylight, are neatly organised sections displaying the history of money over the millennia.

Chronology of money

Perhaps the most interesting section of this museum is the coinage section, neatly divided into pre-Islamic and Islamic periods. The pre-Islamic display starts with the punchmarked coins used by Greeks and Aryan invaders dating back to the 6th and 7th century BC. The currency of this epoch is conspicuous for the Hellenistic trait of bearing the imprint of the ruling monarch’s portrait.

The chronological exhibit gives way to the second section showcasing coinage from the ‘Islamic period of India and Pakistan’ – a misleading description since Pakistan did not exist till 1947 and non-Muslim influences remained strong in the entire sub-continent even after invasions by Muslim rulers. On display are the copper, gold and silver currencies of the all-too familiar Muslim conquerors of history books — the Ghaznavids, the Ghauris and the Mughals etc. The changing shape, symbols and language on the coins attest to the sub-continent’s turbulent political past. Interestingly, when new invaders successfully captured an area, they used the coins of the old conquerors before introducing their own, but overstriked their own names and symbols on them.

As fascinating as this linear trajectory of money is, it does not add anything radically new to the viewer’s knowledge. In fact the exhibited currency, which matches the timeline of most textbooks in Pakistan, highlights that the complex history of the sub-continent is always confined to simple timelines and neat linear paths.

Artifacts and art work

Apart from the sequential record of currency, the SBP museum houses fascinating historical artifacts and art work. There’s the country’s first ATM machine on display; first employed by Habib Bank in 1988, it closely resembles a photocopying machine. There’s also coin-minting apparatus — a cumbersome green object with a wheel-like posterior — and a 100-year-old gold-weighing scale, refurbished with golden paint.

The second storey of the museum’s building houses a small art gallery showcasing the works of the renowned rebel artist, Sadequain, and a few other contemporary artists such as Marium Khan and Amir Hasan Rizvi. Sadequain’s murals, originally made for the SBP, are majestic illustrations depicting distorted life-sized figures, whose coarse texture comes from the fine lines etched into the paint by a blade.

The museum, displaying lengthy historical descriptions and staffed with trained tour guides, is the first of its kind in Pakistan and is now open for public viewing.
Riaz Haq said…
Here's a report in The News about SBP Gov Yaseen Anwar's assessment of Pakistan finance sector:

KARACHI: Yaseen Anwar, Governor, State Bank of Pakistan (SBP), said on Friday that the country has one of the lowest financial penetration levels in the world.

“Microfinance in Pakistan has made good progress but must make major breakthroughs to reach millions of underserved people,” he said while addressing at 5th Pakistan Microfinance Country Forum.

“Pakistan has one of the lowest financial penetration levels in the World with 56 percent of the adult population totally excluded, and another 32 percent informally served,” he added.

The SBP governor said that despite considerable support from the government, donor and the SBP, the microfinance sector has only been able to tap a small fraction of the potential market. “The current active borrowers standing at roughly two million,” he added.

He said that the microfinance regulatory framework has been ranked globally at the top in 2010 and 2011 by ‘the Economic Intelligence Unit’ of the UK’s The Economist Magazine. Anwar said that the recent development in mobile phone banking is highly encouraging and that the expansion in the retail network of microfinance has been brought about overwhelmingly from agents and mobile phone channels. Within a span of just two years, there are now almost 18,000 branchless banking outlets surpassing the 10,000 conventional bank branches, he added. He lauded the role of UKAid and Asian Development Bank in the development of microfinance in Pakistan and said that under the programmes sponsored by these donors, a number of market interventions are managed by the SBP.

SBP governor said that the Microfinance Credit Guarantee Facility (MCGF), a £10 million guarantee facility of UK’s DFID, was launched by SBP in December 2008 to mobilise wholesale commercial funding for microfinance providers through partial guarantees to commercial banks.

“The facility has thus far mobilised commercial funding of Rs3.225 billion for four microfinance providers for onward lending to around 200,000 new micro borrowers,” he added.

Nadeem Hussain, President and Chief Executive Officer (CEO) of Tameer Microfinance Bank said around 18-20 million account holders have access to credit. “If excluded the multiple account then the number is only at 8-10 million account holders,” he added. He termed branchless banking key to enhance outreach significantly.

Hussain said that potential exists in banking through telecommunication technology. “Presently phone density is one hundred million where banking density is much lower,” he added.
Riaz Haq said…
Pakistan's bank spreads not the highest in the world, reports The News:

KARACHI: The State Bank of Pakistan (SBP) has rejected the perception that the country’s banks enjoy the highest spreads in the world.

“Pakistan’s ranking turned out to be 69 among 122 countries: not even in the list of top 50 countries with high spreads,” the SBP said in its Financial Stability Report for the first half of 2011 released recently.

“In sum, it can be safely concluded that the banking spreads in Pakistan are not the highest in the world,” it said.

The banking spreads can be defined as a gap between lending and deposit rates.

The SBP said that usefulness of cross-country analysis of the banking spreads is generally undermined by a number of factors, including differences in the level of financial development, regulatory environment, ease of doing business, charges of financial services, definitional issues, etc.

“In spite of these limitations, it is a popular perception that the banks in Pakistan enjoy the highest margins in the world,” it said.

Being the regulator and supervisor of the banking sector, the central bank has been vigilant of these issues, the report said, and explained that it is evident from the imposition of minimum five percent rate of return on savings deposits from June 1, 2008 to date, and detailed analysis of the banking spreads in the SBP flagship publication.

The SBP said that the banks alone cannot control their margins because it has multiple factors.

“Industry-specific and macroeconomic factors create an operating environment for the banks, which has strong bearing on the banking spreads,” according to the report.

The central bank identified major components for analysing spreads, which included structure of bank deposits, impact of non-performing loans; administrative expenses; cash reserve requirements; interest rates; and taxation.

It said that the changes in the interest rates along with a positive gap between interest bearing liabilities (deposits and borrowing) and earning assets also impact the banking spreads.

The analysis provided that earning assets of the commercial banks are less than their interests bearing liabilities, the report said. “It implies that in an increasing interest rate scenario, a rise in average interest on earning assets must exceeds the rise in average returns on interest bearing liabilities, even if pass-through of market interest rates to retail rate is 100 percent: ultimately pushing up the banking spreads,” it added.

The central bank report said that the overall economic activities play an important role in determining the banking spreads.

Specifically, strong GDP growth not only affects the supply of loan-able funds for the commercial banks, it also favourably impacts the banking system by strengthening repayment capacity of the borrowers.

Negative association between the non-performing loans of the banking system and real GDP growth is well documented in the SBP documents, the report added.
Riaz Haq said…
Gulftimes on health of Pakistan's banking sector:

The State Bank of Pakistan (SBP), Pakistan's central bank, has recently warned that the banks in the country are facing deteriorating credit quality despite a strong trend of banks investing heavily in government debt.

According to the SBP's recent Financial Stability Review (FSR) of Pakistan, the credit risk-weighted assets (CRWA) of banks grew by two per cent or Rs65 billion during the first half of this year and credit risk remains very high despite banks' growing investments in government debt instruments, which are mainly called the safest investment in the banking industry.

The SBP said the falling CRWA to total assets over the last few years was not an indicator of lower credit risk; rather it simply suggested a strong flight to quality amid high non-performing loans (NPLs).

The report said that to prevent a further increase in the NPLs, the banks tried to limit their bad loans by tightening their credit standards, significantly restricting their lending to riskier sectors such as small and medium enterprises (SMEs) and retail consumers


NPLs of the banking sector increased from 14.7 per cent to 15.3 per cent, or Rs31.4 billion, in the first half of this year over the same period last year.


"The fact that NPLs continue to build up underscores the intractable nature of heightened credit risk," the SBP report said.

Moody's said factors such as a revival in short-term economic growth, lower interest rates and de-risking of the banks' loan book could stabilise asset-quality metrics.

The NPLs for the year are expected to peak at around 16 per cent of total lending this year, from 15.3 per cent at end-June 2011, and then remain at these elevated levels throughout 2012.

Analysts said as a counterbalance to the system's structural challenges, the banks benefit from sound funding profiles and low-cost current and savings account deposits, which amounted to 67 per cent of total deposits or 56 per cent of total liabilities at end-June 2011.

"Banks' reliance on market and/or foreign funding also remains minimal. However, we believe that related vulnerabilities will persist, namely the short contractual maturities of customer deposits that create asset-liability mismatches and high government-deposit concentrations," said Theofilou.
Riaz Haq said…
Here's an interesting story in Express Tribune on the rise of the middle class via banking sector:

Hasan Rizvi used public transport to get around the city, and didn’t have a house of his own 10 years ago, while he studied for a Bachelor of Commerce degree at a college affiliated with University of Karachi. Today, he owns two motorcycles, one car and a modest apartment in a middle-class neighbourhood that he rents out to supplement his monthly income.

Rizvi’s upward movement on the social ladder corresponds with the growth in Pakistan’s banking sector that he has been part of since 2004.

In 2000, the combined profit-before-tax of all Pakistani banks was Rs4.5 billion. It reached Rs80.7 billion in 2009 – almost 17-fold increase over nine years!

With more than 8,000 branches of 41 scheduled banks all over the country, the banking sector has witnessed phenomenal growth in the past 10 years: assets of the banking system have been growing at an average of 14.8 per cent since 2001.

The exceptional growth in the banking sector has created thousands of private-sector jobs. The public sector controlled almost 80 per cent of the banking industry in 1997. However, after privatisation of several banks, the figure reduced to 20 per cent in 2004.

Rizvi said that to buy his apartment he took out a loan from his bank in 2008 at a reduced interest rate. Generally, the mark-up on home loans for ordinary customers is around 20 per cent. But the interest rate Rizvi is paying on his home loan as a bank employee is just five per cent.

He said he now lets out the apartment for Rs14,000 a month. The monthly instalment he pays to his bank is Rs.13,000, which means that without paying a single rupee out of his pocket, Rizvi not only bought his own apartment, but also makes an additional Rs1,000 every month – thanks to the fringe benefits of his bank job.

Similarly, car financing is also cheap for bank employees. While ordinary customers pay a 16-18 per cent mark-up on car loans, a bank employee gets it at a nominal rate of about five per cent.

“Every banker out there drives his own car and lives in, or rents out, his own flat. Banks pay well. And they give you facilities no other employer can afford to give its employees,” Rizvi said.

High profits for commercial banks over the past decade have resulted in the expansion of the banking sector, creating more jobs and promising better compensation packages for middle-class young men and women with tertiary education.

There are many reasons for the expansion in the banking sector in Pakistan. Most importantly, privatisation of nationalised banks spurred growth and increased overall banking standards in the 2000s. The share of private-sector banks in aggregate assets of the banking industry surged from 44 per cent in 2000 to over 77 per cent in 2005....
Riaz Haq said…
Asasah, a microfinance institution (MFI) in Pakistan, reportedly has announced that it will be utilizing Easypaisa, the branchless banking service of MFI Tameer Microfinance Bank Limited (TMFB) of Pakistan, as an option for borrowers to repay their loans [1]. Easypaisa is a joint venture of TMFB and Telenor Pakistan, a subsidiary of Norwegian mobile communications company Telenor Group. Easypaisa users are able to conduct financial transactions using mobile phones or by visiting an Easypaisa shop, Telenor service center or TMFB branch. There are reportedly 14,000 Easypaisa agents in approximately 600 cities across Pakistan.

As of 2010, Asasah reported to the US-based nonprofit Microfinance Information Exchange (MIX) a gross loan portfolio of USD 1.9 million and 18,900 active borrowers, most of whom are women. TMFB reported to MIX total assets of USD 61.7 million, a gross loan portfolio of USD 36.2 million, return on assets (ROA) of 3.74 percent, return on equity (ROE) of 12.6 percent and 111,100 active borrowers as of 2010.

By Nisha Koul, Research Associate

About Asasah: Asasah was established in 2003 in Pakistan as a nonprofit organization with the aim to “enhance the micro productivity of the house hold living below the poverty line by providing economic, educational and diversified information opportunities” and has since been operating as a microfinance institution (MFI) with 100 percent of its funding supplied by commercial sources. As of 2010, Asasah reported to the US-based nonprofit Microfinance Information Exchange (MIX) a gross loan portfolio of USD 1.9 million and 18,900 active borrowers.

About Tameer Microfinance Bank Limited: Tameer Microfinance Bank Limited is a licensed commercial bank in Pakistan that provides microfinance services such as small business, group and emergency loans; micromortgages; microinsurance; savings; and money transfers. It was founded in 2005 and is based in Shahrah-e-Faisal, Pakistan. Telenor Pakistan, a subsidiary of the Norwegian mobile communications company Telenor, owns 51 percent of TMFB. As of 2010, TMFB reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 61.7 million, a gross loan portfolio of USD 36.2 million, return on assets (ROA) of 3.74 percent, return on equity (ROE) of 12.6 percent and 111,100 active borrowers.

About Telenor Pakistan: Telenor Pakistan is fully owned by the Telenor Group, a communication services provider operating in 11 markets in Europe and Asia as of 2010. Telenor Pakistan began commercial operations in Pakistan on March 15, 2005. At the end of October 2010, it reported a subscriber base of 24.1 million and a market share of 24 percent. Telenor Pakistan acquired 51 percent of Tameer Microfinance Bank in November 2008. In 2009 it launched Easypaisa to offer branchless banking services across Pakistan. There are reportedly 14,000 Easypaisa agents in approximately 600 cities across Pakistan.
Riaz Haq said…
Central Bank governor said Pakistan’s economy and the financial sector are now at a stage where they can support and benefit from a vibrant and efficient debt market, according to Online News:

The size of private debt, or Term Finance Certificates (TFCs) in Pakistan, remained around Rs 74 billion (0.5% of GDP), which is paltry as compared to the outstanding domestic government debt of Rs 4.64 trillion (31.4% of GDP). There is clearly underexploited capacity available to support economic growth.
He said that banks continue to be the main provider of debt in the system. ‘In the absence of an active capital market, the commercial entities fail to procure long term debt financing, and rely on short and medium term loans from banks. Banks are trying to limit their credit risk and it has become more challenging to raise private debt for a business,’ he said, adding that while some credit uptake may take place in the future, it is unlikely that banks will be keen to finance new long term projects anytime soon.
The SBP Governor said: ‘we have unambiguously designated our future path that includes three main priorities (a) to make our banking sector more resilient against exogenous shocks through our macro (systemic) and micro prudential framework, (b) actively encourage technological solutions for financial access and an efficient payment system, and (c) address the development needs of the financial markets and broaden the array of product and services as well as outreach.’

Anwar said that we would like to see our banks operating at world class standards and synergistically reinforcing the real economy. ‘We are actively working at a pace to achieve this goal, and despite the current economic challenges, we are confident that we will succeed,’ he said, adding that total assets of our banks amount to Rs7.7 trillion as of end-June 2011. The deposits stand at Rs6.0 trillion, while advances and investments of the sector are Rs3.8 trillion and Rs2.6 trillion respectively, he added.

He said that in spite of the economic slowdown, the pretax profit of the banking sector for the year 2010 was Rs105 billion and for the first six month of 2011, it was Rs77 billion. ‘The banks stand at a healthy Capital Adequacy Ratio (CAR) of over 14 percent and have shown a steady increase in capital even in absolute terms, and equity of the banks is now Rs722 billion (June 2011),’ he said and added: ‘while the picture appears quite stable, the key challenge comes from economic slowdown. We have witnessed the impact of an economic slowdown through rising credit risk in the banks.’

However, as banking regulator, the big challenge arises from a two-pronged dilemma, he said and added: ‘we want our banks to be sound, profitable and efficient users of their funds, yet we also want them to increase financial service penetration into unbanked segments of the economy,’ the SBP Governor added.
Anwar said that there is a huge surge among the banks to upgrade their technology and on-line banking services. The Automated Teller Machine (ATM) network has been expanding and in June 2011 there were approximately 5200 ATMs operating throughout the country, he said, adding that the concept of branchless banking has opened a new avenue for efficient channeling of funds.

‘Progress in creating automated or on-line branches of banks has been significant so far and it is expected that almost all the bank branches will be on-line or automated,’ he said, adding that utility bills payment and remittances would be handled through ATMs, kiosks or personal computers reducing both time and cost.

The country’s payment system infrastructure has been strengthened to provide convenience in transfer of payments to the customers, he added.
Riaz Haq said…
The State Bank said on Wednesday that the value of e-banking transactions aggregated to Rs12 trillion during the second half of 2010-11, showing an increase of 19 per cent as compared to the first half of the year, according to a Dawn report:

The Payment Systems Half Yearly Review released by the State Bank here noted speedy rise in e-banking transactions in the country.

The volume of such transactions during the period under review reached 125.9 million depicting an increase of 15.5 per cent as compared to the first half of FY11, the review said, adding that the payment system infrastructure has maintained an overall growth trend for the second half of FY11.

However, the review also said that the volume and value of paper-based retail payments during the second half of FY11 were recorded as 177.3 million and Rs84.6 trillion respectively, indicating an increase of 3.5 per cent in the volume of transactions.

“The value of transactions has increased by 13.3 per cent as compared to the first half of FY11. The contribution of paper-based payments in total retail payment transactions was 58.5 per cent in terms of volume and 87.5 per cent in terms of value,” it added.

The review said the Automated Teller Machines (ATMs), which are the largest channel of e-banking transactions, showed 16.5 per cent increase in number of transactions and 19 per cent increase in value raising the share of ATM transactions in total e-banking transactions to 58.8 per cent and 5.4 per cent respectively, the review said.

It said the number of Real-Time Online Branches (RTOB) transactions grew by 14.7 per cent and the value of transactions increased by 18.8 per cent as compared to first half of FY11. “These transactions contributed 31.6 per cent in total volume of e-banking and 93.2 per cent in the value of such transactions respectively,” the review observed.

According to the review, as many as 466 more Automated Teller Machines were added bringing the total number of ATMs to 5,200 while 380 more bank branches were converted into Real Time Online Branches (RTOBs).

“A total of 7,416 bank branches (78 per cent) are now offering real time online banking out of a total of 9,541 branches in the country. The number of plastic cards at 14 million also registered an increase of 6.2 per cent during the period under review as compared to the numbers during the preceding half year,” the Review added.

The overall increasing trend in payment system infrastructure was also witnessed in the large value payments settled through Pakistan Real-time Inter-bank Settlement Mechanism (PRISM), which increased by 14.8 per cent in volume and 21.9 per cent in terms of value as compared to the first half of FY11.
Riaz Haq said…
Here's Businesswire on the launch of Visa debit card in Pakistan:

Euronet Pakistan, a subsidiary of Euronet Worldwide (NASDAQ: EEFT), today announced the launch of the first EMV Debit Card in Pakistan with MCB, a leading provider of electronic banking services in Pakistan. Euronet Pakistan is the first EMV certified processor and gateway for EMV VISA debit services in the country. With the launch of the first EMV Debit Card in Pakistan, Euronet and MCB have introduced the most secure payment method available today into the Pakistani market.

EMV Debit cards use an embedded microprocessor that stores, processes and protects card holder data, including identity and account information. Prior to the launch, MCB performed stringent testing to ensure Euronet’s service center, processing systems and operational procedures met global EMV security and regulatory standards.

“Euronet systems are highly flexible, robust and yet at the same time have readily available modules to launch new initiatives in this rapidly evolving payment processing arena. MCB is proud to have Euronet as its technology partner and we already have a comprehensive plan in place for steady progress towards being able to offer the best electronic banking services in the region,” said Ali Mubashir Kazmi – Group Head Consumer Banking, MCB Bank Limited.

MCB has the largest network in the country, with a debit card base of 2.5 million and over 650 ATMs, and has always been at the forefront in offering electronic banking services to customers in Pakistan. More than 15 years ago, MCB was one of the first banks to launch electronic banking services in the country and continues to strive to offer the most innovative and synergistic products. MCB recently demonstrated this forward thinking by being the first bank to adopt outsourced EFT services through their migration from an in-house processing solution to an outsourced Euronet ITM system on Euronet Pakistan’s PCI DSS certified infrastructure.

