The financial services market is undergoing a lot of changes. Customers always have appetite for more and are well knowledgeable, looking for convenience and ease when it comes to financial services, particularly via internet and mobile phones making innovation and transformation two most powerful forces that are reshaping the banking industry. Customer expectations, technological capabilities, regulatory requirements, demographics and economics are some of the challenges that banks need to overcome in order to sharpen their tools for entering into the new era. Modern powerful tendencies are reshaping the banking industry. Social media and evolution of mobile technologies force retail banking…
Author: Ahsan Nisar
As the technological landscape changes, so too does the expectation of consumers who shop in stores and online. Mobile technology, social networking and advanced analytics have aided in changing the shopping experience. It is no longer a question of whether or not consumers will migrate to online sales in greater numbers. For instance, regardless of whether or not they actually buy online, around 50 percent of consumers say they prefer to shop online. Age seems to make a difference as well – shoppers younger than 40 show the greatest likelihood of online shopping. One of the reasons more consumers are…
In today’s context e-commerce is a potent tool to further the goal of financial inclusion by drawing more people within the digital financial services space, irrespective of income and social status. Through simple payment and delivery options, innovative e-commerce solutions have the potential to transform the overall consumer shopping experience and positively influence customer behavior change particularly with regards to moving away from cash, thereby encouraging traditional brick-and-mortar retail shops to expand their electronic presence. With foundations well in place for digital commerce to flourish in Pakistan, it is only a matter of time before e-commerce takes the Pakistani consumer…
Pakistan is currently passing through a demographic transition, which has resulted in a ‘youth bulge’ (63% of our population comprising of youth, 69 million aged below 15) and an increase in the working-age population as a share of the total population. To reap the ‘demographic dividend’ of this change, the economy needs to provide education and create productive and remunerative employment for young workforce entrants. Foreign entrants such as Uber & Careem, through their entry, have acknowledged the economic potential of a nation with young population. Moreover, innovation through digitization and entrepreneurship are playing their part in human capital development.…
The OPEC and non-OPEC production cuts and the rising demand have been in play, which has lifted the crude oil prices to over $60 a barrel. This increase in crude oil prices will be celebrated by the oil and gas E&P companies around the world that have been investing in the low price – and hence low-cost era. Though prices are expected to rise in 2018, they are likely to set in a range of $60-70 per barrel. And while better oil price scenario has worked in the interest of these firms, the industry has also received another boost from…
Natural gas is one of the principal sources of energy in our economy. The past decade has witnessed substantial changes in the policy use of natural gas. Out of the box, unproductive and inefficient usage of natural gas has nearly exhausted our quantified conventional natural reserves. Paradigm changes in the development of technology have created the potential to recover more natural gas from shale formations, which can be used to meet our growing demand for energy and to sustain economic development. Shale gas is becoming increasingly important source of natural gas across the world with estimates of more than 15,000…
The government has failed to adopt what is normally termed ‘any marketing strategy’ to boost manpower exports with a view to enhance declining home remittances. On the other hand, India is on a rampant path to take over Pakistani manpower market in the Middle East for which Indian Prime Minister Narendra Modi visited United Arab Emirates (UAE), Saudi Arabia and Qatar last year and successfully achieved new workforce supply orders, no doubt, at the cost of Pakistan. India is said to have made inroads in Gulf Cooperation Countries (GCC) which had traditionally been Pakistani manpower market. Unfortunately, no attempt was…
Pakistan is currently passing through a demographic transition, which has resulted in a ‘youth bulge’ (63% of our population comprising of youth, 69 million aged below 15) and an increase in the working-age population as a share of the total population. To reap the ‘demographic dividend’ of this change, the economy needs to provide education and create productive and remunerative employment for young workforce entrants.Foreign entrants such as Uber and Careem, through their entry, have acknowledged the economic potential of a nation with young population. Moreover, innovation through digitization and entrepreneurship are playing their part in human capital development. Below…
Muslims will make up more than a quarter of the world’s population by 2030. The global Islamic market was worth over $3.6 trillion in 2013, and the market is projected to be worth over $5 trillion by 2020, according to reports published in the leading magazine. The Halal food market is projected to be worth $1.6 trillion by 2018. This sector is also estimated to be growing faster than the conventional food market, and could exceed 17% of the world food market by 2018. Halal’s burgeoning popularity can be linked to religious fervor; and beliefs that it’s cleaner, healthier and…
The country’s agricultural sector has three major roles in the national economy: provides food to consumers and fibre to the industry, earns foreign exchange, and provides a market for industrial goods/machinery. However, the share of agriculture in gross domestic product (GDP) has declined since independence, falling from 53 percent in 1949-50 to 19.8 percent in 2016-17. Pakistan has made significant progress in food production over the last several decades. However, food security is still a key challenge due to high population growth, rapid urbanization, low purchasing power, high price fluctuations, erratic food production, and inefficient food distribution systems. According to…
Highlights of 2017 8.5% growth in Large-Scale Manufacturing (LSM) Inflation rate of 3.9% Super strong growth in lending to the private sector 74.4% growth in Foreign Direct Investment (FDI) worth $939.7 million 19.5% growth in the Federal Board of Revenue (FBR) Tax Revenues and a double-digit growth in exports Considering the mixed trends in the macro-economy, which includes challenges and opportunities, GDP growth is expected to remain between 5-6 percent in 2018. The economy is expected to benefit from accommodative macroeconomic environment, activities related to the China-Pakistan Economic Corridor (CPEC) and constantly improving energy supply and security situation. Pakistan’s annual…
