Saturday, March 14, 2009

Financial Services Sector in Pakistan

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


UK Financial Advisors said...

three ways of earning their professional fees:
Commission provider of financial products - conventional, this has been the most common method of paying for the services of Independent Financial Adviser. Today, however, the amount of commission received should be disclosed by the adviser, who also explain whether the commission will be deducted from the amount being invested by the customer or if included in the cost of investment.

Riaz Haq said...

Here's a news brief from the BBC about honors for the founder of BRAC, which also operates in Pakistan:

The founder of one of the world's largest non governmental organisations, the Bangladesh Rural Advancement Committee, has been honoured in the UK.

Fazle Hasan Abed - who holds dual British and Bangladesh citizenship - will be knighted by Queen Elizabeth in 2010 for services in tackling poverty.

He has also been awarded for empowering the poor in Bangladesh and globally.

Mr Abed's name was included in the Queen's New Year's Honours List released on Thursday.

'Multi-dimensional approach'

"I feel very humbled to receive this award," he told the BBC from his office in Dhaka, "which I am delighted to accept on behalf of all Bangladesh Rural Advancement Committee (Brac) workers across the world.

"I now want to build on this success to continue Brac's fight against poverty not only in Bangladesh but in eight other countries in the world where we are involved - Afghanistan, Uganda, Tanzania, Southern Sudan, Pakistan, Sierra Leone, Liberia, and Sri Lanka."

Brac also has plans to expand into Haiti.

Mr Abed says that Brac's success was because of a "multi-dimensional approach" to fighting poverty such as improving education, healthcare and financial services.

Riaz Haq said...

Here is a recent blog post by Babar Bhatti about mobile financial services in Pakistan:

In Pakistan, the widespread infrastructure of mobile operators provides them strong advantages to serve as an important link in the financial services value chain. As we have seen in Pakistan, banks and mobile operators have partnered up to start MFS. This generated a wave of marketing activity (see these commercials) which also extended to social networks such as Twitter and Facebook, highlighting the competition among mobile network operators.

One may ask why did it take so long for MFS to start in Pakistan? Well, unlike entrainment or information services, financial and commerce related services require coordination of multiple institutes and approval of government regulatory agencies. Security, accuracy and establishment of trust of users is also very important.

Easypaisa. An example of this is ‘easypaisa’ from Telenor Pakistan and Tameer Microfinance Bank. Interesting thing about this service is that money can be sent and received without a mobile phone. However, using a mobile phone provides convenience as confirmations are sent as sms. Any person with a valid Nadra CNIC can send money or receive money. Sending/Receiving can be done from more than 4,000 easypaisa shops all over Pakistan. The transaction is encrypted and the process has been approved by the State Bank of Pakistan. Details on how this works are available at easypaisa website and on YouTube.

Regardless of one’s opinion on the convenience and the fees, one must admit that introduction of MFS such as easypaisa changes the status quo for payments which has been around till now in Pakistan.

Telenor is not the only company with plans for mobile financial services. Ufone started premium banking service for customers of Ufone who have account with one its partner banks. This is a different approach where an application on the handset allows eligible customers to carry out financial and non-financial transactions. Mobilink, the largest cellular company by subscribers, is also gearing up for MFS. In July, Orascom announced its plans for MFS:

Mobilink and Citibank will utilize Mobilink’s extensive retail infrastructure to extend the reach of financial services to the previously un-served masses. Using Mobilink’s cutting edge technology, Mobilink users will be able to open branchless bank accounts through a simple and convenient registration process via authorized agents across the country. The service will allow users to maintain their accounts through their phones and make secure peer to peer money transfers to any Mobilink number simply via SMS.

At we have extensively covered the potential, opportunities and market size of MFS.

Riaz Haq said...

Here are excerpts from an interesting article on Chowk about financial systems:

A financial system is a structure that channels funds from agents with surplus to those with a deficit. Financial systems are crucial for the allocation of resources in a modern economy. A powerful question to ask then in the context of developing countries is what the relationship between growth and
the financial system is. Does growth lead to the development of the financial sector or do financial systems create growth? What can be concluded is that there is a positive correlation between growth and financial structures. The more important debate lies in the relative contribution of banks and financial markets in stimulating growth.

The modern financial system debate can be broken down into two opposing views. The first is that of Gerschenkron, who holds the view that bank based finance plays the key role in development. It is open to state intervention. This view was largely held throughout the 1960-1970’s. Stiglitz was another supporter of this bank based system. However during the 1990’s a new point of view emerged that wanted to remove the distinction between bank based and market based systems and proposed the need for a “modern financial system” for development. This argument was in favor of a market based system which took precedence in the 1990’s. It became associated with modern finance. Thus modern finance closely resembled market finance. This as we will see later can have quite a detrimental affect on the process of development for developing countries as is supported in the Singh 1997 paper which states that, “general financial liberalization and the associated expansion of stock markets in DCs is likely to hinder rather than assist their development.

The emergence of the stock markets has been a major new development in the financial systems of developing countries but its impact has been less than ideal. In an attempt to assist with the liberalization process developing countries have seen a remarkable growth in their stock markets. Stock markets allow financial services in addition to banks. Not only is risk reduced in areas of long term risk but they are also supported by the transparency argument. This has very important implications on developing countries, where corruption, crony capitalism and lack of accountability institutions lead to inefficient financial systems. Stock markets provide information on what a company is and how it is performing. This creates transparency of information for investment decisions.

So far the poor have been excluded from lending within this modern financial system. This is a very important area of discussion when designing the financial system for developing countries. The majority of the population in these countries is poor. They remain excluded despite the deregulation of finance because transaction costs are very high in lending to the poor. These transaction costs include on part of the lender screening costs, disbursement costs, monitoring and ensuring payment. For the borrower these costs involve the cost of lodging applications, obtaining and securing loans. These transaction costs are pronounced with the absence of institutions such as tax collection systems, legal systems, rating agencies, insurance systems and education. The poor form the majority of the population in most developing countries. Thus this may be an oversight on part of the financial system proposed for these countries. One solution put forth is that of micro finance. The precursor to this system was the ADB. These suffer from the problem of sustainability and the result of such efforts has been disappointing based on the results in the last few decades. The answer then is still greater formal involvement and not MFI’s.

Riaz Haq said...

According to Forbes, Mian Muhammad Mansha is “worth USD 1 " after selling half his shares in Pakistan's Muslim Commercial Bank.

He is Pakistan’s first billionaire. His Nishat Group is now his country’s largest private employer and the biggest exporter of cotton clothes (for brands like Gap). He sold more than half his shares in MCB for USD 900 million in 2008.”

Mansha has probably been a billionaire (US$1,000,000,000+) for a while now. But he has finally been ‘officially’ recognized for being one in the latest Forbes magazine “Billionaires’ list” for 2010. He becomes the first Pakistani to make it to the Forbes list.

Mian Mohammad Mansha, from Pakistan, is ranked as being #937 on the Forbes list of billionaires (with a total of 1011 billionaires listed), with an estimated net worth of US1.0 billion (Pak. Rs. 85,000,000,000+ or Pak. Rs. 85 arab!).

Riaz Haq said...

Pakistani banks are reporting strong earnings in 2010, according to a storyin Daily Times.

Bank Alfalah announced 1Q2010 earnings of Rs 586 million (EPS Rs 0.43) in the first quarter of 2010, up 31%, from Rs 448 million (EPS Rs 0.33) recorded in 1Q2009.

“The earnings improved on the back of significant decline in provisioning expenses,” said Kamran Rehmani, an analyst at First Capital Equities.

The bank’s NII grew by 26% YoY to Rs 3 bn while this was up by 7% QoQ. Non interest income posted YoY decline of 23% on account of lower gain on sale of investments amounting to Rs 38 mn versus Rs 170 mn in the same quarter of last year.