“MCB being the first bank in Pakistan to launch Visa Debit EMV Chip card in the market, is indeed a great achievement and a milestone for all its Visa cardholders,” stated Amer Pasha, Country Manager, Visa Pakistan & Afghanistan. “EMV chip technology presents further security, reliability and a convenient way for making purchases all over the country and when travelling. We congratulate MCB and their technology partner, Euronet for a successful implementation and further enhancing the electronic payment in Pakistan.”

“We are delighted to provide MCB Bank with the first mover advantage on VISA EMV Debit Cards,” stated Mohamed Mousa, Vice President, Euronet Middle East, Africa and Pakistan. “With many more innovative services in the pipeline and the investment in the state-of-the-art data facility, Euronet is committed to providing cutting-edge technology to this growing market.”
Riaz Haq said…
Former British foreign secretary David Miliband joins Pakistan private equity fund as advisor, according to Express Tribune:

In what appears to be a coup for the fledgling Pakistani private equity industry, Indus Basin Holdings has managed to get Britain’s former foreign secretary David Miliband on board as a senior adviser.

“We are delighted to be able to bring on board the expertise of Miliband who knows the region and its challenges well,” said Indus Basin founder and CEO Aamer Sarfraz, according to a press release issued by Miliband’s office. “He shares our conviction that investment in Pakistan’s agricultural sector can have substantial long-term impact on the country’s poorest farming communities.”

“I am delighted to be advising Indus Basin Holding, a company that is investing in Pakistan’s future at a time of such fundamental importance,” said Miliband in a press statement. “I care deeply about Pakistan, the development of its economy and its future in the wider region. IBH is committed to developing an agricultural sector which has huge potential, but currently lacks investment. I look forward to working with IBH in building support and investment in Pakistan’s agricultural capacity and productivity.”

Officials at the company say they had been trying for the past year and a half to secure the contract with Miliband, who served as Britain’s foreign secretary between 2007 and 2010. He also served as Britain’s secretary of state for the environment, food and rural affairs previously.
Indus Basin Holdings is only a relatively recent entrant into Pakistan’s nascent private equity and venture capital space but already began to attract a lot of attention for the kinds of big-name investors it was able to attract in its fund, which is focused on capitalising on opportunities presented by raising productivity levels in Pakistani agriculture.

The company’s investors include Tim Draper, the famous American venture capitalist known for being an early investor in Skype and Hotmail, and Baron Lorne Thyssen-Bornemisza, a Swiss aristocrat whose family owns the ThyssenKrupp, a German technology conglomerate with over 670 subsidiaries and 200,000 employees worldwide.

Indus Basin’s investments currently include Agroventures, a Faisalabad-based breakfast cereal manufacturer, and Rice Partners, a company that is focused on contract farming and marketing Pakistani rice directly to North American and European retailers.
Riaz Haq said…
Here's a Daily Times report on State Bank of Pakistan's National Financial Literacy Program:

...Pakistan’s first-ever NFLP has been launched with the support and collaboration of Asian Development Bank (ADB), Pakistan Banks’ Association (PBA), Pakistan Microfinance Network (PMN), Pakistan Poverty Alleviation Fund (PPAF) and Bearing Point.

He said the programme has been developed after the Financial Literacy Gap Assessment Survey of beneficiaries. The survey has been helpful in development and adaptation of curriculum and dissemination strategy. The curriculum will also be translated into national and main regional languages including Urdu, Sindhi, Punjabi, Pushto and Balochi, he added.

The SBP governor said that the programme is financed under the ADB-funded Improving Access to Financial Services Fund (IAFSF) and implemented under the oversight of the IAFSF committee, which has representation from SBP, PBA, PPAF, PMN, education sector, and the ADB. Upon completion of the pilot phase, an impact assessment of the pilot will be conducted by a third party, he said, adding that based on the experience and assessment of the pilot, the programme will be scaled-up to target more than half a million beneficiaries all over the country.

Anwar said that in addition to focused training sessions of beneficiaries, the dissemination strategy involves street theatres, board games, comic strips, activity-based competitions, website and media campaigns to reach out to the masses on a larger scale. The training sessions will be sourced from banks, Microfinance Banks (MFBs) and Microfinance Institutions (MFIs) based on their interest and pre-defined qualification criteria, he said and added that in order to encourage and incentivise participation from partners, professional fees and out of pocket expenses of partners will be reimbursed from the programme budget.

Besides involvement of local institutions, the project has formed international partnerships with international financial education programmes including Microfinance Opportunities, Finmark Trust, Association of Microfinance Institutions of Uganda (AMFIU), Sewa Bank, Microfinance Innovation Centre for Resource and Alternatives (MICRA), World Bank Institute, Aflatoun, and others, Anwar added.

The SBP governor said that consumer protection and financial education should be vital components of any financial inclusion initiative. It is now clear that policies, which focus entirely on changing the supply of financial products and services can leave consumers ill-informed, vulnerable and not willing to participate in financial markets, he said, adding that focus of financial literacy programme should be broader than financial inclusion.
He briefly touched upon various conventional and non-conventional measures adopted by SBP to boost financial inclusion.

SBP introduced Basic Banking Account (BBA), a simplified financial product for low income consumers.

SBP introduced Microfinance Banking Regulations in 2001 to specifically meet the demands of low income consumers.

SBP has adopted innovative solutions to overcome geographical barriers, including branchless banking through retail agents and harnessing technology via mobile-phone banking.

SBP has been managing various market interventions funded by donor agencies:

- The Institutional Strengthening Fund providing grant funding to microfinance providers to top and middle tier MFBs and MFIs for key investments in HR, IT, product development, risk management systems, business plans and branchless banking development.

- The Microfinance Credit Guarantee Facility to link microfinance with financial markets for mobilization of wholesale commercial funding through partial guarantees...\01\21\story_21-1-2012_pg5_16
Riaz Haq said…
National Bank of Pakistan to bring all of its branches online, reports The Nation:

National Bank of Pakistan keeping in view the importance of IT in the banking industry, has the vision to get its Countrywide branch network fully online in a couple of months.

This was stated by NBP President & CEO Qamar Hussain here at the Regional IT Centre Lahore in a ceremony held to dedicate NBP Regional IT Centre to Arfa Karim Randhawa. Parents of Arfa Karim Mr & Mrs Amjad Karim Randhawa were also present on this occasion who inaugurated the center along with President NBP.

While inaugurating the center, Mr. Qamar Hussain said: NBP has decided to dedicate its Regional IT Centre, Lahore to “Arfa Karim” to present a rich tribute for her services to the country. We have always wanted to promote our unseen heroes. That is why the bank has associated the Regional IT Center, Lahore after her name as NBP Arfa Karim Regional IT Centre”.

Arfa Kareem’s father also spoke on the occasion and said “NBP is a National Flag Career and it is a great honor for us that the NBP has devoted its IT centre to Arfa”.

National Bank of Pakistan has put special emphasis on automation and online banking. Having remotest branch network in far flung areas, cumulatively the Bank has converted its more than 1050 branches online out of its countrywide network of 1271 branches.

NBP has recently initiated a number of IT projects to make the bank one of the most technologically advanced financial institutions in the country. Currently the Bank is in the implementation phase of Core Banking System which is one of the largest IT projects in Pakistan and covers all the banking functions.
Riaz Haq said…
Pakistan leads the world in Islamic microfinance, reports The Philippines Star:

Pakistan has been acknowledged as a leader of Islamic microfinance with more than 20 institutions providing microfinance services.

In an international summit on Islamic microfinance in Istanbul, AlHuda Centre of Islamic Banking and Economics chief executive officer Muhammad Zubair Mughal said that conventional microfinance has badly failed and its examples can be clearly seen in India and Latin America.

“People do not use financial and banking system due to interest as it is strictly prohibited in Islam, hence forced to live in poverty whereas through Islamic microfinance, by using the financial products based on Shari’ah principles, we can get the people out from poverty,” he said.

He said many countries in the world are adapting Islamic microfinance system for poverty alleviation through which not only poverty will be eradicated but also a sustained economy shall come into being in these countries.

He claims that 44 percent of conventional microfinance clients live in Muslim countries and that the United Nations has added half of the countries of Islamic Development Bank in the list of least developed countries, which shows that Islamic microfinance can be used to eradicate poverty from Muslim dominated nations.

He said that Islamic microfinance is essential to achieve Millennium Development Goals (MDGs), proposed by United Nations for alleviating poverty and social uplifting. He said that Islamic microfinance sector is facing difficulties due to apathy of donors and to fulfill this deficiency, sukuk (Islamic bonds) can be issued.

The center executive further said that more financial products can be introduced by enhancing research in the field of Islamic microfinance and there are many opportunities for development in this field.

AlHuda Centre of Islamic Banking and Economics has established a specific microfinance help desk so that trainings, research and technical consultation could be provided to microfinance institutions (MFIs) worldwide.
Riaz Haq said…
UBL is the largest investment bank in Pakistan, according to Express Tribune:

Headquartered on the eight floor of a non-descript office building on Karachi’s II Chundrigar Road, United Bank Ltd’s investment banking division is probably one of the most important players in Pakistan’s capital markets and yet it rarely, if ever makes the headlines.

Of the roughly Rs200 billion worth of private sector investment banking transactions in Pakistan last year, UBL was involved in about three-quarters of them. How did this team of 19 people come to be the largest investment bank in Pakistan?

While it certainly helps to be housed inside the fourth largest bank in the country by assets, UBL’s team appears to have benefited from having been designed from its very inception as an independent investment banking division, separate from the corporate banking team.

“We were the first specialised investment banking division amongst the Big Five banks, back in 1999 when Zubair Soomro was still running things,” said Saeed Iqbal, the erudite head of UBL’s team.

In 2003, the team was organised into three separate groups, allowing further specialisation of the bankers and helping the bank offer highly customised services. The debt capital markets and syndication team – which brings in about three-quarters of the investment bank’s revenues – deals largely with high volume, low margin transactions. The bank then has another team that deals with structured and project finance and a third that offers advisory services, equity market transactions and private equity placements.
“There is very little about corporate Pakistan that the big banks do not know about,” said Iqbal. “If there is somebody we do not lend to, there will definitely be a reason why.”

According to Iqbal, the group conducts between 20 and 25 transactions every year, ranging usually between Rs4 billion and Rs6 billion, though sizes can vary widely. The team typically does one large initial public offering every year. In 2011, that offering was Engro Foods’ IPO, which raised about Rs1.8 billion for one of the largest food companies in the country.

Despite the financial crisis that hit Pakistan and the rest of the world in 2008, UBL’s investment bank was able to retain its size and continue to grow its revenues. The secret to their success, says Iqbal, has been geographic diversification. About 25% of the group’s revenues come from abroad, from transactions conducted leveraging UBL’s network in the Middle East. Of the 19 people in the team, two work in Dubai full-time to manage the bank’s relationships with its investment banking clients.

The Middle East team was able to conduct the first ever syndicated financing in Yemen, when it raised funds for a 100 megawatt independent power project in that country.

As a result of their regional presence, UBL has been able to secure mandates from Pakistani companies looking to raise capital abroad. For instance, in December, they helped the state-owned Pakistan International Airlines raise $110 million in a three-year debt financing deal.

The equity business for UBL is relatively small. In 2005, the bank began a private equity business, initially focusing on proprietary investments – where it invested its own capital into companies. Owing to regulatory changes, however, the private equity business is now focused primarily on placements of private equity amongst institutional and high net-worth individuals. The team advised Lotte – the South Korean conglomerate – on its buyout of Kolson, the struggling cereal and pasta manufacturer....
Riaz Haq said…
Here's a news story on the success of Pakistan's microfinance sector assessed by Economist Intelligence Unit:

Pakistan today stands third in the global rankings of overall microfinance business environment and one cannot find India and Bangladesh even amongst the top 25 countries in the list, a leading banker said Friday. Ghalib Nishter, CEO and president Khushhali Bank in an interview quoted quoted a report published by the Economist’s Intelligence Unit titled Global microscope on the microfinance business environment 2011 to describe the success of microfinance sector in the country.

The Global microscope on the microfinance business environment 2011 benchmarks and evaluates business and operating conditions for microfinance in developing countries around the world. It is the Economist Intelligence Unit’s third annual effort to assign ratings to microfinance markets in 55 developing countries worldwide.

“We are much better than India and Bangladesh as far as the business environment for microfinance players is concerned. India’s microfinance has been a big disaster. The wildfire that spread from Andhra Pradesh has now engulfed the whole microfinance sector in that country. They are now doing what we have done in 2000, i.e. making a policy, regulatory and legal framework,” Nishter asserted.

He said that today Khushhalibank was the largest microfinance institution in the country with presence across Pakistan and particular focus on rural and marginalized areas. It has been a catalyst towards facilitating the establishment of the microfinance policy, legal and regulatory framework that proved critical in mainstreaming microfinance into the formal financial services sector as a commercially viable business proposition in Pakistan. The framework was attracting private investment in the microfinance sector leading to positive outcomes as evidenced by an increasing number ofmicrofinance banks, a competitive environment and growing financial service outreach to low income segments of the market.

“The success of Khushhalibank has motivated the private sector and foreign players to invest in this sector and today there are eight microfinance banks in the country along with around 20 microfinance institutions. There are 1500 microfinance outlets across the county.

The only growth in the banking sector seen in the last one decade is in the area of microfinance. Every major player of microfinance in the world is coming to Pakistan because of Khushhalibank’s success story,” he claimed.

As a consequence of these endeavors, the role and importance of financial service access in reducing poverty and promoting entrepreneurship is better understood and financial Inclusion is an integral part of the National Developmental Agenda, he added.
Riaz Haq said…
Here's an excerpt from Express Tribune on rapid growth of mobile banking in Pakistan:

Sharing statistics of SBP, Anwar said value of branchless banking transactions reached Rs79,410 million during the last quarter. Total number of branchless banking accounts have increased to 929,184, he said, while branchless banking deposits have grown to Rs503 million.

SBP introduced branchless banking regulations in 2008. He further said around 80 million branchless banking transactions of Rs300 billion have been executed in Pakistan. “I am expecting a surge in the number of access points to over 50,000 very soon,” he said. Total volume (number) of transactions has jumped to 20.6 million during the October to December 2011, Anwar said. The average number daily transactions has increased to 228,855, he added.

The average size of branchless banking transactions, Anwar said, is Rs3,855 which shows that mobile phone technology and agent-based banking are providing financial services to unbanked poor.

While talking about the benefits of branchless banking, he said, rural customers will no longer be required to travel long distances. He further said a large proportion of population – which is unbanked – has been heavily reliant on cash-based transactions, thus causing a negative impact on documentation of the economy, the tax-base, efficiency of economic transactions, etc.

Representatives of the world’s leading software providers gave detailed presentations and discussed case studies on how mobile banking has succeeded in other emerging as well as developed markets.

Mobile banking is the only way forward, said Mathew Talbot, Senior Vice President, Mobile Commerce Sybase 365 – which was recently acquired by SAP. Pakistan is one of the fastest developing markets for branchless banking in the world, he said, which is why Sybase is here.

Sybase provides technologies to banks, which enable the latter to have full control of their bank accounts and make transactions through mobile device regardless of their location. It creates opportunities for bringing the unbanked and under-banked segments of the society into the financial network.
Riaz Haq said…
eFinancal News reports that commodities spot market is planned for Lahore, Pakistan:

According to local media reports, the managing director for the Lahore Stock Exchange, Aftab Chaudhry, has announced that the exchange will look to set up a spot trading platform to enable farmers in Punjab to access better prices and allow banks to provide post-harvest financing to them.

Local regulator, the Securities and Exchange Commission of Pakistan, is already considering an application to establish a spot trading platform. Chaudhry said that if approval is not granted soon, the exchange would take matters into its own hands by establishing its own spot market using regulations governing co-operatives.

Chaudhry was reported to have described its own current spot commodity market as "opaque" with the pricing process dominated by middlemen.

A regulated spot market would allow farmers to access the best prices and also enable banks to lend more easily to them during the off-season once they have guarantees that the prices are an accurate reflection of the market.

Chaudhry said that the exchange is in advanced talks with many potential partners to establish the spot exchange by the end of 2012. The aim is to provide a trading system that combines both exchange technology and a mobile payment system using Singapore's Utiba system.

Utiba is currently used in more than 30 countries offering mobile payments and trading. Its mobile platform currently supports 500 million subscribers and processes over 12 billion transactions per year.

Agriculture is a key export for Pakistan, accounting for 21% of the GDP and 80% of the country’s total export earnings, with Punjab accounting for 29% of Pakistan's exports, according to figures compiled by the Punjab regional government. The main crops are cotton, wheat, rice, sugarcane and maize.

Pakistan already has a mercantile exchange, where futures are traded. Set up in 2007, the Pakistan Mercantile Exchange is licensed and regulated by the Securities and Exchange Commission and was the first technology driven, web-based commodity exchange in Pakistan. It has a 100% institutional shareholding.
Riaz Haq said…
Here's a PakistanToday report on SBP's efforts to increase funding of agriculture and financial literacy among farmers:

Presiding over a one-day ‘Farmers’ Financial Literacy & Awareness Program on Agricultural Financing,’ which was jointly organized by State Bank and Habib Bank Ltd. today at NRSP Training Center, Bahawalpur, he said the agriculture sector has a key role in country’s economy and stressed the need for making necessary finances available to farmers for multiple cropping activities. He outlined SBP’s efforts for creating awareness amongst the farming community and developing capacity of commercial banks through its various training and awareness programmes.
Dr. Saeed Ahmed, Head, Agricultural Credit and Microfinance Department, SBP said the programme is aimed at creating awareness among the farming community about agriculture financing products & services offered by banks, money management techniques and lending procedures, documentations, etc. Besides, it would also develop capacity of agriculture field officers of banks in agri. financing and synergize the efforts of all stakeholders including policy makers, executing agencies, service providers & farming community to improve access to agricultural credit, he said, adding that SBP’s promotional initiatives and policy interventions have translated into around 200 percent increase in the flow of credit to the agriculture sector from Rs. 137.4 billion in 2005-06 to Rs. 263 billion in 2010-11.
However, he pointed out, despite this encouraging growth, the disbursement to the agriculture sector was around 40% of the total estimated credit requirements. ‘SBP has planned to increase the disbursement to 70-80 percent during the next five years covering 3.3 million borrowers by adopting a multipronged strategy,’ he added.
The inaugural session was followed by a technical session for the agricultural credit staff of banks in which senior officials of SBP and HBL made detailed presentations on dynamics of agriculture finance and related policies. The purpose of this session was to train the agriculture finance officials of banks enabling them to conduct farmers’ financial literacy programs at their end and to share the best practices in agriculture lending with the participants.
Riaz Haq said…
Here's a Daily Times story on Pakistan's capital markets:

The capital markets in Pakistan offer transparency, best price and efficient execution coupled with attraction for foreigners as equity market trades at discount as compared to regional valuations.

Based on price earning (PE), price by volume (PBV) and payout, the Pakistani capital markets trades at lower levels as compared to regional markets. Such attractiveness must catch the eyes of foreign fund managers to explore the opportunities offered by the Pakistani capital markets.

Securities and Exchange Commission of Pakistan’s (SECP) Shahid Naseem and Imran Inayat Butt said this while making a presentation at an institute, organised by the US Securities and Exchange Commission (SEC) in Washington, DC.

The SECP strives to maintain fair, orderly and efficient markets, they said. It protects the rights of investors, facilitates capital formation and develops an efficient and dynamic regulatory framework in line with the principles of the International Organisation of Securities Commissions (IOSCO).

The participants were told that the SECP has a vast mandate, which includes corporate sector regulation, regulating securities markets, commodities market, insurance, pension, private equity, venture capital, NBFC, debt securities trustees and rating agencies. It is also responsible for the registration and licensing, supervision, enforcement, adjudication, appellate bench, investors’ education and awareness, development of legal framework, implementation of corporate governance and AML (anti-money laundering) and administration of professionals.

It was highlighted that after the 2008 stock market crash (when the index fell from 15,500 to 4,500 points), due to successful reform process led by the SECP the index has successfully recovered by almost 200 percent. With the recent developments on the regulatory and operational front and future roadmap, the Pakistani capital market will be comparable with developed international jurisdictions that meet the IOSCO benchmarks.

