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Chapter 1

Introduction to Banking

Before I explain about the banks first I explain about the money because money is the
medium which crates the need of the banks.


Everyone uses money. We all want it, work for it and think about it. The task of defining
what money is? Where it comes from and what its worth belongs to those who dedicate
themselves to the discipline of economics. While the creation and growth of money
seems somewhat intangible, money is the way we get the things we need and want. Here
we look at the multifaceted characteristics of money.

What Is Money?

Before the development of a medium of exchange, people would barter to obtain the
goods and services they needed. This is basically how it worked: two individuals each
possessing a commodity the other wanted or needed would enter into an agreement to
trade their goods.

This early form of barter, however, does not provide the transferability and divisibility
that makes trading efficient. For instance, if you have wheat but need rice, you must find
someone who not only has rice but also the desire for wheat. What if you find someone
who has the need for wheat but no rice and can only offer you rice? To get your wheat, he
or she must find someone who has rice and wants wheat.

The lack of transferability of bartering for goods, as you can see, is tiring, confusing and
inefficient. But that is not where the problems end: even if you find someone with whom
to trade wheat for rice, you may not think a bunch of them is worth as whole wheat. You
would then have to devise a way to divide your wheat and determine how many rice you
are willing to take for your wheat.

To solve these problems came commodity money, which is a kind of currency based on
the value of an underlying commodity. Colonialists, for example, used beaver pelts and
dried corn as currency for transactions. These kinds of commodities were chosen for a
number of reasons. They were widely desired and therefore valuable, but they were also
durable, portable and easily stored.

Another example of commodity money is the U.S. currency before 1971, which was
backed by gold. Foreign governments were able to take their U.S. currency and exchange
it for gold with the U.S. Federal Reserve. If we think about this relationship between
money and gold, we can gain some insight into how money gains its value: like the
beaver pelts and dried corn, gold is valuable purely because people want it.

What is Bank

In simple words, we can say that “Bank is a pipeline through which currency moves into
and out of circulation”.

Bank accepts deposits and repays cash to its customers on their demand. The Bank
borrowers money at a lesser rate of interest and lends it to borrowers at a higher rate. It is
thus a profit lending concern. Bank cannot lend all the money which has been deposited
with it. It has to keep a certain portion of the total deposits in cash with them in order to
meet the cash requirement of the individuals and business concern.

i- History of Banking

There has so far not been decided that how the word ‘Bank’ originated. However, there
are different opinions about the finding of bank. Some authors opine that it derived from
the word ‘Bancus’ or Banque’ which means a bench. Others opinion that it is derived
from German word “Bank” which means ‘joint stock fund’ However, with the ‘Revival
of Civilization’ (Renaisance) in the middle of twelfth century, trade and commerce started
expanding and this development compelled the business community to borrow money
from the Hebrew money lenders on high rates of interest and usury. In 1401 a German
public bank was formed comprising the operations of discounting, deposit and

transferring of money. This was followed by the formation of Bank of Genoa, in 1407.
By the 16th century some more public banks were formed in Venice, Milan, Amsterdam,
Hamburg and Nuremberg.

Brief History of Banks

Wealth compressed into the convenient form of gold brings one disadvantage. Unless
well hidden or protected, it is easily stolen. In early civilizations a temple is considered
the safest refuge; it is a solid building, constantly attended, with a sacred character which
itself may deter thieves. In Egypt and Mesopotamia gold is deposited in temples for safe-
keeping. But it lies idle there, while others in the trading community or in government
have desperate need of it. In Babylon at the time of Hammurabi, in the 18th century BC,
there are records of loans made by the priests of the temple. The concept of banking has

Perhaps it was the Babylonians who developed banking system as early as 2000 B.C. It is
evident that the temples of Babylon were used as ‘banks’ because of the prevalent respect
and confidence in the clergy.

The first banks were probably the RELIGIOUS TEMPLES of the ancient world. King
hammurabi the founder of the Babylonian Empire, drew up a Code wherein he laid down
standard rules of procedure for banking operations by temples and great land owners.

The history of banking is closely related to the history of money. As monetary payments
became important, people looked for ways to safely store their money. As trade grew,
merchants looked for ways of borrowing money to fund expeditions.

The ascent of Christianity in Rome and its influence restricted banking, as the charging of
interest was seen as immoral. Jews were ostracized from most professions by local rulers,
the Church and the guilds, were pushed into marginal occupations considered socially
inferior, such as tax and rent collecting and money lending, while the provision of
financial services increasingly demanded by the expansion of European trade and

In Europe banking practice was to take in local currency for which a demand note would
be given that would be a at any of their castles across Europe, allowing movement of
currency without usual risk of robbery while traveling.

Religion and banking: 12th - 13th century AD

The Christian prohibition on usury eventually provides an opportunity for bankers of

another religion. The Jews, barred from most other forms of employment, supply this
need. But their success, and their extreme visibility as a religious sect, brings dangers.
The same is true of another group, the knights Templar, who for a few years become
bankers to the mighty. They too, an exclusive sect with private rituals, easily fall prey to
rumor, suspicion and persecution. The profitable business of banking transfers into the
hands of more ordinary Christian folk - first among them the Lombards.

Bankers to Europe's kings: 13th - 14th century AD

During the 13th century bankers from north Italy, collectively known as Lombards,
gradually replace the Jews in their traditional role as money-lenders to the rich and
powerful. The business skills of the Italians are enhanced by their invention of double-
entry book-keeping. Creative accountancy enables them to avoid the Christian sin of
usury; interest on a loan is presented in the accounts either as a voluntary gift from the
borrower or as a reward for the risk taken.

Florence is well equipped for international finance thanks to its famous gold coin, the
florin. First minted in 1252, the florin is widely recognized and trusted. It is the hard
currency of its day. By the early 14th century two families in the city, the Bardi and the
Peruzzi, have grown immensely wealthy by offering financial services. They arrange for
the collection and transfer of money due to great feudal powers, in particular the papacy.
They facilitate trade by providing merchants with bills of exchange, by means of which
money paid in by a debtor in one town can be paid out to a creditor presenting the bill
somewhere else (a principle familiar now in the form of a cheque).

Florence as a great banking centre survives even this disaster. Half a century later great
fortunes are again being made by the financiers of the city. Prominent among them in the
15th century are two families, the Pazzi and the Medici.

At the start of the 15th century the Medici are Europe's greatest banking dynasty, but their
political power later distracts them from the highly focused business of making money.
After the reign of Lorenzo the Magnificent the bank’s finances are in a perilous state. The
shift of European power to the habsburgs in the late 15th century is the basis of the
Fugger wealth. The family descends from an Augsburg weaver and their first fortune is in

Interest rates at the time are never less than 12% per annum. And when a loan has to be
raised urgently, the 16th-century banker is often able to negotiate a rate of as high as
45%. Banking for emperors is profitable.

A development is that of the cheque, a device which depends on the existence of banks as
recognized institutions. A bill of exchange, the original method of transferring money
without the use of coins, is a complex contract between private parties and one or more
moneylenders. A cheque is a bill of exchange between banks, payable by one of the banks
to whoever holds and presents the cheque.

The transformation from moneylenders into private banks is a gradual one during the
17th and 18th centuries. In England it is achieved by various families of goldsmiths who
early in the period accept money on deposit purely for safe-keeping. Then they begin to
lend some of it out. Finally, by the 18th century, they make banking their business in
place of their original craft as goldsmiths.