In 1Q2010, provisions against NPLs declined to Rs 310 mn from Rs 555 mn in 1Q2009 and Rs 1.606 billion in 4Q2009, down 44% YoY and 81% QoQ. “We believe that the drop in provisions is likely due to the bank availing itself of further forced sale value benefit,” said Raza Jafri, an analyst at AKD Research.

Faysal Bank: Faysal Bank (FABL) reported record earnings of Rs 1.7 bn (EPS Rs 2.77) in 1Q2010, up from Rs 0.3 bn (EPS Rs 0.42) in 1Q2009 and Rs 0.5 bn (EPS PRs0.89/share) in 4Q2009.

“Massive profitability was due to one-time gain on redemption of NIT-Loc units,” said Rehmani. The bank’s NII posted healthy YoY increase of 12% to Rs 1.2 bn from Rs 1.1 bn in the same quarter of last year while this was 5% lower on sequential quarter basis.

Non interest income grew 4.5x YoY on the back of gain on redemption. Total provision charge in 1Q2010 declined to Rs 107 mn from Rs 313 mn provided in 1Q2009. During the quarter, the bank made reverse provisioning of Rs 189 mn against diminution on value of investments. Provisions against NPLs stood at Rs 298 mn, down 8% YoY and 31% QoQ.

Riaz Haq said...

Other than financial services, other key service sectors with explosive growth in last decade (1999-2009) in Pakistan include media and telecom.

With an increase of 38% over 2008, the television advertising revenue for 2009 in Pakistan was Rs 16.4 billion ((US $200m), accounting for about half of the total ad market during the year. The TV ad revenue is continuing to rise as a percentage of total ad revenue, mostly at the expense of the print media ads. The biggest spenders in 2009 were the telecom companies with Rs 8 billion, followed closely by fast moving consumer goods (FMCG) sector with Rs. 7 billion, as reported by Pakistan's GeoTV channel. FMCG products, as opposed to consumer durables such as home appliances, are generally low cost and replaced or fully used up over a short period of days, weeks, or months, and within one year. Other important sectors contributing to ad revenue are financial services and real estate, but these sectors have experienced significant slowdown with the current economic slump.

According to Daily Times, Chairman Mushtaq Malik of the Pakistan Electronic Media Regulatory Authority (PEMRA) has said that the cable television sector “is the fast growing segment among the electronic media ventures”. In the first 100 days of the current government, he has claimed that new licenses for 16 satellite TV channels, 10 FM radio stations, and 232 cable TV channels have been granted. It is anticipated that this would lead to additional investment worth Rs. 2.5 billion, generating 4000 additional jobs in this sector. The cable television sector alone is employing some 30,000 people in the country.

APP reported that overall size of Information and Communication Technology (ICT) industry in Pakistan has crossed more than $ 12 billion, of which $ 1 billion is foreign direct investment (FDI).
This was stated by the Advisor to PM on Information Technology Sardar Latif Khan Khosa while speaking at the inauguration of 5th Information & Communications Technology Exhibition and Conference - CONNECT 2010 at Karachi Expo Centre here Saturday.
He said Pakistan has one of the fastest growing the tele-density in the world, accelerating at a rate of 63.5 percent, while the neighbouring India is just 37 percent.
Khosa said there are more than 95 million mobile connections in the country and are still growing in numbers. This is exponential growth as mobile telephone market has seen a 14-fold increase since the year 2000, he added.

Riaz Haq said...

Here's the story of how Acumen's Jacqueline Novogratz got into microfinance, as published by Businessweek:

I was an accidental banker. To please my parents, I went for an interview with Chase Manhattan Bank in 1983. They promised to send me into their offices in more than 40 countries and essentially audit the practices. It was an extraordinary job.

I had an epiphany in Brazil. We had made a $100 million loan to an airline owner who immediately moved the money to the Cayman Islands. Yet I saw all these people in the favelas who were incredibly productive but had no access to capital. I decided to leave Chase to work with a group that wanted me to help create credit systems in Africa.

As I was preparing to leave, though, the COO offered me a once-in-a-lifetime opportunity to work directly with him. He made it clear that, in a few years, I would be able to write my ticket on Wall Street. I was torn. No one wanted me to go to Africa: not my family, my friends, or my employers. But I thought, "If I don't go now, I might never go." So I quit.

I ended up going to Rwanda in the late 1980s to set up a microfinance institution and a bakery. I came back to the U.S. to get an MBA and work at the Rockefeller Foundation before returning in 1996. When I got back to Rwanda, all the women from the bakery had been killed. Of the other women I'd worked with, one was killed in the genocide, another saw her family killed, and another was a perpetrator who was sentenced to life imprisonment.

The aid system was broken. The financial markets alone weren't going to solve the problem. I wanted to invest in entrepreneurs who could see the potential of the very poor. The poor want to produce and consume and solve their own problems. In 2001, I started Acumen as a nonprofit venture capital fund. Instead of giving their money away, philanthropists could invest it in businesses. Now it's a $50 million fund that has leveraged another $200 million of capital and created 35,000 jobs. My dream is to build this into a more powerful asset class. Everything comes at a price. I have to say no to a lot of things I love to do. But we have the potential to help build businesses that change lives.

Riaz Haq said...

Here is a NY Times Op Ed by Nobel Laureate Paul Krugman on questions about rule of law in US foreclosures crisis:

The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate governance. These days, the idea that our banks were well capitalized and supervised sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we have effective contract enforcement — in fact, the question is whether our economy is governed by any kind of rule of law.

The story so far: An epic housing bust and sustained high unemployment have led to an epidemic of default, with millions of homeowners falling behind on mortgage payments. So servicers — the companies that collect payments on behalf of mortgage owners — have been foreclosing on many mortgages, seizing many homes.

But do they actually have the right to seize these homes? Horror stories have been proliferating, like the case of the Florida man whose home was taken even though he had no mortgage. More significantly, certain players have been ignoring the law. Courts have been approving foreclosures without requiring that mortgage servicers produce appropriate documentation; instead, they have relied on affidavits asserting that the papers are in order. And these affidavits were often produced by “robo-signers,” or low-level employees who had no idea whether their assertions were true.

Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

This is very, very bad. For one thing, it’s a near certainty that significant numbers of borrowers are being defrauded — charged fees they don’t actually owe, declared in default when, by the terms of their loan agreements, they aren’t.

Beyond that, if trusts can’t produce proof that they actually own the mortgages against which they have been selling claims, the sponsors of these trusts will face lawsuits from investors who bought these claims — claims that are now, in many cases, worth only a small fraction of their face value.

And who are these sponsors? Major financial institutions — the same institutions supposedly rescued by government programs last year. So the mortgage mess threatens to produce another financial crisis.

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'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...

Pakistan govt has distributed Rs 28.6 billion among flood victims, according to Daily Times:

ISLAMABAD: Government of Pakistan has distributed Rs 28.6 billion among 1.483 million flood-affected families through NADRA’s Watan Card — each card has Rs 20000 cash assistance.

Deputy Chairman NADRA, Tariq Malik stated this while briefing the UN delegation headed by Margareta Wahlstrom, Special representative of the Secretary General for Disaster Risk Reduction who visited NADRA Headquarters today for briefing on Flood Relief System.

Tariq Malik while elaborating the overall progress said that in Punjab, 608,824 flood-hit families received Rs 11.96 billion while in Sindh 558,997 families received Rs 10.11 billion. In Baluchistan

Rs 1.85 billion have been distributed among 102,945 families and Rs 3.8 billion were disbursed among 199,414 families in the province of Khyber Pakhtunkhwa. He said in AJK and Gilgit Baltistan

Rs 188,450,000 distributed among 10,173 families and Rs 61,626,000 given to 3,263 families respectively.

He said the selection of beneficiaries is one of the most contentious aspects of any post disaster cash transfer programs in various countries. “NADRA walked extra miles as our aim was to protect the most vulnerable among the flood victims like women household, widows, special persons and minorities,” he told.

