Journal of the Institute of Bankers Pakistan - Amazon S3s3.amazonaws.com/zanran_storage/ · October - December 2007 Issue IBP – the knowledge institute Journal of the Institute

October - December 2007 Issue

IBP – the knowledge institute

Journal of the Institute of Bankers Pakistan

Volume 74 - Issue No. 4

October - December 2007

Contents

Editorial: 1

International Monetary System and Developing Countries

IBP Knowledge Endeavours 5

(July - September 2007)

57th Annual General Meeting of IBP 15

Credit Risk Management: 23

Guiding Principles for Implementation

Challenges and Opportunities in Microfinance 31

Low Cost Housing Solutions 47

Highlights of Economic Events 63

(July - September 2007)

Questions and Answers on 87

Practice & Law of Banking

Legal Decisions Affecting Bankers 89

I. Whether a claim arising after an agency was terminated

would be an ordinary claim, or a trust, or preferential claim?

II. Liquidation of the collecting Banker.

From the Chief Examiner's Desk 93

Prudential Regulations for Corporate / Commercial Banking - I (Article in Urdu)



Council

Dr. Shamshad Akhtar Chairperson

Mr. Naved A. Khan Member

Mr. Atif Aslam Bajwa Member

Mr. S. Ali Raza Member

Mr. Zakir Mahmood Member

Mr. Atif R. Bokhari Member

Mr. Zaigham Mahmood Rizvi Member

Mr. Zubyr Soomro Member

Mr. Shahzad G. Dada Member

Mr. Khawaja Iqbal Hassan Member

Mr. Irfan Siddiqui Member

Mr. Shaukat Tarin Member

Mr. Muhammad Saleem Umer Chief Executive

Committees and Boards

Academic BoardMr. Badar Kazmi Chairman

Ms. Zarine Aziz Member

Mr. Ozair A. Hanafi Member

Mr. A.B. Shahid Member

Mr. Tahir Ali Tayebi Member

Mr. M. Naveed Masud Member

Dr. Mirza Abrar Baig Member

Dr. Khawaja Amjad Saeed Member

Mr. Abdul Ghafoor Member

Finance CommitteeMr. Inam Elahi Chairman

Mr. Khalid A. Sherwani Member

Mr. Azizullah Memon Member

Mr. Safar Ali K. Lakhani Member

Mr. A. Saeed Siddiqui Member

Audit CommitteeMr. Aftab Ahmad Khan Chairman

Mr. Abbas D. Habib Member

Mr. Masood Karim Shaikh Member

H.R. Committee Mr. S. Ali Raza Chairman

Mr. Aftab Ahmad Khan Member

Mr. A. Saeed Siddiqui Member

Building CommitteeMr. M. Shafi Arshad Chairman

Mr. Shameem Ahmed Member

Mr. Mohammad Bilal Sheikh Member

Mr. Kamran Rasool Member

Mr. Tasadduq Hussain Awan Member

Mr. Khalid Niaz Khawaja Member

Mr. Barbruce Ishaq Member

Editorial BoardMr. Aftab Ahmad Khan Chairman

Mr. M. Ashraf Janjua Member

Dr. Shahid Hasan Siddiqui Member

Mr. Jalees Ahmed Faruqui Member

Mr. A.B. Shahid Member

Prof. S. Sabir Ali Jaffery Member

Board of Turstees of

Staff Provident FundMr. Inam Elahi Chairman

Mr. M. Hanif Akhai Member

Mr. Muhammad Saleem Umer Member

Mr. S. M. Ashique Member

AuditorsKPMG Taseer Hadi & Co.

Chartered Accountants

Registered OfficeThe Institute of Bankers Pakistan

Moulvi Tamizuddin Khan Road

Karachi — 74200 Pakistan.

Phones: 5680783-5689718-5686955

5684575-5687515-5689364

Fax : 5683805

Website : www.ibp.org.pk

E-mail : [email protected]

The Institute of Bankers Pakistan

Published by: Mr. Muhammad Saleem Umer for the Institute of Bankers Pakistan, Moulvi Tamizuddin Khan Road, Karachi.

The Journal of the Institute of Bankers Pakistan is published quarterly and is provided free to members. Non-

members may obtain copies of the Journal from the Institute and/or IBP Local Centres on payment.

Printed at: The Times Press (Pvt) Ltd., C-18, Al-Hilal Society, Off. University Road, Karachi, Pakistan.

Copyright by: The Institute of Bankers Pakistan

All rights reserved. The material appearing in this journal may not be reproduced in any form without prior

permission of the Institute of Bankers Pakistan.


Editorial

International MonetarySystem and DevelopingCountries

Just as any national economy needs a

generally accepted money to serve as a medium of

exchange, unit of account and store of value, so

the international economy requires an accepted

means for trade, payments and services. Unlike the

national economy, however, the International

economy lacks a central government that can issue

currency and regulate its use. Historically, this

problem has been resolved through the use of gold

and national currencies. Gold was used to back

currencies and settle international accounts. After

World War II, in addition to gold, the US dollar

became the key international currency. Dollars

were held as reserves by central banks; the dollar

became the unit of international trade, investment

and finance. Although the use of the dollar

eventually became a central problem for managing

the system, efforts to replace it, including the

creation of an international money (Special

Drawing Rights) failed.

In the post World War II era, the Anglo-

American plan approved at Bretton Woods

became the first publicly managed international

monetary order. This new order was intended to

be a system of limited management by two

international organizations- the International

Monetary Fund (IMF) and the International Bank

for Reconstruction and Development (IBRD) better

known as the World Bank.

The rules of Bretton Woods provided for a

system of fixed exchange rates. All member

countries agreed to establish the parity, or the

value of their currencies in terms of gold and to

maintain exchange rates within one per cent plus

or minus of parity. The rules further promoted an

open system by committing to the convertibility of

their respective currencies into other currencies.

Under the system of weighted voting, the

United States exerted a pre-ponderant influence in

the IMF. IMF approval was necessary for any

change in exchange rates and it advised countries

on policies affecting their monetary system. It

could also advance credits to countries with

payments deficits. The IMF was provided with a

fund contributed by member countries in gold and

in their own currencies.

From 1945 to 1960, the Untied States was

both able and willing to manage the international

monetary system. The Europeans and the

Japanese willingly accepted US management.

Economically exhausted by war, they needed US

assistance to rebuild economies and provide a

basis for political stability.

By the late 1940s, it also became clear that the

only currency strong enough to meet the rising

demand for international liquidity was the US

dollar. The strength of the US economy, the fixed

relationship of dollar to gold ($ 35 for an ounce)

and the commitment of the US government to

convert dollars into gold at that price made the

dollar as good as gold. In fact, the dollar was better

than gold, as it earned interest.

By the middle of 1960s, however, the United

States was no longer the dominant economic

power it had been for almost two decades. Europe

and Japan with higher rates of growth were

narrowing the gap between themselves and the

United States. A more pluralist distribution of

economic power led to increasing dissatisfaction

with US domination of international monetary

system and in particular with privileged role of the

dollar as the international currency.

From 1968 to 1971 the international monetary

system was paralysed. The central banks were

unable to control the large currency flows and to

contain the currency crises. The United States

abdicated monetary leadership and pursued a

policy of benign neglect. It let others defend the

existing exchange rate system, permitted a huge

dollar build up and remained passive during the

currency crises.

October - December 2007 Issue 1

By late summer of 1971, benign neglect was

no longer a sustainable policy. In the spring and

summer of 1971, there was a run on the dollar and

for the first time in 20th century, the United States

showed a trade deficit. The US gold stock declined

to US $ 10 billion versus outstanding dollar

holdings estimated at about $ 80 billion. Inflation

was rampant and unemployment widespread. All

these problems forced the US government to do

something.

On August 15, 1971 President Nixon

announced a new economic policy; henceforth the

dollar would no longer be convertible into gold,

and the United States would impose a 10 per cent

surcharge on dutiable imports. August 15, 1971

marked the end of the Bretton Woods system.

After the breakdown of the Bretton Woods

system, fixed exchange rates were replaced by the

float. Inflation erupted, combined with an

enormous dollar outflow and world-wide

commodity shortages.

The float, inflation as well as the monetary

consequences of the dramatic rise in the price of

petroleum engineered by the Organization of

Petroleum Exporting Countries (OPEC) in

1973/74 made it impossible to draw up and

implement a comprehensive plan for monetary

reform .

At the IMF annual meeting in 1976, the final

details were hammered out on the Second

Amendment to the Articles of the International

Monetary Fund.

On paper the Second Amendment seemed to

signal a return to multilateral public management

of the international monetary system. It called for

an end to the role of gold and establishment of

Special Drawing Right (SDR) as the principal asset

of the international monetary system. It legitimised

the de facto system of floating exchange rates and

permitted a return to fixed exchange rates if an 85

percent majority approved such a move and called

for greater IMF surveillance of the exchange rate

system and management of the national economic

polices.

In reality through the Second Amendment, the

leading monetary powers had not reformed the

system of international management; they merely

codified the prevailing non-system. The

Amendment signaled the beginning of a period

characterized as much by national and regional as

by multilateral management.

The period since 1976 has been one of

muddling through. The leading monetary powers

have cooperated during periods of crisis and have

periodically sought to coordinate economic polices

in order to achieve medium term stability. Policy

coordination has, however, been limited in scope

and success.

Despite growth of inter-dependence, national

governments have been either unwilling or unable

to adjust national economic policies to

international economic needs.

In May 1986, however, at the economic

summit in Tokyo, the newly formed Group of

Seven (comprising USA, UK, France, Germany,

Japan, Italy and Canada) not only re-affirmed the

importance of cooperative intervention but also

affirmed that close coordination in economic

policies was needed to stabilize the system. The

Group of Seven (G-7) agreed to monitor the basic

economic policy and performance of each country

- inflation, interest rates, growth, unemployment,

fiscal deficits and trade balance - and to

recommend remedial action whenever policy of

one country was thought to be damaging others.

But stated goals and policy actions are

different. While finance ministers and central

bankers often agreed on appropriate policies,

political constraints and reluctance to relinquish

sovereignty over macro-economic policy often

limited actual coordination.

Given the potential of the exchange rates to

de-stabilise not only economic and financial

situation within a particular country but also in

several other parts of the world, the IMF at its

Interim Committee meeting at the beginning of

May, 1993 took an important decision to control

the violent fluctuation in the exchange rates. This

October - December 2007 Issue2


was the first time after the break up of the Bretton

Woods system that IMF was again being asked to

interfere in the exchange rates and save the

different countries from instabilities in their

external accounts. Central banks, henceforth were

to be told in advance about the steps they need to

take to ensure that they avoid difficult situations.

At the 49th annual meeting of IMF and the

World Bank held in Madrid in October 1994, there

was general agreement that the IMF must provide

a mechanism for meeting the world needs for

international cooperation.

In the new era of globalization there is an

increasing premium on the integration of

economic policies of countries in the mainstream

of international trade and financial flows and thus

on the ability to remove obstacles to international

transactions as well as on the soundness of

international monetary system.

An IMF Occasional Paper, "Improving the

International Monetary System: Constraints and

Possibilities", reviews the performance of the

current system and examines proposals for

improving it, including more formal exchange rate

arrangements. The study quite rightly comes to the

conclusion that in present circumstances a return

to greater fixity of exchange rates is neither feasible

nor desirable; however the present system can be

improved through stronger cooperative efforts.

The study points out that exchange rate

stability should not be seen as an end in itself but

as an objective which can be achieved through

improvements in national economic policies

fostered by meaningful international cooperation.

So far as the Third World countries are

concerned, notwithstanding the fact that the IMF

has introduced greater flexibility in its programmes

in recent years and in 1999 introduced Poverty

Reduction and Growth Facility to provide long

term assistance for deep seated structural balance

of payments difficulties at a concessional rate of

1/2 of 1 percent a year, the main thrust of its

polices is on demand management and an analysis

of the social and political impact of its programmes

has yet to be formally incorporated in the

framework of its operations. The desirability of

conditionalities is not generally questioned. It is,

however, the nature of these conditionalities and

the manner these are administered that is

objectionable.

In a poor developing country with a large

segment of the population living under the poverty

line, shock treatment in the form of a significant

and sudden reduction in domestic absorption, may

be successful in achieving fiscal improvement and

a sustainable balance of payments, but it would be

at the cost of distress for weaker sections of the

population and de-stabilising social and political

tensions.

In view of dissatisfaction with the functioning

of IMF, the following issues need priority attention

from the view point of the less developed

countries:

i.) Implementation of decisions oriented to make

SDR the principal reserve asset of the

international monetary system to ensure that

world liquidity does not originate in the

payments deficits of a few countries.

ii.) More flexible conditionality in the use of IMF

resources so that developing nations can count

on maintaining their trade and employment

and their development efforts at a high level.

iii.) Mechanism for a fair sharing of the burden of

adjustment, especially in regard to surplus

countries should be explored again, taking into

account the need to control inflationary

pressures.

iv.) Improvement in the compensatory financial

facilities.

v.) Sympathetic treatment of debt service

problems particularly of low income LDCs.

vi.) Linking the creation of additional SDRs to the

provision of aid to developing countries.

vii.)Assisting developing countries to ease the

change to the new trading system by providing

policy advice, financial support and technical

assistance in order to maximize the gains from

new opportunities.




IBP Knowledge Endeavours(July - September 2007)

Annual General Meeting

The Institute held its 57th Annual General

Meeting on September 24, 2007 under the

Chairmanship of Dr. Shamshad Akhtar, Governor,

State Bank of Pakistan. Presidents/CEOs and

senior executives of local and foreign banks

attended the meeting. On this occasion, the SBP

Governor delivered an illuminating speech on

“Reflections on Global Economic and Financial

Development”. Report on the subject is given in

the journal separately.

Training and Development of Human

Resource

Training and professional development of

human resource is an on-going process. The need

for professional knowledge and skills is much

greater today than ever before. The Institute of

Bankers Pakistan is playing its role as a catalyst to

professional development of human resource in

banks, financial institutions and other segments of

the financial sector. This is done through multi-

dimensional activities. Special emphasis is given to

human resource development through training

programs, extension lectures, talks, seminars and

workshops. Details of the training initiatives

undertaken during the quarter July - September

2007 at Karachi and other centres are given below:


Sl. No. Knowledge Endeavors No. of No. of Duration

Programs Participants

1. IBP Knowledge Calendar- Karachi 33 682 1 to 3 days- Other cities 32 741 1 to 2days- Mobile Courses 6 102 1 to 2 days

2. Certificate Programs 6 123 1 to 3 weeks

3. Customized Programs- Demand Driven 14 293 Up to 8 weeks

4. Evening Coaching Classes (W-2007) 10 classes 104 30 hours of each of 4 each subjectsubjects

5. Lectures/Talks by Foreign & Local Experts 2 108 4 hours

Total 103 2,153

1. IBP Knowledge Calendar

Based on financial services industry need for

training and human resource development, IBP

holds courses at Karachi and other stations. During

the period under report, the Institute held 71

courses - 33 at Karachi and 38 at other stations.

Details of the courses held are given below:



EVENTS AT KARACHI

Training Series Resource Person

Anti-Money Laundering Series

1. KYC & Anti-Money Laundering Mr. Syed Abdul Rafey Qadri

International Trade Financing Series

2. SBP Foreign Exchange Manual: Import, Export and Mr. Razi Mujtaba

Remittances

Treasury Management Series

3. Treasury and Fund Management Mr. Sadruddin Pyar Ali

4. Financial Derivatives for Beginners Mr. Farrukh Aleem Mirza

Soft Skills & Management Development Series

5. Time & Stress Management Ms. Lubna Asrar Siddiqui

6. Building High Performance Teams Ms. Lubna Asrar Siddiqui

7. Corporate Social Responsibility Mr. Sohailuddin Alvi

Credit Operations & Management Series

8. Problem Loans: Early Warning Signal & Management Mr. Syed Abdul Rafey Qadri

9. Rationalization of Database on Agricultural Credit: SBP Mr. M. Ashraf Khan

Circular ACD 02 of 2007

10. Credit Analysis Through Financial Statements Mr. Syed Abdul Rafey Qadri

11. The Financial Institutions (Recovery of Finance) Mr. Emad-ul-Hasan

Identifying Legal Risk in Financing & Finding Solutions

12. Understanding of Credit Risk Models Mr. Saleem Ahmed

Islamic Banking & Finance Series

13. Salam & Istisna - Trade Based Modes of Islamic Finance Mufti Khalil Ahmad Aazami

14. Takaful - The Islamic way of Insurance Dr. Mufti Ismatullah

Banking Law & Practice Series

15. Branch Banking Operations: Clearance & Collection Mr. Khalid H. Faridi

16. Branch Banking: Procedure & Precautions for Ms. Esther Gomes

Account Opening

17. SWIFT: Customer Transfers, Collection & LCs Mr. Khalid H. Faridi

Human Resource Series

18. Performance Planning & Management Mr. Ahsan Kamal

19. Dealing with Difficult People Mr. Ahsan Kamal

20. Organization Development & Change Dr. Mirza Abrar Baig

Mr. Sohailuddin Alavi



Prudential Regulations Series

21. SBP Prudential Regulations for SME & Consumer

Financing Mr. Inayat Hussain

22. Guidelines on Outsourcing Arrangements : Mr. Syed Irfan Ali

BPRD Circular No. 9 of 2007

Basel - II Series

23. Basel-II: Application in Pakistan Mr. Asadullah Saleem

Information Technologies Series

24. Business Continuity Management for Non-Specialists Mr. Zulfiqar H. Kazani

25. Information Security in the Changing Times Mr. Faisal Anwar

26. Regulatory Framework for Mobile Banking in Pakistan Mr. Jawaid Ismail

27. Standardization of ATM Operations as per SBP Directive Mr. Shahid Raza Salehi

28. Standardization of ATM Operations as per SBP Directive Mr. Shahid Raza Salehi

Microfinance Series

29. Marketing of Microfinance Services Mr. Sohailuddin Alavi

Internal Controls Series

30. Audit as a Tool for Effective Management Mr. Emad-ul-Hasan

Quality Control Series

31. Lean & Six Sigma Implementation in Finance Services Mr. Uzair Khusro

Finance and Bank Accounting Series

32. Finance for Non-finance Managers Mr. Razi Mujtaba

Taxation

33. Income Tax - Law and Practice in Pakistan Mr. Tanvir M. Khan

EVENTS AT LOCAL CENTRES

Lahore

1. UCP - 600 Mr. Dilshad Hassan Siddiqui

2. Rationalization of Database on Agricultural Credit Mr. Muhammad Ashraf Khan

3. Prudential Regulations - Recent Updates Dr. Dilshad Hasan Siddiqui

Rawalpindi

4. Cash Flow Based Lending: Operations, Problems Mr. Malik Dilawar

& Prospects

5. Rationalization of Database on Agricultural Credit: Mr. Muhammad Ashraf Khan

SBP Circular ACD-02

6. Auditing Financing Operations: Onsite Inspection Mr. Taslim Kazi

by SBP Audit Team

7. Problem Loans: Early Warning Signals & Management Mr. Malik Dilawar

Islamabad

8. Branch Operations: Liquidity and Profitability Mr. Qaiser Iqbal

9. Electronic Banking: Convenience with Huge Risk,

Mitigation Mr. Nauman Bashir

10. The Impact of World Trade Organization on Banking

Sector Mr. Tariq Ansari

11. Documentary Credit: Uniform Customs and Practices

UCP-600 Mr. Anwerul Haq

12. Basel Accord Based Risk Rating Mr. Muhammad Zaki Awan

13. Communication Skills Mr. Zafarullah Khan

Peshawar

14. Managerial Skills Brig. Muhammad Akram

15. Effective Customer Services Brig. Muhammad Akram

16. Marketing of Financial Products & Services Mr. Faisal Haq Khan

17. Selling Skills in Competitive Banking Environment Mr. Faisal Haq Khan

18. Small and Medium Enterprise Financing Mr. Asim Nazir

19. Consumer Products Financing Mr. Faisal Haq Khan

20. Prudent Lending: Documentation and Post

Disbursement Monitoring Mr. Ashfaq Ahmed

21. Handling of Problem Loans and Recovery Mr. Ashfaq Ahmed

22. Analysis of Financial Statements for Lending Decisions Mr. Shafa Hussain

23. Cash Flow Based Lending Mr. Shafa Hussain

Quetta

24. The Power of Positive Attitude and the Power of Mr. Ozair A. Hanafi

Motivational Leadership

25. Auditing Foreign Trade Operations Mr. Muhammad Abid

26. Lease Financing by Banks Mr. Sanaullah Khan

Multan

27. Borrower, Proposal, Risk Analysis Mr. Dilshad Hassan Siddiqui

28. Auditing Financing Operations Mr. Khalid Sultan Anjum

29. Collateral and Documentation Management Mr. Khalid Sultan Anjum

Faisalabad

30. SBP Prudential Regulations Mr. Muhamamd Akber





Sialkot

31. Anti Money Laundering & Know Your Customer Mr. Saeed Hasan

32. The Dynamics of Effective Selling Mr. Nazar Abbas

MOBILE COURSES

For the convenience of banks in small places, the Institute holds mobile courses at their doorsteps.

Following mobile courses were held during the quarter under review:

Gujrat (By Local Centre, Lahore)

1. Common Discrepancies in Trade Services Ms. Samrin Tahir

Gilgit (By Local Centre Rawalpindi)

2. KYC & AML: Legal Regime & Operations Process Mr. Taslim Kazi

Jhelum (By Local Centre Rawalpindi)

3. KYC & AML: Legal Regime & Operations Process Mr. Taslim Kazi

Wah Cantt. (By Local Centre Rawalpindi)

4. Cash Management Mr. Taslim Kazi

Chitral (By Local Centre Peshawar)

5. Know Your Customer (KYC) Mr. Taslim Kazi

6. Currency & Cash Management Mr. Taslim Kazi

2. Certificate Programs

Besides the short duration courses mentioned

above, IBP is regularly organizing long duration

certificate programs. During the period under

report, the Institute held following certificate

programs:

a) Effective Branch Management: Branch

Manager is a key figure in the banking system.

In the ongoing environment of stiff competition

his role and responsibilities are much greater

than what they used to be in the past. Alive to

the need for mangers being well informed, the

Institute launched in 2005 a series of high

value 3-month Certificate Courses on

“Effective Branch Management”. This 120-

hour rigorous program covering technical as

well as soft skills needed for Branch Managers

proved successful. From 2005 to June 2007,

the Institute conducted 16 courses at Karachi,

Lahore, Rawalpindi and Peshawar and were

attended by 438 Managers / Potential

Managers.

Based on the feedback received from our

worthy stakeholders a new updated series was

launched in August 2007. During the period under

report, the Institute held a 3-week high value

certificate course on the subject at Karachi,

Lahore, Rawalpindi and Peshawar. It was

attended by 85 Managers -, 15 at Karachi, 33 at

Lahore, 25 at Rawalpindi and 12 at Peshawar. A

high profile faculty was engaged to ensure quality

discourse and meaningful inter-action with the

participants. During this highly demanding

program, two weekly and one comprehensive tests

were held. Submission of a business plan and

active participation in the training sessions were

integral part of the course.

b) Effective Business Communication: Effective

communication plays a vital role in the success

of any organization. In view of its importance,

the Institute holds courses on the subject for

the staff in banks, financial institutions and

other organizations. A course on the subject

was held from September 17-21, 2007. Prof.

Moosa Kamlani, ex-Head of English

Department, D.J. Govt. Science College

conducted sessions at the above course. 10

officers from different organizations attended

the course. The outcome was highly

rewarding.

c) Analysis & Interpretation of Financial

Statements: A 5-day course on the subject was

held from September 25-29, 2007. 28

executives/officers from different organizations

attended the course.

3. Customized Courses - Demand

Driven

IBP products and services have earned greater

receptivity among the stakeholders which is

reflected by their assigning high profile training

programs on a regular basis. During the quarter

under review 14 programs for a total duration of

41 weeks were organized for the officers and

executives of seven banks.

4. Evening Coaching Classes

(Winter) - 2006

To assist the candidates in their preparation for

the ISQ examination, the Institute held 10-week

evening coaching classes from July 2, 2007.

Classes were held on the following subjects:

i) Business Communication for Financial

Services

ii) Laws Relating to Financial Services

iii) Accounting for Financial Services

iv) Macro Economic and Financial System of

Pakistan



DETAILS OF CUSTOMIZED COURSES

S. No. Course Title Duration No. of Station

Participants

THE Hong Kong & Shanghai Banking Corporation 1 Dynamics of Banking 7 Weeks 21 KarachiNational Bank of Pakistan2 Commercial Banking 4 Weeks 26 Karachi3 Commercial Banking 4 Weeks 23 Lahore4 Commercial Banking 4 Weeks 36 Rawalpindi5 Commercial Banking 4 Weeks 27 PeshawarABN Amro Bank (Pakistan) Ltd.6 Dynamics of Banking for MTs 4 Weeks 10 Karachi7 Dynamics of Banking for Associate 1.67 Weeks 11 Karachi

Relationship Managers8 Dynamics of Banking for Associate 1.67 Weeks 10 Lahore

Relationship Managers9 Dynamics of Banking for Associate 1.67 Weeks 6 Rawalpindi

Relationship ManagersEmirates Global Islamic Bank Ltd.10 Islamic Banking: Principles & Products 2 days 20 KarachiCitibank N.A.11 SBP Prudential Regulations for Consumer Financing 1 day 20 Karachi12 Guidelines on Outsourcing Arrangements: 1 day 32 Karachi

BPRD Circular No. 9 of 2007Soneri Bank Limited13 Commercial Banking 8 Weeks 32 LahoreNIB Bank Ltd.14 General Banking 3 days 19 Karachi

Highly qualified professionals were engaged

for the above classes which were attended by 104

candidates.

5. Lectures/Talks by Foreign and

Local Experts

As part of its commitment to arrange quality

education, training and other professional

development events, the Institute invites from time

to time eminent personalities from within the

country and abroad for sharing of their knowledge

and experience with executives and officers of

banks and financial institutions in Pakistan. During

the period under review, the Institute held

following talks/lectures:

a) World Economy Cycle Mature - Financial

Markets Nervous?

An illuminating talk on “World Economy Cycle

Mature - Financial Markets Nervous?” was held on

August 01, 2007. Prof. Dr. Norbert Walter, Chief

Economist of Deutsche Bank AG Group delivered

the talk. Dr. Shamshad Akhtar, Governor, SBP

and Mr. Yaseen Anwar, Deputy Governor, SBP,

Mr. Peter Fedon, Country Director, Asian

Development Bank and Mr. Hans Joachin

Kiderlen, Consul General, Consulate General of

Federal Republic of Germany, Karachi also

attended the program. Besides the above, a large

number of senior executives including chiefs and

senior officers from banks, DFIs, leasing

companies, modarabas, insurance companies and

corporates attended the program.

b) Mediation as a means of dispute

resolution in association with IFC

With a view to creating an awareness and

improving understanding of financial institutions,

the Institute in collaboration with Karachi Centre

for Dispute Resolution established with the help of

International Finance Corporation (IFC) of the

World Bank held a forum for discussion on “The

Concept and Practice of Mediation as a Means of

Dispute Resolution” on August 29, 2007. The

forum was addressed by the following:

1. Ms. Navin Merchant, Program Manager, IFC

2. Mr. Muhammad Azhar Rauf, Project Officer,

IFC

3. Mr. Moin Fudda, President, CIPE & former

Managing Director, Karachi Stock Exchange

Research and Publications

i) Research Paper Competitions

In addition to training, IBP also holds Research

Paper Competition twice a year - one in summer

and the other in winter. It is open to all and carries

cash prizes of Rs 110,000/- plus a gold medal, Rs

80,000/- and Rs 55,000/- respectively for first three

papers declared best by the high level panel of

judges. Details are as under:

a) Winter 2006

In Winter 2006, the topic of the

competition was “Low Cost Housing

Solutions”. The Institute received 29 papers for

the competition. Top three positions were

awarded to the papers of Ms. Fareeha Khalid

of Habib Bank Limited, Ms. Shafaq Maqsood

of Askari Bank Ltd. and Ms. Quratul Ain

Javaid of State Bank of Pakistan-BSC

respectively.

b) Summer 2007

In summer 2007, the topic of the

competition was “Challenges and

Opportunities in Micro Finance”. The Institute

received 50 papers for the competition. The

panel of judges observed that 19 papers did

not conform to the stipulated rules. They were

accordingly excluded from the competition.

Top three positions were awarded to the

papers of Dr. Gohar Sattar of National Bank of

Pakistan, Ms. Ommara Yaqub Choudhry of

Prime Commercial Bank Ltd. and Mr. Syed

Raza Ali Naqvi of Mobilink respectively.



c) Winter 2007

IBP Council selected “HR Interventions for

the Organizational Turnaround” as the subject

for the Research Paper Competition (Winter)

2007. Last date for receipt of papers for the

competition was September 30, 2007. The

Institute received 30 papers which will be

evaluated by a panel of judges appointed by

the Governer, State Bank of Pakistan.

d) Case Development Competition

In order to encourage development of case

studies on topical subjects, the Institute has

launched a Case Development Competition -

2007. The Competition is open to all and

carries cash awards of Rs 100,000/-, Rs

75,000/- and Rs 50,000/- for the cases

adjudged as first, second and third by a panel

of judges. The Institute received 29 cases.

