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 www.faysalbank.com
* 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.
Summary:
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
Threre are more reasons to migrate to Canada
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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.
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.
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 telecompk.net we have extensively covered the potential, opportunities and market size of MFS.
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.
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!).
What a difference a year makes with the departure of Musharraf and a new democratic dispensation in Islamabad.
Pakistan has slipped in every category from 2008 rankings, according to the 2009 WEF financial development report.
2009 report on financial development index shows Pakistan slipping from 34 to 49 (out of 55 countries evaluated). Behind the Russian Federation (40), Indonesia (48), Turkey (44), Poland (39), Brazil (34), Kazakhstan (47) and surely INDIA (38).
corporate governance Pakistan (48/55)
shareholder rights index (47/55)
strength of investor protection (16/55)
Pakistan (49th), the Philippines (50th), and Bangladesh (54th) round out the representation of Asian countries in the FDI, all falling within the bottom 10 countries of the Index. A high degree of political and economic instability are probably contributing to weak scores across Pakistan’s institutional (52nd) and business (50th) environments; likewise, the country shows a very high risk of sovereign debt crisis (54th).
This report talks about 7 pillars that determine financial development index. And then the report goes and ranks 55 countries on these pillars. Putting below the ranks (out of 55) of Pakistan on each of those 7 pillars
1st pillar: Institutional environment Pakistan (52/55)
2nd pillar: Business environment Pakistan (50/55)
3rd pillar: Financial stability India Pakistan (48/55)
4th pillar: Banking financial services Pakistan (46/55)
5th pillar: Non-banking financial services Pakistan (51/55)
6th pillar: Financial markets Pakistan (25/55)
7th pillar: Financial access Pakistan (50/55)
http://www.weforum.org/pdf/Financial...Report2009.pdf
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.
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.
Here are some excerpts from a Businessweek story on microfinance in India:
Savita Ramesh Rathore stands at the door of her dimly lit workshop in Mumbai's Dharavi slum, filled floor to ceiling with bundles of old clothes, and talks about the cost of her son's wedding last year. "Jewels, clothes, food, the town hall," says Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($647) from moneylenders charging 60 percent interest and took additional loans from friends. Three months ago she got a 10,000-rupee loan from urban lender Hindusthan Microfinance at an interest rate of just over 20 percent to repay some of that debt.
Rathore is one of 25 million Indians who have taken so-called microfinance loans, often without adequate documentation or collateral, according to research firm Micro-Credit Ratings International. As Hyderabad-based SKS Microfinance plans to become the first microlender in the country to go public, an industry credited with helping alleviate poverty is suddenly provoking comparisons to subprime lenders in the U.S.
"Globally, microfinance is showing characteristics of the Western financial markets before the collapse," says Sanjay Sinha, managing director at Micro-Credit Ratings in Gurgaon. "In the U.S., homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises."
Microfinance firms make loans in poor areas largely shut off from traditional banking services. The past two years have been marked by surging defaults in some countries. Microfinance markets in Nicaragua, Morocco, and Pakistan have seen default levels climb to more than 10 percent, the threshold that marks a "serious repayment crisis," according to a February report from policy and research firm Consultative Group to Assist the Poor.
India, where more than 600 million people live on less than $1.50 a day, is the world's largest microfinance market. Most microfinance loans in India range from 5,000 to 20,000 rupees ($108 to $431), with interest rates ranging from 18 percent to 33 percent. Although Indian microfinance firms have reported bad-loan ratios of about 2.5 percent on average, levels may be higher because some lenders roll over loans to struggling borrowers to avoid defaults, says Micro-Credit's Sinha.
Microfinance lending in India may surge by about 40 percent annually over the next few years, says Sinha. SKS, betting the potential for growth will attract investors, is seeking regulatory approval for an initial public offering. Basix Group, which focuses on poor households in rural areas and provides loans averaging about 3,000 rupees, may sell shares in an IPO next year, says Chairman Vijay Mahajan. Others are likely to follow. Until now, microfinance companies have relied on loans and grants from banks, insurers, and foundations for funding, he says.
Micro-Credit's Sinha worries that growth in the microfinance market is masking an erosion of lending standards that may spark rising defaults. India doesn't have a nationwide system for tracking borrowers' credit histories, making it hard for lenders to check whether clients have multiple loans. "There is significant investor interest in microfinance companies' public issues, but it's being driven by irrational exuberance," says Sinha.
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.
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.
Here is a quick comparison of different sectors of the economy in India and Pakistan in terms of employment and GDP contribution:
Country....Agri(emp/GDP)..Textiles..Other Mfg..Service(incl IT)
India........60%/16% ...........10%/4%.....7%/25%...........23%/55%
Pakistan......42%/20%...........12%/8%......8%/18%...........38%/54%
Assuming India's PPP GDP of $3.75 trillion (population 1.2 billion) and Pakistan's $450 billion (population 175 million), here is what I calculated in terms of per capita GDP in different sectors of the economy:
India vs. Pakistan:
Agriculture: ($833 vs. $1,225)
Textiles: ($1,242 vs. $1,714)
Non-Textile Mfg ($11,155 vs $5,785)
Services ($7,246 vs $3,654)
It shows that Indians in manufacturing and services sectors add more value and produce higher value goods and services than their Pakistani counterparts.