Microfinance Microfinance is just one tool in the war against poverty. For microfinance to be successful at poverty reduction, it must be used in conjunction with education, health and other social interventions. Microfinance becomes a multiplier force in such a scenario. Not only does it reduce poverty, it creates an even playing field by bringing the marginalized population into the banking net. The reality is that this customer-base pays an exorbitant price for the services that the banked population uses. The microfinance industry has been successful in opening mobile accounts, but has yet to make these accounts active. The microfinance…
Pakistan is, and has been, a highly consumption-oriented society. The much lower level of investment in Pakistan reflects, in large part, a much lower level of national savings. The ratio of gross investment to GDP has averaged 15percent since 2010 and is actually somewhat lower than it was in the previous four decades. In contrast, gross capital formation in India has risen very sharply and has been well above 30 percent of GDP during the last decade. Improving the security situation, more effective rule of law and better relations with its neighbors would greatly strengthen faith in the future of…
In the wake of widening external deficits, dwindling reserves and uncompetitive exports in the back drop of political uncertainty, the million-dollar question that arises is where to invest in 2018? Well, definitely not the Bitcoins, at least till the time it is recognized as a currency. While the economic managers are still busy understanding the sector-wise impact of the recent fall in the rupee’s value, meanwhile, investors keep themselves away from taking long-term positions in stocks. Even foreign investors, whom everyone expected to swoop in to pick up stocks in the event of rupee depreciation, have continued to keep their…
Review of banking industry In order to propel economic growth, the State Bank of Pakistan has recently identified three priority areas for extending loans — agriculture, SMEs and low-cost housing finance with focus on financial inclusion and Islamic banking. Right mix of agriculture sector policies can give an immediate push to growth. Although, the banks disbursed Rs700 billion in agriculture sector loans, the data shows that the production loans are even lower than the previous year’s level. Banks also have not done well in the SME sector, as in a span of just 10 years, the SME lending as percentage…
The strong rupee policy stance adopted by the government has caused grave damage to the economy. From managed float regime, it had become a fixed rate regime which caused drop in exports and remittances. The continuation of high growth in imports led to a widening of current account deficit, and consequently to depletion in the country’s foreign exchange reserves. Pakistan is facing major challenges of growing public debt, stagnation in exports, widening of the current account deficit, overvaluation of the nominal and real effective exchange rates, slowing down of growth in credit to the private sector, expansion of the informal…
After trading in the tight range of 104-105 per dollar since December 2015, the Rupee plunged to as low as 110 per dollar to settle around 108.40-50 per dollar. Economists and businesses have been urging the government to devalue the rupee, saying it was hurting exports and contributing to the depletion of Pakistan’s foreign currency reserves. A weaker rupee would help the economy grow and ease balance of payments pressures. The recent devaluation will help exportable products become competitive in the international market. The government had no choice as the trade deficit has crossed all limits. While on one hand,…
Among the seven Gulf Cooperation Council (GCC) countries, the UAE is the biggest investor in Pakistan. From 2004 to 2017, its public and private sector investments totaled more than $6 billion. Several key companies such as Emirates National Oil Company, International Petroleum Investment Company, Etisalat, Al Ghurair, Abraaj Capital, Dana Gas, Emirates Investment Group, Emaar, DP World, Julfar, Arabian Packaging Company and others have invested in Pakistan. Vast UAE foreign direct investment and joint ventures have been operating successfully in Pakistan for years. A large number of high-dividend FDI investment and joint venture opportunities exist in Pakistan. These include sectors…
Value Added Tax (VAT) is expected to be introduced at a rate of 5 percent with some limited exceptions including basic food items, healthcare and education. The UAE are planning to implement on 1st January 2018 — other Gulf Cooperation Council (GCC) countries may do so at the same time or by 1st January 2019 at the latest. The GCC member states are in the process of approving the long anticipated common framework for the introduction of a Value Added Tax (VAT) system in the GCC. The common VAT framework will form the basis for the introduction of a national…
[dropcap]P[/dropcap]akistan is a net oil importer and meets about 75 percent of needs through imports. Oil imports carry the heaviest weight in total imports of the country. Pakistan has a total refining capacity to process around 400,000 bpd or about 19MTPA of crude oil, against the current demand of 24MTPA. Total global refining capacity is 97 million bpd, and Pakistan, with nominal world share of 0.4 percent, is ranked 48th. Demand for oil products in the country is expected to grow steadily at seven percent on year-on-year basis, according to recent studies, in particular for the furnace oil, motor spirit,…
[dropcap]W[/dropcap]ith the affairs of Ministry of Finance now an open secret, the cat is finally out of the bag. The fresh statistics have exposed the cosmetic touches done to the economy causing concerns about long-term sustainability of the external sector. The current account deficit widened to US$ 5.0 billion during July-Oct FY18 as compared to $2.3 billion during the corresponding period in FY17. The good news is that Pakistan’s exports have seen an improvement during July-Oct FY18 growing at 11.3 percent as compared to the decline of 3.1 percent in the comparable period last year; and remittances have recorded a…
[dropcap]P[/dropcap]akistan has a well-developed cement industry with abundant raw material availability in the country. The country ranks amongst the top five exporters and 14th largest cement producer in the world. Cement is the prime ingredient used in the construction industry. Cement consumption has a direct correlation to economic growth and improvement in the living standards of society. The cement industry in Pakistan is currently thriving, thanks to the country’s booming construction industry and high demand for residential and commercial developments within the country. The growth can be seen affecting both the commercial and residential sectors, with many new housing developments…
[dropcap]D[/dropcap]espite having an extremely well-developed cement industry, Pakistan’s per capita cement consumption which stands at 140 kgs, is the lowest in the world – the global average is 400 kgs per capita. Poor economic growth, lack of government interest in infrastructure projects and high real estate and housing prices have kept local cement demand fairly low and for many years, cement manufacturers, especially those based in the south region (Sindh and Balochistan), have focused mainly on exports. Manufacturers whose production facilities are in the north (Khyber Pakhtunkhwa and Punjab) have shied away from exports due to prohibitively high costs of…