They will be evaluated by a panel of judges

appointed by the Governor, State Bank of

Pakistan.

ii) Publications

a) IBP Economic Letter - weekly

During this quarter 13 issues were

released, which were distributed through

courier and e-mails. A new section of changes

has been introduced to portray the beginning

of the week and end of the week status of

KIBOR, forex rates, stock market and gold.

b) Book on “Opportunities and

Challenges of E-Banking” has been

published. This book is a collection of seven

papers adjudged best by the panel of experts.

c) Book on “Low Cost Housing

Solutions” has been published. This book is

a collection of eleven papers adjudged best by

the panel of experts on the subject.

d) Book on “Marketing of Financial

Services” has been published. This book

covers the curriculum of a subject under Junior

Associateship of IBP (JAIBP).

Promotion, Recruitment & Selection

Process

Growing number of banks and DFIs are

outsourcing their recruitment and selection

assignments to IBP for accuracy, impartiality and

swiftness of results. IBP is presently an active

partner in the recruitment and selection of 18

banks and other financial institutions. During the

quarter under review, recruitment tests and

interviews were conducted for the following banks:

National Talent Hunt Program

The rising volume of business, expanding

branch network, cut throat competition and

appetite for quality products and processes have

brought enormous pressure on the existing human

resource inventory. It is felt that there is an acute

shortage of competent human resource to meet

the ever rising demand. In order to fulfill this gap

the banks resorted to open or targeted recruitment

process. IBP is partnering with eighteen banks and

financial institutions in their recruitment and

promotion process. It is worth mentioning that the

participants of this process are from reputed

educational institutes with a good GPA or

percentage from them. On the other hand the

short-listing criteria of the banks are on the rise

and, therefore, a good number of candidates who

may otherwise be talented are not allowed to



S. No. Banks No. of Centers Total Enrolled

1. Habib bank Limited (Promotion Test) 8 642

2. Pak Oman Microfinance Bank Ltd. 3 314

3. State Bank of Pakistan (SBOT-14 Batch) 6 3854

Total 4810

appear in the test on account of eligibility criteria

like low GPA and/or over age.

The banks have their own preferences as to the

desired GPA, age, experience, qualification and

educational institution. However, IBP as a national

Institute can opt for a different set of criteria and

thus can effectively contribute towards developing

a National Talent Database. Once developed this

information will be available to the banks, financial

services sector and other reputed employers

through a powerful database to be maintained at

IBP and will be updated periodically. There are

three specific objectives for this National Talent

Hunt Program (NTHP):

c) Offering a chance to all those promising

youngsters who cannot enter into the testing

process owing to the short listing criteria

suggested by the job offeror.

d) Through a scientific testing mechanism the

participants will be able to know as to what is

their standing in the national talent pool.

e) Those who fail to reach a minimum pass

standard will be advised and offered

professional development program.

As part of National Talent Hunt Program

(NTHP), IBP organized a Know Your Strength

(KYS) test for MBAs on August 14, 2007 (61st

Independence Day of Pakistan) at Karachi,

Lahore, Rawalpindi, Multan, Peshawar and

Quetta. 1,745 candidates appeared in the above

test. A second test is being planned for the other

than MBA Masters Degree holders. Main focus will

be on M.Coms, MA Economics, M.SCs.

IBP Integration with Universities

IBP has knowledge partnership with following

nine universities for support to the students of their

MBA Banking & Finance program:

1. University of Karachi

2. Institute of Management Sciences, Peshawar

3. The University of Faisalabad, Faisalabad

4. Government College University, Faislabad

5. University of Central Punjab, Lahore

6. University of Balochistan, Quetta

7. Gomal University, D.I. Khan

8. Mohammad Ali Jinanh University,

Islamabad

9. Sukkur IBA

10. University of Sindh, Jamshoro

Under the arrangement, IBP provides to the

students supervised internship in different banks

and training on aspects of banking and finance.

IBP is in contact with other prestigious universities

to expand this program and to provide required

human resource to the financial service sector.

IBP Website

IBP website which is a rich knowledge portal is

becoming increasingly popular among the users

worldwide. The information on IBP website is

continuously updated. During July - September

2007, it surpassed all time high record of close to

5.7 million hits in a month. Those who visited IBP

website during the quarter under report include US

Commercial, UAE, Canada, U.K., Saudi Arabia,

France, Ireland, Singapore, Egypt, Switzerland,

Italy, Jordan, Netherlands, Sri Lanka, Norway,

Thailand, Belgium, Russian Federation, Japan,

Sweden, Denmark, Australia and India besides the

users in Pakistan. Stakeholders are invited to visit

our website and favor us with their valuable

suggestions for further improvements.




57th Annual GeneralMeeting of IBP

The annual general meeting of the Institute of

Bankers Pakistan is an important occasion which

besides being a regulatory requirement also

provides us an occasion to take stock of the past

performance and review the plans for the future.

The 57th Annual General Meeting of the Institute

was held this year on 24th September and was

chaired by Dr. Shamshad Akhtar, Governor, State

Bank of Pakistan. The meeting was largely

attended. Following businesses were transacted at

the meeting:

The minutes of the last annual general meeting

were confirmed, and the report and accounts of

the Institute for the year ended 30th June 2007

were approved. KPMG Taseer Hadi & Co. ,

Chartered Accountants were appointed auditors

for the year 2007-08 on a fee of Rs. 75,000/- while

following 10 Presidents/CEOs were elected as

members of the Council of the Institute for a 3-year

term:

1. Mr. Zakir Mahmood, President, Habib Bank

Limited

2. Mr. Atif R. Bokhari, President, United Bank

Limited

3. Mr. S. Ali Raza, President, National Bank of

Pakistan

4. Mr. Atif Aslam Bajwa, President, MCB Bank

Limited

5. Mr. Zaigham Mahmood Rizvi, Chairman,

House Building Finance Corporation

6. Mr. Zubyr Soomro, Managing Director and

Country Corporate Officer, Citibank

7. Mr. Naved A. Khan, CEO, A.B.N. AMRO Bank

8. Mr. Shahzad G. Dada , CEO, Deutsche Bank

9. Mr. Khawaja Iqbal Hassan, President and

CEO, NIB Bank

10. Mr. Irfan Siddiqui, President, Meezan Bank

Dr. Shamshad Akhtar, Governor, State Bank

of Pakistan delivered her keynote address on

“Reflections on Global Economic and Financial

Developments” and said that the recent turmoil in

the global financial markets was a wake up call for

leading financial market centres to reassess their

legal and regulatory framework.

She said there is now a broad consensus that

this financial turmoil stemmed from a liquidity

crunch and has sharpened financial vulnerabilities

globally. Given the intensity of financial market

turmoil, she said, there have been concerns

regarding its implications for inducing economic

slowdown, particularly in the U.S. markets where

housing slowdown is estimated to have already

chopped off close to half or quarter of US GDP

growth.

The SBP Governor said the Federal Reserve

took the extraordinary step to reduce its key

discount rate by 50 basis points. Although markets

responded to this positively with stock markets

indexes registering growth, the easing of interest

rates will boost world economy with a laggard

effect, she added.

Dr. Akhtar said financial globalization, marked

by growing cross-border flows and strengthening

of financial inter-linkages, has been on the rise.

‘This has been supported by wave of financial and

capital account liberalization worldwide

accompanied by financial engineering and

innovation in the area of structured finance,' she

added.

She said the process of financial globalization

has fostered economic growth and efficiency as

capital mobility has allowed flexibility to countries

to meet their financing requirements. At the same

time, it allows investors with surplus capital to

benefit from international risk sharing

opportunities and enjoying higher returns as a

reward for higher risk taking cross border, the

Governor observed.

Dr. Akhtar opined that the central bankers

have played a crucial role in maintenance of

macroeconomic stability through effective


monetary tightening, while nurturing healthy

domestic financial markets that along with

enhanced global monitoring and vigilance has

helped keep the global financial markets fairly

robust and stable.

She said that concerns have been echoed

regarding global economic and financial

vulnerabilities. These concerns stemmed partly

from the continuous widening of global economic

imbalances now for almost five years whereby

burgeoning US external current account deficit has

also raised several questions.

The SBP Governor said that in order to

promote global economic stability and an orderly

unwinding of these imbalances, the International

Monetary Fund has now launched a Multilateral

Surveillance Mechanism while strengthening the

bilateral surveillance process with special focus on

exchange rate surveillance.

Initially, she said, there has been a debate

whether the explosion of “Alternatives” defined to

include commodities, hedge funds, real estate and

private equity, estimated by JP Morgan to be close

to $3 trillion as of 2006, would be creating the next

bubble? Aside from this, it has to be recognized

that thus far signs of a bubble emerging appear in

energy commodities, she added.

The SBP Governor said since 2006, concerns

have mounted regarding the housing sector and

the sub-prime mortgage market and its adverse

consequences on the local and world economy.

This bubble did emerge in headlines early in 2007,

but it eventually burst in July 2007. Now for two

months the markets have been in financial turmoil,

albeit at different degrees depending on the level

and nature of exposures and leveraging and

quality of regulation prevailing,' she said.

Mortgage market has now come under deep

scrutiny, given the approaches adapted to

structure tranches of loans and packages in

accordance with the type and nature of risks

associated, she added.

The SBP Governor said the origins of sub-

prime mortgage crisis lay in the housing boom

when sub-prime market supported more

aggressive borrowings. Since mid 2005, with rising

interest rate and softening of house prices, home

owners booked mortgage more and more on

adjustable interest rate resets. Both home sales and

residential construction slowed down while with

the tightening of credit markets and impending

rate-setting, the problem surfaced more visibly in

sub-prime mortgage as delinquencies rose to

13.5% in June 2007 (though 5.5% for the fixed

interest rate subprime mortgages) - double the

level of 2005, she added.

Dr. Akhtar said the sub-prime problem is

largely external to Asia, but Asian asset prices have

been seriously affected by the global financial

markets turmoil through the following channels:

Some Asian institutions have exposure to

subprime mortgage-backed assets and other

Collateralized Debt Obligations (CDOs).

Re-pricing of corporate risks in the US

probably caused some normalization of risk

premiums

Tighter liquidity conditions in the US and

Europe may affect capital flows to and from Asia.

While concluding her speech, Dr Akhtar

outlined some of the lessons to be learnt from this

recent financial turmoil. She send that there are

clear limits of excessive leveraging and excessive

off balance sheet transactions come to eventually

haunt the financial institutions which have to either

take over or assume losses of special vehicles or to

provide for requisite liquidity support. While

spreading of risks cross borders help in diffusion of

risks, it has serious implications for global financial

markets which have wider consequences across

developed and developing countries, she added.

The Governor said that evidence suggests that

rating methodology for corporate credit is

fundamentally different from that used for

structured finance and yet ratings are placed on

same scale.



She said that the sub-prime debacle has served

as catalyst for a general reassessment and repricing

of risk across financial markets. This should augur

well for future of structured finance products, she

observed.

Earlier, in his report Mr. Muhammad Saleem

Umer, CEO of the Institute informed the meeting

that IBP is now ready to face the robust and

challenging requirements of human resource

development of banks and financial services sector

with its multi-dimensional knowledge initiatives.

He said the IBP was operating as strategic partner

in recruitment and promotion process of 18 banks.

During the last financial year, 250 training

programs were conducted at 21 centres in which

more than 6,000 executives and officers

participated, he said.

IBP Chief Executive said that a large number

of qualified professionals from banks and financial

institutions were joining the IBP qualification,

which was a continuous route to professional

development for which the examinations were

conducted at 21 domestic and three international

centres in London, Amsterdam and Dubai.

Highlighting the initiatives for the next two-

three years, he said the concept of e-mentoring

was to be introduced for the examinees of the IBP

qualification for a 24-hour support program. He

said in the training areas, 32 topics had been

identified for 169 seminars/training events. On the

recruitment front, the IBP launched National

Talent Hunt Program in which over 1,700 MBAs

appeared in the written test, he said, adding those

who secured 50 percent and above marks might

be considered by the banks for second scrutiny

tier.

In the annual general meeting, two new books

on “Marketing of Financial Services” and “Low

Cost Housing Solutions” were presented to the

Governor.

Former Finance Secretary, Mr. Aftab Ahmad

Khan presented vote of thanks to the chair.



Our VisionTo be the premier financial sector knowledge institute

of international standard and repute.

Our MissionTo train and develop a sound human resource base

for the financial sector and to work for

continuous learning, adaptation and

application of knowledge.

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A section of the audience at Dr. Norbert Walter's Lecture on "World Economic Cycle Mature - Financial Markets

Nervous?". Dr. Shamshad Akhtar, Governor, SBP and Mr. Yaseen Anwar, Deputy Governor, SBP were also present.

Prof. Dr. Norbert Walter, Chief Economist, Deutsche Bank AG Group delivered a lecture on "World Economic Cycle

Mature - Financial Markets Nervous?" at IBP. Sitting with him on the dias (L to R) are Mr. Shahzad Dada, CEO of

Deutsche Bank and Mr. Muhammad Saleem Umer, CEO, IBP.

Prof. Dr. Peerzada Qasim Raza Siddiqui, Vice Chancellor, University of Karachi, signing MOU between IBP and

Karachi University Business School for a high value, industry focused MBA (Banking & Finance) Program.

A group of management and faculty of IBP and Karachi University with Prof. Dr. Peerzada Qasim Raza Siddiqui, Vice

Chancellor, University of Karachi after signing of MOU between the two institutions.

A group of Citibank officers with Mr. Inayat Hussain, Director, Banking Inspection Department, State Bank of Pakistan

and IBP CEO on the occasion of a workshop on "Prudential Regulations for Consumer Financing” held at IBP.

Mr. Ozair A. Hanafi, President & CEO, Pak Oman Microfinance Bank Limited addressing the Management Associates

and Trainees of Hong Kong & Shanghai Banking Corporation, ABN Amro Bank and National Bank of Pakistan

undergoing need-based training at IBP.


Credit Risk Management:Guiding Principles ForImplementation

Abdul Razaq Vice President Country Risk Management Faysal Bank Ltd.

In the past decade, rapid innovations in

financial markets and the internationalization of

financial flows have changed the face of banking

almost beyond recognition. Technological

progress and deregulation have both provided

new opportunities for and increased competitive

pressures among banks. In the late 1980s, margins

attained from traditional banking business began

to diminish and capital adequacy requirements

began to increase. Banks have responded to these

new challenges with vigor and imagination by

forging ahead into new arenas. The growth in

international financial markets and a greater

diversity of financial instruments have allowed

banks wider access to funds. At the same time,

markets have expanded, and opportunities to

design new products and provide more services

have arisen. While the pace of these changes

appears to be quicker in some countries than in

others, banks everywhere are generally becoming

more involved in developing new instruments,

products and services, and techniques. Traditional

banking practice - based on the receipt of deposits

and the granting of loans - is today only one part

of a typical bank's business, and is often least

profitable. New information-based activities, such

as trading in financial markets and income

generation through fees, are now the major

sources of a bank's profitability. Financial

innovation has also led to the increased market

orientation and marketability of bank assets, in

particular through the introduction of concepts

such as loan swaps and sales. This process has

been achieved by using assets such as mortgages,

automobile loans, and export credits as backing for

marketable securities, a process known as

securitization. The correlation between different

types of risk, both within an individual bank and

throughout the banking system, has increased and

become more complex.

These developments have increased the need

for and complicated the function of risk

measurement, management, and control. The

quality of corporate governance of banks has

become a much debated topic, and the approach

to regulation and supervision has changed

dramatically. Within an individual bank, the new

banking environment and increased market

volatility have necessitated an integrated approach

to asset-liability and risk management techniques.

Amid changing banking environment,

worldwide, the State Bank of Pakistan (SBP) has

also recognized the importance of risk

management within financial institutions and has

issued a set of guidelines on Risk Management

vide BSD Circular No. 7 dated August 15, 2003,

with an advice to the financial institutions to make

concrete efforts to implement these guidelines in

true letter and spirit.

The risk management framework envisages

four major categories of risks that the banks are

exposed to; vis-à-vis credit, market, liquidity and

operational risks.

Since asset base of the financial institutions

primarily comprises loans and advances,

management of credit risk within the banks is of

utmost importance for these financial institutions.

Credit or counterparty risk - defined as the

chance that a debtor or financial instrument issuer

will not be able to pay interest or repay the

principal according to the terms specified in a

credit agreement - is an inherent part of banking.

Credit risk means that payments may be delayed

or ultimately not paid at all, which can in turn

cause cash flow problems and affect a bank's

liquidity. Despite innovation in the financial

services sector, credit risk is still the major single

cause of bank failures. The reason is that more

than 80 percent of a bank's balance sheet

generally relates to this aspect of risk management.

The three main types of credit (counterparty) risk

are as follows:


personal or consumer risk;

corporate or company risk;

sovereign or country risk.

Because of the potentially dire effects of credit

risk, it is important to perform a comprehensive

evaluation of a bank's capacity to assess,

administer, supervise, enforce, and recover loans,

advances, guarantees, and other credit

instruments. An overall credit risk management

review will include an evaluation of the credit risk

management policies and practices of a bank. This

evaluation should also determine the adequacy of

financial information received, from a borrower or

the issuer of a financial instrument, which has been

used by a bank as the basis for investing in such

financial instruments or the extension of credit;

and the periodic assessment of its inherently

changing risk.

Credit risk management in a financial

institution primarily constitutes the following

essential elements:

Clearly defined lending policies

Credit portfolio quality review

Credit risk management policies

Policies to limit or reduce credit risk

Asset classification

Loan loss provisioning policy

Clearly defined lending policies

Formal policies laid down by the board of

directors in all pertinent areas is important

however these are perhaps the most critical with

regard to bank's lending function, which requires

that the bank must adopt a sound system for

managing credit risk.

A lending policy should contain an outline of

the scope and allocation of a bank's credit facilities

and the manner in which a credit portfolio is

managed, i.e., how loans are originated,

appraised, supervised, and collected. A good

lending policy is not overly restrictive, but allows

for the presentation of loans to the board that

officers believe are worthy of consideration but

which do not fall within the parameters of written

guidelines. Flexibility must exist to allow for fast

reaction and early adaptation to changing

conditions in a bank's earning assets mix and

market environment.

Considerations that form the basis for sound

lending policies include the following:

Limit on total outstanding loans.

A limit on the total loan portfolio is usually

expressed relative to deposits, capital, or total

assets. In setting such a limit, factors such as credit

demand, the volatility of deposits, and credit risks

should be considered.

Geographic limits

These are usually a dilemma. If a bank lacks

understanding of its diverse markets and/or does

not have quality management, geographic

diversification may become a reason for bad loan

problems. On the other hand, the imposition of

strict geographical limits can also create problems,

particularly in the case of regions with narrow

economies. In any case, a bank's business market

should be clearly delineated and commensurate

with its market knowledge and managerial and

staff experience. Bank officers should be fully

aware of specific geographical limitations for

lending purposes, an aspect that is particularly

relevant for new banks.

Credit concentrations.

A lending policy should stimulate portfolio

diversification and strike a balance between

maximum yield and minimum risk. Concentration

limits usually refer to the maximum permitted

exposure to a single client, connected group,

and/or sector of economic activity (e.g.,

agriculture, steel, or textiles). This is especially

important for small, regionally oriented or

specialized banks. A lending policy should also

require that all concentrations be reviewed and

reported on a frequent basis.



Distribution by category

Limitations based on aggregate percentages of

total loans in commercial, real estate, consumer, or

other credit categories are common. Policies

related to such limitations should allow for

deviations that are approved by the board.

Type of loans.

A lending policy should specify the types of

loans and other credit instruments that the bank

intends to offer to clients and should provide

guidelines for specific loans. Decisions about types

of credit instruments should be based on the

expertise of lending officers, the deposit structure

of a bank, and anticipated credit demand. Types

of credit that have resulted in an abnormal loss

should be controlled by senior management or

avoided completely.

Maturities.

A lending policy should establish the

maximum maturity for each type of credit, and

loans should be granted with a realistic repayment

schedule. Maturity scheduling should be

determined in relation to the anticipated source of

repayment, the purpose of the loan, and the useful

life of the collateral.

Loan pricing.

Rates on various loan types must be sufficient

to cover the costs of funds, loan supervision,

administration (including general overhead), and

probable losses. At the same time, they should

provide a reasonable margin of profit. Rates

should be periodically reviewed and adjusted to

reflect changes in costs or competitive factors. Rate

differentials may be deliberately maintained either

to encourage some types of borrowers to seek

credit elsewhere or to attract a specific type of

borrower. Guidelines for other relevant

procedures, such as the determination of fees on

commitments or penalty interest rates, are also an

element of pricing policy.

Lending authority

It is often determined by the size of a bank. In

smaller banks, it is typically centralized. In order to

avoid delays in the lending process, larger banks

tend to decentralize according to geographical

area, lending products, and/or types of customers.

A lending policy should establish limits for all

lending officers. If policies are clearly established

and enforced, individual limitations may be

somewhat higher than would normally be

expected, depending on the officer's experience

and tenure with the bank. Lending limits could

also be based on group authority, which would

allow a committee to approve larger loans.

Reporting procedures and the frequency of

committee meetings should be specified.

Credit Portfolio Quality Review

One of the essential elements of credit risk

management framework is the ongoing monitoring

of quality of the credit portfolio. Such quality

checks are performed on frequent basis so as to

cover all the facilities disbursed during the year,

except those managed on portfolio basis such as

consumer loans.

When feasible, the loan portfolio review

should normally include a random sampling of

loans so that approximately 70 percent of the total

loan amount and 30 percent of the number of

loans are covered. It should also consider at least

75 percent of the total loan amount and 50 percent

of the number of all foreign currency loans and of

all loans with maturities greater than one year. In

addition, a detailed credit portfolio review should

include the following:

all loans to borrowers with aggregate exposure

larger than 5 percent of the bank's capital;

all loans to shareholders and connected

parties;

all loans for which the interest or repayment

terms have been rescheduled or otherwise

altered since the granting of the loan;



all loans for which cash payment of interest

and/or principal is more than 30 days past due,

including those for which interest has been

capitalized or rolled over;

all loans classified as substandard, doubtful, or

loss.

In each of these cases, a loan review should

consider documentation in the borrower's file and

involve a discussion of the borrower's business,

near-term prospects, and credit history with the

responsible credit officer. When the total amount

due exceeds 5 percent of a bank's capital, the

analysis should also consider the borrower's

business plans for the future and the potential

consequences for debt service capacity and

principal repayment. The specific objective of

these reviews is to assess the likelihood that the

credit will be repaid, as well as whether or not the

classification of the loan proposed by the bank is

adequate. Other considerations include the quality

of collateral held and the ability of the borrower's

business to generate necessary cash.

Beyond loans, interbank deposits are the most

important category of assets for which a bank

carries the credit risk. This category may account

for a significant percentage of a bank's balance

sheet, particularly in countries that lack

convertibility but allow their citizens and economic

agents to maintain foreign exchange deposits.

Credit Risk Management Policies

Credit risk is the most common cause of bank

failures, causing virtually all regulatory

environments to prescribe minimum standards for

credit risk management. The basis of sound credit

risk management is the identification of the

existing and potential risks inherent in lending

activities. Measures to counteract these risks

normally comprise clearly defined policies that

express the bank's credit risk management

philosophy and the parameters within which credit

risk is to be controlled. Specific credit risk

management measures typically include three

kinds of policies. One set of policies includes those

aimed to limit or reduce credit risk, such as policies

on concentration and large exposures, adequate

diversification, lending to connected parties, or

over-exposures. The second set includes policies of

asset classification. These mandate periodic

evaluation of the collectibility of the portfolio of

loans and other credit instruments, including any

accrued and unpaid interest, which expose a bank

to credit risk. The third set includes policies of loss

provisioning, or the making of allowances at a

level adequate to absorb anticipated loss - not only

on the loan portfolio, but also on all other assets

that are subject to losses. The assessment of a

credit risk management function should consider

loans and all other extensions of credit (on- and

off-balance-sheet) to ensure that the following

factors are considered:

the level, distribution, and severity of classified

assets;

the level and composition of non-accruing,

nonperforming, renegotiated, rolled-over, and

reduced-rate assets;

the adequacy of valuation reserves;

management's ability to administer and collect

problem assets;

undue concentrations of credit;

the adequacy and effectiveness of, and

adherence to, lending policies and credit

administration procedures; and

the adequacy and effectiveness of a bank's

process for identifying and monitoring initial

and changing levels of risk, or risk associated

with approved credit exposure.

Policies to limit or reduce credit risk

Bank regulators have traditionally paid close

attention to risk concentration by banks. A

regulator's objective in credit risk management is

to prevent banks from relying excessively on a

large borrower or group of borrowers, but not to

dictate to whom banks may or may not lend.

Modern prudential regulations usually stipulate

that a bank should not make investments, grant

large loans, or extend other credit facilities to any

individual entity or related group of entities in

excess of an amount that represents a prescribed



percentage of the bank's capital and reserves. Most

countries impose a single-customer exposure limit

of between 10 and 25 percent of capital, although

in some jurisdictions it may be as high as 30-40

percent. The Basel Committee on Banking

Supervision has recommended a maximum of 25

percent, with the intention of reducing it to 10

percent as soon as this is practical.

The main difficulty in defining an exposure is

to quantify the extent to which less direct forms of

credit exposure should be included within the

exposure limit. As a matter of principle, contingent

liabilities and credit substitutes, such as guarantees,

acceptances, and letters of credit, as well as all

future commitments should be included, although

the treatment of specific instruments may vary. For

example, a financial obligation guarantee may

have a different treatment compared to a

performance risk guarantee. The inclusion of

collateral in an assessment of exposure limit is

another contentious issue, as the valuation of

collateral can be highly subjective. As a matter of

prudence, collateral should not be considered

when determining the size of an exposure. Another

conceptual question is the definition of the term

"single client." According to international practice,

a single client is an individual/ legal person or a

connected group to which a bank is exposed.

Single clients are mutually associated or control

(directly or indirectly) other clients, normally

through a voting right of at least 15-20% percent,

a dominant shareholding, or the capacity to

exercise in concert a controlling influence on policy

making and management. In addition, these

clients' cumulative exposure may represent a

singular risk to a bank if financial interdependence

exists and their expected source of repayment is

the same.

Lending to connected parties (commonly

known as related party lending) is a particularly

dangerous form of credit risk exposure. Related

parties typically include a bank's parent, major

shareholders, subsidiaries, affiliate companies,

directors, and executive officers. This relationship

includes the ability to exert control over or

influence a bank's policies and decision-making,

especially concerning credit decisions. A bank's

ability to systematically identify and track

extensions of credit to insiders is crucial. The issue

is whether credit decisions are made on a rational

basis and according to the bank's policies and

procedures. An additional concern is whether

credit is based on market terms or is granted on

terms that are more favorable with regard to

amount, maturity, rate, and collateral, than those

provided to the general public. Most regulators

establish limits for aggregate lending to related

parties, typically stipulating that total lending to

related parties cannot exceed a certain percentage

of tier 1 or total qualifying capital. If such a limit

has not been established by prudential regulations,

a bank should be expected to maintain one as a

matter of board policy. A prudent banking practice

would require all loans to related parties to be

approved by the board.

Another dimension of risk concentration is the

exposure of a bank to a single sector of the

economy or a narrow geographical region. This

makes a bank vulnerable to a weakness in a

particular industry or region and poses a risk that it

will suffer from simultaneous failures among

several clients for similar reasons. This concern is

particularly relevant for regional and specialized

banks or banks in small countries with narrow

economic profiles, such as those with

predominantly agriculture-based economies or

exporters of a single commodity.

It is often difficult to assess the exposure of

banks to various sectors of the economy, as most

bank reporting systems do not produce such

information. For example, a loan to the holding

company of a large, diversified group could be

used to finance projects in various industries in

which the company operates. In any case, banks,

which are by nature exposed to sector risks, should

have well-developed systems to monitor such risks

and to assess the impact of adverse trends on their

loan portfolio quality and on their income

statements. Such banks should also have

institutionalized mechanisms in place to deal with

increased risk.

Renegotiated debt refers to loans that have

been restructured to provide a reduction of either



interest or principal payments because of the

borrower's deteriorated financial position. A loan

that is extended or renewed, with terms that are

equal to those applied to new debt with similar

risk, should not be considered as renegotiated

debt. Restructuring may involve a transfer of real

estate from the borrower to the bank, receivables

or other assets from third parties, a debt-to-equity

swap in full or partial satisfaction of the loan, or the

addition of a new debtor to the original borrower.

A good practice is to have such transactions

approved by the board of directors before

concessions are made to a borrower. Bank policies

should also ensure that such items are properly

handled from an accounting and control

standpoint. A bank should measure a restructured

loan by reducing its recorded investment to a net

realizable value, taking into account the cost of all

the concessions at the date of restructuring. The

reduction should be recorded as a charge to the

income statement for the period in which the loan

is restructured. A significant amount of

renegotiated debt is normally a sign that a bank is

experiencing problems. An exception to this

general approach applies in a market environment

of falling interest rates, when it may be in the

interest of both debtors and creditors to

renegotiate the original credit terms.

Asset classification

Asset classification is a process whereby an

asset is assigned a credit risk grade, which is

determined by the likelihood that debt obligations

will be serviced and debt liquidated according to

contract terms. In general, all assets for which a

bank is taking a risk should be classified, including

loans and advances, accounts receivable,

investments, equity participations, and contingent

liabilities. Asset classification is a key risk

management tool. Assets are classified at the time

of origination and then reviewed and reclassified

as necessary (according to the degree of credit risk)

a few times per year. The review should consider

loan service performance and the borrower's

financial condition. Economic trends and changes

in respective markets and the price of goods also

affect evaluation of loan repayment. The

evaluation of certain classes of smaller loans,

however, may be based only on repayment

performance, in particular small consumer loans

such as residential mortgages, installment loans,

and credit cards. Assets classified as "pass" or

"watch" are typically reviewed twice per year, while

critical assets are reviewed at least each quarter.