The income range in India is much wider from $883 to $11, 155 accounting for the much bigger rich-poor gap relative to Pakistan's range from $1225 to $5,785.
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.
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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.
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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.
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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?
Here is SKS Microfinance IPO analysis by Xavier Reille of World Bank's CGAP published Wednesday, August 11, 2010:
By market standards, the SKS IPO is a great success. Institutional investors have over-subscribed their allocations by 13 times, and the company’s valuation of USD 1.5 billion came in at the top end of the offer band price.
This sky high valuation represents 6.7 times the company’s post issue book value, and about 40 times the company’s fiscal year 2010 earnings.
Such multiples are not in line with market peers. In emerging markets, banks are valued at 3 times the book value, while finance institutions serving low-income customers are trading at 2.6 times the book value. The SKS valuation is even higher – by a margin — than Compartamos’s valuation in its landmark 2007 IPO. At listing, Compartamos was valued at 27 times the company’s historical earnings although its 2006 return on equity (ROE) at 55% was more than double the ROE of SKS today.
Earning prospects at SKS are attractive, but on their own don’t justify such a high valuation. On the positive side, SKS still has a lot of room for growth. It has ambitious plans including offering new financial products, distributing goods and services beyond microfinance at the bottom of the pyramid, and transforming into a universal bank. But there are clouds on the horizon. Portfolio yield might stagnate as increased competition and political scrutiny put pressure on interest rates. The cost of risk will likely go up in the absence of a well-functioning credit bureau. Transaction costs for group lending will also increase as SKS focuses its growth on underserved, harder-to-reach clients and states.
So what might explain the unrealistically high valuation? This “irrational exuberance” in the SKS IPO price is probably due in part to excess capital flow. It reflects strong institutional investor interest in microfinance combined with the dearth of publicly-traded microfinance securities. Investors are seeking more exposure to emerging markets and to alternative assets. They are eager to buy into the microfinance story and with only two pure microfinance institutions listed, prices are getting ahead of fundamentals.
One of my concerns is that investors buying at such a high level may pressure management to increase profitability, at the expense of clients’ interests and long-term company sustainability. There is indeed a risk that a focus on short-term profit and quarterly earnings might overshadow—if not clash—with the social mission of SKS. True, this did not happen in the Compartamos case (the company did not become more “commercial” after its IPO) but there is still a risk.
What does appear likely is that someone is going to lose as, over time, the SKS valuation should come in line with global standards. Will it be the latecomer investors who bought too high? Or will it be clients as the institution prioritizes profit maximization? And what about possible broader ripple effects? Unmet expectations might make it harder for other MFIs to go gain the confidence of the public markets.
Here are some excerpts from a BBC report on allegations against Mohammad Yunus:
A documentary maker has alleged that cash was diverted from Professor Yunus' Grameen Bank to other parts of Grameen.
In a statement, the bank said that the allegations were false.
It said that a full explanation with more details would be provided at the "earliest convenient time".
The bank was set up by Professor Yunus to provide micro-credit - or small loans - to the poor.
The move by the Norwegians - who insist that no criminal activity has taken place - comes at a time when the reputation of the micro-credit industry has been under attack.
The original aim of the micro-credit concept was poverty reduction, but in recent years some micro-financial institutions have been criticised over exorbitant interest rates and alleged coercive debt collection.
In the south-eastern Indian state of Andhra Pradesh, for example, micro-loans have been blamed for a series of suicides among struggling farmers.
It is estimated some 250 organisations in the state have handed out loans totalling more than £1.65bn (£883m), only a small proportion of which have been paid back.
The Grameen Bank's denial followed the release of a documentary by Danish filmmaker, Tom Heinemann, who claimed Professor Yunus and his associates diverted nearly $100m of grant money to another company - Grameen Kalyan - which was not involved in micro-credit operations.
Mr Heinemann said he stumbled upon the documents and letters relating to the alleged transfer while doing research for his documentary on micro-credit.
"I got most of the documents from the archives of Norad, the Norwegian aid agency in Oslo," he said.
The Grameen group of more than 30 companies headed by Professor Yunus is divided between those not operating for profit and those which do.
Mr Heinemann's report alleged that after the Norwegian authorities raised objections to the alleged transfer of funds, the Grameen bank returned about $30m. The aid money was from Norway, Sweden and Germany.
Professor Yunus, known as the Banker to the Poor, and the Grameen Bank were awarded the Nobel Peace Prize in 2006 "for their efforts to create economic and social development from below".