[dropcap]E[/dropcap]very year, National Savings Day is celebrated on 31st October, still Pakistan continues to be categorized among the low savers of the world. Historically, the highest national savings rate has been much lower than regional peers at the same income level. One of the strong reasons for the informal saving channel to exist is the paucity of savings instruments that an individual has access to. The financial system now needs to focus on providing innovative liability products to give the investors and savers various options to choose from, according to their risk/return preference. Extending outreach of financial services to currently…
[dropcap]T[/dropcap] wo aspects of our economic environment that weigh down on growth are the huge (effective) share of indirect taxes in tax revenue and the second is the declining contribution of national savings to national development. Instead of fueling growth, savings are largely recycled by banks to serve government’s fiscal needs. SAVINGS AND INSURANCE The concept of life insurance has evolved from a primary emphasis on conventional insurance protection to a relatively advanced form of a savings product. Life insurance products enhance the role of insurance in an economy by helping in the: (1) mobilization of savings; (2) development of capital…
[dropcap]N[/dropcap]early all will say CPEC is a game-changer, but some will ask for whom? Others will flag that CPEC is the largest foreign investment into Pakistan, but many will question whether the country will be able to bear the debt burden resulting from it. The ongoing debate on financing the burden of CPEC needs to be analyzed based on facts rather than opinions. The total committed amount under CPEC of $50 billion is divided into two broad categories: $35 billion is allocated for energy projects while $15 billion is for infrastructure. The entire portfolio is to be completed by 2030.…
[dropcap]A[/dropcap]s incredible as it may seem in this hyper-connected, technologically advanced era, half the planet’s population exist as “financial nomads”—those who nourish and shelter themselves without using traditional banking services. While the wealthy live at the top of a metaphorical pyramid, taking financial security and banking services for granted, there are billions of people who struggle at the pyramid’s base in an exhausting state of financial exclusion and insecurity. Times are changing rapidly, but despite global uncertainty, technology has the capacity to reach and equip people in all walks of life. Advances in communications have reconfigured the ease with which…
[dropcap]A[/dropcap]fter thorough analysis, following have been identified as some of the major causes of power shortage in Pakistan: Increase in circular debt because of failure to curb power theft Inability to recover billed amounts from consumers Decline in hydro power because of water shortage Decrepit secondary transmission lines The increase in circular debt was bound to happen because it is inherent in government policy. Circular debt clogs the system as it deprives cash flow to all players at each stage of the supply chain. Government policy and management has much to do with it. At one end of the chain,…
[dropcap]A[/dropcap]ccording to Investopedia’s definition, “Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies like bitcoin.” Banking has historically been one of the business sectors most resistant to disruption by technology and the ubiquity of mobile devices has…
[dropcap]B[/dropcap]asic mind set of any type of investor is to manage the risk and maximize the returns. The common phenomenon in managing the risk is diversification or, in other words, not putting all the eggs in one basket. The diversification requires choosing which baskets to put your eggs in; and most importantly how much? This gap of lack of knowledge and expertise to invest in the financial markets lead the experts to come up with solutions for investment and minimizing the risk through efficient management of large portfolios consisting of debt and equity instruments. The investors are primarily concerned with…
COMPLIANCE [dropcap]C[/dropcap]ompliance function at banks continuously strives for improving the compliance environment and minimizing compliance risk for the institutions through independently assessing compliance risk and evaluating banks’ internal controls for adherence to applicable laws, rules and regulations, including identifying compliance issues and independently reporting on the state of compliance activities across the institutions. Banks’ approach towards the management of compliance risk is covered in their Compliance Policy which outlines the requirements of the compliance programs and defines roles and responsibilities related to the implementation, execution and management of the compliance programs. These requirements work together to drive a comprehensive risk-based…
[dropcap]I[/dropcap]n 2014, the Organization for Economic Co-operation and Development (OECD) established the Common Reporting Standard (CRS), laying the groundwork for a new global network of tax reporting. The CRS calls on the tax authorities of participating countries to obtain information from their financial institutions and automatically exchange that information with other countries on an annual basis. The purpose of the CRS is to combat international tax evasion. There are now more than 1,300 bilateral relationships in place across 101 jurisdictions committed to exchanging information in 2017 and 2018. This comprehensive cross-border transfer of sensitive financial data between jurisdictions raises important…
FINANCIAL INCLUSION [dropcap]I[/dropcap]n recent years, financial inclusion is one area where stakeholders of the financial ecosystem have been focusing lately as part of a broader strategy to reduce poverty, encourage economic development and promote stability and security. The term ‘financial inclusion’ refers to the provision of accessible, usable, and affordable financial services, either through the formal or informal financial sector, to underserved populations. Financial inclusion also applies to underbanked’ communities, where people lack reliable access to or are unable to afford the associated costs of financial services. On a macroeconomic level, financial inclusion is linked to economic and social development,…
[dropcap]A[/dropcap]ccording to World Bank’s forecasts, owing to improved security and energy supply situation, economic growth in Pakistan is expected to increase from 5.2 percent in FY2017 to 5.5 percent in FY2018. This is contingent on the fact that growth among the world’s seven largest emerging market economies is forecasted to increase and exceed its long-term average by 2018. Recovering activity in these economies should have significant positive effects for growth in other emerging and developing economies. After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions…
