IBP-Journal May 2015

Volume 82 | Issue # 1
Jan 2015 March 2015
FINANCIAL
INCLUSION
A Road Pakistan Needs To Travel
Capital Market
in Pakistan
Consumer Financing
Back in Vogue
Global Financial Landscape
Changing in the Next 5 Years:
Risk Index
April and October
editorial
he year 2014 was beset with myriad developments altering the Countrys economic
landscape. Inflationary pressures exhibited a
deceleration with major monetary indictors
reflecting the falling trend of inflation. The
reduction in oil prices and decelerating inflation also renew
hope of improved competitiveness of Pakistani exports.
Supplementing this is the expectation of augmentation in
economic productivity as GDP growth is on course to surpass
the FY14 outcome.
Fiscal deficit has been contained and efforts towards
government borrowing curtailment have also been witnessed.
This progress towards fiscal consolidation - and subsequent
reduction in budgetary borrowing - along with the relaxed
monetary stance adopted by the SBP, emerge as encouraging
drivers of private sector credit growth. Meanwhile, constrained
economic productivity, slower deposit growth faced by banks,
challenging security situation, falling commodity prices, and
continued energy shortages continue to pose challenges to
private sector credit supply. Growth in credit to private sector
during Jul-Feb FY15 has remained subdued at Rs 158.9 billion
compared to Rs 298.3 billion in the same period of FY14.
Nonetheless, growth in private sector credit is expected to pick
up pace as a result of the loosened monetary stance adopted by
the SBP.
The interbank market remained tight in H1-FY15, despite

the relaxed monetary stance. Going forward, the realization of
expected external inflows is likely to reduce the budgetary
borrowing requirements from scheduled banks and improve
liquidity conditions in money market.
The banking sector closed the first quarter of 2015 with its
deposits posting a growth of 12.38 percent year-on-year and
amounting to Rs. 8.51 trillion; meanwhile, advances grew by
8.09 percent and stood at Rs. 4.43 trillion and investments grew
by 26.68 percent to be recorded at Rs. 5.7 trillion. As of end of
Dec14, the sectors stock of NPLs had marked at Rs. 604.7
billion, and the infection ratio stood at 13.56%.
The SBP decided to reduce the policy rate by 50 basis points
from 8.5 percent to 8.0 percent effective from end of March
2015. Going forward, the banking industry will need to strategize the generation of growth and profitability in the relaxed
interest regime while businesses will be expected to utilize the
favorable interest environment to mobilize sustainable
enhancement in economic productivity. Revenue generation
through broadening the tax net and reduction of tax evasion
will also play in an important role by strengthening fiscal
discipline. If the macroeconomic challenges, as detailed earlier
are addressed, we see Pakistans economy to be more robust in
the remaining fiscal year.
Owing to recent foreign exchange inflows, decelerating

import growth and strong workers remittances, external sector
outlook continues to improve as current account deficit has
shrunk in in Jul Feb period of FY15 as compared to same
period last year. Falling international cotton prices and stiff
competition in low value-added textiles are expected to exert
more pressure on our struggling exports, in a global arena that
is already plagued by weak demand. Meanwhile, foreign
exchange inflows have contributed in maintaining an upward
trajectory in foreign exchange reserves and stable currency
parity.
CPI inflation touched a low of 4.3 percent in December
2014, and average CPI inflation during July-December 2014
marked at 6.1 percent, a deceleration that was driven by the
plunging international oil price and decline in other global
commodity prices. A broad based declining trend in inflation is
expected in the near future as the outlook of inflationary
pressures in the medium to long term remains contingent upon
prices of commodities and oil. In alignment, the SBP has
revised its projection of average CPI inflation downward to 4.5
5.5 percent for FY15, an estimate that is well below the initially assigned target of 8 percent.
Sirajuddin Aziz
Editor-in-Chief
Journal of The Institute of Bankers Pakistan
20
contents
The Contributors
Muhammad Subtain Raza is a free
lancer associated with National Bank
of Pakistan with expertise in credit and
AML & CFT practices. Currently he is
focusing on AML/CFT measures in
context of Pakistan. He is Doctoral scholar with MBA
(HRM), MSc (Hons.) And Banking Junior associateship from IBP.
06
COVER STORY
FINANCIAL
Shan Saeed is Chief Economist at

IQI Group Holdings, a leading property and investment company operating
and advising clients in Kuala Lumpur,
Singapore, Hong Kong, London,
Melbourne and Dubai. He has 15 years of solid
financial market experience in the areas of private
banking, risk /compliance management, commodity
investments, global economy and business strategy.
INCLUSION
Asif Ishaq is an Associate Producer. He studied M.A. (Mass Communication) and M. Com (Marketing).
DR. S. SABIR ALI JAFFERY is

MBA (IBA - Gold Medalist); M.Phil
(KASBIT - Gold Medalist) PhD
(Business Management), a veteran
banker of more than fifty years standing
with international exposure as Country General
Manager and a versaltile academic teaching MBAs and
M.Coms. at different universities and bank officials.
Mohammed Arifeen has diverse
experience of 47 years in Research,
Planning, Forecasting, Teaching,
Human Resource, Market Surveys, etc.
He is currently a Freelance Research
Content Writer on Banking, Education ,Economics
and Business Matters. He is MA Economics from
Dhaka University
Cover Story
06 Financial Inclusion
A Road Pakistan Needs

to Travel
Ammar Arshad is currently working

as a Senior Associate - Finance &
Risk Management at Pakistan
Microfinance Network, with prior
experience in the banking industry.
He holds a Bachelor's degree in Business Administration from NUST.
in Pakistan
28 Regulatory support for

the growth of
Islamic Banking
Global
Perspective
Microfinance
12
32 Risk to Microfinance in
Saeed Ahmed Siddiqui M.A (economics), B.Ed

Gold Medalist teaching in ICMAP for last 45 years
also taught in different universities.
OBAID USMANI is an energetic
and driven Islamic Banking professional with a degree from IBA. Mr.
Usmani is part of the Product
Development & Structuring team at
Meezan Bank. Alongside the Product development
role, Mr. Usmani is involved in strategy development & execution with the Central Bank.
26 Capital Markets
Global Financial
Landscape
Changes in the Next 5 Year
Pakistan - A Study
Banking
15
Risk Index
20 Commercial Banking:
Problems and Solutions
22 Consumer Financing
Back in Vogue
30
15
Christian Doherty is a business journalist

Andrew Stone is a business journalist
Published by:
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Opinion
34 New Face of Finance
Editor-in-Chief:
Sirajuddin Aziz
Personal and
Professional
Development
Deputy Editor-in-Chief
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Publications
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Advertising
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40 Humor and Quotes
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Copyright
The Institute of
Bankers Pakistan
34
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in this journal may not be reproduced in
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COVER STORY
COVER STORY
FINANCIAL
INCLUSION
By Subtain Raza
landless
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andis a laborers,
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landless
landless
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6
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REFERENCES:
percent
of intheir
portfolio
in smallcompanies
Telecom
companies
should be
anies
Telecom
should
companies
be
should
beTelecom
should
be
of
their
portfolio
small
loans.
In addition,
important
socialtrained
armed
withresource,
trained human resource,
d addition,
human
with
resource,
trained
human
resource,
armed with
human
nrmed
important
social
http://www.sbp.org.pk/publicaconsiderations
should
be
paid into
permitted
to provide
vide
ermitted
payments
to provide
and
payments
permitted
to provide
payments
and payments and
ations
should
be paid
into and
tions/
loan
decisions.
The government
could services
money after
transfer
services after fulfilling
money
rvices
transfer
fulfilling
services after
fulfilling
money transfer
fulfilling
isions.after
The
government
could
also There
add
incentives
to lendterms
in and
specified
termsThere
and conditions. There
d extra
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terms
and extra
conditions.
specified
conditions.
dpecified
incentives
to
lend
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Alliance for Financial Inclusion
rural
areas.
is a need
to increase
sas.
ase
a need
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to increase
of the numberisofa need to increase
the number
of the number of
(AFI). 2010a. The AFI Survey on
agentsthem
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and
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provide
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and provide them
telecom agents telecom
and provide
Financial Inclusion Policy in
Developing Countries: PrelimiThe
government
of Pakistan
should
theasmandate
to act as branchless
with
to act
theasmandate
branchless
to actshould
as branchless
with the
mandatewith
to act
branchless
overnment
of Pakistan
nary Findings.
help
literacy
banking this,
agents.
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hrough
anking
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Through
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can
expand
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in locations
expand where
the locations
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ations
xpand
where
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expand the
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he population,
particularly
in particularly
World Bank (2008). Finance for
low-income
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ay back
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10
Global Perspective
By Shan Saeed
Global Financial Landscape

Changing in the Next 5 Years:
Prudent Banks are more Risk Competent
Global Economic System:
Uncertain is the Only Word
The tail end risk and systematic risk are
getting higher globally. The global economy
is hoping to see the recovery light at the end
of the tunnel, however, Europe and Japan
present a bleak picture. Asia is the
driving force to re-balance the economy while
China improves upon her structural reforms.
Banks are facing new charges
of manipulations, fraud and tampering
with currency rates.
12
What has actually changed in the last 10 years is that banks

have made abnormal profits but ignored the basic rule to
mitigate their risk on their books. Books are filled with
unhealthy assets and mismatch in asset-liability portfolio
making them vulnerable to exogenous risk and uncertain
markets as we navigate thought turbulent times. According to
John Huizinga - Professor of Economics at Uni of Chicago,
Booth School of Business, USA, We have borrowed future
growth rate This statement is significantly relevant taking
into account the QE which is unleashed in the global economy by few central banks.
Risk management has taken a new form in the corporate
importance in many banks with global repute. Most prudent
banks are drilling down the culture among their employees to
become better in managing risk in face of rising global market
fears. I believe that risk management is a corporate culture
issue. To manage risks effectively over time, employees must
put the firms welfare and the preservation of important client relationships
ahead of everything else. Risk is risk and
no one can be perfect at managing it.
Banks that can manage risk effectively
can stay ahead of the competitors in
these arduous times to maintain sustainable profits and lowers risk on their
balance sheet.
Banks need to follow the prudent way
of managing risk in order to avoid operational, reputational and market risk.
According to my good friend and author
of the book Economic Warfare, Ziad
Abdelnour [Wharton graduate 1984] CEO Blackhawk Partners based in New
York, USA, FIVE elements in managing
risk are extremely important for the
banks and are absolutely indispensable
ingredients of success in managing risk.
They are shorten with acronym PEACE People,
Escalation,
Accountability,
Culture and Focus energy.
1. People - Key to Risk Prudence
Banks need to encourage clear communication strategies at all levels. If staff is

not comfortable with certain accounts or
clients, then proper action needs to be
done in order to avoid reputation risk. It
should be escalated to the decision
makers immediately. Escalation means
communicating risk concerns to higher
levels of management, getting more
fingerprints on potential problem risks
and challenging the notion that a
business group leader ought to make
independent decisions on risks that affect
the entire firm. Hiring of people, doing
back ground checks with previous
employer/business schools, educational
credentials validity, community activities,
police check, criminal records and above
all recommendation of the references
should be run on defined process and
procedures. No favoritism or nepotism
should be tolerated at any levels. If these
processes are not followed then criminals

and fraudulent activities happen in the
banks. Newspapers and magazines
globally are deluged with stories in the
last 10 years.
2. Escalation - All levels
Banks are accountable for every penny to

the account holders. Bankers are not
above law. Regulators have punished
those banks in the last 6 years for the
wrongdoings and malpractices in many
advance economies and financial markets.
All rewards and punishment should be
based on performance and efficiencies.
Manipulation, misrepresentation of
products features / benefits and cheating
with clients funds should be dealt with
strict penalties and lessons. Global banks
are still paying huge penalties for their
misdeeds and mal-practices.
3. Accountability - All levels
At all levels, accountability brings out the

best in human effort to reduce risk and
give the optimum performance that
benefits all stakeholders. Of course,
means acknowledging that people are
responsible for what their business
groups do, and, equally important,
holding senior management responsible
for evaluating all aspects of risk, including the quality of the people with whom
the bank chooses to do business with.
According to the latest figure and my
market intelligence reports, global banks
have paid $73 billion in fines on various
accounts of mismanagement and misrepresentation of facts with clients. Regulators have come down very hard globally
on well reputed banks in order to send
strong message to the market.
4. Culture of Risk Mitigation- Strategic
Intent
The greatest risk protection, however,

comes from ascribing as much status,
prestige and compensation to those
Source: CFTC, FCA, OCC and Finma

Note: UBS figure includes Finmas order to disgorge profits
1200
1000
U.S. Dollars (Millions)
Banks to pay $ 4.3 Billion in Panelties

for Currency Rigging
Currency market settlement by few banks:
800
600
400
200
0
Citigroup
HSBC
JPMorgan
RBS
UBS
Bank of
America
Bloomberg
bankers/partners/associates engaged in
control functions as to those running
businesses - and in constantly rotating
partners back and forth between risk
control and business operations. The
importance of risk and compliance needs
to be communicated and inculcated to
the DNA of all bankers who want to
pursue their profession with honesty and
integrity.
5. Focused Efforts - Renewed Emphasis
Stress testing vs healthy balance sheet.