The economist founded the bank, which is one of numerous organisations now providing loans to the poor - especially women - in Bangladesh.
The micro-credit lending model has been replicated in other parts of the world.
Reacting to the latest report, the Norwegian authorities say they have no suspicions of tax fraud or corruption committed by Grameen Bank.
"Having said that, the Government of Norway finds it totally unacceptable that aid is used for other purposes than intended no matter how praiseworthy the causes might be," Norwegian International Development Minister Erik Solheim said in a statement e-mailed to the BBC.
Mr Solheim said that he had asked the Norwegian Agency for Development Co-operation for a full report on the matter.
"At the same time it is important to stress that we are firm believers in micro-finance as a tool in the fight against poverty," he said.
The documentary "Caught in Micro Debt" was shown on Norwegian National Television earlier this week.
"I travelled to Bangladesh, India and Mexico to find out whether micro-credit loans have really helped the poor. But I found out that poor people are getting into more and more debt because of micro-credit loans," Mr Heinemann told the BBC.
He said that he was not accusing Professor Yunus of misusing the money or personally benefiting from the transfer.
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.”
A recent World Bank report on housing in South Asia mentions lack of housing finance as one of the key impediments to more low to middle class housing.
It says that "Pakistan's finance-to-GDP ratio in below 1 percent. The ratio in developed countries is 50-70 percent, and 7 percent in India."
It adds that "in spite of active and robust financial sector reforms led by the State Bank of Pakistan [SBP] in the recent decade, the unweildy land administration environment, unprecedented rises in land prices, and inadequate mortgage lender experience with lower-income housing have prevented the market from advancing in the provision of housing and housing finance solutions."
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.
Here's an interesting CGAP report on the use of technology to aid Pakistan's flood victims in 2010:
CGAP’s partner in Pakistan, Tameer Microfinance Bank, and their parent company, Telenor Pakistan, have made it possible for people in Pakistan who may not have internet access to make donations to relief organizations using their EasyPaisa mobile banking platform and have removed the usual transfer fees. EasyPaisa account holders can make donations direct from their mobile wallets and anyone can walk into one of 6,000 agents to contribute to the work of organizations including the Pakistan Red Crescent Society and SOS Children’s villages. They are also in discussion with a number of NGOs about using EasyPaisa to help them to distribute payments to people who have lost their homes or their livelihoods and Telenor themselves have pledged over Rs 213 million (USD 2.5 million) to flood relief efforts.
UBL Bank has won a contract from the Government of Pakistan to make electronic payments of Rs 100,000 (USD 1,170) each to 2 million households – the vast majority of whom will never have set foot in a bank. UBL plan to use their Omni Branchless Banking platform to deliver payments to recipients via Visa debit cards. They will open accounts and distribute cards so that recipients can spend their money at stores or withdraw their cash at ATMs or agents that have been specially set up to deal with the post-flood situation. In post-disaster situations, being able to access cash becomes a life or death issue and from the provider perspective it’s also a major challenge. UBL has 1,800 agents at present and they plan to set up 3,000-4,000 more over the next 3-4 months to cope with the increased demand, according to Abrar Mir, Executive Vice-President of Branchless Banking, who hopes that the people that they reach will continue to use their accounts long after the floods have subsided.
Other organizations are using mobile phones in innovative ways that are not related to branchless banking. Ushahidi, an open source project that allows users to crowdsource crisis information via mobile, have set up pakreport.org a mapping service that allows anyone in the country to text information about the flood. Information is collated and made available to the emergency services and disaster response organizations and NGOs via a web-based interface.
The presence of two branchless banking services in Pakistan (EasyPaisa and UBL Omni) may play an important part in the response to the flood in Pakistan. In Haiti, where no branchless banking solutions exist, the Bill & Melinda Gates Foundation and USAID set up a prize for the first organization to launch a branchless banking solution earlier this year that could be used to make payments to those affected by the earthquake. Although there are some encouraging signs, the prize has yet to be claimed. The response in Pakistan has been much faster due to the presence of existing systems.
Disasters are a fact of life in many countries, and disproportionately affect the poor. Branchless banking will never be able to prevent disasters, but it has the potential to dramatically improve the way in which we can respond to them.
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.
Here's a disappointing report from Microfinanceafrica.net 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.
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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: http://www.time.com/time/magazine/article/0,9171,2061220,00.html#ixzz1Hr1jAxuk
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.
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.
Pakistan, bidding to nearly double Islamic banking in the South Asian state by 2015, is focusing on poor, conservative villages to drive growth and has ordered Islamic lenders to open 20 percent of all new branches in rural areas, according to Reuters:
Islamic banking will help draw the funds of rural customers, a less sophisticated client base who also traditionally shun conventional banks due to concerns over interest which is forbidden under Islam, said Saleem Ullah, director of the Islamic banking department at the State Bank.