He told 120,081 Watan Cards were given to the households headed by women folks in the remotest areas of Pakistan — and 11,746 Watan Cards were given to minorities notified by the provinces.

Emphasising on Grievances Redressal System, Tariq Malik explained that 3.2 million people visited Watan Card centers, 335,044 complaints were received and NADRA has verified that 167,063 were eligible of Watan Cards of which around 155,000 have been given Watan Cards.

Fifty percent (50%) of the complaints were not genuine as these included people who already had received Watan Cards or their family member had received Watan Card. “We are not closing complaints redressal system, and would like to entertain all complaints on case to case basis,” he added.

He urged the media, international donor agencies and NGOs to focus on facts and real data, not on anecdotes or stereotypes or politically motivated press reports aiming generalisation based on isolated incidents.

Neva Khan, Country Director Oxfam, Madhavi Malagoda ARIYABANDU, Regional Programme Officer, UN International Strategy for Disaster Reduction were among the members of delegation.

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...

Here's a Time magazine piece on how big Wall Street investment banks are claiming the lion's share of mathematicians and scientists to create exotic financial products:

Ever wonder how investment bankers, a breed known in the past more for its social skills and golf handicaps than for its mathematical prowess, ever invented products like those crazily sophisticated, synthetic collateralized debt obligations that brought down the financial system? Well, they didn't. They hired rocket scientists to do that--a whole lot of them. In fact, Wall Street hires more math, engineering and science graduates than the semiconductor industry, Big Pharma or the telecommunications business. As one mathematician-turned-trader friend recently put it to me, why should he work on new high-tech products at Bell Labs when he could make five times as much crafting 12-dimensional models of the stock-buying and -selling behaviors of average Joes for a major global-investment house, which could then turn around and make massive profits by betting against those very patterns?

It's a question that's right at the center of the debate over the U.S.'s economic future. After the financial crisis, the banking industry secured massive bailouts by convincing us all that Wall Street was the grease on the wheels of the real economy. Banks provided the capital to create new businesses, after all, and if they weren't healthy, nobody else could be either. Of course, that position has become harder to defend as lending rates to new businesses have contracted post--financial crisis and economic growth has remained sluggish even as bailout money has ensured that Wall Street would mushroom in size. Amazingly, three years after the crisis, the percentage of the U.S. economy represented by the financial sector remains at historic highs of over 8%.

Now there's even more compelling historical evidence that Wall Street's favorite argument doesn't hold water. A new study from the Kauffman Foundation, a Kansas City, Mo.--based nonprofit that researches and funds entrepreneurship, has found that over the past several decades, the growth in size and importance of the financial sector has run in tandem with lower--not higher--rates of new-business formation. In the 1980s, when Wall Street really took off, the number of new firms created fell, and in the 1990s, it plateaued and has been stagnant ever since. Basically, the facts show the opposite of what Wall Street would have us believe. A number of factors explain that, but one of the most important, argue the study's authors, is that the financial sector is sucking talent and entrepreneurial energy from more socially beneficial sectors of the economy.

Read more:,9171,2061220,00.html#ixzz1Hr1jAxuk

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 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...

Here are some excerpts from Forbes cover story (Dec 19, 2011) on venture money for Pak entrepreneurs:

Novogratz plays the role of auditor because, as CEO and founder of the Acumen Fund, helping people starts with financial due diligence. In April Acumen sank $1.9 million into the bank (National Rural Support Programme Bank in Pakistan) in exchange for an 18% stake, one small investment in a decadelong experiment in charitable giving. Instead of shoveling aid dollars to causes or governments that give away life-­sustaining goods and services, Acumen espouses investing money wisely in small-time entrepreneurs in the developing world who strive to solve problems, from mosquito netting to bottled water to affordable housing. It’s a new twist on the old adage about teaching a man to fish, except that Novogratz wants to build an entire fish market.
Acumen has given Pakistani farmers the ability to access cash at credit card rates, versus the loan shark terms of before—a staggering 125,000 clients have tapped the bank for $30 million in new credit this year. Novogratz’s infusion has also allowed the bank to take deposits for the first time, introducing the idea of savings, and 6% interest rates, to a community that has been locked in poverty for centuries. Since April 10,000 farmers have deposited $7 million in the bank, which of course has resulted in yet more loans.
Weeks later Novogratz fortuitously got two anonymous gifts of $500,000 each and took her first trip to Pakistan in January 2002. Acumen has since invested $13 million there in 12 businesses: Ansaar Management Co. (affordable housing), Kashf Foundation (microlending to women) and Micro Drip (agricultural irrigation), among them. She has also collected $2.7 million from 40 Pakistani donors and traveled to that country 20 times, turning one of the most volatile, anti-American populations into a vibrant experiment in alleviating poverty.
That’s why I find myself in a rural village 10 miles outside the city of Lahore, Pakistan’s second-largest city. Novogratz has come to check on another investment—and to collect the precious data she hopes to use in new fundraising. Here on 20 acres, Saiban, a nonprofit developer, has built homes for an eventual 450 Pakistani families, most of whom earn $2 to $4 a day. The $4,000 units are 85% occupied. You see the occasional motorcycle parked in front, where a few women mill about, talking or hanging laundry.
These aren’t the answers Novogratz is fishing for. She wants to hear examples of people using their homes as collateral to get college loans for their children or amassing a better dowry for their daughters so they can marry into a more prosperous family. She wraps up the meeting. “So, the next time I come, you’re going to have some good metrics for me? ’Cause this is my challenge for the world.” Someone says, “Inshallah [God willing].”

Novogratz smiles, but shakes her head: “Not inshallah. We’re going to do it!”

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...

Pakistan plans to offer terrorism insurance, according to Daily Times:

To provide foreign and local investors a shield against business losses due to terrorism attacks in Pakistan, corporate regulator Securities and Exchange Commission of Pakistan (SECP) is planning to create a Terrorism Insurance Pool in Pakistan.

This Pool would help compensate the losses caused to the assets of the corporate sector in Pakistan and to improve the confidence of the foreign and local investors in Pakistan’s economy. The proposal is being developed in a mechanism to provide safeguard to the investment in Pakistan.

How insurance companies should underwrite the terrorism policies, the official sources explained that Policy issued by insurance company as an extension to their Fire Policy renewable on a yearly basis and cession of Terrorism Cover to Pool to be stated in the original wording in policy.

Policy may require ceding to pool and terrorism rates are pre-determined as service commissions to insurer are agreed upon. Insured interacts with insurer only. Pool will have a limit on the coverage provided ($10 million) or still to be decided. Pool might be able to issue policy on first loss basis (still to be decided). Terrorism policy wording will be standardized in this regards. There is also a feeling to exclude certain risk classes from the legislation on Terrorism Insurance Pool (still to be decided).

According to proposed mechanism that how should they cede risks to the Pool: 100 percent cession of the risk to the pool and premium less service commission. Cession declaration by insurance company to pool on a regular basis, either monthly or less. Premiums (less commission) to be paid to Pool on a quarterly basis. A legal entity will have to be set up for the Pool (still to be decided).

How Pool will respond to the claims: Insured claims against the insurer. Insurer reports the claim to the Pool. Pool Claim Management Committee (subset of Executive Committee) decides legitimacy of claim and if satisfied pays the insurer. The Pool has the sole authority in determining the legitimacy of the claim. The insurer will abide by the decision made by the Pool.

For the functioning of Pool, there are two options before policy makers that what should be the allowable percentage of compulsory cession to the pool and retention by the insurance companies.

Plan A: 100 percent cession of premiums (less service commission) to Pool. 100 percent risk retained by Pool, No Retention by insurance company. Plan B: 100 percent cession of premiums (less service commission) to Pool. Insurance company to retain a percentage of risk, e.g. 5-10 percent. Pool to retain the rest. Regulatory prescribed limits on pool’s management expenses. A fixed percentage of the premium (still to be decided), example 5-10 percent. To be decided by the Executive Committee. Regulatory reporting and returns, etc.