Banks determine classifications by themselves but

follow standards that are normally set by

regulatory authorities. The primary emphasis of

these rules is placed upon a borrower's ability and

willingness to repay a debt, including both interest

and principal, from prospective operating cash

flow. Some jurisdictions require that all credit

extended to an individual borrower (or to a related

group of borrowers) should be assigned the same

risk classification, while differences in classification

should be specifically noted and justified. Other

jurisdictions recommend that each asset be

assessed on its own particular merits. In cases

where assets may be classified differently

depending on whether subjective or objective

criteria are used, the more severe classification

should generally apply. If supervisory authorities,

and in many cases external auditors, assign more

stringent classifications than the bank itself, the

bank is expected to adjust the classification. In

some advanced banking systems, banks use more

than one rating level for assets in the pass

category. The objective of such a practice is to

improve the quality of portfolio analysis and trend

analysis to be able to better differentiate among

credits of different types, and to improve the

understanding of the relationship between

profitability and the rating level. Banks engaged in

international lending face additional risks, the most

important of which are country, or sovereign, and

transfer risks. The former encompass the entire

spectrum of risks posed by the macroeconomic,

performance of borrowers. Transfer risks are the

difficulties that a borrower might have in obtaining,

the foreign exchange needed to service a bank's

loan. The classification of international loans

should normally include both country and transfer

risk aspects. A bank may be asked to provide for

international loans on a loan-by-loan basis,

whereby the level of necessary provisions is

increased to accommodate additional risk.

Alternatively, a bank may determine aggregate

exposures to country and transfer risks on a



country-by-country basis, and provide special

reserves to accommodate for risk exposures.

Additionally, foreign currency risk aspects may

also affect loan classification in cases where a

debtor has borrowed in one currency but

generates cash flow in another currency. In effect,

the foreign currency risk aspect magnifies the credit

risk taken by a bank. Such cases are especially

relevant in emerging market economies or in

economies where the domestic currency is

unstable and/or lacks full convertibility. The loan

classification should, in such cases, also include

considerations related to the likelihood of currency

devaluation, the ability of the debtor to cover or

hedge the risk of devaluation, or the debtor's

capacity to adjust product or service pricing.

Loan loss provisioning policy

Asset classification provides a basis for

determining an adequate level of provisions for

possible loan losses. Such provisions, together with

general loss reserves that are normally counted as

tier 2 capital and are not assigned to specific assets,

form the basis for establishing a bank's capacity to

absorb losses. In determining an adequate reserve,

all significant factors that affect the collectibility of

the loan portfolio should be considered. These

factors include the quality of credit policies and

procedures, prior loss experiences, loan growth,

quality of management in the lending area, loan

collection and recovery practices, changes in

national and local economic and business

conditions, and general economic trends.

Assessments of asset value should be performed

systematically, consistently over time, and in

conformity with objective criteria. They should also

be supported by adequate documentation. Policies

on loan-loss provisioning range from mandated to

discretionary, depending on the banking system.

The tax treatment of provisions also varies

considerably from country to country, although

many economists believe that provisions should be

treated as business expenses for tax purposes. Tax

considerations should not, however, influence

prudent risk management policies. While some

merit exists in estimating loss potential on a case-

by-case basis, particularly for large borrowers, it

may be more practical to assign a level of required

provisions based on each classification category. In

many countries, in particular those with fragile

economies, regulators have established mandatory

levels of provisions which are related to asset

classification. The established level of mandatory

provisions is normally determined by certain

statistics. In countries where the legal framework

for debt recovery is highly developed, such as the

United States, studies have demonstrated that

approximately 10 percent of substandard assets

eventually deteriorate into loss. The percentages

for doubtful and loss classifications are

approximately 50 percent and 100 percent,

respectively. In developing countries where the

legal frameworks and traditions for debt collection

may be less effective, provisions in the range of 20

to 25 percent of substandard assets may be a

more realistic estimate of loss potential.

Robust MIS support

Effectively managing credit risk in today's

banking environment is extremely important for

the institutions. Effectiveness of the credit risk

management framework is dependent on the level

of understanding of the higher management of the

institutions engaged in day-to-day risk

management responsibilities. In addition to the

precise understanding of the framework,

implementation of the risk measurement and

monitoring tools requires robust MIS capable to

generate management reports, which may then be

utilized for monitoring of the limits and compliance

with the predefined policies on bank wide basis.

Traditional banking softwares, which were mostly

incapable of generating countrywide information

on timely basis, are no more useful, if institutions

are to implement risk management framework in

true letter and spirit and to stay alive in this rapidly

changing financial sector.




Challenges andOpportunities inMicrofinance

(This paper was awarded first prize in IBP Research

Paper Competition of Summer-2007)

Dr. Gohar Sattar Officer National Bank of Pakistan

Introduction

Microfinance may be defined as the financial

services needs including credit, savings, insurance

and payment transfers, of the poor households

and their micro enterprises. The Microfinance

Institutions (MFIs) are specialized financial

institutions, which cater to the financial services

needs of the poor.

Microfinance or micro credit, by providing

small loans and saving facilities to those who are

excluded from commercial financial services, has

been promoted as a key strategy for reduction or

combating poverty. Access to these facilities is seen

as a way of providing the client that is

economically active with opportunities for self-

reliance through entrepreneurship, cushioning

them against economic shocks, and providing a

means of social empowerment for poor women

and men in their communities. Yet although

microfinance programs (MFPs) are often driven by

a moral imperative to alleviate poverty, the extent

to which they are able to reach the poor with their

services and likely economic and social impacts

continue to be issues of debate.

The objective of this research paper is to

address the challenges and opportunities in

Microfinance (MF). The paper is structured as

follows. Section I outlines the need of MF and

highlights a typical MF model. Section II reflects

upon the providers of MF. Section III provides an

insight into the Evolution of MF in Pakistan.

Sections IV and V discuss the various challenges

and opportunities in MF respectively. The paper

ends with suggestions and concluding remarks.

1. Need for Microfinance

Almost 25% of the 160 million Pakistani

people live below the poverty line.

The 1990s saw a substantial increase in

poverty, with 80% of the then 97 million in the

rural population living with less than US$1 per

day. [Table IV(a) & IV(b)]

36.3% of the rural population is considered

poor by Pakistan standards, while urban

poverty is 22.4% (1999 data).

Agriculture income accounts for only half the

revenues of the rural population with non-farm

activities and remittances providing the rest.

The poor, and the majority of the middle class,

have very little access to credit. The formal

banking sector has usually avoided lending to

the poor because of supposed difficulties in

collection and lack of collateral. Therefore, the

poor must rely on alternative sources for funds,

such as relatives or suppliers, or depend on

moneylenders who charge extremely high

interest rates. The poor also participate in local

Rotating Savings and Credit Associations

(ROSCAS), called committees. However,

tensions between net savers and net borrowers

often cause fragility.

In rural areas, access to financial services is

needed mostly for agricultural, livestock and

non-farm activities. In urban Pakistan, MF

clients are mostly vendors, small traders,

cottage industry workers and low-wage

earners.

1.1A Typical Micro Credit Model:

Market based micro credit model entails a

pricing structure that ensures cost recovery and

prevents fund depletion. Customarily, the planning

and cash cycles of these enterprises are relatively

October - December 2007 Issue 31DISCLAIMER: THE VIEWS EXPRESSED IN THIS REPORT MAY NOT BE SUBSCRIBED, IN PART OR IN WHOLE, BY NATIONAL BANK OF PAKISTAN

short. A MF model signifies the following common

features focusing on easy and quick disposal of

micro finance facilities at the doorsteps of the

needy.

Simple in procedures: In contrast to lengthy

procedures and analysis in case of corporate client

proposals, MF proposals are normally confined to

maximum couple of pages. At the micro loan level,

relying on peers to choose a client is an effective

tool for loan security.

Speedy disposal: Loan seekers are disillusioned

if they have to wait for months before receiving

services. They are accustomed to on the spot

disbursement. These loans carry repayments in

short intervals. Well managed projects ensure the

release of funds within a month or sometimes in

less than a week and subsequent draw downs even

earlier. Small sized and short term loans not only

‘test' the client’s commitment to repay, but also

allow, the lender to see whether or not a loan will,

in fact, help the business grow.

No book keeping or formal business plans:

Only a small percentage of farmers, traders and

manufacturers maintain records of their

operations. Successful MF programs do not

necessitate the formal book keeping and

standardized plans. In certain cases, even the

business plans are devised by the disbursing

managers who then charge for such services while

fixing the overall pricing.

Personal repute-the cutting edge: Compared

to traditional financing systems, the MF units link

claim of repayment of loans to the borrower’s

market reputation rather then collateral and

margin requirements.

High interest: While from the borrower’s

perspective, quick disbursal is more important then

interest rate, from the view point of lender, interest

must cover transaction and operating costs of the

project. For example, Grameen Bank of

Bangladesh has been charging 15% real rate of

interest or 10- 12% higher than the open market.

2. Providers of Microfinance

Informal sources of finance account for

approximately 83% of the credit supply and are

provided by moneylenders, shopkeepers, traders,

middlemen, family and friends for consumption

and production purposes. Every village has at least

one informal committee that collects regular

savings and offers loans to members in a similar

management arrangement to ROSCAs (Rotating

Savings and Credit Associations). Compared to

the other sources of microfinancing, common

interest rates in informal sources are much higher,

ranging from 50% to 120% per annum.

In the semi-formal sector NGOs and

participatory organizations such as Rural Support

Programs (RSP) have been the primary promoters

of MF services in Pakistan. RSPs are multi-

functional as they provide a range of services and

aim to achieve provincial and national coverage.

The formal sector includes commercial

banks, Microfinance Banks/Institutions

(MFB/MFIs) and leasing companies.

3. Evolution of Microfinance in Pakistan

The microfinance movement in Pakistan

followed a unique evolutionary path over the last

decades. In the proceeding paragraphs we present

the three development phases of the sector.

Phase 1: 1970s

Government directed credit

The use of finance (mostly credit) as a

development tool has a history in Pakistan in the

form of government directed/subsidised credit

schemes particularly in rural areas. Small Business

Finance Corporation (SBFC), Youth Investment

Promotion Society (YIPS), Self Employment

Scheme (SES) and Yellow Cab Scheme are typical

examples. While SBFC and YIPS represent a direct

institutional intervention through use of public

funds and institutional structures, SES and Yellow

Cab schemes represent indirect government



pressures on commercial financial institutions

(mostly public sector) to provide concessionary

financing especially to unemployed youth and

business start-ups.

Phase - 2: Early 1980's to Mid 1990's -

Philanthropy of Finance

The emergence of the Pakistani microfinance

sector is usually traced to two pioneering

development institutions - The Aga Khan Rural

Support Program (AKRSP) and the Orangi Pilot

Project (OPP).

Established in 1982 by the Aga Khan

Foundation, AKRSP was the first Integrated Rural

Development Program of its kind, outside the

government domain. It has focused its

development interventions on the Northern Areas

of Pakistan. The first large scale practical

implementation and conceptualization of

development frameworks such as “social

mobilization” and “group lending methodology”

can be traced to AKRSP's MF model initiated in

1982. While AKRSP pioneered development

service provision in the rural, agrarian frontiers of

North Pakistan, OPP took up the challenge of

tackling urban poverty in the biggest slum

settlement in Pakistan's port city and commercial

capital - Karachi. OPP was established by Akhtar

Hameed Khan, considered to be the father of rural

development in Pakistan.(Table: II)

The RSP Model

Rural Support Programs (RSPs), initiated by

the government, were inspired by the AKRSP

model of rural development. By 2004, RSPs were

working with more than 43,000 community

organisations comprising of more than 1,000,000

households.

The establishment of National Rural Support

Program (NRSP) in 1991 has a special

significance.The rural focused microfinance

operations of NRSP have expanded into urban

areas as well under its Urban Poverty Alleviation

Program (UPAP).

Phase-3: Late 1990's till the present - entry

of the specialist MFI

The later part of 1990's saw the entry of

regulated financial institutions such as commercial

banks and leasing companies in the MF arena.

Mostly urban based MF - only programs also came

up in major cities of Pakistan. Regulatory

structures started taking shape, spawning a new

microfinance institutional structure - The

Microfinance Bank.(Table: VI)

The Involvement of the Leasing Sector

The first foray into MF by a regulated financial

institution was made by a leasing company -

Network Leasing Corporation Limited (NLCL),

established in 1995, specifically for providing

microleasing services to small businesses

throughout Pakistan.

Orix Leasing Pakistan (OLP) is a leading

financial service company with an array of

products. Established in 1986, OLP is a listed

Pakistani leasing company sponsored by Orix

Corporation Japan - an integrated financial service

company with over $50 billion assets spread over

23 countries.

Entry of Commercial Banks

Commercial banks did not fail to join the MF

bandwagon. Their social finance initiatives took

two shapes:

Banks providing credit lines to NGO MFIs for

on-lending as MF loans.

Banks providing direct/retail finance to poor

people.

Habib Bank can be considered a pioneer in the

indirect lending strategy. It had provided credit

lines to NRSP for on-lending as microfinance loans

to rural communities in 1999 - 2000 periods.

However, the role of commercial banks as

wholesalers of funds to MFIs have somewhat

waned due to the emergence of the Pakistan

Poverty Allevation Fund (PPAF) in 2000, which



provides concessionary funding to MFIs for a

variety of development interventions including

microfinance.

The Bank of Khyber (BOK) and the First

Women Bank Limited (FWBL), both public sector

banks with a development mandate, established

direct microfinance windows.

The Microfinance Banks (MFBs)

Apart from Khushhali Bank and First MFB,

established under the patronage of Asian

Development Bank (ADB) and Aga Khan Fund for

Economic Development (AKFED) respectively,

two more MF banks are noteworthy - Network

Bank and Rozgar Bank. Network Bank's sponsor,

Network Leasing, has an established microleasing

program since 1995 and has a presence

throughout Pakistan. Rozgar Bank also represents

“purely commercial” capital going into the MF

sector. While Network Bank and Rozgar Bank

have operations restricted to specific districts (i.e.

Karachi), Khushhali Bank and First Microfinance

Bank are working nationwide.

The fifth MFB, Tameer Bank, also having

equity contributions by International Finance

Corporation (IFC) is the last one to enter the

market through its Karachi operations.

The Urban “Miracles”

Second half of the 90's also saw the

establishment of a specialist MFI, KASHF (meaning

“miracle” in Arabic).

It focused on urban/sub - urban target markets

in the metropolitan city of Lahore, the provincial

capital of Pakistan's Punjab province. It applied a

business - like approach to MF loosely following the

Grameen style group lending methodology and

focusing exclusively on women. In December 2004,

KASHF had more than 60,000 clients. The founder

of KASHF, a Harvard graduate, seems to have

realised the fact at that time that the urban areas of

Punjab, buzzing with economic activity, lacked a

grass root financial intervention. Karachi, the

biggest industrial city of Pakistan already had OPP.

OPP and KASHF present an interesting

comparison. Both OPP and KASHF realised early

the specialist nature of MF. Accordingly, OPP

established a separate sister entity, Orangi

Charitable Trust (OCT) to conduct its MF

operations while KASHF focused exclusively on

MF.

ASASAH (meaning “asset” in Urdu), although

a late entrant (year of establishment: 2003) has

quickly established its market as a specialist MFI

based mostly in urban areas of Punjab province

including cities such as Lahore.

4. Challenges Inherent in Microfinance

Creating sustainability: MF is often criticized for

not being sustainable. Many governments,

including Pakistan's, assume that the poor need

charity, welfare or subsidized credit, rather than

basic financial services. In order to achieve full or

near full sustainability, it is necessary to view the

poor as a market. Proceeding from that premise, a

financial solution is required. A self sustaining MF

structure can only be erected if its commercial

viability is duly taken care of. Subsidies,

concessions, discounts or repayment

delays/holidays may provide a starter but they

would not ensure the long term sustainability of the

system.

Building a replicable and scalable model:

Often MF is seen as a tool in a larger development

management approach and is combined with

health, education, and other services. It does not

receive the specialized attention that it deserves; it

must be addressed independently.

There is a requirement to downscale the

commercial banking activity and upscale the

microcredit operations. Specialized MFIs are the

need of the hour. With this, building of economies

of scale in MF sector would ensure its sustainbility.

The “Grameen Bank” model can be taken up for

replication within our system by making necessary

alterations, amendments and adjustments as and

when deemed fit.



Achieving formalization: To achieve efficiency

and effectiveness, it is necessary to effect transition

from an NGO to a bank or another type of

financial institution. This upgradtion to a more

formal structure would improve the human

resource base of the MFI s' thereby translating into

improved financial expertise, product

diversificiation and enhancement in the quality

and delivery of products and services.

Targeting women: In order to empower women,

it is essential that microcredit enterprises target

women directly and transform into women-

oriented organizations with primarily female loan

officers.

The social benefits of microcredit programs

that target women are difficult to measure or

define. For most, it is their first access to credit. The

Kashf Foundation conducts its work through loan

centers, which provide a unique forum through

which women are able to speak their minds,

whether it be on local politics, money issues, or

family concerns. Eighty-two percent of the clients

reported an increase in self-confidence and many

reported a decline in domestic abuse.

Fears that providing women with funds may

increase domestic violence have not been entirely

dispelled. Although anecdotally these fears appear

unjustified, except in very rare circumstances, few

substantive studies or concrete findings exist on

these social consequences of microfinance.

Achieving sound portfolio management:

Portfolio management is crucial to the success of

microcredit enterprises. In Pakistan, most private

sector lending institutions achieve only an eighty-

seven to ninety-four percent recovery rate,

compared to the international average of ninety-

seven percent. This rate is insufficient to achieve

sustainability; if a recovery rate of less than ninety-

five percent were projected over the next five

years; the lending agency would significantly

undermine its asset base. In part, the existence of

subsidized loan agencies allows clients to default

on loans; this creates a cycle of poor credit and

further indebts the poor.

Enhancing outreach: According to Dr Schultz,

“Financial credit is the most flexible form of

transferring economic resources to the poor”.

In Pakistan, a country of 160 million, nearly

twenty five percent of the population lives on less

than US$1.00 per day. The demand for MF is

great; six million households require financial

assistance and MF is serving only five percent of

these. The overall success of any MF program

would invariably depend on the number of

households it can reach. Since the demand of MF

is large therefore the strategy should be to increase

its scope manifold. In this regard, the creation of

linkages amongst different MF providers can

markedly help in augmenting the customer base of

this program (Table V).

Adherence to performance benchmarks: As

discussed above, the poor should be viewed as a

market and with that the MF institutions must

achieve commercial viability. This

commercialization of MFIs would entail strict

adherence to generally accepted industry

standards and performance benchmarks, be it the

achievement of minimal human resource

standards or accomplishing a high recovery level.

The MFIs Ordinance 2001 is a landmark step in

providing a statutory basis for the long term

viability of this sector in line with best practiced

international standards.

This ordinance inter alia stipulates the

functions, capital requirements, ownership

structure, terms and conditions for establishing

MFB/MFIs in the country, audit and disclosure

requirements and winding up procedures. The

provisions of the ordinance are applicable to MFIs

mobilizing savings from public to finance their

operations. The operations of NGOs and other

programs providing microcredit and allied services

through sources other than public deposits/savings

are not covered under the ordinance. The

framework allows establishment of three categories

of formal MFBs in the country viz:

Nation - wide MFBs - minimum paid-up

capital of Rs.500 million



Province - wide MFBs - minimum paid-up

capital of Rs.250 million, and

District - wide MFBs - minimum paid-up

capital of Rs.100 million

Pakistan also has a rating agency, JCR-VIS,

which has initiated ratings of NGOs and

specialized MF organizations, such as The First

MFB. NGOs are rated on a corporate governance

scale while the full credit rating of MFIs applies

only to institutions regulated by SBP. They are

described as MFBs and can mobilize commercial

sources of funds.

Product diversification: The MF strategy during

the early 1990's has certain common elements; the

word “microcredit” was used instead of MF

symbolising provision of only loans (and

compulsory savings) as a social service equivalent

to other development needs such as education,

health, sanitation etc. A complete MF model

comes in the form of a complete financial package.

The Kashf Foundation is a unique MF enterprise, a

pioneer in three regards. First, it provides a holistic

financial services model, incorporating microcredit

with life and health insurance and saving services.

Life/health-insurance, involving an annual fee of

US$1.75 that must be paid when the loan is

received, is required of all participants. This

protects the household in the event of the death or

unexpected illness of the wage-earner. Saving, on

the other hand, is optional and provides no return

or interest. Interestingly, return on savings is

ranked fourth by savings clients, after

convenience, access, and trust. Second, Kashf was

the first to recognize the need for a consumption or

emergency, which enables clients to continue with

current spending and saving habits while covering

unexpected costs. The emergency loan provided

by Kashf is US$50.00. Seventy percent of these

loans is used for school fees. Third, it promotes

female loan officers; sixty percent are women.

The Thardeep Rural Development Program

(TRDP) has launched a product called “Credit for

Subsistence”. This product is in answer to the

drought situation in Tharparker, which is located in

the Sindh province. This product aims at covering

“food and feed” and is based on the terms and

installment of TRDP s' other loan products.

Ensuring continuous funding: There are three

major sources of funds avaiable to MF providers in

Pakistan and these are equity, non commercial

liabilites at subsidized prices and commercial

liabilites at market price. Another source, largely

untapped but available to MFBs is public deposits.

Two of the largest organizations, NRSP and

Khushali Bank, finance their portfolio by accessing

either debt from the apex or from a multilateral, at

less than market prices. Stringent compliance rules

such as provision of securities and high interest

rates put constraints on “commercial” funding

resources such as commercial bank credit lines for

MF NGOs. In this situation, PPAF came up to fulfill

the funding need of MFIs by coming up as a whole

seller of finance for not only MF activities but also

for social service provision such as physical

infrastructure, health and education.

Other Issues: Due to the difficulty of defining

and measuring empowerment and confidence

building, we are left without any quantitative

conclusions or statistics about the level of success

in this regard. Furthermore, questions about the

impact that MF can have on a region or country

are left unanswered. Data has yet to show a direct

correlation between the prevalence of MF and

widespread poverty alleviation or GDP per capita

growth. MF undoubtedly improves the economic

status of a particular household, but the broader

benefits have yet to be quantified. Finally, fears

about creating a poverty cycle in which MF clients

become burdened by increasing debt are another

issue that requires consideration.

5. Opportunities in Microfinance

Poverty Alleviation Tool:

“Poverty is an unacceptable human condition.

It is not unassailable; public policy and action can

and must eliminate poverty. This is what

development is all about”.

The existing evidence on the impact of

microcredit on poverty is not clear-cut. There is



work that suggests that access to credit has the

potential to significantly reduce poverty

(Khandker, 1998); on the other hand there is also

research, which argues that microcredit has

minimal impact on poverty reduction (Morduch,

1998).

The evidence on reducing vulnerability,

however, is somewhat clearer. The provision of,

microcredit has been found to strengthen crises

coping mechanisms, diversify income earning

sources, build assets and improve the status of

women (Hashemi et al, 1996).

In a more recent study, James et al. (2001)

estimated the impact of an urban credit program in

Zambia on business performance and on a range

of indicators of household well-being. They found

that borrowers who obtained a second loan

experienced significantly higher average growth in

business profits and household income.

The Bolivian experience indicates that all the

institutions studied had, on balance, positive

impacts on income and asset levels (Mosley,

2001).

In Pakistan's context, Khan (2001) estimated

the economic impact of the support program on

rural households. He concluded that the economic

impact of the support program on rural households

is substantially large and probably makes a

significant difference to the households close to the

poverty line. However, he qualified this conclusion

by arguing “this conclusion holds particularly for

those rural households that participate on a

sustained basis over a long period”.

Although micro credit cannot effectively

address the needs of the most destitute poor, it can

significantly improve the lives of the working poor

and their households, having on average seven to

ten members. Eighty-six of the Kashf Foundation

clients live on US$0.66 per day when they receive

their first loan, equal to approximately US$20.00

per month. After three loans, the average client has

increased earnings by US$12.00 per month, to

make total monthly earnings US$32.00.

Proponents of micro credit consider increasing

the poor’s access to instituional credit as an

important means of ending poverty (Yunus 1983).

They argue that by virtue of their deisgin such

programs can reach the poor and overcome

problems of credit market imperfections. In their

view, improved access to credit smoothes

consumption and eases constraints on productiton

raising the incomes and producion of the poor.

Taking cue from the empirical evdience of

Bangladesh s' MFP, it can be safely recounted that

by projecting and patronizing MFP in a country

like ours for identifying the needs of the borrowers

and then susequently supporting them in the form

of a complete financial package would help

address the cause of poverty. (See Table: I for

Country Comparisons)

Impact on health, social capital and

economy: MF had a significant impact on

children's schooling especially for boys in

Bangladesh. An increase by 1% on Grameen Bank

credit to women increased the probability of

school enrollment by 1.9% for girls and 2.4% for

boys.

MF has a large impact on nutritional well being

of both male and female children in Bangladesh in

the form of improvement in the body mass index,

arm circumference and height for age.

MF generates income and employment flows

that are not corelated with income and

employment from agriculture thus helping to

smooth consumption and labur supply. Pakistan

being a predominantly agrarian economy can

greatly benefit from these programs.

Theoretically the MFP can spur economic

revival by easing liquidity contraints, starting up

new production, introducing new technology,

taking up of production risk and creation of

backward and forward linkages. Agriculture sector

in Pakistan can not absorb the burgeoning labour

force, therefore, expansion in rural non-farm

income and employment is imperative to promote

broad based economic growth and revival. Rural

non farm sector has backward and forward



linkages with the agriculture sector and the MFP

can help this sector by providng institutional credit.

Empoverment of vulnerable groups

(catalyst for social change):

It is widely known that women are vital to

economic and political development. They are

rarely financially independent and often are the

most vulnerable members of society. MF is a

critical tool for reaching these women and has the

ability to empower and greatly improve the lives of

many. Although the sustainability and profitability

of MF enterprises is frequently questioned, it is

important to understand that MF is nonetheless a

crucial component of development. Although

difficult to measure or define, the impact of

microcredit on social change through

empowerment and confidence building, especially

for women, should not be underestimated.(Table:

III)

Other opportunities: MFP can lead to the

development of local enrepreneurs who can unfold

“niches” that usually escape notice of large

producers. A well organized small enterprise can

venture into, hitherto, untapped areas like dry fruit

packaging, gems and jewellry, hosiery etc. Our

neighbouring countries are successfully tapping

these virgin territories.

Micro enterprises can operate adjunctly to

large scale concerns by providing them quality

inputs as well as reducing costs of intermediate and

semi finished items and above all serving as a

source of experienced and techincally sound

human resource. Integration with corporate sector

is a win win situation for both.

Conclusion

The variety of initiatives and institutions that

were presented are proof to the increasing

dynamics of the sector. The future development of

MF in Pakistan will be influenced by a combination

of institutional, political and financial factors. But

probably the most important force for growth and

improvement will be the demand from millions of

poor Pakistanis including micro entrepreneurs,

urban dwellers and rural families. Like everywhere

in the world, their interest in getting access to

financial services will be the basis for growth and

innovation and for increasingly making MF into a

fully respected part of the country’s financial

sector.

MFIs must become institutionalized and adopt

a holistic approach to financial service delivery.

Further research is crucial for understanding the

positive and negative externalities and the broader

social and economic impact of MF. Finally, and

perhaps most importantly, the social benefits of

MF, including the empowerment of women and

the positive consequences of this, should be better

understood and quantified and the findings

disseminated. The way we measure effectiveness

must expand beyond just sustainability or

profitability to include the positive empowerment

that clients experience and the broader social

benefits for the community. Future roundtables,

meetings, and articles must seek to build a broader

appreciation for these benefits.





ANNEXURESTable I: Micro Credit Providers: Country Comparisons

Countries Pakistan Bangladesh India Srilanka Indonesia Afghanistan Nepal Philippines

Population (ML) 152 140 1080 19 218 29 25 83

Number of MFBs 14 49 32 8 6 9 10 24

Number of Active 449 13298 1634 374 3122 83 158 480

Borrowers(000)

Active borrowers 0.30 9.50 0.15 1.97 1.43 0.29 0.63 0.58as % of population

Total gross loan 67.59 958.91 166.50 78.36 1817.14 9.61 17.20 55.46 (Us $ ML)

Average loan per 151 72 102 209 554 116 109 116borrower (US $)

Source: National Bank of Pakistan, Economic Bulletin, September- October 2006

Table II: Overview of Gender Aspects of Impact Assessments Undertaken on

Micro-Credit in Pakistan

Organisation Date Sample Size Gender Aspects Reviewed

Rural Financial Markets Studies: Rural Credit Study September 24,500 respondents Gender disaggregated data on & Role of Women in the Rural Economy and the 1998 Half the respondents reasons for not borrowing and Credit Market Study AERC, PERI and PIDE Impact were women. borrowers of large loans

Assessment as a Management and Policy Tool:The Social and Economic Outcomes of Kashf's November Survey of women borrowers Intra-household gender relations, Microfinance Services Roshaneh Zafar & 1999 from 52 households and two decision-making, self-perception, Sadaffe Abid focus groups for rapid appraisal perception of daughters' future,

comprising 6 and 5 women obstacles to women's growth anddevelopment

Social Impacts and Constraints of Micro-Credit August 47 respondents in the Alleviation of Poverty. A qualitative Study 2000 22 women and 25 men. None of the Micro-credit Programme OPP-Orangi Charitable Trust, Karachi Naheed Rehman

Micro-credit for Development. The Impact of the 2003 110 clients 96 men Gender disaggregated data on OPP-Orangi Charitable Trust Micro Credit 14 women 69 non-borrowers increase in standard of living Programme on Urban Livelihoods. S. Akbar Zaidi 63 men 6 women National Human Development Report Akmal 2001 PIDE survey of seven districts. None Hussain et al A.I. Hamid Survey of 277

respondents (40 for each of seven NGOs).