"Islamic banking, primarily being a faith-driven industry, has a significant potential in Pakistan as the concept directly appeals to the religiously sensitive segment of the society," Ullah said. "The share of the industry in the banking system has risen to over 7 percent from just 0.5 percent in 2002."
Pakistan's plan is to raise that figure to 12 percent from 7 percent currently by 2015.
Islamic finance growth has faced challenges due to the worsening geopolitical and security situation in Pakistan. But with a population of around 180 million Muslims, the small South Asian nation is still considered as one of the hottest growth areas for the industry.
Pakistan has five fully-fledged sharia-compliant banks and twelve conventional banks with Islamic operations, creating a network of 800 branches in Pakistan. Ullah anticipates that 150 new branches will open by the end of the year.
Islamic banking currently accounts for 497 billion rupees ($5.74 billion), or 7.3 percent of the country's overall banking system.
"Historically, the poor and oppressed in a society are more inclined to follow the norms of their religion than the affluent," said Muddassir Siddiqui, an Islamic scholar and partner at law firm SNR Denton in Dubai.
The combination of aggressive advertising and more Islamic branches in rural areas should drive the industry, Zahid Mansoor, treasurer at DIB Pakistan, a unit of Dubai Islamic Bank , said.
"The new regulatory requirements are a good first step by the government to reaching those in rural areas, where there is little trust for banks and people prefer to keep money under their pillows," he said.
"If you create awareness in the minds of these people, there is significant potential to take Islamic finance beyond a niche market and make it the main choice for banking."
DIB Pakistan, which currently has 59 branches throughout the country, should have 80 branches by the end of the year, Mansoor said.
The prospects for growth is already attracting interest from both the conventional banks in Pakistan and foreign institutions, primarily out of the Gulf region.
Both Dubai Islamic Bank and Bahrain's Al Baraka Bank have subsidiaries in Pakistan and Standard Chartered Saadiq, the Islamic arm of UK-based Standard Chartered , also launched operations in the country.
"We currently have 100 branches in Pakistan and consider it to be a growth area for us," said Adnan Ahmed Yousif, chief executive of Al Baraka Bank. "At our bank, we are looking to get to 200 branches over time. The country definitely has a lot of potential within Islamic finance."
http://uk.reuters.com/article/2011/08/14/pakistan-islamic-idUKL5E7JE02720110814
Here's an excerpt from a recent Washington Post report on Islamic banking in Pakistan:
Business experts say the burgeoning popularity of Pakistan’s Islamic banks — where deposits have gone from about $3 billion to nearly $4 billion in the past year — reflects both a reaction to the turmoil afflicting Western financial systems in recent years and a surge of religious feeling in an overwhelmingly Muslim society in which many people believe their faith is under assault from the West.
“Islamic banks have existed on the fringes of the banking industry for many years, but the global financial crisis has brought them into the limelight,” said a recent report in the Business Recorder, Pakistan’s daily financial newspaper. Today, it said, Islamic banking is “in fashion” and has “earned a shine that continues to attract funds.”
Meezan Bank, the largest of a half-dozen Islamic banks in Pakistan, draws Muslim consumers to its 54 branches by promising “the best of both worlds.” Its brochures advertise quick car loans that are “halal,” or in accordance with religious rules, and new-home mortgages that are “riba-free,” meaning that no interest is charged.
“Interest is a curse that must be eliminated from society,” said Irfan Zulqernain, a Meezan officer who has an MBA and a vision of Islam as a socially transformative force. “We don’t treat money as a commodity, which just makes a few people richer and everyone else poorer. Our way generates economic activity and spreads money throughout society.”
Islamic finance is based on a system of asset leasing and partnerships rather than outright moneylending, which Islam bans. The bank is allowed to turn a profit, but it does so by charging extra fees rather than interest — a distinction that critics say is virtually meaningless and intended solely to make Muslim customers think they are doing the right thing.
Religion as selling point
Banks are not the only businesses to capitalize on the new religious mood among consumers. More and more products are labeled “halal” even when there is no religious blessing involved. At a leading bookstore here in the capital, one of the hottest-selling items is a digitalized miniature version of the Koran that sells for $80.
“This is a precious object for us, and now it as easy to use as a mobile phone. You can just press a button and listen to any verse,” said Samira Imran, a customer who was buying one for her mother. “Our parents like to recite the Koran all the time, but this is a way to connect the new generation as well.”
http://www.washingtonpost.com/world/in-pakistan-islamic-banking-is-a-fast-growing-trend/2011/04/29/AFlF2iMF_story.html
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.
http://tribune.com.pk/story/273178/pakistan-is-among-fastest-developing-market-for-branchless-banking-report/
http://propakistani.pk/wp-content/uploads/2011/10/Mobile_Banking_Brief_Pakistan.pdf
From Clay Seals to Cashless Economy, the money exhibit at the State Bank of Pakistan Museum in Karachi as reported by The Express Tribune:
And this history of monetisation— recounted through a treasure trove of cowrie shells, coins, stamps and notes — is showcased in the State Bank of Pakistan (SBP) Museum & Art Gallery. This pink sandstone structure with looming window shutters and jumbo doors was inaugurated on July 1, and previously housed the Bank of India before partition and the SBP’s library. Inside the mammoth colonial structure, with a refurnished interior boasting spangling spotlights and a renovated brass and glass skylight, are neatly organised sections displaying the history of money over the millennia.