Far from being over, the impact of the
financial mess we are still witnessing
today, not just in the US but on a global
basis as well, is still being felt the world
over and we believe it will sooner than
later affect not only rules and regulations
but Wall Street leadership as well. In the
so-called modern-day age of high-tech
wonders and medical miracles, we now
have a titanic problem the world has
never seen before: Derivative liability on a
scale that boggles the mind.
What is even more puzzling is the fact
that 90% of the people have absolutely
no understanding or the slightest clue
how this is now going to affect the financial markets.
U.S. banks' derivative bets of $245
trillion, concentrated in five banks, are 14
times larger than the USA GDP size 17.5
trillion. A failed political system that
allows unregulated banks to place uncovered bets 15 times larger than the U.S.
economy is a system that is headed for
catastrophic failure. As the word spreads
of the fantastic lack of judgment in the
American political and financial systems,
the catastrophe in waiting will become a
reality.
In a nutshell, I strongly believe going
forward, global banks will be focusing on
more of these lines in order to become
risk competent in the face of global
financial uncertainty. I think, banks will
be more and more cautious in terms of
risk coming out from proprietary trading,
but rather from facilitating client objectives. Banks will have to build a strong
capital base in order to weather the storm
and become resilient. This means giving
advice to clients in a more accountable,
actionable and responsible way which
frequently requires the banks to support
the client through prudent behavior and
solid balance sheet commitments at the
strategic level in order to avoid reputational and operational risk.
13
14

14
BANKING
By Asif Ishaq
RISK
INDEX
Generally speaking, financial theory views

returns as being related to risk. Higher risk
needs to be compensated by higher
returns in order to be undertaken by
risk-averse shareholders. Banks face risks,
such as credit risk, interest rate risk, liquidity risk, exchange rate risk, operational risk,
etc. Aside from developing specific indicators to measure each of the above risks, a
Risk Index (RI) can also be created that
encompasses all types of risk in a single
RI, expressed
in units
of standard
deviations
of ROA,
RI, expressed in units
of standard
deviations
of ROA,
is a
of howaccounting
much a banks
accounting
earnings
measure of how measure
much a banks
earnings
can
until
it has
a negative
bookattempts
value. Risk Index attem
decline until it has adecline
negative
book
value.
Risk Index
to capture
likelihood
of ina bank's
in a given y
to capture the likelihood
of athe
bank's
earnings
a givenearnings
year
becoming
low enough
to exhaust
the bank's
becoming low enough
to exhaust
the bank's
capital base
and capital base
thebank
likelihood
of the
bank becoming
thus, the likelihoodthus,
of the
becoming
insolvent.
Higher insolvent. Hig
values
of insolvency
RI imply lower
insolvency
risk because hig
values of RI imply
lower
risk because
higher
correspond
higherrelative
levels to
of aequity relative t
values correspond values
with higher
levels with
of equity
shock
the earnings
of a bank.
potential shock to potential
the earnings
of to
a bank.
Thus, banks
with Thus, banks w
risky
portfolios
a low as
risk of insolvenc
risky loan portfolios
canloan
maintain
a lowcan
riskmaintain
of insolvency
long as they
are adequately capitalized.
long as they are adequately
capitalized.
The
index wasbyfirst
performed
by Hannan and Hanw
The index was first
performed
Hannan
and Hanweck
who
derived
the book
probability
(1988), who further(1988),
derived
thefurther
probability
of the
value of the book va
( ) i.e.
thatinthe
insolvency ( ) i.e.insolvency
the probability
thatthe
theprobability
banks losses
a banks losses
certain
periodvalue
exceed
of orthe banks equity
certain period exceed
the book
of the
the book
banksvalue
equity
thethe
probability
thatofthetheassets
of the bank becom
the probability that
assets value
bankvalue
becomes
lower
than
the value of its liabilities.
lower than the value
of its
liabilities.
The relationship
RI and
with
is an inverse one, w
The relationship between
RI and between
is an inverse
one,
higher RI-ratios
indicating aof
lower
probability of insolven
higher RI-ratios indicating
a lower probability
insolvency.
assumption
is made that
theofpotential
ROAs of
If the assumptionIfis the
made
that the potential
ROAs
the
business
are normally
distributed,
the one-period pro
business are normally
distributed,
then the
one-periodthen
probaof calculated
insolvencyascan
be calculated
a function of RI r
bility of insolvencybility
can be
a function
of RIasratio
as However,
mentionedempirical
below. However,
empirical
as mentioned below.
studies indicate
thatstudies indicate t
not normally
distributed
ROAs are not ROAs
normallyare distributed
but instead
are but instead
so that the of
actual
probability
fat-tailed, so thatfat-tailed,
the actual probability
insolvency
mayof insolvency m
be greater
thanusing
that the
calculated
using ofthe assumption
be greater than that
calculated
assumption
normality.
normality.
Moreover,
this one-period
probability
Moreover, this one-period
probability
may understate
themay understate
probability
of insolvency
measures the risk
true probability of true
insolvency
because
it measuresbecause
the riskitof

15
gle-period lossabeing
so large itloss
wipes
single-period
being so large it wipes
equity. In reality,
insolvency
often insolvency often
out equity.
In reality,
rs after a sequence
smaller
losses of smaller losses
occursofafter
a sequence
rring over several
periods
indicating
occurring
over
several periods indicating
serial correlation
negative between negative
that between
serial correlation
ks may exist. shocks may exist.
should be noted
that a be
value
or that a value or
It should
noted
val that servesinterval
as benchmark
for the
that serves
as benchmark for the
index (i.e. forrisk
detecting
whether
a
index (i.e.
for detecting
whether a
ing system or banking
a bank issystem
in a safe
a is in a safe or a
or or
a bank
position) does
notposition)
exist instead
risky
doesits
not exist instead its
d behavior is trend
analyzed.
Specifically,
behavior
is analyzed. Specifically,
pward trend an
indicates
favorable
upwarda trend
indicates a favorable
lopment whereas
a downward
trend a downward trend
development
whereas
ls a negative development.
signals a negative development.
empirical formThe
of empirical
this indexform
is: of this index is:
= [ E(ROA) + CAP
ROA + CAP ] / ROA
RI = ][ /E(ROA)
= 1 / [ 2 (RI)2 ] = 1 / [ 2 (RI)2 ]
re:
Figure 1 . Risk Index and Probability of book value insolvency

Figure 1 .of
Risk
Pakistans
Index andBanking
Probability
Industry
of book
overvalue
the period
insolvency
of 10ofYears
Pakistans Bankin
Table 1. Pakistans Banking Systems Risk Index andTable

the Probability
1. Pakistans
of book
Banking
valueSystems
insolvency
Risk Index and the Probability of book value
Year
2004
2005
2006
2007 Year 2008
2004
2009
2005
2010
2006
2011
2007
2012
2008
2013
2009
Risk Index
11.89
9.31
9.94
7.86Risk Index
5.27
11.89
5.46
9.31
5.58
9.94
9.93
7.86
10.65
5.27
8.50
5.46
8.44
Average Risk
8.44
8.44
Index
8.44
8.44
8.44
8.44
8.44
8.44
8.44
8.44
8.44
8.44
8.44
0.0051
Book Value
0.0081
0.0180
Insolvency
0.0035
0.0168
0.0058
0.0161
0.0051
0.0051
0.0081
0.0044
0.0069
0.0180
0.0168
Average Risk
Index
Book Value
Insolvency
8.44
0.0035
8.44
0.0058
. Risk Index Banks

Local Private Banks Vs Public Sector Commercial Banks
Figure 2 . Risk Index Local Private Banks Vs PublicFigure
Sector2Commercial
Where:
expected return on assets

OA) = expected E(ROA)
return on=assets
CAP
EM-1(Inverse
of Equity Multiplier*)
= EM-1(Inverse
of =
Equity
Multiplier*)
ROA =ofStandard
A = Standard deviation
ROA deviation of ROA
=Probability
of book value insolvency
Probability of book
value insolvency
index, which is a measure

obally, this index,Globally,
which isthis
a measure
soundness
and stability of the
he soundnessofandthestability
of the
financial
institutions
cial institutions
is becoming
moreis becoming more
important.
If a system
bank or a banking system
ortant. If a bank
or a banking
is characterized
haracterized by
a high returnbyona high return on
a high leveland
of acapitalization and a
s, a high level assets,
of capitalization
low volatility
ROA
volatility of ROA
then the of
bank
or then the bank or
banking system
is considered safe i.e.
banking systemthe
is considered
safe i.e.
has a Ithigher
risk index. It is interesting
s a higher risk itindex.
is interesting
to note
that the
index includes all these
ote that the index
includes
all these
components
because
ponents because
each of them
has aeach of them has a
special
al connotation:
ROAconnotation:
indicator isROA indicator is
regarded
as of
the banks
best measure of banks
ded as the best
measure
performance;
volatility is seen a standormance; its volatility
is seen its
a standardinmeasure
measure of risk
finance ofandrisk
thein finance and the
level represents a standard
alization level capitalization
represents a standard
for the
he banks stability
andbanks
safety.stability and safety.
BANKS WITH
RISKY LOAN PORTFOLIOS CAN MAINTAIN A LOW RISK
OF INSOLVENCY
AS LONG AS THEY
ARE ADEQUATELY
CAPITALIZED
16
2004
2005
2006
2007
2008
Year
2004
2009
2005
2010
2006
2011
2007
2012
2008
2013
2009
Local PvT
Banks
10.66
7.98
8.96
7.20
Local PvT
6.33
Banks
10.66
6.33
7.98
5.31
8.96
9.11
7.20
9.89
8.33
6.33
6.33
Public Comm
Banks
24.54
37.21
30.67
30.55
Public Comm
3.41
Banks
24.54
3.69
37.21
7.38
30.67
19.30
30.55
28.60
32.91
3.41
3.69
Year
Figure 3 . Book Value Insolvency Local Private Banks

Figure
Vs Public
3 . Book
Sector
ValueCommercial
Insolvency Banks
Local Private Banks Vs Public Sector Commer
Year
Local PvT
Banks
Public Comm
Banks
2004
2005
2006
0.00440
0.00785
0.00623
0.00083
0.00036
0.00053

16
2007
Year
2008
Local PvT
0.00964
0.01249
Banks
0.00054
Public0.04311
Comm
Banks
2004
2009
2005
2010
2006
2011
2007
2012
2008
2013
2009
0.01249
0.03665
0.00440
0.01249
0.00785
0.01772
0.00623
0.00603
0.00964
0.00511
0.0072
0.01249
1
0.00083
0.03665
0.00036
0.00918
0.00053
0.00134
0.00054
0.00061
0.0004
0.04311
6
During recent years, Pakistans Banking System has been characterized by a

fast expansion of its activity as is evident
by the increase in total assets, the expansion of the loan portfolio, deposit collection, the variety of products and services
provided, the increased competition, the
earnings after taxes and by other quantitative and qualitative Indicators. However, in 2008, when the global economy was
overcome by the financial crisis, the
banking system started to show signs of
a slowdown and deterioration in financial
indicators (RI).
Figure 4 . Components of Risk Index Pakistans Banking Industry.
Table 2 . The components of Risk Index for Pakistans Banking System

2004
Year
2005
2006
2007
2008
2009
2010
2011
2012
2013
Average ROA
1.24%
1.97%
2.17%
1.60%
0.86%
0.88%
0.97%
1.42%
1.30%
1.11%
Standard
Deviation (ROA)
CAP
(Right Axis)
0.59%
0.94%
1.11%
1.42%
1.94%
1.86%
1.75%
1.03%
0.87%
1.07%
5.83%
6.82%
8.82%
9.57%
9.38%
9.29%
8.78%
8.78%
7.96%
7.96%
Figure 5 . Risk Index for Top 5 Banks
Figure 1 shows that the banking industry enjoyed relatively high Risk index in
the year 2004 and remained above the
industry average (8.4) till 2006 . However,
from the year 2007, it started declining
and reached as low as 5.27 (2008) and
remained below the industry average till
2010 due to high volatility in the ROA
resulting in high probability of book
value insolvency. The industry showed
progress from year 2011 onwards with
stable earnings and accepted E(ROA).
Furthermore, on the basis of the
results in table 3, banks have been classified into three categories (Near to
Default , Risky and Watch-List) due to
their low & declining trend in RI value.
Fig. 2 & 3 compares the Risk Index and
Probability of Book value insolvency for
local private banks and Public sector
commercial banks. From the fig. & table,
we can observe that RI obtained for
Public sector banks are much higher than
that obtained for Private sector banks
indicating that Public sector banks are
safer as compared to Private banks and
the probability of book value insolvency
is lower.
Figure 6 . Probability-Book value Insolvency , for Top 5 Banks
NEAR TO DEFAULT
RISKY
WATCH-LIST
SILK Bank
Al-Barka Bank
BURJ Bank
KASB Bank
Askari Bank
Faysal Bank
SUMMIT Bank
JS Bank
SAMBA Bank
BoP
Dubai Islamic Bank
First Women Bank Ltd.
NIB Bank
Also, Fig. 5 & 6 compares the RI and

PBVI of the Top 5 banks of the Industry. Risk Index for UBL remained the
highest since 2009 among the peers,
followed by HBL. ABL & MCB
remained toe to toe in the last 5 years.
NBP stood 3rd from 2009 till 2012 and
later lost its competitiveness in the year
2013 where it had the lowest RI among
the TOP 5 banks.

17
First Women Bank Ltd.

National Bank of Pakistan
Sindh Bank Ltd.
The Bank of Khyber
The Bank of Punjab
AlBaraka Bank (Pakistan) Ltd..