The Impact Assessment Study: Analysis of December 129 women respondents Social capital generated through Kashf's Micro-finance and Dastkaari Programme 2001 women's participation in Kashf's on Clients' Socio-economic Lives Shazia Ali Khan micro-finance program

The PPAF Micro-Credit Financing: Assessment September 1700 respondents Ratio of Gender disaggregated data on of Outcomes Study Gallup Pakistan 2002 men to women in sample control over resources, decision

same as ratio of men to making, social status women borrowers per district

Reaching the Poor November AKRSP: Empowerment: social

Source: The Impact on Microfinance on Poverty & Gender Equity:Appraoches and Evidence from

Pakistan, prepared for Pakistan Microfinance Network by Maliha Hussain and Shazreb Hussain



Table III: Frameworks for Empowerment

Power within: enabling women to articulate their own aspirations and strategies for change

Power to: enabling women to develop the necessary skills and access the necessary resources to achieve

their aspirations

Power with: enabling women to examine and articulate their collective interests, to organise to achieve

them and to link with other women's and men's organisations for change

Power over : changing the underlying inequalities in power and resources that constrain women's

aspirations and their ability to achieve them

-These power relations operate in different spheres of life (eg economic, social, political) and at different

levels (eg individual, household, community, market, institutional).

-Whose empowerment? a predominant concern with equity and empowerment of those currently most

disadvantaged in the different spheres and at different levels.

Source: The Impact on Microfinance on Poverty & Gender Equity:Appraoches and Evidence from

Pakistan, prepared for

Pakistan Microfinance Network by Maliha Hussain and Shazreb Hussain

Table IV (a): Poverty Gaps in Pakistan: (% age in Poverty according to POPI)

Male -Female Indices

Period Male Female Male-Female Disparity Index

1970 55.9 67.1 100

1975 52.2 64 102

1980 51.1 62.2 101

1985 45.7 58.7 107

1990 40.5 55.5 114

1995 37.4 51.9 116

Annual Reduction (In % age) 1.60 1.0

Table IV (b): Poverty Gaps in Pakistan (% age in Poverty according to POPI)

Male -Female Indices

Period Rural Urban Rural-Urban Disparity Index

1986 40.4 60.7 100

1988 36.9 54.7 99

1993 34.9 48.1 92

Annual Reduction (In % age) 2.10 3.30

Source: Role of Micro Credit in Economic Revival and Poverty Alleviation, Institute of Bankers Pakistan



Table V: Microfinance Providers

Outreach

Source: National Bank of Pakistan , Economic Bulletin, September-October 2006



Table VI MicrofinanceProviders InstitutionalBrief

Microfinance Banks

Khushhali Bank

Established in August 2000,with eadquarters

in Islamabad. It was set up as part of the

government's Poverty ReductionStrategy and

its Microfinance Sector Development

Programme

Its mandate is to retail microfinance services

and act as a catalyst in stabilizing Pakistan's

microfinance sector

The Bank's shareholders are 16 commercial

banks, including two multinational banks.

The Government obtained a loan of $150

million from the Asian Development Bank to

support the operations of Khushhali Bank.

The Bank now serves nearly 230,000 clients,

with cumulative disbursements of over Rs6.0

billion through its branch network in 74

districts with high poverty incidence. The

majority of bank's clients are in rural areas

(60%) and includes the very poor. Roughly

one-third of the beneficiaries are women.

The Bank encourages formation of alliances

with the NGOs. It benefits from two

endowment funds, namely, Microfinance

Social Development Fund and Community

Investment Fund.

It operates in all provinces of the country.

The Bank uses a group lending methodology.

Loans are made directly to individuals in the

group, but if one member of the group defaults

then all members of that group become

ineligible for loans.

The Bank offers microloans of between

Rs3000 -- Rs30,000.Loans are offered for

investments in agriculture, livestock and

microenterprises.

Most client groups are formed by the

communities themselves with facilitation from

Khushhali Bank staff, but some are groups

facilitated by NGO groups.

In addition to loans, the bank has started

offering equity sharing in small infrastructure

projects to interested community

organizations.

First Microfinance Bank

The first private sector specialized microfinance

bank established in 2002.

Initial sponsors of the bank included Aga Khan

Rural Support Programme and the Aga Khan

Fund for Economic Development. IFIC joined

later.

It has $11 million of capital.

AKRSP accounts for 46%, AKFED 30% and

IFC 24% of the ownership.

The Bank built upon the rural development

model shaped by AKRSP.

It provides deposit, lending and other financial

services.

It has established a network of 36

branches/units in the country.

Loan beneficiary base has increased to 41,000

in September 2006.

Women loan beneficiaries are 28% of total

borrowers.

It offers a range of loan products that include

individual loans, group loans in rural areas,

business committee loans, urban group loans

and business group loans with a service charge

between 10-16%.



The Bank offers a number of saving and

deposit schemes, micro insurance, funds

transfer facility, cheque collection etc.

There is a minimum balance requirement of

Rs5/= only with no service charge.

More than 80% of the depositors are from

lower income segment having less than Rs400

average balance in the account.

The Bank offers non-financial services to micro

entrepreneurs that focus on enterprise

development, as well as client's wellbeing,

including heatlh, nutrition and education.

Pak Oman Microfinance Bank Ltd

The Bank was established in May 2006.

The sponsors are Government of Sultanate of

Oman and Pak Oman Investment Company

with shareholding of 67% and 33%

respectively.

It was set up with the basic objective to

eradicate poverty by creating sustainable

income opportunities for the lower strata of the

population, particularly women.

It provides a host of services, micro business

loans for running capital, micro agriculture

loans for agri-inputs, micro asset loans for asset

building, micro loans for new business and

livestock loans for goat and sheep rearing.

Branches are operational in Karachi,

Hyderabad, Rawalpindi, Islamabad, Mirpur

Khas, Tando Allayar.

Number of borrowers stands at 4354 as of

September 15, 2006.

Recovery rate is 100%.

No collateral. It is the group guarantee of the

borrower.

Tameer Microfinance Bank Ltd

Set up as a private commercial microfinance

bank licensed by the State Bank of Pakistan

under the Microfinance Ordinance 2001.

Provides services to the economically active

poor. It serves low income, salaried, self-

employed and micro entrepreneurs with a

range of financial products eg. Tameer-e-

Ghar, Tameer-e- Karobar, Tameer-e-Bacchat

and Tameer-e-Khazana.

KASHF Foundation

Started in 1996.

Target clientele are women from low income

communities.

Offers pro-women and pro-poor products.

Group methodology has been replicated from

Grameen Bank.

Outreach has increased.

Operative in four district of Punjab.

It is the first MFI in Pakistan to introduce a

micro insurance product; this covers the death

risk of the client by insuring the entire loan

balance.

It offers access to small loans and micro deposit

services to its customers.

Loans are extended without collateral or

personal guarantee.

Loan approval is subsequent to the formation

of a group of 20 25 women who ensure that

loan repayments are regularly made.

SAFWCO

It aims to enhance the socio-economic status

of vulnerable groups through sustainable

income generating activities.

It is based on group lending.

It operates to:

- mobilize the community groups for savings

- form male and female saving groups in the

villages

- provide credit facility to the poor/vulnerable

groups, especially women

- create job opportunities

- train potential entrepreneurs for managerial

and technical skills

Orangi Pilot Project

In September 1987, Orangi Charitable Trust

was established to expand the provision of

credit to existing micro enterprises. The

rationale being that these micro enterprises

were not able to access loans from commercial

banks due to loan size, collateral requirements

and other considerations.

It supports people's initiative through

providing credit to existing micro enterprises at

the bank rate of interest, without collateral.

Trains NGOs/CBOs to enable them to initiate

micro credit programmes in their community.

National Rural Support Programme

Established in 1991.

Its Board of Directors consists of volunteers

who represent different sectors of society.

It aims at improving the quality of life of rural

poor by building their capacity.

It offers a programme package comprising of

the following:

- social guidance (formation of community

organizations

- skills enhancement

- technical assistance

- linkages (assisting communities to access

government and private resources and

services)line of credit (providing income

generating opportunities to communities

by having access to small loans in

productive sectors).

NRSP fosters a network of community

organizations (CO) which can plan and

implement various developmental activities at

the village level.

The microfinance programme of NRSP

comprises savings and credit schemes.

NRSP uses the forum of COs for delivering

small loans. Loans are given through CO to

individual members for productive purposes

only.

Alongwith the rural credit, NRSP has initiated

a micro credit scheme in peri-urban areas of

Pakistan.

Punjab Rural Support Programme

It became operational in June 1998.

PRSP is a non-government, non-profit and

non-commercial organization.

It aims at poverty alleviation, social and

economic empowerment in the rural areas of

Punjab through community participation.

Like other Rural Support Programmes, PRSP

also provides saving services to its clients.

Sarhad Rural Support Programme

Established in 1989 with the objective to

reduce poverty in the rural areas of NWFP

through participatory community mobilizing

approach.

Currently working in ten districts of NWFP,

comprising Charsadda, Karak, Kohat, Hangu,

Peshawar, Nowshera, Battagram, Mansehra,

Abbottabad and Haripur.



The selection of SRSP's program area is based

on a region's level of poverty and willingness

of rural communities to become partners of

SRSP.

SRSP is engaged in a broad spectrum of

development activities. Clients avail credit for

livestock, micro enterprises and agriculture.

Tenure of loan repayment ranges from 6-30

months.

Thardeep Rural Development Programme

Established as an independent NGO in July

1998.

It focuses on sustainable land use, health,

education, microcredit and saving, and social

mobilization.

It extends microcredit to the community

organizations without collateral, and on the

basis of social guarantee. Micro credit is

extended in the field of enterprise, livestock

development, and small infrastructure

development schemes, agri-input etc.

DAMEN

It is a non-profit, non-government organization

established in May 1992.

Working in the rural/peri-urban areas around

Lahore.

It concentrates on the social and economic

uplift of communities, especially in rural

areas/urban slums, by encouraging them to

ascertain their own needs.

DAMEN has a four pronged strategy:

- Non-formal education

- Micro-financing/community revolving plan

- Training, capacity building and skill

development of community action groups

- Research, networking and linkages

Taraqee Foundation

Established as a non-government organization

in February 1994 for the development of low

income communities in Balochistan.

Taraqee Foundation - funded activities are in

the low-income and far-flung areas and it has

the capacity to run and monitor them

effectively.

The main objective of Taraqee is to improve

the living conditions of the rural and urban

population of Balochistan.

Sungi Development Foundation

Established in 1989 as a non-profit, non-

governmental, public interest organization.

Initially, it was a small advocacy-reasearch

oriented NGO involved in some advocacy

campaigns.

Sungi initiated the Hazara Community

Support Programme during 1994.

Source: National Bank of Pakistan,

Economic Bulletin,

September - October, 2006



Bibliography

Hari R. Lohano and Haroon J. (2003)

“Microfinancing: Fighting against Poverty?”

Research Report No.48 Pakistan National

Development Report.

Khushhali Bank Working Paper, “Challenges

and Prospects: Microfinance in Pakistan”.

Roshaneh Z. (2002), “Microfinance in the

Private Sector”, Country paper on Pakistan.

JCR-VIS Credit Rating Company Ltd.

“Microfinance Institutions: Rating

Methodology”.

Hari S. “Providing Cheaper Microfinance

Services In Pakistan”.

Microfinance in Pakistan: A Poverty Impact

Study of the Khushali Bank.

Amer S.Khan and Stefan P. “Evolution of

microfinance in Pakistan”

Ahmed N. Anees. “Role of Micro Credit In

Economic Revival and Poverty Alleviation”

NBP Economic Bulletin: September-October

2006

Role of Micro Credit in Economic Revival and

Poverty Allevation, Institute of Bankers,

Pakistan

Acronyms

ADB: Asian Development Bank

AKFED: Aga Khan Fund for Economic

Development

AKRSP: Aga Khan Rural Support Program

BOK: Bank of Khyber

FWBL: First Women Bank Limited

IFC: International Finance Corporation

MF: Microfinance

MFB: Microfinance Bank

MFI: Microfinance Institution

MFP: Microfinance Program

NLCL: Network Leasing Corporation Limited

NRSP: National Rural Support Program

OCT: Orangi Charitable Trust

OLP: Orix Leasing Pakistan

OPP: Orangi Pilot Project

PPAF: Pakistan Poverty Alleviation Fund

ROSCAS: Rotating Savings and Credit Association

RSP: Rural Support Program

SBFC: Small Business Finance Corporation

SBP: State Bank of Pakistan

SES: Self Employment Scheme

TRDP:Thardeep Rural Development Program

UPAP : Urban Poverty Alleviation Program

YIPS: Youth Investment Promotion Society

Web Sites

www.grameen-info.org

www.sbp.org.pk

www.ibp.org.pk

www.nrsp.org.pk

www.akdn.org

www.khushalibank.com.pk

www.pmn.org.pk




Low Cost HousingSolutions

SHAFAQ MAQSOODAskari Bank Limited

(The paper was awarded 2nd prize in IBP Reaserch

Paper Competition–Winter 2006)

ABSTRACT

The home building business has historically

been dominated by the construction of new homes

on site through sequential fabrication and

assembly of products, materials and systems into

finished homes by skilled tradesmen and general

laborers. Hence the conventional home building

industry is large and very diffused. However, the

conventional methods seem to have saturated as

the material, skilled labor requirement and

methods themselves are tremendously expensive.

As a result, countless innovative techniques have

surfaced with lucrative costs, ease of construction

and huge time saving.

This paper examines the emerging trends in

the construction industry, often termed as 'Low

Cost Housing Solutions'. There are probably as

many low cost solutions as many countries in the

world, therefore, only few popular techniques have

been accounted for keeping in view their suitability

and applicability in Pakistan.

Introduction

World population is increasing by 1.17% per

year. World Bank estimates that it will grow by at

least 40%, to 8.5 billion or more by the year 2025.

Tremendous increase in population has resulted in

a sudden spurt in construction activity and the

dream of owning a house, particularly for low and

middle class families, is almost becoming hard to

realize these days. People are forced to accept sub-

standard materials which are available in the

market. This will eventually increase not only the

cost of construction but also mean a waste of

available resources like firewood and petroleum

by-products.

The need of the hour is to popularize cost-

effective, innovative and environment-friendly

housing technology on a massive scale for the

common people and strategies need to be

developed for immediate implementation.

The key to provide low cost housing does not

lie solely in the number of humanitarian programs

initiated by institutions such as the World Bank,

non-governmental organizations or even

governments. After decades it is recognized that it

lies with the marginalized communities and the

private sector i.e firms, companies, corporations

and banks themselves. By using the technical and

planning skills they can provide better solutions for

affordable housing.

Fostering the idea of affordable housing, the

United Nations adopted a Declaration in 1974 to

encourage developing nations to expand low-cost

housing on a “self-help basis” through the

establishment of co-operatives, utilizing as much as

possible, local raw materials and labor.

Governments over the last three decades have

advocated as well as implemented proposals

offered by UN declaration to address the problem

of affordable housing. Rising tide in the cost of

conventional housing and decline in standard of

building material have forced communities all over

the world to adopt low cost housing schemes along

these lines.

A Review of Conventional Housing

Conventionally, houses have been constructed

with bricks, cement, sand, gravel and iron etc. The

techniques are quite mature and somewhat similar

throughout the world. The process starts with

digging of foundations deep enough to withstand

the load of the building. After the foundations are

dug, strong foundations are laid using brick and

cement etc. On these foundations walls are

erected. Highly skilled labor is required for this

purpose otherwise the walls might lean forward or

July - September 2007 Issue 47

backward. Then comes the process of laying of

roof. Completion of roof indicates completion of

basic structure and the whole process takes a little

time.

The real problem starts after the basic structure

is ready. After the roof is complete, the floors, the

sanitary works, the electrical works, wood work etc

begin which are extremely time consuming and

require highly skilled workmen.

In short, completion of a 250 sqft house takes

around 90 days or a cost of around Rs. 150,000/-

The cost and time heavily depend upon the quality

of work, number, of workers available, skilled level

of labor and number and type of accessories

included in construction.



LOW COST HOUSING

BUILDING QUALITY HOUSES WITHOUT MAKING ENORMOUS PROFITS

HOUSE

through

Private Firms, Companies, Corporations, Banks. Non-Governmental Organizations

That

♦ Manage to keep prices down

♦ Without sacrificing quality

DWELLING SPACES FOR HUMAN HABITATIONS ENCLOSING WALLS, ROOFAND FLOORS FOR PROVIDING SHELTER AGAINST PRECIPITATIONS, WIND,

HEAT, COLD AND INTRUDERS

Cost Management in Low Cost Housing

Low-cost housing does not mean houses

constructed by using cheap building materials

of substandard quality. Compromising the

quality of material makes a house and its residents

vulnerable to damage and destruction through

natural catastrophes like earthquakes, windstorms

and floods etc. At the same time environmental

effects like rain, humidity, varying temperatures

typically shorten the life of such houses thereby

accentuating frequent repair and reconstruction.

Hence a low cost house constructed of

substandard material in the overall perspective

means a similar or a higher cost effect.

A low-cost house is therefore designed and

constructed just like any other house. Like any

other commodity in the world, economy in

construction of such houses is desired without

compromising the quality.

CONCEPT OF LOW COST HOUSING

♦ Efficient, modular and well thought design

techniques

♦ Effective utilization of locally available

building materials

♦ Speedy construction

♦ Efficient and effective management practices

♦ Improving efficiency of workers

♦ Minimizing wastage in design and space

Various factors leading to low expenses in

erection of such lodging are discussed in the

succeeding paragraphs.

3.1. Design Techniques

Economy here is a direct consequence of

efficient, modular and well thought designs. Like a

master bed placed in one's bedroom, concerted

efforts are made to design the houses in various

pieces at the shop floors and factories. Hence the

erection of one's dream home is in real terms not

a construction and rather a mere assembly.

3.2. Material

The reduction in cost is also achieved through

the effective utilization of locally available building

materials that are durable, economical, accepted

by users and those not requiring costly

maintenance. In fact, locally available building

materials are 15 to 20 per cent cheaper than those

available in the open market.

3.3. Skill

The beauty of such designs is that construction

does not require a civil engineering degree and

years of experience. One can learn building such a

house while erecting it for one's own self.

3.4. Labor

As outlined by the UN declaration, the basic

idea behind the cost reduction is to train the work

force of the communities to build houses for

themselves. It is therefore important that the

structures are thoroughly deliberated upon and

designed to suit such requirement. The design also

ensures that minimum labor is required for the

construction.

3.5. Reducing Wastage

Economy is also achieved by not rushing to

finish the building project but by implementing it in

phases. It aims at improving the efficiency of

workers, minimizing wastage in design and space,

and providing good management practices so that

people can realize their dream of owning a house

at prices they can easily afford. The design also

caters for the geographic features of the location of

the project thereby improving the space utilization.

3.6. Time

As discussed earlier a low cost house is

assembled and not constructed. Hence cost-

effective technologies also facilitate speedy

construction when compared to conventional

methods of construction. A low cost house would

take 10 times as less time in construction as a

conventional house made of brick and cement etc.



Low Cost Housing Innovations

Ever since the idea of low cost housing was

floated, quite an appreciable number of designs

have appeared in the market. Initiated as self help

basis projects, such housing solutions have turned

out attractive business now. Housing schemes

based on such designs in many cases are now joint

ventures between industry and community with

communities taking initiative and industry

providing the technical support.

Role of governments and financial institutions

in such projects is also noteworthy. Imperative is to

realize the fact that no such venture can gain

palpable popularity and public acceptance without

government patronage and assistance of financial

institutions. Key roles in the success of endeavors

are.

♦ Soft loans by the financial institutions

♦ Easy terms land leasing by the government

Some of the popular housing innovations are

presented in the succeeding paragraphs for the

consumption of the reader.

4.1. Moladi Technique- South Africa

Moladi a South African Technology, is one of

the modern alternatives to overcome the problem

of expensive housing. Key features of Moladi are: -

4.1.1. Design Technique

Moladi, is a lightweight plastic injection

moulded formwork system which is erected on the

site like walls. It is filled with lightweight aerated

mortar (concrete with no stone). As a result one

piece cast reinforced walling system is created

entailing a fast track and cost effective construction

technology. The moladi moulds are reusable thus

making them extremely cost effective. The detail of

design technique and pictorial view of the

technology is attached at Annex 'A'.

4.1.2. Material

The moladi structure has undergone testing by the

South African Bureau of Standards and is proven

to be waterproof and is also able to withstand high

velocity impact.

4.1.3. Skill

The application of the moladi technology is not

dependant on skilled labor and is especially suited

for repetitive housing schemes to enable

community involvement as well as the individual

to obtain their own house.

4.1.4. Labor

♦ Erect moladi - 10 laborers are needed to

complete 4 hours work.

♦ Fill moladi - 7 laborers are needed, if

manually filling the form with buckets, to

complete 2 hours work

♦ Remove moladi - 6 laborers are needed to

complete 2 hours work.

4.1.5. Wastage Reduction

Avoiding wastage is the primary reason for

moladi being cheap. The reusability of the moladi

mould formwork eliminates wastage and lowers

cost of assembly.

4.1.6. Time

The moladi technology allows for the shell

structure of a house to be cast in just one day with

one moladi mould. That means one house in one

day with one mould or many houses in one day

with many moulds. This is achieved by simplifying

the process of assembly through industrialization,

modularization, standardization, and continuous

flow processes. The reduction of operations

required for a production process means less

chance of the occurrence of errors, waste and

rework and hence a predictive timeline, resulting in

cost savings.

4.1.7. Cost Effect

The moladi technology, at all levels, seeks to

lower the cost of production as well as the costs

involved in the implementation of the technology



in order for the sale of goods to be purchased at

the lowest possible price. The precision

components are interlocking to produce easy to

handle panels which can be re-used 50 times;

making the technology cost effective due to this

repetitive application scheme.

4.2. Mahila Milan (Women Gathering)

Technique - India

In India with over 1 billion population and

25% people living below poverty line (according to

2002 economic review), the number of shelterless

is probably the highest in the world. Therefore,

Indian communities are in dire need of low cost

housing schemes. An organization named DAWN

(Development Alternatives for Wider Network) has

taken initiative to plan/design through community

more specifically by the women to produce

affordable housing design, materials and skills to

develop their own building centers. This scheme

requires skill development training, practice to

acquire the trick and build their own community

building centers. The housing models are varied in

nature as per available resources and materials.

For now, a low cost housing model of Mahila

Milan (network of women collectives organized

around daily saving and credit activity at national

level) has been adopted. Important aspects of the

technique are: -


♦ The beam structure is made using a technique

of precasting. Parabola shaped slabs fixed in

pieces along the beams supporting them to

make a solid form of roof.

♦ The plots being generally 250-300 sqft, have

common wall between two houses with

combined staircase, which is also done

through pre-casting method making this house

having scope for first floor as well as low cost

slabs fixed on both side with the support of

walls and single bricks in between.

♦ Arch shaped doors and windows are used to

avoid or lessen the use of concrete or wooden

frames or lintel, which adds to overall reduction

of the cost for the house. Cemented frames are

used to reduce the steel or wood cost.

♦ Latrite stones are used for foundation, which

lessens the use of steel.

♦ A pictorial view of the design and construction

process is attached at Anx 'B'.

4.2.2. Material

♦ Precasted concrete beams for roof.

♦ Cemented frames for windows and doors.

♦ Bricks of locally available material.

♦ Latrite stone in the foundation.

4.2.3. Skill

The design is not very skill intensive from

construction point of view. Least of skilled laborers

and engineers are needed except for very few

areas and days. The design rather caters for the

fact that construction techniques already known

and practiced by the community may be used.

Hence, the existing expertise is combined with

innovation thereby enabling the communities to

help themselves build their homes. This approach

reduces and in some cases eliminates the

prerequisite of training and practice from the entire

construction activity.

4.2.4. Labor

The technique like the conventional methods is

somewhat heavier on labor. One obvious reason

for this is lack of resources to rent or purchase

construction machinery even on small scale. Thus

all operations are manual making the construction

activity labor demanding.

4.2.5. Time

Time required to build a house using this

technique varies depending upon the number and

skill of labor available.

4.2.6. Cost

Land department of Government provides

land with nil or nominal cost, housing department

cross subsidizes the low cost housing section, ULB

(urban local bodies) share cost of basic

infrastructure and Central Government provides



large chunk of total cost as subsidy for both

infrastructure and housing. With such assistance

the total cost of the house comes around

Rs.40000/- to 45000/- as calculated in year 2005

by self-help mechanism.

4.2.7. Training

Local NGOs conduct the skill development,

enumeration, survey, planning along with some

affordable housing demonstration integrated with

the community-based techniques, innovations and

designs explained above.

4.3. Stabilized Earth Brick (SEB)

Technology

This housing innovation has been developed

by Low Cost Housing International Ltd (LCH).

LCH SEB technology offers low cost housing in

any country where there is a distinct lack of

conventional housing. Details of the innovation

are mentioned in the succeeding paragraphs.


SEB is a simple technology - an interlocking

clay brick system, treated with ionic clay stabilizer

formula of LCH. This alters the clay and improves

its engineering properties - including compaction,

density, bearing strength and safety (i.e. - fire).

This provides a low cost, durable product that can

meet the needs of the millions of low cost housing

units required annually around the world. The

bricks are made using the LCH Production Centre

which consists of LCH SEB Machine, a mixer and

a crusher. SEB machine is capable of being

transported to the site and hence the cost of

transportation of bricks may be avoided. A

pictorial view of the design and construction

process is attached at Anx' C.

4.3.2. Material

Local soil that contains 15% or more of clay

along with Ionic Soil Stabilizer is used to make high

quality bricks.

4.3.3. Skill

Brick making does not require much of the skill

as it is handled by the machine. According to LCH

unskilled labor of 6 men and skilled labor of 1 man

is required for the brick forming process.

Rest of the construction process is pretty similar

to the conventional method i.e. placing rows of

bricks over one another. However, it is easier to

make straight walls etc with interlocking bricks than

the conventional bricks used.

4.3.4. Time

The construction of a 50 square meter house

requiring 5,000 soil/clay bricks, can be achieved in

two or three (2 or 3) days and will be of the highest

standard. The home will also be heat resistant,

sound proof and completely stable.

4.3.5. Cost Effect

Cost effect of SEB is unknown.

5. Low Cost Housing in Pakistan

5.1. History of Low Cost Housing in

Pakistan

Low cost housing is not new in Pakistan. It was

pioneered by Al Azam Limited Construction

Company, a start-up construction company that

launched the “Low Cost Housing Society” in

Karachi during the 1960s.

Al Azam built very low-priced residential- as

well as commercial-type accommodations in

Karachi and Hyderabad, using the apartment

system. It managed to keep prices down, without

sacrificing quality, by:

♦ Reducing its profit margin

♦ Increasing land-use density

During the 1970s, Rukunuddin Construction

Company followed Al Azam's footstep. The

company, which was formed by a retired overseer



from the Pakistan Works Department (PWD), also

introduced low-cost prefabricated housing units, in

addition to their regular low-priced apartments.

The quality and safety of their units, however,

were generally viewed as inferior.

Maymar, another construction company,

entered the market in the late 1970s, with

residential apartments and housing units that were

probably the best ever built, and they were highly

successful. As demand for better housing

accommodation increased, Maymar moved

upmarket, leaving behind the low-cost housing

sector.

Construction firms, such as Cellrock and Abidi,

entered the industry in the early 1980s to focus on

low-cost prefabricated housing units. As the quality

of their construction was substandard, these efforts

proved unsuccessful, causing serious financial

losses.

The construction industry began to mushroom

towards the end of the '70s. Most of the new

companies joined the industry merely to make a

quick profit, without regard for the quality and

safety of their buildings. Monthly installments were

also too costly for most of the general public. As a

result of corrupt administrative practices, public

confidence in low-cost housing projects suffered

after some low-cost buildings collapsed, due to

poor construction and theft of construction

materials.

Such construction companies are nowadays

very rare as most construction firms still preoccupy

themselves with traditional outdated modes of

construction. As the general public becomes

increasingly knowledgeable and affluent, housing

and construction are increasingly focusing on high

-end and high-quality deluxe housing, where

profits are also better. Today, low-cost housing is

largely confined to remote city and town areas,

and are largely managed by the government.

5.2. Need for Low Cost Houses

Prime Minister Shaukat Aziz while speaking at

the ground breaking ceremony of new CDA

sectors on April 20, 2006 pledged that 'house for

everyone' is priority of his Government and a

policy is being formulated for the purpose.

Opening of new sectors was part of the same

vision that would help ease housing problems in

Islamabad, besides generating employment

opportunities.

House for everyone' is an attractive policy and

is undoubtedly a welcome endeavor by the present

Government. Conceivably, the dream to live in

one's own house is universal, yet the problem of

housing is acute and pressing for the poor and

middle classes of society due to a variety of

reasons and more specifically for the lack of

financial resources to build or purchase houses.

The problem is grave in bigger cities like Karachi,

Lahore and Islamabad etc that seem to have

become almost everyone's dream land. As a result

the prices of land and construction have sky-

rocketed in recent years in the cities bearing the

pressure of population. The fact is that it's almost

implausible for the middle class to build a



YEAR CONSTRUCTION COMPANY FOCUS

1960 Al-Azam Construction Company Low price residential & commercial

accommodation

1970 Ruknuddin Construction Company Low cost Prefabricated housing units

Late 1970s Maymar Better residential apartments and housing units

1980 Cellrock and Abidi Low cost prefabricated house

After 1980s The construction industry lost focus on low cost housing

reasonable house in these cities. The other side of

the story, however, is that gap between the

demand and supply of housing units as well as the

land in these cities is widening with every passing

day. As a consequence, these cities have turned

unwieldy as they are hysterically expanding like

amoeba with multiple outward projections in the

original shape. The influx of population into the

bigger cities from all over Pakistan has led to

unprecedented growth in population with rush of

vehicles becoming virtually unmanageable. The

private builders and developers have responded

by launching housing schemes in the outskirts of

the cities to create a mess. The situation is,

therefore, becoming more and more complex

demanding serious brain storming on the part of

the Government to seek some remedy.