National banks: 17th - 18th century

Venice, after being possibly the first city to found a bank for the keeping of money on
safe deposit and the clearing of cheques, is also a pioneer in the involvement of a bank
with state finances. In 1617 the Banco Giro is established to solve problems encountered
by the earlier Banco della Piazza di Rialto, which has got into trouble through the making

of unsecured loans. The Banco Giro is founded on the principle that the government's
creditors accept payment in the form of credit with the new bank. In solving an existing
problem, this also provides new opportunities. Venice now has a mechanism for raising
public finance on the basis of guaranteed credit. The logical extension of this concept is a
national bank, established in some form of partnership with the state.

Paper currency makes its first appearance in Europe in the 17th century. In 1661, in
consultation with the government, Palmstruch issues credit notes which can be
exchanged, on presentation to his bank, for a stated number of silver coins.

Another half century passes before the next bank notes are issued in Europe, again by a
far-sighted financier whose schemes come to naught. John Law, founder of the Banque
Générale in Paris in 1716 issues bank notes from January 1719. Public confidence in the
system is inevitably shaken when a government decree, in May 1720, halves the value of
this paper currency.

Gradually public confidence in these pieces of paper increases, particularly when they are
issued by national banks with the backing of government reserves. In these circumstances
it even becomes acceptable that a government should impose a temporary ban on the
right of the holder of a note to exchange it for silver.

The Rothschild dynasty: AD 1801-1815

The Rothschild family gambles heavily on the eventual defeat of Napoleon. Their loans
are all to his enemies (surprisingly Napoleon allows Jacob, operating from Paris, to raise
money for the exiled Bourbons). Their network of contacts enables them to move money
around Europe even in wartime conditions. A famous example, but only one of many, is
Nathan's transfer of large sums of money from London to Portugal to pay the British
troops in the Peninsular War.

ii- History of Modern Banking

Modern economic and financial history is usually traced back to the coffee houses of
London. The London Royal Exchange was established in 1565. At that time

moneychangers were already called bankers, though the term "bank" usually referred to
their offices, and did not carry the meaning it does today.

Banking offices were usually located near centers of trade, and in the late 17th century,
the largest centers for commerce were the ports of Amsterdam, London, and Hamburg.
Individuals could participate in the lucrative East India trade by purchasing bills of credit
from these banks, but the price they received for commodities was dependent on the ships
returning (which often didn't happen on time) and on the cargo they carried.

By the early 1900s was beginning to emerge as a world financial center. Companies and
individuals acquired large investments in companies in the US and Europe, resulting in
the first true market integration. This comparatively high level of market integration
proved especially beneficial when World War I came both sides in the conflict sought
funds from the United States, by issuing new securities and selling existing holdings,
though the Allied Powers raised by far the larger amounts. Being a lender to the world
resulted in the largest growth of a financial economy to that point.

The first was the passage of the Banking Act of 1933 that provided for the Federal
Deposit Insurance system and the Glass–Steagall provisions that completely separated
commercial banking and securities activities. Second was the depression itself, which led
in the end to World War II and a 30-year period in which banking was confined to basic,
slow-growing deposit taking and loan making within a limited local market only. And
third was the rising importance of the government in deciding financial matters,
especially during the post-war recovery period. As a consequence, there was
comparatively little for banks or securities firms to do from the early 1930s until the early

iii- Global Banking

In the 1970s, a number of smaller crashes tied to the policies put in place following the
depression, resulted in deregulation and privatization of government-owned enterprises in
the 1980s, indicating that governments of industrial countries around the world found
private-sector solutions to problems of economic growth and development preferable to

state-operated, semi socialist programs. This spurred a trend that was already prevalent in
the business sector, large companies becoming global and dealing with customers,
suppliers, manufacturing, and information centers all over the world.

Global banking and capital market services proliferated during the 1980s and 1990s as a
result of a great increase in demand from companies, governments, and financial
institutions, but also because financial market conditions were buoyant and, on the whole,

iv- Banking in Pakistan

The banking system is passing through a difficult phase mainly because of excessive
political interference in the working of the nationalized banks by the different
governments in the past. Hence the political interference in nationalized banks did not
allow them to carry out their business purely on merit.

A little earlier before the creation of country, the role of Muslims of the areas which were
later included in Pakistan was of no significance due to their restricted participation in the
banking sector. There was only a small bank namely Australasia Bank having a few
branches in Lahore and its suburbs. In 1942, the Australasia bank was housed in a garage
of a trader of Lahore who used to trade at a small scale with Australia during that period.
However the only Bank was run by the Muslims of the sub-continent was Habib Bank
which was established in 1941. At that time Quaid-e-Azam Mohammad Ali Jinnah
expressed his desire that another Muslim bank also be established in Calcutta which came
into reality when Adamjee with the assistance of Isphanis established Muslim
Commercial Bank a few months before the creation of Pakistan in Calcutta. When
Pakistan came in to being The Habib Bank shifted its Headquarters from India to
Karachi. A few of Habib Bank's branches were already in operation in Pakistan. The
Muslim Commercial Bank also moved its headquarters from Calcutta to Dhaka and later
on to Karachi. At the time of independence, another small bank namely Bank of
Bahawalpur also started business from Bahawalpur from December 1947.

Before independence, the financial sector was in the hands of foreign banks some of them
were British by origin. The oldest bank operating from 1883 in this part of the world was
the Chartered Bank while another bank namely the Grindlays Bank which was also
working simultaneously from 1883. In order to expand its business operations, the
Grindlays acquired other small banks and merged them into the business of Grindlays.
For example Allied Bank, National Bank of India etc was merged into Grindlays Bank.
Among the contemporaries, Imperial bank of India was the largest Indian Bank which
had started its operations in 1919 which was discharging the role of a commercial banks
as well as the Central Bank for India until an independent Central Bank i.e. Reserve Bank
of India was established in 1935. However, since the Imperial Bank had the largest
network of its branches all over India, it continued to play its role as a subsidiary of the
Reserve Bank of India. In the Muslim majority areas which were later on became the part
of Pakistan, small branches of Indian banks were operating and soon after creation of
Pakistan they shifted their branches and headquarters to India. At the time of
independence, two major banks including Punjab National Bank at Lahore and Comila
Banking Corporation were working in the then East Pakistan. This trend was so obvious
that the total number of bank offices between June 30, 1918 and August 14, 1947 were
reduced from 631 to 195 only. During the early part of 1949 the number of branches of
Imperial Bank of India in Pakistani areas was more than of Habib Bank. In the early days
of Pakistan, the government worked hard left no stone unturned to establish and
strengthen the banking system in Pakistan. These efforts resulted in the establishment of
State Bank of Pakistan which was inaugurated by Quaid-e-Azam on July 1, 1948. Quaid-
e-Azam flawed from Quetta to Karachi specially to grace the occasion. Originally the
State Bank was scheduled to be established in September 1948. Zahid Hussain, who was
the first Governor of the State Bank, devoted all his time and energy to streamline the
working of the State Bank. In normal situation, the Central Bank of a country is only
established when the commercial banking start working on sound footings. But the
circumstances forced the government to establish Central Bank and the task of stabilizing
the commercial banking was also assigned to the State Bank, which it really did.

The establishment of the National Bank of Pakistan in 1950 on the pattern of Imperial
Bank of India was yet another milestone in the banking history of Pakistan. In September
1949 the rupee value was reduced against the Pound sterling which was a major event in
the banking circles. Consequently Indian government devalued its Rupee against Pound
Sterlings, however Pakistan decided not to devalue its currency against Pound Sterling
which resulted in increase of Pakistani cotton and jute prices for India which affected our
exports to India. Though Pakistan had to suffer economically due to decline of exports to
India, it however gave a sense of economic independence to Pakistan. Cut in imports
from Pakistan proved as a blessing in disguise as Pakistan had to explore new exports
markets for its products. However Indian banks operating in Pakistan refused to finance
Pakistani exports.

v- Types of Banks

Primarily all banks gather temporarily idle money for the purpose of lending to others
and investments which bring gain in the form of return, profit and dividends etc. How
due to variety of sources of money and the diversity in lending and investment
operations, banks have been placed in various categories, such as commercial banks,
saving banks, merchant banks, mortgage banks, consumer banks, investment banks,
development banks, cooperative banks and central banks etc.