The International Institute for Securities Enforcement and Market Oversight for the past 18 years has been one of the US SEC’s flagship programmes to promote the quality of securities enforcement programmes around the globe, and strengthening and deepening international cooperation among securities regulators.

This time over 180 regulators from about 73 countries and jurisdictions from around the world are having intensive training and discussions on the most significant issues of securities enforcement. The ongoing seminar is providing an opportunity to participants to brainstorm on and learn from the challenges faced by the capital markets around the globe. It was a rare opportunity for the Pakistani regulator to address such an institute, showcase Pakistan capital market and interact with fellow regulators.\04\27\story_27-4-2012_pg5_5
Riaz Haq said…
Here's a Bloomberg story on demutualization of Pak stock exchanges:

Pakistan’s president Asif Ali Zardari, signed into law yesterday a bill to demutualize the nation’s stock exchanges, a move aimed at bringing the bourses in line with international peers.

Lawmakers approved the stock exchange corporatization, demutualization and integration law on March 27. Approval of the bill requires the nation’s three stock exchanges to be converted into companies.

The main Karachi Stock Exchange, home to companies including Oil & Gas Development Co. (OGDC) and Pakistan Telecommunications Co. (PTC), follows bourses from India to Malaysia in demutualization. Under a reform plan started in 1997, management independent of the government automated trading and risk-management systems were introduced at the exchange.

The law allows the Karachi, Islamabad and Lahore stock exchanges to convert themselves into for-profit entities owned by shareholders from non-profit, mutually owned organizations.

“It will be a step forward in every way,” said Shahrukh Naqvi, head of equity sales at Invest Capital Markets Ltd. in Karachi. “It will improve confidence among retail investors, provide better price discovery and turn the market into a real source of capital for companies.”

To contact the reporter on this story: Farhan Sharif in Karachi, Pakistan at
Riaz Haq said…
Here's a BR report on mutual fund industry in Pakistan:

What's the overall progress of the mutual fund industry in Pakistan? Pakistan was in the forefront amongst developing countries in initiating Mutual Funds.

The National Investment (Unit) Trust an Open End Mutual Fund was started in the year 1962 under the management of the National Investment Trust Limited.

In 1966 the Investment Corporation of Pakistan started floating Closed End Mutual Funds.

Other important landmarks in the development of the mutual fund industry have included the Notification of Investment Advisory Rules in the year 1969 after which the first closed end Mutual Fund in the Private sector Golden Arrow Selected Stock Fund was launched in 1983.

In 1995 the Asset Management Companies Rules were notified and with that the Private Sector was also allowed to float Open End Mutual Funds.

In 1997, the first Open End Mutual Fund in the Private Sector , the Unit Trust of Pakistan , a Balanced Fund was launched by the Abamco Limited ( since then name of Abamco Limited has been changed to JS Investments Limited ).

The year 2000 saw some more Asset Management Companies (AMCs) in the Private Sector getting licenses for the launching of Mutual Funds.

In 2005 the Voluntary Pension System Rules, 2005 were notified and AMCs were allowed to apply for licenses for the launching of the Voluntary Pension Schemes (VPS).

The entry of the private sector in the Asset Management Industry saw the initiation of further continuing innovation in the Mutual Fund industry and these Private Sector AMCs launched several categories of Mutual Funds which gave the prospective investors choices for investment in keeping with their investment objectives and appetite for risk.

introduced by the AMCs since 1997 includes in addition to Equity Funds, Income Funds, Money Market Funds, Balanced Funds, Asset Allocation Funds, Capital Protected Funds, Funds of Funds, Pension Funds, Islamic Equity Funds, Islamic Income Funds, Islamic Money Market Funds, Islamic Balanced Funds, Islamic Asset Allocation Funds, Islamic Capital Protected Funds, Islamic Pension Funds and Index Funds.

The Mutual Fund industry in Pakistan has not developed up to now in terms of total size of the assets under management and the number of investors as would be a reasonable expectation given the head start Pakistan had in the introduction of the Mutual Funds more than fifty years back.

As on the 31st December 2011 the total Assets Under Management (AUMs) of AMCs in Pakistan stood at Rs 300 Billion as against total Bank Deposits on that date of Rs 5489 Billion or only 5.4 percent of the total Bank Deposits.

In comparison with this in India where Mutual Funds started a few years after they did in Pakistan, the total AUMs of AMCs on the 31st December 2011 were Rs 6.817 Billion Indian Rupees and the total Bank Deposits on that date were Indian Rupees 57,300 Billion.

Thus the AUMs with AMCs in India were 11.9 percent of the total Bank Deposit in the country, Also as on the 31st December 2011, even if we ignore the exchange rate differential, the assets under management with Indian AMCs were 22.72 times bigger than the Assets Under Management with AMCs in Pakistan when the total GDP of India is about 8.77 times bigger than that of Pakistan.

In the US the total asset in mutual funds are about 150 percent of the total bank deposits.

In Europe and Japan the total assets in mutual funds are about 35 to 40 percent of the bank deposits.

In South East Asia and Pacific Region countries the total funds managed by mutual funds are 20 to 35 percent of the bank deposits.

There are many reasons why the AMCs in Pakistan have not been very successful in increasing the assets under their management to any significant level as compared to AMCs in India and other developing countries in Asia and Pacific Region-------.
Riaz Haq said…
Here's Peninsula Qatar report on Pakistani banks:

The political situation in Pakistan has left local banks with fewer or no avenues to invest except in government treasury bills, a senior official of Pakistan’s second largest bank, United Bank Ltd (UBL), told The Peninsula here yesterday.

Keeping in view the political and economic conditions, Pakistani banks are very much risk-averse. They continue to prefer financing fiscal deficit instead of searching for new investment avenues, taking risks and building partnerships to facilitate credit to the private sector.

Atif R Bokhari, President and CEO of UBL, who was here to open a new branch of the Bank in West Bay, said: “Financing fiscal deficit is not by our choice; this phenomenon is because of the circumstances and environment. After 2007 onwards, economic activities slowed down in Pakistan. If there is no investment by the entrepreneurs, banks are not into the business of setting up their own projects. We need to partner with the local investors. If they are shy of investing in the country at the current situation, obviously there will be no demand for the private sector credit.

Government’s support pricing policy for wheat, cotton and sugar has created immense wealth in the agricultural sector in the last four years. A lot of money has gone into the agricultural sector from the manufacturing area, and agriculture is not known for investment and manufacturing. So due to deposit creation, there are no avenues for investment by the banks other than government T-bills.

“We are in the business of project, corporate and consumer finance. Once things take shape and investment starts coming in, we would not like to buy just T-bills”, added he.

Bokhari admitted that the banks are now risk-averse due to shortage of gas and electricity in the country which is essential to support a vibrant manufacturing sector. Fundamentally these are the issues which are prompting the banks to become risk-averse.

He said he anticipates an improvement in the situation after the general election which is due by the end of 2012 or early next year.

Pakistan is struggling with a number of major issues and one of them is the shortage of power for industrial use. The shortage is 4000 to 5000MW.

The current installed capacity in the country can actually meet the power requirements. But the vicious debt cycle has forced the government to close down some of the less economical power plants.

“Banks and entrepreneurs in Pakistan are realizing that there is no place in the world to hide today. Even if you take the money to the US or Europe, you don’t know what is going to happen. So it’s better to invest in something which you are familiar with and have more control over”, he added.

He further said that the US economy is gradually stabilizing, so there is no fear of double digit recession in the world’s largest economy; secondly, if the Shale Gas in the US materializes, that may bring oil prices down further to enhance global economic output in general and US in particular.

In addition, the equity markets are also recovering; especially the Dow Jones has done remarkably well over the last 18 months. So a lot of money is expected to flow in the US economy, Bokhari added.
Riaz Haq said…
Here's a BR story on State Bank governor encouraging Pak banks to finance SMEs:

KARACHI: Governor, State Bank of Pakistan, Yaseen Anwar has stressed upon the banks to give top most priority to SME banking with a view to ensuring uninterrupted flow of financial access to SME sector in the country.

Speaking at the signing ceremony of the project document between the State Bank of Pakistan (SBP) and Bank Alfalah under the DFID-funded Financial Inclusion Programme (FIP) at SBP, here Monday, he said the role of banks, especially of mid-tier banks, is crucial to ensure unhindered flow of financial resources to the SME sector which is the engine of economic growth in Pakistan.

"Though many banks in the market are trying to improve their market position in order to serve the sector more effectively, the current level of SME finance as well as an overall level of SMEs access to banking services remain unsatisfactory, and as such call for more serious efforts on part of the banks", SBP Governor added.

Anwar said that SME financing is very close to his heart due to its key significant contribution in the economic development of Pakistan. "The SME sector plays an important role in employment generation, poverty alleviation, and equitable distribution of resources and is the engine of growth", he added.

He pointed out there are 3.2 million economic establishments, of which 99% are SMEs, and SME sector represents over 90% of all enterprises and employs 75% of the non-agricultural workforce and contributes 30% towards the national GDP.

"However, despite its strong contribution in employment generation, exports, and national income, the SME sector is severely constrained in access to finance which is crucial for its growth", he added.

SBP Governor advised the banks to study the international examples of successful SME banking models which include Retail-based Model for Mass SME, Relationship-based banking, Advisory-based lending services, Segment-based Model, and Supply-chain linked Model.

Regrettably, he said that despite its immense significance and potential, the SME sector in Pakistan remains largely financially excluded, the current level of financing facilities to this sector stand at Rs 253 billion, constituting only 7% of the banks' total advances.

Anwar said that with the SBP- Bank Alfalah and International Finance Corporation (IFC) nexus, and the generosity of DFID, we can have more joint ventures of this sort in the future that would lead to a sustainable, sound and integrated financial system, characterised with ready access to finance, diversified loan portfolio and extended outreach to SMEs.

He said the State Bank, under the DFID-funded "Financial Inclusion Programme (FIP) will provide funding support to Bank Alfalah (BAF) in undertaking the IFC SME Advisory Project. "The main objective of the project is to create a symbolic podium which can position Bank Alafalah to cater to the financing needs of the SME sector including the S and M segments through a holistic banking and advisory services solution", he added.

SBP Governor said the SMEs need to be addressed through innovative credit assessment tools and techniques like credit scoring and capacity enhancement of the financial service providers, and an integrated approach to SME Banking. DFID and SBP are keen to upscale FIP to reach out the unbanked segments in Pakistan. Going forward, FIP funds will also be targeted to improve financial inclusion through SMEs banking, Anwar added....
Riaz Haq said…
Here's Newsweek Pakistan interview with Steve Bertamini, CEO of Standard Charter Bank:

RBS has left, HSBC is leaving, Citibank has scaled down its presence. As CEO of Standard Chartered bank’s consumer banking division, how do you see the Pakistani market?

The economy is very tough in terms of inflation and interest rates. It’s probably going to take two to three years before the environment materially improves; but having said that, you’re seeing again most large banks doing well in this environment. GDP is continuing to grow, and foreign remittances coming into the country are healthy. These are good trends. Even if the economy grows at only 5 or 6 percent, that’s still much better than economies in the West. Sometimes you lose sight of the fact that things may seem tough but, on a relative basis, you’re still much better off than many.

Other international banks didn’t feel the same way.

Most international banks have a relatively small share of the Pakistani market. We’re something like 7 or 8 percent, and all the other guys are 3 percent. As domestic pressure increases banks will reduce their exposure in either noncore markets or markets outside of their main geography. Pakistan isn’t the only place we’re seeing reduced foreign competition, though we’ve also seen this tends to be cyclical. So whether it’s three or five years from now, all of a sudden when everything’s okay at home again and the balance sheet’s been sorted, you’ll see an influx again, very aggressive pricing, other measures to stabilize the market, people will get in, and life will go on. You should also see this as a cycle, not as a fundamental shift that all of a sudden there’s no interest. Provided Pakistan continues to improve its infrastructure and creates the right environment, foreign investment will come in because you have a large population. The demographics are going in the right direction. There are going to be bumps along the road but this is how these markets move and develop.

How’s your Islamic banking division faring?

We’re seeing a lot of growth in Pakistan. It is a real positive sign to our customers that there’s a commitment from us not only to the country—we’ll have been here 150 years next year—but also to a particular way of banking. However, what we do tends to appeal more to the moderate population. The larger part of the market is actually moderates. We’re more geared toward high value, tech-savvy customers, so I think we can carve a very nice niche.

How do you see technology changing the way we bank in Pakistan?

There is an increasing shift to digital channels. I don’t think that means that the traditional branch goes away but that what the branch does changes. Transactions are shifting and will continue to shift very quickly to digital channels, in some cases primarily to mobile phones because the Internet doesn’t make a lot of sense either because of bandwidth issues or installation costs. Right now you can do increasingly more [digitally], but it’s still just simple transactions. We’re going to see a shift to digital but that’s a complementary channel as opposed to a competing channel. After the financial crisis it’s become clear that there is limited appetite by regulators to allow new people into banking. They’re really focused on ensuring that the banks that are around are sound and well-capitalized. You’re going to see new media companies looking for partnerships with banks as opposed to necessarily being direct competitors.

How has the South Asian consumer banking market changed over the last 10 years?

The competitive gap between foreign and domestic players is now very close. Customers are increasingly more educated, they’re smarter, and they know what they want.
Riaz Haq said…
Here's a BR report of banking developments in Pakistan:

The Governor of State Bank of Pakistan, Yaseen Anwar on Wednesday said two more international large banks will start their operations in Pakistan soon.

He was responding to a question at 9th Annual Excellence Awards ceremony organized by CFA Society of Pakistan here.

The SBP Governor said a large Turkish bank will start its operation in Pakistan soon while another international bank is due shortly. He pointed out that the country's foreign exchange reserves have once again increased to over $15 billion.

Earlier, speaking at the ceremony, the SBP governor said the fast growing network of branchless banking agents has reached over 26,000 as of March 31, 2012 and total volumes of transactions have increased to 25.3 million, up 23 percent. Deposits have grown by 18 percent to Rs 594 million.

"This fits well into our Financial Inclusion Strategy." In fact Central Bank mandates should have an expanded mandate to include those sectors of Financial Exclusion. This adds to overall growth of the economy and women should be an important component to this effort.

He said the CFA curriculum places due emphasis on the code of ethics and professional conduct for financial analysts and investment professionals. With the growing number of chartered financial analysts, the markets are expected to be better-off from their high ethical standards and improved knowledge of the financial markets, instruments and associated risks.

He pointed out that the World Bank's country review of Pakistan based on OECD Principles on Corporate Governance (Report on Observance of Standards and Codes) rated Pakistan above average on most of the Principles.' Further, in a survey, the World Bank rated Pakistan as the leader on the robustness of corporate governance standards and practices in South Asia.

On the issue of consumer protection, availability of an effective redressal system adds to the confidence of the financial system and ensures that customers are being served without any discrimination. Consumer protection is primarily based on institutional arrangements that include a formal set of disclosure requirement and addressing grievance mechanisms. Besides, customers also desire proper handling and maintenance of their accounts, and privacy of their personal financial information. For cost effective and quick redressal, SBP has issued necessary guidelines to the banks regarding complaint handling along with institutionalization of the Banking Mohtasib Pakistan.

The State Bank has also taken considerable interest in enhancing the capacity of its own human resource as well as that of the banking sector that is an important element for ensuring the effective implementation of the regulatory requirements.
Riaz Haq said…
Here's a PakistanToday story on the impact of wide rate spreads between deposits and loans in Pakistan:

The government should reduce the high banking spread and bring down the mark up rates to encourage savings, investment and easy credit facility for growth of business activities.
This was stated by Islamabad Chamber of Commerce and Industry (ICCI), President, Yassar Sakhi Butt in a statement issued here on Saturday. He said high banking spread in Pakistan is one of the major causes of low savings, dwindling investment and sluggish business growth in Pakistan.
He said that banking spread in Pakistan was more than 7 percent which was one of the highest while it was 3 percent in USA, 1.7 percent in Japan, 4 percent in India, 4.4 percent in Sir Lanka and 5.5 percent in Nepal and demanded that the State Bank of Pakistan must direct commercial banks to narrow down the gap between lending and deposit rates for providing better returns to the depositors and encouraging savings.
ICCI President said that the banking sector was earning significant mark-up income on the basis of high spreads and high interest rates, which was not a wise approach to facilitate the growth of private sector in the country. He said that banks should reinvest the depositor’s money in private sector's development and business activities rather than investing it in zero risk government securities.
Yassar Sakhi Butt said that the high interest rate was pushing up cost of doing business in Pakistan and was also discouraging new investment as investors are very sensitive to the movement in interest rates. In such circumstances, the increased cost of production would make our products more uncompetitive both in national and international markets, he maintained.
He said that Pakistan was witnessing a sharp decline in private sector investment and it was the high time that SBP should change its tight monetary policy approach and reduce key policy discount rate to encourage the private sector investment and growth of business activities.
ICCI President also criticised the heavy borrowing approach of the Government from the banking sector, which was crowding out the private sector from credit facility. He stressed that instead of resorting to heavy borrowing from banks to reduce fiscal deficit, Government should take measures to expand the tax base by bringing untaxed sectors of economy into the tax net, which was the right approach to generate more revenue and overcome the fiscal deficit.
Riaz Haq said…
Here's a news story about plans to build commodity storage facilities for mercantile exchange in Pakistan:

Pakistan Mercantile Exchange (PMEX) is planning to establish Pakistan Collateral Management Company for providing storage facilities for futures trading of commodities in Pakistan. Faisal Malik, Business head of agricultural products, PMEX here on Monday explained investment opportunities and benefits of agricultural commodities futures trading at the PMEX to brokers and general investors.

In this regard, a seminar was conducted by Pakistan Mercantile Exchange (PMEX) at Islamabad Stock Exchange Limited (ISE) on 'Agricultural commodities trading in Pakistan for the commodity traders and general investors'. This seminar was a part of a series of trainings started earlier with special focus on educating the traders and general public about the new deliverable agricultural commodities introduced by PMEX. Basic purpose of these products is to route the investments through regularised Exchanges which is a proper channel and will help in best price discovery of the agri-commodities in Pakistan and also helps in strengthening the economy.

Explaining the basic concepts, he said that the futures contract is an agreement between two parties entered on the floor of the exchange to buy or sell a commodity at a certain time in the future for a certain price. He said that the futures contracts can be useful when marketing grain or livestock because they can be a temporary substitute for an intended transaction in the cash market that will occur at a later date. In the absence of a proper risk-management tool, banks are reluctant to fund farmers. If they do, the interest rates are very high. The availability of futures markets and hedging facilities reduces the risk perception, and banks are willing to provide easy credit to farmers.

Faisal Malik highlighted that a number numbers of products in pipeline for futures trade on international commodities in gold, silver, crude oil, palm olien and futures on domestic commodities to be available in Rice IRRI-6, sugar, wheat and in financial futures to include Karachi InterBank Offered Rate (KIBOR) futures. Other products in futures pipeline are international cotton futures, currency futures, T-Bill futures, domestic cotton futures, maize futures, cottonseed oilcake futures, copper, steel futures and futures on refined petroleum products.
The "Big" challenges faced by the commodities market, he explained as market awareness, documentation of economy, competition with unregulated trading houses/exchanges, he stated. He further informed that a large number of commodity trading houses commonly known as Forex houses are operating across Pakistan. Even a conservative estimate suggests that their trading volumes are much higher than the combined volume of PMEX and Karachi Stock Exchange (KSE).

A large group of people have attended the session and have shown keen interest entrust in commodity trading. Mian Ayyaz Afzal, Managing Director, ISE appreciate the efforts of PMEX in creating awareness among the general public. He emphasised that there is a dire need to promote saving culture in the country and as an agricultural based country our economy needs such exchanges to regularise the trade of Agri-commodities.
Riaz Haq said…
Here's an ET article on private equity and debt markets as propellers of economic growth:

Let’s start by asking why are most investors in financial assets only interested in stock and bond markets, to the extent that even the premier CFA institute examinations and most university programmes almost solely focus on these two.