Chronology of money
Perhaps the most interesting section of this museum is the coinage section, neatly divided into pre-Islamic and Islamic periods. The pre-Islamic display starts with the punchmarked coins used by Greeks and Aryan invaders dating back to the 6th and 7th century BC. The currency of this epoch is conspicuous for the Hellenistic trait of bearing the imprint of the ruling monarch’s portrait.
The chronological exhibit gives way to the second section showcasing coinage from the ‘Islamic period of India and Pakistan’ – a misleading description since Pakistan did not exist till 1947 and non-Muslim influences remained strong in the entire sub-continent even after invasions by Muslim rulers. On display are the copper, gold and silver currencies of the all-too familiar Muslim conquerors of history books — the Ghaznavids, the Ghauris and the Mughals etc. The changing shape, symbols and language on the coins attest to the sub-continent’s turbulent political past. Interestingly, when new invaders successfully captured an area, they used the coins of the old conquerors before introducing their own, but overstriked their own names and symbols on them.
As fascinating as this linear trajectory of money is, it does not add anything radically new to the viewer’s knowledge. In fact the exhibited currency, which matches the timeline of most textbooks in Pakistan, highlights that the complex history of the sub-continent is always confined to simple timelines and neat linear paths.
Artifacts and art work
Apart from the sequential record of currency, the SBP museum houses fascinating historical artifacts and art work. There’s the country’s first ATM machine on display; first employed by Habib Bank in 1988, it closely resembles a photocopying machine. There’s also coin-minting apparatus — a cumbersome green object with a wheel-like posterior — and a 100-year-old gold-weighing scale, refurbished with golden paint.
The second storey of the museum’s building houses a small art gallery showcasing the works of the renowned rebel artist, Sadequain, and a few other contemporary artists such as Marium Khan and Amir Hasan Rizvi. Sadequain’s murals, originally made for the SBP, are majestic illustrations depicting distorted life-sized figures, whose coarse texture comes from the fine lines etched into the paint by a blade.
The museum, displaying lengthy historical descriptions and staffed with trained tour guides, is the first of its kind in Pakistan and is now open for public viewing.
http://tribune.com.pk/story/286457/from-clay-seals-to-cashless-economy/
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.
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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.
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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.
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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.
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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!”
....
http://www.forbes.com/sites/helencoster/2011/11/30/novogratz/4/
Here's a report in The News about SBP Gov Yaseen Anwar's assessment of Pakistan finance sector:
KARACHI: Yaseen Anwar, Governor, State Bank of Pakistan (SBP), said on Friday that the country has one of the lowest financial penetration levels in the world.
“Microfinance in Pakistan has made good progress but must make major breakthroughs to reach millions of underserved people,” he said while addressing at 5th Pakistan Microfinance Country Forum.
“Pakistan has one of the lowest financial penetration levels in the World with 56 percent of the adult population totally excluded, and another 32 percent informally served,” he added.
The SBP governor said that despite considerable support from the government, donor and the SBP, the microfinance sector has only been able to tap a small fraction of the potential market. “The current active borrowers standing at roughly two million,” he added.
He said that the microfinance regulatory framework has been ranked globally at the top in 2010 and 2011 by ‘the Economic Intelligence Unit’ of the UK’s The Economist Magazine. Anwar said that the recent development in mobile phone banking is highly encouraging and that the expansion in the retail network of microfinance has been brought about overwhelmingly from agents and mobile phone channels. Within a span of just two years, there are now almost 18,000 branchless banking outlets surpassing the 10,000 conventional bank branches, he added. He lauded the role of UKAid and Asian Development Bank in the development of microfinance in Pakistan and said that under the programmes sponsored by these donors, a number of market interventions are managed by the SBP.
SBP governor said that the Microfinance Credit Guarantee Facility (MCGF), a £10 million guarantee facility of UK’s DFID, was launched by SBP in December 2008 to mobilise wholesale commercial funding for microfinance providers through partial guarantees to commercial banks.
“The facility has thus far mobilised commercial funding of Rs3.225 billion for four microfinance providers for onward lending to around 200,000 new micro borrowers,” he added.
Nadeem Hussain, President and Chief Executive Officer (CEO) of Tameer Microfinance Bank said around 18-20 million account holders have access to credit. “If excluded the multiple account then the number is only at 8-10 million account holders,” he added. He termed branchless banking key to enhance outreach significantly.
