Friday, December 25, 2015

Pakistan Ranked Among World's Top 5 Nations For Promoting Financial Inclusion

When people in need of money go to unscrupulous and unregulated moneylenders, they usually get trapped in mounting debts at exorbitant interest rates. In developing nations like India and Pakistan, many end up losing their basic freedom and human dignity when they are forced to work as bonded laborers. How can this situation be changed?

The first obvious answer is to enforce laws and rules against the use of bonded labor. The second, often ignored, answer is to enable people to legitimately borrow the money they need from regulated financial institutions like banks.  In addition, they can also save and invest money as bank customers. This is called financial inclusion.

The Economist magazine publishes an annual Economic Intelligence Unit (EIU) assessment and ranking of countries for their policies to promote financial inclusion. In 2015, the EIU has ranked Pakistan 5th in the world among 55 countries surveyed for financial inclusion. Peru (90 points) and Colombia (86) remained the top two countries for financial inclusion. The Philippines was followed by India (71) and Pakistan (64), while Chile and Tanzania (62) tied at sixth and Bolivia and Mexico (60) tied at eighth. Ghana (58) rose in the ranks to clinch the 10th place. Finishing at the bottom of the rankings were Haiti, Congo, and Madagascar.

Pakistan had 41.7 million bank accounts last year for its adult population of about 100 million, according to the State Bank of Pakistan (SBP). More than 31.3 million accounts, or 75% of all bank accounts, belonged to the personal accounts category. The SBP has recently modified the regulatory framework to quicken the bank account-opening process with the help of the national database authority, according to Pakistan's Express Tribune newspaper. “NADRA is the real-time online depository of the biometric impressions of close to 100 million people,” Tameer Microfinance Bank CEO Nadeem Hussain said, adding that utilizing its database had so far resulted in eight million one-minute accounts.

According to a new CGAP (Consultative Group to Assist the Poor), accumulated research confirms that financial inclusion, defined as access to and use of formal financial services, benefits the poor people. Some 20 randomized control trials (RCTs) indicate that formal financial services, such as microcredit, savings, insurance and mobile payments, can have a positive impact on a variety of microeconomic indicators, including self-employment business activities, household consumption, and well-being. “But benefits are not limited to the microeconomic level,” notes co-author Robert Cull, Lead Economist, Finance and Private Sector Development Research Group at the World Bank. “In addition to benefits to individuals, non-experimental evidence indicates that broader financial inclusion also coincides with greater local economic activity and decreased economic inequality at the macroeconomic level.”

Inability to have a bank account in modern economy causes financial exclusion of such individuals who happen to be poor. Improving their financial inclusion is essential to make them participants in the nation's economy. The State Bank's efforts to promote financial inclusion are part of Pakistan's war on poverty that needs to continue until all citizens have full access to financial services in the country. The high and growing penetration rate of mobile phones offers the fastest way to do this by offering branchless mobile banking to everyone with a cell phone.

Related Links:

Haq's Musings

Pakistan Economy Near Trillion Dollar Mark

Pakistan 2.0: Technology Driving Productivity

Branchless Mobile Banking Takes Off in Pakistan

Financial Services Sector in Pakistan

Pakistan Ranks High in Microfinance

Pakistan Deploying Mobile Apps to Improve Governance

Pakistan Mobile Broadband Faster Than India's

Pakistan's Media and Telecom Revolution

20 comments:

Mayraj said...

https://theconversation.com/from-zorro-to-zombie-the-rise-and-fall-of-the-microcredit-movement-51691
The rise and fall of the microcredit movement
Microcredit, which was viewed as a perfect market-affirming solution to poverty in developing countries, has collapsed. In 30 years it's gone from Zorro to Zombie.
https://theconversation.com/how-microfinance-disappointed-the-developing-world-23206
How microfinance disappointed the developing world
https://theconversation.com/why-lending-through-community-based-organisations-makes-sense-50263
Why lending through community-based organisations makes sense
https://theconversation.com/why-financial-inclusion-needs-a-new-frontier-asset-building-49169
Why financial inclusion needs a new frontier – asset building

19640909rk said...

looking at the top 10 countries, you do not get much comfort.

Riaz Haq said...

19640909rk: "looking at the top 10 countries, you do not get much comfort."


These are the countries with significant population of the unbanked. They do need policies to promote financial inclusion.

Ibrahim Munir said...