Pool to report to insurance companies on a quarterly basis on premiums, exposures, claims, expenses. Pool to issue an Annual Report to insurance companies. Pool to hold an AGM. Pool to call for Extraordinary GM if demanded by insurance companies. Proposed structure of Pool: Insurance companies assign Executive Committee for the Pool for a fixed term. Executive Committee is made up of CEO’s of insurance companies or their representatives. Executive Committee assigns a Technical Committee for a fixed term which is responsible for policy wording, exclusions, tariff rates, etc. and reports to Executive Committee. Technical Committee is made up of senior management of insurance companies in charge of Terrorism, Fire underwriting.\12\25\story_25-12-2011_pg5_1

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...

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 a Daily Times report on State Bank-LUMS study to lend to small and medium enterprises (SMEs):

The State Bank of Pakistan (SBP) on Thursday launched an important study on fan industry in collaboration with the Lahore University of Management Sciences (LUMS), which will help Pakistan’s banking sector expand access to finance for the Small and Medium Enterprises (SMEs).

The study covers important aspects of fan industry including historical growth trends in the industry, composition, contribution to national economy, supply and demand side issues, SWOT analysis, available growth opportunities, accounting practices, banking and financing needs of the sector, and recommendations on increasing access to finance for the fan cluster.

According to the study, the most essential point for the sustainable development of the fan industry in Gujrat and Gujranwala is to improve the capacity for independent innovation to help the industry reach a higher place along the global value chain.

The study contains four patterns of innovation proposed by the United Nations Industrial Development Organisation, product innovation, process innovation, function innovation and interdepartmental innovation, and emphasises the role of inter-organisational R&D departments, research centres, new and advanced technology and universities.

The study also recommends for the setting up of an implementation committee, whose mandate should be to develop an implementation plan with clear time-lines and targets based on the strategy paper.

A dissemination seminar was held at SBP, Karachi today to share the major findings of the study with banks and other stakeholders. Muhammad Ashraf Khan, Executive Director, State Bank of Pakistan chaired the seminar, which was attended by senior executives of banks and other relevant SME stakeholders.

Addressing the participants, Ashraf Khan commented that in Pakistan, reliable and credible data on existing SME clusters is lacking, which hampers banks’ understanding of SME sub-sectors dynamics and resultantly makes them shy of lending to the SME sector. In this backdrop, he said, the State Bank has been collaborating with reputed research institutions, consulting firms to conduct research on key SME clusters to facilitate financial institutions in better understanding of the sectors and accordingly come up with improved products for these clusters.

‘Today we are here to unveil findings of research report on fan cluster and emphasise upon banks to make maximum use of the study findings while designing banking products for the industry and fulfilling their financing needs,’ he added.

Usman Khan, Project Consultant from LUMS, gave a detailed presentation to the participants covering the important aspects of the study, which was followed by a question-answer session.

The study report on fan cluster is latest addition to the surveys of 10 important clusters recently conducted by SBP in collaboration with International Finance Corporation (IFC). The booklets of these surveys placed on provide important guidance to banks on increasing lending to SMEs through customised and low-cost product programmes.\01\20\story_20-1-2012_pg5_4

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...

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 Express Tribune on a book launch to increase financial literacy in Pakistan:

Blame it on either the absence of institutional support or a lack of eagerness on the part of the academia, the reality remains that business students in Pakistan had so far no textbook on banking and finance that described the complex relationship between the financial system and economic development in Pakistani context.

It was this academic vacuum that made Dr Shakil Faruqi write a two-volume book titled “Financial System and Economic Development – Pakistan,” which was launched at the Institute of Business Administration (IBA) on Monday in a ceremony chaired by IBA Dean and Director Dr Ishrat Husain and attended by IBA faculty members, students, economists and many former and current State Bank officials.

Formerly associated with the World Bank, Dr Faruqi has a PhD in economics from the University of Pennsylvania. He now teaches at the Lahore School of Economics (LSE), which is also the publisher of the two-part book.

Speaking on the occasion, former head of World Bank’s Learning Centre Tariq Hussain termed the book unique because it explained the theory of banking and finance by linking it to its actual application in the economy of Pakistan.

He said the chapters on Islamic finance discussed the issue in a purely academic manner. “It says what Islamic finance is and what it’s not. Also, it does this in an academic, rather than argumentative, way.”

Addressing the ceremony, Dr Faruqi said his students knew about the US Federal Reserve more than they knew about the State Bank of Pakistan (SBP) because the textbooks they used were by American authors. Saying that his students often complained finance was a dry subject, Dr Faruqi stated, jokingly, that his task was to make it as interesting as a Bollywood movie.

The first volume of the book has chapters on the financial system, interest rate, financial savings, credit system, Islamic banking, monetary management, etc. The second volume has chapters on the financial market, securities market, assets, yields, returns, trading in derivatives, capital market, long-term debt market, stock market, portfolio financing, etc.

The first and second volumes of the book cost Rs1,900 and Rs1,600, respectively.

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...

Pakistan’s five largest and listed banks have shown a profit of 21 percent in the first quarter of the fiscal year 2011-12, reports Daily Times:

The earnings growth remained impressive at 21 percent. However, unlike last year where Net Interest Income (NII) remained the major earnings driver for the banks, this time growth in earnings mainly arose from sharp decline in provisions.

The banks include National Bank of Pakistan (NBP), Habib Bank Ltd (HBL), United Bank Ltd (UBL), Muslim Commercial Bank (MCB) and Allied Bank Ltd (ABL) having more than 55 percent share of the total banking sector deposits and represent approximately 70 percent of the listed banks market capitalisation.

The major reason behind growth in earnings is sharp decline in provisions, especially on advances.

During the first quarter of 2012, total provisioning of five big banks stood at Rs 1.4 billion as compared to Rs 7.8 billion last year, down significantly by 83 percent.

The aggressive provisioning and restricted lending opted by the banks during last year led to significant decline in provisioning on advances. Besides these two factors, improving paying capacity of borrowers after decline in interest rate also led to decline in provisions.

Moreover, the impairment reversals of around Rs 2 billion in few banks (ABL and NBP) also reduced overall provisions in Q1 of 2012.

Unlike last year where NII remained major growth story for banks, sharp decline in interest rate has reduced banks margins on earnings assets particularly on government securities, which contribute around 85 percent of total investment of commercial banks.

Where the average six-month KIBOR remained lower by 182 basis points (bps), average yield on government securities (PIBs, T-bills) fell by around 140-175 bps. This led to 2.0 percent decline in NII during Q1 of 2012.

On the flip side, with overall improvement in trade activities and better payouts by listed companies, non-interest income of big banks which contributed 15 percent of the total income grew by an impressive 30 percent on yearly basis.

It is expected that core banks profitability to remain affected due to decline in interest rate compared to last year and recent increase in deposit rate on PLS account, however, lower provisioning on advances and better non-interest income (capital gains on stock market, higher dividends and better fee income) would drive earnings of banks in 2012.\04\28\story_28-4-2012_pg5_6

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 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 an ET report on declining banking spreads in Pakistan:

Banking spread, a key determinant of banks’ core earnings, fell to the lowest six-monthly average in the last four years and stood at 7.24% in the first six months of 2012.

The spread was 39 basis points (bps) lower when compared with 7.62% in the same period last year, according to figures released by the State Bank of Pakistan (SBP).

According to the data, average lending rate of banks remained at 13.06% while the deposit rate was 5.82%.

A 54bps reduction in banks’ average lending rate to 13.06% against lending rate of 13.6% last year was the major factor behind the lower banking spread in the first half of 2012.

The lending rate came down following a sharp reduction of 200 basis points in the State Bank’s benchmark policy rate in the second half of 2011, which brought down six-month Karachi Inter-bank Offered Rate (Kibor) by 184bps to 12.06% in the first half of 2012. Kibor stood at 13.9% in the first half of 2011.