Banks' activities can be characterized as retail banking, dealing directly with individuals
and small businesses, and investment banking, relating to activities on the financial
markets. Most banks are profit-making, private enterprises. However, some are owned by
government, or are non-profit making.

In some jurisdictions retail and investment activities are, or have been, separated by law.

Central Banks

There is no standard terminology for the name of a central bank, but many countries use
the "Bank of Country" form (e.g., Bank of England, Bank of Canada, and Bank of
Russia). Some are styled national banks, such as the National Bank of Ukraine. In many
countries, there may be private banks that incorporate the term national. Many countries
have state-owned banks or other quasi-government entities that have entirely separate
functions, such as financing imports and exports.

Central Banks are non-commercial bodies or government agencies often charged with
controlling interest rates and money supply across the whole economy. They act as
Lender of last resort in event of a crisis.

Types of retail banks

Commercial banks

“Accepting for the purpose of lending or investment or deposits of money from the public
repayable on demand or otherwise and withdrawals by cheque, draft, or otherwise.”

The commercial banking has been developed into an important sector of economy. It is
service oriented organization which performs numerous functions. The functions which a
commercial bank performs can be divided into following categories:

 Basic Functions
 Agency Service Functions
 General Utility Functions

These are classified as following.


Basic Functions

These include:

• Accepting of deposits
• Making advances and loans

1) Accepting of Deposits

 Current/Demand Deposit
 Saving Deposit
 Fixed Deposit

2) Making Advances and Loans

 Running Finance
 Terms Finance
 Project Finance

3) Agency Services

These include:

 Collection of Cheques
 Collection of Dividends
 Purchase and Sales of Securities
 Execution of Standing Instructions
 Collection of Bills
 Acting as Trustees or Executors

 Transfer of Funds

4) General Utility Services

These include:

 Supplying Trade Information

 Issue of Travelers Cheques
 Issue of Credit Cards
 Foreign Exchange Business

Community Banks

Community Banks locally operated financial institutions that empower employees to

make local decisions to serve their customers.

Community Development Banks

Community Development Banks that provide financial services and credit to underserved
markets or populations.

Postal Savings

Postal Savings banks associated with national postal systems.

Private banks

Private Banks manage the assets of high net worth individuals.

Savings banks

Savings banks in Europe, savings banks take their roots in the 19th or sometimes even
18th century. Their original objective was to provide easily accessible savings products to
all strata of the population. In some countries, savings banks were created on public

initiative, while in others socially committed individuals created foundations to put in

place the necessary infrastructure. Nowadays, European savings banks have kept their
focus on retail banking: payments, savings products, credits and insurances for
individuals or small and medium-sized enterprises. Apart from this retail focus, they also
differ from commercial banks by their broadly decentralized distribution network,
providing local and regional outreach and by their socially responsible approach to
business and society.

Types of investment banks

Investment Banks

"Underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts,
make markets, and advise corporations on capital markets activities such as mergers and

Merchant banks

Merchant banks were traditionally banks which engaged in trade financing. The modern
definition, however, refers to banks which provide capital to firms in the form of shares
rather than loans. Unlike Venture Capital firms, they tend not to invest in new companies.

Universal Banks

Universal Banks more commonly known as a financial services company, engage in

several of these activities. For example, First Bank (a very large bank) is involved in
commercial and retail lending, and its subsidiaries in tax-havens offer offshore banking
services to customers in other countries. Other large financial institutions are similarly
diversified and engage in multiple activities.

Other types of banks

Islamic Banks

Islamic Banks adhere to the concepts of Islamic Law. Islamic banking revolves around
several well established concepts which are based on Islamic canons. Since the concept
of interest is forbidden in Islam, all banking activities must avoid interest. Instead of
interest, the bank earns profit (mark-up) and fees on financing facilities that it extends to
the customers. Also, deposit makers earn a share of the bank’s profit as opposed to a
predetermined interest.

Chapter 2

Introduction of SME Bank Limited

SME Bank started his working for the provide loans to the small borrowers who have the
ability and experience in different sector but they not have resources for starting their
own business so the Government started SME Bank in 2002 after the merger of SBFC
and RDFC for the providing loans facility on easy terms and conditions and also these
loans are provided to the borrowers on low interest rate as compared to the market rate.
Now I explain some back ground of SBFC and RDFC.

i. Formation of SME Bank Ltd.

The SME Bank was formed and incorporated as a public limited company under the
Companies Ordinance 1984. The Government of Pakistan is the major Shareholder of the
bank. As part of financial sector restructuring program of Government of Pakistan,
Regional Development Finance Corporation (RDFC) and Small Business Finance
Corporation (SBFC) were amalgamated into SME Bank Ltd. effective January 01, 2002.

SME bank Ltd was established to exclusively cater to the needs of the SME sector. It was
created to address the needs of this niche market with specialized financial products and
services that will help stimulate SME development and pro poor growth in the country.

ii- Introduction of Defunct SBFC and RDFC.

Small Business Finance Corporation (SBFC)

• SBFC provided loans to the borrowers on easy terms and conditions and these
loans are secured against personal guarantee. 98% of Self Employment Loans
secured against personal guarantees without collaterals.
• Government directed and sponsored Self Employment Schemes for providing
loans to the small borrowers.

• Low interest rate on the loans as compare to the other financial institutions
working for same purpose.
• Confidence of the Government institutions by the borrowers.

Regional Development Finance Corporation (RDFC)

• Second institutions which provide loans to the projects and industries of the
private sector was working as Regional Development Finance Corporation
• These loans were issued to the projects for industrialization in the less
developed areas for bringing them at par with developed one.

• The objective was to establish industrial estates on regional basis like

Bhimber, Hattar and Gadoon for developing indigenous industrial sector.

• Another motive was to raise the living standard in remote areas by

providing those sources and infrastructure.

These are two institutions which merged in 2002 and started their new business with new
entity of SME Bank.
Now I discuss the importance of SME Bank Ltd.

iii- Introduction of SME’s

Small and medium enterprises or SMEs, also called small and medium-sized enterprises
and small and medium-sized businesses or small and medium businesses or SMBs are
companies whose headcount or turnover falls below certain limits.

The abbreviation SME occurs commonly in the European Union (EU) and in
international organizations, such as the World Bank, the United Nations and the WTO.
The term small and medium-sized businesses or SMBs has become more standard in a
few other countries.

EU Member States traditionally had their own definition of what constitutes an SME, for
example the traditional definition in Germany had a limit of 500 employees, while, for
example, in Belgium it could have been 100. But now the EU has started to standardize
the concept. Its current definition categorizes companies with fewer than 50 employees as
"small", and those with fewer than 250 as "medium". By contrast, in the United States,
when small business is defined by the number of employees, it often refers to those with
less than 100 employees, while medium-sized business often refers to those with less than
500 employees. However, the most widely used American definition of micro-business
by the number of employees is the same of that of EU: less than 10 employees.