Good to know, there is a growing interest in Pakistan on Islamic banking, as well as micro financing. E-baking including easypaisa & its different variants are also getting popular in Pakistan. I believe we are on the right track. My major concern is the economic growth rate of Pakistan, our current growth rate in my personal opinion is low though it is considerably higher as compared to the global average but still a lot of works remains to be done.

When do you think will we be able to see the fruits of CPEC?

Ibrahim Munir said...

@19640909rk

I dont agree Chile, Philippines, Mexico, Columbia, India & Pakistan are all major emerging economies. The troubles with Pakistan are of a different sort, may be Mr Riaz can elaborate what exactly is the dilemma with Pakistan`s economy, my guess lack of foreign investment, reason poor international reputation due to negative media coverage, poor law and order situation (though considerably improved in the last year militancy and terrorism at record low levels where as such incidents have increased world wide), will CPEC be a gamechanger I don`t know may Mr Riaz can elaborate.

Anonymous said...

Lack of Savings and investment!

East Asian (to some extent India) model is this:

High Savings rate

High Capital investment(with a focus on heavy industry)

FDI has NEVER been a significant part of capital investment in the economy.


It works! Pakistan needs to increase savings and curtail consumption and invest in heavy industry and infrastructure like India is doing otherwise be prepared to dance to Modi's tunes.





Riaz Haq said...

Anon: "be prepared to dance to Modi's tunes."

It's just another Hindu Nationalist delusion.

Modi himself had to go to Pakistan after his cronies told all of his opponents to go to Pakistan for a year.



Riaz Haq said...

#Pakistan ranks among top 10 for #science contribution in #Asia for 1996-2014

http://www.scimagojr.com/countryrank.php?area=0&category=0&region=Asiatic+Region&year=all&order=it&min=0&min_type=it …

pic.twitter.com/L2FYioicdD

Riaz Haq said...

#Pakistan banks’ deposits up 12%, loans up only 7% in 2015

http://www.pakistantoday.com.pk/2016/01/08/business/pakistan-banks-deposits-up-12-advances-up-only-7-in-2015/ …


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

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

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

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

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

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

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

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

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

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

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

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

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

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

The analyst said that spread may remain flat in 2016 due to anticipation of status quo in interest rates. However, banks margins could come under pressure in 2016 as a major chunk of high-yielding Pakistan Investment Bonds (PIBs) mature in 2016.

Riaz Haq said...

Queen Máxima of #Netherland to arrive in #Pakistan tomorrow to promote #financialinclusion

http://tribune.com.pk/story/1042556/queen-maxima-to-arrive-in-pakistan-tomorrow/ …


Queen Máxima of the Netherlands will begin a three-day visit to Pakistan from Tuesday as part of her global efforts to promote financial inclusion.

The queen is the UN secretary-general’s special advocate for inclusive finance for development and her scheduled visit comes in support of Pakistan’s National Financial Inclusion Strategy.

Financial inclusion

During her visit, the queen is set to hold meetings with the president, Prime Minister Nawaz Sharif and Finance Minister Ishaq Dar, together with governor State Bank of Pakistan, according to Radio Pakistan.

On the sidelines of these meetings, the queen is also scheduled to meet with other stakeholders from public and private sectors.

Further, Queen Máxima will hold discussions with the representatives of international organisations, financial organisations, telecom companies and micro-finance institutions to explore their role in improving access to financial services such as savings, payments, credit and insurance.

Davos meetings: Regional peace to map future progress, says PM

Launched in May 2015, the strategy aims to expand the availability of the financial tools the poor need to protect themselves against hardship and improve their lives.

The World Bank is preparing a programme to support the implementation of Pakistan’s financial inclusion strategy over the next five years.

Pakistan has a well-organised financial system but the use of formal services is low, particularly among women, farmers and small businesses.

Riaz Haq said...

#Pakistan (9% male, 2% female) Leads South Asia in #MobileMoney. #India (3% m, 1% f), #Bangladesh (3% m, 2% f) http://blogs.worldbank.org/opendata/chart-pakistan-leads-south-asia-mobile-money …


In 2014, an average of 3% of people in South Asia used a mobile phone to send or receive money. While there are still gaps between how often men and women use these services, Pakistan leads the region with 9% of men and 2% of women moving money on their mobiles. You can find more data on financial inclusion in the Global Findex Database

Riaz Haq said...