However, the lower reduction in the lending rate compared to Kibor was due to risk-averse strategy adopted by banks in advancing loans.

On the other hand, the deposit rate remained almost firm at 5.82% in the first half of 2012 against average 6% in the first half of 2011.

Faisal Shaji, Head of Research at Standard Capital Securities, commented that despite the decline the banking spread is expected to remain above 7% in the next six months of 2012. However, he pointed out that if the country needs good economic growth, the spread should narrow down further.

“Seven per cent is an inflated rate and a big problem for economic growth,” Shaji said. “But this picture may change if the new government opts for growth-led economic policies.”

Economists say banks are mostly lending to the government, leaving very little for the private sector. This has resulted in slow growth of the private sector over the last few years.

Riaz Haq said...

Here's an ET story on electronic money order launch in Pakistan:

Pakistan Post has launched an Electronic Money Order (EMO) service at seventeen centres in ten districts of the country on Monday. The service has been initiated with an investment of Rs500 million in a centralised software system, without taking the network of competitors doing business in this field into account, The Express Tribune has learnt.

Out of total funds, Pakistan Post has provided Rs100 million to vendor Telconet, who has installed the system and will supervise it, an official said.

Although the service has been initially launched at seventeen locations in 10 different cities, the investment on the system is difficult to justify, the official added. Service charges are comparatively low, as compared to the Easypaisa and UBL Omni services, but the network offered by Pakistan Post cannot beat that offered by its competitors, he maintained.

For a transfer of Rs10,000, Pakistan Post’s charges are Rs160 less than charges received by competitors, the official added. The whole service, he claimed, is based on the very innocent assumption that the customer considers only service charges, while ignoring the time factor and load on the system. “It seems that no cost-benefit analysis has been carried out, and that the lower prices will only translate into lost revenue. The service should have been competitive in all respects: including service charges, availability of service, available timings and the quality of service,” he added.

Easypaisa is currently providing a similar service at 52 branches of the Tameer Bank, 100 walk-in centres, 750 Telenor franchises, and 10,500 merchants countrywide; while UBL Omni is also providing a similar service at more than 600 locations in the country.

“If I have to collect, say, Rs10,000 from the Lahore General Post Office (GPO), I’ll have to travel more than an hour – all the way from Wapda town to Mall road – and spend nearly Rs200 worth of fuel. I would rather prefer to collect this amount at a point nearest to me, saving both time and money,” Muhammad Imran a customer at the Lahore GPO, told The Express Tribune.

Another point to consider is the system itself, and the marketing strategy employed. The Easypaisa system utilises the cell phone network. All Easypaisa merchants and service centres use mobile phones to carry out a transaction, whereas the system available to the Pakistan Post is based on desktop computers and a virtual private network system. This equipment requires uninterrupted power supply, a difficult-to-meet requirement in times of heavy load-shedding.

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 excerpt of a piece from on venture capital in Pakistan: was definitely the example that led DFJ and EPlanet to back Rahman’s next venture, the Lahore-based online job portal,, in 2007. That was a time “when everything was turning upside down in Pakistan,” Rahman said. The constitution had been suspended, bomb blasts were a daily occurrence and Benazir Bhutto was assassinated. That did not scare the investors who Rahman had bombarded with data on the robustness of Pakistan’s market and the growth projections of his enterprise.
Venture capital has always been anchored in taking a risk on an individual and an idea, where the probability for success, as Rahman noted, is “super, super low.” And risk is exactly what Pakistan needs to encourage in order to jumpstart investments and the flow of capital.

Capital in Pakistan is frozen in a different era. Banks balk at extending credit to innovative startups, even where contracts guarantee return.

That is what happened to Shakir Husain, CEO and founder of the technology outsourcer Creative Chaos, when he went in to request a $100,000 loan to expand his business

“Put together collateral for $100,000 and we’ll give you this loan,” he was told. When the entrepreneur replied that he had a $1 million contract from a client based in the United States, he was still refused. “Had I been a textile company where I could produce a letter from my client there would have been no problem. Being a software company, they didn’t know how to collateralize that risk.” He eventually self financed.

He also set out, much like Reid Hoffman, to ensure that other aspiring entrepreneurs have access to risk rather than roadblocks. He, along with Rahman and other established Pakistani entrepreneurs, has become an angel investor. This has resulted in some progress.
The Acumen Fund, a U.S.-based non-profit which uses philanthropic dollars to make venture investments, is one resource for larger amounts of financing. Self-described as a “social venture fund” that promotes “patient capital,” Acumen has invested millions in several Pakistani “social” enterprises, which have proven to effectively serve the social needs of the poorest.

The Kashf Foundation, Pakistan’s second largest private microlender, is Acumen’s best example. Touching nearly 1 million Pakistani women, Kashf has dispensed $100 million in loans and has closed over $36 million in commercial deals with local and international banks.

Pakistan’s “non-social” entrepreneurs require similar and bold backing. They require it, not from the philanthropic or non-profit world, but the private sector. Capital markets cannot be built by anyone else. Nor can Pakistanis build them alone. This is where U.S. venture capitalists can help.

Certainly, firms on Sand Hill Road or Route 128 aren’t in a position to source deals for individual Pakistani entrepreneurs. The levels of financing, which would average around $200,000 to $400,000, would not be worth the exorbitant transaction costs. Pakistan’s weak legal system would require tough term sheets that would be a disadvantage to most Pakistani entrepreneurs. Conducting due diligence, the real value to entrepreneurs, would be a challenge.

What they can do is challenge Pakistani banks and investors to create a Pakistan venture fund that they would then match. There are already several investment firms in Pakistan, such as the Abraaj Capital Group-backed BMA Capital, that could administer the fund. Last year’s announcement by The Overseas Private Investment Corporation (OPIC), a U.S. government agency, approving $455 million in financing to support the establishment of five private equity funds to invest in Middle Eastern companies provides a precedent and model....

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 Pak Observer report on branchless banking growth in Pakistan:

Karachi—Branchless Banking is helping in reaching out to the low income, unbanked people through more than 30,000 access points throughout the country. Nearly 30 million transactions worth Rs.115 billion have been processed during the fourth quarter of the last fiscal year through branchless banking and the average daily transactions have been reported at 315,178 while the total number of branchless banking accounts has increased to 1.7 million. According to the World Bank’s Consultative Group to Assist the Poor (CGAP), Pakistan is the fastest growing branchless banking market in the world.

Addressing the journalists Deputy Governor, State Bank of Pakistan (SBP),Kazi Abdul Muktadi during his visit to Karachi Press Club today.

Expressing his resolve to provide banking services to all segments of the society, he said that with the concerted efforts of all, we will be able to achieve the desired goal of ‘Banking for All’.

Emphasizing the need for an efficient and thriving banking system, he said that the State Bank is providing regulatory environment to financial institutions to enhance financial inclusion in the country. ‘Providing people with access to finance is a challenging task, not just for the central bank but also for all the stakeholders,’ he observed.

State Bank of Pakistan is trying to make the banking services available at the door step of the people, he said and added that promoting access to banking services is the corner stone of SBP’s policy framework. He said the State Bank under its Branch Licencing Policy has made it compulsory for banks to open at least 20% of their new branches in rural and under-served areas.

Abdul Muktadir said the banking industry of Pakistan has tremendous growth potential to deliver lot more than what it is delivering right now. ‘The significance of e-banking and m-commerce cannot be overemphasized because of the fact that both have brought about remarkable changes in the ways people think and do their banking business today,’ he added.

The transformation from traditional to modern ways of banking is taking place at a fast pace. A number of alternate delivery channels for provision of banking services like ATMs, Credit Cards, POS terminals, Internet Banking, Debit Cards already exist in our country to benefit the masses. ‘Currently, 93% of the total bank branches are offering Real-Time Online services,’ he added.