Hussain said that potential exists in banking through telecommunication technology. “Presently phone density is one hundred million where banking density is much lower,” he added.
http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=80543&Cat=3
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.
http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=82806&Cat=3
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.
http://www.dailytimes.com.pk/default.asp?page=2011\12\25\story_25-12-2011_pg5_1
Gulftimes on health of Pakistan's banking sector:
The State Bank of Pakistan (SBP), Pakistan's central bank, has recently warned that the banks in the country are facing deteriorating credit quality despite a strong trend of banks investing heavily in government debt.
According to the SBP's recent Financial Stability Review (FSR) of Pakistan, the credit risk-weighted assets (CRWA) of banks grew by two per cent or Rs65 billion during the first half of this year and credit risk remains very high despite banks' growing investments in government debt instruments, which are mainly called the safest investment in the banking industry.
The SBP said the falling CRWA to total assets over the last few years was not an indicator of lower credit risk; rather it simply suggested a strong flight to quality amid high non-performing loans (NPLs).
The report said that to prevent a further increase in the NPLs, the banks tried to limit their bad loans by tightening their credit standards, significantly restricting their lending to riskier sectors such as small and medium enterprises (SMEs) and retail consumers
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NPLs of the banking sector increased from 14.7 per cent to 15.3 per cent, or Rs31.4 billion, in the first half of this year over the same period last year.
Revival
"The fact that NPLs continue to build up underscores the intractable nature of heightened credit risk," the SBP report said.
Moody's said factors such as a revival in short-term economic growth, lower interest rates and de-risking of the banks' loan book could stabilise asset-quality metrics.
The NPLs for the year are expected to peak at around 16 per cent of total lending this year, from 15.3 per cent at end-June 2011, and then remain at these elevated levels throughout 2012.
Analysts said as a counterbalance to the system's structural challenges, the banks benefit from sound funding profiles and low-cost current and savings account deposits, which amounted to 67 per cent of total deposits or 56 per cent of total liabilities at end-June 2011.
"Banks' reliance on market and/or foreign funding also remains minimal. However, we believe that related vulnerabilities will persist, namely the short contractual maturities of customer deposits that create asset-liability mismatches and high government-deposit concentrations," said Theofilou.
http://gulfnews.com/business/banking/pakistan-s-banks-face-decline-in-credit-quality-1.956797
Here's an interesting story in Express Tribune on the rise of the middle class via banking sector:
Hasan Rizvi used public transport to get around the city, and didn’t have a house of his own 10 years ago, while he studied for a Bachelor of Commerce degree at a college affiliated with University of Karachi. Today, he owns two motorcycles, one car and a modest apartment in a middle-class neighbourhood that he rents out to supplement his monthly income.
Rizvi’s upward movement on the social ladder corresponds with the growth in Pakistan’s banking sector that he has been part of since 2004.
In 2000, the combined profit-before-tax of all Pakistani banks was Rs4.5 billion. It reached Rs80.7 billion in 2009 – almost 17-fold increase over nine years!
With more than 8,000 branches of 41 scheduled banks all over the country, the banking sector has witnessed phenomenal growth in the past 10 years: assets of the banking system have been growing at an average of 14.8 per cent since 2001.
The exceptional growth in the banking sector has created thousands of private-sector jobs. The public sector controlled almost 80 per cent of the banking industry in 1997. However, after privatisation of several banks, the figure reduced to 20 per cent in 2004.
Rizvi said that to buy his apartment he took out a loan from his bank in 2008 at a reduced interest rate. Generally, the mark-up on home loans for ordinary customers is around 20 per cent. But the interest rate Rizvi is paying on his home loan as a bank employee is just five per cent.
He said he now lets out the apartment for Rs14,000 a month. The monthly instalment he pays to his bank is Rs.13,000, which means that without paying a single rupee out of his pocket, Rizvi not only bought his own apartment, but also makes an additional Rs1,000 every month – thanks to the fringe benefits of his bank job.
Similarly, car financing is also cheap for bank employees. While ordinary customers pay a 16-18 per cent mark-up on car loans, a bank employee gets it at a nominal rate of about five per cent.
“Every banker out there drives his own car and lives in, or rents out, his own flat. Banks pay well. And they give you facilities no other employer can afford to give its employees,” Rizvi said.
High profits for commercial banks over the past decade have resulted in the expansion of the banking sector, creating more jobs and promising better compensation packages for middle-class young men and women with tertiary education.
