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• LECTURE 1
The role of public
policies in governing
business
Public policy definitions
1. “Course of action of a person, group, or a government to reach a
goal or realize an object or a purpose” (Friedrich, 1963)
2. “Set of interrelated decisions taken by a political actor or group of
actors concerning the selection of goals and the means of achieving
them” (Jenkins, 1978)
3. “The actions of government and the intentions that determine those
actions” (Cochran et al.)
4. “The outcome of the struggle in government over who get what”
(Cochran et al.)
5. What government chooses to do or not to do (Dye, 2002)
6. A statement by government of what it intends to do such as a law,
regulation, ruling, decision, order or a combination of these.
What is public policy
1. Daniel McCool (Professor, Political Science
Department, University of Utah) argues that modern
policy studies began in 1922 when Charles Merriam
(Charles Edward Merriam, Jr. was a professor of
political science at the University of Chicago,-1874-
1953)sought to connect the theory and practice of
politics to understanding the actual activities of
government.
2. “Discipline” of public policy did not sprung into existence
in 1950s and 1960s.
3. Contemporary discipline – debate remains over whether
there is one coherent set of principles that can govern
the study and understanding of what we call the public
policy process
TYPES OF PUBLIC POLICIES
• Constituent.
• Distributive
• Regulatory
• Redistributive
• Material
• Symbolic
• Capitalization Public Policy
• Technical Public Policy
1. Constituent Public Policy: Policies for Govt Structures, with the
establishment of rules/procedures for the conduct of rules that distribute or
divert power and jurisdictions through which present and future polices
might be made-regarded as state building (e.g. creating of SECP).
National level
State level
Regional Level
International Level
NEED FOR PUBLIC POLICY IN BUSINESS
GOVERNMENT GOVERNANCE HIGH LEVEL MODEL
PUBIC POLICIES RELATIONSHIP WITH SME’S
EXPLANATION OF QUANTITATIVE METHODS
FOR CREDIT CONTROL
• BANK RATE POLICY: IT IS DEFINED AS THE OFFICIAL MINIMUM RATE AT WHICH CENTRAL
BANK REDISCOUNTS BILLS OF EXCHANGE. THE BANK RATE IS THE RATE AT WHICH CENTRAL
BANK IS READY TO BUY OR REDISCOUNT ELIGIBLE BILLS OF EXCHANGE AND OTHER
COMMERCIAL PAPERS.
• OPEN MARKET OPERATIONS: IT REFERS TO THE PURCHASE AND SALE OF GOVERNMENT
SECURITIES AND OTHER APPROVED SECURITIES BY THE CENTRAL BANK. AN OPEN MARKET
SALE DECREASES THE MONEY SUPPLY AND A PURCHASE INCREASES THE MONEY SUPPLY.
• STATUTORY LIQUIDITY RATIO: THE MAIN ROLE OF STATUTORY LIQUIDITY RATIO IS TO
ALLOCATE BANK CREDIT BETWEEN GOVERNMENT AND COMMERCIAL SECTORS (RESERVE
REQUIREMENT OF THE BANKS TO MAINTAIN). APART FROM CASH RESERVE RATIO (CRR),
BANKS HAVE TO MAINTAIN A STIPULATED PROPORTION OF THEIR NET DEMAND AND TIME
LIABILITIES IN THE FORM OF LIQUID ASSETS LIKE CASH, GOLD AND UNENCUMBERED
SECURITIES.
• SELECTIVE CREDIT CONTROLS: THE SELECTIVE CREDIT CONTROLS ARE USED TO REGULATE
CREDIT FOR SPECIFIC PURPOSES. THESE CONTROLS OPERATE ON THE DISTRIBUTION OF
TOTAL CREDIT BY ENCOURAGING THE FLOW OF CREDIT INTO CERTAIN SECTORS AND
DISCOURAGING ITS FLOW INTO CERTAIN OTHER SECTORS OF ECONOMY. THE IMPORTANT
SELECTIVE CREDIT CONTROLS INCLUDE CREDIT RATIONING, DIRECT AGAINST THE ERRING
BANKS, CHANGES ITS MARGIN REQUIREMENTS, DIFFERENTIAL RATE OF INTEREST AND
MORAL SUASION.
EXPLANATION OF QUALITATIVE METHODS
FOR CREDIT CONTROL
• CREDIT RATIONING: IT REFERS TO THE SITUATION WHERE LENDERS LIMIT THE SUPPLY
OF ADDITIONAL CREDIT TO BORROWERS WHO DEMAND FUNDS, EVEN IF THE LATTER
ARE WILLING TO PAY HIGHER INTEREST RATES. IT IS AN EXAMPLE OF MARKET
IMPERFECTION, OR MARKET FAILURE, AS THE PRICE MECHANISM FAILS TO BRING ABOUT
EQUILIBRIUM IN THE MARKET.
• A SECURITY IS MARGINABLE IF IT CAN BE TRADED ON MARGIN THROUGH
A BROKERAGE OR OTHER FINANCIAL INSTITUTION. SECURITIES WITH
HIGH LIQUIDITY AND MARKET CAPITALIZATION ARE MORE LIKELY TO BE MARGINABLE.
OTHER SECURITIES, SUCH AS STOCKS PRICED BELOW $5/SHARE, ARE
NOT MARGINABLE.
ALTERING MARGINAL REQUIREMENTS: IT IS THE PERCENTAGE OF MARGINABLE
SECURITIES THAT AN INVESTOR MUST PAY FOR WITH HIS/HER OWN CASH.
• DIFFERENTIAL RATE OF INTERESTS: IT CAN BE ANY SCHEME OF DIFFERENTIAL RATE OF
INTERESTS, NATIONALIZED BANKS ADVANCE TO THE WEAKER SECTIONS OF SOCIETY
LOANS AT A CONCESSIONAL RATE OF INTEREST.
• MORAL SUASION IS A PERSUASION TACTIC USED BY AN AUTHORITY TO INFLUENCE
AND PRESSURE, BUT NOT FORCE, BANKS INTO ADHERING TO POLICY. TACTICS USED
ARE CLOSED-DOOR MEETINGS WITH BANK DIRECTORS, INCREASED SEVERITY OF
INSPECTIONS, APPEALS TO COMMUNITY SPIRIT, OR VAGUE THREATS.
PHYSICAL CONTROLS
• INDUSTRY SPECIFIC
• INDUSTRY WIDE
• FUNCTIONAL
• MEDIA ATTENTION
PUBLIC POLICIES AND GOVERNMENT
REGULATIONS IN PAKISTAN
• BANKING AND CREDIT LAWS
• BANKING COMPANIES ORDINANCE, 1962 AND BANKING COMPANIES RULES, 1963
• STATE BANK OF PAKISTAN ACT, 1956
• DRAFT BANKING ACT, 2006
• FINANCIAL INSTITUTIONS (RECOVERY OF FINANCES) ORDINANCE, 2001
• FOREIGN EXCHANGE MANUAL, 2002
• MICRO-FINANCE BANKING ORDINANCE, 2000
• MICROFINANCE INSTITUTIONS ORDINANCE, 2001