Allied Bank Ltd.
Askari Bank Ltd.
Bank AL Habib Ltd.
Bank Alfalah Ltd.
BankIslami Pakistan Ltd.
Burj Bank Ltd.
Dubai Islamic Bank Pakistan Ltd.
Faysal Bank Ltd.
Habib Bank Ltd.
Habib Metropolitan Bank Ltd.
JS Bank Ltd.
KASB Bank Ltd.
MCB Bank Ltd.
Meezan Bank Ltd.
NIB Bank Ltd.
SAMBA Bank Ltd.
Silk Bank Ltd
Soneri Bank Ltd.
Standard Chartered Bank (Pakistan) Ltd.
Summit Bank Ltd
United Bank Ltd.
Table 3. Risk Index of Individual Banks
LOCAL PRIVATE BANKS
PUBLIC SECTOR
COMMERCIAL
BANKS
18
13.70288
11.94343
1.093955
40.18901
15.37948
10.80722
3.033625
36.91468
0.232844
1.698697
-0.47662
0.616108
14.75757
23.71568
2.575123
6.472313
13.30076
23.19464
10.55054
8.058681
11.94397
0.597921
2.215413
13.21715
7.266511
25.93329
30.7197
9.170731
7.878752
22.87654
30.80205
9.307808
9.976076
23.38644
6.351928
6.515778
12.00788
22.15639
5.369841
14.69004
4.322093
19.27977
16.66951
16.46862
12.50661
2010
9.288469
12.68418
4.546433
17.96012
18.74666
20.41491
22.65606
2009
1.007787
15.76984
12.71685
22.98427
39.25333
1.142985
14.99109
12.46658
1.507756
15.87725
21.14625
2.985802
6.175713
0.609686
6.875304
25.87401
31.19668
8.533867
5.758194
4.156632
15.65705
4.373557
19.77806
17.76255
10.92461
12.29305
2011
0.979712
10.78796
18.75693
30.8212
15.15605
38.27831
0.251857
14.80789
12.23958
1.603589
16.2869
19.786
2.586224
5.643261
0.087856
6.721268
23.52813
32.46501
6.755651
5.06338
4.009837
15.86824
4.695738
21.12137
17.93257
9.14032
7.649823
2012
1.183292
8.098347
13.45709
43.31144
13.52013
38.40107
0.451492
15.96188
12.69499
2.320521
17.44319
20.21108
3.088731
6.093238
-0.16278
6.591237
24.14647
33.53252
5.098438
4.287799
3.251944
17.55496
3.971192
24.97617
18.3466
9.24224
6.083032
2013
BANKING
BANKING
PROBLEMS & SOLUTIONS

PROBLEMS & SOLUTIONS
By Dr. S. Sabir A. Jaffery By Dr. S. Sabir A. Jaffery
The writer has given detailed answers

The writer
to some
has given
problems
detailed
which
answers
bankerstoface
some
in problems
their professional
which bankers
lives. face in their pro
landlord
verywill
good
means.
landlord of very
of a and
bankNasir
officer
will verify
the
Q.1 Rashid and Nasir are partnersQ.1
in Rashid
of a bank
officerof who
verify
the How
arewho
partners
in
to this accoun
writing.
Jaffar Sons. They want to openJaffar
a
writing.will this account be dealt with will
Sons. They want to open a
secure banks interest?
secure banks int
current account at my branch with
current account at my branch with
Hamid,upon
Zahid,
Sajid are
either to operate upon the account
Q.2 Hamid, Zahid, and Sajid are
either Q.2
to operate
the and
account
Ans.
TheKhalid
cheque in
question
Ans. (i) The cheq
of signed
m/s Khalid
Sons. The
singly. They have signed the firms
partners
of (i)m/s
Sons.
Thewill not
singly. partners
They have
the firms
be paid
as the mandate
operate the
be paid as the m
firm has
a current
account
name instead of their own names name
on instead
firm has
a current
accountto with
of their
own names
on with
accounttowas
determinedupon
with by
the death
account was deter
instructions
be operated
upon instructions
by
the account opening form and specibe operated
the account
openingtoform
and specione singly.
of theZahid
partners.
Surviving
of one of the
any of them
Zahid passes
men signature card in their respecany ofofthem
passes
men signature
card insingly.
their respecpartners
be asked
to open
partners may be
away. Later,Shall
a cheque
by
tive handwritings. Shall I accept this
away.
Later, amay
cheque
signed
by fresh
tive handwritings.
I accept signed
this
with fresh
mandate.
However,
account with fres
Zahid
is presented who at the time
mode of operation?
Zahid account
is presented
who at
the time
mode of
operation?
the existing
account,was
presumably
in existing acc
the
of signing the cheque was duly
of signing
the cheque
duly
credittobalance,
may be
allowed
credit balance, may
authorised
to sign.
cheque
in
Ans. Signing the firms name instead Ans.
of Signing
sign. The
cheque
is to
in continthe firms
nameThe
instead
of isauthorised
forrespects.
a while to
help
firm to wind
ue for a while to
all respects.
partners own name is in order but it has
order inueall
Will
thethe
cheque
partnersorder
own in
name
is in orderWill
but itthe
hascheque
up its business, if so requested by the
up its business, if
paid? This is why the practice
its own hazards. This is why the practice
be paid?
its own be
hazards.
surviving partners.
surviving partners
could not get recognition in India and
could not get recognition in India and
Zahid
was banking
also acareer,
partner
inZahid was also a partner in
Pakistan. In my long banking career,Pakistan.
I
In my long
I
(ii)Bros.
Any This
futurefirm
credit
in an
theO.D.
account will
(ii) Any future cr
have seen only one case when firms
Siddiqui
Thiswhen
firm firms
has an O.D.
Siddiqui
has
have seen
only Bros.
one case
reduce
to that
the liability
reduce to that ext
name was being signed. You may accede
account
with You
Dr.maybalance
account
with
Dr.extent
balance
Rs. of the
name was
being signed.
accede Rs.
deceased
partner
he will not
deceased partner a
to their request but then you will to
be their375,000/against
the will
security
of
375,000/against
theandsecurity
of be held
request but
then you
be
liable
for any
fresh
withdrawals,
liable for any fres
exposed to great risk. As an alternative,
shares
name of Mrs.
approved
shares
in the
name
of Mrs. which
exposedapproved
to great risk.
As in
anthe
alternative,
will Zahid
be treated
new debt.
Hence, the
will be treated as
you may impose a condition that
Tayyaba
and thethat
personal
you may
imposeZahid
a condition
Tayyaba
andas the
personal
account
be broken
forthwith.
account should b
cheques will be signed in the presence
of Lal
chequesguarantee
will be signed
in theChand,
presencea local
guarantee
of should
Lal Chand,
a local
20
20
Journalof
of The
TheInstitute
Instituteof
of Bankers
BankersPakistan
Pakistan
Journalof
of The
TheInstitute
Instituteof
of Bankers
BankersPakistan
Pakistan
20 Journal
Journal
20
y be asked to open
Surviving partners
may bewith
asked due
to open
be drafted
diligence
fresh mandate.
fresh account
with with
freshthemandate.
preferably
assistance of
ments should Further,
be
fresh
should
somedocuments
professionals.
Anybeactivity
ving partners and
executed bythat
the falls
surviving
partners
and drawn
beyond
the limits
ee and fresh letter
fresh personal
guarantee
letter
by this
clause and
shallfresh
be ultra
vires and
s should also of
be pledge absolutely
of sharesvoid
should
also be
and illegal.
obtained.
(d) A clause stating that the liability(d)
of
memorandum
articles ofThe memorandum and articles of
be The
drafted
with due and
diligence
association
should
thoroughly
association should be thoroughly studied
preferably
with
the be
assistance
of studied
and their
extracts relating
to the vital
and their extracts relating to the vital
some
professionals.
Any activity
rules,
regulations
and drawn
powers rules,
of
regulations and powers of
that
falls beyond
the limits
as shall
regards
to borrowing,
directors as regards to borrowing, attachbydirectors
this clause
be ultra
vires and attaching assets
company, drawing,
ing assets of the company, drawing,
absolutely
voidofandthe
illegal.
accepting
and
endorsing
bills
accepting
of
and endorsing bills of
A clause stating that the liability of
exchange
and
promissory
notes
exchange
on
and
promissory notes on
its members shall be limited to the
behalf
of
the
company
and
other
behalf
of
the
company and other
amount of the shares held by them.
relevant provisions of these documents,
relevant provisions of these documents,
Amount
of and
authorized
be drawn
kept oncapital
activeand
file tobebedrawn and kept on active file to be
itsmeticulously
split into number
of
shares,
with meticulously followed in all transactions
followed in all transactions
face
of each share, shall be of the company.
of value
the company.
declared in unequivocal terms.
its members shall be limited to the

ABC & Co. with
Q.3 There amount
is a firmofABC
& Co.held
with
the shares
by them.
partners withA,a B, and C as partners with a
(e)
Amount of authorized
ng any one mandate
of (e) authorizing
any one capital
of and
its
split
into
number
of
shares,
with
y. In the mean
them to sign singly. In the mean
face from
value partnership
of each share,
partnership and
time, B retires
andshall be
declared
in
unequivocal
terms.
ign is revoked.
his authority to sign is revoked.
ned by B before
Later, (2)
a cheque
by ofB the
before
Certified signed
true copy
Articles(2)of Certified
copystock
of thecompany
Articles ofdeclares
Q.5 Atrue
joint
Q.5 A joint stock company declares
sented. How will
his retirement
is
presented.
How
Association: It contains the will
rules and
Association:
contains
thedividends
rules and for profit
profitIt and
issues
its
and issues dividends for its
such a situation?
the bank
deal with
suchcompany
a situation?
regulations
of the
to carry regulations
out shareholders.
of the company
to carryamount
out shareholders.
The entire
of
The entire amount of
its activities to achieve the objectitsas activities
to achieve
the object
as main
dividends
is deposited
with the
dividends is deposited with the main
cheque should Ans.
be Ordinarily,
cheque
should
stipulated the
in the
object
clause.be If stipulated
any branch
in theofobject
If any
the clause.
bank in
a special
branch of the bank in a special
er this situation.
returned
unpaid
under
this
situation.
amendments were made to it, the latest
amendments
were account
made to it,opened
the latestfor dividend
dividend
the
account opened for the
ous banker would
However,
conscientious
banker
and aduly
amended copy
maywould
be obtained.
and dulypurpose.
amended copy
be obtained.
Themay
dividend
warrants
purpose. The dividend warrants
existing partners
prefer In
to case
contact
the existing
the company
has partners
not constituted
In case issued
the company
not constituted
by thehas
company
are payableissued
at
by the company are payable at
cheque. If any before
of its
returning
the
cheque.
If any of it may
own articles of association,
its ownany
articles
of association,
it may
branch
of the bank
at which
any branch of the bank at which
rs validates the existing
partners
validates the adopt Table
adopt Table
A.
theseA.are presented for payment. The
these are presented for payment. The
paid, failing which,
cheque, it will be duly paid, failing which,
paying branch will pay a warrantpaying
to
branch will pay a warrant to
(3) Certificate
of Incorporation: This is (3)
the Certificate of Incorporation: This is the
urned.
the cheque
will be returned.
the debit of its main branch where
the debit of its main branch where
birth certificate of the company. That
birth certificate of the company. That
companys dividend account companys
is
dividend account is
is,
companys
legal
existence
begins
only
legal existence begins only
debit balance, itIf the account has debit balance, it is, companys
opened. The debit advice of opened.
the
The debit advice of the
this tocertificate
is issued.
after this certificate is issued. The
void applicationshould
of after
be broken
avoid application
of The
paying branch will be respondedpaying
by
branch will be responded by
original
certificate
should
be
called
for
certificate should be called for
Moreover, if the
rules in Clayton Case. Moreover, if the original
the main branch to the debit of the main branch to the debit of the
along with
a photocopy.
The copy
along with a photocopy. The copy may
w the account bank
to decides
to allow
the account
to may
companys dividend account.
companys dividend account.
be
attested
and
kept
on
record
while
theattested and kept on record while the
emaining partners
continue with the remaining partners be
original
be returned.
be returned.
s already extended
with the
credit may
facilities
already extended original may
(i) Before all the dividend warrants(i) Before all the dividend warrants
documents should
in the (4)
account,
freshofdocuments
should
are paid
the companyofgoes
into liquiare paid the company goes into liquiCertificate
Commencement
of Business:
(4) Certificate
of Commencement
Business:
w account availing
be obtained
of
a
new
account
availing
a receiver
appointed.
dation. and a receiver is appointed.
This is invariably required from a newly
This is dation.
invariablyand
required
from aisnewly
ned facilities. the previously
sanctioned
facilities.A company
Will the
bank pay
the dividend
Will the bank pay the dividend
incorporated
company.
incorporated
company.
A company
after
appointment
the
after appointment of the
already in operation need not be asked
already warrants
in operation
need
not be askedof warrants
nts should Q.4
I What
should copy
I offorit thisreceiver?
for thisdocuments
certificate. A certified
certificate. A certified copy of it receiver?
n account of require
a maytobeopen
an record
account
kept on
andofthe aoriginal
may be kept on record and the original
any? (limited public
by belimited
company?
(limited
(ii)after
An outstation
returned after examination. by be returned
examination.branch pays the(ii)An outstation branch pays the
e utility of these
shares). What is the utility of these
dividend but before the advice reachdividend but before the advice reach(5) If the company is in operation (5)
for If es
thethe
company
in operation
for esisthe main branch, the receiver is
documents?
main isbranch,
the receiver
some time, then a copy of the latest
some time,
then a copy
the advice
latest appointed.
appointed.
Will ofthe
be
Will the advice be
audited
profit and loss
auditedresponded
balance sheet
and
profit
and
d the following
Ans. You
willbalance
needsheet
theand
following
by main branchloss
by debitresponded by main branch by debitaccountinvariably
should be to
obtained
on ing
shouldthe
be obtained
and kept on
y to open the
documents
open and
thekeptaccount
company/s
dividend
ing
the
company/s
dividend
record.
record. account?
ck company: account
of a joint stock company:
account?
(6) A certified copy of the resolution(6)