In most economies, smaller enterprises are much greater in number. In the EU, SMEs
comprise approximately 99% of all firms and employ between them about 65 million
people. In many sectors, SMEs are also responsible for driving innovation and

According to State bank of Pakistan

Small and Medium Enterprise (SME) means an entity, ideally not a public
limited company, which does not employ more than 250 persons (if it is
manufacturing / service concern) and 50 persons (if it is trading concern) and
also fulfills the following criteria of either ‘a’ and ‘c’ or ‘b’ and ‘c’ as

(a) A trading / service concern with total assets at cost excluding land and
building upto Rs 50 million.
(b) A manufacturing concern with total assets at cost excluding land and
building upto Rs 100 million.

(c) Any concern (trading, service or manufacturing) with net sales not
exceeding Rs 300 million as per latest financial statements.

An Individual, if he or she meets the above criteria, can also be categorized as an SME.

iv- State Bank Prudential Regulations for SME Sector in Pakistan

Keeping in view the important role of Small and Medium Enterprises (SMEs) in the
economic development of Pakistan and to facilitate and encourage the flow of bank
credit to this sector, a separate set of Prudential Regulations specifically for SME sector
has been issued by State Bank of Pakistan. This separate set of regulations,
specifically tailored for SMEs, is aimed at encouraging banks / DFIs to develop new
financing techniques and innovative products which can meet the financial
requirements of SMEs and provide a viable and growing lending outlet for banks /

Banks / DFIs should recognize that success in SME lending requires much more
extensive involvement with the SMEs than the traditional lender-borrower relationship
envisages. The banks / DFIs are, thus, encouraged to work in close association with
SMEs. The banks / DFIs should assist and guide the SMEs to develop appropriate
systems and effectively manage their resources and risks.

The banks / DFIs are encouraged to prepare a lending program (including detailed
eligibility criteria) for each specific sub-sector of SME in which they want to take
exposure in a significant manner. For this purpose, the banks / DFIs may conduct /
arrange surveys and research to determine the status and potential of specific SME sub-
sectors. It is expected that banks / DFIs would prepare comprehensive guidelines /
manuals and put in place suitable mechanism / structure, aided by proper MIS, to
carry out the activities related to SME financing in an effective way. This should,
however, not stop banks / DFIs from lending to SMEs before undertaking the steps
mentioned above as the banks / DFIs may start soft lending operations or test marketing
campaigns, as they feel appropriate, to gain experience and necessary know how. The
factors mentioned above gain more importance and become critical for the success of a
bank / DFI in SME lending, as the exposure of the bank / DFI on SMEs becomes a
significant portion of its loan portfolio.

State Bank of Pakistan encourages banks / DFIs to lend to SMEs on the basis of assets
conversion cycle and future cash flows. A problem, which the banks / DFIs may
encounter in this respect, is the lack of adequate information. In order to overcome
this problem, banks / DFIs may also like to prepare general industry cash flows and
then adjust those cash flows for the specific borrowers keeping in view their conditions
and other factors involved.

As mentioned above, presently most of the SMEs in Pakistan lack sophistication to have
reliable and sufficient data and financial information. In order to capture this data and
information, banks / DFIs will need to assist and guide their SME customers. The
banks / DFIs may come up with the minimum information requirements and
standardized formats for this purpose as per their own discretion. For better
understanding and to facilitate their SME customers, banks/ DFIs are encouraged to
translate their loan application formats and brochures in Urdu and other regional

Banks / DFIs should realize that delay in processing the cases might frustrate the SMEs.
Banks / DFIs are therefore encouraged to process the loan cases expeditiously and
convey the decision to the SME borrowers as early as possible

In order to encourage close coordination of the officials of the banks / DFIs and SMEs,
the banks / DFIs may require the concerned dealing officer to regularly visit the borrower.
For this purpose, at a minimum, the dealing officer may be required to pay at least one
quarterly visit and document the state of affairs of the SME. In addition, an officer senior
to the ones conducting these regular visits may also visit the SME at least once in a year.

State Bank of Pakistan will closely monitor the situation on an ongoing basis and work
proactively with banks / DFIs to make SME financing a success.

v- Capital and Ownership

Paid up capital has been increased to Rs.200,000,000/- by issue of 73,502,453 and

40,000,000 additional share of Rs.10 each to Government of Pakistan without right issue
in 2004 and 2005 respectively and issue of 50,000,000 bonus share of Rs.10 each.
Proceeds against issue of additional share in 2004 were paid by GOP to SBP against
Bank’s loan balances due to SBP.

The pattern of Share holdings of the bank as on 31.12.2007 is as under:

S. No. Categories of No. of Shares %

Shareholders Shareholders Held

1. Banks 6 14,634,715 7.32

2. Federal Government 1 185,365,278 92.68
3. Individuals 7 7
Total: 14 200,000,000 100.00
vi- Mission Statement
To support and develop the SME sector by providing necessary financial and
technical assistance on a sustainable basis. To enable the SME sector to contribute
to economic development through value addition & export.

Vision Statement
We will be the leading institution for providing financial assistance for the
development and support of Small and Medium Enterprises (SMEs) In Pakistan.

We will respond to the needs of Small and Medium Enterprises by developing a

team of dedicated professionals, and specific products, focused on the financing
need and limitations of SME sector.

We will, through support of the SME sector, contribute to the growth of local
entrepreneurs, develop export markets and provide employment opportunities in
the country.

vii- Importance of SME Sectors

The economic growth models of developed and developing countries have proved that
high growth rate can be achieved if SME sector is adequately focused. Successful growth
models have created rising urge among developing countries like Pakistan to divert its
priorities towards SME sector.

The Government of Pakistan set out to bring economic reforms. As important part of its
reforms the government listed five priority areas to not only repair damage caused to
economy but to put it back on to the track of growth.

1. SME
2. Agriculture
3. Information Technology
4. Oil and Gas
5. Human Resources Development

So Government of Pakistan for the achieving high growth they introduce SME Bank Ltd.
for providing the small loans to the small enterprises and small business for the
fulfillment needs of their business for the economic development of the country.

viii- Corporate Objectives

The objectives of the SME Bank are as follow:-

• To support, develop and promote Small & Medium Enterprises (SMEs) by

providing them the necessary technical and financial assistance.

• To concentrate on value addition and export oriented SMEs


• To enable SMEs to play a vital role in stimulating GDP growth, create job
opportunities and reduce poverty.

Chapter 3


i. Hierarchy of Management
Board of Director

The Board of Directors of the Bank looks after all of the affairs of the bank.

Mr. S.M.Naseem (Chairman)

Mr. R.A. Chughtai (President)
Mr. Anwar Tareen
Mr. Ahmed Jawad
Mrs. Nazrat Bashir
Mr. Shahab Anwar Khawaja
Mr. Anum Rafiq Sheikh

Bank’s Management

Mr. R.A. Chughtai, President & CEO

Mr. Mehfooz Elahi Piracha Senior Advisor to the President & CEO
Mr. Sardar Usman Rashid Head Risk Management Division
Mr. Marghoob Ghazali Chief Financial Officer & Company Sectt.
Mr. Nasser Durrani Head Human Resource Division
Mr. Ali Akbar Chaudhry Head Internal Audit
Mr. Raja Muhammad Altaf Head Administration
Mr. Muhammad Azam Khan Head Special Assets Management Division

ii- Organization Structure of Head Office

President &

Advisor to

Human Marketing & Special Accounts and Audit and Internal

Services Business Assets
Resource Finance Inspection Investigations
Division Development Management
Division Division Division Department
Division Division

Human Small Loans

Resource Recovery GAD
Development Department

Human Project Loans

Resource Recovery FD
Operations Department

Internal SME
Customer Recovery MAD
Related Department




iii- Grade Positions

The Bank has following grade positions to support its employee’s growth and business

 Senior Executive Vice President.