The only plausible solution to this problem is

mass construction of low cost housing units in the

bigger cities. Low cost housing solutions like other

countries of the world need to be adapted to

enable the communities to help themselves build

and own a house. It's worth mentioning that the

Government's patronage will facilitate and

popularize such a venture. It's also pertinent that

similar low cost housing projects should be

embarked on in other cities as well to reduce

population pressure on bigger cities. A prudent

housing policy needs to be formulated in keeping

with a balance in the nation's needs and resources.

5.3. Low-Cost Housing Project in Karachi

As a first venture of low cost housing, the City

District Government Karachi has decided to

construct low-cost housing scheme at Taiser

Town on no profit no loss basis to provide living

facilities to the citizens on affordable rates in

collaboration with a US-based private company

SARID. The work has already begun and outer

development work is expected to complete by

December 2007 where 24,762 plots of 80 square

yards were already allotted to the citizens and the

draws of 30,000 plots of 120 square yards in

Phase-II would soon be conducted. Salient

features of the project are: -


US Company had built a model house with 2

rooms, bathroom, kitchen, dining area and

internal courtyard on ground floor. Technical

specifications of design are: -

♦ Insulated walls with U-value of 12 which will

provide cool in summer and warm in winter.

Use of fan or mechanical cooling, is not

anticipated.

♦ The tiled floors will be constructed in rooms,

bathroom and kitchen. Rest of spaces will be

sealed with concrete.

♦ Paint and plaster will be executed at interior

and exterior walls.

5.3.2. Material

The scheme would be built from 100 per cent

local material with extensive use of soil cement

technology.

5.3.3. Skill Required

There is no binding on the user to get the

house constructed from the company. The design

and model house would be available to the user to

construct houses at their own. Hence the local

skilled labor may be utilized to build such a house.

5.3.4. Time

The company has claimed to build a house in

3 to 4 weeks.

5.3.5. Cost Effect

The design technique entails a reasonably

cheap cost effect estimated at Rs 600 per square

feet. Thus a comfortable house through company

will be available from Rs 300,000/- to 350,000/-

which are less than 40 per cent rates from other

housing schemes in the city.

5.3.6. Project Financing

To facilitate the users, HBFC and other

financial institutions have been pursued by the



City Government to provide loan on easy

installments and may be at low markup. This may

be the key factor in deciding the ultimate fate of

the project. Without funding and financing from

the banks etc the chances of success of project

would diminish.

5.4. Replication of Karachi Low Cost

Housing Scheme

The low cost housing scheme of Karachi has

caught the attention of the Government. This was

reflected from President General Pervez

Musharraf's appreciation of the project and

emphasis for replication throughout the country.

The President directed that state land should be

utilized for housing schemes to the poor people in

the country, while speaking at second

computerized ballot for allotment of residential

plots to the people in Taiser Town, Karachi on

May 3, 2006.

Following the model of Taiser Town, HBFC

has also decided to develop a low cost housing

scheme in Gawadar. Sindh Katchi Abadis

Authority has also launched six low cost housing

schemes in Sindh on self-financing basis, where

1,200 families are being provided shelter, while

low cost housing schemes in two districts are in

pipeline. A similar project with the name of 'Khuda

Ki Basti' is also being undertaken at Hyderabad.

6. Comparative Analysis

In the preceding sections, a couple of

innovative cheaper construction techniques have

been discussed. It would be prudent to mention

that these are a very small fraction of what is being

offered in the field of low cost construction. Even

in one country there are more than one design and

more than one technique. This is also

understandable because the underlying idea of low

cost construction is the utilization of local raw



S. No. Technique Skill Time (days) Cost (Rs) Cost

Requirement Reduction (%)

1 Conventional Housing High 90 250,000 -

2 Moladi Low 1 30,000 88%

3 Mahila Milan Medium 45 40,000 - 45,000 84%

4 SEB Medium 30 days - -

5 SARID Medium 30 days 150,000 40%

Time and Cost-wise comparison of housing solutions

material, local labor and existing construction

techniques in the communities. Besides, low cost

construction also focuses on modifying or adapting

an existing design to the new set of environmental

and geographical conditions to better address the

needs of the community for whom the houses are

being built. However, an important question still

remains unanswered i.e. ‘what design would better

withstand Pakistani conditions and fulfill local

community requirements?' A comparative analysis

of the aforementioned designs is presented for

better comprehension and decision making.

6.1. Constant Labor

The following table compares time and cost

effect of various techniques assuming a 250 sqft

house and equal labor availability.

6.2. Multi Unit Housing Scheme

Real merits of a design come into sight when it

is applied to mass production. From this

dimension greatest benefits accrue using the

moladi technique. It is for the fact that moladi

moulds are reusable and there is no maximum life

restriction as long as they are not damaged. Hence

every time a new house is constructed using these

moulds, the cost of moulds is saved. Hence it can

be easily inferred that moladi is the best technique

for construction of a multi unit housing scheme.

7. Future of Low Cost Housing in Pakistan

The potential demand for housing is colossal;

millions of people are in need of quality houses

that cannot afford the current available building

methods. Thus with every passing day, the

demand for Low Cost Housing is rising in

Pakistan. For example, some 2800 families have

settled in Khuda Ki Basti - Hyderabad and many

have been able to construct semi-permanent

houses. Similarly 24,762 plots of 80 square yard

have already been allotted to the citizens in Taysir

Town - Karachi and the draws of 30,000 plots of

120 square yards in Phase-II are in pipeline.

Imperative is to understand that Low Cost

Housing in itself contains a lot of business

potential. It can easily be predicted that as people

become more knowledgeable about low cost

housing solutions being implemented in the world,

their focus and demand will shift towards

innovative, unconventional and economical

housing. However, the housing and construction

industry is still focusing on high -end and high-

quality deluxe housing, where profits are better.

The need of the hour is that firms such as Al Azam

come forward, and bring about a change in the

mindset of people and steer the construction

industry towards cheaper construction techniques.

The role of community as well as government in

this regard cannot be over emphasized. The

community has to express well and government

has to create well and facilitate implementation.

Some of the important recommendations in this

regards are as follows: -

7.1. Proposals for Action

♦ Government should develop policies to

provide the low and middle class communities

with better access to land, finance, training,

and skill development.

♦ Government should develop a low cost

housing model suiting own environment.

♦ National and regional financial institutions

should be approached to facilitate access to

micro-credit or other micro-financing schemes

and other economic opportunities for the poor

and provide support of small-scale local skill

development and capacity building programs

in skill based training in local communities.

♦ Government should organize awareness

campaign for the target communities

explicating to them various aspects of low cost

housing, clearing the doubts and drive the

people towards adopting the low cost housing

solutions.

♦ Government should arrange on the job

training for marginalized communities as an

important means to promote economic self

sufficiency.



♦ The involvement and active participation of

the local NGO's and other society groups may

be sought to implement the training programs.

♦ Measures should be taken to improve

empowerment of women and their active

support in such housing schemes thereby

increasing the workforce which would entail

further cost reduction.

♦ Measures should also be taken to promote

education, job security, and entrepreneurial

development and creating employment

opportunities.

♦ As part of a capacity building program

information and knowledge centers need to be

provided within the informal settlements like

katchi abadies.

Conclusions

Owning a decent home is not only everyone's

dream but a right also. However, the statement is

only easy said and awfully hard to realize

especially in the recent times when the prices of

both land and building material have sky rocketed.

Major cities have had the maximum thrashing at

the hands of the population with millions living

there and many millions waiting for the

opportunity to join. High rise towers have erupted

like mushrooms, yet the problem of housing

remains unaddressed and rather getting worse

resulting in further price hike. It appears as if

conventional construction techniques have failed

to deliver the desired number of homes.

The only perceivable solution to this growing

problem at the moment lies in low cost housing.

However, low cost solutions are still in the stage of

infancy. While there has been progress in the

provision of affordable housing, only modest

deliverables have been achieved. The problem is

even grave in Pakistan where only few low cost

schemes have been developed in the entire history

and not even those were very cost effective with

regards to other existing low cost designs.

Urgent measures need to be formulated to

assist communities to better cope and strengthen

commitment to the provision of affordable

housing. Sustainable affordable housing policy

development needs to be based on a sound

philosophy underpinned by community, cultural

and environmental values. In this regard,

education, training and capacity building are seen

as particularly important. It is necessary to

strengthen a sense of collective community

ownership and responsibility for the

implementation of sustainable affordable housing

strategies and programs. It is recognized that

poverty is an impediment and community

economic development is critical to success. It is

equally essential to guarantee the rights of

individuals, families and indigenous communities

to economic self-sufficiency with respect to

providing their respective families and their

community with housing. Hence, it is essential to

integrate economic, social and environmental

concerns in policies in all community sectors.





Moladi Housing TechniqueAnx 'A'

Foundation

The foundation is designed by a Professional Engineer for

local soil conditions.

Day 1

Doors, windows, electrical and plumbing fittings,

reinforcing as per Engineer, roof ties are located prior to the

filling of the 100 or 150 mm thick walls (4 Hours)

The Mortar

The mix consist of River Sand, Cement and a specifically

designed chemical additive - to aerate, waterproof and

produce good thermal and sound insulating properties.

Casting of the walls

The aerated, thermal, waterproof mortar, can either be

pumped or bucket filled (Two Hours).

Day 2

Moladi is removed and can immediately be re-erected on

the next foundation. The smooth surface of the wall

eliminates the need to plaster.



Mahila Milan Housing TechniqueAnx 'B'

House brick and arch designs.

Laterite rock used for foundation.

Beam structure for roof.



SEB TechnologyAnx 'C'

Stabilized Bricks Laying Foundation

Building the Wall

Finished House



Low Cost, Quake Proof House Made by SARID inKarachi

Anx 'C'


Highlights of EconomicEvents(JULY-SEPTEMBER, 2007)

PAKISTAN

Banking in focus

The SBP Governor, while addressing 57th

Annual General Meeting of IBP, has dubbed

the current global financial crisis emanating

from the sub-prime saga as a wake-up call for

financial regulators around the world to

exercise vigilance.

According to SBP data, 86% of all banks

deposits are held in short-term securities while

14% are held in maturities of one year or

more.

The combined profit of listed banks, covering

about 90% of banking operations, reached Rs

49.7 bn in the first half of 2007, a rise of 42%

over the same period of 2006. It compares

with a growth of 33% in the preceding half-

year period.

The formalities of ABN AMRO Bank taking

over Prime Bank Ltd. have been completed

and operations of the two have been started

effective September 1, 2007, under the title of

ABN AMRO Bank (Pakistan) Ltd.

Agreement has been reached between Atlas

Bank and DEG, a German investment bank,

under which DEG would acquire 24.9% stake

in Atlas Bank helping it to meet capital

adequacy requirements.

The level of non-performing loans as at end

March 2007 stood at Rs 184 bn mainly on

account of outstandings of agricultural loans as

also due to credits related to consumer

banking.

According to the Minister of State for Finance,

public sector banking and financial institutions

wrote-off Rs 32.2 bn of non-recoverable loans

during the last 3 years.

The President through an Ordinance has

converted the reorganized Industrial

Development Bank of Pakistan (IDBP) as a

public limited company effective from July 29,

2007. A new entity by the name of Industrial

Development Bank Limited would take over

the operations of IDBP, with all its functions,

asses and liabilities.

China has allowed Pakistan to open a bank in

the country with an initial capital of $ 250 mn,

much lower in quantum than is required of

other foreign banks.

National Bank of Pakistan (NBP) has

introduced an insurance policy for the farm

sector as a hedge against crop failures due to

drought, flooding, pest attacks and other

natural unforeseeable causes.

A Memorandum of Understanding (MoU) has

been signed between National Bank of

Pakistan and Industrial and Commercial Bank

of China to promote bilateral trade and

investment. The main focus would be trade,

finance, cash management, and international

payments, corporate lending, project

financing, infrastructure financing, investment

banking, cross-border mergers and

acquisitions and other areas of mutual

interests.

Islamic Banking

The SBP has introduced three measures for

further standardization of Shariah-based

Islamic banking in the country. These relate to

(i) adoption/adaptation of Shariah standards

developed for accounting and audit of Islamic

financial institutions; (ii) guidelines for Shariah

compliance on Islamic modes of financing and

investment; and (iii) guidelines for risk

management.


The SBP has extended the time limit for

regularization of Shariah advisers of the Islamic

Banking Institutions due to expire during

September 2007 to end-June 2008.

The State Bank of Pakistan has issued fresh

guidelines for Shariah based microfinance

banking in the country. They consist of

enhancing coverage to low-income groups via

establishing full-fledged Islamic Microfinance

Banks, Islamic Microfinance services by

existing commercial banks and through

extension of services ensuring that they are

Shariah compliant.

Takaful & Sukuk

Pak-Qatar Group has been issued licenses, the

first of its kind, to operate Family Takaful and

General Takaful business in Pakistan. Under

one head it would provide financial protection

for families in the case of death or disability of

the bread-winner, health benefits, education

plans, retirement income plans and some

savings schemes. Under the second head,

coverage would be provided for property,

autos, marines engineering products and other

areas.

Meezan Bank and Citibank are to jointly

provide Rs 2 bn through the issue of Sukuk

bonds for restructuring and improvement

needs of Pakistan International Airlines, a

public sector entity.

Pakistan International Airlines, the national

aircraft carrier plans to raise Rs 25 bn through

issue of Sukuk bonds to cover its ongoing

losses. Its after-tax loss during the first half of

2007 amounted to Rs 7.7 bn, an increase of

near 20% over the corresponding period of

2006. It also plans restructuring by downsizing

its existing staff strength.

WAPDA is to issue Sukuk bond worth Rs 8.0

bn through a consortium of National Bank of

Pakistan, Standard Chartered Bank and Dubai

Islamic Bank Pakistan to generate additional

electricity through the following plants: Khan

Khwar, 72MW; Allai Khwar, 121 MW; Duber

Khwar, 130 MW. Total cost of these projects is

estimated at Rs 13.45 bn. This issue of Sukuk

bond is the second launched by WAPDA, the

first being for the Mangla project.

SBP Instructions & Guidelines

The SBP has allowed foreign service providers

to enter the Pakistani banking industry. SBP

guidelines, however, prohibit outsourcing

particularly in the area of core banking.

The SBP has taken over direct control of inter-

bank ATM settlements previously handled by

ABN-AMRO Bank and MCB Bank amid faulty

transactions leading to loss of depositors'

money.

The SBP has directed commercial banks to

close the bank accounts of Afghan refugees

who got accounts opened after acquiring Proof

of Registration Certificates issued by NADRA.

Such certificates are not valid under the

prescribed prudential regulations.

The SBP has instructed banks and DFIs that

their Annual Branch Expansion Plan must

include at least 20% of branch openings in

rural and uncovered areas be it in villages or

small towns or tehsil headquarters where no

banking facility is available. The facility should

also be extended to underserved areas.

The SBP has allowed commercial banks and

DFIs to use ratings assigned to them by

International Rating Agencies namely: Fitch

Ratings, Moody's, and Standard & Poors

(S&P) for determining risk management for

purposes of arriving at capital adequacy

requirements.

The SBP has directed banks and DFIs to

develop appropriate measures under the

overall umbrella of National Disaster

Management Authority (NDMA) to cope with

fallouts consequent to natural unforeseeable

disasters putting their credit portfolio at risk as

also to protect depositor's interests.



The State Bank of Pakistan has further

liberalized the foreign exchange regime of the

country by allowing advance payments upto

100% of the FOB and CFR value of imported

goods against firm letters of credit and firm

registered contracts.

The State Bank of Pakistan has issued a draft

circular under which banks would be required

to provision 100% against non-performing

loans. In arriving at the provisioning

requirement, banks would be allowed to take

into account liquid assets. The draft would be

effective from December 31, 2007.

The State Bank of Pakistan has directed

commercial banks presently extending round

the clock ATM services to ensure safety

measures to protect depositors' money by

installing close circuit TV surveillance cameras,

special phone terminals, and such other

measures as are considered necessary to

ensure fool-proof security of funds.

The SBP has re-allowed Long-Term Financing

Facility for Export Oriented Projects (LTF-

EOP) to the textile exporters limited to letters

of credit opened on or before June 30, 2007,

for import of machinery for export needs.

From the beginning of the current fiscal, banks

and DFIs have been directed to provide export

refinance which the SBP provided to the

extent of Rs 50 billion in 2006-07.

The SBP in a draft proposal has identified 13

industries for availing Long-Term Financing

Facility (LTFF) for imported and locally

produced plant and machinery. The industries

hitherto not getting due credit facilities include

fabric garments, madeups, towels, art silk,

synthetic textiles, rice processing, leather and

leather products, sports goods, carpets and

wools, surgical instruments, fisheries, poultry

and meat, fruits and vegetables and their

processing, cereals, IT software and services,

marbles and granites, gems and jewellery, and

engineering goods. The final policy measures

would be adopted after the views of stake-

holders have been obtained.

The SBP has partly revised rules related to

operation of government securities. Under the

amendments introduced, the SBP will have the

option to accept bids in auctions of Pakistan

Investment Bonds and Open Market

Operations on a pro-rata basis.

Micro Finance

The SBP has targeted micro-finance facility to

reach 10 million borrowers by 2013 of which 3

million borrowers shall have been reached

during the coming 2-3 years.

Government Initiatives

The government has launched the President's

"Vision 2030" which aims at a just and

prosperous industrialized Pakistan with

sustained development through knowledge

inputs.

The President has promulgated an Anti-Money

Laundering Ordinance, 2007, to be operative

with immediate effect which provides for

measures to prevent money laundering and

detection of suspicious transactions which

could be deployed, amongst others, for

promoting terrorist activities. For facilitating

implementation, a financial monitoring unit

has been put in place.

The President has promulgated an Ordinance

for the establishment of Trade Development

Authority of Pakistan. The Authority would be

under the administrative control of the Ministry

of Commerce, with a board of directors to look

after its day-to-day operations.

The President has issued an Ordinance

providing for conversion of Monopoly Control

Authority into Competition Commission of

Pakistan.

The Economic Coordination Committee of the

Cabinet (ECC) has enhanced the value of

Produce Index Units (PIU) from Rs 400 to Rs

1200 which would lead to greater borrowing

capacity of farmers.



The Prime Minister has directed that a Small

Traders' Chamber be formed to advance the

interests of small traders whose needs are often

bypassed by default although their

contribution is significant in the country's total

trade sector.

A memorandum of understanding (MOU) has

been signed between Pakistan and China

under which a Pak-China University of

Engineering, Science and Technology would

be set up in Lahore at a cost of Rs 30 bn. Some

disciplines would start imparting education by

October 2008.

A memorandum of understanding (MOU) has

been signed between Port Qasim Authority

(PQA) and a consortium comprising of Fauji

Foundation, Akbar Group and Portia

Management Services of UK for setting up

Pakistan's first exclusive grain and fertilizer

terminal at Port Qasim. With an annual

holding capacity of four million tons, the

terminal would cost $ 100 mn.

The Government has constituted a policy

board under the chairmanship of the Prime

Minister to look after the interests of ship-

building industry of the country with

immediate effect.

The Ministry of Food, Agriculture and

Livestock (Minfal) has launched a five-year

Livestock Production and Development

project under which 1040 beef and 1550

mutton farms would be set up throughout the

country. The total cost of the project has been

estimated at Rs 1.52 billion.

Government Debt

The Asian Development Bank (ADB) is to

provide the largest single-country credit line to

Pakistan in the range of $ 12-15 bn over a

three years period of 2008-10 partly from its

own resources and partly by raising funds from

international financial markets. In the

preceding three years period of 2005-08 the

ADB has committed $ 3.6 bn including $ 1.4

bn for the current fiscal.

According to SBP data, total outstanding

domestic debt of the country stood at Rs 2.6

trillion ($ 42.6 bn) at end-May 2007 against Rs

2.3 trillion ($ 37.7 bn) at end-June 2006.

Government borrowing during the first eleven

months of 2006-07 fiscal was higher by 13.1%

compared to the level of June 2006.

According to SBP data, the country's external

liabilities (external debt plus foreign exchange

liabilities) stood at $ 40.17 bn at end-June

2007 against $ 37.24 bn at end-June 2006.

The government retired $ 2.98 bn of external

liabilities in 2006-07. Foreign exchange

reserves at end-June 2007 were over $ 16 bn.

Key Performance Indicators and

Developments

Standard and Poor's (S&P) Rating Services

has affirmed its "B+/B" foreign currency and

"BB/B" local currency sovereign credit ratings

on Pakistan. It has revised marginally its ratings

for both the above two categories downwards

from "positive" to "stable".

International financial institutions have come

to conclude that Pakistan is close to attaining

"investment grade status" which could help the

country attract greater foreign direct

investment. This conclusion reached by

various global rating agencies would lead to

attracting foreign investment at lower interest

rates compared to present levels. This would

be possible if the country could attain B+ and

B-1 rating which interalia is dependent on

political stability and sustained high levels of

economic growth.

A report of the Competitiveness Support Fund,

a joint body of the Ministry of Finance and the

U.S. Agency for International Development

(USAID), has come to conclude that Pakistan

is one of the top ten countries as far as

dynamism of the economy and flexibility of

doing business are concerned.



According to SBP data, the country's total

liquid foreign exchange reserves stood at $

16.12 bn as on September 29, 2007, of which

$ 13.87 bn were held by the central bank and

the rest with the commercial banks.

According to SBP data, home remittances in

2006-07 amounted to near $ 5.5 bn against $

4.6 bn in 2005-06, an increase of 19.42%, the

highest ever in the country's history.

The current account deficit in the fiscal ending

June 30, 2007 was recorded at near $ 7 bn

against near $ 5 bn in 2006-07. As a

proportion of GDP it stood at 4.8% in 2006-07

against the target of 4.3% and actuals of 3.8%

in 2005-06.

According to the Labour Force Survey, July-

December 2006-07, the economy generated

730,000 new jobs during July-December

2006. The number of employed people rose to

48.09 mn in July-December 2006 against

43.76 mn in the same period of 2005. Overall

unemployment rate fell to 5.3% from 6.5%, in

the above periods. Between July-December

2006 and July - December 2005,

unemployment in rural areas fell to 4.6% from

5.7% while in urban areas it fell to 6.8% from

8.4%.

Workers' remittances amounted to $ 495.7 mn

in July 2007, the first month of the current

fiscal, an increase of 31.5% over July 2006.

The amount includes $ 0.3 mn through

encashment and profit earned on Foreign

Exchange Bearer Certificates (FEBCs) and

Foreign Currency Bearer Certificates.

According to Federal Bureau of Statistics,

growth in large-scale manufacturing slowed to

8.41% in 2006-07 against the target of 13%.

According to SBP data, Pakistan's current

account deficit (excluding official transfers)

decreased to $ 917 mn in July 2007, the first

month of the current fiscal, against the deficit

of $ 1.07 bn in July 2006, an improvement of

14.85%.

According to the revised formula of the

National Finance Commission Award, the

Federation transferred Rs 400 bn to the

provinces in 2006-07, an increase of 33% over

2005-06. The shares of different provinces in

2006-07 over the preceding fiscal are as under:

Punjab, Rs 191.5 bn against Rs 148.6 bn;

Sindh, Rs 131.3 bn. against Rs 96.3 bn; NWFP

Rs 46 bn against Rs 35.5 bn; Balochistan Rs 31

bn against Rs 20.3 bn. In percentage, the rise

in share of provinces in 2006-07 over 2005-06

are as follows: Balochistan, 54%. Sindh 36%;

NWFP, 29.6%; and Punjab 29%.

The Asian Development Bank in its latest

Asian Development Outlook 2007, has

lowered its forecast of Pakistan's GDP growth

from the targeted 7.2% to 6.5% mostly as a

result of non-performance of some key sectors

of the economy.

There has been a net investment growth of

850% in various savings schemes of the

Central Directorate of National Savings in

2006 as a result of net investment of Rs 68 bn

during the year.

According to SBP data, home remittances in

the first two months of the current fiscal rose by

21.35% to $ 985 mn against $ 818 mn in the

same period of 2006.

The latest World Bank's "Doing Business"

2008, report has downgraded Pakistan's

position to 76 as of end-August 2007 against

73 in the same period of 2006. It has improved

its ranking of India to 120 against 132 in the

above periods.

According to Pakistan Petroleum Information

Service (PPIS), the country's known and

recoverable oil reserves at end-fiscal 2006-07

stood at 937 million barrels, an increase of 6%

over the same period of last fiscal. Known and

recoverable gas reserves stood at 54 trillion

cubic feet at end-fiscal 2006-07, an increase of

2% over the preceding fiscal's level.



Sales of Pakistan Steel reached a record Rs 30

billion in 2006-07 and is targeted to grow

further to Rs 36 billion in 2007-08, a projected

increase of 20%.

According to All Pakistan Cement

Manufacturers Association data, the volume of

sales of different varieties of cement rose to

7.29 million tonnes in the first quarter (July-

September) of the current 2007-08 fiscal

against 5.42 million tonnes in the same quarter

last fiscal, an increase of 35%. Exports of

cement during July-September 2007 rose to

1.57 million tonnes against 0.66 million tonnes

in the same period of 2006.

Development Initiatives

The SBP is to setup a 20-year "Special Fund"

to provide long term source of funds for

capacity building initiatives for various

stakeholders including governmental

organizations, regulatory authorities, retailers

and potential clients. The Asian Development

Bank would provide $ 20 mn for the Fund

while the government would provide an equal

amount in local currency as counterpart

funding.

The SBP has setup a new department called

Financial Monitoring Unit in order to ensure

compliance with Financial Action Task Force

(FATF) recommendations. Its main objectives

would be: (i) address issues relating to money

laundering, (ii) securing interests of depositors

adversely affected by money-laundering, (iii)

prevent terrorist financing, (iv) reinforce banks

and DFIs requirement of knowing their

customers.

The Oil and Gas Regulatory Authority (OGRA)

has notified a decrease of 34 and 39 paisa per

litre respectively in commission of marketing

companies and of dealers. The commission of

marketing companies stands reduced at Rs

1.18 against Rs 1.52 per litre while dealers'

commission stands reduced at Rs 1.35 against

Rs 1.74 per litre.

Monetary Policy Statement

The SBP has issued its Monetary Policy

Statement for the first half of the current fiscal.

Some of its salient features are as under:

(i) The Central Bank would so use its

monetary policy instruments as to contain

CPI inflation to its targeted level of 6.5%

by the end of the current fiscal.

(ii) Given the GDP growth target of 7.2% and

CPI inflation at 6.5%, growth in broad

money (M2) supply is envisaged at 13.7%

for the current 2007-08 fiscal against the

target of 13.46% and actuals of 19.3% in

2006-07.

(iii) Export refinancing would continue to be

provided to exporters with the difference

that SBP's share would now come down to

70% against the previous 100% while the

commercial banks would now provide the

remaining 30%. The commercial banks are

required to progressively adjust their

outstanding refinance from SBP to the

extent of 30% by June 30, 2008.

(iv) A new Long Term Financing Facility

(LTFF) has been introduced to promote

export led industrial growth.

(v) The discount rate (cost of 3-day borrowing

by banks from SBP) has been raised by

0.5% to 10.0%.

(vi) The government has been directed to retire

Rs 62.3 bn of its outstanding to the SBP by

the end of the current fiscal and

progressively meet its borrowing needs

from the commercial banks.

Total monetary expansion as per SBP data

was recorded at Rs 658.3 bn in 2006-07 or by

19.3%. The target for the expansion had been

set at Rs 459.9 billion or of 13.5% for the

fiscal. In the 2005-06 fiscal monetary

expansion was recorded at 15.2%.



Foreign Investment in Pakistan

The government is estimating Chinese

investment to reach a level of $ 800 mn in the

current fiscal against an investment of $ 230

mn in 2005-06. Pakistan has been the first

country with which China has signed a free

trade agreement effective July 1, 2007 as a

consequence of which bilateral trade level

would reach $ 15 bn over the next five years.

Total private foreign investment into Pakistan

in 2006-07 amounted to $ 6.95 bn against $

3.87 bn in the preceding fiscal, an increase of

79.3%. Of this foreign direct investment (FDI)

amounted to $ 5.15 bn, an increase of 45.6%

over 2005-06. Portfolio investment rose by

418% to $ 1.82 bn in 2006-07 over 2005-06.

Pakistan and China have signed an agreement

to setup a joint Investment Company with an

initial outlay of $ 200 mn to be shared equally

by both the countries. The company would

operate mainly in the sectors of infrastructure

development, finance, mining, manufacturing,

and would develop projects to attract foreign

direct investment.

According to the U.S. Counsellor for Economic

& Commercial Affairs, Pakistan, the U.S. is

legislating the establishment of Reconstruction

Opportunity Zones in the country under which

Pakistan would have zero rated access to U.S.

markets for 15 years. This is the longest such

concession ever granted by the U.S. to any

country. Direct investment by the U.S. in

Pakistan in 2006-07 amounted to over $ 820

mn, accounting for 6% of total FDI.

The Board of Investment and the U.S. Aid

funded Competitiveness Support Fund have

signed a Memorandum of Understanding

under which steps would be taken to support

on-going economic reforms for improving

Pakistan's investment climate and

competitiveness in the years to come.