of A certified copy of the resolution of
py of the Memo(1) Certified true copy of the Memothe board of directors appointing your
the board
directors
Ansof(i)The
bankappointing
will notyour
pay Ans
any (i)The bank will not pay any
n of the company:
randum of Association of the company:
bank as banker of the company and bank
the asdividend
banker ofwarrant
the company
and the dividend
after
appointment
of
warrant after appointment of
of the companyItItis the constitution of the company It
mode of operation on the account. mode oftheoperation
on
theentire
account.
receiver.
The
balance
lying
the
in
receiver.
The entire balance lying in
within which the
prescribes the limit within which the
the
companys
dividend
account
will
the
be
companys
dividend account will be
te. It contains the
company
It contains
the (7) A list of directors incorporating
(7) has
A to
listoperate.
of directors
incorporating
placed
at
the
disposal
of
the
receiver.
placed
at
the
disposal
of the receiver.
mation about the
following
information
about the
theirvital
names
and addresses.
This their
list names and addresses. This list
company:
should be updated whenever there is should
any be updated whenever there is any
(ii) Since the amount has already been(ii) Since the amount has already been
change in it.
change in it.
paid
by the bank (any branch will paid
be by the bank (any branch will be
(a) Name of the company with the
ompany with the
treated
as
bank),
the
bank
by
exercising
treated
as bank), the bank by exercising
(8)
Account
opening
form
signed
by
(8)
all
Account
opening
form
signed
by
all
t the end.
words limited at the end.
its right
setoff
will have
the authority
its right of setoff will have the authority
the directors and the specimen signatures
the directors
andofthe
specimen
signatures
egistered office (b)
of Address
the signed
registered
debit
companys
account.
card(s) ofduly
by office
those of
who card(s)
are toduly
signed
by those
who are to debit companys account.
the
company.
regulator,
supportsas higher
nd strong regulator, supports higher
authorised to operate the accountauthorised
as nd strong
to operate
the account
ratings
the sector
in with
the rating
ratings of the sector in the rating
stipulated
in the boards
resolution
stipulated
in theofboards
resolution
h the company(c)is Object
for which
the company
is with
universe.attested
This trend
is expected universe.
to
This trend is expected to
their signatures
chairman
their signatures
by the chairman
d.
This clause being
established.attested
Thisby the
clause
continue
the future.
continue in the future.
/ secretary
of the company.
of theincompany.
ntained. It should should
be self-contained.
It should / secretary

21
Banking
CONSUMER FINANCING
Back in Vogue
By Mohammad Arifeen
Consumer financing is a service which is laid out to provide clients with the needed finance to make
personal purchases varying from buying a car to a house. It is divided into different types of products.
Personal loans are given for the payment of goods, services and expenses and are comprised of
running finance and revolving credit to individuals. The idea of consumer financing is to provide
consumers with financing support to increase their consumption and to boost their standards of living.
22

22
onsumer financing in the

past
has
significantly
contributed to economic
turnaround of Pakistan by
accelerating consumption
and investments. There has been a
phenomenal increase in private consumptions due to easy availability of credit
from banks.
Consumer financing was introduced
for the first time in Pakistan around 1990
by Citibank (a foreign bank) and it
instantly turned out to be a great success.
Seeing this success, many local as well as
other foreign banks introduced cost
effective financing schemes. These
schemes were so tempting that people
started availing them without knowing
their negative effects .
Pakistan's banking sector in the
past years has productively engaged itself
in consumer financing by introducing
different products such as credit cards,
auto loans, housing finance and personal
loans etc. The robust growth of consumer
financing in the previous years in the first
place was ascribed to the flexible economic policies set according to the principles
of free market economy and huge liquidity available to the banks in the aftermath
of 9/11.
Earlier, banks played their strategic
role in promoting economic development
in the country. In the last twenty years,
three eminent foreign banks took the lead
in introducing credit cards in the banking
sector. But unfortunately, this was limited
to top bureaucrats and businessmen. Later
on, the task of consumer financing was
triumphantly taken by top Pakistani
banks. They provided the facilities of
consumer financing to both the middle
class and the higher salaried class. They
also contributed in augmenting the standard of living of the middle class, which is
the back bone of any economy.
Aggressive marketing continued at an
accelerating pace. Consumer finance was
encouraged by the State Bank of Pakistan
to boost the economic growth through
demand- pulls pressure.
Every sector of consumer financing

from credit card to car purchasing in
Pakistan witnessed a sharp decline during
the fiscal year 2009-10. The overall
consumer financing declined by Rs 50
billion, or 17 percent, during the year
under review over the previous fiscal year.
The outstanding stock of consumer loans
fell to Rs 244 billion in 2009-10 against
Rs 294 billion in 2008-09.
There was lethargic growth in consumer
financing in the past few years. Consumer
financing, having grown at a fast pace till
2008, became inactive and even turned
negative between 2008 and 2011, because
of low economic growth and banks
reluctance to it to contain bad loans.
However, from 2012, there was some
improvement. Banks restarted to make
new loan packages, realizing that years of
no or low activity in this area was affecting
the growth of their interest income.
expectation in the last fiscal year while the

overall economy remained under pressure
owing to rising inflation, higher cost of
production and an agreement with IMF.
Subsequent to the 2013 democratic
general election, people anticipated
economic improvement which encouraged banks to enhance their consumer
financing.The
Expected
Economic
Conditions Index went up three consecutive times between November 2013 and
May 2014, showing peoples overall cheerfulness about the economys future. Banks
responded to the positive feelings and
consumer financing saw a significant
increase primarily on the back of credit
extended for the purchase of vehicles.
Significant growth was witnessed in
consumer loans during July-March 2013-14
as it increased to 9.8 percent against 4.2
percent registered in the same period of
Pakistan's banking sector in the past years

has productively engaged itself in consumer
financing by introducing different products
such as credit cards, auto loans, housing
finance and personal loans etc.
The data showed that even well-advertised
credit card business also fell significantly.
The loans under the credit card declined
to Rs28 billion from Rs35 billion the
previous year. The profitable credit card
business, which has great influence in
developed and developing economies,
failed to get substantial headway in the
domestic market.
Car purchasing was the second highest
attraction for the consumers but the
outstanding loans in this particular sector
showed an abrupt fall during the last
couple of years.The outstanding loans for
car purchasing fell to Rs64 billion till June
30, 2010. The same was Rs 78 billion in
2009 and Rs105 billion in 2008. Loans
for house building under the consumer
financing dropped to Rs 54.5 billion from
Rs 61 billion the previous year. In the
fiscal year 2008, it was Rs 66 billion. The
private sector performed much below the
financial year 2012-13. Consumer financing started gaining strength since November 2012 and continued its upward trend
during July- March, 2013-14. Consumer
durables registered a dramatic growth of
88.2 percent in credit expansion followed
by 17.8 percent growth in auto and 13.9
percent in personal loans. It is appropriate
to mention here that increased growth in
auto finance is largely owing to the auto
finance facility actively marketed by
leading Islamic banks.
In making personal loans, most banks
judge the credit worthiness of borrowers
by their monthly income levels and set
ceilings accordingly. Sometime back, the
NBP introduced its Cash n Gold
scheme, which offered up to Rs35, 000 in
personal loan against each 10 grammes of
net contents of gold (in the form of
jewellery or gold bars).The interest rate
under the scheme was also a bit lower than

23
the going rate on personal loans and that

has made this scheme a huge success.
Habib Banks acquisition of the
consumer loan portfolio of Citibank in
April 2013 also made an impact on
consumer financing trends. The taking
over of this clientele, by a large network
bank like HBL, has made local banks
competition fiercer. Salary Plus, an
overdraft facility for HBL account
holders (also launched in April 2013) and
similar schemes of other banks continue
to enlarge personal loan volumes.
The marked decline in consumer
financing in the past was also owing to the
increase in policy interest rate by the SBP
amid fears of rising inflation rate. This
move was widely criticized by businessmen and economists and is not a cure to
curb the price-hike. Interest Rate in
Pakistan averaged 12.48 percent from
1992 until 2015, reaching an all time high
of 20 percent in October of 1996 and a
record low of 7.50 percent in November
24
of 2002.The State Bank of Pakistan cut its

key interest rate for the second straight
meeting by 100 bps to 8.5 percent in
January, citing lower inflationary pressure
due to falling oil prices.
Bankers are of the opinion that
consumer financing will contribute a
larger part of profits of the banking industry with the recovery of economy. The
major macroeconomic indicators have
improved further since the last monetary
policy decision of November 2014. CPI
inflation and its expectations continue to
follow a downward trend with some
exceptions. In the last two months of
November and December 2014, trade
deficit declined. Furthermore, considerable foreign exchange inflows have
contributed in maintaining an upward
direction in foreign exchange reserves.
It may be clearly mentioned that while
the recent drop in international oil price
has induced low inflation and improved
trade outlook.The speed and intensity,

with which the inflation has come down
and continues to recede, can induce
expectations of rather low inflation,
which may induce additional consumption.Thus, the recent reduction in domestic commodity prices may lead to further
reduction in interest rate and increase
consumer financing from commercial
banks.
The State Bank should implement a
favorable policy which enhances the
access of consumer financing products to
the fixed and deprived sections of the
society by keeping the interest rates at a
nominal level. This would consequently
help to boost business activities and
growth in the country.The Commercial
Banks must introduce any innovative
financing for improving the economic
and social lot of the majority of the
people who are working in private companies with low fixed income and with no
security.
Banking
CAPITAL MARKETS
IN PAKISTAN
By Saeed Ahmed Siddiqui
Capital markets are the barometer

of economic health and an important
component of the financial sector of
an economy. It is a vehicle which
collects capital from the areas where
it is in surplus for transferring the
capital to the areas where it is short
in supply and needed badly.
26
he capital market performs two important tasks:

first, it facilitates mobilization and intermediation of
private savings and second, allocation of medium
and long term financial resources for investment
through a variety of debt and equity instruments of both public
and private sector. Capital market plays a crucial role in mobilizing the domestic resources and channelizing them in most
productive investments. An efficient capital market provides
attractive opportunities of investment to both local and foreign
investors. Timely flow of information provides fair chances to
participants in potential profits nevertheless capital market of
Pakistan has mostly been under the control of a few rich families
and groups.
SALIENT FEATURES OF CAPTIAL

MAREKT:
Salient features of capital markets of
Pakistan are:
Debt Capital Markets:
It is the market where debt securities are
transected and from where business
enterprises (companies) and government
can acquire long term funds. Debt capital
market is composed of private placement
as well as organized markets and exchanges. This market deals in the financial
instruments that pay interest. In this
market, different bonds and loans are
taken as prime financial instruments.
Debt capital market, on the basis of
element of interest is also called fixed
income market.
National Savings Schemes (NSS):
The Central Directorate of National
Savings CDNS performs the function of
deposit bank and sells securities issued by
the government through 37 saving centers
working throughout Pakistan. NSS,
especially focusing on individual savings,
sells different types of securities. NSS
schemes are available for a period of 3, 5
and 10 years. Segment of Subsidized
Scheme (Pensioners benefit account and
Behbood Fund) are also available.
Government Securities:
Pakistan Investment Bonds (PIBs), as
government securities, provide benchmark
to the debt markets. The government of
Pakistan is committed to provide long term
papers in the market to develop the long
end of the government debt yield curve.
Mudarbas:
Mudarba, as distinctive Islamic business
model, has played a very important role
for non-banking finance sector. Mudarba
has achieved fast growth in profitability
terms. Mudarba sector has now created its
own place in the financial sector and is
now capable to create its own market in
the financial sector of Pakistan.
Mutual Fund:
Growth rate of mutual fund, in 2009-10
was 4.4% a year which increased to 10%
in 2010-11 and total assets reached to

Rs. 275 billion proving its rapid
growth.
Investment Banks:
Investment banks have been facing multiple problems in Pakistan like low capitalization, high cost of funds and limited
avenues for mobilization.
Voluntary Pension System:
Government of Pakistan intends to
reform existing pension system. Fortunately, the dependency rate for Pakistan is
favorable for converting existing defined
benefit system into defined contribution
system.
Real Estate Investment Trusts (REITs):
REITs is an addition to the capital
markets in Pakistan therefore, adjustment
in frame work would be required prior to
joining investment community. Some
amendments in REITs regulation were
made in 2010 to remove impediments
blocking its growth. In the light of these
amendments, fund size for launching the
REITs projects was reduced from Rs. 5
billion to Rs. 2billion. Moreover, Hybrid
concept was introduced and also the
registration fee of REIT property was
reduced in Punjab and Sindh. Stamp duty
of REIT property was reduced from 2%
to 0.5% and from 2% to 1% on property
sale. Stamp duty in Sindh has been
reduced from 3% to 2.5%. Registration
fee on purchase of property through
REIT has been waived in both the
provinces and fee on sale has been reduced
from 1% to 0.5%.
Leasing:
Various problems are being faced by the
leasing sector in Pakistan like liquidity
issue, low capitalization, limited resources
for mobilization, high cost of funds, level
of non-performing rates, limited outreach
etc.
Settlement System:
PRISM (Pakistan Real Time Inter-bank
Settlement System) began as a result of
growing awareness of sound risk management so that the settlement of large value
funds may be made easier.
An efficient
capital market
provides
attractive
opportunities
of investment
to both local
and foreign
investors.
Pakistan Mercantile Exchange Limited:
Pakistan Mercantile Exchange Limited
NCEL (National Commodity Exchange
Limited) is the first demutualized online
commodity exchange. This exchange was
established in April, 2002 and
commenced its activity in 2007. PMEX
provides a regular platform for trading of
commodities and currencies for future
contracts. The product portfolio of
PMEX has been designed to cater speculative and hedging needs of different
stakeholders and investment groups. The
future contracts presently available in
PMEX are the different size contracts of
gold and silver and the contracts of rice,
palm oil, crude oil, sugar, cotton and
interest rates.
Derivative Markets:
For providing investors with basic
hedging instruments, financing options
and increased investment alternatives,
deliverable future contracts and cash-settlement future contracts are available for
trading in at the three stock exchanges of
Pakistan.
27
Banking
Regulatory Support for the Growth of
ISLAMIC BANKING
By Obaid Usmani
This article highlights the main steps taken by the government & State
Bank of Pakistan including new initiatives which either directly contributes
to or indirectly augments the process of Standardization of Shariah
practices in the Islamic banking industry of Pakistan both in the local as
well as global context.
28