[dropcap]T[/dropcap]raining and development are vital for progressive organizations. It is a fact that poorly trained employees can pose a serious operational risk and threat to very existence of banks. Therefore, banks need to pay due attention to training and development of their employees. Employee development is a joint, on-going effort on the part of an employee and the organization for which he or she works to upgrade the employees’ knowledge, skills, and abilities. Successful employee development requires a balance between an individual’s career needs and goals and the organizations need to get work done. Employee development programs make positive contributions…
[dropcap]A[/dropcap]fter the recent Habib Bank Limited (HBL) saga and National Bank of Pakistan (NBP) Bangladesh scam, the need for prudent bankers could not be over emphasized. There was a time when stalwarts like Agha Hassan Abdi, Shaukat Tareen, Zakir Mehmood, Ishrat Hussain dominated the banking industry. While such names are rare to find these days, still Pakistan could boast of producing good bankers that are not only serving domestically but are also proving their mettle in Gulf Cooperation Council countries. A host of bankers hailing from Pakistan are already serving in the higher management of banks in Kingdom of Saudi…
[dropcap]A[/dropcap]s compared to the fellow South Asian countries, Pakistan has a relatively friendly policy for the Foreign Direct Investment (FDI) making the country as one of the next best alternatives for the international investors who wish to invest in the industrial and manufacturing sector. While the investment outlook has improved, particularly with the improvement in law and order, however, corruption remains a major hurdle to foreign investment. Also, presently, FDI is coming from a handful of countries, which indicates that a lot needs to be done to make the country attractive for international investors. After being the frontline state in…
[dropcap]F[/dropcap]oreign Direct Investment (FDI) has not been picking up in Pakistan for the last three years despite regular investments from China. The State Bank of Pakistan (SBP) has called an increase in FDI ‘imperative’ for the sustainability of the economy’s external sector. Foreign Direct Investment in Pakistan increased by US$2,761.10 million in 2016. Foreign Direct Investment in Pakistan averaged US$2,651.26 million from 2010 until 2016, reaching an all-time high of US$3,184.30 million in 2010 and a record low of US$2,099.10 million in 2012. Gross FDI inflows have been either declining (in FY14 and FY15) or only marginally increased (in FY16)…
[dropcap]D[/dropcap]espite encouraging advancements in the number of first time bank account holders, a startling gender gap persists in financial inclusion as a result of a variety of barriers to access across the developing world. Bringing women into the formal financial sector not only empowers them directly but also leads to welfare gains for the entire household and the community at large. At present, out of the 2 billion unbanked globally, 1.1 billion are women. The problem is especially acute in developing economies with women 20 percent less likely than men to have a formal bank account and 17 percent less…
[dropcap]P[/dropcap]akistan has the lowest rate of female entrepreneurship in the world, with only 1% of female entrepreneurs compared to 21% of male entrepreneurs. Access to finance is one of the factors that has prevented women from engaging in entrepreneurial activities, with only 5% of women having access to an account at a formal financial institution. Beyond this, there are many structural, institutional and socio-cultural barriers that restrict the entrepreneurial capabilities of Pakistani women. Below are a few norms that are particularly important to understand and address so that we can bring more women into the formal financial sector. Limited or…
FIRST WOMEN BANK LIMITED [dropcap]F[/dropcap]irst Women Bank Limited is a unique financial institution, a scheduled commercial bank, set up in 1989 by the then Prime Minister Benazir Bhutto, who wanted a bank that would meet the banking needs of women. It was incorporated in the public sector as a Public Limited Company on 21st November 1989 under the Companies Ordinance, 1984. The Bank commenced its business on 2nd December 1989 with a paid up capital of Rs100 million; 90% of which was contributed in varying proportions by five leading public sector banks of the country. They were: National Bank of…
[dropcap]O[/dropcap]n April 23, 2016, Pakistan signed Paris climate agreement, joining 174 other nations in a commitment to combat climate change. The Paris Agreement is an agreement among 175 countries within the UN Framework Convention on Climate Change (UNFCCC) dealing with CO2 emissions reduction. The agreement went into effect on November 4, 2016. The contribution that each individual country will make to combat climate change should be reported every five years and are to be registered by the UNFCCC Council. Research and development in e-car business date back to the 19th century. With the first electrically powered car being produced in…
[dropcap]P[/dropcap]akistan’s auto market is considered among the smallest, but fastest growing in South Asia. Over 280,000 cars were sold in the fiscal year 2016-17, rising from just above 200,000 units during fiscal year 2015-16. At present, the auto market is dominated by Honda, Toyota and Suzuki. However, on 19th March 2016, Pakistan passed the Auto Policy 2016-21, which offers tax incentives to new automakers to establish manufacturing plants in the country. In response, Renault-Nissan, Kia Motors, Audi, Volkswagen and Hyundai have expressed interest in entering the Pakistani market. Pakistan is a market of more than 200 million people. Given the…
AFFORDABILITY & ACCESS TO FINANCE [dropcap]P[/dropcap]akistan has a housing backlog of almost 10 million units (source: ABAD’s Real Estate Research, 2016 and Lamudi’s White Paper 2017). Only one percent of the housing units developed annually cater to 68 percent of Pakistan’s total population, comprising people who earn a maximum monthly income of Rs30,000. On the other hand, almost 56 percent of housing units target 12 percent of the population, comprising individuals with a monthly income of Rs100,000 and above. Currently, the housing shortage is estimated to be over nine million units with demand growing at a rate of 0.6 million…
[dropcap]T[/dropcap]he housing finance market is among the most important in the economy. It accounts for a sizeable portion of the production activity of a country, through its backward linkages to land markets, building materials, tools, durable goods and labor markets. During the last few years, favorable developments in the economy have facilitated the offering of housing finance by financial institutions. The increasing scope of finance for housing in Pakistan has led many local and foreign banks to be engaged in house financing activities. Low interest rates stimulate the real estate sector by encouraging home-buying activity and by making it less…
GROWTH TRENDS AND FUTURE PROSPECTS OF ISLAMIC HOME FINANCING [dropcap]A[/dropcap]fter the steps taken by State Bank of Pakistan (SBP) to promote housing finance in Pakistan and interest taken by banks to engage in home financing, the housing finance sector is growing. It is important to note that share of Islamic banking in Pakistan’s banking industry is more than 10 percent, however, in case of mortgage financing the share of Islamic product is over 20 percent. Today, Islamic Banking is available through 6 full-fledged Islamic banks and 16 conventional banks having Islamic banking branches. Islamic banks are currently able to offer…