Singapore Telecommunication Limited

(Singtel) is to acquire a 30% stake at a cost of

$ 758 mn in Pakistan's Warid

Telecommunication which has 9.7 mn

subscribers with an estimated market share of

16.6%.

Noor Financial Investment Company, a

private sector firm of Kuwait, has acquired an

additional stake of 19% in Meezan Bank over

its previously held 16% bringing its total stake

held in the bank to 35%. The acquired stake

was previously held by Shamil Bank of

Bahrain, also a private sector entity.

Japan's metal one Corp, a subsidiary of

Mitsubishi Corp. is to setup a steel plant as a

joint venture with Pakistani private firms

namely Universal Metal Corp. and Arif Habib

Ltd. To be called Aisha Steel Mills, it would

cost $ 100 mn and would have an initial

production capacity of 220,000 tons per

annum. The two Pakistani firms would have

49% and 25% stake respectively.

According to SBP data, foreign investment

including both foreign direct investment (FDI)

and portfolio investment stood at $ 313.9 mn

in the first two months of the current fiscal

(July-August 2007) against $ 374.3 mn in the

same period of 2006, a decline of 16%.

Capital Investment Overseas, an Abu Dhabi

based company plans to build a five-star hotel

in Lahore at a cost of Rs 20 bn. Comprising of

602 rooms it is expected to be operational by

2011.

According to the Minister of Privatization, the

government is to further revamp its investment

to attract greater foreign direct investment

which reached a record level of $ 8.4 billion in

2006-07. Pakistan has so far privatized 166

public sector units raising $ 7 billion since

1991, of which 87% of privatization programs

were completed during the last seven years

which helped realize $ 6.1 billion.

According to a private sector estimate, foreign

direct investment in Pakistan's Islamic banking



sector stood at over Rs 20 bn by end-

September, 2007. It has also projected an

inflow of near Rs 35 bn in the next few months.

Repatriation of profits and dividends by

companies setup through foreign direct

investment (FDI) operating in the country

amounted to $ 132.2 mn during July-Aug.

2007 against $ 88.6 mn in the same period of

2006, an increase of 49%. Total outflows in

the preceding full fiscal had been $ 850 mn.

The government policy allows full repatriation

of capital and dividend to firms investing in the

country via FDI.

International Trade

The Free Trade Agreement (FTA) between

Pakistan and China has become effective from

July 1, 2007. Under the FTA, Pakistan will

provide tariff cuts on 4,700 items importable

from China in two phases ending January,

2008. China has already cut tariffs on 3,975

items importable from Pakistan by an average

of 11%. The FTA is aimed at increasing

bilateral trade to $ 15 bn against the current

level of $ 3-4 bn.

Earnings through export of rice, basmati and

irri combined, amounted to $ 1.04 bn in the

first eleven months of 2006-07 against near $

1.08 bn in the same period of 2005-06. The

full fiscal target is near $ 1.3 bn. Earnings in

2005-06 were near $ 1.16 bn.

Export of leather including garments and

tanned in the first eleven months of 2006-07

amounted to $ 761.9 mn against $ 1.5 bn in

the same period of 2005-06, a decline of 48%.

Earnings through exports of the IT industry

rose to $ 116 mn in 2006-07 against the target

of $ 108 mn and realization of $ 72 mn in

2005-06.

According to SBP, export of textile products

rose to over $ 10 bn in 2006-07, an increase of

near 10% over the earnings of $ 9.14 bn in

2005-06. The growth target had been set at

20% for the last fiscal over the preceding fiscal.

The crossing of $ 10 bn mark has been the

highest in the country's history. Its earnings in

total exports during 2006-07 rose by 4% over

2005-06 to reach a level of 59%.

The Task Force on Finance and

Competitiveness and the Ministry of Food,

Agriculture and Livestock have tentatively

agreed on measures to help livestock exports

to rise form the current level of about $ 150 mn

to $ 1.0 bn by 2012.

According to Federal Bureau of Statistics, the

country's export earnings amounted to $ 17 bn

in 2006-07 against earnings of $ 16.45 bn in

2005-06, an increase of 3.4%. Import

payments rose by 6.85% to $ 30.54 bn in

2006-07 against $ 28.58 bn in 2005-06. The

trade deficit in 2006-07 was recorded at $

13.54 bn against $ 12.13 bn in 2005-06.

According to the Ministry of Commerce, the

government of India has expressed its

willingness to allow "Pakistan-wished", import

of 20 items by removing non-tariff barriers

pending conclusion of Most Favoured Nation

(MFN) status. The first item which would be

provided the facility is Cement.

According to Federal Bureau of Statistics,

Pakistan's exports of the services sector

amounted to $ 4.13 bn in 2006-07 against $

3.77 bn in 2005-06, a gain of about 9.44%.

Import payments on services sector amounted

to $ 8.25 bn against $ 8.2 bn in the above two

years, a rise of only 0.63%.

According to Trade Development Authority of

Pakistan data, Pakistan's exports to European

countries (the EU Union/Region) increased to

$ 3.67 bn in 2006-07 against $ 3.37 bn in

2005-06, a gain of 8.27%.

Export earnings in the first two months of the

current fiscal (July-August 2007) stood at $

2.84 bn, an increase of 4.31% over the same

period of 2006. Import payments during July-

August 2007 stood at $ 5.32 bn an increase of



6.81% over the same period of 2006. The

trade deficit thus widened to $ 2.36 bn in July-

August 2007 against $ 2.14 bn in the same

period of 2006, an increase of 10.12%.

The Chinese Ambassador to Pakistan has

forecast that trade between the two countries

could reach a level of $ 15 bn over the next

five years from the current level of $ 5.2 bn.

The projected growth will be the outcome of

the Free Trade Agreement which become

effective from July 1, 2007. Both countries, he

opined, stand to gain.

Earning through export of cotton yarn in the

first two months of the current fiscal stood at $

244.38 mn against $ 243.49 mn in the same

period of 2006.

Fruit exports fetched $ 19.65 mn in the first

two months of the current fiscal against $

16.32 mn in the same period of 2006, a rise of

$ 3.33 mn (+11.3%).

According to Federal Bureau of Statistics

export of non-textile products rose to $ 1.07

bn in the first two months of the current fiscal

against $ 972 mn in the same period of 2006,

a rise of 10.4%.

Earnings through exports of footwear in the

first two months of the current fiscal (July-

August 2007) declined by 6% to $ 28.70

million against $ 21.90 million in the same

period of 2006.

Import of scrap ships for the ship-breaking

industry in the first two months of the current

fiscal declined by 65% to $ 16 million against

$ 46 million in the same period of 2006.

Pakistan's knitwear export earnings amounted

to $ 405.7 mn during July-August 2007,

against $ 374.5 mn in the same period of

2006, a rise of 8.33%.

Export earnings of all varieties of towels during

July-August 2007 stood at $ 85.09 mn against

$ 115.97 mn in the same period of 2006, a

decline of about 27%. Exporters attribute the

fall to unsteady price of cotton yarn.

According to provisional Federal Bureau of

Statistics data, in the first three months of the

current fiscal, July-September 2007, Pakistan's

export earnings and import payments stood at

$ 4.45 bn and $ 8.06 bn against $ 4.25 bn and

$ 7.42 bn respectively in the same period of

2006. The trade deficit widened to $ 3.6 bn in

the first quarter of the current fiscal against $

3.17 bn in the same quarter of the preceding

fiscal, an increase of 13.53%.

The government has banned the export of

wheat flour, suji and maida, through sea and

land routes to stabilize their prices in the local

markets despite a bumper crop of 23.5 mn

tons of wheat, an all time high record

production. Export of the commodities to

Afghanistan has been allowed, as before.

Pakistan and Tunisia have signed four

agreements to further cooperation in the fields

of industry, science and technology, tourism

and culture, Bilateral trade is projected to be

raised from the current level of $ 25 mn to $

300 mn over the next four years.

Trade Policy

Trade policy for the current fiscal projects

exports at $ 19.2 bn against actual export of $

17.01 bn and target of $ 18.7 bn during fiscal

2006-07. Imports amounted to $ 30.5 bn in

2006-07 and trade deficit was $ 13.49 bn

against $ 12.11 bn in the preceding fiscal. No

target for imports has been set, however,

current estimates place it at $ 32 bn.

The trade policy for 2007-08 provides a

number of incentives for realizing the export

target of $ 19.2 bn. These include Long Term

Financing for Export Oriented Projects (LTF-

EOP), equity fund, brand acquisition, sectoral

investment incentives, export credit risk

management, skill development and

environmental and security compliance.

Assistance by way of incentives would be

provided to exporters for opening of offices

abroad.



Textile Policy

The government has approved in principle the

draft of the new textile policy envisaging

improvement in all the segments of the textile

industry. These consist of higher cotton

production, improvement in value-added

products through increased productivity and

steps for greater competitiveness. The

measures aim at an increase of 40% in exports

of textile products and job creation for 3.5

million people. As of now the sector accounts

for 66% of exports, 40% of total employed

labour force and contributes 8.5% to the GDP.

SME Policy

The government has launched the Small &

Medium Enterprises (SME), 2007 policy with a

view to promote competitiveness of this

hitherto relatively neglected area of

enterprises. Initial outlay has been envisaged at

Rs 13.13 bn which includes a Credit

Guarantee Agency for SMEs of Rs 3 bn, an

SME Subcontracting Exchange of Rs 26.1 mn,

an SME Development Institute at Rs 115.7 mn,

an SME Export House at Rs 156.9 mn and an

SME Promotion Council at Rs 143.7 mn. The

SME Business Support Fund and

Competitiveness Support Fund are already

operating. The 2007 SME policy is expected to

lead to adequate availability of bank credit,

presently rather shy, for the development of

the sector.

Privatization

According to the Privatization Commission the

government has decided to issue Global

Depository Receipts (GDRs) of National Bank

of Pakistan, Habib Bank Limited and Kot

Addu Power Company (KAPCO) before the

end of 2007.

The initial public offering (IPO) of 7.5% shares

of Habib Bank Limited, with a green shoe

option of 2.5% has been oversubscribed to the

extent 52%. Against an offer valued at Rs

12.20 bn offers received were worth Rs 18.60

bn. A total of 51.75 mn shares were offered at

Rs 235 per share and the stock was trading at

Rs 323 per share at the Karachi Stock

Exchange.

Inflation

The Sensitive Price Indicator (SPI) showed a

rise of 7.65% at end-June 30, 2007 over the

same period of the preceding fiscal. During the

week, 15 items recorded increases in prices, 11

items showed decreases while the prices of 27

items remained unchanged.

Overall inflation increased by 7.77% in 2006-

07 over 2005-06 largely driven by food

inflation which rose by 9.68% in the last fiscal

over the preceding fiscal. The CPI, SPI and the

WPI registered increases of 7.77%, 10.82%

and 6.94% respectively in 2006-07 over 2005-

06.

(B.R., 12/7/2007 - p.1)

According to the Ministry of Finance, food

inflation averaged 10.3% in 2006-07 against

6.9% in 2005-06 partly due to an increase of

28% in global food items prices. The average

inflation last fiscal stood at 7.8% against 7.9%

in 2005-06. Non-food inflation during the

years declined to 6% against 8.6% and core

inflation to 5.9% against 7.5%.

Core inflation (non-food-non-energy) declined

to 5.6% in 2006-07 against 8.6% in 2005-06.

It has declined further to 5.2% in July 2007,

the first month of the current fiscal, against

7.0% in July 2006. This augurs well for the

current full fiscal directly a result of the

monetarist policy being pursued by the SBP.

Overall average inflation in 2006-07 declined

to 7.8% against 7.9% in 2005-06. Food

inflation in 2006-07 averaged 10.3% against

6.9% in 2005-06.

Taxation

According to Federal Board of Revenue



Quarterly Review, total revenue collected

during 2006-07 exceeded Rs 846 bn, an

increase of Rs 11.4 bn over the target of Rs

835 bn. The tax-GDP ratio consequently rose

to 9.7% in 2006-07 against 9.4% in 2005-06.

Total revenues collected by the Federal Board

of Revenue during the first two months of the

current fiscal (July-August) stood at Rs. 107 bn

against Rs 92.5 bn in the some period of 2006,

an increase of 15.6%. The full year target is Rs

1.03 trillion.

Agriculture Sector

According to SBP, credit disbursement to the

agricultural sector was over Rs 168 bn in 2006-

07 representing an increase of 22.4% over the

preceding fiscal's Rs 137 bn. The off-take

target for 2006-07 was Rs 160 bn. For 2007-

08 the disbursement target has been set at Rs

200 bn.

In a strategy paper the State Bank of Pakistan

has urged the Ministry of Food, Agriculture

and Livestock (Minfall) to facilitate the farm

sectors outreach to the agricultural sector's

credit availability in 2007-08 by removing such

impediments as are restricting the sector's

credit utilization needs. The State Bank of

Pakistan has identified weak areas in particular

as inferior quality of seeds, timely fertilizer and

pesticides availability, as also marketing and

storage facilities.

According to an analytical study of the SBP's

Agricultural Credit Department, total credit

disbursed to the farm sector during the first two

months of the current fiscal stood at Rs 25.78

bn, an increase of 18% over the same period

of 2006. Total outstanding credit to the sector

at end-August 2007 was Rs 157.5 bn, an

increase of about 8.7% over the same period

of 2006. Due recovery has not shown any sign

of faltering.

The government is targeting cotton production

of 20 mn bales by 2015. It was able to achieve

production of 14.6 mn bales in 2004-05 but in

the two following years the crop was badly hit

by drought, floods and pest attacks. According

to private sector estimates the current crop has

already been adversely affected and may lead

to an import need of 2.5 mn bales.

The government has adopted a

comprehensive strategy to sustain a growth of

4.8%, realized in 2006-07, in the agricultural

sector to be achieved in 2007-08. The value of

major crops, part of the strategy, is projected to

rise to Rs 415 bn in 2007-08 against an

estimated Rs 397.2 bn in 2006-07.

According to current private sector estimates,

production of raw cotton in the country may

not reach the target of 14.1 million bales in the

current crop season of 2007-08. This would be

mainly on account of near 30% damage to the

standing crop by mealy bugs leading to viral

infection. The country harvested a crop of 14.6

mn bales in the 2004 crop season, with falls

both in FY 05 and 06 crop years to just over

13 mn bales.

Sugarcane production is anticipated to reach a

record 58 mn tons in the current season ending

October 2007 whose crushing would begin

from November leading to sufficient

availability of sugar. With a carryover stock of

near 1.2 million tons held by the government it

has been decided not to import any sugar in

the current fiscal.

The government has fixed ex-factory sugar

prices at Rs 29 per kg exclusive of one percent

special duty. Sugarcane prices have been left

unchanged at last year's level of Rs 67 per 40

kg for Sindh, at Rs. 60 for Punjab and at Rs. 65

for NWFP.

The government has revised downwards its

earlier estimates of wheat production of 23.5

million tons to 22.2 million tons in the last crop

season of 2006-07. Accordingly it has decided

to import one million ton of wheat reversing its

previous decision to export 0.8 million ton of

the commodity. The two measures combined



as also release from the buffer stock are aimed

at lowering down of flour prices in retail

outlets.

According to estimates of the private sector,

cotton production in the current crop season

may fall short of the targeted 14.2 million

bales. The current demand of the industry is

placed at about 16 million bales. The country

has already imported raw cotton worth $

162.39 million in the first two months of the

current fiscal against imports worth $ 67.70

million in the same period last fiscal, a rise of

138%.

According to current estimates of International

Cotton Advisory Committee, raw cotton

production worldwide may decrease by almost

half-a-million bales (1 bale = 480 pounds) in

the next crop season ending mid-2008,

including Pakistan. Top four cotton producing

countries of the world are China, USA, India

and Pakistan. Total world cotton production

would be down from 116.256 million bales in

2007 crop year to 115.833 million bales in the

next crop year. The spectre of rising cotton

prices is therefore not unwarranted.

Power Generation

The Alternate Energy Development Board,

setup in May 2003, expects its contribution in

the national electric grid to reach a level of 700

MW by 2010 and to 9,700 MW by 2030 by

when it will contribute 5% of total demand

against no contribution presently. The present

installed capacity of 19,522 MW is contributed

to the extent of 64% by thermal power, 33%

by hydel sources and 2% by nuclear sources.

The National Electric Power Regulatory

Authority (NEPRA) has allowed WAPDA price

increase of 36.65 paisa per unit for 2007-08.

The current hydro-electric tariff of WAPDA is

260.22 paisa per unit consisting of 231.59

paisa per unit fixed charges and 28.63 paisa

per unit variable charges. It had sought an

increase to 320.27 paisa per unit composed of

285.05 paisa per unit as fixed charges and

35.22 paisa per unit as variable charges.

NEPRA has allowed it 265.06 paisa per unit as

fixed charges and 30.97 paisa per unit as

variable charges.

WAPDA's total generation of electricity during

2006-07 was recorded at 87.84 bn units, an

increase of 6.8% over 2005-06. System losses

during the above periods came down to 21.5%

against 22.4%.

A Memorandum of Understanding has been

signed between the Sindh Coal Authority and

U.K. based Conger Energy to develop 400

MW power station at an estimated cost of $

400-500 mn in the coal field of Thar, Sindh.

The federal government has allowed setting up

of companies for effective exploration and

utilization of coal reserves in the province of

Sindh estimated at 184 billion tons. In the

absence of foreign interests, contracts have

been awarded to two local firms.

According to a roadmap approved by the

President, commercial production of energy

from Thar coal mines with proven reserves of

175 mn tonnes would start from 2012. Basic

infrastructure facilities have been put in place.

The Private Power & Infrastructure Board

(PPIB) has signed an agreement with Attock

Refinery Limited and Attock Oil Company,

U.K. the joint sponsors, for setting up a 165

MW power project in Margah, Rawalpindi. To

cost $ 113 mn it is expected to supply power to

the national grid by August, 2008.

The Private Power & Infrastructure Board has

allowed Foundation Power Company, Dharki

to set up a 175 MW power plant to be set up

at Dharki in Sindh. The plant will use 560 BTU

raw gas from Mari deep gas field as fuel and

would adopt combined cycle technology. To

cost $ 132 mn it is projected to start

commercial production by September, 2009.



The Private Power & Infrastructure Board has

allowed Atlas Power Limited to establish a 225

MW power plant to cost $ 228 mn. It would be

set up at Lahore-Sheikhupura Road and is

expected to start production by March 2009.

The plant would use residual fuel oil and use

reciprocating engines technology.

The Alternative Energy Development Board

has so far issued 88 letters of intent (LoI) for

generation of wind power each capable of

generating 50 MW of electricity. An area of

23,645 acres has already been allocated to 15

prospective investors.

The Private Power Infrastructure Board (PPIB)

has approved four power projects to be setup

by the private sector in different parts of the

country with an installed capacity of generating

920 MWs of electricity.

The Asian Development Bank (ADB) has

committed a first of its kind credit tranche of $

510 mn for the development of renewable

energy in Pakistan, also the first of its kind for

the country. The venture's feasibility has been

developed under the ADB's clean energy

efficiency initiative. Pakistan's energy needs

are projected at 162,500 MWs by 2030 against

the 2005 output of 15,000 MWs. Once the

program is completed the renewable energy

output in the country's energy mix would rise

to 600,000 MWs against the current level of

180 MWs.

Gas and Petroleum Sector

The government has approved the Petroleum

Policy 2007, under which, amongst others, the

$ 36 a barrel cap on well-head gas price has

been removed. It has also offered 100%

international crude price to domestic

production of crude oil, natural gas condensate

and liquefied natural gas. At present Pakistan

meets its oil needs to the extent of 20% of its

total demand while the rest is imported.

For the first time in the country's history,

Petroleum Exploration (Pvt) Ltd. (PEL), an oil

and gas company, has signed an agreement

with state-owned ONHYM of Morocco for

exploration and production of oil and gas. The

joint venture deal provides 75% stake to PEL

and 25% to ONHYM.

INTERNATIONAL

Asia

China and the ASEAN (Association of South

East Asian Nations) group of countries namely

Brunei, Cambodia, Indonesia, Laos, Malaysia,

Myanmar, the Philippines, Singapore,

Thailand and Vietnam are to enter into a Free

Trade Agreement (FTA) by 2010. Bilateral

trade of China with the member countries is

projected to reach a level of $ 200 bn by 2008,

two years before the FTA gets going. After the

FTA is implemented it will create a market of

1.8 billion people with a trade volume of $ 2

trillion.

According to the Annual Statistical Bulletin of

the OPEC, total revenues of the organization

through oil and gas exports stood at $ 649 bn

in 2006, an increase of 22% over 2005. Saudi

Arabia topped the list with $ 194 bn, an

increase of 20% over 2005.

The International Labour Organization of the

U.N. has forecast that Asian economies would

be hard put in providing new jobs to 200 mn

additional workers by 2015 over and above

the currently 1.8 bn employed.

According to a World Bank study, the Asia

Pacific Economic Cooperation (APEC) group

of countries is losing $ 148 bn in lost economic

activity on account of hidden subsidies and

financial corruption. The loss is all the more

important because APEC accounts for 56% of

world GDP and nearly 50% of global trade.

The Asia Pacific (APEC) summit leaders have

agreed to move further in the direction of free

trade as envisaged under the regime of WTO,

all the more so because the group of APEC

countries accounts for half the world trade.



The agreement reached is hoped to be

finalized by end-2007. Popularly known as the

Doha round of talks because the first meeting

was held in Doha, Qatar, in 2001, the leaders

have agreed to tackle the vexing problems of

subsidies, often hidden, in both the agricultural

and non-agricultural sectors. The 21-nation

APEC group of countries includes top

economies of the world - USA, Japan, China

and other fast growing economies.

The Asian Development Bank has forecast that

Asian economies, excluding Japan, led by fast

growing economies of China and India, would

record a growth by an average of 8.3% in

2007 against earlier forecasts of 7.6%. The

regional economies had grown by 8.5% in

2006. Afghanistan's economy is forecast to

grow by 13% this year against 7.5% in 2006.

The Organization of Petroleum Exporting

Countries (OPEC) has agreed to increase its

export of crude oil from the current level of

25.8 mn bpd to 27.2 mn bpd from November

2007 to ease the rising trend in oil prices. The

12 member countries of OPEC account for

about a third of global oil need.

According to current estimates, Iraq needs

between $ 20-25 bn over the next 5-7 years to

activate its war-torn oil industry. The projected

estimate aims at expanding the five existing oil

refineries, building four new refineries as well

as improving and building new pipelines,

product pipelines and storage depots.

According to IMF data, Sri Lanka's

governmental debt has averaged 101% of the

GDP over the last five years compared to 63%

in Nepal, 85% in India and 49% in

Bangladesh. The country's total deficit as a

proportion of GDP has varied at between 8.0

to 9.5% over the last decade with

governmental spending accounting for 35% of

GDP. The economy grew by 7.4% in 2006,

slowing down to 6.2% in the first half of 2007.

Last year's growth was largely due to capital

inflows consequent to the tsunami disaster.

A joint research report prepared by the Asian

Development Bank, the UN Development

Program and the UN Economic and Social

Commission for Asia and the pacific has

concluded that efforts to reduce poverty and

provision of social needs of the Asia-Pacific

region countries is unlikely to be met in full of

the targeted levels of 2015. The region is home

to 60% of the world's population of near 6.2

bn. Over one billion people in the region lived

at below $ one a day in 1990. As of now the

level has come down to 641 mn people which

is still fairly high. China is the leading country

in the region to have tackled the menace of

poverty quite successfully but countries like the

Philippines, India, Pakistan, Bangladesh, Sri

Lanka are lagging behind.

Bilateral trade between Iran and India is

forecast to rise by 20% to $ 18 bn in 2007

against $ 15 bn in 2006. Iran is currently

exporting 534 thousand barrels of oil per day

to India.

The Association of Southeast Asian Nations

(ASEAN) comprising of Brunei, Cambodia,

Indonesia, Laos, Malaysia, the Philippines,

Singapore, Thailand, Vietnam, is to conclude a

free trade agreement with India by March

2008. Tariff cuts would be allowed by the

ASEAN group of countries except in the case

of petroleum, palm oil, coffee, tea and pepper

considered by the group as critical to its

interests.

China

China recorded a trade surplus of $ 103.2 bn

in the first half of 2007 with exports at $ 179.6

bn and imports at $ 76.4 bn. The growth in the

trade surplus was on account of exports having

risen by 21.7% and imports by 14.2% over the

same period of 2006. The full 2007 trade

surplus is expected to be upwards of $ 200 bn.

Total foreign exchange reserves at end-June

2007 stood at $ 1.33 trillion, highest in the

world. Its GDP is forecast to surpass the size of

Germany, currently the third largest economy



of the world by the end of 2007.

(AP, F.P., 11/7/2007 - p.7) (AFP, The News,

12/7/2007 - p. 17)

The IMF has forecast that the Chinese and

Indian economies would grow by 11% and 9%

respectively both in 2007 and 2008. By the

end of this year, China shall have overtaken

the U.S. as the main vehicle of global growth.

Revised data of the Chinese economy places

its growth at 11.1% in 2006 against earlier

estimates of 10.7%. The size of the economy is

currently being placed at $ 2.65 trillion, lower

than Germany's $ 2.9 trillion, the largest single

economy of Europe. It is being forecast that

China would overtake Germany in 2007 rather

than 2008 as had been earlier forecast.

China has introduced an anti-trust law to check

monopolistic control of enterprises through

mergers and acquisitions of Chinese

companies. The law is the first of its kind in

Chinese history.

The Peoples Bank of China, the central bank

of the country, has raised the one-year

benchmark lending rate of commercial banks

from 6.57% to 6.84%, an increase of 0.27

percentage points. One year benchmark

deposit rates of commercial banks have been

raised from 3.06% to 3.33%. The increases are

the fifth over the last 15 months. Both the

measures are intended to cool the economy as

also to contain inflation.

China and Kazakhstan have agreed to expand

an existing pipeline which will provide China

direct access to the Caspian Sea reserves

under the control of Kazakhstan. The existing

600 miles oil pipeline which had cost $ 800 mn

will be expanded by another 435 miles and

may be operational by 2009. Cost is

unspecified.

A rail link is proposed to build linking southern

China with Hanoi, Ho Chi Minh City, Phnom

Penh, Bangkok, Kuala Lumpur and

Singapore. The project is to cost about $ 10 bn

and would be operational by 2015. Separate

lines will link Laos to Vietnam and Myanmar to

China. The rail link is designed to facilitate the

free trade agreement (FTA) that China has

targeted to conclude with ASEAN group of

countries by 2010. It has pledged $ 6.4 bn

once the FTA gets going.

China has raised the reserve requirement of

commercials banks for the seventh time this

year by 0.5% to 12.5% in a further attempt to

cool the overheating economy to be effective

form September, 2007.

China has overtaken Japan as Australia's

largest single trading partner. In the year

ending July 2007 its trade with Australia

reached $50.5 bn against Japans $ 49.7 bn.

Japan had been topping bilateral trade with

Australia for 36 consecutive years.

China is planning to spend near $ 265 bn over

the next 13 years in generating renewable

energy which would change its mix of

renewable energy from 7.5% in 2005 to 15%

in 2020. While most of the funding would

come as cash from the corporate sector, the

country also hopes to earn significantly

through domestically produced equipment

with export prospects.

The Governor of Peoples Bank of China, the

central bank of the country, has urged

domestic commercial banks of the country to

progressively deploy $ 500 bn of their profits,

accumulated over the last decade or so, by

seeking mergers and acquisitions, overseas to

help the country acquire foothold in the

international money markets. China is said to

be simultaneously taking steps to prevent top

Chinese companies from hostile takeovers by

foreign interests.

China expects to raise $ 7.7 bn through an

Initial Public Offering (IPO) by offering shares

of state-owned China Construction Bank

Corporation, the largest single lender to the

property sector. Shares offered are valued at

82 to 86 cents. If realized, the IPO would be

the largest offered by the country.



In the wake of global housing mortgage crisis,

China has raised mortgage interest rates and

the level of down-payments. The average new

lending rate for housing finance has been

increased to 8.02% against previous 7.29%.

Second residential properties can now be

acquired after a down-payment of 40% against

the previous 30%. Mortgages for commercial

properties will need 50% down-payment with

a repayment period of 10 years.

China has setup an agency in the public sector

called China Investment Corporation to

mange, initially, $ 200 billion of its over $ 1.2

trillion of foreign exchange reserves. It will

operate as an autonomous entity.

The Central Bank of China has forecast that

the country's economy would grow by about

11.6% in 2007 with consumer price inflation to

be in the region of 4.6%, likely to rise to

around 5% in 2008. Trade surplus in 2007 is

estimated at $ 250 billion against near $ 178

billion in 2006.

A Hong Kong newspaper has estimated that in

the case of China, the lax policy of Chinese

banks has led to lending to the mortgage sector

of $ 396.2 bn with the prospect of much of it

going bad leading to bubble burst of the

country's property market.

India

According to the Central Bank of India, the

country's foreign exchange reserves stood at $

213.5 bn at end-June 30, 2007, inclusive of

appreciation or depreciation of other

currencies held by the Bank mainly the euro,

pound sterling and yen.

India's farm sector produced all-time record

crops during 2006-07, some of which are as

under: Food grains, 216 million metric tons

(MMT); Soyabean, 8.86 MMT; Sugarcane,

345 MMT; Cotton, 22.70 MMT; Maize, 15

MMT (equaling the record of 2003-04).

The Indian government has allowed state-

owned companies to invest upto 30% of their

surplus cash in state-owned mutual funds, like

the ones being operated by Life Insurance

Corporation, State Bank of India. The volume

of such funds is in the vicinity of $ 50 bn. The

permission may further boost investment in the

capital markets, already experiencing a bullish

trend due to an investment of $ 10 bn of

foreign funds since January, 2007.