28
A Brief Overview about Islamic

ut Islamic BankMarkeBankShares of IB Industry Marke
(%) Shares of IB Industry (%)
ing in Pakistan
14
14
12.1
12.1
11.2 showed
11.2
Pakistan,12 in recent years has
ears has showed
12
10.1
9.8 9.7 10.1
9.8
9.5 Islamic Bank- 9.7
9.5
strong inclination towards
rds Islamic Bank9.1
9.1
8.6
8.6
10
10
8.1
8.1
ing. The first Commercial Islamic Bank
cial Islamic Bank
8
8
was established in the
stablished in in
the the country
and
within
13
years
only,
the
years only, 2002,
the
6
6
Islamic Banking share is more than 10%
s more than 10%
4
4
Banking Industry. Over the
ndustry. Over of
thethe entire
last decade,
Islamic Banks have been
Banks have been
2
2
successful in providing end to end
ng end to end
0
0
alternatives to all conventional
banking Deposits
entional banking
Total Assets
Total Net
Assets
Financind & InvestmentDeposits
Net Financind & Investment
The support coming from the
coming from products.
the
12-Dec
13-Sep
13-Dec
12-Dec
13-Sep
13-Dec
bank of the country is one of the
ntry is one of central
the
factors of the rapid growth of
rapid growth major
of
Islamic Banking industry. With more
stry. With more
than 1400+
Islamic
branches
Banking branches
bankingand
to formulate
a comprehen Minimum capital requirement
banking
and toBanking
formulate
a comprehenMinimum
capital
requirement
and a 20%+
growth
in
deposits,
assets,
n deposits, assets,
sive policy framework for an Islamic
sive policy framework for
an Islamic
financing
and investments,
thecountry
Pakistani
ents, the Pakistani
financial system
including
Center of Excellence for Islamic
financial
system in the
including
Centerin the
of country
Excellence
for Islamic
Banking
industry
is
set to
ustry is set Islamic
to
the reviewFinance
of the legal framework and
the review of the legal framework
and
Finance
the hubrecommendations.
of Islamic Banking
of
amic Bankingbecome
of
suggest recommendations. Further, the
suggest
Further,
the
the region.
Committee
has also been
the task
Establishment
of given
a Shariah
Board &Establishment
a
of a Shariah Board & a
Committee has also been given the task
the existing
taxation
regime
to
Islamic
Banking
Department
Separate Islamic Banking Department
to review the existing taxation regimetotoreviewSeparate
to the
theimpediments
core of Islamic
core of Islamic Coming
theSBP
impediments of taking the
at
at SBP
remove
of taking remove
the
Finance,industry
Shariah compliance
is the
liance is the single
industry to next level of growth and
to next level
of single
growth and
most important
aspect
the Islamic
t for the Islamic
development
by finding
ways on the
The Shariah
Boardpractical
of SBP advises
The Shariah Board of SBP advises on the
development
by for
finding
practical ways
Bankingand&means
Finance
industry.
The modes
industry. The
and means
to participation
modespertainprocedures,
laws andbased
regulations
procedures, laws and regulations pertainto participation based
credibility
of Islamic
Banking
InstituBanking Instituas modesing
of Islamic
finance.
to Islamic
Banking in line with
ing to Islamic Banking in line with
as modes
of Islamic
finance.
depends on tions
the (IBIs) not only depends on the
Shariah principles. All the instructions
Shariah
/
principles. All the instructions /
financialSteps
health
of the
e institution but
Steps Taken
for Promotion
Islamic
Guidelines
pertainingof to
the Islamic
Guidelines pertaining to the Islamic
Taken
for institution
Promotion but
of Islamic
also on Banking
its adherence
to the Shariah.
to the Shariah.
Bankingbanking
by SBP:Industry is issued after the
banking Industry is issued after the
by SBP:
Under the current strategy for promoategy for promoapproval of SBP Shariah Board.
approval of SBP Shariah Board.
tion and development
ofofIslamic
Bankof Islamic BankEstablishment
a Shariah
Board &
aEstablishment of a Shariah Board & a
ing as a parallel,
and
compatible
e and compatible
separateviable
Islamic
Banking
Departmentseparate Besides
Islamic Banking
having aDepartment
Shariah Board, a Besides having a Shariah Board, a
banking system,
State
Bank
of
Pakistan
Bank of Pakistan
at SBP to directly supervise
& monitorat SBP
to directly
supervise
& monitor
separate
Islamic
Banking
departmentseparate
is
Islamic Banking department is
has taken the
a number
steps to
ensure
f steps to ensure
Islamic of
Banking
industry.
the Islamic
industry.
also inBanking
place at SBP
with highly qualified
also in place at SBP with highly qualified
compliance by IBIs and for
by IBIs and Shariah
for
& seasoned professionals who &
are seasoned professionals who are
of Shariah
iah practices. standardization
for practices.
Shariah Compliance
Compliance
Instructions
engagedfor
in Shariah
policy making
and various
engaged in policy making and various
Instructions
in IBIs.
in IBIs.
projects to strengthen the Islamic Bankprojects to strengthen the Islamic Bankakistan has played The State Bank of Pakistan has played
ing industry.
ing industry.
a dominant
role Strategic
in enabling
theforIslamic
abling the Islamic
Plan
Islamic Bank 5 year Strategic Plan for Islamic Bank 5 year
Banking Industry
to not only sustain but
t only sustain but
ing Institutions
ing Institutions
Instructions for Shariah Compliance
Instructions for Shariah Compliance
rapidly grow many folds.
ds.
in IBIs:
in IBIs:
Introduction of Shariah Governance
Introduction of Shariah Governance
Steering Committee for
Committee National
for
Framework
Framework
In order to strengthen the Shariah In order to strengthen the Shariah
Promotion on Islamic Banking
Banking
compliance mechanism within IBIs and
compliance mechanism within IBIs and
of AAOIFI
to ensure
that Standards.
all relevant Islamic
to ensure that all relevant Islamic
Adoptions of AAOIFI Standards. Adoptions
mmittee for the The Steering Committee for the
banking regulations are complied with
banking regulations are complied with
Promotion
of Islamic
banking Scheme.
was
ic banking was
Export Refinance
Refinance
Scheme.
Islamic
in Export
letter and
spirit, IBIs
are requiredintoletter and spirit, IBIs are required to
Islamic
constituted by Ministry of Finance
stry of Finance
introduce Shariah compliance mechaintroduce Shariah compliance mechaof Pakistan
in
of Pakistan (MoF),
in
Media Campaign
for Promotion
Campaign
Promotion
ofMedianism
as a partfor
of their
controlofstructure
nism as a part of their control structure
Government
December Islamic
2013 comprising
prising of leading
Banking. of leading
Islamic
as Banking.
per the Shariah Compliance Frameas per the Shariah Compliance FrameShariah scholars, bankers and officials
kers and officials
work issued by the State Bank work
of
issued by the State Bank of
The main
the
objective of from
the SBP.
Openobjective
Market ofOperation
Open Market
Operation
Islamic
Pakistan.
The Shariah
Compliance
Pakistan. The Shariah Compliance
Islamic
CommitteeLiquidity
is to carry
out an objective
out an objective
Management
Solution
Liquidity
Management
Framework
covers Solution
the main aspects Framework
for
covers the main aspects for
review of the current paradigm of Islamic
radigm of Islamic
carrying out the operations of the IBIs
carrying out the operations of the IBIs

29
such as monitoring Shariah compliance,

such as industry.
monitoringThe
Shariah
main
compliance,
structure of the
issues, a of
Shariah
industry.routine
The Shariah
main structure
the Comroutine Shariah i
review of documentation, conflict
review strategy
of documentation,
paper is given below:
conflict
strategy pliance
paper isDepartment,
given below: a Shariah complipliance Departme
resolution, training and internal Shariah
resolution, training and internal Shariah
ance review mechanism to assess the
ance review mec
Audit.
Audit. Enabling Policy Environment
effectiveness of the Shariah
Enablingoperative
Policy Environment
operative effectiv
governance and compliance framework
governance and c
Another important aspect of these Another
Enabling
important
legal, aspect
regulatory,
of these
supervisory,
by the SBsupervisory,
and BOD andintroduced
an
Enablingintroduced
legal, regulatory,
by the
instructions was the Fit & Proper Criteinstructions
liquidity
was the management
Fit & Proper Criteframework,
Internal
Shariah Audit
liquidityindependent
management
framework,
independent Int
ria of the IBIs Shariah Advisor. Each
ria of the
taxation
IBIs regime
Shariahand
Advisor.
financialEach
accounting
taxationUnit.
regime and financial accounting
Unit.
Islamic banking institution (i.e. Islamic
Islamic &
banking
reporting
institution
framework.
(i.e. Islamic
& reporting framework.
Bank and conventional bank having
Bank and conventional bank having
Adoption of AAOIFI Shariah StandAdoption of AA
Islamic Banking Branches) is requiredIslamic
to
Banking
Shariah Governance
Branches) is&required
Compliance
to
Shariah ards
Governance & Compliance
ards
appoint a Shariah Advisor as per Fit and
appoint a Shariah Advisor as per Fit and
Proper Criteria prescribed by SBP. The
Proper Criteria
The focus
prescribed
in this area
by SBP.
willThe
remain The
on focus
Thein this
introduction
of international
area will remain
on
The introductio
requirement for Shariah Advisors requirement
to
standardization
for Shariah
andAdvisors
harmonization
to
of
players inand
the harmonization
Islamic bankingofindustry
standardization
players in the Isl
meet the said criteria ensures that they
meet theShariah
said criteria
practices,
ensures
as well
thatas they
on creating
furtheras
necessitated
need to bring
Shariah has
practices,
well as onthe
creating
has further necess
have adequate and relevant education,
have adequate
distinct and
Islamic
relevant
banking
education,
products and
industry
at par products
with the global
distinct our
Islamic
banking
and Shariour industry at pa
knowledge and experience, which knowledge
in
and experience, which in
services.
services.ah standards. Shariah Standards develah standards. Sh
turn plays a vital role in harmonization
turn plays a vital role in harmonization
oped by Accounting and Auditing
oped by Accou
of Shariah Practices in different Islamic
of Shariah
Practices
in different
Islamic
Awareness
& Capacity
Building
Organization
for the Islamic Financial
Awareness
& Capacity Building
Organization for
banking institutions.
banking institutions.
Institutions (AAOIFI) are an important
Institutions (AAO
Efforts will be made for coordination
available for bringEfforts and
will effective
be madesource
for coordination
and effective sour
Shariah advisor of the bank is respon- Shariah
of the bank
is responandadvisor
collaboration
amongst
internal and
ing in the desired
the in the desired
and collaboration
amongststandardization
internal and in ing
sible to ensure that all the products and
sible to external
ensure that
all the products
and awarestakeholders,
enhancing
practices.
externalShariah
stakeholders,
enhancing awareShariah practices.
services, operations and documents services,
of
operations and documents of
the bank are compliant / consistent with
the bank are compliant / consistent with
the Shariah Rules and Principles
the Shariah Rules and Principles
outlined for the respective modes outlined
of
for the respective modes of
financing. Before launching any new
financing. Before launching any new
products the banks are required to products
get
the banks are required to get
formal approval from the Shariah
formal approval from the Shariah
Advisor regarding Shariah complianceAdvisor
of
regarding Shariah compliance of
the product and its related documents.
the product and its related documents.
Coming to the core of Islamic Finance, Shariah compliance is the

single most important aspect for the Islamic Banking & Finance
industry. The credibility of Islamic Banking Institutions (IBIs) not only

depends on the financial health of the institution but also on its
adherence to the Shariah.
SBP conducts Shariah Compliance SBP conducts Shariah Compliance