Here is why. These are the only two saving vehicles (asset classes) that are large, liquid and have visible prices. World public equity market capitalisation at $50 trillion (Bloomberg) and bond market debt outstanding at $95 trillion (CityUK), provides decent saving depth for global GDP (annual income) of $65 trillion.

The tangible asset market, mostly real estate (but including under/over-ground commodities and personal property), is even larger at $150 trillion, but is illiquid, due to relatively large ticket deal sizes and non-standardisation and hence is called an ‘alternative asset class’.

Private equity or shares of unlisted companies are interesting. They are grouped as alternatives due to liquidity constraints and big deal sizes, but otherwise seem the same securities, ie equity.

Before I elaborate, let’s try to ascertain the total size of private equity market. According to Credit Suisse 2011 Global Wealth Report, total net wealth in the world is $231 trillion. From this, we minus the value of ‘real’ assets, stock markets and $5 trillion in cash and demand deposits. The size of bond market is not included in the calculation as one person’s bond asset is another’s liability and it cancels out. Hence, estimated value of private companies comes to $30 trillion, which is smaller than the public equity market but still huge.
Conclusion: Private equity presents a huge universe of opportunities and can certainly add value to High Net Worth (HNW) portfolios containing only stocks and bonds, by both increasing return and lowering true volatility at the same time. It is certainly an alternative investment class, but not only because of low liquidity, but rather because it marries management science with pure investment.
Riaz Haq said…
Here's a Gulf Daily story on Pakistan's new rules for sukuk:

SYDNEY: Pakistan's regulator has issued new draft rules for the issuance of sukuk, or Islamic bonds, as part of a range of initiatives to boost the Islamic banking sector in the country.

Under the rules, sukuk will have to be structured to comply with standards of the Bahrain-based Accounting and Auditing Organisation for Islamic Finance Institutions(AAOIFI), as well as those set by the local regulator.

The draft rules also include requirements for disclosure of information about the issuers and for the issuers to appoint Islamic scholars who vet the sukuk structures.

There is a consultation period on the draft until October 15.

The number of individual sukuk issues in Pakistan has shrunk in recent years, despite the rapid growth of issuance globally, which is projected by Commerzbank to exceed $100 billion this year.

Last year, the Pakistani sukuk market was led by three sovereign sukuk which raised a combined 163.6bn rupees ($1.72bn), according to securities commission data.

Three corporate sukuk raised a combined 5.4bn rupees. This compares with 21 sukuk in 2007, most of which were corporate, raising a combined 49.3bn rupees. In 2008 there were 18 sukuk which raised 31.9bn rupees.

AAOIFI standards indicate how Islamic financial products should be structured; following the standards could increase the interest of foreign investors in investing in Pakistani sukuk.

Pakistan aims to lift Islamic finance's share of its banking sector through a series of reforms. Last month the central bank said it was developing a five-year plan for Islamic banking.

The country is introducing new rules for takaful (Islamic insurance) designed to increase competition.
Riaz Haq said…
Here's a BR report on World Economic Forum ranking of Pakistani financial system:

Amir Jahangir, Chief Executive Officer - Mishal Pakistan, a country partner institute of the Center for Global Competitiveness and Performance, World Economic Forum said that "the Financial Development Report 2012 ranks 62 of the world's leading financial systems and capital markets, analysing the drivers of financial system development in advanced and emerging economies to serve as a tool for countries to benchmark themselves and establish priorities for reform". The rankings are based on more than 120 variables spanning institutional and business environments, financial stability, and size and depth of capital markets, among other factors, he added.

Pakistan continues to show stability on the Financial Development Index of the World Economic Forum on the indicators; cost of closing a business, where the rank of 5 was maintained, also showing stability in frequency of banking crises and output loss during banking crises, Pakistan again secured the top rank of 1 among 62 economies; similarly on the public ownership of banks, which is a percentage of assets held by the 10 largest banks that is located in banks that are more than 25 percent government owned, Pakistan again secured the top rank of 1.

The Report also shows an improvement in the total number of active borrowers from microfinance institutions per 1,000 adults, where Pakistan has improved its position of 12 in 2011 to 9th in 2012. Pakistan has shown slight improvements on the strength of auditing and reporting standards, where it is ranked 48 in 2012 as compared to 52 in 2011.

On the pillar of legal and regulatory issues Pakistan has shown significant gains, by improving the burden of government regulations, securing 21 rank as compared to 32 last year. The regulation of securities exchanges has also improved 5 points with a rank of 37 out of 62 economies globally.

The current account balance to GDP, a variable, which is the three-year average of current account balance to GDP, indicates the difficulty Pakistan had in mobilising the foreign exchange necessary for debt service (from 2009 to 2011) has also improved from 53 last year to 40 in the current year.

The economy has also shown improvements in the "aggregate profitability indicator", which is based on a three-year average of three measures of profitability: net interest margin, bank return on assets, and bank return on equity, this was measured on an average from 2008 to 2010, Pakistan improved 8 points on this, securing 41 rank on the Financial Development Index 2012.

Other area where Pakistan showed improvement of 14 ranks was the real growth of direct insurance premiums, where Pakistan stands at 30th rank. However Pakistan showed discouraging performance on various key indicators, where it lost it development advantage on multiple factors, whereas; intellectual property protection (53) and effectiveness of law-making bodies (47) as compared to 48 and 43 from last year. The distortive effect of taxes and subsidies on competition, which is to what extent does government subsidies and tax breaks distort competition, Pakistan lost its rank from 46 in 2011 to 53 in 2012.


Whereas the world has shown improvements in the banking system, such as Tier 1 capital ratios and non-performing loans to total loans, Pakistan has declined in these two indicators, securing 26 and 57 out of 62 economies in 2012. The decline in deposit money bank assets to GDP (52); the private credit to GDP which is a variable showing private credit by deposit-money banks and other financial institutions as a percentage of GDP also declined from 48 in 2011 to 56 in 2012....
Riaz Haq said…
Here's an ET report on the start of index futures trading in Karachi:

KARACHI: AKD Securities CEO Farid Alam struck the gong on Friday at the Karachi Stock Exchange (KSE) to mark the commencement of market making in Stock Index Futures Contract (SIFC).

As an index-based contract with its price resting on a pre-determined contract multiplier, the SIFC aims to provide investors with an opportunity to “mimic returns on the KSE-30 Index,” according to Alam, whose company will act as the market maker for the SIFC.

Therefore, the SIFC is designed to provide a hedge for individual investors and institutions to take counter-balancing positions while offering basket exposure to index stocks.

“Global fund managers are becoming increasingly aware of the potential that Pakistan’s capital markets offer, which makes the SIFC more valuable,” Alam said.

Stock index futures – designed to link the stock market with the futures market – were first introduced in 1980 on the New York Stock Exchange (NYSE).

They are a typical example of a derivative – a financial instrument widely blamed for causing the 2008 global financial crisis, which can be defined as a security whose price depends on, or derived from, one or more underlying assets.

The Securities and Exchange Commission of Pakistan (SECP) allows mutual funds to use derivatives for hedging against their risks. Therefore, an index-based mutual fund duplicates the holdings of the underlying index. This means that if the underlying index increases by 5%, for example, the SIFC on that index will also rise by 5% for that mutual fund.

Speaking on the occasion, KSE Managing Director Nadeem Naqvi said stock index futures were introduced on the Bombay Stock Exchange in June 2000.

He added that their activity remained weak until 21 market makers started working in May 2002, as daily trading volumes increased seven times in one year.

Market crash?

Naqvi said many people feared a stock market crash – like the one experienced in 2008 – in view of the KSE’s over-the-top performance in the recent past. Saying that such a crash was highly unlikely, Naqvi noted that market capitalisation was roughly 45% of the country’s gross domestic product (GDP) when the stock market crashed in 2008.

“It’s true that the KSE-100 Index is at a historic high these days, but if you see market capitalisation as a percentage of the GDP, it’s nowhere near the level of 2008,” he said.

Pakistan’s GDP in 2011 was $211 billion. According to the KSE, market capitalisation as of November 13, 2012, was $42.3 billion, which makes it roughly 20% of the 2011 GDP. “I believe the market has a lot of potential to expand and the SIFC is going to help it grow,” Naqvi said.
Riaz Haq said…
Here's a BR report on Pakistani central bank's strategy for strengthening financial services industry:

The Governor, State Bank of Pakistan (SBP), Yaseen Anwar, has outlined the Central Bank's 10-point banking strategy for the growth of the financial system in the country.

This strategy focuses on implementing a financial inclusion programme for underserved economic sectors of the country, to strengthen consumer protection through legislation and codes of conduct and strengthen competition and efficiency with greater transparency as well as to consolidate the banking sector's corporate governance and risk management practices.


He said the State Bank's constant monitoring of the banking sector's portfolio has meant that today our banks are profitable, extremely healthy and robust.

Yaseen Anwar said the World Bank, and renowned publications, the Financial Times and The Economist, have recognized the State Bank's role in promoting innovative solutions, especially in microfinance, to get more people into the banking sector.

SBP Governor said the State Bank regulates the economy as a whole by using monetary policy instruments, which are transmitted through the financial sector.

`The potency of our monetary policy instruments depends on how many people are actively using formal channels of borrowing and lending', he added.

The SBP chief said the State Bank's monetary policy tools have become much more potent since the introduction of secondary markets that trade government securities, and the removal of distortions from within these markets.

Explaining as to how monetary policy works in Pakistan, Yaseen Anwar said that monetary policy tools target the interest rate.

`It's important to understand just how they do that. Different central banks use different tactics, but at the State Bank, we intervene primarily in the overnight interbank market.

This is the market where interest rates on loans that banks make to each other for a day. The central bank itself is a player in this market and steps in to either provide funds in times of need or drain money in times of excess. By doing that it manages the overnight rate to keep it within a certain band.

The monetary policy rate that is announced in the press indicates the ceiling of this band. The overnight rate is linked to all other interest rates in the market. By changing the ceiling of the band, which the overnight rate fluctuates in, the central bank is able to influence interest rates', he added.

The SBP Governor pointed out Pakistan has never undergone a bout of hyperinflation but the past few years have seen higher than average inflation, the effects of which every individual has felt.

Inflation has reduced markedly in the past few months, he said and added: `It was because of this that the Bank decided to reduce its interest rate as well. The benchmark rate now stands at 9.5 percent.

We also expect that average inflation for the year will remain below 9.5 percent. A part of the reduction in inflation may be attributed to State Bank's active monetary management policies'.

He said the State Bank also ensures that the money market is never short of, or in excess of funds, and this means that monetary policy signals are transmitted efficiently.

He recalled: `Our equity market has been a consistent feature in Asia's best performing stock markets. Since we established a secondary market that can buy and sell government debt, our financial markets have become a lot more agile and responsive to policy changes. That's actually been one of the most important outcomes of the financial sector's reformation'.
Riaz Haq said…
Here's Bloomberg on informal savings and investment in Pakistan:

Ali has been selling wall clocks and wristwatches in a crowded Karachi market for 15 years. He’s been participating in savings circles with fellow shopkeepers for just as long, and has used the proceeds to buy a car and acquire a new store.

Now he’s a few months away from getting 400,000 rupees ($4,100) from a savings group of 16 shopkeepers into which he’s been paying 1,000 rupees a day for almost a year. He plans to put a down payment on an apartment. “This system is flawless,” says Ali, 35, who goes by one name. “You can never save this way without this binding commitment of making payments every day or every month. At banks there are hassles and procedures that waste time. This is simple. The organizer comes to collect the money himself, and because of the trust element, it’s a given that we’ll get the money.”

Millions of Pakistanis save billions of rupees in informal, interest-free savings circles called ballot committees—popularly known as BCs—run by housewives, students, office workers, shopkeepers, even high-society ladies. Each member of a group of trusted friends or relatives contributes the same sum daily or monthly to a pool for a predetermined length of time, usually one year. Through a ballot, each participant is allotted a number indicating his or her turn. Every month, one participant gets the pool total. Everyone on the committee keeps contributing until each member gets a pot of cash.


No one knows the origins of savings circles, but they’re found in Africa and Latin America as well as Asia. “This system has existed in South Asia as long as I’ve known, and it was started by low-income women who were financially insecure,” says Ashfaque Hasan Khan, dean at the business school of the National University of Sciences & Technology in Islamabad. “The purpose was to hedge against a problem or to pay for a son or daughter’s wedding.” In India a similar savings plan, called a chit fund, flourishes. The big difference is that India’s savings circles, after years of operating on their own, are now regulated by the government.

No estimates exist of the total amount of the funds collected by the committees. In Karachi alone, the All Karachi Traders Alliance Association estimates 10 million rupees pour into ballot committees on a daily basis. “The size and volume of the circles is on the rise because inflationary pressures mean people need more cash now to do the same things,” says Dean Khan of National University. Inflation in Pakistan is close to 8 percent. While the official savings rate is 10.7 percent of gross domestic product, it is probably higher thanks to the committees.

Another reason the ballot committees are flourishing is the low level of financial literacy in Pakistan and the reluctance of ordinary Pakistanis to take part in cumbersome banking procedures. “Coverage by bank branches is fairly limited, especially in rural areas,” says Sakib Sherani, chief executive officer at Macro Economic Insights, a research firm in Islamabad. “The ballot committees offer greater flexibility and avoid the hassle of traveling to a bank, keeping documentation, and paying service charges.”

Only 14 percent of Pakistanis use a financial product from a formal financial institution, according to a 2009 World Bank report. That compares with 48 percent for India. But when informal financial networks such as the BCs are taken into account, 50.5 percent of Pakistanis have access to finance, according to the report. ....
Riaz Haq said…
Here's Gulf News on Pak State Life growth in GCC nations:

In the UAE since 1978, the state-run SLICP has branches in Abu Dhabi, Dubai, Sharjah and Al Ain – which alone saw an 80 per cent business sector expansion.

In 2012, the Zone generated revenues to the tune of $18 million (around Dh66 million), with about 20,000 policy holders in its client base. It started with just 35 employees but now has about 100 staff members.

The revenue boom has been attributed to active sales staff and managers, who were given various prizes during the annual ceremony, held at the Taj Palace Hotel in Dubai. Policy holders too are being rewarded — with SLICP’s increased capacity to bestow eight per cent bonuses compared to only four per cent four years ago.

“I hope people will continue to take benefits through State Life. It has been the vision of the Pakistan People’s Party and the Ministry of Commerce to see that benefits reach the masses… The Gulf Zone office has performed well, and it will be converted into a Regional Office,” Fahim said.

The government-owned corporation is one of the few state companies that are actually profitable, SLICP Chairman Shahid Aziz Siddiqi was quoted as saying recently in an article in the International Herald Tribune.

Pakistan’s consul general in Dubai, Tariq Somro, added: “I hope the achievements of the Gulf Zone brightens the name of State Life and of Pakistan as well. People with good performance records should be rewarded, as always.”

The corporation is also making in-roads with non-Pakistanis as well, said Khalid Mahmood Shahid, Zonal Chief – Gulf Countries, SLICP. “We have policy holders in the UAE and elsewhere who are non-Pakistani — Lebanese, Emirati, Americans, British, Indians, Bangladeshis.

“That’s because we’ve got a number of special products not available through others, like one policy for both life partners without the other having to pay a premium — like a ‘buy-one-get-one-free deal.’”

Based in Karachi, SLICP is a nationalised insurer with 2012 total premium income levels rising almost 20 per cent to Rs53.9 billion (about Dh2 billion).
Riaz Haq said…
Here's Daily Times on crop insurance for small farmers in Pakistan:

ISLAMABAD: The Pakistan Poverty Alleviation Fund (PPAF) has launched the first-ever indexed and hybrid weather micro-insurance products to facilitate and compensate small farmers in Pakistan.
Presided over by Securities and Exchange Commission of Pakistan Commissioner Muhammad Asif Arif, a simple ceremony to this effect was arranged at a local hotel, which was attended by representatives of State Bank of Pakistan, the World Bank, International Fund for Agricultural Development (IFAD), KfW, German Development Bank, UKAID, Tameer Microfinance Bank, National Disaster Management Authority, Pakistan Microfinance Network, government bodies, insurance companies and others.
Addressing the occasion, Arif said that micro-insurance stands at a critical juncture in Pakistan. He commended PPAF on for introducing revolutionary indexed crop and livestock insurance products in Pakistan. As regulator, he said, SECP has remained committed to promoting micro insurance in the country through research, introducing pivotal regulations and promoting a healthy policy environment.
PPAF Board of Directors Member Zubyr Soomro said that the need for micro-insurance has been felt over the years and it is the tipping point to upscale it. He said that we would have to make the most of this opportunity. He said that sincere efforts are needed to make micro-insurance sustainable.
In his remarks, PPAF Chief Executive Qazi Azmat Isa said that micro-insurance initiative is the result of close collaboration between PPAF and IFAD. He lauded the role of insurance companies and SECP as a regulator to make micro-insurance a success. He said that farmers are badly affected by climate change, fluctuation in the prices of their produce and poor quality of agri inputs. He said that micro-insurance would prove to be a vital instrument in fight against poverty.
State Bank of Pakistan Agricultural Credit and Microfinance Department Senior Joint Director Kamran Bakshi said that by launching indexed and hybrid weather micro-insurance PPAF has provided a unique platform to market leaders to serve the poor, particularly the farmers. He said that the focus must be on protecting the borrowers.
PPAF’s Senior Group Head Ahmad Jamal said that PPAF is committed to grassroots development and micro-insurance would prove to be one of the instruments to alleviate poverty. He said that PPAF would capitalise on its outreach so that maximum people could benefit from micro-insurance.
PPAF’s Financial Services Group Head Yasir Ashfaq highlighted that these products will lead the new era for micro insurance in Pakistan. He said indexed insurance products are easy to administer, transparent, innovative and significantly reduce any chances of moral hazard or fraud. He said PPAF envisions scaling up these products at a national level, preparing detailed indices for various districts with the support of stakeholders including government agencies, donors, MFIs and insurance companies.
The weather-indexed crop and ‘live-weight’ livestock insurance products have been designed by PPAF, with support from IFAD through a strategic partnership with SECP.
These products have been prepared in collaboration with Meteorological Department, Livestock Research Institute and are based on needs of small and marginal income farmers. PPAF has launched these products as a pilot in collaboration with local insurance companies in districts Khushab and Chakwal.
The pilot projects have received overwhelming response and showcased significant potential in providing efficient and transparent form of risk mitigation for small and marginal income farmers and livestock owners across the country.\01\30\story_30-1-2013_pg5_9
Riaz Haq said…
Here's PR Newswire on digital money in Pakistan:

Pakistan’s financial services industry is currently on the turn, as digital money is spreading on the back of the fast-paced mobile phone penetration. Working side by side with a range of public and private organisations, the State Bank of Pakistan is involved in creating favourable conditions to promote efficient financial inclusion through a branchless banking model, as well as to enhance payment systems for broader use.

New comprehensive viewport “Digital Money in Pakistan 2013” drawn up by Shift Thought provides an in-depth analysis of Pakistan’s digital money market, within the context of the larger Asia-Pacific region and worldwide trends.

The viewport provides an in-depth overview of how digital money services are developing in the country, focusing on what is driving digital money, the kinds of business models and the adoption and maturity of the market. It also goes into the detail of the needs of various market segments, discusses the whole package of services expected by the sector, delves into the regulatory environment, gives a refined understanding of the local payments system and introduces key categories of the players and partnerships that are forming around the delivery of digital money services. The viewport is supplemented with extensive profiles of multiple industry players as well as of the services launched in the Pakistani digital money market.
Pakistan is currently undergoing a transformation in financial services, with the spread of Digital Money aided by the rapid penetration of mobile phones.The Reserve Bank of Pakistan is working with several public and private organisations to promote financial inclusion through a branchless banking model by creating an enabling environment for the development os services in the country.

At ShiftThought we work with organisations around the world to shift the thinking from a focus on Mobile Money to planning for the wider set of initiatives we term as Digital Money. Through this Country Series of viewports we share with you findings from our on-going in-depth analysis of the state of play of Digital Money Initiatives in each country, within the context of the larger region and world-wide trends.