India's trade deficit widened to $ 20.61 bn in

the first quarter of the current fiscal (April-June

2007) against $ 11.84 bn in the same period of

2006. During April-June 2007, exports rose by

18.11% over the same period of 2006 to $

34.3 bn while imports rose to $ 54.91 bn in

April-June 2007, an increase of 34.3% over

the same period of 2006.

The Reserve Bank of India (RBI), the central

bank of the country has raised cash reserve

ratio to 7.0%, an increase of 0.50%. The raise

is fourth in a series since early December, 2006

and now stands at its highest level since

November, 2001. The latest rise would suck an

estimated $ 4.0 bn of excess liquidity from the

easy money market.

The Reserve Bank of India, the central bank of

the country, has tightened rules on foreign

borrowing by local private sector firms

stipulating that loans of above $ 20 mn must

be spent overseas. The step has been taken as

a measure to stem capital inflows resulting in

an appreciation of the rupee. The rupee has

risen by 10% to a high of 40.20 per US$ lately,

a nine-year high, leading to a loss of the

country's export competitiveness.

Reliance Industries of India, the country's

largest single private sector firm, is to spend Rs

560 bn ($ 120 bn) over the next 2-3 years in

oil exploration and production and in laying

transport pipelines. The entity discovered the

country's largest gas field in 2002, and has also

recently discovered a deepwater block in

cauvery basin, off India's east coast. India's gas



consumption is projected to rise to 400 million

cubic meters a day (cmd) by 2025 against 170

cmd as of now.

Wal-Mart Stores of the U.S. and Bharti

Enterprises of India have signed a much-

delayed deal under which the two on a joint

venture basis would equally operate a chain of

stores to cater to cash and carry wholesale and

back-end supply chain management

throughout the country. India's retail industry

is currently valued at $ 350 bn and is being

projected to double to over $ 700 bn by 2015.

The Reserve Bank of India, the central bank of

the country, is to setup four advisory panels,

comprising of official and non-official experts,

to ensure financial stability, supervision,

market structure and transparency. The

purpose of these standing committees is to

ensure soundness of the financial sector as also

to suggest measures for its further

strengthening.

The Indian government has come to conclude

that India needs to invest 8% of its GDP for

infrastructure development against the current

level of 4.6% if the economy has to sustain a

growth of 9% or more over the next decade.

This translates to an investment of $ 475 bn.

The economy grew by 9.4% in the fiscal

ending March, 2007 second fastest in the

world after China.

A Reuters poll suggests that India's economy

grew by 9.3% in the first quarter of 2007-08

(April-March) against previous estimates of

between 8.9 and 9.1%. The full year forecast

put the growth at under 9% partly on account

of tightening of fiscal expenditure. Fiscal deficit

in the first quarter of the current fiscal at $ 31.5

bn equals 85.7% of the full fiscal target. The

central banks monetarist policy has succeeded

in containing wholesale price inflation at 3.94%

in mid-August 2007, well below the Banks

target of 5% or under. The under 4% level has

been reached for the first time since April 2006.

The Bank has raised key lending rates five

times between June 2006, March 2007.

The level of inflation in India as measured by

the wholesale price index (WPI) fell to its

lowest level since December 14, 2002 to stand

at 3.32% as on September 8, 2007. By end-

fiscal it is expected to stabilize at about 4.5 -

5.0%. The central bank's target is to contain it

at 5.0% or less.

India's current account deficit widened to $

4.70 billion in the first quarter of the current

fiscal (April-June 2007) against the deficit of $

4.57 billion in the same period of last fiscal.

Despite widening of the trade deficit to $ 21.58

billion against $ 16.95 billion in the above

periods, the overall balance of payments

surplus stood at $ 11.2 billion during April-

June 2007 against $ 6.4 billion in the same

period of 2006.

Bangladesh

Export earnings of Bangladesh reached a

record $ 12.18 bn in the fiscal ending June 30,

2007, slightly short of the target of $ 12.50 bn

yet higher by 15.69% over the preceding fiscal.

Of the total $ 9.2 bn came from exports of

woven garments and knitwear. The textile

made-ups have been the main source in the

country's export mix although Bangladesh is a

non-cotton growing country.

The World Bank has forecast that Bangladesh

may achieve the status of a middle income

country by 2016 if it can improve and sustain

a GDP growth of 7% per annum over the next

ten years against the average annual growth of

5.5% attained throughout the 1990s. Against

its current per capita income of $ 520 it shall

have achieved a per capita income level of $

875 over the next decade. The country's per

capita income in 2007 is 75% higher than in

1990.

Bangladesh is to provide over $ 14.8 mn to its

flood-hit farmers mainly in paddy (rice) and

fishing sectors. Over 700,000 farmers in the

paddy sector would get free paddy seedling

and fertilizers to compensate for the loss

suffered to standing crops of over 1.25 mn



acres. Fisheries sector outlay is aimed at

compensating farmers having suffered an

estimated loss of near 33,000 tons of fish and

near 583,000 tons of shrimps.

Overall inflation in Bangladesh was recorded

at 10.10% in July 2007 over July 2006 driven

mainly by a rise of 11.42% in food inflation

and by 8.23% in non-food inflation. Higher

food inflation was largely the result of increase

in international food imported items

necessitated due to flood damage of some

standing crops, mainly rice. The central bank

has set itself a target of containing inflation at

between 6.5% - 7% for the fiscal ending June

2008.

Bangladesh has recorded on overall balance of

payment surplus of $ 1.5 bn in the fiscal ended

June 2007, against the surplus of $ 338 mn in

the previous fiscal. The surplus was mainly on

account of home remittances amounting to $

5.98 bn sent by about 5 mn Bangladesh is

working abroad.

Textile made-ups, particularly garments,

fetched Bangladesh $ 9 bn or three-fourth of

total export earnings in the fiscal ending June,

2007. The industry is however experiencing

crisis as workers' protest over non-enforcement

of the agreed $ 25.0 a month of minimum

wages. Only 20% of the country's 4,000

factories are providing the minimum agreed

wages.

Bangladesh is to seek approval from the

International Atomic Energy Authority (IAEA)

for setting-up a nuclear power plant for

generating 600-1000 MW of electricity. It

would cost over $ 1.0 bn by the time

production starts in 2015. Currently the

country is capable of generating 3000 MWs in

peak which yet falls short of 2000 MWs of total

demand. The World Bank has estimated that

the country needs to invest about $ 10 bn over

the next decade to meet its growing energy

needs.

Iran

Foreign exchange reserves of Iran rose by 30%

over the year to $ 61.4 bn at end-March, 2007,

mainly on account of rises in oil prices. Total

outstanding debt of the country stood at $ 20

bn at end-March, 2007.

Iran and Venezuela have signed a deal under

which the two countries would setup ethanol

plants on a joint venture basis in each other's

country. The proposed plants would each have

a capacity to produce 1.65 mn tons annually.

Each plant would cost between $ 650-700 mn.

Iran and Iraq have signed a deal under which

Iraq would supply Iran 100,000 barrels of

crude a day to be refined in Iran and then be

re-exported to Iraq. There is no upper limit to

the agreement and if successful the quantity of

crude exported, refined and re-exported may

be increased, there being no shortage of Iraqi

crude and Iranian refining capacity. Iraq has

the world's third largest proven reserve of

crude but the industry has been facing

shortages since it was invaded in 2003.

Iran and Turkey are to setup three thermal

plants, based on natural gas, to generate 2,000

MW of electricity. Turkey plans to invest $ 3.5

bn in Iran's gas fields to meet its energy

requirements, beginning from 2008. The two

countries are also actively considering setting

up hydro plants with an eventual capacity of

16,000 MW. The U.S. has expressed

reservations over the deal. It has no diplomatic

relations with Iran and Turkey is a Nato ally.

Sri Lanka

According to the Central Bank of Sri Lanka,

the country's economy is projected to grow by

7.5% this year, the highest growth rate, if

materialized, for the last 29 years. The

economy grew by 7.4% in 2006. Budgetary

deficit would be in the region of 7.5% in 2007

against 8.4% last year. Expatriate income at $



1.9 bn in 2005 and at $ 2.3 bn in 2006 is

projected to rise further in 2007. The

government is considering measures to contain

inflation presently running at a high of 17.0

annual rate.

U.A.E.

Emirates Bank International and National

Bank of Dubai, both of UAE origin have

decided to merge to emerge as the largest

single lending entity in the Gulf region. The

two will have combined market value of $ 11

bn.

Saudi Arabia

According to government data, foreign direct

investment in Saudi Arabia increased to $ 18.3

bn in 2006, a gain of 51% over 2005. The

volume of domestic investment was $ 33.33

bn during the year, a rise of 9% over 2005.

Bilateral trade between Saudi Arabia and India

rose by 28% to $ 3.44 bn in 2006 against $

2.63 bn in 2005. This does not include crude

and products that India imported from the

Kingdom. The state-owned Saudi Arabian

General Investment Authority has issued 100

licenses to Indian investors to set up entities in

the Kingdom either on a joint venture basis or

wholly owned by Indian interests. The

industries issued licenses include, amongst

others, telecommunications, IT, construction,

electronics and home appliances, engineering

goods, jewellery (India is the largest consumer

of gold and silver jewellery in the world) and

others. India is the fifth largest market for Saudi

exports and ninth for imports.

According to Saudi Arabian Monetary Agency,

the Central Bank of the Kingdom, Saudi

Arabia's budgetary surplus for 2006 was

recorded at $ 77.5 bn against forecasts of $

14.7 bn and actual of $ 58.0 bn in 2005. The

unexpected increase was largely on account of

increased oil revenues.

According to the Saudi Arabian Monetary

Agency (SAMA), the central bank of the

country, the Kingdom's economy grew by

4.3% in 2006 with an all-time high budgetary

surplus of $ 77.5 billion.

Japan

The Bank of Japan has left its prime lending

rate unchanged at 0.5%, last revised upwards

by 0.25% in January, 2007.

The Bank of Japan, the central bank of the

country, has left its prime lending rate

unchanged at 0.5% for the sixth month

running.

According to latest estimates, Japan's

economy in the first half of 2007 grew by an

annualized rate of 2.5% against forecasts of

2%.

Hong Kong

Hong-Kong's economy is projected to grow by

5-6% this year against earlier forecasts of 4.5-

5.5% yet lower than the average annual

growth of 7.7% during 2004-2006. The main

vehicle for the upturn in the economy would

be the booming economy of China which is

pushing up the demand for goods and

services.

Indonesia

The Central Bank of Indonesia has cut its

prime lending rate to an all-time low by 0.25%

to 8.25%.

Singapore

According to official projections, Singapore's

external trade sector is expected to reach a

level of US$ 1.6 trillion by 2015 against $ 810

bn in 2006. If projections materialize, its level

would be over US$ 1.9 trillion by 2009. The

basic strategy behind the projection would

focus on free trade agreements and tapping of



presently untapped new markets. It would also

develop the SME sector to its full potential.

Vietnam

Vietnam's economy is targeted to grow by

8.5% in 2007 against realized 8.17% in 2006.

In the first nine months to September 2007,

GDP growth has been recorded at 8.16%

against 7.84% in the same period of 2006.

Russia

Russia has cancelled 90% of the debt of $

11.13 bn amounting to $ 10.0 bn the

government of Afghanistan owed to it, being a

hangover of the USSR era.

Russia has planned to invest $ 1.0 trillion over

the next ten years to modernize its industrial

and infrastructure facilities. The amount is

expected to come through private domestic as

well as foreign investors. The investment

would equal 3.8% of GDP in the next two

years and of 4.5% by 2015.

Gazprom, a state-owned energy entity of

Russia, and Total, a private sector firm of the

U.S., have signed a deal under which the two

will jointly develop the latent gas field in

Shtokman, in off-shore Barrents Sea estimated

to cost $ 15 bn and to start production in

phases from 2013 over the next 25 years. The

area's potential for production is estimated as

great enough to meet the entire world's needs

for a full year at the current level of

consumption. The area is iceberg strewn and

technology involved is the first of its kind in the

energy sector ever undertaken.

Europe

The Bank of England has raised its key lending

rates by 0.25% to 5.75%, the highest level in

the last six years. The European Central Bank

has left its key lending rate unchanged at

4.0%.

Both the Euro and the British pound have

reached record highs against the US$. The

Euro was trading at over $ 1.37 while the £

Sterling hit a 26-year high of near $ 2.03 on

international exchanges as on July 10, 2007.

The weakening of the US$ is attributed to

progressive weakening of the U.S. economy

largely due to rising current account deficits

and unwillingness of the Federal Reserve

Board to raise interest rates.

Joseph Rowntre Foundation, a private

research study group, has concluded that the

gap between the rich and poor in Britain is

now the widest for 40 years, with a growing

number of people living below the poverty

line. While there has been a reduction in the

number of people living in absolute poverty,

the number of people living below the poverty

line has increased with one in four households

classified as "breadline poor" in 2001. On the

other hand, the wealthiest one percent owned

17% of national wealth in 1991 which

ownership increased to 24% in 2002. The

chasm, according to the report, widened most

during the last ten years under the labour

government of Tony Blair.

The progressively enlarged 25-nation

European Union block is estimated to reach a

combined GDP of $ 12.1 trillion against the

U.S. GDP of $ 12.04 trillion, albeit collectively

not singly. With a combined population of 453

million people, the enlarged block's

unemployment level would reach 9% of the

total workforce against the present 15-nation

block average of 8%. At this level it would be

3 percentage points higher than the present

level in the U.S. Inflation would remain

unchanged in the enlarged bloc at 2.0%, lower

than that of the U.S. The above estimates have

been forecast by Eurostat, based on data of

statistical office of the European Communities,

an official arm of the EU.

For the first time in 18 years, Germany, the

largest economy of Europe, posted a

budgetary surplus of $ 1.63 bn in the first half

of 2007.



In its bi-annual forecast the European

Commission estimates Euro zone GDP growth

to be lower at 2.5% in 2007 against 2.7% in

2006. Inflation has been forecast to be at the

targeted level of 2% this year against 2.2.% in

2006.

The European Community's Court of First

Instance, second highest judicial body of the

country, has imposed a fine of $ 690 mn on

the U.S. Microsoft on grounds of unfair trade

practices. The case had come before the

tribunal in 2004.

The traditional Group of Eight (G-8) countries

which started operating after WTO came into

being from January 1, 2005, has been

expanded to 13 by inclusion of China, India,

South Africa, Indonesia and Jamaica.

The European Central Bank has provided $ 70

bn to 159 banks of the EU region in a bid to

avert the financial crisis having surfaced due to

defaults in sub-prime lending particularly

housing loans in the U.S. market. The Federal

Reserve Board has already pumped $ 160 bn

in its banking sector in addition to reducing its

prime lending rate by 0.5% to offset the credit

crunch.

The Bank of International Settlements in a

benchmark survey it conducts every three

years has reported that trading in currency

markets at the global level was recorded at $

3.2 trillion a day in August 2007, a 71% rise

over the average 2004 levels of $ 1.9 trillion a

day. Britain has emerged as the world's largest

foreign exchange trading centre, a position

previously held by the U.S.

Union Bank of Switzerland (UBS), the world's

largest fund manager, may need to write-off $

3.42 billion on account of the global credit

crunch arising out of defaults in housing

related mortgage funds. Citigroup, the largest

U.S. bank by market value, is setting aside $

1.3 billion as bad loans on the same account.

A consortium of European banks led by Royal

Bank of Scotland has finally clinched a deal for

taking-over ABN-AMRO Bank at a cost of $

100 bn. 86% of the equity holders have

already approved the deal. The acquisition of

the Dutch bank is the biggest-ever in Europe's

banking history.

Boeing has forecast that airlines in the Asia-

Pacific region would need 8,350 new airplanes

over the next 20 year at an estimated cost of $

1.02 trillion. Globally, the airline industry

would add 28,600 new aircraft over the same

period.

In the wake of a massive downturn in the U.S.

sub-prime sector of housing particularly

defaults in repayment, the global financial

market is bracing itself with measures to off-set

an emerging "bubble-burst". While the Bank of

England, for example, has taken emergency

measures to bail-out Northern Rock bank,

basically a mortgage lender, analysts have

forecast that such measures cannot be adopted

as an across the board alternative.

U.S.A.

The U.S. has defranchised some leading

developing countries, including India and

Brazil from providing GSP facility on grounds

of their having graduated to a level where such

a facility is no more needed. Exports of such

near duty free countries to the U.S. had

amounted to $ 32.6 bn in 2006. This paves the

way for Pakistani exports to reach a level much

higher than of $ 4.4 bn in 2006 as the country

has not been delisted.

The non-partisan Congressional Research

Service has reported that the U.S. has spent

about $ 610 bn since 09/11/2001 in combating

security threats including war expenditures in

Afghanistan and Iraq. The amount is almost the

equal of that spent in over a ten-year period of

Vietnam war. Presently the country was

pending $ 10 bn a month in its war effort in Iraq

and $ 2 bn a month in the war in Afghanistan.



A non-partisan Congressional Budget Office

has forecast that the U.S. federal deficit in the

fiscal to end-September, 2007, would be in the

range of $ 158 bn, about $ 90 bn less than in

the preceding fiscal. The office has however

expressed its concern that the budgetary

surplus of $ 5.6 trillion that the present

administration of President Bush started with

has been wiped out and the government is

relying on deficit spending to meet its

expenditure obligations.

According to a research report of the Credit

Suisse Bank, the U.S. sub prime mortgage

market has outstanding bad debts of $ 200 bn

on lending of $ 1.0 trillion, near 20% of all

loans provided to the sector.

The Federal Reserve Board of the U.S. has

injected over $ 130 bn in the financial system

since August 9, 2007 in a bid to create liquidity

through credit flows adversely affecting the

sagging mortgage market.

The U.S. and South Korea have signed a free

trade agreement (FTA), the largest single

agreement since the signing of NAFTA (North

American Free Trade Agreement) concluded

with South America in 1993. Tariff cuts of 95%

are envisaged in tradable goods over the next

three years.

According to a forecast of National Association

for Business Economics, an independent

research institution, U.S. GDP growth in 2007

would slow-down to 2% against its earlier

estimates of a growth of 2.2.%. The slow-

down would mainly be on account of the credit

crunch arising out of housing market defaults.

The Association has forecast the growth to be

2.8% in 2008 against earlier estimates of 2.9%

a slow-down once again.

The Federal Reserve Board of the U.S., the

central bank of the country has cut its base

lending rate by 0.5% to 4.75%. The Federal

Open Market Committee also reduced its

discount rate by half of one percent to 5.25%.

The U.S. current account deficit narrowed to $

190.8 bn in the second quarter of 2007 against

$ 197.1 bn in the first quarter. This represents

about 5.7% of the GDP.

U.S. federal budgetary deficit was recorded

lower at $ 274.4 bn during the first eleven

months of the current fiscal (October-

September) an improvement of 9.8% over the

same period of the preceding fiscal.

According to U.S. Labor Department data,

claims for unemployment benefits in the U.S.

rose to 319,000 in mid-September, 2007, the

sixth rise in seven weeks largely, as analyzed,

on account of the steep slump in the country's

sub-prime housing and consumer credit

markets defaults and non-performing loans.

The U.S. trade deficit in the first six months of

2007 was recorded at an annualized rate of $

705.5 bn, sharply lower by 7% against the

deficit of $ 758.5 bn registered in the same

period of 2006. Its trade deficit with China

continues to grow at a pace higher by 15.3%

during January-June 2007 and may surpass

the record $ 233 bn of 2006 by the time the

current year ends.

Some large banks in the U.S. are estimated to

have suffered a loss of $ 18 bn till now as

fallouts emanating from the credit crunch

necessitating write-offs consequent to bad

loans being an outage of defaults in mortgaged

housing loans.

Canada

The Bank of Canada, the central bank of the

country has raised its key lending rate by

0.25% to 4.50% for the first time in a year

largely amidst the possibility of rising

inflationary pressures. Inflation, lately has been

recorded higher against the central bank's

target of 2.0%.

Canada recorded a budgetary surplus of $

13.7 billion in the last fiscal ending March



2007. It is the only country in the G-7 group to

have been posting such surpluses. Others in

the group namely the U.S., Japan, Germany,

Britain, France and Italy have all been

experiencing budgetary deficits over past

several years.

World Bank/I.M.F.

In an unprecented gesture, the World Bank has

decided to reduce interest rates by half of one

percent on $ 3.5 billion of its outstanding loans

to some of the poorest countries of the world.

It also plans to more than double its pledge of

$ 1.5 billion to be provided through its soft IDA

arm. The measures would benefit 79 credit-

worthy low and middle income developing

countries.

The IMF Managing Director has opined that

even if melt-down effects as a result of sub-

prime lending fiasco in the U.S. does not fully

materialize it still threatens global financial

stability unless corrective steps are put in place

in time.

In its World Economic Outlook, the IMF has

forecast global growth for 2007 and 2008 at

5.2% against earlier estimates for the two years

each of 4.9%. The main vehicles of growth

would be China, India and Russia, rather than

previous traditional U.S.

COMPLIED BY:Mr. Aamir Ishaq

ASSISTANT DIRECTORI.B.P.




PROF. SYED SABIR ALI JAFFERYMember, Boards of StudiesKASBIT and HIMSKarachi

QUESTION # 1

A and B are joint accountholders availing

running finance facility against the security of US

dollars balance in A’s foreign currency account.

Are the joint accountholders entitled to

concessional mark-up rate, which is normally 2%

above the rate of profit allowed on deposits held as

security?

Muhammad Shams-ul Haq Khan

ANSWER:

Banks extend the facility of granting advance

against one’s own deposit at concessional mark-up

rate on the consideration that the borrower utilizes

his own money. Further, by offering this incentive,

banks also manage to retain the deposit, which

otherwise the borrower would withdraw. However,

there is nothing mandatory in this regard, and

banks are not obliged to follow this practice

invariably.

Further, in the given case, the advance is in the

joint account while deposit is in the name of one of

the joint accountholders. Thus, the two i.e.,

advance and deposit, are not in the same title, and

do not, therefore, merit the concessional rate of

mark-up. Moreover, in case joint accountholders

are severally liable towards the liabilities of the

joint account, which is the most common situation,

the bank has recourse to the deposit held in the

name of one of the joint accountholders should the

advance granted in the joint account turn bad. Any

such concession in this situation shall be uncalled

for.

Yet another fact to be considered here is that

the deposit and advance are in two different

currencies, which are not at par in value. Hence,

any reduction in the rate payable on dollar deposit

cannot be applied to the rate chargeable to the

outstanding rupee balance.

QUESTION # 2

Is it compulsory to get NTN certificate from

sole proprietary firms while opening their

accounts?

Muhammad Faisal Nauman

ANSWER:

Prudential Regulations for Corporate and

Commercial Banking-2004 have provided the

requisite information under Regulation # M-1.

Paragraph 3 of this Regulation, inter alia, reads

“….minimum set of documents given at

Annexure-VIII must be obtained from various

types of customers / accountholder(s).”

The said Annexure has not distinctly dealt with

the accounts of sole proprietary concerns.

However, the requirements of opening accounts of

partnership firms and joint stock companies listed

in the Annexure do not include NTN Certificate.

Hence, it can be safely inferred that this certificate

is not a prerequisite for opening the account of any

trading organization.

Nonetheless, by and large, banks resort to the

later part of paragraph 1 of Regulation M-1, which

reads: “However, banks / DFIs are free to obtain

any further information / documents from

customers / other banks / DFIs as they deem fit,

provided the same are reasonable and applied

across the board.” In view of this, it is left to the

individual bank’s own wisdom to ask for any

document if it is ‘reasonable’, i.e. if the situation

warrants.

QUESTION # 3

If there is any outstanding mark-up or principal

amount due on trade bills that has touched the

ninety days barrier but is still below the 180 days


Questions and Answers on Practice and Law of Banking

benchmark, does it need to be reported to CIB? If

yes, what will be its classification status, regular or

substandard?

Zeryab Khawaja

ANSWER:

No, unless the OAEM in question are overdue

by 180 days or more from the due date, when they

are classified ‘substandard’.

QUESTION # 4

What from the bank’s point of view is the

significance of joint and several liability of joint

accountholders? Whether, in case of death of one

of the joint accountholders, the ownership of the

joint account with instructions ‘payable to either or

survivor’ devolves on the survivor?

Ahmad Din Qaisrani

ANSWER:

If the liability of joint accountholders is ‘joint’,

creditor, i.e. the lending banker, can take only one

action. Conversely, if the liability of joint

accountholders is ‘several’, there are as many

rights of actions available to the creditor as there

are the debtors, i.e. the joint accountholders. If the

claim against one of the debtors does not succeed,

the bank may proceed against the others until the

debt is paid.

If the liability of each accountholder was joint,

his death would release him and his estate from

liability to the bank which would thus lose the

advantage of holding more than one customers

liable for a single debt. With several liability, death

does not terminate the bank’s claim against the

estate of the deceased.

Right of Set-off: The right of set-off against all

the joint accountholders also remains available to

the bank in case of several liability.

Safe Custody Items: Items deposited with the

bank for safe custody in joint account, in the

absence of specific mandate as to the withdrawal

of securities, shall not be handed over to the

survivor in the event of the death of one of the

joint accountholders. Instead, these shall be

delivered as per the directive of the official

assignee.

Either or survivor: If the deposit has been

specified as “payable to either or survivor”, the

banker is supposed to abide by these express terms

of payment, and would be held liable for acting in

disregard of these instructions. (McEvoy v. Belfast

Banking Co. Ltd. 1935)

Death of a Joint Accountholder:

Principle of Survivorship

Survivorship is the principle that, on the death

of a joint owner of property, legal ownership is

devolved on one or more surviving joint owners.

However, exceptionally it may happen that

customer brings in a second accountholder for his

convenience. For example, a husband might

transfer his account into the joint names of himself

and his wife so that she could draw cheques for

household expenses on what is, in reality, his

account. In that case, on the husband’s death, the

balance passes to his estate and not to the wife

(survivor) since the customer’s presumed intention

prevails over the general principle of survivorship.

(Marshall v. Crutwell 1875) However, in the

absence of clear indications of that kind, the

intention will not be presumed. In Re Bishop 1965

the balance was passed on to the wife as survivor

although it represented income of the husband

alone.




Legal Decisions AffectingBankers 1. Whether a claim arising after an agency

was terminated would be an ordinaryclaim, or a trust, or preferential claim?

2. Liquidation of the Collecting Banker.

PROF. SYED SABIR A. JAFFERYMember, Boards of StudiesKASBIT and HIMSKarachi

1. Claim after termination of agency.

Madhya Pradesh State Co-operative Bank Ltd. v.P. D. Dalal, Official LiquidatorAIR 1967 Bombay 279

Facts of the case: The Madhya Pradesh

State Co-operative Bank Ltd., hereinafter referred

to as "Co-operative Bank", sent certain bills for

collection to three different branches of Laxmi

Bank with instructions to remit their proceeds by

demand drafts drawn on Bombay and Betul

branches of the Laxmi Bank, and mail these drafts

to the Co-operative Bank's pay office at Harda

and branch at Betulganj.

All the three branches of the Laxmi Bank duly

collected the bills and remitted the proceeds as

instructed. However, in the mean time, the Laxmi

Bank went into liquidation under orders of the

court. Consequently, the Co-operative Bank could

not get the proceeds of the drafts.

The Co-operative Bank lodged its claim with

the Official Liquidator for the recovery of the

proceeds of the demand drafts in question as a

preferential claim. The claim was admitted.

However, it was contended that it would rank as

an ordinary claim and not as a preferential claim.

Thus aggrieved, the Co-operative Bank preferred

an appeal before the Bombay High Court.

The learned judge on the bench observed that

when the appellant sent the bills for collection to

the Laxmi Bank, the later became agent for

collection of the former. After the process of

collection was completed, the nature of

relationship between the two would be determined

on the basis of the prevalent circumstances. If there

were any instructions from the appellant as to the

disposal of the amount collected, it were those

instructions which would determine the nature of

relationship. If there were no such instructions, the

relationship would rest on other circumstances,

such as, whether the appellant was a regular

customer of the respondent bank, having an

account with that bank, etc.

In the wake of the specific instructions being

existent in this case, the respondent bank was

constituted an agent of the appellant bank for

collecting the amount of the bills and for remitting

the proceeds by demand drafts. This relationship

would subsist so long as the work of the agency

continued, i.e. till the amounts of the bills were

collected and remitted as per instructions. As soon

as this job was completed, the principal-agent

relationship would come to an end.

Since the respondent had sent the demand

drafts, it no more enjoyed the status of an agent.

Hence, the only relationship between the two

would be that of debtor and creditor, thereby

reducing the obligation of the respondent to

making payment of the demand drafts to the

appellant.

The Honourable Court further observed that

so long as the agency subsisted, the agent held the

fiduciary position of a trustee. This position ended

with the termination of the agency. If the claim had

arisen before the termination of the agency, it

would have been in the nature of a trust claim

payable preferentially. Here, since the claim arose

after the agency had ended, it would arise out of

the relationship of debtor and creditor. Thus, it

would merely be an ordinary claim, neither a trust

nor a preferential claim.

The appeal of the Co-operative Bank was,

therefore, dismissed.


2. Liability of the collecting bank

The Punjab National Bank Ltd., Gondia,Appellant (Defendant) v. Ishwarbhai Lalbhai Patel & Co.,Respondent (Plaintiff)AIR 11971 Bombay 348

Facts of the case: Ishwarbhai Lalbhai Patel

& Co. deposited with Punjab National Bank,

Gondia, a cheque drawn in its favour on the

Laxmi Bank, Bhandara, for collection and

crediting the proceeds on realization to its account.