There are many reasons for the expansion in the banking sector in Pakistan. Most importantly, privatisation of nationalised banks spurred growth and increased overall banking standards in the 2000s. The share of private-sector banks in aggregate assets of the banking industry surged from 44 per cent in 2000 to over 77 per cent in 2005....
http://tribune.com.pk/story/311896/the-resurgence-of-pakistans-middle-class-moving-up-the-social-ladder/
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.
http://www.microcapital.org/microcapital-brief-asasah-of-pakistan-to-collect-microloan-repayments-via-easypaisa-service-of-tameer-microfinance-bank-telenor-pakistan/
Central Bank governor said Pakistan’s economy and the financial sector are now at a stage where they can support and benefit from a vibrant and efficient debt market, according to Online News:
The size of private debt, or Term Finance Certificates (TFCs) in Pakistan, remained around Rs 74 billion (0.5% of GDP), which is paltry as compared to the outstanding domestic government debt of Rs 4.64 trillion (31.4% of GDP). There is clearly underexploited capacity available to support economic growth.
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He said that banks continue to be the main provider of debt in the system. ‘In the absence of an active capital market, the commercial entities fail to procure long term debt financing, and rely on short and medium term loans from banks. Banks are trying to limit their credit risk and it has become more challenging to raise private debt for a business,’ he said, adding that while some credit uptake may take place in the future, it is unlikely that banks will be keen to finance new long term projects anytime soon.
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The SBP Governor said: ‘we have unambiguously designated our future path that includes three main priorities (a) to make our banking sector more resilient against exogenous shocks through our macro (systemic) and micro prudential framework, (b) actively encourage technological solutions for financial access and an efficient payment system, and (c) address the development needs of the financial markets and broaden the array of product and services as well as outreach.’
Anwar said that we would like to see our banks operating at world class standards and synergistically reinforcing the real economy. ‘We are actively working at a pace to achieve this goal, and despite the current economic challenges, we are confident that we will succeed,’ he said, adding that total assets of our banks amount to Rs7.7 trillion as of end-June 2011. The deposits stand at Rs6.0 trillion, while advances and investments of the sector are Rs3.8 trillion and Rs2.6 trillion respectively, he added.
He said that in spite of the economic slowdown, the pretax profit of the banking sector for the year 2010 was Rs105 billion and for the first six month of 2011, it was Rs77 billion. ‘The banks stand at a healthy Capital Adequacy Ratio (CAR) of over 14 percent and have shown a steady increase in capital even in absolute terms, and equity of the banks is now Rs722 billion (June 2011),’ he said and added: ‘while the picture appears quite stable, the key challenge comes from economic slowdown. We have witnessed the impact of an economic slowdown through rising credit risk in the banks.’
However, as banking regulator, the big challenge arises from a two-pronged dilemma, he said and added: ‘we want our banks to be sound, profitable and efficient users of their funds, yet we also want them to increase financial service penetration into unbanked segments of the economy,’ the SBP Governor added.
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Anwar said that there is a huge surge among the banks to upgrade their technology and on-line banking services. The Automated Teller Machine (ATM) network has been expanding and in June 2011 there were approximately 5200 ATMs operating throughout the country, he said, adding that the concept of branchless banking has opened a new avenue for efficient channeling of funds.
‘Progress in creating automated or on-line branches of banks has been significant so far and it is expected that almost all the bank branches will be on-line or automated,’ he said, adding that utility bills payment and remittances would be handled through ATMs, kiosks or personal computers reducing both time and cost.
The country’s payment system infrastructure has been strengthened to provide convenience in transfer of payments to the customers, he added.
http://www.onlinenews.com.pk/details.php?id=187223
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.
http://www.dawn.com/2011/12/29/electronic-payments-reach-rs12tr.html
Here's Businesswire on the launch of Visa debit card in Pakistan:
Euronet Pakistan, a subsidiary of Euronet Worldwide (NASDAQ: EEFT), today announced the launch of the first EMV Debit Card in Pakistan with MCB, a leading provider of electronic banking services in Pakistan. Euronet Pakistan is the first EMV certified processor and gateway for EMV VISA debit services in the country. With the launch of the first EMV Debit Card in Pakistan, Euronet and MCB have introduced the most secure payment method available today into the Pakistani market.
EMV Debit cards use an embedded microprocessor that stores, processes and protects card holder data, including identity and account information. Prior to the launch, MCB performed stringent testing to ensure Euronet’s service center, processing systems and operational procedures met global EMV security and regulatory standards.
“Euronet systems are highly flexible, robust and yet at the same time have readily available modules to launch new initiatives in this rapidly evolving payment processing arena. MCB is proud to have Euronet as its technology partner and we already have a comprehensive plan in place for steady progress towards being able to offer the best electronic banking services in the region,” said Ali Mubashir Kazmi – Group Head Consumer Banking, MCB Bank Limited.
MCB has the largest network in the country, with a debit card base of 2.5 million and over 650 ATMs, and has always been at the forefront in offering electronic banking services to customers in Pakistan. More than 15 years ago, MCB was one of the first banks to launch electronic banking services in the country and continues to strive to offer the most innovative and synergistic products. MCB recently demonstrated this forward thinking by being the first bank to adopt outsourced EFT services through their migration from an in-house processing solution to an outsourced Euronet ITM system on Euronet Pakistan’s PCI DSS certified infrastructure.