 Executive Vice President.
 Senior Vice President.
 Vice President.
 Assistant Vice President.
 Officer Grade-I
 Officer Grade-II
 Officer Grade-III
 Clerical (Senior Assistant, Senior Supervisor and Cashier).
 Non-Clerical (Messenger, Drivers, Chowkidar and Sweepers)


Management Profile

The objective of the Management shall be to create supportive environment for

optimum utilization of Human Resources. Enhancing skills, ability and knowledge of
employees through training and freedom of opinion.

Core Values of Management

 Team Based Approach.

 Employees Respect & Dignity.
 High Integrity and Moral Standard.
 Quest for Quality.
 SME Friendly Approach.
 Good Governess.

Marketing & Business Development Division

Deal with issue of resource mobilization and its effective coordination and marketing of
Bank’s Products & services.

 Formulation of policies and procedures

 Creating opportunities for profitable avenues of recycling of funds.

 Capturing outside market for recovery.

 Lending Operations towards SMEs down end target market

Research on banking policies, practices and procedures of competitive


Risk Management Division

To deal with the functions presently carried out by risk Management Department and
credit Administration Department.

Services Division

Deal with procurement of all types of equipments and provision general services and
Administrative issues related to the Bank.

Finance Division

Deals with financial matters of the bank. These are the Department which are working
under Finance Division.

• General Accounting Department (GAD)

• Finance Department (FD)
• Management Accounting Department (MAD)
• Branch Accounting Department
• Corporate Reporting Department
• Policies’ Compliance & Verification Department

a- General Accounting Department (GAD)

• Payments verifications
• Inter Branch Reconciliation
• Petty cash
• Maintenance of statutory accounts

b- Finance Department

Finance department deals treasury division and take decision how and what to invest in
money capital market and when to take borrowing from money capital market.

• Liquidity Position Statement

• Classification of Deposits Position
• Summary of investment
• Bank Reconciliation
• Fund Flow Statement
• Treasury investment

c- Branch Accounting Department

• Preparation and submission of daily report to SBP

• Preparation and submission of weekly report to SBP
• Preparation and submission of monthly report to SBP
• Processing payments relating to Recovery Service Providers

d- Corporate Reporting

• Preparation and submission to SBP monthly CIB report and various other
returns as defined in SBP
• Maintenance of records and recording of transactions relating defunct RDFC
loan portfolio and coordinating with Recovery Division in this respect
• Preparation of various internal reports, as required by the management

e- Management Accounting Department (MAD)

The purpose of management department is to analyze the performance and progress of

the bank periodically.

• Monthly management accounts

• Performance Analysis
• Budgetary Variance Analysis
• Investment Port folio analysis

• Capital Budget utilization

• Deposit Analysis
• Banking industry trend analysis
• Weekly flash report.

Human Resource Division

• Promoting professionalism and competency levels.

• Creating an efficient Management structure.

• Working under standard operating procedures matching to company goals.

• Focusing on value additions of individual employees and cost effectiveness.

• Creating opportunities for profitability.

• Clearly defining job roles and responsibilities of management.

• Optimum utilization of resources by placing right man at right job.

• Flat based organizational structure with few layers of management.

Special Asset Management Division

Three are three Department working under Special Assets Management Division which
are Small Loans Recovery Department (SLRD) Project Loans Recovery Department
(PLRD) and SME Recovery Department.

a- Small Loans Recovery Department

In this department recovered old loans of Small Business Finance Corporations is

recovering from the borrowers and guarantors. These loans of less than Rs.500,000/-
which are coming under this department.

b- Project Loans Recovery Department

These loans are the loans which were given to the projects in different sectors by the
Regional Development Finance Corporation are recovered in this department these loans
are in millions.

c- SME Recovery Department

In SME Recovery Department the loans provided by the SME Bank after its working is
recovered by this department. All types of loans which provided by this bank is
recovering by this department officials.



 Financial, Administrative and operational control of Region and Branches

 Ensuring implementation of time-to-time Company Head Office instructions intact

human resource and recovery support & remission polices etc. in appropriate manners
with optimum utilization of Men and Material Resources.

 Will suggest/forward his recommendations for allocation of recovery and business

operation targets for each branch through analyzing the branch portfolio and potential
of recovery teams/personnel.

 Compliance of legal formalities under recovery policies, SBP prudential regulations,

land revenue act and other court cases in coordination with the Recovery Division,
Head Office.

 Will be the Head of Regional Management Committee

 Will report directly to the Divisional Heads and CEO Company.



 Financial, Administrative and operational control of the Branch

 Will suggest/forward his recommendations through RM Office for allocation of

recovery and business operation targets for the branch, to be based on the branch
portfolio and potential of recovery teams/personnel.

 Compliance of legal formalities under recovery policies, SBP prudential regulations,

land revenue act and other court cases under supervision/coordination of Regional
Office/Recovery Division, Head Office.

 Achievement of quarterly/ yearly recovery and business operations targets.

 Improvement in pace and quality of reporting and communicating data to

Regions/Head Office.

 Maintain high level of mutual trust, teamwork, integrity and confidentiality.

 Ensuring clean / neat office premises and good working conditions.

 Will be a member of Regional Management Committee

 Will report directly to the Regional Office

System for Recovery


The Bank considered loan recovery operation as its full time professional/operational

 Company’s financial soundness and sustainability of future operations shall depend

on loan recovery.

 Recovery of loans shall be assigned highest importance and responsibility.


 Loan recovery strategy and modalities shall fall in line with borrower’s category level
of repayment difficulty and loan security arrangement.

 Loan recovery performance based criterion to be followed with Regions, Branches

and staff.

 Loan recovery policies shall be reviewed and revised from time to time under
instructions of Government/SBP.


• Allocation of quarterly targets for regions/branches.

• Holding of RM conference & meetings with BMs.

• Recovery Monitoring weekly & quarterly.

• Regions & Branches grouped into homogenous categories on the basis of portfolio

• Promoting healthy competition through weekly appreciations & quarterly

certificates/yearly shields.

• Offering lucrative cash/bonus incentives to regions/branches for achieving recovery

target levels.

• Upto 30% cross the board for early settlement incentive based and upto 50%
remission in mark-up shall be provided to borrowers on hardship grounds.

• Special loan relief packages shall be offered to borrowers.

c) Recovery Support Policy

• Human & material resources to regions & branches.

• Hiring of additional vehicles for mobility of recovery teams.

• Police and Tehsildars assistance for revenue proceedings.

• Professional lawyers to look after banking court cases.


Investigation Division

To deal with cases of complaints, fraud and forgeries and conduct inquires into
disciplinary cases.

Audit & Inspection Division

 Formulation of policies and procedures

 Ensuring operations within rule & regulations.

 Early warning signals and avoiding fraud and forgeries.

 Transparency and fairness in procedures.

 Corrective measures and improvement in policies.

 Corruption free working environment.

 Coordination with outside quarters in Audit & Inspection.


v. Branch Network

The branch network consists of the following offices:

1) Business Operations
2) Recovery Offices
3) Camp Offices
4) Audit Offices

1 Lahore Main Branch 1 Karachi Main Branch
. 13-L, Mini Market, . B/9-B/3, Near Post Office Chorangi,
Gulberg-II. S.I.T.E.
PH# (042) 5756224, 751226 PH# (021) 2587130-33
Fax# (042) 5756225 Fax# (021) 2587126
UAN# (042) 111-11-00-11 UAN# (021) 111-11-00-11
2 City Branch
2 FB Area Branch
. Ground Floor, Alamgir Building,
. Shop# S-4 Latif Terrace,
17 Edwards Road (Mouj Darya
Plot# St-4-D, Block 20
road), Lahore City.
Federal B Area
PH # (042)7221008, 7220663
PH# (021) 6800771,6800768
3 Ravi Road Branch
. 45-Ravi Road,
3 Orangi Town Branch
. Plot# LS-4, Sector 12,
PH# (042) 7707247
Orangi Town
Fax# (042) 7707269
PH# (021) 6653424
Fax# (021) 6653425

Islamabad Branch Faisalabad Branch
Mezzanine Floor, P-341-B, Peoples Colony #1, Satyana
40-Jang Building, road, Faisalabad.
Fazal-ul-Haq Road, Blue Area. PH# (041) 9220481, 9220482,
PH# (051) 9219260, 9213743 9220484
Fax# (051) 9213742 Fax# (041) 9220483
UAN# (041) 111-11-00-11.