#Pakistan formally launches National Financial Inclusion Strategy. #financialinclusion

http://www.brecorder.com/top-news/pakistan/277936-pakistan-formally-launches-national-financial-inclusion-strategy.html …

Pakistan on Tuesday formally launched its National Financial Inclusion Strategy (NFIS) in the presence of World Bank President Jim Yong Kim.

The United Nations Secretary-General's Special Advocate for Inclusive Finance for Development (UNSGSA), Queen Maxima of the Netherlands and Finance Minister Ishaq Dar was present on the occasion.

Pakistan has developed and launched its National Financial Inclusion Strategy (NFIS) last year and its objective was to enhance formal financial access to 50 percent of the adult population by 2020.

Speaking on the occasion, the World Bank President Jim Yong Kim, said that Pakistan has a great opportunity to become more ambitious in reforming its economy so that more people are lifted out of poverty more quickly and prosperity is more widely shared among its people.

He noted that the government had stabilized the economy over three tough years, Kim said he had discussed in meetings with the prime minister and finance minister about the importance of pressing forward with reforms that would unlock the country's potential.

"Now is the moment for Pakistan to step up to a higher level of growth and opportunity for all its people," said Kim.

---


"The National Financial Inclusion Strategy has come at a particularly opportune moment as new technology and the rapid expansion of branchless banking offer unprecedented opportunities to transform financial inclusion in Pakistan.

Pakistan is now leading the way in South Asia when it comes to digital finance and branchless banking", said Kim.

Kim also participated in a panel discussion on "Managing Displaced Populations" and learnt how the country managed a large Afghan refugee population.

---

"There is much the world can learn from Pakistan, which has for decades hosted refugees from other countries or had to cope with temporarily displaced people within its own borders," said Kim.

"We are committed to support the Government of Pakistan in repatriating the crisis affected displaced people through the newly effective cash transfer project."

Minister for Finance Ishaq Dar speaking on the occasion said that access to better financial incclusion was key higher economic growth and sustainable economic development.

He added that the government of Prime Minister Nawaz Sharif was committed to develop economy and had initiated National Financial Inclusion Strategy (NFIS) last year.

He said that under the NFIS government was committed to enhance formal financial access to 50 percent of the adult population by year 2020.

He also vowed to reduce poverty by enhancing financial access to 50 percent of the adult population by 2020.

He also underlined the rising growth and declining inflation during the tenure of current government under the leadership of Prime Minister Nawaz Sharif together with significant expansion in coverage of Benazir Income Support Programme (BISP) cash transfers, which would be rising from Rs. 40 billion in 2012-13 to Rs. 105 billion in 2015-16, increasing the coverage from 3.7 million to 5.4 million families and significantly enhanced income support annual stipend from Rs 12000 to Rs 18000 during this period.

Finance Minister also said that government was taking steps for alleviation of poverty through Khushhali Bank and Pakistan Poverty Alleviation Fund (PPAF).

The Finance Minister said, "Government's development policy agenda was based on the principle of inclusive economic growth so that the benefits are shared across all segments of the society".

Riaz Haq said...

#Pakistan Has Chance to Boost #Economy, World Bank President Says in #Islamabad. #financialinclusion http://goo.gl/ItqjSx via @WorldBank

Pakistan has a great opportunity to become more ambitious in reforming its economy so that more people are lifted out of poverty more quickly and prosperity is more widely shared among its people, said World Bank Group (WBG) President Jim Yong Kim.

Noting that the government had stabilized the economy over three tough years, Kim said he had discussed in meetings with the prime minister and finance minister about the importance of pressing forward with reforms that would unlock the country’s potential. As part of the World Bank’s continued support to the country, there was discussion of a Development Policy Credit to promote economic reforms.

“Now is the moment for Pakistan to step up to a higher level of growth and opportunity for all its people,” said Kim. “In my meetings with the prime minister and finance minister, we discussed going to a higher level of ambition for reforms for the economy. These could include strengthening the role of the private sector for job creation, accelerating energy reforms, making improvements at the community level for health and education, and ensuring that anti-poverty measures are effective at reaching poor people.”

Kim made his comments on the first day of his two-day visit to Pakistan after meetings in Islamabad with the government leadership, including economic ministers and secretaries from provincial and federal governments.

Kim participated in a State Bank of Pakistan launch event for WBG support to Pakistan’s financial inclusion reform agenda, “Pakistan’s Path towards Universal Financial Access.” “The National Financial Inclusion Strategy has come at a particularly opportune moment as new technology and the rapid expansion of branchless banking offer unprecedented opportunities to transform financial inclusion in Pakistan. Pakistan is now leading the way in South Asia when it comes to digital finance and branchless banking”, said Kim.