[dropcap]P[/dropcap]akistan’s banking sector is passing through a phase that is both challenging and exciting. While challenges emanate from low interest rate scenario, maturity of high yielding government securities, rising cost of doing business, lack of broad based growth in private sector credit appetite, rising undocumented economy with high unbanked population and changing regulatory framework. Currently, there are robust growth opportunities in the retail segment across the country including rural areas and continuing opportunities for digital transformation led by technology and telephony services. The banking industry is undergoing significant transformation and the pace of commotion in the industry is accelerating. More…
[dropcap]S[/dropcap]ocial media is particularly a powerful channel of communication and therefore is of significant value to firms. Social media allows firms to contact their customers and vice versa, both pre- and post-sale. There are now more ways than ever to receive promotions, deals and points from financial services companies. Financial institutions are using the social web to facilitate payments, provide deals and gain customer’s trust. Social media has become a standard channel of communications for customers. Digital devices are growing on an exponential level. Globally, 46% of consumers have access to social media with digital devices to make informed purchases.…
[dropcap]B[/dropcap]asic mind set of any type of Investor is to manage the risk and maximize the returns. The common phenomenon in managing the risk is diversification or, in other words, not putting all the eggs in one basket. The diversification requires choosing which baskets to put your eggs in; and most importantly how much? This question and lack of expertise to invest in the financial markets gave birth to the mutual funds. The financial market experts found a gap and translated it in to the win-win situation for those who doesn’t exactly know when and where to invest and minimizing…
[dropcap]A[/dropcap] vibrant and robust capital market has a pivotal role in the economic growth and development of a country. There is strong evidence that countries with large stock market capitalization to GDP ratio also have large long term mutual funds (including pension funds) assets to GDP ratio. A prerequisite to the growth of mutual funds industry is the level of domestic savings and access to supply of tradeable stocks and bonds. Pakistan has a robust capital market infrastructure and adequate regulatory frame work. Pakistan Stock Exchange is also amongst the best performing stock exchanges in the world. Still the capital…
[dropcap]A[/dropcap]ccess to financing is now widely acknowledged as a path to meaningful economic inclusion and reduction in poverty. Policy efforts to increase access to finance in Pakistan have taken time to bear fruit, but now access is indeed expanding quickly in certain financial sectors (microfinance, remittances) albeit from a very low base. Nevertheless, policy measures cannot single-handedly increase financial access; financial institutions’ willingness to expand access in Pakistan has been stinted by slow technologic advances, weak legal foundations, and unsuitable financial processes and products. Poor socioeconomic conditions, gender bias, and low levels of basic education and financial literacy remain barriers,…
[dropcap]T[/dropcap]here are two schools of thoughts on the effect microfinance has had on poverty and financial inclusion. One says that there is no empirical evidence to support the claim that microfinance reduces poverty. They argue that the loan size is too small and, in fact, the high interest rate leads to a cycle of institutional indebtedness, let alone a reduction in poverty.The other school of thought is led by Dr. Muhammad Younus, who was awarded the Nobel Peace Prize in 2006, jointly with Grameen, the bank he founded in Bangladesh. Dr. Younus asserts microfinance is not just about lending. It’s…
IMPORTANCE OF INSURANCE [dropcap]B[/dropcap]roadly, there are two main channels through which the insurance sector can help the economic and social development of a country: first, by reducing uncertainty, and second, by generating long-term financial resources. Through the first channel, a well-functioning insurance sector facilitates the investment decision-making process and enables businesses to continue operating even if catastrophic events (such as earthquake, floods, and severe weather conditions, etc.) hit the economy. The latter, in turn, provides some protection to households by reducing probability of job and income losses. A developed and healthy insurance industry also protects households from any major financial…
[dropcap]I[/dropcap]nsurance companies are termed as the largest investors in capital markets, in addition to being characterized as the sole suppliers of insurance business to reinsurance companies. The insurance sector fosters financial stability by enabling economic agents to undertake various transactions with the facility of transfer and dispersion of risks. As a crucial component of the financial system, insurance plans are an important source of savings and long-term institutional investments essential for the development and growth of capital markets. The role of insurance as a financial intermediary is particularly important in countries like Pakistan with low levels of financial penetration. The…
[dropcap]W[/dropcap]hile the government makes tall claims of providing education to the citizens this is not reflected in the budget for the fiscal year 2017-18, which shows a decline in the amount earmarked for education. The government has allocated Rs2,961.926 million for the Ministry of Federal Education and Professional Training for fiscal year 2017-18 in the Public Sector Development Program (PSDP). A total amount of Rs576 million has been earmarked for new schemes of the Ministry of Federal Education, while Rs2,385.926 million would be spent on the ongoing schemes. The allocated amount for the new important schemes includes capacity building of…
[dropcap]E[/dropcap]ducation plays a pivotal role in the rise and fall of the nations especially in the 21st century importance of education influence much to meet the fast growing challenges. It is mainly due to the emergence of global competition in education and technology. This competitive environment is the core need for progress of any country. All countries including Pakistan have different school systems but when we divide them we find two major categories of school systems: private and public schools. In Pakistan, private schools are getting mass acceptance today to ensure sustained progress of the country. During 1990s and 2000s,…
[dropcap]T[/dropcap]he power sector in Pakistan is a mix of hydel and thermal units dominated by two vertically integrated public sector utilities that are Water and Power Development Authority (WAPDA) for all of Pakistan except Karachi, and the K-Electric (formerly KESC) for the city of Karachi and its surrounding areas and as well there are a number of independent power producers that contribute significantly in electricity generation in Pakistan. For years, the matter of balancing Pakistan’s supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply…