Inspection on the basis of recently develInspection on the basis of recently developed Shariah Compliance Inspection
oped Shariah
Compliance
Inspection
ness about
Islamic finance,
and building
In order
to finance,
bring theand
industry
at par with
ness about
Islamic
building
In order to bring t
Manual for Islamic Banking Institutions.
Manual capacity
for Islamic
Banking
Institutions.
of the stakeholders.
international
capacitythe
of the
stakeholders.standards and also
the internationa
Shariah Inspection helps in identifying
Shariah Inspection helps in identifying
achieve standardization of Shariah
achieve standar
variation in procedures adopted variation
by
in procedures
Market
Developmentadopted by
Market Development
practices locally, a mechanism practices
for
locally,
different banks. The decisions on Sharidifferent banks. The decisions on Shariadoption/adaptation of these Shariah
adoption/adaptati
ah Inspection findings are also a source
ah Inspection
findings
also undertaken
a source
Initiatives
willarebe
for
Initiatives
standards
will has
be been
undertaken
developed
forby SBP.
standards has be
that helps in achieving the goal of having
that helps
in
achieving
the
goal
of
product diversification. having
productAccording
diversification.
to this mechanism, According
the
to t
standardized procedures for Shariah
standardized procedures for Shariah
meetings of Shariah Advisors of all IBIs
meetings of Shari
practices in the Islamic banking industry.
practicesShariah
in the Islamic
banking
industry.
Governance
Framework
Shariahare
Governance
being heldFramework
with a view to thoroughly
are being held wit
study the AAOIFI Shariah Standards one

study the AAOIFI
IBIs
5 YearTheStrategic
Plan
for IBIs
State Bank
of Pakistan
has develThe State
of Pakistan
has develby Bank
one, for
their possible
adoptionby/ one, for thei
(2014-2018)
oped a comprehensive Shariah Governoped a adaptation
comprehensive
Shariah
Governin the
Pakistani
market. Till
adaptation in the
ance Framework (SGF) for IBIs which
ance Framework
for IBIs
which Standnow, SBP (SGF)
has adopted
6 AAOIFI
now, SBP has ado
The Strategic Plan focuses on critical The covers
Strategic
Plansuch
focuses
critical mechapoints
as anoneffective
covers points
as an effective mechaards insuch
Pakistan.
ards in Pakistan.
issues and includes necessary initiatives
issues and
includes
initiatives
nism
for the necessary
BOD oversight
of the IBIs
nism for the BOD oversight of the IBIs
for improving public acceptance and
for improving
acceptanceenvironment,
and
Shariah public
compliance
Shariah Islamic
compliance
environment,
Export Refinance
Scheme Islamic Export R
promoting Islamic banking as a distinct
promoting
Islamic
banking
as
a
distinct
accountability of executive management
accountability of executive management
and viable system for meeting the finanand viable
system for meeting
the framework,
finanin implementation
of the
inanimplementation
The State of
Bank
the framework,
of Pakistan an
has been
The State Bank
cial services need of the public in general
cial services
need
of
the
public
in
general
independent and effective Shariah Board
independent
facilitating
and effective
trade &
Shariah
commerce
Boardspecially
facilitating trade
and business community in particular.
and business
community
particular.
appointed
as per Fitinand
Proper Criteria
appointed
exports
as per Fit
business
and Proper
through
Criteria various
exports busines
The strategy paper has chalked outThe
a strategy
out a Scholar
of SBPpaper
with has
one chalked
of its Shariah
of SBP schemes
with one with
of its concessional
Shariah Scholar
financeing
schemes with co
detailed plan with time bound objectives
detailedmembers
plan withworking
time bound
objectives
as Shariah
Advisormembers
to
facilities.
workingInasthis
Shariah
regard,
Advisor
Shariah
to complifacilities. In this r
which will prove to be beneficial for which
the will
prove
be beneficial
advise
theto bank
on dayfortotheday and
advise the
ant Export
bank onRefinance
day to Scheme
day and(EFS)ant
is Export Refin
5 Year Strategic
(2014-2018)
30
Plan
for

30
Coming to the core of Islamic

Finance, Shariah compliance is the
single most important aspect for the
Islamic Banking & Finance industry.
The credibility of Islamic Banking
Institutions (IBIs) not only depends
on the financial health of the institution but also on its
adherence to the Shariah.
No.
AAOIFI Shariah Standards Adopted by SBP
1.
Default in Payment by a Debtor
2.
Murabaha to the Purchase Orderer
3.
Ijarah & Ijarah Muntahia Bittamleek
4.
Mudaraba
5.
Investment Sukuk
6.
Sharika (Musharaka) & Modern Corporations
in place.Banks
The IERS scheme is
Islamic Banks
IERS schemealready
is
Islamic
further being reviewed to better facilitate
The State Bank of Pakistan is working
to better facilitate
The State Bank of Pakistan is working
the country
a
Some
Islamic
banks academic
/ windows
in
with
ountry throughthea businesses
Some in
Islamic
banksthrough
/ windows
in
with leading
institutions
of leading academic institutions of
Shariah particular
compliant manner.
were for
facing
difficulties
in class
Pakistan for establishing a world class
nner.
were facing difficulties particular
in
Pakistan
establishing
a world
meetingCenter
the Minimum
Capital
Center of Excellence for Islamic Finance.
meeting the Minimum Capital Requireof Excellence
for RequireIslamic Finance.
Campaign
forTherefore,
Promotion
SBP.
Therefore,
SBP,
taking a
The
r Promotion Media
of
ments
of SBP.
SBP,oftakingments
a ofThe
center
will have
a comprehensive
set center will have a comprehensive set
Islamic bold
Banking
has revised
MCRprograms
for
of
step, has revised the MCR bold
for step,
of education
and the
training
foreducation and training programs for
Bankingaudience
Subsidiary
from state
Rs. 10
audience groups, state of the art
Islamic Banking Subsidiary from Rs. Islamic
10
various
groups,
of the various
art
major
steps6 the
State
billion to
Rs. 6 billion
in 2014.
This willwith research
facilities, partnerships with the
the State BankOne
of of the
billion
to Rs.
billion
inBank
2014.ofThis will
research
facilities,
partnerships
the
Pakistanallow
has taken
to Islamic
tackle the
awareallow existing
Islamic
Banks of
to key
continue
industry and buy-in of key stakeholders.
tackle the awareexisting
Banks
to continue
industry
and buy-in
stakeholders.
ness challenge
was the without
launch of
mass much
their operations
without
worrying
much
The center will ensure output of quality
e launch of mass
their operations
worrying
The center
will ensure
output
of quality
media campaign
promotion
Islamabout the
MCRresources
and at the
time,building,
human resources and capacity building,
omotion of Islamabout theforMCR
and atofthe
same time,
human
andsame
capacity
all players
in
this stepwhich
will will
encourage
which will support to achieve the target
by all playersicinBanking
this supported
step will by
encourage
conventional
support conventional
to achieve the target
the industry.
Lackestablish
of awareness
banks growth
to establish
Islamic
Banking
of Islamic Banking & finance in
of awareness and
banks to
IslamicandBanking
of Islamic
Banking
& financegrowth
in
of Islamic finance and its
subsidiaries.
the country in the time to come.
mic finance andunderstanding
its
subsidiaries.
the country in the time to come.
businessCenter
and operating
model
beenFinance
Center of Excellence for Islamic Finance
g model has been
of Excellence
forhas
Islamic
one of the key causes of confusion and
of confusion and
misperception about Islamic finance.
Islamic finance.
xtensive focus The
on plan thus gives extensive focus on
the awareness efforts both at
ess efforts bothintensifying
at
industry and individual intuitions level.
l intuitions level.
Islamic Open Market Operations

ket Operations
y ManagementSolution for Liquidity Management
The biggest challenge faced by the Islamaced by the Islamwas the lack icof Finance industry was the lack of
availability on Rupee denomination
e denomination
Sukuk for deployment of
deployment sovereign
of
mic Banks and excess
the funds of the Islamic Banks and the
option of OMO for IBIs. The State Bank
Is. The State Bank
boration with of
thePakistan in collaboration with the
industry developed an OMO alternative
OMO alternative
in form of Bai Muajjal, which is being
l, which is being
f the industry used
on for the benefit of the industry on
frequent basis.
Capital Requirement for
Requirement Minimum
for

31
Microfinance
Risks to
MICROFINANCE
in Pakistan - A Study
By Ammar arshad
Risks to Microfinance in Pakistan is the second study of its

kind, which seeks to map the risks being faced in Pakistans
microfinance sector as seen by various stakeholders. The
first study, conducted in 2011 by the Pakistan Microfinance
Network (PMN), served as a starting point in the discussion
on risks and threats encompassing the Pakistan microfinance
sector. This study aims to update the risks highlighted in
the initial publication in the face of changing business and
macroeconomic environment while keeping in mind the
new initiatives and developments in the microfinance
sector.
32
he report describes risks as viewed by

sampledescribes
of
he areport
risks as
stakeholders: practitioners, investors,
donors, practitioners
stakeholders:
researchers and consultants.The views
of the
researchers
and consultan
stakeholders were recorded through
an onlinewere recorded
stakeholders
survey which ranked risks in terms
of severity,
trend and
survey
which ranked
risks in terms o
Microfinance Providers ability to cope
with the risk.
The keyability to cope
Microfinance
Providers
findings of the survey show macro-economic
trends
andshow macrofindings of the
survey
security as the topmost concerns for stakeholders
intopmost
the microsecurity as the
concerns for stak
finance industry (Table 1). The ranking
macroeconomic
financeofindustry
(Table 1). The ranki
trends has not budged since the first trends
risk survey
in 2011
andsince
is the first risk
has not
budged
still perceived as the biggest threat faced
the sector.
still by
perceived
as the biggest threat faced

32
ng risk according The

fastest trending
according
regulations
as theyrisk
think
this is the
regulations
as they
think the
thissector
is theare those
pressing
risks facing
of risks facing the sector are those of
pressing
ition, which was
to theleast
survey
competition,
which
was some
ofistheir
problems.
Unlike
least ofthe
their
problems.
Unlikeof some
day-to-day
running
the business
thei.e.
day-to-day running of the business i.e.
n the risk survey
rankedother
at number
11 in the
riskranked
surveydevelstakeholders
who
other stakeholders
who ranked
develover indebtedness
and credit
risk. over indebtedness and credit risk.
d in table 2).
of 2011
(as and
depicted
in of
table
2). opment and delivery of appropriate
opment
delivery
appropriate
the last couple Growth
of products
in outreach
in therisks,
last couple
as key
MFBsof seem
products as key risks, MFBs seem
ban areas, has led
years, confident
particularlyabout
in urban
hasto
leddo so.
theirareas,
ability
confident about their ability to do so.
competition and
to a sharp
competition
Risksincrease
that areinperceived
to and
be rising
Risks that are perceived to be rising
eing perceived hence
as include
it is currently
being suspect
perceivedbut
as also
the usual
include the usual suspect but also
Table 1
in the industry.
the fastest
rising
risk intechnology.
the industry. include managing technology.
include
managing
Top Ten Biggest Risks
wed by security
Competition is followed by security
(2011 position in brackets)
position as the
whichPractitioners
holds the same
positionMFPs
as the Practitioners Non-bank MFPs
Non-bank
1
(1)
Macro-Economic Trends
hough microfiprevious survey. Although microfi2
(4)
Security
limited in the
nanceGenerally,
operationsmacro
are limited
in the Generally, macro or environmental
or environmental
3
(2)
Protability
of
Khyhighlyrisks
volatile
regions
seem
to beofworrying Khynon-bank
risks seem to be worrying non-bank
4
(3)
Credit Risk
(KPK)
and
ber-Pakhtunkhwa
(KPK)
and relate
MFIs more than micro-risks
that
MFIs more than micro-risks that relate
5
(25)
Inappropriate Regulation
l threat in terms
Balochistan,
theown
overall
threat in terms
to their
institutions.
As they
to their own institutions. As they
6
(24)
Competition
h making instituof security
high makingor
instituworryremains
about profitability
credit risk,
worry about profitability or credit risk,
7
(12)
Political Interference
ing even slightly
tions they
cautious
of entering
even about
slightlyfactors
are equally
worried
they are equally worried about factors
8
(7)
Interest Rates
risky areas.
such as security, inflation, interest rates
such as security, inflation, interest rates
9
(17)
Managing Technology
and natural disasters. Nonbank MFPs
and natural disasters. Nonbank MFPs
10 Natural Disasters
(13)
aredness, MFPs Inhave
terms
of preparedness,
MFPs
ranked
macroeconomic
trends have
as ranked macroeconomic trends as
deal with risks
feel least
prepared
deal
withrising
risksthreat
the most
severetoand
fastest
the most severe and fastest rising threat
heir institutions.
that emerge
in the outside
sector their
the institutions.
persistent energy
in the sector the persistent energy
Table 2
terms of lowest
The top
two
in terms
lowestaffectcrises
andrisks
inflation
haveof
severely
crises and inflation have severely affectTop Ten Fastest Rising Risks
th external and
abilityedtosmall
cope scale
are both
MFIsexternal
which and
are most
ed small scale MFIs which are most
ers and political
include
natural disasters
and political
vulnerable
to such shocks.
Sustainabilivulnerable to such shocks. Sustainabili(2011 position in brackets)
interference.
ty also seems to be a key concern ty
as also seems to be a key concern as
1 Competition
(11)
most non-bank MFPs remain unprofmost non-bank MFPs remain unprof2 Security
(2)
geted different The
targetedto rely
different
itablesurvey
and continue
heavily on
itable and continue to rely heavily on
3 Macro-Economic Trends
(1)
ncluding practistakeholder
practi-operafunding.groups
Issues including
around staffing,
funding. Issues around staffing, opera4 Managing Technology
(6)
ers far outweigh
tioners
(whose
numbers
far outweigh
tions
and
corporate
governance
tions and corporate governance
5 Too Little Funding
(18)
policymakers,
other continue
respondents),
policymakers,
to be considered
less significontinue to be considered less signifi6 Credit Risk
(3)
including equity
donors
andover
investors
(including equity cant over the years.
cant
the years.
7 Strategy
(24)
mercial banks),
investors and commercial banks),
8 Political Interference
(12)
tants working researchers
in
and consultantsthe
working
Furthermore,
studyin also Furthermore, the study also
9 Foreign Exchange
(23)
oners have been
microfinance.
have beenof top
provides Practitioners
a global comparison
provides a global comparison of top
10 Interest Rates
(7)
nto MFBs and
further
categorized
intothatMFBs
and risks
risks
which shows
stakeholders
in which shows that stakeholders in
rder to capture
non-bank
MFPsperceive
in order to capture Pakistan perceive
Pakistan
Table 3
each group. perceptions
unique to each group.
exogenous/external
exogenous/external
Rank
Severity
Fastest Rising
Least Ability to Cope
risks (such as
risks (such as
1
Protability
Practitioners
ma cro e- MFBs
conomic
ma cro e c o n o m i c
2
Competition
Security
Natural Disasters
3
Credit Risk
Competition
Security
trends and securitrends and securi4
Managing Technology
tability as the
MFBsty)perceive
as the ty) to be the
to beprofitability
the
5
Managing Technology
Credit Risk
Interest Rates
6
Natural Disasters
Strategy
Macroeconomic Trends
wed by competimost greatest
severe risk
followed
threats
for by competi- greatest threats for
7
Operations
Product Development
Religious Inuence
wth of the sector
tion -the
the current
growth of the sector the microfinance
microfinance
8
Too Little Funding
Managing Technology
to a new level.
is driving
competition
to a new level. sector,
sector,
while
while
9
Fraud Internal
Protability
10
Stang
Liquidity
omfortable with
Similarly,
they seem
comfortable with globally, the most
globally,
the most
Table 5
Table 4
Rank
Severity
Fastest Rising
Top Ten Risks to the Micronance Sector
Least Ability to Cope
Management Quality
Security
Security
Natural Disasters
Protability
Competition
Transparency
Natural Disasters
Managing Technology
Competition
Credit Risk
Credit Risk
Interest Rates
Strategy
Managing Technology
Competition
Too Little Funding
Strategy
9
10
Pakistan
South Asia*
Global*
Political interference
Over indebtedness
Security
Over indebtedness
Credit Risk
Protability
Client relationships
Competition
Credit Risk
Regulation
Risk management
Risk management
Governance
Competition
Funding
Strategy
Operations
Competition
Unrealistic Expectations
Fraud External
Interest Rates
Liquidity
Management
Unrealistic Expectations
Stang
Protability
Managing Technology
Credit risk
Regulation
Interest Rates
Fraud Internal
10 Natural Disasters
10 Management
10 Stang
*Microfinance Banana Skins 2014