The UN Secretary General’s Special Advocate for Inclusive Finance for Development, Queen Máxima of the Netherlands, and Finance Minister Ishaq Dar also participated in the event.

Kim also participated in a panel discussion on “Managing Displaced Populations” and learnt how the country managed a large Afghan refugee population. The event was co-organized by the World Bank, the Economic Affairs Division and UNHCR, in the context of the continuing global refugee crisis.

“There is much the world can learn from Pakistan, which has for decades hosted refugees from other countries or had to cope with temporarily displaced people within its own borders,” said Kim. “We are committed to support the Government of Pakistan in repatriating the crisis affected displaced people through the newly effective cash transfer project.”

Later in the day, he met with the provincial leadership of Khyber Pakhtunkhwa and Punjab and learned about province-level reform efforts and development projects under implementation and preparation with World Bank Group support. He underlined the importance of the role of the provincial governments in the effective implementation of reforms.

Kim later plans to meet private sector representatives, students, and the provincial leadership of Sindh.

The World Bank Group in Pakistan:
The World Bank’s program in Pakistan is governed by its Country Partnership Strategy (CPS) agreed with the government. The World Bank Pakistan portfolio has 26 investment lending projects under implementation with a total net commitment of $4.99 billion. To date, we have committed over $5.6 billion in Pakistan, including $1.2 billion during the 2015 fiscal year. IFC’s advisory services program in Pakistan is one of its largest in the region, with 13 active projects and a funding commitment of over $20 million

Riaz Haq said...

#India's Banking Sector Just Got Worse With Bad Loans Jumping Up to 30%. Likely to Get Even Worse via @forbes http://www.forbes.com/sites/meghabahree/2016/02/16/indias-banking-sector-just-got-worse/#5e7195bf500d …

Bad loans at Indian banks have jumped an unprecedented 30% in the third quarter and things are likely to get worse.

This follows an official review last quarter by Reserve Bank of India governor Raghuram Rajan, when India’s banking regulator started a bank-by-bank review of stressed accounts. For all the past few years of growth and reform, banks in India have continued rolling over troubled loans or restructured them to make terms favorable to borrowers. Rajan has set banks a March 2017 deadline to clean up their balance sheets and treat some troubled loan accounts as bad and make provisions for them by the end of this March. The aim is that the clean-up, which started in the December quarter, will restore the health of banks, revive lending and, in turn, boost economic growth.

But there’s still time for that.

According to a report by Credit Suisse, bad loans are likely to move up further to 6.6% of loans by Mar 2016 as most banks have deferred the impact over two quarters. (On Tuesday, State Bank of India , the country’s largest state-owned said bad loans are expected to surge in the coming quarter and this will likely hit profitabiliy.) Bank the Provision coverage–having enough capital in the bank to provide for any bad loans–has also slipped to 43%. Meaning, only 43% of the loans are provided for. At state-owned banks the unprovided non performing assets (NPAs) are now 30–75% of their capital and un-provided problem loans (loans which are in trouble and could turn into NPAs) even higher at 65–200%, the report said.

That’s a huge number.

“As was our concern, the RBI audit revealed significant under-recognition of NPAs. However based on our analysis full recognition is yet to happen,” the report said.

According to Credit Suisse there are a few reasons why there continues to be an under-recognition of NPAs–

Post the audit there’s been an increase in divergences in classifying stressed corporate loans as NPL
So far still only 10–20% of steel loans are impaired for most banks. This number could easily go up as steel has been a highly stressed sector because of the global com oddities slow down.
The majority of “House of Debt” groups’ stress is still neither NPL or restructured. (House of Debt is a Credit Suisse report where it evaluated top 10 Indian corporates, including companies owned by several billionaires such as Anil Ambani, Anil Agarwal, Gautam Adani amongst others, and found that a steep growth in borrowings had stretched the financials of these companies. Many of those loans are yet to be restructured or declared as NPLs.)
Loan growth to stress sectors (power, steel) continues to be high.
What this also means is that capital needs at banks will be large given weak core profitability and high under-provisioning. The former is due to the fact that operating performance at banks that lend to corporates, especially the state-owned banks, has deteriorated. Most have been unable to grow their loan books in the past nine months and with net interest margins under pressure, pre-provision profitability has weakened further. With the need to increase provisioning for loans even as P&Ls weakened (11 banks reported losses), recap needs for the state-owned banks have gone up more and they are likely to need $34 billion to $53 billion of capital, the report estimated.