[dropcap]T[/dropcap]he present energy supply situation necessitates immediate working on alternative/renewable energy sources. The following analysis of energy situation in Pakistan further accentuates the need for the same. Some of the causes of power shortage are: – Increase in circular debt because of failure to curb power theft – Inability to recover billed amounts from consumers – Decline in hydro power because of water shortage – Decrepit secondary transmission lines To begin with, government must reconsider its approach to energy policy. Currently, the policy places too much emphasis on generation and not enough thought on why there is shortage in the…
[dropcap]T[/dropcap]he federal government has recently sold the Pakistan Security Printing Corporation (PSPC) to State Bank of Pakistan (SBP) for Rs100 billion as it seeks to cover shortfall in its revenues that surfaced after the United States withheld Coalition Support Fund (CSF) disbursements. The PSPC will now operate as a subsidiary of the State Bank of Pakistan (SBP). Primarily, the transaction will be a book management which was aimed at getting an extra Rs100 billion from the central bank to meet non-tax revenue shortfalls. For fiscal year 2016-17, the federal government had estimated receiving Rs280 billion from the central bank as…
[dropcap]T[/dropcap]he growth momentum of the banking industry in the second quarter of 2017 was supplemented by favorable macroeconomic conditions i.e. low interest rates, strengthening aggregate demand, uptick of industrial activity and positive outlook as CPEC related projects gain steam. However, low interest rates and build-up of low yielding stock of short-term government bonds has moderated the profitability of the banking sector. The profitability of the banking sector is expected to see some recovery given anticipated increase in both advances and investments. From solvency standpoint, banks are well positioned as the prevailing CAR is well above the minimum required level of…
[dropcap]I[/dropcap]mport payments is an important component of trade balance in the compilation of Pakistan’s Balance of Payments estimates. The payments of services contain all payments through banking channels performed by the nonresidents for residents, which includes transportation, travel, communication, construction, insurance, financial, computer and information, royalties/franchising and license fees, other business services, personal, cultural and recreation and government services. In 2001, remittance of royalty/franchise and technical fee or service charges was allowed by State Bank of Pakistan in the newly-opened sectors for Foreign Direct Investment (FDI) as per Government’s Investment Policy i.e. agriculture, social Infrastructure and service projects including international…
[dropcap]B[/dropcap]usinesses expand by franchising as way of accessing external capital to fund the growth of new stores or outlets that are operated by committed and profit-driven franchisees that are likely to be more diligent and focused than employed staff. Franchisees are attracted to franchising for the prospect to become their own boss without re-inventing the wheel. The adage “in business for yourself, but not by yourself” accurately describes this motivation. Entrepreneurs who have developed a successful business often wonder if they should franchise as a way to expand their operations. Like any business model, franchising has its benefits and drawbacks. There’s…
[dropcap]C[/dropcap]ontrary to popular belief, the biggest expenditure item in the 2017 budget is ‘interest’, not defense or education or any other services for the citizens. In fact, the amount of interest exceeds the total amount of defense, health and education combined. Interest payments account for almost 40% of the total budgetary allocation. The accumulation of deficits results in the need to seek funds from the IMF and other sources, which come at the cost of ‘interest payments’ to the country as there is no such thing as a free lunch. In addition, the IMF imposes many other conditions on us…
[dropcap]T[/dropcap]he significant challenges for Pakistan are scarcity of resources, poverty, and health issues etc. If it is to become a major player in addressing financial inclusion and poverty, following critical sectors in Pakistan’s economy must play a significant role in job creation and poverty reduction. Moreover in this regard, for sustainable community and for social development of the country, one must take the Corporate Social Responsibility (CSR) the central part for the economic and welfare integrity of the country’s institutions and organization and as well as for the companies strength. AGRICULTURE Pakistan has one of the world’s most impressive agricultural…
[dropcap]S[/dropcap]outh Asia is the world’s fastest growing region but economic growth alone could not be relied upon to end poverty. The region is also vulnerable to natural disasters. From Afghanistan to Bangladesh, much of South Asia is located in one of the highly seismically active regions in the world. More than 600 million people live along the fault lines across the Himalayan belt that runs through Afghanistan, Pakistan, India, Nepal and Bhutan. As part of the region, Pakistan’s growth must benefit the poorest and unlock opportunities for today’s much poor to get better jobs tomorrow and beyond. Disaster preparedness is…
[dropcap]T[/dropcap]he increasing presence of Islamic banking and finance in Pakistan’s financial sector and the country’s exemplary role in the global Islamic finance industry has called for an evaluation of the contribution of Islamic finance to the real economic activity. Islamic finance has started to make important contributions to the real economy by effectively carrying out the financial intermediation role of pooling and channeling funds to the investment activities, however, continuous efforts need to be undertaken to further expand the industry which includes refinement of the legal and regulatory framework to enable healthier growth of the industry, thus further strengthens Pakistan’s…
[dropcap]W[/dropcap]hilst the terms ‘loan’ or ‘lending’ are commonly used, even by Islamic banks, they are not strictly correct in an Islamic context because an Islamic bank is engaged in mutual trading both with and alongside its clients on both sides of the balance sheet. An Islamic bank has a direct interest in the outcome of all these trading transactions, sharing both profits and losses with its partners/clients. Unlike a conventional bank where depositors are creditors and borrowers are debtors and there is almost no mutuality at all, an Islamic bank has partners, investors, principals and agents at every level. Islamic…
[dropcap]T[/dropcap]he banks account for 80 percent of international remittances coming through formal channels into Pakistan, given their long history in the sector. The formation of exchange companies (ECs) in 2002 has significantly increased flows as hundreds of small moneychangers have been brought into the regulated sector and now account for more than 17 percent of international formal remittances. Both banks and ECs have multiple correspondents and relationships abroad. After 9/11, State Bank of Pakistan (SBP) took further action to formalize remittances, such as setting up centralized home remittance cells and forming exchange companies in 2002. The formation of exchange companies…