Abdul Muktadir said the SBP would ensure that the high level of banking service standards is maintained for the safety, security and cost effectiveness with adequate levels of protection for consumers’ interests.

The SBP Deputy Governor, who also inaugurated an ATM at Karachi Press Club, pointed out that the availability of ATMs in Pakistan is quite low as there are only 5600 ATMs in the country. At present, there are about one ATM against two bank branches while in developed countries, there are three ATMs against one bank branch. SBP has recently issued policy instructions to all banks which bind them to expand their ATM network in a phased manner so as to achieve a target level of one ATM for each bank branch. ‘Once this target is achieved, we have plans to gradually raise the bar so as to meet the international levels.

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 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 a Daily Times report on State Bank Governor Yaseen Anwar's assessment of Pak economy:

KARACHI: Pakistan’s economy has the ability to navigate through choppy waters and the economic potential this country holds encourage all to become a part of the country’s future.

The Governor State Bank of Pakistan (SBP) Yaseen Anwar at Pakistan Navy War College Lahore said while our current economic situation was less than optimal and it was also very far from what might be described as an economic calamity.

Anwar said in 65 years, Pakistan has never gone through an episode of hyperinflation, Pakistan has never defaulted on its international and domestic debts, in fact our economy has grown consistently, but not spectacularly, over the past six decades.

This has been despite periods of international alienation and sanctions, three expensive wars, two hostile fronts, regular political upheaval, social unrest, sharp increases in the price of oil, and much, much more, he added.

State Bank has always ensured that the financial system of the country remains safe and stable. The robustness of our financial system is a direct consequence of the reforms process and the State Bank’s constant vigilance, he said.

There is a lot that can be improved in our financial system. He called for the development of efficient debt markets, even better regulatory and reporting practices and the broadening of the financial sector’s scope to include largely unbanked sectors of the economy, such as agriculture, small and medium enterprises and housing.

‘Despite this wish-list, the fact remains that our financial system is, by design, secure and does not pose any threat to the economy as a whole,’ he added.

The size of Pakistan’s undocumented economy is by some estimates, as large as the formal economy. The informal economy does not file taxes and while it does absorb a significant chunk of the labour force, it also evades corporate and labour laws, he said.

Although close informal relationships do make the economy more resilient, they do so at a cost to the overall economy, by eroding the ambit of the regulators.

He stressed the need for the greater integration of country’s domestic market with global markets but observed it does not mean that we should not have proper controls and mechanisms in place to safeguard our own interests. ‘Greater integration with financial markets will mean that capital will flow more quickly through our borders. It’s definitely something that will boost the national economy, but, as most East Asian countries learned in the 90s, it can be a double-edged sword.

Therefore having some capital controls in place, which reduce the volatility of capital flows, is a necessary regulation in this day and age, Anwar added.

More effective regulation is the need of the hour for our own economy, he said, adding it is an essential part of what is needed today to get the economy on a track for steady and sustainable growth.

He said the government’s footprint in some sectors of the economy was very large and quite negligible in other sectors.

Such divergence is unhealthy. Effective regulation is sorely lacking in other sectors. The tax machinery can be tightened considerably. One of the country’s most challenging problems today is the size of the fiscal deficit-and a large part of the solution lies in increasing our tax base by enacting regulation that encourages tax compliance, and punishes tax evasion, he added.

The government will need to borrow less money from the central bank. Borrowing from the central bank is popularly known as printing money, he said, adding if government borrowing from the central bank falls, inflation will follow suit.

Therefore, better tax collection is a necessary condition for faster economic growth. And for that we need to have more effective tax regulation, he added.


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's a Dawn Op Ed by Khurram Husain on Pakistan's hidden economy:

...More detailed metrics of economic activity also show great ‘tranquillity’ in the west (Balochistan & KP). Detailed figures on consumption of electricity by industrial and commercial categories of consumer, for instance, show very little change over the years.


But take a closer look and you’ll find something odd. The State Bank has a data series on its website that shows something enormous, of truly gigantic proportions, stirring beneath the tranquillity suggested by the formal macroeconomic data.

Here is what the data reveals: the amount of money passing through the clearing houses of Quetta and Peshawar is so large that it rivals the amounts in clearing houses of cities like Faisalabad, Multan and Rawalpindi.

First some background. Every time you write a cheque and the other party deposits that cheque in their account, it goes through a process called “clearing”. Because banks don’t hold your money themselves — much of it is held by the State Bank — the task of actually taking the money out of the books of one bank and transferring it to the books of another every time a cheque is cleared, is performed by the State Bank at its clearing house.

The State Bank operates 16 clearing houses in cities all over the country. Every month it releases data on how many cheques were presented for clearing in each of these, and what the total amount cleared by cheques was.

If you take this data, which stretches back to 1999, and plot it for each city in Pakistan, you notice something very interesting. Remove the cities of Karachi and Lahore from the sample for the time being, because these are global cities in a sense with long-distance connections. Compare only the regional cities and here is what you’ll find.

Following 9/11, half the cities in the total sample will show a sharply rising trend in the amount of money going through their clearing houses. For the other half, the line is flat.

The cities that show a rising trend are led by Peshawar, with Faisalabad, Multan, Rawalpindi and Quetta in close succession. For Peshawar, the amount of money being cleared via cheque in the year 2011 crosses Rs1.3 trillion! For Quetta, in the same year, the amount is just under Rs900 billion, meaning between them these two regional cities are seeing almost Rs2tr going through their clearing houses in one year alone.

This figure compares with Faisalabad at Rs1.3tr, Rawalpindi at Rs1.4tr, and Multan at Rs826bn. Cities that show a flat trend over the entire reporting period include Sukkur, Hyderabad, Sialkot and D.I. Khan.

What the data shows is a steep intensification of transactions being cleared by cheque in some cities, and no change in others, meaning the pace of economic activity accelerated unevenly over the decade, sweeping some along its path and leaving others behind.

But what are Peshawar and Quetta doing on this list? With Faisalabad and Multan, it’s easy to understand. These are regional hubs, productive centres, large seats of agrarian operations.

In fact, after Karachi and Lahore, it is Multan, Faisalabad and Rawalpindi that account for the bulk of transactions in branchless banking, which shows the intensification of activity in the clearing houses of these cities is accompanied by an overall deepening of the financial sector.

Zeb said...

Does anyone know the limitations SBP has?
And how does the government intervention limit its functions?
Any help would be much appreciated in this regard.
Thank you.

Riaz Haq said...

Zeb: " Does anyone know the limitations SBP has?
And how does the government intervention limit its functions?
Any help would be much appreciated in this regard."

State Bank of Pakistan determines monetary policy (interest rates, money supply, etc.) but it has no control over fiscal policy (budget process, fiscal deficits, tax collection, etc). It also regulates country's banks.

It's very difficult to manage the national economy when monetary and fiscal policies are not well coordinated, as is the case in Pakistan.

Nonetheless, State Bank should get credit for the fact that, unlike many other countries of the world, Pakistan has never defaulted on its obligations, nor has it had even a single year of recession since its creation in 1947.

Pakistan's commercial banking sector, and more recently micro finance and branchless banking, have done very well under the guidance of SBP.

Riaz Haq said...

Here's an Express Tribune report on a new private equity fund in Pakistan:

Private equity is poised to take off in Pakistan, with contrarian investors betting that the country is endowed with far greater potential than news reports chronicling Taliban bombings, the war in neighbouring Afghanistan or an evolving democracy’s frequent bouts of political drama might imply.
While Pakistan is undoubtedly a high risk play, investor sentiment has improved following a smooth transition at general elections in May and pledges by the new government of Prime Minister Nawaz Sharif to tackle a stubborn power crisis that has stifled manufacturing.
“I feel like being a kid in a candy store,” said Shaharyar Ahmed, 32, who started his career as an equity researcher at Goldman Sachs in New York, but who returned to his native Pakistan last year. “So many companies, amazing returns, growing in leaps and bounds – it’s a buyers’ market.”

