Banking & Finance

An Overview
of
Financial
Institutions

By. Prof Riaz Ahmed Mian

 An Overview of Financial Institutions

The traditional Pakistani financial sector comprises

of
Banks
Insurance Companies
Investment Companies
Modaraba
Leasing
Mutual Funds
Exchange Companies.
Prof. Riaz Ahmed Mian, HCBF, University of the Punjab
1
 An Overview of Financial Institutions

Banks

Two types of banks i.e. foreign and privately

owned local banks dominated Pakistani banking
scene.

In terms of institutional composition, the

dominance of scheduled banks in the financial
sector strengthened the economy.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 2

 An Overview of Financial Institutions

E-banking:

In terms of E-banking, Pakistan is doing fairly

well, specially keeping in view the progress of the
last five years.
The Government is very receptive and
supportive on E-banking initiatives. Cyber laws are
already at a very advanced stage of approval with
the Government. Further, GOP is also collaborating
with the IT industry and private sector to adopt E-
Commerce business methodologies.
Prof. Riaz Ahmed Mian, HCBF, University of the Punjab
3
 An Overview of Financial Institutions
Privatization:

A number of financial institutions including

MCB, HBL, ABL, UBL and ICP and some other
banks have been privatized since the year 2000. As
a result of these reforms, the share of the private
sector ownership of the banking assets has
increased to 80 percent.

Privatization contributes to economic growth

through productivity gains, efficient utilization of
resources, better governance and expansion in
output and employment. Profit making enterprises 4
 An Overview of Financial Institutions

Islamic Banking:

The establishment of Islamic Banking is one

of the major highlights in Pakistans financial
sector development in recent years.

The Islamic Commercial Banking in Pakistan

will flourish most when the norms in the society
are fully in conformity with the Islamic teachings.
Their share in total banking sector is rapidly
increasing.
5
 An Overview of Financial Institutions

Insurance Companies

Insurance can be divided into two categories:

one is life insurance, essentially a long term
business, and other is non-life or general insurance
which relates to insurance of property and
pecuniary interest etc.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 6

 An Overview of Financial Institutions
Leasing Companies
The main bread and butter business of these
companies in the last decade was the machinery
and automobile leasing business segment. In fact
leasing companies can be considered as the pioneer
of car financing business in Pakistan. The main
advantage of leasing companies used to be their
lower overheads that allowed them to compete, but
as the banks started to encourage their consumer
financing (i.e. car leasing) operation, we saw stiff
competition during the last years.
7
 An Overview of Financial Institutions
Financial Markets:
As the overall financial sector has registered
phenomenal progress, financial markets, including money,
forex, and capital market further developed during the early
years of last decade. The money market witnessed
improvement in the efficiency and increase in-depth of both
primary and secondary markets. Improved macroeconomic
environment and the stability in the exchange rate have led
to considerable progress in external account. Moreover, the
foreign currency loans have strengthened the connection
between the foreign exchange market and the money market
but the terrorism has destroyed our economy in every angle.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 8

 An Overview of Financial Institutions
Bank Finance and SMEs:
Through the Finance Act, 2006, the Government
has made a few amendments in the MFIs
Ordinance to expand the business of microfinance
banks in the country. A new SME policy was
announced by the Government that has made
several recommendations to improve the SMEs
access to bank finance. It is expected that by
following these recommendations, the banking
industry would be able to improve financial
products and services to SME sector.
Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 9
 An Overview of Financial Institutions

Postscript:

Agriculture credit, SME financing, consumer loans

and micro-credit have become mainstream products
of the banking industry and the borrower base of
the banking system has multiplied from 1 million
to 4 million households.

(contd)

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 10

 An Overview of Financial Institutions
Postscript:

The NBFIs sector, which comprises modarabas,

mutual funds and DFIs has gone through a
comprehensive transformation under the increased
regulatory and supervisory role of the SECP.
SECPs regulatory policies, which focused on
consolidating weak institutions by strengthening
their capital base, have led to a large number of
mergers and acquisitions within and across sectors.
(contd)

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 11

 An Overview of Financial Institutions
Postscript:
However, despite the financial sector development
during the last five years, Pakistan is still well
behind the peer countries in terms of financial
deepening and intermediation. Therefore, for
further financial sector development in Pakistan, it
is imperative to sustain the continuing strong
growth path with low inflation; increasing
documentation of the large undocumented sector;
expanding outreach of formal financial sector;
improving literacy; etc.
-----------The End-------- 12
thank U

Best of Luck