[dropcap]O[/dropcap]nce a saving grace, remittances have been under pressure since quite a while now. Remittance inflows in Pakistan are not growing at a comforting pace and a pretty much well established fact by now. The latest numbers for April 2017 only reconfirm the trend already visible in the year to date. As has been the case since the start of this year, the fall in remittance flows from Saudi Arabia has had the biggest dent on total remittance. In the ten months ending April 2017, total remittance dropped $448 million or 2.8 percent compared to an increase of 5.31 percent…
[dropcap]P[/dropcap]akistan has always stressed the need of a world class logistics and transport infrastructure for the speedy movement of goods and business in the region of Economic Cooperation Organization (ECO) and since the ECO is the formation for the boost of Central Asian countries trade and within its limited markets and export prospects China-Pakistan Economic Corridor (CPEC) is a major initiative that would help achieve the core objectives of ECO. The CPEC is anticipated as a game-changer not only in Pakistan-China economic context but it would also complement the economies of the entire neighborhood, especially the ECO region. In transport…
[dropcap]I[/dropcap]n recent years, financial inclusion is one area where stakeholders of the financial ecosystem have been focusing lately as part of a broader strategy to reduce poverty, encourage economic development, and promote stability and security. The term ‘financial inclusion’ refers to the provision of accessible, usable, and affordable financial services, either through the formal or informal financial sector, to underserved populations. Financial inclusion also applies to ‘underbanked’ communities, where people lack reliable access to or are unable to afford the associated costs of financial services. ‘Digital financial inclusion’ can be defined as digital access to and use of formal financial…
[dropcap]A[/dropcap]s the Information and Communication Technology (ICT) revolution unfolds, it will indeed bring benefits, but it will also bring risks and challenges. There are plenty of reasons to be cautious, responsible, and measured in the use of digital financial services but that should not stop the potential for great progress. Privacy concerns, for example, are real, and there could be a healthy societal debate on what data is and is not appropriate to use and for what purposes. But there is no question that banks can use the data that is increasingly available to rethink the way they deliver financial…
[dropcap]H[/dropcap]igh aggregate demand and falling energy prices for the past couple of years should have been a stimulus for domestic investment and steadily rising production. That is not how it has worked out, with rising demand leaking into imports and, probably, into the shadow economy. Over the past five years, growth has been fueled by rising consumption, now 89 percent of GDP, and growing at around 5 percent annually against GDP growth of under 4 percent per year. The modest GDP growth we have been able to muster is led by the services sector, while manufacturing and agriculture have performed…
[dropcap]T[/dropcap]he current account deficit during the first eight months (July-Feb) of this fiscal 2016-17 has reached $5.47 billion compared to $2.48 billion in the same period of the previous fiscal year. Analysts say lackluster exports, rising imports and weakening remittances are the major reasons behind this deficit. Pakistan’s trade deficit widens to 22 percent, stands at $9.3 billion. The rise in overall import payments was mainly driven by higher purchases of fuel and capital equipment. This is understandable given that Pakistan is transitioning from a low-growth to higher growth phase, and is addressing supply-side bottlenecks in energy and infrastructure. Until…
COUNTRY’S OIL REFINING CAPACITY [dropcap]P[/dropcap]akistan’s oil production reached a two-year high at around 97,000 barrels per day in December 2016 after oil and gas exploration and production companies geared up their drive to find new deposits of hydrocarbons in the country. The surge in production became possible with find of new oil reserves from Nashpa and Mardan Khel fields. Both fields added around 11 percent to December 2016’s oil production, a cumulative flow of around 10,000 barrels per day (bpd) of oil. The production meets around 20 percent of domestic demand. The remainder is met through imported crude oil and…
SMALL & MEDIUM ENTERPRISES (SMES) [dropcap]P[/dropcap]akistan Stock Exchange (PSX) has proposed 20 percent corporate income tax rate for small and medium size listed companies to promote entrepreneurship. The PSX proposed amendment to Income Tax Ordinance, 2001 for reduction in the rate stating: “Provided that where a taxpayer is small or medium sized company as defined under the Companies Ordinance, 1984 and is also listed on the registered Stock Exchange in Pakistan, the rate of tax imposed on the taxable income of such company, other than banking company shall be 20 percent for the tax year 2018 and onwards.” Pakistan had…
[dropcap]P[/dropcap]erhaps one of the stingiest problem for the banking sector is that of non-performing loans (NPL). The phenomenon is more widespread in the Asian financial sector than anywhere else, as incidents of advancing loans on criteria other than pure meritocracy remains rampant in the Asian financial sector. At the close of 2016, total non-performing loans in the financial sector stood at Rs619 billion. The largest chunk of the pie rested with the local private banks which held 61 percent share of the NPL portfolio. Next in list were the public sector and specialized banks, which held 31 percent and 6…
[dropcap]T[/dropcap]he current account deficit is set to widen at a faster pace as international oil prices have started recovering after remaining weak for the past eight consecutive quarters. Pakistan is a net oil importer and meets about 75% of needs through imports. Oil imports carry the heaviest weight in total imports of the country. Oil payments, which had been declining for the eight consecutive quarters reversed trend in the second quarter of FY17 and tacked onto an already elevated non-oil bill. The current account deficit in the first eight months (Jul-Feb) 2016-17 has already touched $5.47 billion compared to $2.48…
[dropcap]B[/dropcap]anking sector of Pakistan has revealed massive growth and potential over the years. There is a considerable expansion in the profitability of the banking sector demonstrated by performance and stability indicators. Mainly in operations of economic development, banks as financial intermediaries play an important role and their efficiency can also influence the economic growth. There are important implications of changes in the interest rate on the economy. In the banking system, impact of interest rate changes has been a significant issue. As compared to other institutions, banks are more sensitive to the changes in the interest rates. In FY17, interest…