Digital Money services are no longer confined to a single industry, and this breaks down traditional models of competitive analysis. Our approach is designed to helps players to understand the strategies and business models coming from industries other than their own, across a range of products and services and from different parts of the world, to distil best practices for building successful brands that provide innovative access to financial services.
Riaz Haq said…
Here's ET on increasing e-banking in Pakistan:

The overall value and volume of e-banking transactions throughout the country increased during the second quarter (October to December 2012) to Rs 7.6 trillion (18.02 per cent)and Rs 79.45 (11.31 per cent) million respectively, the State Bank of Pakistan reported on Wednesday.

State Bank of Pakistan’s Payment Systems report for the second quarter of FY13 released today revealed that the branches of 484 banks in Pakistan were added to the Real-Time Online Branches (RTOB) network during the second quarter of the current fiscal year (FY13) and now 94 percent branches are offering online banking services.

Calculating the overall internet banking services across the country, overall 9,896 branches of banks out of 10,523 are offering the service. During the second quarter, the overall value and volume of internet banking transactions had seen an increase in of 18.82 percent and 14.29 percent in the overall value and volume of internet banking from the first quarter of 2012, respectively.

The Payment Systems infrastructure in the country had also seen an increase because of the installation of 245 new Automated Teller Machines at banks around the country. Today, the number of ATMs across Pakistan has reached a total of 6,232. The report further said that ATM transactions had a major share of 61.12 percent in terms of transaction volume with an average value of Rs9,779 per transaction.

The overall e-banking transactions in value terms was 6.27 percent during the second quarter, increasing the value and volume of ATM transactions by 10.33 percent and 10.68 percent respectively in the second quarter as compared to the first quarter of the current fiscal year.

The report also said that over 20.72 million banking cards were issued in the country by the end of December, 2012, witnessing an increase of 5.33 percent in the second quarter compared to the preceding quarter.

Point of Sale (POS) terminals showed a growth of 6.25 per cent and 5.06 per cent in value and volume respectively as compared to the first quarter of the current fiscal year, with value and volume of transactions standing at Rs22.1 billion and Rs4.5 million, respectively, in the second quarter.

The report also pointed out an increase of large-value payments through Real Time Gross Settlement (RTGS) with 9.46 percent in value and 10.35 percent in volume as compared to the first quarter. The recorded value and volume was Rs42.13 trillion and Rs12.16 billion respectively in the second quarter.

The report also revealed that major portion for the increased number of overall Pakistan Real Time Interbank Settlement Mechanism (PRISM) transactions increased 14.06 percent during the same period, which was contributed by Interbank Funds Transfers (IBFT). Similarly, the value of overall PRISM transactions increased by 14.96 percent due to securities settlement.
Riaz Haq said…
Here's PakistanToday on Non-Bank Financial services (NBFS) report:

KARACHI - The Securities and Exchange Commission of Pakistan (SECP) on Monday unveiled a document titled ‘Report of Non-Bank Financial Sector’ (NBFS) Reforms Committee’ for public feedback.
Prepared by senior SECP officials and leading market professionals, the report contains proposed reforms for the development of the non-bank financial (NBF) sector in Pakistan.
SECP Chairman Muhammad Ali, commissioners and leading professionals and businessmen from the financial sector attended the ceremony.
Addressing the ceremony, Ali said it was imperative that the SECP and the State Bank of Pakistan (SBP) work in close cooperation for effective and seamless regulation across the financial sector in a globally integrated market.
He said Pakistan’s financial sector was bank-centric with NBF sector accounting only 4.9 percent (excluding insurance sector) of the financial sector’s total assets. This dependence on the banking sector, he said, made the country’s financial system vulnerable to risks through lack of diversification and also restricted the scope of product innovation
In terms of the proposed regime, capital market activities of all entities including that of commercial banks and DFIs are to be regulated by the capital market regulator (CMR), i.e., SECP and deposit taking/financing/lending activities of all the financial sector participants would be regulated by the banking regulator (BR), i.e., SBP. This recommendation is in contrast with the prevalent concept of entity based regulatory
domain in Pakistan.
Other proposed reforms for the mutual fund industry include distribution of mutual fund units through stock exchanges, reduction in the annual regulatory fee provided more than 50 percent of a funds’ net assets are held by retail clients, introduction of concept of expense ratio, introduction of multiple classes of units based on the investment amount, improving the skill set of key personnel such as fund managers by specifying a minimum criteria among others.
Investment finance services are broken down and redefined as stock brokerage, investment advisory, corporate advisory, securities financing and securities underwriting services and each component has been further defined. Flexibility has been offered to an entity to be reclassified as non-bank finance company to obtain either a full scope or limited scope. The suggested regime for IFS outlines a mechanism to transform existing brokerage houses as NBFCs to become part of NBF sector. The inclusion of brokerage services in NBF sector is expected to open up a new era of licensed activities for brokers including advisory and other ancillary services.
To facilitate the launch of the real estate investment trusts (REITs) in Pakistan, the committee has proposed a reduction in REIT fund size to address the issue of
capital constraints and allow launching of medium-size REIT projects having better potential for growth and return.
In order to develop non-banking financial services, the committee, in line with best international practices has proposed the implementation of the concept of activity based regulatory regime in Pakistan for cluster one entities. In terms of the proposed regime, capital market activities of all entities are to be regulated by the SECP and deposit taking, financing and lending activities of all financial sector participants will be regulated by the SBP....
Riaz Haq said…
Here's Daily Times on State Bank of Pakistan governor talking about mobile banking:

...The central policy objectives of SBP are to ensure safety, soundness and efficiency of the banking system, and to protect the interest of consumers, he said, adding that since branchless banking is becoming a vital component of the national payment grid, it is prudent for all stakeholders to ensure that appropriate measures are in place to mitigate inherent risks associated with it like access by unauthorised persons or criminals such as hackers, money launderers, terrorist financiers etc.

He said being fully cognisant of the risk factors involved in such unconventional modes of banking, SBP has been proactively monitoring developments and associated risks both at system and entity level in order to take appropriate corrective measures in a timely manner.

The SBP governor said that branchless banking has also proved to be an effective instrument in channelising the government to persons (G2P) payments in trying times like serving internally displaced persons (IDPs), and devastating floods for the last two years. The Benazir Income Support Programme (BISP) beneficiaries are also being served effectively through the same mechanism, he said, adding that In the coming days, this channel is expected to continue playing an important role towards the promotion of financial inclusion and the management of G2P programmes like salaries disbursements, pensions, BISP, Watan Cards, Pakistan Cards and tax collections services, etc. The existing branchless banking deployments can cater to the needs of over 10 million potential beneficiaries of G2P payments in Pakistan, he added.

Anwar said that four branchless banking models including Easy Paisa, Omni, Mobile Cash and Time Pey are fully operational while two are running live pilots. He said that the branchless banking current growth trajectory is expected to get further steeper in the years ahead.

He said that the number of agent network servicing branchless banking customers has reached 42,000. Therefore, the basic financial services can now be accessed in the remotest parts of the country through any of these agents. Approximately 194 million transactions worth Rs 813 billion and more than 2.0 million m-wallets have been opened till date, he said, adding that numbers will improve significantly. The infrastructure of payment systems and branch network is also showing an increasing growth trend, he said adding that the ATMs network has increased to 6,232 whereas branch network has reached 11,600 while 94 percent of our branches are now real time on-line. Similarly, the number of plastic cards has increased to 20 million and the number of POS machines has increased to 34,000 units. This is a significant achievement, and this also demonstrates the opportunity to bring the benefits of this infrastructure to millions of the unbanked population, he added.

While acknowledging that branchless banking has gained critical mass in a short period of time, the SBP governor was of the view that the market has to start shifting transactions from first generational services (person-to-person/bills payments) to second generational services (account-to-account and inter-bank transfer). The players need to expand their product portfolio by offering new products and services for their target market. In my view, this is part of an inevitable evolution which will ensure the long-term sustainable development of the sector, encourage micro savings and help in meeting the demands for inclusive financial services of the target market, he added.\03\15\story_15-3-2013_pg5_1
Riaz Haq said…
Here are brief excerpts of two stories on griwing Islamic Banking industry:

1. Express Tribune:

Islamic banking is the fastest growing segment of Pakistan’s financial services sector, a fact that has caused many institutions to pile onto the Shariah-compliant bandwagon. Yet what is it that makes the Islamic banking customer tick? Why is there such a stampede of depositors at their doorstep? And can they continue growing at this rapid clip.

In our special report this week, The Express Tribune takes a look at what is making the Islamic financial services industry grow quite so fast. First, some of the statistics: According to data from the State Bank of Pakistan, between 2002 and 2011, deposits at Islamic banks grew at an average annual rate of 59.6%, compared to the banking sector average of 16.1% per year during that same period.

And lest anyone think this is simply the low-base effect, in the year to June 30, 2012, Islamic banking deposits grew 33.4% to Rs603 billion, a time during which the banking sector as a whole grew by a much lower 14.4%. Islamic banking now accounts for 9.4% of all deposits in Pakistan, up from virtually nothing a decade ago.

There appears to be no single comprehensive study that explains the rise in deposits at these institutions. Most of the academic studies reviewed by The Express Tribune reveal that substantial majorities of Islamic banking customers prefer the system largely owing to its perceived compliance with Shariah.

But according to a study conducted in 2008 by Naveed Azeem Khattak and Kashifur Rehman, professors at Shaeed Zulfikar Ali Bhutto Institute of Science and Technology (Szabist) and Iqra University respectively, a staggering 67% of Islamic banking customers also use conventional banks, largely due to what they perceive to be a wider range of services offered by conventional banks. Religion is important to the Pakistani banking customer, but they do not seem to be agnostic to service quality either

2. PTI:

Islamic microfinance is rapidly gaining acceptance in Muslim and non-Muslim countries due to its remarkable success in poverty eradication, a leading industry official has said.

Muhammad Zubair Mughal, Chief Executive Officer of Pakistan’s AlHuda Centre of Islamic Banking and Economics (CIBE), said according to their estimates, the Islamic microfinance market has reached $1 billion.

Mughal was addressing the International Islamic Finance conference in Abu Dhabi recently.

He said currently more than 300 Islamic microfinance institutions are offering their services to 1.6 million clients in almost 32 countries.

“Due to Islamic microfinance’s significant role in reducing poverty, international donor institutions and multilateral organisations such as USAID, IDB, ADB, IFAD, UNDP, World Bank and IFC have clearly explained their policies in different countries...”, he said.

They have suggested further strengthening of Islamic microfinance, which will ensure the quick advancement of Islamic microfinance in near future, Mughal added.
Riaz Haq said…
Here's a ET report on USAID helping lunch a private equity fund in Pakistan:

The United States and the government of Pakistan hosted the ‘US-Pakistan Business Opportunities Conference’ in Dubai, where USAID in association with the Abraaj Group and JS Private Equity Management (JSPE) announced the creation of the ‘Pakistan Private Investment Initiative’ which will launch two new private equity funds focused solely on Pakistan’s dynamic and fast-growing small- and medium-sized businesses.
USAID Administrator Dr Rajiv Shah announced that USAID will provide a seed investment to capitalise the funds which will be matched by Abraaj Group and JSPE with investments of their own, as well as private funds raised from other limited investors.
“We are seeding individual funds with $24 million each. The Abraaj Group and JSPE will match or exceed our commitment. We fully expect them to exceed that contribution,” said Dr Rajiv Shah. “Pooled funds will initially be $100 million which we expect will grow many fold into hundreds of millions of dollars in investment for small and medium businesses.”
The announcement came at the end of the first day of the conference. “By partnering with Abraaj and JS Private Equity Management, USAID capitalises on these companies’ expertise to make smart investment decisions that will grow the Pakistani economy, create jobs, and generate profits for investors who seize the economic opportunities that Pakistan presents,” Shah said.
Speaking at the conference US Ambassador Richard Olson said, “The United States is one of the largest investors in Pakistan, and the US government supports Pakistani business leaders by offering access to finance, facilitating business deals, and strengthening business education.”
“With 190 million potential customers, Pakistan is a huge emerging market opportunity for US companies,” Ambassador Olson observed.
The conference, sponsored by the US government, was attended by 200 American, Pakistani and Emirati businesses including Gillette, Citibank, General Electric, Procter and Gamble, Abraaj Group, Big Bird Group, Coca-Cola, Conoco Phillips, Engro, Estee Lauder, Goldman Sachs, IBM, Monsanto, Nishat Group, and the Saif Group.
Riaz Haq said…
Here's a Dawn report on a new credit rating agency entry in Pakistan:

Finance Minister Ishaq Dar said on Tuesday that there was a need for a new international rating agency and Hong Kong-based Universal Credit Rating Group (UCRG) is a welcome addition in this regard.

Dar said this while appreciating the interest expressed by the UCRG to extend its activities in Pakistan, and provide services to companies, bourses and evaluate financial activities.

The UCRG Chairman Guan Jianzhong, leading a four-member delegation, met with Dar to explored ways and means to extend UCRG’s operations in Pakistan.

“Pakistan would like to benefit from UCRG’s expertise and services as we have an ambitious plan to launch infrastructure, power and mega projects in the near future,” the minister said.

In this connection, he referred to the Gwadar-Kashgar corridor, coal-fuelled thermal power plant and Lahore-Karachi motorway besides the need for floating financial products for financing public sector projects.

Senator Dar stated that the rating company based in China was positive news for emerging economies in the region including Pakistan.

Mr Jianzhong who was accompanied by UCRG Chief Executive Richard Hainsworth, International Affairs Dagong, Jialin Chen, and Wei Ding, managing director international affairs, Dagong, briefed the finance minister about the functioning of UCRG.

Three independent credit rating agencies from China, the United States and Russia launched the UCRG in Hong Kong. UCRG, comprised of Dagong Global Credit Rating, Egan-Jones Ratings Company, and RusRaiting, aims to set up a non-sovereign global credit rating agency which will reform the current rating system dominated by the three American-based firms, Moody’s, Fitch, and Standards and Poor’s.

Delegation visits ISE

The UCRG delegation during its visit to the Islamabad Stock Exchange (ISE) stressed that a dual-rating system was needed in the current financial system to balance rating risks.

The role of smaller rating agencies is becoming importance to counter the errors being made by the top three rating agencies who are being blamed for the recent financial crisis, the delegates opined.

“UCRG aims at providing some balance to the industry, traditionally cornered by Moody's, Standard & Poor's and Fitch,” Mr Hainsworth said while talking to the ISE members.

“Credit ratings are indispensable in global economic operation, and it is obvious that the current rating system needs reforming and introducing new thinking,” he added

Mr Guan highlighted about his plans to introduce in Pakistan, a new Yuan-based market, providing access to Chinese investors to Pakistan market and developing a Yuan-based bonds in regional markets outside China.

He stated that that the idea of UCRG was first proposed by Dagong in 2008 when the global financial crisis broke out.

President and CEO of JCR-VIS Credit Rating Company Limited Faheem Ahmad said that Yuan-based bond market can help Pakistan to lessen its dependence on the dollar. He lauded the efforts of the UCRG for creating a good competition amongst raters.

COO ISE Ahmad Noman gave a detailed presentation on ISE and criteria for strategic investors to acquire 40 per cent shares of ISE under Demutualisation Act.

The Chinese companies were invited to consider strategic investment in ISE.

There are more than 70 credit rating agencies worldwide and the big three US-based ratings companies alone hold a collective market share of roughly 95pc. UCRG may also prove to be a good alternate for many countries for their sovereign rating.
Riaz Haq said…
Here's Reuters' report on plans to expand Islamic Banking in Pakistan:

Pakistan's Ministry of Finance has set up a committee to explore areas to promote Islamic banking in the world's second most populous Muslim nation, including studying converting conventional banks into sharia-compliant ones.

Regulators in Pakistan are rolling out a range of initiatives, such as a media awareness campaign, to expand Islamic banks' share of the total banking sector to 15 percent by 2017.

Islamic banks held 903 billion rupees ($8.4 billion) or 9 percent of total banking assets as of June this year, posting 27 percent year-on-year growth, central bank data showed.

The committee will submit recommendations on 10 areas by December 2014, including legal obstacles to converting banks into Islamic ones and changes required to remove those obstacles, a statement form the Ministry of Finance said.

Other tasks for the committee, which will be suported by the country's central bank, include formulating a comprehensive policy framework and timeframes for the industry's progression.

Proposals involving Islamic money markets, secondary market liquidity and maximizing equity-based financing rather than debt-based financing will also be explored.

Islamic finance follows religious principles such as a ban on interest and gambling, making interest-based transactions a major problem for Islamic banks, even those operating in the core industry hubs in the Middle East and Southeast Asia.

The commitee comprises scholars and regulators as well as bankers such as Afaq Khan, chief executive of Standard Chartered Saadiq, Muneer Kamal, chairman of the National Bank of Pakistan and Atif Bajwa, chief executive of Bank Alfalah.
Riaz Haq said…
Here's a report on insurance sector in Pakistan:

KARACHI: Pakistan non-life insurance stands 0.3 percent of Gross Domestic Product (GDP) with immense scope for private insurance companies to tap un-served market through their products of non-life insurance, Tahir Ahmed Chief Executive Officer Jubilee General Insurance said.
At ‘2nd South Asian Association for Regional Cooperation (SAARC) Insurance Regulators’ Meet and International Conference on Wednesday, he said the government, stakeholders and industry players should be on one page and implement a national plan to get the people and industries insured.
He said the national insurance scheme should be introduced and implemented at faster pace in true letter and spirit which could enhance the penetration rate of 0.3 percent to 6.5 percent in only one year.
The insurance companies do have potential to book Rs 20 billion premium amount of insurance from various sectors from their policy as it was estimated through a study conducted by State Bank of Pakistan, Securities and Exchange Commission of Pakistan and different industry players.
In the non-life insurance sector, agriculture sector is the biggest having 21 percent contribution in the GDP but when it comes to insurance, it is 100 percent undeserved. The sector could be tapped to generate billion of rupees in premium whereas the rate of GDP could be enhanced to 4.5 percent from the current 0.3 percent.
As far as vehicle insurance is concerned, merely 3 million vehicles are insured out of the total 15 million vehicles plying on roads regardless of the fact the insurance is mandatory for all vehicles. This could enhance the penetration rate from 4.5 percent to 5.5 percent of GDP.
Large Scale Manufacturing having contribution of 10 percent in the GDP could be tapped to further increase the GDP rate to 6 percent, he added.
There is a big scope to insure mobile phone handsets as 130 million people carry mobile phones, Ahmed added.
CEO Jubilee Insurance stressed the need to reach out to the customers through the products and in rural and urban areas with the massage in Urdu or in their local language.
He stressed financial literacy was not a big issue as illiterate people were very conscious about their assets and security.
Speakers at the conference stressed the need to enhance efforts to give financial cover to trade, business and people as natural calamities usually devastate economy of many countries in the SAARC region.
Fredrick de Beer CEO Adamjee Insurance, Taher Sachak CEO EFU Life Insurance and Gerry Gunadas CEO Continental Insurance Lanka also spoke on the occasion.
Riaz Haq said…
....To regain momentum, Mr Modi this weekend pledged to give greater independence to struggling public sector lenders, while tempting global investors to participate in plans to raise Rs1.6tn ($26bn) by selling down government bank stakes.
Speaking at a summit of the heads of all of India’s public sector financial institutions, Mr Modi promised to end the country’s heritage of “lazy banking”, a term often used to criticise risk-averse lenders.
Addressing concerns that banks face political pressure to give loans to favoured companies, Mr Modi said lenders “would be run professionally” in future, and promised “no interference” from New Delhi.
Jayant Sinha, minister of state for finance, said that the moves were “a very important step” to repair the banking sector, which must raise an estimated $50bn to meet new capital rules over the next four years while also reversing recent increases in bad loans.
“To bring everyone together at this event, and to ask all of India’s banking system to look seriously at bold structural reforms, is an unprecedented move,” Mr Sinha said.
India is now likely to bring forward measures to increase the autonomy of bank boards, ensure the independence of senior appointments, and introduce market-linked pay for bank executives.
The banking reforms come in advance of the likely appointment this week of Mr Panagariya, a widely respected and liberally-minded economist, to lead the government think-tank set up to replace India’s Soviet-era planning commission.
In August, Mr Modi scrapped the planning commission, which had guided India’s economic development for six decades through the publication of weighty five-year plans. He accused the body of excessive centralisation, obstructing the plans of state-level governments.
Mr Modi will officially chair the replacement — to be called the NITI Aayog, or National Institution for Transforming India — but two people familiar with the matter confirmed that Mr Panagariya had accepted the position as vice-chairman, making him its operational head.
Riaz Haq said…
Pakistan’s first real estate investment trust will offer an initial 9 percent dividend and stakes in one of Karachi’s most prominent malls and office towers when it sells shares within three months.