Riaz Haq said...

Credit Suisse rates #Pakistan banks best performers in Asia. Bad loans just 8.9% http://www.thenews.com.pk/print/96875-Credit-Suisse-rates-Pakistani-banks-best-performers …
Swiss based Credit Suisse has rated Pakistani banks the best performers in Asia over the past three years and second-best in the past five years as the country enjoyed a substantial reduction in the cost of equity since 2013.

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

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

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

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

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

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

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

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

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

---

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

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

Further, it states NPLs mostly flushed out with aggregate being 11.3 percent for the largest five banks and loan loss coverage healthy at 86 percent; credit costs peaked at 2.3 percent of loans in 2009 and have since fallen to 70 basis point in 2015. Capital ratio is quite comfortable at 12.6 percent (average) for the five banks, it said.

Riaz Haq said...

Change is afoot to grow #Pakistan’s banking sector. #financialinclusion | World Finance http://www.worldfinance.com/banking/change-is-afoot-in-pakistans-banking-sector …

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

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

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

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

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

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

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

Islamic financing
Pakistan was among the first three countries to attempt to implement Islamic financing at a national level, and its origins date back to the 1970s. Today, Pakistan has six dedicated Islamic banks and almost all the commercial banks have Islamic divisions that provide sharia-based solutions to their customers. The emergence of Islamic finance in Pakistan has led to greater financial inclusion for a large segment of the population awaiting sharia-based products.

Riaz Haq said...

#Pakistan’s financial system remains sound but banks must deal with non-performing #loans: #SBP http://go.shr.lc/296oyp9 via @Shareaholic

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

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

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

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

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

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

------------

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

As such, banks have increased their inclination towards risk free investments in government securities and their balance sheets - loaded with PIBs and MTBs - are more prone to market risk due to interest movements. On the funding side, the deposit growth in past couple of years, although decent, has remained short of meeting asset growth requirements of both the private and public sector.

Riaz Haq said...

IRTI, Thomsob Reuters and IBA Study reveals double-digit growth in #Pakistan’s #Islamic finance sector. #Karachi http://en.mehrnews.com/news/119532/Study-reveals-steady-growth-in-Pakistan-s-finance-sector …

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

----

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

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

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

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

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

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

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

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

http://islamic-finance.zawya.com/ifg-publications/Pakistan-300816074233A/

http://www.irti.org/Reports/Pakistan.pdf

Riaz Haq said...

#Pakistan’s rising #mobile wallet adoption. #financialinclusion #mobilemoney http://www.pakistantoday.com.pk/2016/09/18/business/pakistans-rising-mobile-wallet-adoption/ … via @epakistantoday

Mobile wallets (Such as Telenor EasyPaisa, Mobilink Jazz Cash etc) are often heralded as an innovative source of financial inclusion for the unbanked. And rightly so, mobile wallet accounts bypass the necessity of building and staffing a bank branch, and it also relieves its account holder from making the effort of going to a bank branch. Similarly, at least for Pakistan, its registration requirements makes it an easier option than a regular bank account.

Pakistan’s Financial Inclusion strategy for2015 recognises the importance of mobile money in expanding “digital transactional accounts”, which the strategy recognises as a key driver. In this regard, the recent upsurge in the number of mobile wallet registration should be encouraging. Just to put it in perspective; as perdata from the State Bank of Pakistan, at the end of Jul-Sept 2012, the number of wallet accounts was at approximately 1.8 million, however by Jul-Sept 2015 the same has risen to 13 million.

It is definitely a heartening increase especially when seen from a financial inclusion angle. But it is important to consider the demographics of these new wallet owners, are they predominantly from the banked segment or the unbanked one? A relevant source for answering these questions is the Financial Inclusion Insights (FII) survey 2015 for Pakistan. The FII 2015 is a nationally representative survey with a sample of 6000 individuals. Besides covering other aspects of Pakistan financial inclusion landscape, the FII also provides interesting insights into the probable demographic composition of Pakistan’s wallet accounts.

To begin with, the FII 2015 predicts that most wallet owners already had bank accounts, more specifically only44% of mobile wallet owners did not have bank accounts. When seen as a proportion of their base samples, wallet owners with bank accounts constituted 8% of bank account holders, however, unbanked[1] wallet owners were only 0.61% of the unbanked sample.