“MCB being the first bank in Pakistan to launch Visa Debit EMV Chip card in the market, is indeed a great achievement and a milestone for all its Visa cardholders,” stated Amer Pasha, Country Manager, Visa Pakistan & Afghanistan. “EMV chip technology presents further security, reliability and a convenient way for making purchases all over the country and when travelling. We congratulate MCB and their technology partner, Euronet for a successful implementation and further enhancing the electronic payment in Pakistan.”
“We are delighted to provide MCB Bank with the first mover advantage on VISA EMV Debit Cards,” stated Mohamed Mousa, Vice President, Euronet Middle East, Africa and Pakistan. “With many more innovative services in the pipeline and the investment in the state-of-the-art data facility, Euronet is committed to providing cutting-edge technology to this growing market.”
http://www.businesswire.com/news/home/20120117006462/en/Euronet-Pakistan-Launches-EMV-Debit-Card-Pakistan
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 http://www.sbp.org.pk/departments/ihfd-ifc.htm provide important guidance to banks on increasing lending to SMEs through customised and low-cost product programmes.
http://www.dailytimes.com.pk/default.asp?page=2012\01\20\story_20-1-2012_pg5_4
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.
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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.
http://tribune.com.pk/story/324941/high-connections-david-miliband-joins-pakistani-private-equity-firm/
Here's a Daily Times report on State Bank of Pakistan's National Financial Literacy Program:
...Pakistan’s first-ever NFLP has been launched with the support and collaboration of Asian Development Bank (ADB), Pakistan Banks’ Association (PBA), Pakistan Microfinance Network (PMN), Pakistan Poverty Alleviation Fund (PPAF) and Bearing Point.
He said the programme has been developed after the Financial Literacy Gap Assessment Survey of beneficiaries. The survey has been helpful in development and adaptation of curriculum and dissemination strategy. The curriculum will also be translated into national and main regional languages including Urdu, Sindhi, Punjabi, Pushto and Balochi, he added.
The SBP governor said that the programme is financed under the ADB-funded Improving Access to Financial Services Fund (IAFSF) and implemented under the oversight of the IAFSF committee, which has representation from SBP, PBA, PPAF, PMN, education sector, and the ADB. Upon completion of the pilot phase, an impact assessment of the pilot will be conducted by a third party, he said, adding that based on the experience and assessment of the pilot, the programme will be scaled-up to target more than half a million beneficiaries all over the country.
Anwar said that in addition to focused training sessions of beneficiaries, the dissemination strategy involves street theatres, board games, comic strips, activity-based competitions, website and media campaigns to reach out to the masses on a larger scale. The training sessions will be sourced from banks, Microfinance Banks (MFBs) and Microfinance Institutions (MFIs) based on their interest and pre-defined qualification criteria, he said and added that in order to encourage and incentivise participation from partners, professional fees and out of pocket expenses of partners will be reimbursed from the programme budget.
Besides involvement of local institutions, the project has formed international partnerships with international financial education programmes including Microfinance Opportunities, Finmark Trust, Association of Microfinance Institutions of Uganda (AMFIU), Sewa Bank, Microfinance Innovation Centre for Resource and Alternatives (MICRA), World Bank Institute, Aflatoun, and others, Anwar added.
The SBP governor said that consumer protection and financial education should be vital components of any financial inclusion initiative. It is now clear that policies, which focus entirely on changing the supply of financial products and services can leave consumers ill-informed, vulnerable and not willing to participate in financial markets, he said, adding that focus of financial literacy programme should be broader than financial inclusion.
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He briefly touched upon various conventional and non-conventional measures adopted by SBP to boost financial inclusion.
SBP introduced Basic Banking Account (BBA), a simplified financial product for low income consumers.
SBP introduced Microfinance Banking Regulations in 2001 to specifically meet the demands of low income consumers.
SBP has adopted innovative solutions to overcome geographical barriers, including branchless banking through retail agents and harnessing technology via mobile-phone banking.
SBP has been managing various market interventions funded by donor agencies:
- The Institutional Strengthening Fund providing grant funding to microfinance providers to top and middle tier MFBs and MFIs for key investments in HR, IT, product development, risk management systems, business plans and branchless banking development.
- The Microfinance Credit Guarantee Facility to link microfinance with financial markets for mobilization of wholesale commercial funding through partial guarantees...
http://www.dailytimes.com.pk/default.asp?page=2012\01\21\story_21-1-2012_pg5_16
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.
http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/02-Feb-2012/all-nbp-branches-to-be-online-in-few-months
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.
http://www.philstar.com/Article.aspx?articleId=775004&publicationSubCategoryId=74
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.
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“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....
http://tribune.com.pk/story/332599/how-ubl-came-to-dominate-investment-banking-in-pakistan/
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