A 25 percent stake in the Dolmen City Real Estate Investment Trust will be offered to foreign and domestic investors, said Nasim Beg, chairman of Arif Habib Dolmen REIT Management Ltd. The trust’s assets will be the Dolmen Mall, which hosts stores including Mango and Debenhams, and the adjacent office building that houses Engro Corp. Both are near the Karachi seafront, one of Pakistan’s wealthiest areas.

“The outlook of the real estate market is not too relevant,” Beg said yesterday in an interview in Karachi. “Investors will be paid dividends from rental income that will continue to grow as per agreements.”

The trust is likely to pay a dividend of 9 percent in first year and increase to 14 percent in the fifth year, said Muhammad Ejaz, chief executive of Arif Habib Dolmen REIT Management. The dividend yield of the benchmark KSE100 stock index is currently 4.4 percent, according to data compiled by Bloomberg.

Prime Minister Nawaz Sharif’s government is broadening investment options in Pakistan as it seeks to spur economic growth in the midst of an escalating conflict with domestic Islamist militants. The Pakistani Taliban killed 134 students on Dec. 16 in one of the country’s worst terrorist attacks.

Beg said he expects four or five other REITs to be listed on the Karachi Stock Exchange within two years.

“Improved regulation surrounding the creation of real estate investment trusts could pave the way for increased investment via this format and lead to more Pakistani investment being directed in the home market rather than overseas,” London-based Business Monitor International said in its latest report on Pakistani real estate, released this month.

The property that will go into the Dolmen City REIT is owned 80 percent by Dolmen Group and 20 percent by Arif Habib Group. After the IPO of the trust, those stakes will drop to 60 percent and 15 percent respectively.
Riaz Haq said…
#Pakistan first REIT (real estate investment trust) set for $55 million IPO at Karachi's KSE market$55m-ipo

Bookbuilding kicked off for Pakistan and south Asia’s first real estate investment trust (Reit) on June 8, as the long-awaited Dolmen City Reit’s Prp5.56bn ($54.55m), listing on the Karachi Stock Exchange, blazes a path for the asset class.

The shariah-compliant Reit, which has whet local investors’ appetite since plans were made for it earlier this year, is selling 555.93m units, or 25% of its total fund size, to institutional and retail investors. The former are allowed to bid for 416.94m units, or 75% of the ...

Pakistan’s first Real Estate Investment Trust has been launched at Karachi Stock Exchange, which is a joint venture between Arif Habib Dolmen REIT Management Limited, Arif Habib Group and the Dolmen Group.

The properties will generate rental income that will be distributed by the REIT Scheme among unit holders in the shape of dividends. Any possible appreciation in the value of the property will be an added benefit. Syed Murad Ali Shah, Advisor to Chief Minister for Finance, the Chief Guest at the event rang the Gong and said, “The launch of Dolmen City REIT is a matter of great pride for all of us, as this is not just Pakistan’s first REIT scheme but also the Subcontinents’.

I congratulate Arif Habib Dolmen REIT Management Limited and the Karachi Stock Exchange on this monumental accomplishment. A REIT is modeled after mutual funds and provides investors with regular income streams, diversification and long-term capital appreciation. I expect an enthusiastic participation from investors during the Book Building which is on the 8th and 9th of June and also from the General Public who can participate in the IPO on the 12th of June.”
Riaz Haq said…
Software Failure Leads to US Sanctions Penalty for National Bank of #Pakistan in New York. via @WSJ

The National Bank of Pakistan’s New York branch settled “apparent violations” of sanctions with U.S. authorities Thursday, agreeing to a penalty of $28,800. The case illustrates how companies can be penalized for violating sanctions, even if the illegal transactions are only processed because of flaws in screening software.

The U.S. Treasury Department’s Office of Foreign Assets Control found that the New York branch of the state-0wned bank processed wire transfers totaling $55,952 for the blacklisted Kyrgyzstan airline, Kyrgyz Trans Avia, OFAC said in a statement. The bank’s sanction screening software failed to recognize the name of the account name LC Aircompany Kyrgyztransavia as belonging to Kyrgyz Trans Avia account, OFAC said.

OFAC blacklisted Kyrgyz Trans Avia in May 2013 after authorities alleged the airline helped Iran acquire aircraft used to bring in “illicit cargo to Syria for the Assad regime’s violent crackdown against its own citizens.”

The increased complexity of sanctions and an ever increasing number of blacklisted entities have made it hard for automated screening tools to keep up, experts say.

Under the strict liability of sanctions laws, companies can be punished for transactions, even if they are processed because of a software failure. The penalty was light, OFAC said, because supervisors at the bank cooperated with authorities and were unaware of transactions with the blacklisted airline.
Riaz Haq said…
Robert Mazur brought down #Pakistan BCCI now says it was singled out;other guilty banks were spared. #moneylaundering

Robert Mazur is the man behind the downfall of, perhaps, a Pakistani’s greatest commercial achievement.

He is the former US Customs agent who led the sting operation which proved Bank of Credit and Commerce International (BCCI) laundered money for Colombian drug traffickers.

And now, ironically, many years later, he says that he is convinced many other foreign banks were doing the same and that they should have faced a similar fate.


The lowest point in his entire story is how BCCI got entangled in the money laundering affair. It is important to make a distinction here. In this sting operation, it was not the cartel which led agents to BCCI. Rather Mazur took the money to the bank and asked if it could be moved discreetly.

“As I cruised down palm-lined Ashley Drive in downtown Tampa in a money-green Mercedes 500 SEL provided by customs, a building containing the upscale offices of Bank of Credit and Commerce International caught my eye. BCCI in large gold letters glittered from the second story and screamed of overseas accounts, so I called an officer and scheduled an appointment,” he writes in his book.

And this is how BCCI got involved.

“I swear to God that’s exactly how it happened. I was driving and saw BCCI written in gold letters and decided to call up someone there,” he said.

“You also must understand that Tampa is not a cosmopolitan city. It’s not as huge as Miami and they don’t have many banks in the area.”

His first contact in the bank was Rick Argudo, vice president of the Tampa branch, who grilled Mazur about his business history and finally agreed to open up an account. It was also when Mazur realised the bank was up to something big.

Argudo was told that the account will be used to bring in money from Panamanian bank accounts where Mazur’s Colombian clients were accumulating wealth to be invested in the US.

But when Argudo asked if he wanted to move money in the opposite direction from US to Panama and offered a way to avoid IRS (Internal Revenue Service) his suspicion rose.
Riaz Haq said…
“When I debriefed BCCI executives after the operation, they didn’t understand what was happening with them. They used to say they hadn’t done anything which other banks weren’t doing,” Mazur said in an hour-long interview with The Express Tribune over phone from London.

“At that time I thought they were lying. But now I am 100% sure that they were being honest. Many other banks laundered money too –they still do.”

The anger and anguish felt by many former bank employees for being targeted is completely understandable, he says.

“They had done what they were accused of doing. But I am sure if I had walked into any other bank, I would have witnessed the same sort of dealings. I can understand that they [BCCI employees] feel like they were singled out.”
Riaz Haq said…
#Pakistan Plans to Bring Millions More Citizens into the Economy by Digitizing Payments …

The Government of Pakistan announced it will continue to move toward a more digital financial economy by joining the United Nations-based Better Than Cash Alliance. This is paving the way to greater financial inclusion for millions of its citizens and inclusive growth for its economy.

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Pakistan’s announcement comes just as new Sustainable Development Goals will be launched by world leaders at the United Nations in next week, drawing a spotlight on the role of digital financial services in achieving broad economic growth and individual financial empowerment.

Pakistan is fully aware that digital financial services, driven by digital payments, can help poor people save for the future, provide for their family’s health and children’s education, or invest in a business. In 2015, formal financial access in Pakistan is 23% and adult banked population has increased to 16%. By joining the Better Than Cash Alliance, the government of Pakistan is taking clear positive action to further leverage new technologies to expand financial inclusion.

“Digital payments are a critical and practical step that help advance and achieve our financial inclusion goals for our citizens,” said Federal Finance Minister Senator Ishaq Dar, “Our vision for sustainable economic growth is to ensure all citizens have access to fair and dignified financial services. This will create more opportunities of doing business and economically empower everyone in Pakistan.” In May 2015, Minister Dar launched Pakistan’s first ever national financial inclusion strategy (NFIS) in partnership with the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) offering a national vision for universal financial inclusion in Pakistan.

Better digital payments systems will also help the government overcome some of its hurdles of making payments and distributing social benefits in a cash-dominant economy. Cash payments incur significant costs associated with manual record keeping, security, and transportation. In other parts of the world, digitizing government payments has brought many benefits and cost savings. For example, when the Government of Mexico digitized and centralized payments, the cost to distribute wages, pensions, and social welfare dropped by nearly US$1.27 billion.
Riaz Haq said…
NBP, KARANDAAZ #Pakistan to work to improve financial inclusion. Focus on G2P and P2G #mobilemoney transactions …

National Bank of Pakistan (NBP) and Karandaaz Pakistan signed a Memorandum of Understanding (MoU) for jointly working on multiple strategies to create the much-required Digital Financial Ecosystem, through a suite of financial transactions to facilitate the citizens of Pakistan with a focus on Government to Person (G2P) and Person to Government (P2G) transactions. The two institutions agreed to collaboratively develop a comprehensive digital financial services strategy for NBP; develop and deploy the required technology as well as roll out a mobile financial system that will add multiple channels of transactions.

The signing took place at the Karandaaz Pakistan’s office in Islamabad and was attended by senior management from both organizations including Mudassir H. Khan – SEVP/Group Chief CRBG NBP, Azfar Jamal – EVP/Head of Remote Banking & ADC and Mr. Imdad Aslam Interim CEO of Karandaaz Pakistan. Speaking at the occasion, Mudassir H. Khan, stated, “By leveraging on the expertise of Banking and Telcos, NBP aims to achieve its long term goal of financial inclusion in Pakistan and also bridge the service-divide between rural and urban. Development of a Financial Eco-system in partnership with Telecom service providers will be catalyst to extend the financial outreach and convenience to every citizen of Pakistan. NBP is working to enable every possible channel by aggregating all the P2G and G2P transactions.

We are excited to have Karandaaz Pakistan joining us in this initiative, whereby Karandaaz, which is a Bill & Malinda Gates Foundation & DFID sponsored entity, will provide their rich experience and expertise to NBP in building the much required financial ecosystem in Pakistan”. Speaking at the event, Imdad Aslam, Interim CEO of the company, stated, “The potential of G2P payments to accelerate financial inclusion in the short to medium term is tremendous and cannot be over emphasized. On the one hand, governments can determine the way they disburse payments to their beneficiaries and drive them towards digital payment streams, which in turn can enable the creation of financial products that address the barriers to financial inclusion.

On the other hand, social benefit payments, intended for the marginalized and vulnerable, inevitably reach some of the most financially excluded populations. Digitization of such payments, therefore, presents great opportunity to increase recipients’ access to financial services and provide them with a financial transaction history.” Concluding the event on a high note, Imdad Aslam said, “The cost of digitization is overshadowed by the benefits to individuals, financial institutions and the government over time, and we expect to see the same in this case.”
Riaz Haq said…
Investing deposits in risk-free government securities is lazy banking. The practice allows banks to grow profits while avoiding risks associated with the expansion of the private-sector loan book.

One obvious casualty of lazy banking is economic growth, which depends in large measure on the availability of affordable credit to private businesses.

CEOs of banks operating in Pakistan take offense when they are called lazy bankers.

While bank CEOs insist their conservative lending policy is not driven by the profit motive, latest banking data suggests otherwise.

Banks operating in Pakistan made a combined profit of Rs148 billion in Jan-Sept, up a whopping 28.7% from earnings recorded in the same nine-month period of 2014, according to the State Bank of Pakistan’s quarterly compendium on the banking system released last week.

Banks are commercial enterprises and their earnings growth – however quick and mind-boggling – should not be held against them. Nonetheless, it is perfectly legitimate to look into the source of the outlandish increase in banks’ profitability over such a short period.

Bank deposits increased 5.2% in the first nine months of 2015 as opposed to a corresponding rise of 2% in advances (another name for loans that banks extend to businesses and individuals). This means deposits mobilised by banks in Jan-Sept (Rs485 billion) far outweighed the advances generated (Rs89 billion) over the same period in both absolute and percentage terms.

No wonder the advances-to-deposits ratio stood at 46.7% at the end of September, slightly lower than 48.2% recorded at the end of December 2014.

So what did the banks do with the disproportionately high deposit mobilisation if they held back loans to businesses in the last nine months? Banking data suggests they simply invested that money in riskless government papers, like Pakistan Investment Bonds (PIBs) and treasury bills, and saw their bottom lines grow further.

Banks’ investments increased 26.4% to Rs6.7 trillion at the end of the first nine months of 2015. In a nutshell, the net increase in banks’ advances was Rs89 billion over the first nine months of 2015 while the corresponding rise in their investments clocked up at more than Rs1.4 trillion over the same period.

Resultantly, the investments-to-deposits ratio (IDR) at the end of September stood at 69.1% compared to 57.5% recorded at the end of 2014. Banks held 79.3% of all outstanding government securities at the end of October, according to a separate publication of the SBP.

Speaking to The Express Tribune, Invest & Finance Securities CEO Muzammil Aslam said banking investments in government securities is at an all-time high.

“The standard threshold for government treasuries was 20% while 75% of deposits were supposed to be reserved for credit off-take and 5% for meeting regulatory cash reserve requirements. That doesn’t seem to be the case anymore,” he said.
Riaz Haq said…
#Pakistan banks’ deposits up 12%, loans up only 7% in 2015 …

Total deposit of the scheduled bank has gone up by 12 per cent to Rs 9.3 trillion or 33 per cent of GDP in 2015 against an increase of 11 per cent in 2014 and average growth of 14 per cent during the last 5 years (2010-14).

Umair Naseer, an analyst at Topline Brokerage house attributed this to higher broad money (M2) growth in 2015, which clocked in at 11 per cent against 10 per cent in 2014 and last 5-year average M2 growth of 13 per cent.

The slight improvement in deposits growth bodes well for banking sector as there were concerns of deposit withdrawals following imposition of withholding tax (WHT) on cash withdrawal from bank accounts in 2015.

Government imposed WHT of 0.6 per cent on all banking transaction of over Rs 50,000 in a day for non-filers. Later on, the government reduced the tax rate to 0.3 per cent till January 2015 allowing traders to file tax returns in the given time.

Investments registered strong growth of 32 per cent to Rs 6.7 billion as banks continued to invest in risk-free government securities. Consequently, investment to deposit ratio (IDR) reached an all time high of 72 per cent in 2015.

Advances growth remained lackluster in 2015 increasing by 7 per cent against 9 per cent in 2014, increasing to Rs 4.7 trillion (17% of GDP).

This is also significantly lower than our initial estimate of 12 per cent at the start of the year, the analyst said.

Despite below expectation advances growth in 2015, advances grew owing to strong prospects from the initiation of China-Pakistan Economic Corridor (CPEC).

According to Ministry of Water and Power, out of the total $46 billion, $28 billion projects are to be completed by 2018, which will involve financing of power and infrastructure projects by Chinese and local banks. This coupled with other planned power sector projects is likely to trigger higher advance growth going ahead.

These projects will generate an additional credit demand of $2 billion annually during the next three years, which is equivalent to 5 per cent of the total advances of the industry.

Bankers are also of the view that local component of the financing could be 10-20 per cent of the total planned investment during the next three years. Advances will grow by 10-12 per cent in 2016 and 14 per cent on average during the next three years from 2016-18, the analyst said.

Initially, there were concerns that whether the planned Chinese investment would materialise. However, financial close of some of the projects has already been achieved indicating strong potential for CPEC related funding.

On the consumer side, banks are increasing their lending. However, their part of the total portfolio still remains low. As per SBP, consumer lending in 2015 increased by 10 per cent in line with last year’s figures and its proportion as a percentage of total loans stood at 6 per cent (1% of GDP). Corporate portfolio still dominates the total loan book of banks with total proportion of 67 per cent.

Spreads between the lending and deposit rate remained under pressure during 2015 following 300 basis points cut in interest rates and SBP initiative to curb spreads. Spreads as of November 2015 declined to 5.3 per cent against 6 per cent in Dec 2014. These spreads do not include return from investments, which protected banks from falling interest rates in 2015.

The analyst said that spread may remain flat in 2016 due to anticipation of status quo in interest rates. However, banks margins could come under pressure in 2016 as a major chunk of high-yielding Pakistan Investment Bonds (PIBs) mature in 2016.
Riaz Haq said…
Credit Suisse rates #Pakistan banks best performers in Asia. Bad loans just 8.9% …
Swiss based Credit Suisse has rated Pakistani banks the best performers in Asia over the past three years and second-best in the past five years as the country enjoyed a substantial reduction in the cost of equity since 2013.

In a research-based analysis of Pakistan’s economy and its impact on the banking sector of Pakistan, Credit Suisse praised the pro-business economic policies of the present government earning laurels from global agencies.

It states up-tick in public and private investment, higher domestic consumption in the midst of a low inflationary environment, and better energy availability (from LNG imports) as likely key drivers of accelerating GDP growth in FY16-17 to 4.9-5.3 percent compared to FY9-15, when growth averaged 3.2 percent.

Pakistan's macro recovery is largely on track with substantial improvement in most macro indicators. Fiscal deficit is expected to ease to 4.7 percent of GDP led by a combination of higher tax revenues, contained current expenditures and subsidy pull-back. Forex reserves are close to record highs of $21 billion as of early Jan-2016 equivalent to five months of import bill, driven by windfall gains of lower oil prices and rising remittances. External account stability is also corroborated by a 72 percent decline in the current account deficit over the same period.

Pakistan stands on the verge of an investment-led growth cycle where investment-to-GDP ratio should rise to 15.5 percent in FY16 and 17.0 percent in FY17 from current 13.5 percent. Companies according to researchers are actively pursuing capacity expansions in a broad range of sectors such as auto, consumer, cement and hospital.

The CPEC, with a price tag of $46 billion spread across energy and infrastructure projects, is becoming more of a reality as compared to a few months ago.

Net FDI from China in the first half of FY16 is up 122 percent YoY and its share in total FDI stands at 64 percent up from 30 percent last year.

With real interest rates still elevated at 3.2 percent, the State Bank of Pakistan (SBP) should not be in a rush to tighten rates as yet, says Credit Suisse. For the past seven years, loan demand had slumped to single digits as gross fixed capital formation stalled, which means real loan growth was negative.

This should pick up going forward as the economy benefits from rate cuts, as well as due to the Chinese investment plans in the country's infrastructure.

Subdued loan growth and mid-teens' deposit growth have resulted in Pakistani banks' loan-deposit ratio falling to 45 percent from 75-80 percent during 2005-09. This will come handy as loan demand picks up, while banks enjoy handsome capital gains on their bond portfolios.


Substantial deleveraging of the balance sheet has led to asset quality improvements for private sector banks. As a result, NPL ratios declined to 8.9 percent in the third quarter of FY15 from a peak of 12.5 percent in 1Q11. Concerns appear to emerge on the international portfolio, particularly in the Middle East against the backdrop of prolonged weakness in international oil prices. Both UBL (15 percent) and HBL (12 percent) have sizeable credit exposures in the Middle East, which appear to be at risk of deterioration.

Quoting DuPont comparison of Pakistani banks with Asian banks, Credit Suisse pointed out that Pakistani banks have second best net interest margins at 4.54 percent in 2015; lowest loan-deposit ratio at 44 percent in 2015; non-interest income respectable at 1.3 percent of assets, cost-income ratio not bad at 50 percent.