So who are these unbanked wallet owners? And how are they different from the unbanked who did not opt for a wallet account?In the following paragraphs will go over a few significant differences between unbanked mobile wallet owners, and the unbanked who do not have a wallet account.

Awareness about mobile money seems to be low among this group as 45% of unbanked with no wallet accounts were simply unaware about any of mobile money brands out there. It won’t be wrong to assume that almost half of the unbanked with no wallet account don’t even know about the existence of a mobile money option.

Gender differences were also apparent, as FII 2015 predicts 77% of unbanked wallet owners to be male, and only 22% to be female. This might be because of cultural constraints in Pakistan that discourage

Mobile wallets (Such as Telenor EasyPaisa, Mobilink Jazz Cash etc) are often heralded as an innovative source of financial inclusion for the unbanked. And rightly so, mobile wallet accounts bypass the necessity of building and staffing a bank branch, and it also relieves its account holder from making the effort of going to a bank branch. Similarly, at least for Pakistan, its registration requirements makes it an easier option than a regular bank account.

Pakistan’s Financial Inclusion strategy for2015 recognizes the importance of mobile money in expanding “digital transactional accounts”, which the strategy recognizes as a key driver. In this regard, the recent upsurge in the number of mobile wallet registration should be encouraging. Just to put it in perspective; as perdata from the State Bank of Pakistan,at the end of Jul-Sept 2012, the number of wallet accounts was at approximately 1.8 million, however by Jul-Sept 2015 the same has risen to 13 million.

Riaz Haq said...

#Mobile #Technology Enabling Silent #Financial Industry Revolution in #Pakistan. #financialinclusion

http://www.dawn.com/news/1217284/silent-revolution

.... irrespective of what the old banking school is doing, a silent financial revolution is taking place in Pakistan. New players have entered the financial industry and are offering solutions tailored to the needs of the average man and woman. This technology-driven disruption will change the level of financial inclusion within five years. In all likelihood, the largest retail bank in terms of number of customers, touch points and transactions will be a branchless banking player as opposed to one of the big five commercial banks.


Financial inclusion starts with having a bank account. This is followed by payments, retail purchases, credit and then other services like insurance, pension and other value-added services

The technology-based impact has already started for a simple mobile bank account, which today can be opened within a minute. Three years from now the branchless banking industry would have opened 50 million mobile wallets, substantially more than what commercial banks hold. These M wallet holders are being provided an ATM card. Within six months these ATM cards will be converted into debit cards. The vision is to create 500,000 merchants in Tier 2 and 3 cities over five years for the acceptance of these debit cards.

Again the change in technology will be the accelerator. Instead of expensive point of sale (POS) machines, smart phones which cost less than Rs5,000 will act as POS. This will have a material effect on financial inclusion as 50m of the hitherto unbanked along with 0.5m merchants will enter the formal economy, improving the savings and tax-to-GDP ratio.

With over 50m M wallet holders, person-to-person transaction is expected to increase geometrically. Two developments will drive this change, bypassing the traditional payment railroad.

First, we are already experiencing a slow but steady switch from over-the-counter domestic transfers to M wallet, with volumes increasing from 15,000 to 1m a month in the case of one player alone. Throw in a social payment application which allows low-value payments to be made via WhatsApp, line or a local application, and payments become as easy as sending a message.

Currently, the industry is experimenting with new algorithm-based lending programmes that can assess credit risk based on data generated by the behaviour of an M wallet holder using a scorecard. Once the industry follows suit, the bulk of savers holding an M wallet could become eligible for a credit facility based on their score. This will have an exponential impact on financial inclusion. Even if 20pc of the target users become eligible it will be a multiple of the current credit users in the formal system. Score cards already exist for merchants. When the merchant score card is developed and implemented for the proposed 500,000 new merchants, the lending for microenterprise as well as SMEs will increase.

The last development, which will be driven again by technology and the digital payments railroads, will be financial inclusion through e-commerce. At present, it is estimated that there are around 100,000 e-merchants with less than $100m business transacted.

------
Financial exclusion is expected to reduce materially in the next three years. This silent financial revolution has already started rolling out with the advent of the one-minute account. This account will in turn drive payments, retail purchases, credit and e-commerce activity. The days of Pakistan being at the lowest rung of financial inclusion for developing countries will no longer be the case. The sky will quite literally be the limit.