[dropcap]W[/dropcap]hile remittances to South Asian countries from the Gulf Cooperation Council (GCC) countries declined by 2.3 percent in 2016, Pakistan witnessed 5.1 percent growth during the same period according to World Bank. However, remittances from the GCC countries continue to decline due to lower oil prices and labor market ‘nationalization’ policies in Saudi Arabia. Policies favoring employment of nationals over migrant workers have discouraged demand for migrant workers in the GCC countries. Low oil prices continued to be a factor in reduced remittance flows from the GCC countries. In addition, structural factors have also played a role in dampening remittances…
[dropcap]P[/dropcap]akistan has one of the world’s most impressive agricultural systems but its potential still not yet fully utilized. Agriculture could become the main driver of economic growth and poverty alleviation but for that to happen policymakers at the federal level as well as in the provinces will have to appreciate the sector’s potential as well devise public policies to realize it. From about the late nineteenth century to the present, the state has had a heavy hand in guiding agriculture to produce for the market. The main point I will make in the article today is that the government should…
[dropcap]P[/dropcap]akistan’s automotive industry is the one of the fastest growing industries of the country while accounting for 4 percent of Pakistan’s GDP and employing a workforce of over 1,800,000 people. Currently there are 3,200 automotive manufacturing plants in the country, with an investment of ₨92 billion (US$880 million) producing 1.8 million motorcycles and 200,000 vehicles annually. Its contribution to the national exchequer is nearly ₨50 billion (US$480 million). The sector, as a whole, provides employment to 3.5 million people and plays a pivotal role in promoting the growth of the vendor industry. Pakistan’s auto market is considered among the smallest,…
RENAULT TO PRODUCE CARS [dropcap]R[/dropcap]enault, a French car manufacturing company, is expected to start assembling cars in Pakistan by 2018. This will be the first time that a European car manufacturer will set up a plant in Pakistan. Established in 1899, the automobile company produces a range of cars and vans, and has also manufactured trucks, tractors and tanks, among others vehicles in the past. Renault would initially make an investment of $100 million to produce 6,000 vehicles per shift at the plant set up by Ghandhara Nissan Motors in Karachi. The company already has an alliance with Nissan since…
[dropcap]T[/dropcap]he transport situation, especially in metropolitan cities always a grave issue. Buses are in deplorable conditions and have closed operation on routes, which they consider non profitable. According to a report, buses are to ply on more than 300 different routes in Karachi but they are operating on only 115 routes, causing huge difficulty to commuters. Taxis and rickshaws, plying on roads of the city, are charging arbitrary fares and the public, with no viable option in sight, has to avail other transport services. Considering the existing pathetic situation of our public transport, two multinational transportation network companies – Careem…
[dropcap]T[/dropcap]he remittance market for sending foreign exchange into Pakistan using remittance transfers both by overseas workers and the rest of the Pakistani diaspora, as well as by other agents for both legal and illegal transfers, can be broken down into the following: 1. Remitters from overseas who demand Pakistani rupees in exchange for a foreign currency to be paid in Pakistan through official or unofficial channels. 2. The remittance market within Pakistan that transfers both officially recorded remittances through banking and other recognized channels under an overall regulatory framework supervised by the State Bank of Pakistan (SBP), as well as…
[dropcap]W[/dropcap]hile a large percentage of remittances are sent through informal channels, formalization of remittance transfers makes the process more secure and easily monitored and allows these funds to be directed toward savings. Reducing the cost of transfers encourages the use of more formalized systems while formalizing remittance transfers can help allow unbanked remittance clients to access other financial products. Studies show that security, ease, timeliness, geographic accessibility, payout options, and price of transaction are the main factors when remittance senders choose a transfer service. Developing a secure, affordable, accessible, timely, flexible, and innovative transfer service is thus important in establishing…
MOBILE WALLETS [dropcap]W[/dropcap]ithin branchless banking framework, Over the Counter (OTC) Model is agent facilitated which no matter how convenient and reliable, is slowing down the pace of promotion of financial inclusion by limiting customers’ access to facilitated transactions only. This barrier could be addressed via a shift from OTC to mobile wallets. Presently, OTC dominates over mobile wallets in terms of volume and value of customers. However, with the SBP approval of mobile wallet account opening through biometric verification, it now takes less than five minutes to open a mobile wallet. BITCOIN Another area that may offer promise for financial…
COMMERCIAL BANKING SECTOR INDICATORS Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits Other November 2015,PKRbn 12,757.3 5,018.6 6,439.5 1,299.2 12,757.3 1,557.1 8,690.9 2,509.3 November 2016,PKRbn 13,941.2 5,657.7 7,026.8 1,256.8 13,941.2 1,574.4 9,963.3 2,403.5 % change y-o-y 9.3% 12.7% 9.1% -3.3% 9.3% 1.1% 14.6% -4.2% November 2015,USDbn 121.0 47.6 61.1 12.3 121.0 14.8 82.4 23.8 November 2016,USDbn 132.7 53.9 66.9 12.0 132.7 15.0 94.9 22.9 % change y-o-y 9.7% 13.2% 9.6% -2.9% 9.7% 1.5% 15.1% -3.8% Source: BMI Research [divider style=”normal” top=”20″ bottom=”20″] COMMERCIAL BANKING SECTOR KEY RATIOS, OCTOBER 2016 Loan/deposit ratio Loan/asset ratio Loan/GDP…
[dropcap]T[/dropcap]he recently concluded 13th ECO Summit 2017 is extremely relevant in the backdrop of ever growing importance of China-Pakistan Economic Corridor for its member countries. This passageway is a framework of regional connectivity as CPEC will not only benefit China and Pakistan but will have positive impact on Iran, Afghanistan, India, Central Asian Republic and the rest of the region. The enhancement of geographical linkages having improved road, rail and air transportation system with frequent and free exchanges of growth and people to people contact, enhancing understanding through academic, cultural and regional knowledge and culture, activity of higher volume of…
[dropcap]R[/dropcap]eal estate market is crucial for promoting commerce and industry, growth and employment, and poverty reduction. The liberalization of the Pakistani economy has increased business opportunities and migration of the labor force to urban localities has led to an increase in the demand for both commercial and housing space. However, the role of formal real estate investment markets in the process of economic development remains poorly understood. The lack of understanding is, in part, a direct result of the absence of reliable information on real estate values, yields and total returns. The real estate market is the market that encompasses…