Ahmed and his collaborator Isfandiyar Shaheen, 30, are at the vanguard. As co-managers of Cyan Capital, a $50 million private equity fund set up by the Dawood Hercules Group, one of Pakistan’s biggest conglomerates, they must prove that they can find finance-starved companies ready for rapid expansion.
But the risk-hungry duo have now forsaken budding careers in the United States financial industry in the belief that somewhere in Pakistan’s ranks of unglamorous, overlooked family businesses lie hidden the seeds of future corporate giants.
“There’s a new wave of interest in private equity,” said Chairman of JS Private Equity Ali Jehangir Siddiqui while talking to Reuters. “There are certainly some funds that are stepping up to the plate, we hope that there will be more.”
Wild west
The new funds all aim to introduce the private equity model that is now familiar in rich and poor countries alike: groups of investors buy stakes in privately owned companies in return for a say in how they are run.
The theory is that an injection of capital and management savvy will turbo-charge the best of Pakistan’s family-run enterprises, creating jobs for a restive, youthful population and lucrative returns for the funds when they sell their stakes.
“It doesn’t take a rocket scientist to figure out how much you can do in this country, it’s absolutely green,” said Cyan’s Shaheen, a Pakistani who began his career in US investment banking but now lives in Karachi. “It’s like the Wild West.”
Cyan’s confidence in Pakistan’s prospects stems in part from the sheer size of the market in a country of 180 million people, where many conservatively run companies have shied away from scaling up their businesses into nationwide operations.
Companies listed on the Karachi Stock Exchange have grown their profits by at least 13-15% annually since 2009, according to one market analyst. With 49% returns in 2012, the market was among the world’s top performers....

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 the launch of secondary market for trading of Pakistan govt debt:

KARACHI — Regulatory approvals and operational procedures, including the appointment of market-makers, will be in place by the end of January to enable the commencement of trading in government securities through the Karachi Stock Exchange (KSE).
KSE Managing Director Nadeem Naqvi met Finance Minister Ishaq Dar last week, to discuss the implementation of secondary market trading of government securities on the stock exchange through the KSE’s Bonds Automated Trading System (BATS) platform.
In an exclusive interview on Wednesday, Naqvi said that government securities that will be traded on the KSE include market treasury bills, Pakistan Investment Bonds (PIBs) and, at a later stage, Sukuks and other government papers.
“The government’s objective is to enable retail investors to invest in government securities using the settlement process of the Central Depository Company (CDC),” Naqvi said, adding that the development will broaden the investor base of government securities.
He noted that another objective of allowing the trading of government securities on the bourse is to attract international fixed-income funds to invest in Pakistan’s local currency government securities.
Currently, the government issues PIBs and holds auctions for market treasury bills in which only selected banks and financial institutions take part as ‘authorised primary dealers’. For the fiscal year 2013-14, the State Bank of Pakistan (SBP) has appointed 11 banks/financial institutions as primary dealers of government securities.
Under the current mechanism, secondary market transactions take place among these institutions through the Bloomberg Bulletin Board facility on a counterparty risk basis, also known as over-the-counter (OTC) transactions.
According to KASB Securities research analyst Farrukh Khan, a change in the intermediation process offers a significant scope for government securities, as their ownership is currently concentrated in the banking sector.
“Scheduled banks currently own 84 per cent of treasury bills, 53 per cent of PIBs and 91 per cent of Ijara Sukkuks. The rest of the ownership is divided between corporate entities, insurance companies and mutual funds,” Khan said. Retail investors have little direct ownership of government bonds and bills, as most of their savings are parked in either bank accounts or invested in the National Savings Schemes (NSS), he added.
“Despite distribution challenges, total money invested in the NSS is Rs 2.5 trillion, which is 35 per cent of the total banking sector deposit size. This highlights the enormous potential of this product (T-bills and PIBs),” Khan noted. —Internews

Riaz Haq said...

A soft revolution of mobile money in Pakistan: A pathway to financial inclusion

Over the past decade, there has been a rapid expansion of mobile money (m-money) networks in developing countries. These are largely intended to help financial services reach unbanked populations. This innovation has been taken up by cellular mobile companies in Pakistan, in partnership with domestic financial institutions, and thus creating some innovative business models for the use of m-money. While these innovations are a positive step forward for greater financial inclusion in Pakistan, a national strategy is essential to facilitate targeted and coordinated efforts between regulators and the private sector.

The challenge of high financial exclusion

Despite comprehensive financial sector reforms in Pakistan, progress on financial inclusion has been slow. In 2011, only 10% of Pakistan’s adult population had accounts at formal financial institutions (Figure 1). In comparison, 68.5% of the adult population in Sri Lanka had bank accounts, whereas this figure is 39.6% in Bangladesh and 35.2% in India.

Pakistan’s m-money infrastructure has expanded rapidly since the launch of the first domestic initiative in October 2009. This expansion has been promoted by a liberal financial and telecommunications regulatory framework, and active private sector participation. Four out of five cellular mobile companies currently operating in Pakistan have launched m-money systems in partnership with financial institutions. The m-money market volume has reached 153 million annual transactions worth US$ 6.2 billion.

There are two ways through which m-money services are provided in Pakistan. More than 95% of m-money transactions are carried out through mobile banking (m-banking) agents, and the rest are processed directly through customers’ mobile-wallet (m-wallet) accounts, using mobile phones. M-banking agents (retail points) provide the basic infrastructure for Pakistan’s m-money services, whereas customers’ m-wallet accounts currently have a limited role in the m-money services market.

In Pakistan, m-money services can improve access to financial services for the unbanked population, which is something which traditional banking channels have not managed to do. The network of 93,864 m-banking agents against only 10,250 commercial bank branches in the country provides a perspective as to the reach m-money has on the un-banked and poor.

The current high rate of dependence on agents to complete mobile transactions is typical in the initial adoption of m-banking. Moving forward, the importance of m-wallet accounts cannot be neglected. Many financial services including savings, insurance and micro-credit can be delivered through m-wallet accounts, which provide a store of value. As of June 2013, there were only 2.6 million m-wallet accounts, which is not large enough to reduce the high level of financial exclusion in Pakistan. Three new players that started operations in 2013 are relying solely on agent-based m-money services, while neglecting the potential of m-wallet accounts.

Riaz Haq said...

Shama Zehra is founder and CEO of newly-launched Aligned Independent Advisors, a boutique independent advisory firm on Wall Street. It’s still a male-dominated area of finance, just 13% of brokers and advisors are female but Zehra’s unlikely to be unfazed. As a glance at her career path proves – engineer, business-owner, pilot and banker –resisting convention comes pretty naturally.

As a teenager Shama Zehra started her first business, a clothing company with her mom and her sister from a rack in the corner of their apartment in Pakistan. Over time the trio outgrew the apartment and opened a small factory with six staff. This led to a flagship store, sales to the Pakistani equivalents of Macy’s and pop- up stores at five star hotels, which brought about lucrative exports.

Still, attitudes to women-owned businesses dragged out simple transactions, says Zehra. “Pakistan is a very male-dominated society so over there a man rules, so that was one of the biggest challenges,” she says. Even more difficult was negotiating constant security risks like thefts and curfews as well as electricity blackouts which meant the machines couldn’t run.

The trio sold Zehra’s, and after a stint as a pilot, Zehra got into finance. She built the number one wealth management business at Standard Chartered Bank in Pakistan before emigrating to the U.S to become one of the largest producers at Goldman Sachs and Morgan Stanley MS +1.24%.

“Once you have your own business you really understand how to treat every job. I’ve always treated every job that I’ve had like my own company or my own business and that really does change the dynamic…as an entrepreneur you’ve got to do everything to make it work.”

With her latest venture, Aligned Independent Advisors, Zehra says she’s building a firm that’s totally independent but has a human touch, something she thinks has been lacking.