Peshawar Branch Gujranwala Branch
Ground Floor, State Life Building, 26-27-J,Trust Plaza,
34-The Mall. Gujranwala.
PH# (091) 9212350 PH# (055) 9200443
Fax# (091) 285177 Fax# (055) 9200243
UAN# (091) 111-11-00-11 UAN# (055) 111-11-00-11

Quetta Branch Sialkot Branch
M.A. Jinnah Road, Ground Floor,Al-Amin Centre,
Quetta. Opp. SCCI Paris Road.
PH# (081) 2836816 PH# (052) 9250566, 9250567
Fax# (081) 2836817 Fax# (052) 4268111
UAN# (052) 111-11-00-11

Rawalpindi Branch
Junaid Plaza, Iqbal Road,
Near Committee Chowk,
PH# (051) 5553922, 5553902
Fax# (051) 5558201

Walayat Plaza, Murree Road, Raza Building, Railway Road,
Opp. Daily "Assas" Office, Jehlum
Murree Road, PH# (0544) 9270203
Rawalpindi (City)
PH# (051) 4456768, 4581713
Fax# (051) 4846049
17-E. Edwards Road, 1st Floor, (Prime Bank Ltd)
Lahore City Prince Fan Colony, G.T.Road
PH# (042) 7243389, 7312078 Gujrat
PH# (0533) 513242
136/2-C Satellite Town,
PH# (0483) 211511
Sharif Plaza, LQM Road, 189-Liaqat Road,
Multan Sahiwal
PH# (061) 9200246, 9210181 PH# (0404) 220352
27-A, Stadium Road,
Opposite Farid Gate,

PH# (062) 9255393
801-802, 8th Floor, Park Avenue, Badri Manzal, Rasal Road,
24-A, Block PECH, Shahrah-e-Faisal, Hyderabad
Karachi (East) PH# (022) 9200717
PH# (021) 4538041, 4314749
Banglow No. 104, Akhuwat Nagar, Ground Floor Usman Complex,
Airport Road, Hali Road,
Sukkur Quetta
Ph# (071) 5630554 PH# (081) 9202337
(081) 9202898
Fax# (081) 9202386
1st Floor, Awan Huts, Lala Rukh Colony,
State Life Building, Mansehra Road,
34- The Mall Abbottabad
Peshawar Cantt, PH# (0992) 9310159
PH# (091) 5274997, 5274963
Fax# (091) 9211465

D.I.Khan Chitral
Afaq Manzil, 1st Floor, Polo Ground Road, Chitral.
Opp. Siraj Medical Complex, West
Circular Road,

Bahawalnagar Kot Addu (Muzaffargarh)

H.No. 72, Moh. Amir Kot, House No. 112,
Chistian Road, Near Ice Factory, Ward No. 01, Kot Addu.

Depalpur (Sahiwal) Dadu

Bahadur Shah Market, House No. 77,
Kutchery Road, Depalpur. Badaruddin Colonly Near Circuit House,

Mingora Dasu
C-21, 3rd Floor, Zia Market, Opp. District Council Road,
Continental Plaza Makhan Bagh, Main Bazar, RKH Road,
Mingora. Komaila Dasu, Distt. Kohistan

Larkana Gilgit
Gaganpur Mohalla, Larkana. B-115, Dar Plaza, Nabi Bazar,

Hospital Road, Jaccobabad.


Rawalpindi Karachi
Walayat Plaza, Murree Road, 801-802, 8th Floor,
Opp. Daily "Assas" Office, Park Avenue,
Murree Road, 24-A, Block PECH, Shahrah-e-Faisal,
Rawalpindi. Karachi (East)

13-Mini Market,
Gulberg-II, Lahore.

Chapter 04

Product and Services

This commercial bank provided these two types of products to the borrowers and the
other institutions which need financing or financial assistance from the bank or they need
services of this bank.

1. Lending Products
2. Banking Products

1. Lending Products

Any commercially viable business proposal merits SME Bank's support. It is Bank's
effort to assist and support enterprises that use indigenous raw material, add value and are
export oriented. Such enterprises are vital to our economy since these are labor intensive
and thus create employment opportunities.

SME Bank is reaching out to small and medium entrepreneurs through:

1. Smart Loan Facility

2. Asset Finance
3. Running Finance
4. Leasing through its subsidiary

2- Commercial Banking Products

SME Bank's QATRA QATRA DARYA (Daily Product Basis)

(Daily product basis: for Individuals and Business Concerns)

Product Features

For Individuals, Proprietorship, Partnership and Limited Companies starting from


• Profit rates upto 5 %

• Free Online Transactions, PO’s, DD's, TT's.
• Free Issuance of ATM card.
• Free Cheque books
• Free Life Insurance
• Minimum account opening balance: Rs. 25,000
• Monthly Average Balance Requirement Rs. 25,000
• Minimum Balance fee: Rs. 25 per month based on balances below Rs. 25,000
All online transactions
• All pay orders, DDs and TTs

SME bank ATM card (to singly authorized customers only)

Profit Structure Rate per Annum

Less than or equal to Rs 100,000 1.50%

Rs 100,001 to Rs 300,000 2.50%

Rs 300,001 to Rs 500,000 3.50%

Rs 500,001 to Rs 800,000 4.00%

Rs 800,001 to Rs I,000,000 4.50%

Rs 1,000,001 & above 5.00%

Free Banking services if monthly average balance is Rs.1.00M or more:

Special Privileges for individuals, including joint, proprietorship & partnership-ship

accounts with balance over Rs 25,000.

Privilege Coverage

Free Life Insurance Up to Rs.1m


Accidental death cover Up to Rs.2m

Permanent disability Cover Up to Rs.1m

Charges for account holder Free of Charge

New account eligibility, for insurance cover, starts after 90 days from account opening.
Insurance cover provided by EFU Life Insurance.

Quick processing time for borrowing against funds.

The insurance cover is provided to the extent of average balance maintained in the
account during last 90 days in case of natural death, whereas in case of accidental death
the coverage provided is double. For of permanent disability, due accident, a percentage
of sum insured is paid.

In case of joint or partnership accounts the benefit is apportioned pro rata for each
account holder, i.e. if two account holders then the benefit is half for each, if three then a
third for each, and so on.

Other terms and conditions:

Fees and other charges will be as per applicable schedule of bank charges.

Zakat and Withholding Tax rules applicable.

SME Bank's QATRA QATRA DARYA (Saving Account)

(Saving Accounts: for Individuals)

Product Features

• Profit rates upto 3.50 %

• Free Life Insurance

• Minimum account opening balance: Rs.10,000 (for insurance cover)

• Monthly Average Balance Requirement: Rs.10,000
• Profit Structure: 3.50 % per Annum
• Special Privileges if monthly average balanceRs.10,000 or more

Privilege Coverage

Free Life Insurance Up to Rs.1m

Accidental death cover Up to Rs.2 m

Permanent disability Cover Up to Rs.1m

Charges for account holder Free of Charge

New account eligibility, for insurance cover, starts after 90 days from account opening.
Insurance cover provided by EFU Life Insurance.