33
Opinion
By Christian Doherty
Christian Doherty reports
on the secured multi-billion-pound lending market
opening up for alternative
providers who have
spotted opportunities.
ver since the financial crisis of ver

financial both
crisisreceived
of
andsince
Zopa,the
for instance,
the
and Zopa, for inst
2008, a cottage industry of alterna- 2008,
a cottage industry
alterna- in late
Governments
seal of ofapproval
Governments se
tive finance providers has tive
providers
has
2012 finance
when Vince
Cable announced
2012
an when Vinc
appeared. Some of the players have
appeared.
Some ofof 20m
the players
have
investment
and 10m
into each
investment of 20
flourished as businesses have explored
flourished
as businesses
have explored
provider
respectively.
provider respectiv
alternative ways to source finance in the
alternative ways to source finance in the
absence of straight bank lending.
absence of straight
bank lending.
Both Funding
Circle and Zopa have Both Funding
taken the next step in crowdfunding,
taken the next
As a result, there has been a surge in the As a from
result, helping
there hasbusinesses
been a surgesell
in the
equity from
to helping bu
popularity of a whole range of alternative
popularity
of a whole
range of alternative
sourcing
commercial
lending. Indeed,
sourcing comme
funding strategies, with FDs and treasurfundingsince
strategies,
with FDs
and treasurlaunching,
Funding
Circle sayssince
it launching,
ers casting around for solutions to restricters casting
solutions
restrict-to over
hasaround
placedfor330m
oftolending
has placed 330
ed cashflow and more expensive credit. ed cashflow
and
more expensive credit.
5,500
businesses.
5,500 businesses.
For many growing businesses, sourcing For many

growing Circle
businesses,
Funding
sayssourcing
it can offer Funding Circ
debt finance is a matter of finding lenders
debt finance
is a matter
of finding
lenders
borrowing
businesses
quick
access borrowing
to
busin
willing to buy into their business plans.
willing to
buy with
into their
funds,
debt business
priced byplans.
auction; funds,
so
with debt
This is where crowdfunding comes in. This is where
comes in.make a bid,
those crowdfunding
offering investment
those offering in
then the borrower gets the lowest ratesthen
on the borrower
Crowdfunding has come a long way Crowdfunding
hasdeals
come
a long
offer. Typical
would
seeway
a company
offer. Typical dea
since 80s rockers Marillion took a call
since 80s
rockers40,000
Marillion
a call capital
borrow
of took
expansion
borrow 40,000
from their record label informing themfrom
it their
recordaround
label informing
themindividual
it
from
300-400
from around
declined to underwrite the bands US
declinedinvestors,
to underwrite
paying athe
ratebands
of 4 perUS
cent over
investors, paying
tour, leaving them with few options. But
tour, leaving
three them
years. with few options. But
three years.
when keyboardist Mark Kelly, an early
when keyboardist Mark Kelly, an early
Internet enthusiast, posted the news Internet
up
enthusiast,
the news
up
However,posted
companies
looking
for However, co
on fan site, within a few weeks enough
on fan site,
withinborrowing
a few weeks
large-scale
mayenough
be frustrated.
large-scale borrow
committed fans had pledged donationscommitted
to
fans had
pledged
donations
Funding
Circles
typical
loan toamounts
Funding Circles
underwrite the bands tour.
underwrite
bands tour.small loans of upare,
are, the
unsurprisingly,
to unsurprisingl
550,000 are available to businesses that
550,000 are avai
It soon became clear that the demo- It soon
clear that the
demo- size meet
meetbecame
the minimum
turnover
of the minim
cratic, transparent Kickstarter modelcratic,
transparent
100,000, Kickstarter
but usually model
deals come 100,000,
in
but u
using the Internet to bring donors
using the
to bring donors
underInternet
six figures.
under six figures.
together with artists was ripe together
for
with artists was ripe for
commercial application. Soon, a cohortcommercial
of
application.
Soon,
a cohort
of other To meet that
To
meet that
growing
need,
like-minded entrepreneurs in the US and
like-minded
entrepreneurs
in thetoUS
andin larger
platforms
are emerging
deal
platforms are em
UK wholeheartedly embraced the
UK wholeheartedly
theProsper
tranches of debt.embraced
US dealmaker
tranches of debt.
crowd to develop funding platforms crowd
for
to develop
funding with
platforms
boasts
one investor
$35mfor
lodged boasts
on one investo
smaller businesses.
smaller businesses.
the platform ready to put it to work. the platform read
Despite their reputation among some DespiteBut

their
among
some
forreputation
SMEs unable
to prise
open their But for SMEs u
observers as risky, P2P peer-to-peer observers
or
as managers
risky, P2Pwallet,
peer-to-peer
or debt
bank
crowd-sourced
bank managers wa
lenders are increasingly visible players lenders
on
areoffering
increasingly
visible
players on
is
a genuine
alternative.
It offersisoffering a genuin
the funding landscape. Funding Circle
the funding
Funding Circle
say thelandscape.
lending platforms
a straightforsay the lending pl
34

34
unknown small investors on their share

restriction
of share
the restriction ward
of liberation
unknownfrom
smallthe
investors
on their
FUNDING CIRCLE AND
register or having to deal with the platform
bank lending,
their
enting their often
registercircumventing
or having to deal
withoften
the platform
ZOPA BOTH RECEIVED THE
restrictive
policies.
.
as credit
a nominee
for the entire crowd. If as
thea nominee for the entire crowd. If the
there are administration costs: if
former, there are administration costs:former,
if
GOVERNMENTS SEAL OF
the
(they shareholder
market
(they marketTakethe ThinCats
latter, the individual
has latter, the individual shareholder has
APPROVAL IN LATE 2012.
no vote in the progress of his investment:
as the
antidote
cat
tidote to fat themselves
cat
no vote
in the
progresstoof fat
his investment:
bankers):and
launched
in case,
2011 the
by aDirectors
syndicate dutyand
011 by a syndicate
in either
to in either case, the Directors duty to
looking to lend tocheckscarry
oking to lend ofto business
carry angels
out anti-money-laundering
is out anti-money-laundering checks is
delegatedremit
to the
firms, ittoaims
to bypass the
s to bypass growing
the
delegated
the platform.
remit to boost lending to households and
toplatform.
boost lending to households and
banks and their charges by lending
rges by lending
businesses. Under the FLS, banks can access
businesses. Under the FLS, banks can access
to that,
exact statusthey
of lendcheap
directly to small
businesses.
sses.
In addition
to that, the exact status ofIn addition
cheap loans
on the condition
to loans on the condition they lend to
equity crowdfunding
from
theborrow
perspective
equity crowdfunding from the perspective
They can borrow 5 from the
businesses. They
can
5 from businesses.
the
of the Bank
Financial
Conduct
ways,
ThinCatsConduct
marks the
nCats marks theIn some
of the
Financial
Authority
Bank for every 1 of net lending to SMEs.
for every
1 of net Authority
lending to SMEs.
(FCA), which has so far made only limited
latest iteration
possible
shape)
sible future shape)
(FCA),(and
which
has so future
far made
only limited
preliminaryHowever,
statements,
not fully
clear.
it focuses
on getting
to clear.
uses on gettingoftoP2P lending
preliminary
statements,
is not fully
theislatest
figures
show thatHowever, the latest figures show that
it islending
workingfrom
on a banks
set of fell net
know both
and
d borrowers, and,
Theinvestors
FCA says
it borrowers,
is workingand,
on a setThe
of FCA
netsays
SME
by SME lending from banks fell by
in common
with the
does demand
standards
for crowdfunding,
a clear
nks, does demand
standards
forbanks,
crowdfunding,
but a clear
435m between April and June 2014,
435m
between Aprilbutand
June 2014,
from
seeking
set of rules
has yet atodecline
emerge.of 719m in the first
king finance. security set
of those
rules has
yet tofinance.
emerge.
following a decline of 719m in the first
following
quarter. Just over 3.2bn was drawn from
quarter. Just over 3.2bn was drawn from
also aims
to solve concern
one of the
genuinefor
concern
prompted
o solve one of theThinCatsGiven
the genuine
promptedGiven
thetheFunding
Lending
Scheme in the Funding for Lending Scheme in the
most pressing
thorny problems
to have backbyinthe post-crisis
creditofcrunch,
back in to second
y problems to have
by theand
post-crisis
credit crunch,
quarter of 2014, according to the
second quarter
2014, according
the
bedevilled
crowd-based
financing platforms
2010 the
Government
financing platforms
2010
the Government
promised to step
Bank of England.
Bank
of England.promised to step
of abecome
secondary
market toplayer
sell on in
ary market to sellthe lack
in and
a significant
theand become a significant player on the
either shares
or debt.
lending scene.
Some the
of itsFLS
efforts
haveBusinessAlongside the FLS sits the Business
With its secondary
lending
scene.With
Someitsofsecondary
its efforts have
Alongside
sits the
market facility,
launched
last than
year, others.
it now
been more
successful
than others.(BFP), another
d last year, it now
been more
successful
Finance Partnership (BFP), another
Finance
Partnership
offers investors the option of selling their
on of selling their
government-backed scheme. In addition
government-backed scheme. In addition
before
the endfor
of the
term. SchemeThe toFunding
for Lending
Scheme
end of the term.debt to others
The
Funding
Lending
to putting funds onto the aforementioned
putting funds
onto the aforementioned
which
came platforms,
into effectBFP
in the
(FLS), which came into effect in (FLS),
the
P2P funding
capital P2P
has funding platforms, BFP capital has
are downsides,
For
of 2012,
is the
flagship
vehicle
es, however. ForTheresummer
of 2012, is however.
the flagship
vehiclesummer
to
been placed with five top fund managers
been
placed
with
five top
fundtomanagers
raisingSimply
capitalput,
via the
the scheme
boost lending.
Simply
put,and
theM&G)
schemewho will
ng capital via many
the businesses,
boost lending.
(including HayFin and M&G) who will
(including
HayFin
crowd is
not entirely
involveslend
the to
Bank
of England funnelling
straightforward,
involves
the Bankstraightforward,
of England funnelling
approved-growth
businesses. lend to approved-growth businesses.
eitherinto
a the
largemajor
number
into the major banks with the
arge number promising
of
liquidity
banksofwith liquidity
the

35
Some 400m has been earmarked for

direct lending, while a further 100m will
be channelled through non-bank providers including mezzanine finance funds.
THE EVIDENCE SO FAR WOULD

SUGGEST THAT THE BUSINESS
GROWTH FUND IS NOW A SERIOUS
PLAYER ON THE INVESTMENT SCENE.
The third, and most established, is the