“It’s easy to find smart people in finance but it’s difficult to find good hearted, helpful and sincere people,” she says.

Riaz Haq said...

Pakistan regulators merging three Islamic investment firms

Nov 17 (Reuters) - Pakistan regulators are merging three small Islamic investment firms after the central bank took control of Karachi-based KASB Bank Limited, accelerating efforts to strenghten financing by investment partnerships.

Last week, the government directed the central bank to reorganize or amalgamate KASB Bank in the next six months, after the lender failed to meet minimum capital requirements.

On Friday, KASB Modaraba said it had taken management control of First Pak Modaraba and First Prudential Modaraba, three of a total 26 modarabas active in the country.

Modarabas are a form of Islamic investment partnership where assets are managed on behalf of clients, with income and expenses shared under a pre-agreed ratio.

The sector remains a tiny part of the country's Islamic finance industry, with several firms lacking scale to compete.

Last week, First Habib Bank Modaraba, a unit of Pakistan's largest lender HBL Bank, liquidated its business.

As of March, the three modarabas held a combined 1.9 billion rupees ($18.7 million) worth of assets, dwarfed by larger peers such as Standard Chartered Modaraba with 5.3 billion rupees in assets.

The Securities and Exchange Commission of Pakistan (SECP) has also developed risk management guidelines for modarabas, last year introducing sharia compliance and sharia audit mechanisms to strengthen the sector.

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...

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...

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...

The State Bank of Pakistan has pointed out a number of weaknesses in economic policies, including energy strategy, and has asked the government to address the weaknesses.

Pakistan's economy grew 4.2 per cent in fiscal 2015, but investors remain wary of systemic weaknesses, the central bank said in its annual report, urging the government to adopt clearer, more consistent policies on industry and trade. Growth for the financial year to June 2015 fell short of a target of 5.1 per cent, it was slightly better than the 4.0 percent achieved in 2014, the bank said.

According to the report, the economy needs to expand at least six per cent each year to absorb new entrants into the work force from Pakistan's growing population of 190 million.

“Despite a sharp reduction in interest rates and an incre¬ase in public investments, private investments did not recover. Investors' confidence demands the presence of a predictable macroeconomic environment with well-coordinated and consistent long-term industrial and trade policies,” the report said. Another factor daunting do¬me¬stic and foreign investors is the state of domestic energy supplies. Businesses have suffered over the past few years because of frequent power and gas outages.

Although the situation improved slightly in a couple of years, several industries like leather, paper and glass, are still not able to produce at optimal capacities.

“At its core, this shortage of energy also reflects the lack of a coherent policy,” said the report. The absence of an export-oriented growth strategy or a rational import-substitution focus, over the years has resulted in recurring stress on the external account, which did not allow the economy to move towards a high growth trajectory, said the report.

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...

8,100 willful defaulters owe banks INR 766 Billion (US$ 11.4 Billion): #India's Arun Jaitley #BJP … via @IndianExpress

There are 8,167 wilful defaulters who owe banks an amount of Rs 76,685 crore and 1,724 FIRs have already been filed in 2015-16, government said on Tuesday.
The details were provided by Finance Minister Arun Jaitley in Rajya Sabha during Question Hour, where he also said that a Joint Committee of Parliament is presently looking into a Bill relating to debt recovery which aims at empowering banks to take more effective steps in dealing with default situations.
Congress leader Anand Sharma raised the matter relating to many positions in the Debt Recovery Tribunals being vacant.
Sponsored: Pay 5% on booking & 1% per month till possession for semi-furnished homes @ Godrej Prana, Undri in Pune.
Jaitley said Sharma was “perfectly right that the Debt Recovery Tribunals have to be made more effective.”

Riaz Haq said...

#Investment inflows spur #Pakistan's corporate #sukuk (Islamic bond) market via @Reuters

Growth of sharia-compliant investment funds in Pakistan is helping fuel demand for sukuk, or Islamic bonds, giving local firms new funding options while strengthening the case for Islamic pensions in other majority-Muslim countries.

Strong demand for Islamic funds, and in turn sukuk, could encourage other countries trying to deepen their Islamic capital markets, in particular in the Gulf region where private pensions are rare.

Pakistan's Islamic banks lag their conventional peers, holding around 13 percent of total deposits, while Islamic mutual funds and private pensions have a far greater market share.

Islamic mutual funds held 242.7 billion rupees ($2.3 billion) in assets as of December, or 37 percent of the total, official statistics show.

Almost two-thirds of assets in the country's voluntary pension system (VPS) are now managed under Islamic principles.

All 10 VPS managers offer Islamic pension products, worth a combined 14.5 billion rupees, or 63 percent of total VPS assets with the largest VPS product being sharia-compliant.

Attractive yields, tax exemptions and greater flexibility in choosing external managers have made VPS products popular, which in turn adds to demand for sukuk, said Abdullah Ghaffar, head of investment banking at Al Baraka Bank Pakistan.

"Mutual funds, both fixed income as well as equity funds, have become big time investors in existing and new sukuk issues taking place because of the huge assets under management under their disposal."

Two recent sukuk transactions from manufacturing companies attracted significant interest from such investment funds, while equity funds are also becoming active in initial public offerings, Ghaffar added.

Reforms from Pakistan's capital market regulator have also helped equity-like financing vehicles, known as modarabas, to grow their combined assets above 41 billion rupees.

This has attracted a wide range of issuers: Byco Oil Pakistan Limited raised 3.12 billion rupees via sukuk using a credit gurantee and Ghani Gases raised 1.3 billion rupees via a privately-placed sukuk last month.

In December, Fatima Fertilizer Company mandated banks to raise 10.5 billion rupees through a lease-based sukuk.

Pakistan GasPort Consortium Limited plans to raise 8.6 billion rupees via seven-year sukuk to finance the construction of the country's second LNG import terminal.

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...

#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...

Bahrain’s Ithmaar Bank plans aggressive expansion in Pakistan
Bahrain-based lender to add more than 100 branches in Pakistan this year through its subsidiary Faysal Bank

Dubai: Bahrain-based Ithmaar Bank plans to add more than 100 branches in Pakistan this year through its subsidiary Faysal Bank, to capitalise on the country’s low penetration rate of banking services, a senior executive said.
Ithmaar Bank owns 66 per cent of Faysal Bank, whose contribution to the Islamic retail bank’s overall balance sheet would likely grow to more than half as a result of the expansion, Ithmaar Deputy Chief Executive Abdul Hakeem Al Mutawa said on Monday.

“We are planning to be over 500 branches this coming year and are aggressive in this,” Al Mutawa said in an interview.
“Banking penetration is around less than 20 per cent in Pakistan, so there are good opportunities to grow.” Faysal Bank, which is listed on the Pakistan Stock Exchange, focuses on corporate, commercial, retail and consumer banking activities.
Al Mutawa was speaking after Ithmaar Bank’s parent company, Ithmaar Holding, listed on the Dubai Financial Market on Monday.

The company is already listed in Bahrain and Kuwait.
“The listing is good news for the company for growth capital and we are well established now to approach the capital markets,” Al Mutawa said, adding that the bank had no imminent plans to raise funds through a bond or loan.
In Bahrain, Al Mutawa said there were opportunities to grow the business from working with the government on providing financing for social housing. The bank currently has 16 branches in the kingdom.
Bahrain’s Ithmaar Holding is exploring the sale of its 25.4 per cent stake in Bahrain’s BBK BSC, which has operations in Bahrain and Kuwait, India and Dubai, sources familiar with the matter told Reuters in August.
Al Mutawa declined to comment on the time frame for the disposal of the BBK stake or identify the name of the company advising IB Capital, Ithmaar Holding’s investment subsidiary managing the asset.
“The performance of BBK is very good and still part of the portfolio of IB Capital, and if there are opportunities to maximise shareholder value I’m sure the board will take those,” he said.

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...

#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.