Quick processing time for borrowing against funds.

The insurance cover is provided to the extent of average balance maintained in the
account during last 90 days in case of natural death, whereas in case of accidental death
the coverage provided is double. For of permanent disability, due accident, a percentage
of sum insured is paid.

In case of joint or partnership accounts the benefit is apportioned pro rata for each
account holder, i.e. if two account holders then the benefit is half for each, if three then a
third for each, and so on.

Other terms and conditions:

Fees and other charges will be as per applicable schedule of bank charges.

Zakat and Withholding Tax rules applicable.

SME Bank's QATRA QATRA DARYA (Current Account)


(Current Account: for Individuals and Business Concerns)

Product Features

• Free Online Transactions, PO's, DD's, TT's.

• Free Issuance of ATM card.
• Free Cheque books
• Free Life Insurance
• Minimum account opening balance: Rs. 10,000 (for insurance cover)
• Monthly Average Balance Requirement Rs. 10,000
• Minimum Balance fee: Rs 25 per month on balances below Rs.10,000
• Special Privileges if monthly average balance Rs.10,000 or more

Privilege Coverage

Free Life Insurance Up to Rs.1m

Accidental death cover Up to Rs.2 m

Permanent disability Cover Up to Rs.1m

Charges for account holder Free of Charge

New account eligibility, for insurance cover, starts after 90 days from account opening.
Insurance cover provided by EFU Life Insurance.

Quick processing time for borrowing against funds.

The insurance cover is provided to the extent of average balance maintained in the
account during last 90 days in case of natural death, whereas in case of accidental death
the coverage provided is double. For of permanent disability, due accident, a percentage
of sum insured is paid.

In case of joint or partnership accounts the benefit is apportioned pro rata for each
account holder, i.e. if two account holders then the benefit is half for each, if three then a
third for each, and so on.

Other terms and conditions:

Fees and other charges will be as per applicable schedule of bank charges.

Zakat and Withholding Tax rules applicable

Mahaana Aamdan Account

SME Bank brings to you the opportunity to maximize the utilization of your funds. SME
smart term deposit plans not only gives you flexibility of choices in term of selecting the
profit payment plan, but a high return as well, because we know that you only go for the

Have a look at our remarkable offer

• Invest as low as Rs.100,000 for 1 Year and earn a profit of Rs.791.00 per month,
• Invest as low as Rs.100,000 for 2 Years and earn a profit of Rs.854.00 per month.
• A rewarding profit is automatically credited to your Qatra Qatra Darya Account
month after month, which provides the flexible power to save with additional
profit or to spend as you like; with the benefit of free life insurance.
• Premature encashment facility.
• Quick processing time for borrowing against funds.
• Free SME ATM Card.

Other terms and conditions

Fees and other charges will be as per applicable schedule of bank charges.

Zakat and Withholding Tax rules applicable


Profit on Accounts

Current Account 0.00%

PLS Saving Account (Profit payment bi-annually,

Calculated on minimum balance during the month ) 3.25%

SME Rozana Izafa Aur Mahana Munafa

(Monthly Payment of Profit calculating on daily basis)

Profit Structure Rate per Annum

From 50,000 to 999,999 4.00%

From 1.000 M to 9.999 M 4.75%

From 10.000 M to 49.999 M 5.50%

Above 50.000 M 6.25%

SME Regular TDR

SME Regular TDR

( Profit to be paid after maturity of the TDR )

7 Days Short Notice Deposit 2.75%

30 Days Short Notice Deposit 3.50%

SME Fixed Term Deposit Profit Payable on Maturity

SME Fixed Term Deposit


Profit payable on Maturity.

1 Month 6.50%

3 Months 7.50%

6 Months 8.50%

1 Year 10.00%

2 Years 10.50%

3 Years 11.00%

• Special Rates for deposits exceeding Rs. 20 Million may be negotiated with the
customers on case to case basis. The terms & conditions are subject to the
approval of the competent authority
• Kindly note that above profit rates are liable to compulsory deduction of
withholding tax @ 10%
• Premature encashment permissible at 0.25% less than the period for which deposit
was maintained

Chapter 05

Review of Balance Sheets of Last Three Years

If we go through from the profit and loss account of SME Bank and its balance sheets of
last three years we get following information from the profit and loss account and its
balance sheets.

Profit and Loss account and Balance sheet of 2004

If we go through the profit and loss account of the year 2004 we getting following
information. The income of the bank is reduced from the year 2003. Expenditure of the
bank is increased.
Due to the reduction in income and increase in expenses operating profit is also decrease
from the last year.

Liability Side

But in the year 2004 the recovery teams of SME Bank recovered the loans from the old
borrowers and the profit is increased from the last year. So in the year 2004 the bank
earns overall profit from the last year.

If we see the balance sheet of year 2004 we see that the profit is increased from large
amount. Long terms loans are also decrease. The liability of finance lease is also
decrease. The change in the long term deposits is very high this is not good.

Assets Side

In the balance sheet of 2004 the fixed assets are decrease as compare to 2003, Investment
is also decrease long term advances which is given to the different borrowers is recovered
so the advances are decrease. Loans are also provided to the subsidiary which is SME

leasing is also part of assets side. Long term deposits and receivable are also decrease
from the last year.
Short term investments are also decrease, the maturity of loans is increase, deposits,
prepayments and other receivables are increase. In the year 2004 there is no lending to
any financial institution but in the last year there is a huge amount for lending to financial

Profit and Loss Account and Balance Sheet of 2005

If we see the profit and loss account of year 2005 as compare to year 2004 the interest
charged on the loans which is received from the borrowers is increased but the other end
the expenses of the markup is also increased. The loans provision which is write off from
the books of accounts is recovered.

If we see the non markup interest income is also decreased very huge amount as compare
to last year. Gain on sale of Government security is decrease from the last year.

Non markup interest expenses are also going to very high.

Now I explain the balance sheet of year 2005.

Asset Side

Cash and balance at treasury banks is increased as compare to last year. Balance with
other bank is decrease there is no lending in this year to the other financial institutions.
Investment is increased. Advances to the borrowers were also increase from the last year.
Asset of the bank is going down ward.

Liability Side

In this year the bills drawn on the bank. Borrowing from the financial institutions is
decrease. Deposits and other accounts are increased. Borrowing from the state bank is

Profit and Loss Account and Balance Sheet of 2006

In the profit and loss account the interest earned is increased as compare to last year. But
the expenses are also going to the higher side. Bad debts are recovered a huge amount.

Fee and commission and brokerage services which provided by the bank to the customers
is increased. In this year also the administrative expenses going higher side.

Now I explain the Assets side of balance sheet.

Cash and balances with treasury banks is increased. Balance with other bank was
increase. Now in this year the lending to financial institutions is also made by the bank.
Investment is increased. Advances are also increased which are coming from the

Liability Side

Bills drawn on the bank is increased in this year as compare to the last year. Borrowings
were also increased. Deposits from the customers were increased as compare to the last
year. Loans received from the state bank were decreased.

If we see the Balance sheet of year 2005 markup charged on the loans is very high but the
interest which paid on deposits is low and we see that the interest income is 5,07,22,9000
now we see the loans which are recovered from the borrowers after write off of provision
is also recovered and added into the profit.

After deducting of expenses the profit is 369,112,000/- on this amount tax is not charged.
When the tax charged and the total profit is 5,86,546,000.