Further, it states NPLs mostly flushed out with aggregate being 11.3 percent for the largest five banks and loan loss coverage healthy at 86 percent; credit costs peaked at 2.3 percent of loans in 2009 and have since fallen to 70 basis point in 2015. Capital ratio is quite comfortable at 12.6 percent (average) for the five banks, it said.
Riaz Haq said…
Change is afoot to grow #Pakistan’s banking sector. #financialinclusion | World Finance …

Pakistan’s economy presents great opportunities for the banking sector. Habib Bank is hoping to bring an end to its unbanked masses
Now that Pakistan stands at the cusp of socio-political and economic change, it is the ideal opportunity for the banking sector to redress the lack of outreach towards sections of the population that were hitherto excluded from the formal financial sector, or did not have the knowledge to utilise banking services.

Indeed, it is a very real appreciation of impediments at the grassroots level that has driven Habib Bank Limited (HBL) to expand its product line to especially cater to the low-income population of the country, which would have otherwise remained disenfranchised from the national economy.

Hence, HBL has made a conscious effort to ensure delivery of financial services to this segment by streamlining products, policies and procedures to enable financial inclusion. As such, most of the initiatives HBL has undertaken have been ground breaking in both scope and outcome, and their key focus has been easing the transition from conventional methods of money handling towards more reliable, convenient and trustworthy avenues.

Getting banks up to speed
Another shift that has been witnessed by the industry is the exit and scale down of various foreign banks operating in Pakistan. This provides an opportunity for local banks to reach out to global corporates that seek a certain standard of service and technology.

HBL has been very successful at capitalising on this market opportunity with a majority of large local and multinational corporations now utilising HBL banking services. HBL has also strategically acquired the retail operations of Citibank, and recently the entire operations of Barclays Bank in Pakistan.

As far as performance is concerned, the banking sector is one of Pakistan’s best performing industries, with its assets rising to approximately $129bn between Q2 and Q4 of 2015. Its profitability remains high and the industry’s key performance indicators for nine months of 2015 displayed a robust picture.

The capital adequacy ratio, a measure of solvency, stands at 18.2 percent, which is well above the benchmark of 10 percent set by Central Bank of Pakistan and international standard of eight percent. All in all, the sector is going from strength-to-strength, with this trend likely to continue into 2016 and beyond.

Islamic financing
Pakistan was among the first three countries to attempt to implement Islamic financing at a national level, and its origins date back to the 1970s. Today, Pakistan has six dedicated Islamic banks and almost all the commercial banks have Islamic divisions that provide sharia-based solutions to their customers. The emergence of Islamic finance in Pakistan has led to greater financial inclusion for a large segment of the population awaiting sharia-based products.
Riaz Haq said…
#Pakistan’s financial system remains sound but banks must deal with non-performing #loans: #SBP via @Shareaholic

The banking sector observed year-on-year growth of 16.8 per cent in CY15 (average growth of 13.2 per cent during CY13-CY15) to reach PKR 14.1 trillion as of end December, 2015. During the same period, advances grew at a modest pace of average 8.1 per cent (average 8.7 per cent during CY13-CY15); while Investments - mostly in government securities - increased by 30 per cent (average 20.1 per cent during CY13-CY15).

The asset expansion has mainly been financed by deposits growth of 12.6 per cent (average 12.5 per cent during CY13-CY15) followed by financial borrowings. Asset quality improved with reduction in infection ratio (11.4 per cent in CY15 compared to 13.3 per cent in CY13) and rise in provision coverage (84.9 per cent in CY15 compared to 77.1 per cent in CY13). However, banks do face challenge in reducing the high stock on non-performing loans.

To this end, SBP is working on various legal and regulatory measures. The operating performance observed considerable improvement as banking sector posted record after tax profit of PKR 199 billion during CY15, largely contributed by growing income share from investment in government papers.

As a result, profitability indicators have improved; return on assets (after tax), increased to 1.5 per cent in CY15 from 1.1 per cent in CY13 and ROE (after tax) increased to 15.6 per cent from 12.4 per cent in CY13. The solvency has also remained robust with high capital adequacy ratio at 17.4 per cent in CY15 (14.9 per cent in CY13). Islamic banking increased its share in overall assets to 11.4 per cent in CY15 (9.6 per cent in CY13) in line with the Strategic Plan for the Islamic Banking Industry 2014-18.

While banks are maintaining high capital levels, expected growth in credit and gradual enhancement in minimum capital requirements prescribed by the regulators require banks to shore up their efforts for further strengthening their capital. Apart from banks, non-bank financial institutions (NBFIs) including development finance institutions (DFIs), leasing companies and mutual funds have performed reasonably well during the Financial Year 2015 (FY15) except for investment finance companies which have continued to post losses.

Insurance sector has posted healthy profits and increase in gross premiums improved the overall penetration rate of the sector to 0.8 per cent in CY15 (0.5 per cent in CY13). Financial markets (Money, FX, and Equity) also performed smoothly during CY15; though, some volatility was seen in equity and FX markets during the second half of CY15 (post Yuan devaluation and anticipated rise in interest rates in the US). FSR also highlighted few challenges facing the financial system.


Though credit to private sector has improved in recent years, however, prime risk taking activity that is lending, is still at a low level. Consequently, advances to deposit ratio is falling for the last few years. This could be contributed by both demand and supply side factors, particularly challenging economic and business environment due to various structural issues such as power shortages facing the economy.

As such, banks have increased their inclination towards risk free investments in government securities and their balance sheets - loaded with PIBs and MTBs - are more prone to market risk due to interest movements. On the funding side, the deposit growth in past couple of years, although decent, has remained short of meeting asset growth requirements of both the private and public sector.
Riaz Haq said…
IRTI, Thomsob Reuters and IBA Study reveals double-digit growth in #Pakistan’s #Islamic finance sector. #Karachi …

A study launched by IRTI, Thomson Reuters and IBA has shown that Pakistan’s Islamic finance sector continues its steady growth.
The study on the Outlook of Islamic Finance in Pakistan said the banking sector is growing and market share in 2018 is expected to rise to 15% percent.


The Pakistan study ... provides recent developments across the Islamic finance industry and the broader economy and identifies challenges for the country’s future before presenting a number of key development recommendations.

Since its independence in 1947, Pakistan has been striving to develop an economic system based on Islamic principles, the study explains. And in the past 15 years, Pakistan has shifted to a dual Islamic/conventional financial system, which boosts business with the global economy while making progress towards a fully Islamic financial system by building market demand for it. Policymakers and regulators in Pakistan have made positive strides to reform the legal and regulatory framework in the past decade.

The study also highlights the country’s resilient agricultural production, strong potential for hydropower generation, oil production, natural gas reserves, and large gold and copper ore deposits. These resources should also be fully utilized to help accelerate the growth and development of the country, and the Islamic finance industry is a potential partner for structuring and financing such industrial projects.

“Islamic finance is taking strong roots in Pakistan with the support from the government as well as from the State Bank of Pakistan, and the Securities Exchange Commission. Besides the growth in Islamic financial assets, a sustained progress can be observed in regulations, highlighting new frameworks for Shariah governance for Islamic financial institutions, Sukuk and Takaful. The Islamic finance industry is establishing on a robustfooting and we are confident that it has a strong potential for leading the international Islamic finance industry,” said Professor Dr. Mohamed Azmi Omar, Director General of IRTI.

The report highlights that the Islamic capital market sector registered a remarkable growth at a double-digit rate in the past decade, recorded mostly by Islamic mutual funds. Takaful and Mudarabah companies are catching up, despite the relatively small size of these industries. In all Islamic finance industry segments, finance professionals and investors maintain a positive economic outlook, and Islamic finance institutions have built strong fundamentals.

The study also highlights some key trends in the future growth of Islamic finance in Pakistan. These include the rise of branchless Islamic banking via mobile services, the fast growth of the KME Meezan Index (KMI-30) and Islamic All-Share Stock Indices, open market operations on government Sukuk to maintain the liquidity of the Islamic banking system and the rapid expansion of Islamic microfinance.

“To maintain this pace of growth, we recommend that policymakers and professionals continue their reform of regulations and integration with global Shariah and governance standards, the expansion and deepening of an Islamic finance education curriculum, and their marketing effort towards rural areas, to spread awareness and financial inclusion,” said Mustafa Adil, Head of Islamic Finance at Thomson Reuters. “We have no doubt that in the coming decade, we will see Pakistan as key international player for the growth of the global Islamic finance industry”.

To download the full version of Pakistan Islamic Finance Report: Innovation at Asia’s Crossroads, please visit the pages below:

Riaz Haq said…
#Pakistan to set up #infrastructure bank with $1 billion capital to finance private sector development. #IMF #IFC

Finance Minister Ishaq Dar has announced that the government will set up Pakistan Infrastructure Bank with a paid-up capital of $1 billion, which will give financing to private investors for development projects.

Pakistan government and the International Monetary Fund (IMF) would have 20% shares each in the bank and the rest would be held by global organisations such as the International Finance Corporation, he said.

AJK plans tourism corridor along CPEC
He was speaking at a briefing held for the Pakistani media towards the end of his visit to Washington DC during which he attended spring meetings of the IMF and the World Bank.

Dar also revealed that the government would soon be launching Pakistan Development Fund (PDF) and its shares worth Rs100 billion would be offered to Pakistani diaspora in order to channelise their remittances effectively.

Later, these shares will be listed on the Pakistan Stock Exchange. “After the success of Sukuk (Islamic bonds), the PDF will be another attractive investment for overseas Pakistanis,” he remarked.

Giving a detailed round-up on the plenary sessions with the IMF and World Bank, the minister said there was positive sentiment about the tremendous economic rebound experienced by Pakistan over the last four years.

“Pakistan was on the verge of bankruptcy in 2014 and today it is likely to achieve approximately 5% growth during the current financial year,” he said. “Both IMF and World Bank are on the same page with the Pakistani government in these projections.”

Promotion of it: Work on innovation centres begins

Global credit rating agencies have upgraded the rating of Pakistan from negative to stable and from stable to positive in the last four years to an extent that the country is likely to be included in G-20 countries by 2030.
Riaz Haq said…
#Pakistan to launch #Exim, #infrastructure banks, development fund to boost its #exports-

Pakistan will shortly launch two international banks and a development fund - Exim Bank, Pakistan Infrastructure Bank and Pakistan Development Fund - to boost foreign trade and step up funding for its mega projects.

Pakistan Development Fund (PDF) aims at encouraging overseas Pakistan to invest their earnings at good profit rates.

On instruction of Prime Minister Nawaz Sharif Finance Minister Ishaq Dar discussed the launching of the two international banks and the PDF with top leadership of US, World Bank and the Iternational Monetary Fund (IMF) during his just concluded talks in Washington.

Islamabad is happy that its timing of the announcement of the two banks and the PDF has been welcomed by the IMF, which in its latest report put Pakistan's GDP growth at 5 per cent in FY-17, and projected it at 5.2 per cent for FY-18, well above the 3-4 per cent in the last decade. At the same time, its good to see the stock market indicating high foreign and domestic interest in investment. The stock market this month shot up beyond its highest position of 50,000 plus points which led to the international rating agencies to place it as Asia's Top-10.

The Pakistan Stock Exchange (PSX) with such an attractive performance is now on its way to be ranked as "G-20" - at the global best 20 stock markets, rating agencies say.

At the same time, according to international credit rating agencies, Pakistan is moving up and have upgraded Pakistan from "negative" to "stable," and just now to "positive."

Dar said: "Pakistan has now emerged as a lucrative investment option for international investors."

"I advise the multinational giants to consider Pakistan for establishing labour-intensive projects and facilities in South Asia," he said while talking to the Khaleej Times in Islamabad.

"The Exim Bank will be fully operational by December this year. It will start with a Rs7 billion cash," said Shibli Fraz, chairman of the Senate Standing Committee on Commerce.

He said, this information was provided by the Ministry of Commerce. The Ministry of Commerce also informed the Senate that it has sent three names to Finance Minister Ishaq Dar for the appointment of the head of the Exim Bank.

The government has also decided to launch Pakistan Infrastructure Bank (PIB), with a paid up capital of $1 billion. "PIB will be providing funds to the private investors for developing big projects," Dar said.

"The International Monetary Fund and the government of Pakistan will each hold 20 per cent stake in the PIB, and World Bank affiliate and lender to the private sector - International Finance Corporation (IFC) - will have the remaining 60 per cent shares," Dar said.

The government will launch PDF in collaboration with the Manila-based Asian Development Bank (ADB). The PDF shares worth Rs10 billion will be offered for investment expected to be made by the Pakistani diaspora. The PDF shares will be enlisted on the PSX.

"After success of Pakistan's sukuk bonds, PDF will be another attractive investment for the overseas Pakistanis to receive good dividends," Dar said.

The government will offer $1.3 billion shares to the overseas Pakistanis. It will be non-convertible dollar shares and will be invested in commercially viable projects in the public sector, Dar said.

He also said: "Since rupee is stable, we hope a positive response from investors. The rupee only registered a 5 per cent devaluation over the last five years, so if you invest in a good development fund you can get a good return," Dar said.

The ADB is also bullish over Pakistan's economic prospects and has upgraded the its growth estimate to 5.2 per cent in FY-17.

Riaz Haq said…
Ishaq Dar: #Financing partnerships paving way forward for #Pakistan #infrastructure - Nikkei Asian Review #IFC

Finance minister sees 6% GDP rise as cash flows where it's needed most

GO YAMADA, Nikkei senior staff writer
TOKYO -- Pakistan is determined to funnel more money toward infrastructure, small businesses and the poor, and the government has found an array of international partners to make it happen. Finance Minister Ishaq Dar recently spoke with The Nikkei about the development drive and the federal budget for the coming fiscal year through June 2018, which he said will focus on generating 6% gross domestic product growth.

Dar is arguably the most influential member of Prime Minister Nawaz Sharif's cabinet. When Sharif was in exile during the rule of Pervez Musharraf, who led the country from 1999 to 2007, Dar was a key caretaker for Sharif's Pakistan Muslim League (Nawaz) party.

Talking about the forthcoming federal budget, to be announced on May 26, Dar said, "After [achieving] macroeconomic stability, we have fully focused on higher GDP growth that brings a better life to people, better per capita income, job opportunities and fills the gap in infrastructure demand."

Next fiscal year, he said, "our efforts will give [growth] another boost. Some fiscal measures and policies will be introduced."

Dar pointed to a recent agreement with the U.S.-based International Finance Corporation to partner on creating a Pakistan Infrastructure Bank.

The PIB will provide financing for infrastructure projects by the private sector, he explained, describing the new lender as an "equal partnership by the Pakistan government and IFC for 20% each." Other stakeholders from around the world will account for the rest, he said.

The bank is expected to have paid-up capital of $1 billion.

And the PIB is just one piece of the puzzle. "With partnerships with the U.K.'s Department for International Development and the German government-owned development bank KfW, we have created the Pakistan Microfinance Investment Company," Dar said. This entity's three-year business plan calls for boosting the number of "beneficiaries of microfinance from the current 4 million to 10 million," he added.

Meanwhile, the government, the DFID and KfW are teaming up on a Pakistan Poverty Alleviation Fund, with their respective shares to come to 49%, 34% and 17%.
Riaz Haq said…
#MiddleEast #investment bank EFG-Hermes commences operations in #Pakistan

KARACHI: After a gap of nine years, a foreign brokerage house has commenced operations in Pakistan ahead of the country’s reclassification to the MSCI Emerging Markets Index, a development expected to generate the inflow of millions of dollars this year.

EFG-Hermes, a Cairo-based leading investment bank of Middle East and North African (MENA), has opened its office in Pakistan through the acquisition of a majority (51%) stake in Invest and Finance Securities Limited (IFSL).

EFG-Hermes Group Chief Executive Officer Karim Awad said the bank was operating in nine major countries in the MENA region, including UAE, Qatar, Saudi Arabia and Oman.

“Now, we are very proud to be in Pakistan. This is a market full of potential,” he said after ringing the opening bell to begin the trading session at the Pakistan Stock Exchange (PSX) on Monday.

Pakistan upgraded to MSCI Emerging Markets Index

He said PSX’s return to the MSCI Emerging Markets is set to attract significant foreign inflows. “We believe we can play a good role in bringing foreign inflows from western institutions and GCC countries to Pakistan’s stock market, as well as hopefully bring new IPOs [Initial Public Offerings] from local companies,” Awad said.

“We are quite bullish on Pakistan’s economy and that’s why we are here,” he told The Express Tribune.

Foreigners leave

Foreign brokerage houses including JP Morgan, a US bank, suspended brokerage services in Pakistan about nine years ago when trading at the PSX (the then Karachi Stock Market) was suspended following the 2008 crisis.

The US bank still holds PSX membership, but it has remained dormant since then.

Cairo-based firm wants to sink teeth in Pakistan’s brokerage industry

EFG-Hermes Pakistan (earlier known as IFSL) Chief Executive Officer Muzammil Aslam said the investment bank acquired 51% stake in IFSL at Rs15 per share, translating into a transaction of $1.5 million.

“The brokerage house may bring a large part of foreign inflows of around $200-250 million of the total inflows this year,” he said.
Riaz Haq said…
This is why you need to know about trade finance

We are talking about a financing mechanism that is essential to bridge the time lag between a product’s shipment from one market and its arrival and inspection in another. Reducing this delay helps build trust and minimizes many of the risks arising from such complex transactions, such as a lack of timely payment, exchange rates and the deterioration or loss of goods and services.

Trade finance likes to manifest itself in the form of letters of credit, guarantees or insurance and is usually provided by intermediaries, such as banks or financial institutions. One of its most current forms involves bank-to-bank transactions, where one bank provides an account and related services to another in a relationship is called correspondent banking.

According to an Asian Development Bank Institute paper, adequate and reliable trade finance creates exports opportunities: “[I]t enables firms which would otherwise be considered too risky, to link into expanding global value chains and thus contribute to employment and productivity growth”. Trade is no longer just for the big boys.


FinTech solutions could potentially solve some of the transparency and risk-related processes and transaction costs, as well as fees, associated with banks’ due diligence checks by providing trusted platforms to connect seekers and providers of funding, rather than piles of paperwork.

The good news is that some initiatives are emerging. For example, some FinTech firms in the US and Singapore are starting to offer web-based platforms allowing users to post assets for distribution, negotiate deals, and manage supporting documentation.

FinTech solutions could finally find their niche in the finance sector and kill two birds with one stone. On the one hand, they could allow for the development of innovative start-ups that have been in the shadows for too long while creating new opportunities to link up with markets; on the other hand, they could offer an easier and cheaper way to access finance through a user-friendly platform that’s accessible by phone. Our Burmese entrepreneur would certainly find it easier to buy a phone than to open a bank account.

Now take off your rose-tinted glasses for a minute and feel that bittersweet taste in your mouth. Every joy has a dark side. Given the nascent nature of FinTech, regulatory frameworks are still uncertain and concerns related to intellectual property and data protection are yet to emerge. This may prevent some companies from adopting these solutions and being able to see the benefits, which include security, risk and cost reductions, and speed, to name but a few.

Riaz Haq said…
Accelerating economy to support Pakistan’s banking sector growth
Modest capital and large holdings of government bonds remain risk factors

Published: 14:06 March 11, 2018 Gulf News
Babu Das Augustine, Banking Editor

The outlook for banks in Pakistan is stable over the next 12-18 months driven by an accelerating economy and stable funding, according to rating agency Moody’s.

“Our stable outlook for Pakistan’s banking system is driven by an accelerating economy, boosted by domestic demand and China-funded infrastructure projects. Economic growth will stimulate lending and support a slight improvement in asset quality. Despite margin pressure, we expect profitability to remain flat. Stable funding from customer deposits and high liquidity are further strengths,” said Constantinos Kypreos, a Moody’s Senior Vice President.
Pakistan’s real GDP growth is projected at 5.5 per cent and 5.6 per cent in the fiscal years ending June 2018 and June 2019. Infrastructure investment and solid domestic demand will be the main drivers of economic growth and will fuel lending growth of 12 per cent to 15 per cent for 2018. The economy, however, remains susceptible to political instability and a deterioration in domestic security.
Analysts expect problem loans (NPLs at 9.2 per cent of gross loans as of September 2017) to decline in the current supportive macro environment, helped by the banks’ diversified loan portfolios and low corporate debt. Asset risk remains high, however, due to weaknesses in the legal framework, inefficient foreclosure processes and scant information for assessing borrower creditworthiness.