Since the Punjab National Bank did not have a

branch of its own at Bhandara, it sent the cheque

to Laxmi Bank, Gondia, for collection. The later,

as per normal practice, sent the cheque to its

Bhandara branch. The cheque was duly paid.

The Laxmi Bank, Gondia, issued a payment

order for the proceeds of the cheque and sent it to

the Punjab National Bank with instruction to

receive the amount in cash on presenting the

payment order at the counter of the Laxmi Bank.

The payment order was presented as desired but

its payment was not made. The payment order

was presented again the next day but the payment

was still not made as by then the Laxmi Bank,

going into liquidation, had suspended payments.

The company (plaintiff) filed a suit against

Punjab National Bank, Gondia, (defendant) on the

plea that the cheque having been deposited with

the defendant, its proceeds should have been

credited into its (plaintiff's) account, as the

defendant had become the holder of the cheque

and was solely responsible to collect the cheque

from the Laxmi Bank.

The trial court dismissed the suit on the

ground that the defendant was merely an agent for

collection, and was not liable to pass on the credit

to the plaintiff's account unless proceeds of

cheques were actually received by it.

On appeal, the District Judge set aside the

decree of the trial court. It was held that:

the defendant had become agent of the

plaintiff for collection;

because of principal-agent relationship, the

liability of the defendant towards the plaintiff

would arise when the defendant collected the

amount;

the defendant had received the payment order

from the Laxmi Bank, Gondia, which meant

that the Laxmi Bank, Gondia, had received the

amount;

the defendant had no implied or express

authority to nominate a person to act for the

plaintiff and, therefore, the appointment of

Laxmi Bank, Gondia, was its own decision;

the Laxmi Bank, Godia, became the sub-agent

of the defendant; and

there was no privity of contract between the

plaintiff and Laxmi Bank, Gondia

Thus, the defendant alone was liable to the

plaintiff.

Being aggrieved, the defendant preferred an

appeal before the Bombay High Court.

In this appeal, two questions arose for

consideration. One, whether an agent appointed

by the collecting bank for collection of a cheque

from a place where it had no branch was a sub-

agent or a substitute agent. Two, whether two

branches of the same bank were two distinct and

separate entities or they constituted only one

entity.

The Indian Contract Act makes distinction

between an "ordinary sub-agent" and a person

who is put in relation with the principal and called

the "substituted agent" or "agent of the principal".

The important difference between the two is that in

the case of the substitute there is privity of contract

between him and the principal so that the principal

can sue the substitute for accounts or damages and

the substitute can sue the principal for

remuneration. The original agent who appointed

or named such agent altogether drops out of the

transaction.

The High Court observed that the nature of the

business of the defendant, namely, agency to



collect the amount on behalf of a constituent was

such that the defendant had to appoint another

person for the purpose of realization, and since the

Bhandara branch was part and parcel of he main

bank, that is, Laxmi Bank, and the collection of the

amount would have been facilitated by appointing

the Gondia branch of that bank as agent, the

defendant had an implied authority to appoint the

said branch as agent, and the said branch would

be a substitute agent, and not a sub-agent. The

acts of the Laxmi Bank, Gondia, as substitute,

would be binding on the plaintiff, and the

defendant would not be responsible to the plaintiff

unless it had received the amount in its hands and

credited the same to the account of the plaintiff.

The High Court further declared that the mere

issuance of the payment order would not amount

to payment to the person entitled under the

payment order. Therefore, the amount remained

with the Laxmi Bank, Gondia, who was under a

duty to pay the amount to the holder of the

payment order, viz. the defendant for the plaintiff,

and if the Laxmi Bank did not pay, it would be the

Laxmi Bank which would be liable to pay the

amount to the plaintiff, as it was constituted a

substitute agent of the plaintiff in this transaction.

Dealing with the second question, the High

Court, after considering decided cases, observed

that while it was true that both the branches had

their own constituents, they could not be said to be

independent of the main bank, as all the funds and

the transactions must be taken to be those of the

Laxmi Bank itself and not of the individual

branches. The High Court felt that the Laxmi Bank

was the main business concern which could sue

and be sued and was responsible for all the acts

done by its branches, which had no separate and

independent entity.

Resultantly, the appeal was allowed with costs.




From the Chief Examiner'sDesk

IBP Superior Qualification (ISQ) examination

Summer-2007 was conducted in May 2007 and its

result was released in end June. There are no

surprises as the overall pass percentage remained

in the vicinity of 14% to 15% with some gross

variations, both upward and downward in the

subjects of Accounting for Financial Services,

Macro Economics and Financial System of

Pakistan, International Trade Finance & Forex

Operations, Retail and Consumer Banking and

Corporate & Banking Law.

As the aspirants of Junior Associateship are

gearing up for the Winter examination, we

deemed it appropriate to share some of the

concerns and comments of our worthy examiners

with the hope that the examinees may take these

advices seriously and improve their efforts. There

is no short cut to passing IBP examination and

specially after the introduction of “Question Paper

cum Answer Book” format forcing precise and to

the point answer. The hidden agenda is to force

the examinees to “think before ink” so that they

can produce quality answers for the questions

asked. Some of the points raised by the examiners

are reproduced below with the hope that they

operate as an eye opener and thus bring the

desired improvements.

Decidedly, knowledge is the master key to

success. It has no substitute. But, manifestation of

knowledge is, if not more, equally important. The

examiner assesses what an examinee writes, not

what he knows. It, therefore, follows that the

candidates aspiring for a pass, in addition to

studying the subject in depth, ought to also know

how to express the knowledge in answer books.

Thus how to write becomes integral component of

what to write.

How to take a start?

Instructions printed on the question-cum-

answer books have to be read carefully.

Unfortunately, most of the candidates don't even

care to cast an eye on them and eventually they

lose valuable marks. Candidates are advised to

read such instructions and act accordingly.

Lack of knowledge and preparation

Lack of knowledge is the crux of the problem.

Lengthy and irrelevant answers reflect knowledge

deficiency. In the narrative subjects, common

sense harnessed with the articulation is employed

to camouflage this deficiency. However, this

method fails where specific knowledge is needed.

It was observed that a good number of the

examinees did not have basic knowledge of the

subject; their approach was devoid of

professionalism and reflected inadequate

preparation for the examination.

Poor expression and illegible writing

Considering that all students are professionals

there is a need to improve language and writing

skills. Most of the candidates do not pay any

attention to their handwriting. Candidates must

realize that bad handwriting makes it difficult for

the examiners to read their answers and incorrect

language also makes it difficult for the examiners to

understand what the candidate actually conveys.

Unless the examiner is able to read and

understand the answer the candidates cannot get

the marks they deserve.

Regular updation

It appeared that most of the candidates were

not updated on the current developments and

figures. The examinees should consult all

knowledge sources including websites of SBP

(www.sbp.org.pk) and IBP (www.ibp.org.pk),

business & economic pages of newspapers and

journals.

Subject-wise, Quation-wise, Comments

Specific comments on five examination papers are

as under:


Accounting for Financial Services

Q1. The performance of the examinees in vast

majority of cases was satisfactory. A number

of examinees, however, passed journal

entries instead of pointing out increase and

decrease in the assets and liabilities effected

by various transactions.

Q2. Answers against parts (i), (ii) & (iii) were

generally correct, but against parts (v), (vi),

(viii) & (ix) they were wrong except in very

few cases. Answers to be given against parts

(iv), (vii), and (x) were of theoretical nature.

Most of the examinees appeared to be

acquainted with the answers but their

expressions were generally clumsy, full of

spelling, grammar and composition

mistakes.

Q3. This question was of routine & simple

nature. In view of this fact the examinees

were expected to give an excellent

performance. But instead, it was noted that

almost all examinees committed blunders so

much so that they made entries of the

Income, Expense, Assets & Liabilities on the

wrong sides. A large number of examinees

also ignored the instructions given in the

question paper to prepare the Profit and

Loss Account & the Balance Sheet as near

as to the prescribed SBP format as possible.

Q4. Answers were generally correct in almost all

cases except figures worked out against

“Plant & Equipment (Cost)” and

“Accumulated Depreciation” which were

wrong in a large number of cases.

Q5. Answers against parts (i) (ii) were generally

correct. But against other parts, they were

generally incorrect except in a few cases.

Q6. Answers were generally correct but a

considerable number of the examinees

arrived at wrong calculations.

Q7. Answers against parts (i) & (ii) were

generally correct in vast majority of cases but

in other parts they were inaccurate.

Q8. Performance of the examinees against (a)

(d) & (e) were generally good, but against

parts (b) (c) they committed mistakes in

most of the cases.

Q9. Answers in majority of cases were correct,

but some examinees committed mistakes

and as such they could not arrive at the

correct answer.

Q10. Performance of the examinees against this

question in almost all cases was quite

disappointing.

Macro Economics & Financial System of

Pakistan

Q 1. The examinees performed unsatisfactorily in

this multiple-choice question consisting

thirty statements covering all the topics in

the course. Candidates with adequate

preparation based on entire syllabus were

able to score well.

Q2. a) The candidates could not calculate

simple ratios such as APC, MPC or

Multiplier. In parts (b) and (c), they could not

work out the changes in equilibrium GDP

brought about by increase in Government

expenditures or reduction in taxes, through

the operations.

b) In Part (b), a passage taken from an economic

report was given and the examinees were

asked to explain some of the macro

economic relationships, their impact on

macro stability and policy implications of

related measures. However, the

performance was dismally poor, as the

candidates could not demonstrate correct

understanding of the concepts such as

saving investment gap and ways and means

to fill-in the gap in long-run and short-run.

Q3. In the above question, a dialogue between

two executives of a leading export house

July - September 2007 Issue94


about slower growth in textile exports and

lack of global competitiveness was given.

The candidates were required to suggest

measures to improve competitiveness and

highlight causes of slower growth in textile

exports. The performance of the candidates

was excellent. Majority of the candidates

demonstrated reasonably good

understanding of the related issues.

Q4. It was a straight forward question requiring

the examinees to highlight weaknesses

marring the performance of pre-reform

financial sector in Pakistan. The answers

depicted a better preparation level and clear

understanding of related issues.

Q5. In part (a) of this question the examinees

were asked to define inflation / core-inflation

and identify some causes of inflation in

Pakistan. Though very few could correctly

explain the concept of core inflation,

majority did well in defining inflation and its

causes in Pakistan.

Q6. Part (a) and (b) were simple questions

having theoretical bias. However, the

candidates could not explain the basic

identity lining the goods market with

financial market i.e. S-I=X-M. Similarly in

part (b) majority only gave the definition of

MPS without explaining that an increase in

MPS will result in excess supply of goods

and services in short run leading to a decline

in price level which would increase real

money balances and lower the interest rate.

They also could not explain how lower MPC

would affect equilibrium level of real output

in long-run.

Q7. The examinees were expected to comment

on the option for Government to finance its

programs through debt financing if economy

has no real growth. The majority resorted to

argument that debt financing is the best

option under such circumstances. They

failed to appreciate that in case this policy is

pursued by Government, the debt may

accumulate to an unsustainable level

requiring drastic fiscal policy actions at a

later stage to resolve the problem.

Q8. The candidates in general displayed fairly

good understanding in respect of the

positive impact of stable exchange rate,

financial liberalization and reduction in

macroeconomic imbalance on Direct

Foreign Investment. Majority opined that the

trend may continue in future but their

answer lacked analytical approach and

proper reasoning for their opinion.

International Trade Finance & Forex

Operations

Q1. It was objective in nature designed to test

student's knowledge of the most common

terms used in the international trade and

also the relevant knowledge of the Exchange

Control Regulations. The response was not

encouraging since only a few could furnish

the correct answers. This question and the

following two questions were important for

improved grading on the subject.

Q2. was related to UCP 500. Although such

questions are repeated with varying style in

the past examinations, but students mostly

failed to give correct answer to the queries

made therein, indicating very poor

knowledge of UCP.

Q3. It covered various issues relating to

international trade. Since it was objective in

nature as well, students scored fairly well.

Q4. It required knowledge about the methods of

import in the Pakistani scenario. The replies

were not impressive since very few were able

to give appropriate explanation of the

admissible methods of import.

Q5. The Qustion pertains to the Export

Refinance Scheme. Not a single student

could identify the operational mechanism of

this scheme in total. Mostly a small part of

the scheme was covered by the examinees



in their answer sheets.

Q6. It was designed to test the candidates’

knowledge of foreign exchange transactions

in everyday life. It is encouraging that most

students tried to solve it according to their

respective level of intelligence. However, the

level of success was low.

Q7. The question has been repeated in the IBP

examination on a regular basis with brief

intervals. It is still disappointing that only a

few could solve it correctly in full.

Q8. It required explanation of important terms.

Most of the students attempted it with good

scoring result.

Retail & Consumer Banking Operations

Q1. This question aimed at evaluation of

examinees understanding of some important

issues related with the banker-customer

relationship, operations in deposit accounts,

hire purchase, consumer financing and

housing finance.

The answers were quite satisfactory.

Q2. This question related with the SBP's

instructions about clean loans and securities.

The answers did not reflect clear

understanding. However the examinees did

use their common sense.

Q3.a) Though all the banks are using Verisystem

of NADRA, yet some of the examinees were

unaware of it. The answer was not

satisfactory.

b) The answers to this part of the question

about illiterate persons account were quite

satisfactory.

c) The answers reflected that the examinees

were confused about articles and

memorandum of association and bylaws of

societies and association.

Q4. The answers reflected that the examinees

were familiar with the procedure and

precautions in issuing / delivering a new

cheque book to customers.

Q5. This question was related with account

opening. The answers about the individuals

account were quite good but there seemed

some confusion about the documentation of

partnerships and joint stock companies.

Q6. The answers to this question about the

importance of articles and memorandum of

association were quite satisfactory.

Q7. The qustion was about trust account, the

answers to this question about trust account

were very sketchy and did not reflect

required awareness about the issues raised

in the question.

Q8. This question pertained to Prudential

Regulations. The answers were

satisfactory.

Q9. The question contained a problem about

deceased account in banks. The answer

needed to be more professional.

Q10. This question was about hire purchase of

1300cc car. The answer was quite

satisfactory.

Q11.a) The question contained a problem about

remittance. While some of the answers were

quite good others answered just casually.

b) The answers did not reflect understanding

of charge card and debit card though the

examinees seemed quite clear about the

Prudential Regulations related with them.

Q12. The answers reflected awareness about

maintaining secrecy of customers account

but they were not clear about the meaning

of “Compulsion of Laws”.

July - September 2007 Issue96


Corporate & Banking Law (AIBP)

Q1. Candidates were expected to discuss the

requirements of secrecy and the provisions

of law and exceptions provided in the law.

This question concerned provisions of

Partnership Act which provides that a

partner has no implied authority from other

partners to mortgage the partnership assets

and there must be written authority in favour

of the partner from other partners to enable

him to mortgage firm's assets.

Q2. It pertained to the reschedule of stuck-up

loans and precautions which a bank must

take when rescheduling it. The answers were

generally unsatisfactory.

Q3. None of the candidates appeared to know

that it is the right of L/c opening bank to

waive or not to waive the discrepancies and

acceptance of discrepant documents,

specially when the L/c is a D/A L/c and the

opener does not make immediate payment,

is not binding on the Bank.

Q4. Under the Contract Act, a debtor has the first

right to specify the manner in which the

creditor is to appropriate the payment made

by the debtor to the creditor but if the

creditor fails to do so, the creditor has the

right to make the appropriation within the

parameters laid down in the law.

Q5. The question was generally well dealt with

by the candidates.

Q6. This question required the candidates to

prepare a note for the Directors highlighting

the mandatory requirements and

candidate's comments / suggestions for

implementation. Candidates generally

answered the question well although the

answers left out many of the important

aspects of the SBP circular.





LAHORE

ChairmanMr. Barbruce IshaqChief ManagerState Bank of PakistanPh: 9210452, 9210479Fax: 9210440, 9210471

Mr. Masood AzizOfficer InchargePh: 9210479 Fax: 9210471E-mail: [email protected]

RAWALPINDI

ChairmanMr. Taslim KaziChief MangerState Bank of Pakistan (BSC-Bank)Ph: 9270751, 9272529Fax: 9272529

Mr. Shahid Hamid QureshiOfficer InchargePh: 9272529Fax: 9272529E-mail: [email protected]

ISLAMABAD

ChairmanMr. Shabbir Ahmad AwanChief MangerState Bank of Pakistan (BSC-Bank)Ph: 051-9201715Fax: 051-9204991

Mr. Irfan Ahmed KhanOfficer InchargePh: 051-9204611E-mail: [email protected]

PESHAWAR

ChairmanMr. Muhammad Humayun KhanChief ManagerState Bank of Pakistan (BSC-Bank)Ph: 9211975, 9211986Fax: 9211963

Mr. Kamran Ahmed KhanOfficer InchargePh: (091) 9213616 Fax: (091) 9213616E-mail: [email protected]

FAISALABAD

Chairman

Mr. Mahmood-ul-HasanChief ManagerState Bank of Pakistan (BSC-Bank)Ph: (041) 9200444, 9200421-30 Ext.234Fax: (041) 9200412

Honorary Secretary

Mr. Hussain KhanAsstt. Chief ManagerState Bank of Pakistan (BSC-Bank)Ph: 041-9200421-29, 041-9200881Fax: 041-9200412E-mail: [email protected]

MULTAN

ChairmanMr. Khadim HussainChief ManagerState Bank of Pakistan (BSC-Bank)Ph: 9201088Fax: 9200591Honorary SecretaryMr. Hafiz Imran Ahmad AbdullahState Bank of Pakistan (BSC-Bank)Ph: 9200581 - 90, 9200592, 9200595Fax: 9200591

SUKKUR

ChairmanMr. Ghulam Muhammad PhulChief ManagerState Bank of Pakistan (BSC-Bank)Ph: 071-9310260-61Fax: 071-9310259 Honorary SecretaryMr. Saifullah SalimAssistant Chief ManagerState Bank of Pakistan (BSC-Bank)Ph: 071-9310261Fax: 071-9310259

HYDERABAD

ChairmanMr. Syed Mohsin Raza JafriChief ManagerState Bank of Pakistan (BSC-Bank)Ph: 022-3200605Fax: 022-9200604 Honorary SecretaryMr. Abrar HussainAssistant DirectorState Bank of Pakistan (BSC-Bank)Ph: 9200605, 9200606, 9200501-6Fax: 9200604

QUETTA

ChairmanMr. Sajid Ali ShahChief ManagerState Bank of Pakistan (BSC-Bank)Ph: 081-920286, 9202029, 2822164Fax: 081-9201518, 2822164Honorary SecretaryMr. Waheed Ahmed KhanCurrency OfficerState Bank of Pakistan (BSC-Bank)Ph: 081-2822164 Fax: 081-2822164

MUZAFFARABAD

ChairmanMr. A.D. ButtChief ManagerState Bank of Pakistan (BSC-Bank)Ph: 058810-32004Fax: 058810-32003E-mail: [email protected] SecretaryMr. Muhammad Salim KhanAssistant Chief ManagerState Bank of Pakistan (BSC-Bank)Ph: 058810-32004

Local Centres of the Institute of Bankers Pakistan



SIALKOT

ChairmanMr. Saeed HasanChief ManagerState Bank of Pakistan (BSC-Bank)Ph: 0432-9250351, 9250355Fax: 0432-9250353

Honorary SecretaryMr. Muhammad BootaAssistant DirectorState Bank of Pakistan (BSC-Bank)Ph: 0432-9250351-9250355

BAHAWALPURChief CoordinatorMr. Muhammad Hashim MirjatChief ManagerState Bank of Pakistan SBP BSC (Bank)Ph: (062) 9255038 Fax: (062) 9255037Coordinating OfficerMr. Javaid IqbalState Bank of Pakistan (BSC-Bank)Ph: (062) 9255038 Fax: (062) 9255037

GUJRANWALAChief CoordinatorMr. Muhammad Munir AhmedChief ManagerState Bank of Pakistan SBP BSC (Bank)Ph: (055) 9200310 Fax: (055)9200309Coordinating OfficerMr. Muhammad Sharif KhanState Bank of Pakistan (SBP-BSC Bank)Ph: (055) 9200310 Fax: (055) 9200309

D.I. KHANChief CoordinatorMr. Muhammad Rauf KhanChief ManagerState Bank of Pakistan SBP BSC (Bank)Ph: (0966) 9280043 Fax: (0966) 9280044Coordinating OfficerMr. Mohammad IshaqState Bank of Pakistan SBP BSC (Bank)Ph: (0966) 9280043 Fax: (0966) 9280044

KARACHI (NAZIMABAD BRANCH) Chief CoordinatorMr. Muhammad Yamin KhanChief ManagerState Bank of Pakistan (BSC-Bank)Ph: 9260702 Fax: 9260712Coordinating OfficerMr. Syed Mahboob HassanState Bank of Pakistan (BSC-Bank)Ph: 9260705-9 Fax: 9260712

LARKANAChief Co-ordinatorMr. Muhammad Hassan KhaskheliSVP/Regional Business ChiefNational Bank of Pakistan, Regional Headquarters, Ph: (074) 9410867, 9410823 Fax: (074) 9410868Coordinating OfficerDr. Jalil Ahmed TariqVice PresidentNational Bank of Pakistan, Regional Headquarters, Ph: (074) 9410867, 9410823 Fax: (074) 9410868

MIRPUR (A.K.)Chief Co-ordinatorMr. Malik Muhammad Essa KhanRegional Operation ChiefNational Bank of PakistanRegional Office, Bank SquarePh: (058610) 42547 Fax: (058610) 46007E-mail:

Coordinating OfficerMr. Qurab HussainRegional HR ChiefNational Bank of PakistanRegional Office, Bank SquarePh: (058610) 42547 Fax: (058610) 46007

RAHIM YAR KHANChief CoordinatorMr. Nasir Masood MalikManager National Bank of PakistanMain Branch, Model Town,Ph: (068) 9230184-86 Fax: (068) 9230187

GUJRATChief CoordinatorMr. Zaheer AhmedRegional Operation ChiefNational Bank of PakistanPh: (053) 9260150-2 & 92060153-4 Fax: (053) 9260151

ABBOTTABAD

Chief Co-ordinatorMr. Manzoor Elahi LughmaniRegional Operations ChiefNational Bank of PakistanRegional Office, Circular Road,Ph: (0992) 9310144 Fax: (0992) 9310318

SAHIWALChief Co-ordinatorMr. Khalid Jameel Siddiqui National Bank of PakistanRegional Office, Ph: (044) 65216 Fax: (044) 65217

GILGITChief Co-ordinatorMr. Shahid Pervaiz DarRegional Operation ChiefNational Bank of PakistanRegional Head Quarter, (North Avenue)Ph: (05811) - 52565, 50385 Fax: (05811) - 52655

MARDAN

Chief Co-ordinatorMr. Tabraiz Hassan ButtRegional Operations ChiefNational Bank of PakistanRegional Office, Bank Road,Ph: (0937) 9230328 Fax: (0937) 9230057

NAWABSHAH

Chief CoordinatorMr. Haji Anwar BalochManager National Bank of PakistanMain Branch, Main Bazar,Ph: (0244) 9370401 - 2 Fax: (0244) 9370403

MINGORA (SWAT)

Chief CoordinatorMr. Tanvir HussainManager National Bank of PakistanMain Branch, Bank Square, Ph: (0946) 9240035-37 Fax: (0946) 9240036

KHUZDAR

Chief Co-ordinatorDr. Habib AliOperation Manager National Bank of PakistanMain Branch,Ph: (0848) 412518 Fax: (0848) 412811

Coordinating Offices of the Institute of Bankers Pakistan

USAMr. M. Rafiq Bengali,SEVP & Regional Chief Executive,National Bank of Pakistan,Regional Office, New York,100 Wall Street,P.O. Box 500,New York, N.Y. 10005,Fax # 1-212-3448826

CANADAMr. Rasool Ahmed Kaleemi,SEVP/Chief Representative,National Bank of Pakistan,Representative Office, Toronto (Canada),175 Commerce Valley Drive West,Suite 210, Thornhill, Ontario L3T 7P6,Fax # 1-9057071040

UNITED KINGDOMMr. Abid H. Mufti,Chief Executive Officer,United National Bank,2 Brook Street,London W1S 1BQ,Fax # 44-207-2904950

FRANCEMr. Nausherwan Adil,Regional Chief Executive,National Bank of Pakistan,Regional Office, Paris (France) 90, Avenue Des Champs Elysees 75008, ParisFax # 33-145636604

GERMANYMr. Amjad Hamid,General Manager,National Bank of Pakistan,Holzgraben 31,Fillale Frankfurt/Framlfirt Nramcj,60313 Frankfurt am Main,P.O. Box 101643 Germany,Tel # 49-69-975712Fax # 49-69-748151

BELGIUMMr. Asad Ansari,EVP & General Manager,Habib Bank Limited,19, RUE-DE-LOI 1040,Brussels,Granite House,Fax # 322-2804651

JAPANMr. Chaudhry Muhammad Rafique,EVP/General Manager,National Bank of Pakistan,CJ Bldg, 3rd Floor,Nishi Shimbashi 2-7-4,Minato-ku,Tokyo 105-0003,Tel # 81-3-3502-0331Fax # 81-3-3502-0359

AFGHANISTAN.Mr. Syed Mahmood-ul-Hassan,General Manager,National Bank of Pakistan, Kabul Branch, House No. 2, St. No. 10,Wazir Akbar Khan, Kabul, AFGHANISTAN.Fax # 93-20-2301659

BANGLADESHMr. Q.S.M. Jehanzeb,General Manager,National Bank of Pakistan,Dhaka Branch,79, Motijheel Commercial Area,Dhaka-1000,Tel # 880-2-9560248-9Fax # 880-2-9560247

NEPALMr. M. Fahim Butt,SVP & General Manager,Himalayan Bank Limited,Karamcharia Sanncharya,Kosh Building, Tridevi Marg, Thamel, GPO Box 20590 KTM,Kathmandu, NEPAL.

EGYPTMr. Mujahid Abbas Khan,General Manager,National Bank of Pakistan, Cairo Branch74, Gameat Al-Dawal, Al-Arabia Street, 3rd Floor, Mohandessen, Giza,

MAURITIUSMr. Abdul Razzak Kapadia,Senior Vice President & Country Manager,Habib Bank Limited,Sir William Newton Street, P.O. Box 505, Port Louis,MAURITIUS.Tel: (230) 208 0848

(230) 208 5524Fax: (230) 212 3829

KENYAMr. Hamid Mukarrum Baig EVP & Regional General Manager,Habib Bank Limited,Exchange Building,Koinange Street,P.O. Box 43157-00100, NairobiTel # 020-246613/41Fax # 020-214636

KAZAKHISTANMr. Syed Azhar Ali,General Manager,National Bank of Pakistan,Subsidiary Almaty, Hotel Complex "OTRAR", 73 Gogal Street, AlmatyKAZAKHSTAN.

HONG KONGMr. Asif Hassan,SEVP/Regional Chief Executive,National Bank of Pakistan,Regional Office Hong Kong,Unit 1801-1805, 18th Floor,ING TOWER, 308-320,DES VOEUX Road Central,Hong KongTel # 852-2851-4292Fax # 852-2139-0298

SINGAPOREMr. Ashraf M. Wathra,EVP & Regional General Manager,Asia Pacific Region,Habib Bank Limited,No. 3, Phillip Street # 01-04,Commercial Point,SingaporeFax # 65-64380644

U.A.E.Mr. Wajahat Husain,Head of Middle East,United Bank Limited,Khalid Bin Waleed Street,Bank Street Building, P.O. Box 1367, Dubai.Fax # 97-14-3523560

KINGDOM OF BAHRAINMr. Zubair Ahmed,EVP/Regional Chief ExecutiveNational Bank of Pakistan, Regional Office Bahrain,9, Manama Center, Government Avenue,P.O. Box 775. Manama,Tel # 97-17224191Fax # 97-17224411

SULTANATE OF OMANMr. Jawed Z. Karim,EVP& Country Manager,Habib Bank Limited, Regional Office, MBD Area, Qurrum House, P.O. Box 1326, Ruwi, Postal Code 112,Tel # 00968-24817163Fax # 7715809

IRANMr. S. Anwar Saeed,EVP & General Manager,Habib Bank Limited,Koye Nasr (Geesha) Building No. 170/4,2nd Floor, P.O. Box 14395-739, Tehran, Fax # 98-218273900

Overseas Co-ordinating Offices of the Institute of Bankers Pakistan



Articles for IBP Journal

The ability to think and think straight is not a close preserve of some selectedindividuals or groups of individuals. A creative brain-wave or an original idealeading to useful suggestions or correct assessment of an important problem,hitherto unidentified, with or without a corresponding solution, may come up toanyone, anywhere, anytime. If you are imbued with an urge to write and wield afacile pen, you are invited to try it by writing articles for the Institute’s journal,either in English or in Urdu. Some of the topics for writing articles on them aregiven below:

1. Bank Profitability in the Post - Privatization Period

2. Trend in the Banking Spread: Reasons for Decline

3. Improvement in Regulations and Autonomy

4. Shifting to Consumer Finance

5. Financial Sector Reforms Structure

Our deep appreciation and gratitude apart, we pay honorarium of uptoRs. 6000/- for an article published in the journal, depending on the quality andlength of the article. Kindly send your articles to:

Mr. Jauhar Ali

Director (Coordination)

Institute of Bankers Pakistan

Moulvi Tamizuddin Khan Road

Karachi – 74200

Pakistan.



Documents

Journal of the Institute of Bankers Pakistan - Amazon S3s3.amazonaws.com/zanran_storage/ · October - December 2007 Issue IBP – the knowledge institute Journal of the Institute