Chapter 6



• Cooperation among personnel is the key to success and SME Bank personnel are
very cooperative and kind to each other.
• A good system of communication flow is there.
• The bank has a good team of customer relation officers to help the people.
• The satisfaction increase in the salaries of personnel.
• The commitment of employees towards secrecy.
• A good system of training new comers in the bank.
• Service to customer even at the cost of bank increased the business.
• Automation and online business
• Good and experienced staff right from the bank’s incorporation.


• Employee’s turnover is higher.

• Centralization of operations at Head Office level instead of branches
• Higher charges of some services as compared to other banks.
• There is lack of proper advertising like sponsoring of any festival or any even like
ports etc.
• No frequent designing of new schemes for the deposits.

• Sometimes, more time consumption in payment of cheque as these have to be gets

approved from credit department.
• For long time bank going to be privatize that’s why staff do not take as interest as
they should be.
• Due to privatization bank do not launch more branches in different cities.


• When the bank was setup, a major portion of staff came from RDFC and SBFC,
and all they know the good banking practices.
• The role of relationship managers may increase its market share.
• The joining of Mr. R.A. Chughtai as Chief Executives is opening new ways of
• A good sales team and marketing people
• A good job recruitment policy of hiring business graduates.


• Pakistan is a developing country and out debt burdened economy is a major

threats for the banking business.
• We have a neighbor like India and an unresolved issue like Kashmir and due to
which the situation remains tens and there is no generation of investment.
• The adoption of online system and developing of web sites by other banks can
create a threat to the bank.
• The employee turnover can create a serious problem for the bank.
• Delay in launching AMT card.
• Lack of promotion and advertisement
• Fewer deposits and advances schemes.

• Start of evening banking by some banks


Chapter 7

Suggestions and recommendations


Although still, there is cooperative environment but there is a need to further boost it up.
And cooperation among staff members, management, customer and other shareholder.

Promotion of Products

SME Bank promoted its acquisition of BOA and launching of its ATM Card. But still
there is need for continues advertisement so that people unconsciously think about the

New Schemes

The bank already has good schemes for both deposits and borrowers. But there is a need
to launch some more and attractive schemes for the people.

Low Employees’ turnover

Efforts should be made to reduce the employee turnover rate.

Rewards and promotion

More rewards and bonus schemes should be for management as well as for employees
and promotion should be based on performance of employees and no on favoritism.

Reduction in expenses

The bank has developed a policy for expenditure control policy, but it needs to be
implemented to reduce the expenses and profitability of the bank.

Service Charges

The services charges should be minimized.


SME bank is a Organization which under control of Government and provided loans to
the small borrowers and the industries which are need financial support and this
organization provided loans to the borrows and industries on easy terms and conditions as
compare to the others financial institutions working in the private sectors. This
organization has a unique culture and it is committed to provide customer satisfaction.
They have created a very friendly and cooperative atmosphere so that customers feel
comfortable and deal freely with the bank. Bank has the policies, which motivates the
employees; the management of the bank is efficient.

SME bank Ltd, although is facing some problems at the moment. Some of them are its
internal managerial problems and other external factors, which are all outcome of the
present economic scenario of the country, which has seen its worse in last few years.

Second due to the privatization process and non surety of the job of employees is very
discouraging factors for the success of the organization. Turn over of employees is very
high due to the contractual job in this organization. Trained staff after joining leaves this
organization to private sectors and they are very helpful for the private sector. If they
provide permanent jobs to the staff members this problem is solved. Another thing is due
to low salary to the staff as compare to private sector the turn over is high. If bank come
to solve these problems this will become very successful.

***************THE END*****************


o On the basis increasing deposits with new schemes and recovery

targets achievements shall maintain profitability and liquidity.

o SME Bank has experienced and skillful management team with

proven abilities.

o Senior management and management teams shall be committed

and dedicated to achieve company goals.

o After increasing Branch network and regions show strong bonds of

customer relation-ship. Intensive interaction has provided to staff to
maintain loyalty and customer relationship.

o Promote Small loans under diversified risks increase the potential

and possibilities of recovery.

o Management and recovery teams acquired good knowledge and

understanding of land revenue, banking courts and other laws to
support operations.

o Government Support for providing finance for the promotion of

SME sector in the country.
o Quick responses of applications and sanctioning of loans with in two

o Recovery of bad debts in millions is also increasing the profit of the


o A good system of training for new comers in the bank.

o Due to attractive salaries and packages the Managements

appointed highly qualified and experienced officers and staff which
increasing the profitability and reputation of the bank.


o This bank is totally depends on the recovery of the loans if this bank
fails to achieve its recovery targets this bank is facing loss.

o High expenses on vehicles and fixed assets for benefiting staff of

the bank.

o Political interference in the bank which creating problems for the

bank and also recovery in these cases is very difficult.

o Negative customer relationship against recovery brings adverse

values in human relationship.

o Branch and Area network is squeezed and if recovery teams visits

these areas for recovery is increased the cost.

o Weak automation shall pose operational limitation and difficulty.

o Due to privatization Employee job security may be at lowest ebb

shall cause low motivation.

o Deposits are very low as compare to the other banks which are
working in Government and private sector.

o Loans are provided on political interference and mostly these loans

are provided on personal guarantee and after some time these
loans are write off from the books of accounts.

o This bank is not use marketing techniques for getting deposits and
sanctioning credit.

o Non performing loans ratio which is maintained other banks as per

State Bank order below 5 percent but in this bank this is very high
which is more than 14% is need to take measures for reducing this

o Due to low deposits advances are also very low and need to be
increase for success of this bank.

o Employee’s turnover is higher.

o Centralization of operations at Head Office level instead of


o Sometimes for sanctioning of loan due to lengthy procedure takes

large time and borrowers are turned towards other banks.

o From last three to four years this bank is under privatization this is
creating problems for employees because they are not sure about
their future.

o Due to privatization bank this bank is not increasing the no. of

branches and working only with 27 (13 commercial and 14 recovery


o This bank is going toward the privatization after the change of

management and new policies and strong financial position this
bank shall be perform successfully.

o Automation of operations shall lead to efficiency and productivity.

o Experience and skills of staff may open new avenues for

achievement of goals.

o Increasing over dues of other banks / institutions shall provide

opportunities for company to grow.

o Large branch network and Regions shall always provide edge for
achieving corporate goals.

o Fund based and non-fund based assistance to SMEs at down end

market shall lead to strengthen small, medium and large industries.

According to the latest Economic Census of Pakistan there are 2.96 million units in the
country, of which 2.8 million (93.9%) were Establishments and 0.18 million (6.1%) were
Household Units. Further, Punjab had the largest share of 65.26% in the total
establishments in 2005, followed by Sindh (17.82%) NWFP (14.21%) and Balouchistan

This data shows SME bank has large opportunities for providing loans to SME sector but
it is need to increase efforts and hard work for the success of this bank.

Every business need financial assistance for improve and increase the productivity of the
business if SME Bank increase the network of its branches than this sector going towards
the success and our country is also increase the GDP rate the standard of the peoples of
Pakistan is also go upward.


o Ignorance and Small no of borrowers and deposits is creating

hurdles for the Government for windup of this business.

o Economic recession is also created hurdles for the small borrowers.

o Cost increase may cause concern to the government as the only

shareholder of company.

o Due to politics in this sector is creating hurdles for the owners of SME because they
influencing for providing loans to the relatives and family members which are after
some time write off.
o Privatization threat is also decrease the efficiencies of the employees of the bank.
o Pakistan is a developing country and out debt burdened economy is a major threats
for the banking business.
o The adoption of online system and developing of web sites by other banks can
create a threat to the bank.
o The employee turnover can create a serious problem for the bank.
o Fewer deposits and advances schemes for attracting borrowers and depositors for
dealing with this bank.
o Start of evening banking by some banks.