Business Growth Fund (BGF). At its
launch in 2011, then director Stephen
Welton said: Fundamentally, for the
Business Growth Fund to be successful
and I would judge our success in, say, ten
years time, not in a years time we need
to still be here in ten years time, continuing to provide long-term capital to exactly
the same companies. Because this equity
gap, as coined in the 1930s, isnt temporary. It will always be here because there
will always be small companies. And we
are here to plug that gap.
The evidence so far would suggest that
the BGF is now a serious player on the
investment scene. Designed after a private
equity model, the fund takes minority
stakes in growing companies and has
made a number of successful investments.
For those more established businesses,
commercial finance has been a common
part of the alternative finance landscape
for years, but in common with crowdfunding, there has recently been a move
towards using technology to democratise the offering.
Platform Black is one of several new
websites that allow businesses to cut out
the middleman and sell their invoices to
investors eager to buy SME debt. Promising to deliver cashflow on demand,
Platform Black is marketing itself to both
investors and companies looking for
short-term working capital to finance
both operations and long-term investment.
Platform Black isnt alone. Other
invoice trading platforms have sprung up
in order to provide competition to
commercial lenders as well as the big
banks commercial finance offerings.
Market Invoice is one of the biggest,
and its USP is the transparency of the
system, which allows those buying invoices to better understand those businesses
they are helping to finance. It is focused
more on the larger end of the market, and
is marketing itself to companies that
36
supply to Blue Chip (ie annual revenues

of 50m-plus) customers.
Under its model, a typical transaction
looks something like this: a borrower with
a turnover between 1m-5m submits an
invoice of 100,000 at 30 days to MI. It
immediately is advanced 85 per cent of
that. It is then subject to a buyers fee of
1.25 per cent per 30 days, and pays a 0.99
per cent fee to MI. On that 100,000
invoice, pre-settlement, it amounts to fees

of 2,240. Once the invoice is paid, then
the remainder (12,760) is settled, at a
final rate of 97.79 per cent. All of these
offerings have one thing in common: a
clear stated distance between what they
offer and what the banks can do. Its now
up to the banks to respond.
This article was first published in Chartered Banker,
the magazine of the Chartered Banker Institute
Personal & Professional Development
By Andrew Stone
Andrew Stone
examines the pivotal
importance of
in-house training and
external professional
accreditation, as
offered by the
Institute, to build
competencies that
enhance customer
service and help on
the path to restore
trust in the industry.
key part of the long road to

key part o
restore public belief and
restore p
trust in the banking industrust in th
try is the greater focus by
try is the
financial institutions and regulators financial
on
institutions a
and investment in internal staff training
and investment in inte
to give staff the required skills and best
to give staff the requir
practice in industry knowledge. The
practice in industry
Chartered Banker Institute has been
Chartered Banker In
playing a growing role in helping banks
playing a growing role
raise the bar in their internal coursesraise
by the bar in their in
reviewing the programmes and reviewing
the
the progr
processes and procedures that lie behind
processes and procedu
them. This is done via the Institutes
them. This is done v
accreditation process.
accreditation process.
The Institute is able to accredit courses The Institute is able

designed for everyone from those just
designed for everyone
entering the profession right throughentering
to
the profession
38

38
nnifer Mallon, MBA

the level, explains Jennifer Mallon, the
stitutes Head Chartered
of
Banker Institutes Head of
essional DevelopAccreditation and Professional Development.
guarantee a programme will be accredited.

guarantee a programme will be accredited.
If the quality is not there, if we do not
If the quality is not there, if we do not
think its a good programme, we will
think its a good programme, we will
decline to accredit it.
decline to accredit it.
reditation activity The Institutes accreditation activity

High standards give those running and High standards give those running and
onsiderably in has
the been expanding considerably in the
managing the courses confirmation of managing
the
the courses confirmation of the
ere now working
value of the value the full accreditation
last five years, and were now working
value of the value the full accreditation
a wider spreadwith
of more banks over a wider spread of
process. It gives them the satisfactionprocess.
of
It gives them the satisfaction of
also accredit
knowing they are doing a good job knowing
by
business areas. We also accredit
they are doing a good job by
UK university
being held to a high standard. They value
programmes from UK university
being held to a high standard. They value
growing range qualifications
of
the feedback process we give them and itthe
is feedback process we give them and it is
and a growing range of
mes too. Its international
the
a validation of all the hard work they have
programmes too. Its the
a validation of all the hard work they have
creditation service
been
doingstatus,
and the
of their
andhas
the banks
whole breadth.
Our
accreditation
service
been doing and of their and the banks
Chartered
Banker
status, the
Institute Chartered
has
Banker
Institute
covering everyone
commitment
to improving as
their
caters forexperts
programmes
covering
everyone as well
commitment to improving their people.
with banking
backgrounds
experts with
banking backgrounds
wellpeople.
hief executives.
from new
to chief
executives.
as entrants
subject matter
and
educational experts.
as subject matter and educational experts.
Banks, staff and ultimately their Banks, staff and ultimately their
ge of accrediting a Part of the
benefit from
this process,
accrediting and
a wide Thiscustomers
customers all benefit from this process,
Thisadvantage
breadth of experience
breadth ofallexperience
and wide
through training
the
Mallon.gives
The banks
gain assurance
programme
says Mallon. The banks gain assurance
industry
exposurethrough
gives thetheInstitute
industrysays
exposure
the Institute
l as ensuring itInstitute
is
the into
quality
of effective
their internal
is that as
well asinto
ensuring
it iseffective
that the quality of their internal
valuable
insights
the most
valuablethat
insights
the most
to the internal
as high as it can
aligned course
and suited
to thestructuring
internal
programmes is as high as it can be, that
content,
and
course programmes
content, isstructuring
and be, that
d culture of working
the
theymethodologies,
offer consistency
that they they
are offer consistency and that they are
processes methodologies,
and culture ofsays
theMallon.
assessment
assessment
saysand
Mallon.
also work to help
a good return
on their
bank, the
Institute
willofalso
work to help
getting a good return on their
We
see a lot
programmes
and we We
see seegetting
a lot of programmes
and we see
ain a grasp of ensure
the
investment
in their
people.
also helps
students
also gainwhich
a graspmeans
of thewe can
investment in their people. It also helps
best practices,
best practices,
which
means
we Itcan
obs.
good
quality
people:
People feel
wider context
jobs.how they can enhance
retain good quality people: People feel
explainoftotheir
others
explain retain
to others
how
they can
enhance
valuedtheir
andprogrammes.
it also adds an important
valued and it also adds an important
and improve their programmes.
and improve
ts out: Some As Mallon points out: Some
external validation to the work they do.
external validation to the work they do.
in banks canqualifications
be
and jobs in banks can be
an give individuals
quite specialist and we can give individuals
High standards give those running the courses
hat goes on. a broader picture of what goes on.
confirmation of the value of the training.
of what banks are It sets the context of what banks are

cs and professionall about, covering ethics and professionaccreditation
a rigorous GainingItaccreditation
can also help isindividuals
get closer It can also help individuals get closer
a rigorous
mic issues are that
alism, whatGaining
the economic
issues areisthat
process,
says
Mallon.
We
review
the
to
achieving
Chartered
Banker
status,
process,
says
Mallon.
We
review
the
to achieving Chartered Banker status,
of around credit
they need to be aware of around credit
content,
processes
and
procedures
of
she
adds.
While
accreditation
is
not
content,
processes
and
procedures
of
shea adds. While accreditation is not a
t aims to promote
and risk, for example. It aims to promote
each
course
looking
at
their
quality,
qualification,
it
can
provide
credit
into
each
course
looking
at
their
quality,
qualification, it can provide credit into
edge so staff can
broad banking knowledge so staff can
consistency
and
robustness.
We
also
our
qualification
framework,
meaning
consistency
and
robustness.
We
also
our qualification framework, meaning
ir day-to-day job.
relate the theory to their day-to-day job.
review the assessment methodologyreview
as
individuals
whomethodology
have completed
an
the
assessment
as
individuals
who have completed an
we
need
to
be
able
to
measure
that
accredited
programme
may
find
their
we
need
to
be
able
to
measure
that
accredited
programme
may find their
n the profession is Raising standards in the profession is
someone
has
learned
and
improved.
route
to
a
professional
banking
someone
has
learned
and
improved.
route
to
a
professional
banking
has an unrivalled
something the Institute has an unrivalled
qualification
can
be
slightly
shorter
than
qualification
can
be
slightly
shorter
than
llon. We are experience
the
of, adds Mallon. We are the
We
put
together
a
report
and
make
someone
who
is
doing
it
without
this
We
put
together
a
report
and
make
someone
who
is
doing
it
without
this
te in the world,
oldest banking Institute in the world,
recommendations
and/or
identify
areas
benefit.
recommendations
and/or
identify
areas
benefit.
rs of experience
with nearly 140 years of experience
that need
to be
the need to be fulfilled before we grant the
bankers and raising
the
the
quality
of fulfilled
bankersbefore
and we
thegrant that
accreditation.
This
is
all
subject
to
our
own
Ultimately,
accreditation
is good for Ultimately, accreditation is good for
accreditation.
This is all subject
to our own
nding of reputation
the
and standing of the
internal
quality
and
sign-off
measures.
business
as
the
end
customer
will business
get
internal
quality
and
sign-off
measures.
as the end customer will get
profession.
more value from skilled professionals
more value from skilled professionals
adds: Banker
The brand
accreditation Mallon
whomadds:
they trust,
Mallon. It is whom
no
The says
accreditation
they trust, says Mallon. It is no
ered Banker brand BecauseMallon
the Chartered
process
also
involves
ongoing
conversations
longer
sufficient
to
simply
do
a
good
job
process
also
involves
ongoing
conversations
longer
sufficient
to simply do a good job
nd internationally,
is powerful in the UK and internationally,
on
a
more
informal
level
to
keep
those
any
more.
Bank
customers
are
looking
on
a
more
informal
level
to
keep
those
any
more.
Bank
customers are looking
hat the banks itareadds credence to what the banks are
managing
the
programmes
up
to
date
on
for
people
to
have
completed
compremanaging
the
programmes
up
to
date
on
for
people
to
have
completed compreo work with more
doing internally. We also work with more
progress.
If
we
identify
a
significant
gap,
hensive
training
and
development
progress.
If
we
identify
a
significant
gap,
hensive
training
and development
ide and we have
a 100 banks worldwide and we have a
than
rather
than
saying
sorry,
the
accreditation
programmes
and
to
have
professional
rather
than
saying
sorry,
the
accreditation
programmes
and
to
have professional
king for us whose
range of specialists working for us whose
is
unsuccessful,
we
will
try
to
work
with
qualifications.The
bar
has
been
raised.
is
unsuccessful,
we
will
try
to
work
with
qualifications.The
bar
has been raised.
on.
expertise we can draw on.
them to meet that need.
them toThis
meetwill
thatbecome
need. more of a business-as
This will become more of a business-as
usual activity for the banks.
usual activity for the banks.
reditation is the The Institutes accreditation is the
The
standard,
however,
remains
high,
The
standard,
however,
remains
high,
king and financial
most sought-after banking and financial
explains
Mallon.
Accreditation
explains Mallon. Accreditation is not
This article was first published in Chartered Banker,
enchmark. As services
the
accreditation
benchmark.
As the is not
the magazine of the Chartered Banker Institute
something
they
buy
from
us.
There
is
no
something
they buy from us. There is no
able to confer
only organization able to confer

39
Humor and Quotes
We Are As
THE FLUTE
We are as the flute, and the music in us is from thee;
we are as the mountain and the echo in us is from thee.
We are as pieces of chess engaged in victory and defeat:
our victory and defeat is from thee, O thou whose qualities are
comely!
Who are we, O Thou soul of our souls,
that we should remain in being beside thee?
We and our existences are really non-existence;
thou art the absolute Being which manifests the perishable.
We all are lions, but lions on a banner:
because of the wind they are rushing onward from moment to
moment.
Their onward rush is visible, and the wind is unseen:
may that which is unseen not fail from us!
Our wind whereby we are moved and our being are of thy gift;
our whole existence is from thy bringing into being.
View on Banker
Bankers are driving us to hell in a vehicle,
we are paying the installments on
Anonymous
You could carve out the inside of a brick and
hide your money in it for safe keeping. Its
certainly safer than keeping it in the bank!
Nicole McKay
40
interesting quotes
We are shaped by our thoughts; we become
what we think. When the mind is pure, joy
follows like a shadow that never leaves.
Buddha
Give me six hours to chop down a tree and I will
spend the first four sharpening the axe.
Abraham Lincoln
It is better to lead from behind and to put others
in front, especially when you celebrate victory
when nice things occur. You take the front line
when there is danger. Then people will appreciate your leadership.
Nelson Mandela

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Volume 82 | Issue # 1

Jan 2015 March 2015

April and October

The interbank market remained tight in H1-FY15, despite

Owing to recent foreign exchange inflows, decelerating

Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan

Shan Saeed is Chief Economist at

DR. S. SABIR ALI JAFFERY is

A Road Pakistan Needs

Ammar Arshad is currently working

28 Regulatory support for

Saeed Ahmed Siddiqui M.A (economics), B.Ed

Problems and Solutions

Christian Doherty is a business journalist

34 New Face of Finance

38 Raising the Bar

40 Humor and Quotes

All rights reserved. The material appearing

Journal of The Institute of Bankers Pakistan

A Road Pakistan Needs To Travel

Journal of The Institute of Bankers Pakistan

nclusion Financial inclusion

Journal of The Institute of Bankers Pakistan Journal

Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan Journal

Journal of The Institute of Bankers Pakistan

Global Financial Landscape

Journal of The Institute of Bankers Pakistan

What has actually changed in the last 10 years is that banks

Banks need to encourage clear communication strategies at all levels. If staff is

processes are not followed then criminals

Banks are accountable for every penny to

At all levels, accountability brings out the

The greatest risk protection, however,

Source: CFTC, FCA, OCC and Finma

Banks to pay $ 4.3 Billion in Panelties

Currency market settlement by few banks:

Stress testing vs healthy balance sheet.

Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan

Generally speaking, financial theory views

Journal of The Institute of Bankers Pakistan Journal

Figure 1 . Risk Index and Probability of book value insolvency

Table 1. Pakistans Banking Systems Risk Index andTable

2007 Year 2008

. Risk Index Banks

expected return on assets

index, which is a measure

Figure 3 . Book Value Insolvency Local Private Banks

Journal of The Institute of Bankers Pakistan

During recent years, Pakistans Banking System has been characterized by a

Figure 4 . Components of Risk Index Pakistans Banking Industry.

Table 2 . The components of Risk Index for Pakistans Banking System

Figure 5 . Risk Index for Top 5 Banks

Figure 6 . Probability-Book value Insolvency , for Top 5 Banks

Dubai Islamic Bank

First Women Bank Ltd.

Also, Fig. 5 & 6 compares the RI and

Journal of The Institute of Bankers Pakistan Journal

Journal of The Institute of Bankers Pakistan

First Women Bank Ltd.

AlBaraka Bank (Pakistan) Ltd..

Table 3. Risk Index of Individual Banks