With regard to asset risk, analysts expect asset quality to improve in the current supportive macroeconomic environment, helped by the banks’ diversified loan portfolios and low corporate debt.
Moody’s says that the banks’ profitability will remain flat amid margin compression. However, profits will be supported by strong lending growth, a focus on low-cost current accounts and moderate provisioning needs. Interest margins should level off towards the end of 2018, once pressure from the reinvesting of legacy high-yielding Pakistan investment bonds reduces, as the remaining of these mature.
Credit growth to pick up pace
Credit growth in Pakistan is expected to gain momentum in 2018-19 driven by robust growth in both private and public sector credit demand, according to rating agency Moody’s.
“We expect lending to the private sector to grow between 12 to 15 per cent during 2018, a result of the improved economic conditions. This is despite a widening fiscal deficit (5.8 per cent of GDP for 2017), which the banks will continue to partly finance,” said Constantinos Kypreos, a Moody’s Senior Vice President.
Loan growth and deepening financial penetration is expected to be supported by state initiatives, such as branchless banking. Regulations amended to allow customers to open bank accounts through biometric devices at agent locations, as well as through mobile phones, to facilitate remittances are expected to boost growth on both assets and liabilities. A central bank-initiated policy targets a 17 per cent share of private-sector credit for SME financing compared to 9 per cent at year-end 2016. The policy initiative has set minimum portfolio targets for banks; introduced risk coverage and refinancing schemes for SMEs; established g a registry to allow SME borrowers to obtain credit using pledged assets as collateral; and prudential incentives such as a relaxation of general provisioning and capital requirements.

Riaz Haq said…
#Pakistan #FinancialServices #profits surged 48% to Rs. 45.5 billion in the third quarter (July-September 2019) over the same quarter of 2018. Cumulatively in the nine months (January-September 2019), #banking profit grew 20% to Rs127.7 billion. #economy


On average, banks charged 13.84% from borrowers and paid 8.71% to depositors – resulting in a spread of 5.13% in December 2019.


Commenting on the latest data issued by the State Bank of Pakistan, Topline Research analyst Fawad Basir said, “Deposits of the banking sector grew 10% to Rs14.6 trillion in 2019 compared to 8% in 2018. The growth, however, remained lower than the five-year average of 12%.”

Banks mostly invested the deposits in the government papers as they offer secure and higher rate of return during times of such crisis compared to the credit they offered to business in the year.

Accordingly, investment in government securities (T-bills and Pakistan Investment Bonds) increased 16% to Rs8.8 trillion in 2019. Investment to deposit ratio (IDR) increased to 60% in 2019 from 57% in 2018.

“On the other hand, advances (like credit to private sector) grew by just 3% in 2019 hindered by high interest rates and slowdown in the overall economic activity. Over the past three years, advances have grown at an average of 19%,” he said.
“Going forward, we see deposit growth in the range of 10-12% and advances growth of 11-13% in 2020 at the behest of economic recovery and an expected decline in interest rates,” he said.


Riaz Haq said…
In #Pakistan, foreign firms’ #profit repatriation rises 18% to $743.2m as #foreign #banks book higher profits against hefty foreign #investment of $2.56 billion in short-term sovereign debt securities (T-bills) of Pakistan since July 2019. #economy

“The prevailing high interest rate (which is at an eight-year high of 13.25% since July) has helped the financial business sector earn higher profit and dispatch enhanced amounts to the headquarters,” BMA Research Executive Director Saad Hashmi said while talking to The Express Tribune.

There is only one sector – banks – which managed to thrive under the ongoing economic reforms as majority of other sectors have been hit hard due to the economic slowdown in the country. “Profit of the entire banking sector is estimated to grow by a hefty 40% in the calendar year 2020,” he said.

“Foreign banks have been estimated to earn higher profits during times of high volatility in rupee-dollar parity (December 2017 – July 2019) and onwards when the parity got stabilized,” he said. “Besides, they also booked higher profits against hefty foreign investment of $2.56 billion in short-term sovereign debt securities (T-bills) of Pakistan since July 2019 to date.”
Transportation and storage sector, apparently the shipping and logistic firms, repatriated $156.6 million in the six months under question which is 3.56 times of $43.9 million dispatched in the same period of the previous fiscal year. On the other hand, the petroleum refinery sector managed to repatriate only $2 million in profit in the period under review compared to $46.7 million in the corresponding period of last year.

The refineries have been hit hard due to continuous production of the obsolete furnace oil as they failed to find any buyers until recent past. The furnace oil production hindered manufacturing of co-products like petrol and diesel and resulted in losses worth billions of rupees to them.

The rubber and rubber product sectors, which had extensively complained about the rampant smuggling in the country, dispatched zero profit in both the halves; the one under review and the other in comparison.

Fertiliser and electronic sectors also sent zero profits in the two halves.

The textile sector, which is believed to be the only profit making export sector, also dispatched zero profit in the six months compared to $0.7 million in the corresponding period of 2018. The manufacturing sector managed to dispatch $216.7 million, which is 12% lower than $245.5 million in the same period of last year.
“This reflected the hardship faced by the entire manufacturing sector during the ongoing economic reforms, including high interest rate and rupee depreciation till recent times,” Hashmi said.

Oil and gas exploration, tobacco and cigarettes, chemical and petrol chemical, and personal services sectors managed to dispatch comparatively higher profits.
Riaz Haq said…
#Citibank #Pakistan scaled back, and became bigger than ever. Just 7 years after ending its retail operations in the country, the #global #bank is more #profitable than at any point in its history in Pakistan… and remains a breeding ground for top talent

And its return on equity – the all-important measure of bank profitability – is higher than it has ever been over the past two decades for which data is publicly available. Despite accounting for just 0.7% of the banking industry’s deposits, as of September 30, 2019, the latest period for which financial data is available, Citibank Pakistan accounts for 2.5% of its profits.

And Citibank was able to do this by going back to its roots: a global corporate and investment bank, with a presence across most economies around the world, a connecting financial institution that forms part of the backbone of the global financial system.

Citibank’s unique place in Pakistan

There is perhaps no foreign bank that captures the Pakistani imagination more than Citibank. Despite being much smaller than its current rival Standard Chartered, Citibank seems to have produced more financial leaders in Pakistan than any other financial institution. In both Corporate Pakistan – as well as the government – it means something special to be able to call oneself an “ex-Citibanker”, more so than any other financial institution.

The bank’s alumni in Pakistan include two former federal finance ministers – Shaukat Aziz and Shaukat Tarin – one of whom (Aziz) went on to become Prime Minister. They also include two provincial finance ministers – Murad Ali Shah of Sindh and Hashim Jawan Bakht of Punjab – one of whom (Shah) went on to become provincial chief minister. While Shah and Bakht are both from politically influential families, Aziz and Tarin’s rise in the federal government was in no small part due to the stature they gained as being highly successful global bankers who spent a significant portion of their careers at Citigroup.


Standard Chartered, while a London-headquartered global bank, does not have a significant presence in investment banking. It is a strong corporate and commercial bank, but not an investment bank. In the world of capital markets and investment banking, Standard Chartered shows up nowhere in the global league tables (essentially, a ranking of financial institutions by total investment banking revenue).

Citi, on the other hand, is consistently in the top 5, earning $4.3 billion in investment banking revenue in 2019, according to data from Refinitiv, a financial data provider owned by Reuters.

What does any of this mean?

It means that while Standard Chartered can use its rupee-denominated local deposits to buy local, rupee-denominated bonds from the government of Pakistan, if Islamabad wants to issue dollar-denominated bonds to investors outside the country, the only bank with a local office it can talk to is Citi. (Technically, Deutsche Bank has also been a global investment banking powerhouse, and has offices in Pakistan, but its global investment bank has effectively self-immolated, so the less said about that, the better.)

And this is not just a theoretical capability: it is one that Citigroup has actively cultivated, having served as the government of Pakistan’s investment banker on nearly all global bond issuances, and several privatisation transactions as well.
Riaz Haq said…
According to the Mid-Year Performance Review (MPR) of the banking sector released by the State Bank of Pakistan on 21st October, 2019, banking sector maintained its growth trajectory during the first half of 2019 on account of decent increase in deposits, thanks to an amnesty scheme announced by the government.

On the liabilities side, deposit growth accelerated to 6.8 percent during January-June, 2019, up from 5.7 percent in the comparable period of last year. A good portion of these deposits was mobilised in June, 2019, leaving a very little time to deploy the funds in higher yielding earning assets. On the assets side, private sector advances witnessed a broad-based slowdown while public sector advances declined due to lower utilisation of commodity financing and retirement of energy sector advances. Resultantly, banks' borrowings declined by 12.7 percent and advances to deposit ratio dipped to 53.2 in June, 2019 compared to 55.8 in December, 2018. Overall, the risk profile of banking sector remained satisfactory and Capital Adequacy Ratio (CAR) at 16.1 percent was well above the local and international benchmark of 11.9 percent and 10.5 percent, respectively. Advances (net) decelerated to 1.9 percent compared to the rise of 12.3 percent in H1CY18 while investments also witnessed a slight increase of 0.7 percent in the first half of 2019 against a contraction of 3.6 percent in the same period of the preceding year.

So far as the second half of 2019 is concerned, the demand of private sector credit is expected to remain subdued due to stabilisation measures initiated by the government and subdued economic activity in the country. Projected slowdown in world economic activity, particularly in the US and the Euro area, is likely to influence exports and demand for advances. Banks may continue to remain risk-averse in their lending behaviour due mainly to a pick-up in NPLs and weakening repayment capacity of firms. The government's commitment to cease its borrowings from State Bank of Pakistan was expected to increase its reliance on commercial banks for financing needs. As such, investments of banks in gold-edged securities is expected to rise further. The rise in Minimum Saving Rate (MSR) is likely to induce depositors to opt for more saving and fixed deposits. Earnings of banking sector are also likely to remain decent in the second half of 2019 due to higher interest earnings and expected pick-up in banks' investment in government securities.

Riaz Haq said…
‘Growing debt market crucial to Pakistan’s economic progress’

Growing and dynamic debt market is crucial for the economic progress of Pakistan and it is imperative for all stakeholders of the financial ecosystem to take the country’s debt market to regional and international levels, PSX chief executive officer said on Friday.

Farrukh Khan, chief executive officer of Pakistan Stock Exchange (PSX) said this during a gong ceremony to welcome Bank of Punjab (BOP) onboard as a market maker for conventional and shariah-compliant debt instruments on PSX.

“BOP is one of the first banks to become a market maker on PSX. We welcome this development as this will lead to increased growth and dynamism in the debt market, which is crucial for the economic progress of Pakistan,” Khan said in a statement. “We believe this step will play a significant role towards achieving that end. We are also in discussions with BOP to bring some of their SME [small and medium enterprise] clients to list on the new GEM [growth enterprise market] board. This will also be an important development for Pakistan’s economy, the SME sector and PSX.”

Market makers perform the role of providing liquidity and depth to the market by facilitating investors to buy and sell securities through continuously quoting two way prices – bid and offer prices.

Zafar Masud, CEO of Bank of Punjab said the bank will be the first bank in the Pakistan market making for both conventional and shariah-compliant securities as well as corporate debt instruments at the PSX portal.

“This makes us the first public sector bank offering a bouquet of services in collaboration with PSX,” said Masud. “We see our role expanding beyond a market maker for debt securities. Through this agreement, we are committing to becoming a leading player in development of capital markets in Pakistan by enabling greater investor participation and enabling listing of more debt, equity and non-conventional instruments at PSX.”

“We can partner with PSX in promoting privatisation and listing of public sector projects for example Punjab thermal power and Quaid-e-Azam solar power through the stock exchange. Moreover, we plan to design instruments to bring projects like Kamyab Jawan Program, SME financing project and low cost housing scheme to PSX platform,” he said.

Riaz Haq said…
Digital transactions record robust growth

According to the State Bank’s latest Annual Payment Systems Review (PSR) for FY21 issued on Friday, the transactions processed through the SBP’s large-value payments segment, known as Real-time Inter-Bank Settlement Mechanism (PRISM), recorded a growth of 60 per cent by volume and 12.8pc by value.

As of June 30 this year, the PRISM system had 51 direct participants — 34 banks, seven microfinance banks, nine development finance institutions and one non-bank entity (Central Depository Company). During FY21, PRISM processed 4.2 million transactions amounting to Rs444.6 trillion.
Riaz Haq said…
#Finnish fund buys 17.6% stake in TPL #Insurance in #Pakistan. The size of #Finnfund #investment is $3 million, which amounts to Rs632.8 million at the current exchange rate.

KARACHI: TPL Corporation said on Friday a Finnish fund has successfully completed the transaction to acquire 17.59 per cent shareholding in TPL Insurance, a subsidiary of the Pakistani conglomerate.

Speaking to Dawn, TPL Insurance Ltd CEO Muhammad Aminuddin said the size of the transaction is $3 million, which amounts to Rs632.8 million at the current exchange rate.

Finnish Fund for Industrial Cooperation Ltd, a private firm incorporated in Finland, was originally going to invest roughly Rs540m in the Pakistani insurer through a special rights transaction. However, the investment size increased in the local currency because of the recent depreciation in the exchange rate.

“The investment will come through the issuance of new shares for which we’ve received approval from the regulator,” said the CEO.

Finnfund is a development financier and impact investor that buys stakes in “responsible and profitable” businesses in developing countries.

This is the second investment by an “impact investor” in TPL Insurance, which also raised last year an equity equalling 19.9pc of share capital from DEG, the private equity arm of the German government. The technology-driven business model of TPL Insurance supplemented by the Finnish fund’s global experience and knowledge will result in new product lines, a regulatory filing said.

According to the annual report for 2021, TPL Corporation and TPL Holdings held a collective stake of 64.38pc in TPL Insurance. After the transaction, the stake of the TPL Group in the insurer will reduce to 52pc, said Mr Aminuddin.
Riaz Haq said…
World's highest #ATM奴: #Pakistan's mountaintop bank machine at 4,693m elevation, the #Khunjerab pass is the world's highest paved border crossing. It has been serving the small number of residents, border staff & tourists – since 2016. #China #Pakistan

The Guinness World Record-holding machine works like any other; it can be used to withdraw cash, pay utility bills and make interbank fund transfers. But as my kids and I acclimated to the dip in oxygen, what struck me most was the unexpected festivity in the atmosphere: almost carnivalesque, with people FaceTiming relatives, posing for photos and orbiting the ATM to get the best selfie shot.

Karachi school teacher Atiya Saeed had brought 39 of her secondary-school students – all girls – here to the Pakistan-China border. "It's the first time in a long time that we've travelled in Pakistan," she said.

Although they didn't come for the ATM alone, the visit to the border was, she explained, an adventurous geography, history and economics lesson in the most hauntingly beautiful of "classrooms".

Constructed by the National Bank of Pakistan (NBP) in 2016, the solar- and wind-powered machine serves the small number of residents and staff at this border crossing – and the adventurous travellers who flock to it as a badge of honour, taking pictures while making a transaction that brings new meaning to the phrase "cold, hard cash".

"My account is frozen!" joked another visitor, South African retired principal Ayesha Bayat, who was on holiday with her husband. "We've come from a country where we do have mountain ranges… but not like this. I'm finding the panoramic views absolutely beautiful," she said.

"It's important to have landmarks… like the Eiffel Tower," said Bayat's husband, Farouk. "They become an excuse to discover the rest of the landscape."

But building this landmark was no small feat. And neither is maintaining it.

The project took around four months, said NBP ATM monitoring officer Shah Bibi. The closest NBP bank location is 87km away in Sost, and Sost branch manager Zahid Hussain regularly travels back and forth, braving extreme weather, treacherous mountain passes and frequent landslides to replenish the ATM. "On average, around 4 to 5 million rupees [£15,540–£19,427] is withdrawn within the span of 15 days," he said.
Riaz Haq said…
Insurance grows 22pc but penetration remains minuscule

The insurance sector grew nearly 22 per cent last year even though its penetration — the ratio of premiums to GDP — stayed at a paltry 0.91pc, a new report showed on Friday.

‘The Insurance Industry Statistics for 2021,’ the Securities and Exchange Commission of Pakistan’s (SECP) first report on the sector, said gross premiums jumped to Rs432 billion in 2021 from Rs355bn a year ago, a growth of 21.7pc.

The size of paid claims rose from Rs170bn to Rs189bn, of which Rs136bn was paid by life insurance and Rs53bn by non-life insurance companies.

The number of policies stood at Rs10.1 million by the end of 2021, including 8m in the life insurance and family takaful segment and 2.1m in the non-life insurance and window takaful segment.

Insurance density — the ratio of gross premiums to the country’s population — stood at Rs2,084, the report said.

As of Dec 31, 2021, the insurance industry had 41 active operators, including 30 non-life insurers/general takaful operators, 10 life insurers/family takaful operators and one reinsurer.

The number of complaints also jumped, the report showed, as the sector received 10,297 complaints in 2021 compared to 8,254 a year ago. However, it also disposed of more complaints: 10,182 vs 8,086.

Of the total gross premiums of the non-life industry, 56pc came from Sindh, followed by 35pc from by Punjab, 7pc from Islamabad, whereas Balochistan, KP, GB and AJK each had a share of less than one per cent.

“As the data clearly demonstrates, Pakistan’s insurance market holds enormous untapped potential for growth,” SECP Commis­s­ioner Sadia Khan said in her remarks in the report.

Riaz Haq said…
Banks’ income, assets flourish in 1HCY22

Banking in Pakistan flourished during the first half of the calendar year 2022; both assets and income noted a strong increase while the balance sheet of banks expanded by 16 per cent over the same period of last year.

The State Bank issued a “mid-year performance review” (MYPR) of the banking sector for 2022 on Monday.

The review covers the performance and soundness of the banking sector for the January-June period (1HCY22).

It also covers the performance of financial markets and microfinance banks (MFBs), as well as the results of Systemic Risk Survey (SRS), which represents independent respondents’ views about key risks to financial stability.

The sustained economic activity during 1HCY22 supported the expansion of banking sector balance sheet by 16pc during 1HCY22, said the report.

A robust increase in the asset base was mai­nly driven by the flow of private sector advances and increases in investments, particu­larly government securities, said the report.

Investments rose by 22.5pc (Rs3.3 trillion) during 1HCY22. “These funds were almost entirely invested in government securities,” said the SBP report.

Investments in MTBs (market treasury bills) and PIBs (Pakistan Investment Bonds) observed a rise of Rs684 billion and Rs1.7tr, respectively.

Also, Ijara Sukuk attracted substantial bank funds of Rs838 billion in the first half of the present calendar year. Accordingly, the share of MTBs in banks’ total holding of federal government securities declined to 33.6pc by the end of June this year from 46.6pc a year ago. The share of PIBs shot up to 52.6pc from 46pc in June -2021.

“Increased share of long-term investments demonstrates the government’s strategy to improve its debt maturity profile,” said the SBP. The pace of growth in private sector advances during 1HCY22 was the highest in comparable periods of the previous three years. Improved manufacturing activity, as reflected in double-digit growth in the Large-Scale Manufacturing (LSM) index during 1HCY22, higher input prices and SBP’s refinance schemes augmented the overall flow of advances.

Individuals and the sugar sector availed a major chunk of financing, followed by the textile sector.

However, the monetary policy announced on Nov 24 had said that in line with the slowdown in economic activity, private sector credit continued to moderate, increasing only by Rs86.2 billion during Q1 FY23 (July 1 to Sept 30, 2022), compared to Rs226.4 billion during the same period last year.

This deceleration was mainly due to a significant decline in working capital loans to wholesale and retail trade services, as well as to the textile sector in the wake of lower domestic cotton output, and a slowdown in consumer finance, said the monetary policy.

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