the state bank of pakistan
TRANSCRIPT
SECTION-I
CHAPTER 1 INTRODUCTION OF THE REPORT
1.1 INTRODUCTION:
This report is an essential part of the MBA degree requirement that is offered by the
CECOS UNIVERSITY. It is based on the six weeks internship program that the students
had to undergo with the major banks in Pakistan region. For this purpose I opted The
State Bank of Pakistan-BSC Peshawar and prepared this report
1.2 PURPOSE OF THE STUDY:
The purpose of the study is to experience real life banking practices in order to bridge the
gap between the theoretical and the actual for better comprehensive and knowledge of the
different aspects of this vast field of profession. The main purpose of this report is to
critically analyze and comprehend operations of State bank of Pakistan and suggests
measures in the forms of concrete and weighted recommendations. Besides, the report
also aims to inculpate amongst the students the method of collecting relevant material
and shaping it in the form of formal report writing.
1.3 SCOPE OF THE REPORT:
Banking is a much-diversified field and has various dimensions and treatments. However,
for a meaningful dialogue resulting in a definite conclusion, the study for this report has
been confide to banking operations as the objective is to make an acquaintance with the
practical aspects of banking.
1.4 METHODOLOGY OF REPORT:
The report was prepared using both primary and secondary data that included the
following methodological tools.
(i) Primary Data:
The data, which is collected for the first time and exist in raw form, is called primary
data. It includes;
Interviews and discussion with the bank staff.
Personal observations during the six weeks internship.
(ii) Secondary Data:
The data gathered from existing sources are called secondary data. They are in processed
form. The main sources of secondary data of SBP (BSC) are;
Brochures & Manuals from bank branch.
World Wide Web.
Newspapers.
Previous Internship Reports.
1.5 LIMITATIONS:
The banks hesitation to reveal certain facts and figures apart from major managerial and
organizational secrets made it slightly difficult to gain all the information that would have
resulted in a report applicable to the organization as a whole, along with remedial
suggestions. Although there was enough time, yet the space constraints and non-
availability of resources on the part of the write to personally visit places of interest and
relevance has limited the study to only gather those facts and figures that are significant
to the purpose of the study and to not prove the conclusions down at the end as incorrect.
1.6 SCHEME OF THE REPORT:
The report is arranged in the following sequence.
CHAPTER # 01 Introduction to Study
This is an introductory chapter, which describes the
introduction to the report, purpose of the study,
scope of the study, methodology of the report and
limitations of the report.
CHAPTER # 02 History of The State Bank of Pakistan
This chapter includes brief history of The State
Bank of Pakistan and detail of State Bank of
Pakistan (BSC), Peshawar. It precisely tells about
the several departments working at State Bank of
Pakistan (BSC), Peshawar and their functions. This
chapter also consists of vision, and mission,
organizational hierarchy, function and network of
State Bank of Pakistan.
CHAPTER # 03 Development Finance Support Development
(DFSD)
This chapter includes introduction to Development
Finance, brief history of DFSD, its mission, vision
and importance.
CHAPTER # 04 Role and importance of Development Finance
Support Units (DFSU)
This chapter consists of the role and importance of
DFSU and makes the critical analysis of DFSU of
State Bank of Pakistan (BSC), Peshawar.
CHAPTER # 05 Findings and Recommendations
This chapter gives the findings and
recommendations based on six weeks internship and
critical analysis of SBP-BSC Peshawar.
CHAPTER 2 HISTORY OF THE STATE BANK OF
PAKISTAN
I feel it mandatory to have a brief look on the history of SBP and its functions and SBP-
Banking Service Corporation (a subsidiary of SBP).
2.1 HISTORY OF SBP:
The State Bank of Pakistan (SBP) is the central bank of Pakistan. After its nationalization
in 1974 the scope of its functions was considerably enlarged. There are two subsidiaries
of SBP namely State Bank of Pakistan-Banking Services Corporation (SBP-BSC) and
National Institute of Banking and Finance (NIBAF). Irrespective of the provisions of the
monetary system and reserve bank order 1947. The reserve bank of India did not perform
its functions with diligence and good faith for Pakistan. Also this bank refused to transfer
Rs.55 crore which Pakistan was entitled to receive as the proportionate share of reserves
of undivided India. Keeping in view all this, the government of Pakistan decided not to
rely on the Indian Bank. So, the Indian bank was relieved of its functions earlier than it
was previously decided and the Governor General of Pakistan Quaid-e-Azam issued the
order of the establishment of The State Bank of Pakistan on 12 May, 1948.
2.2 GOVERNOR:
The principal officer of the SBP is the Governor. The current Acting Governor of The
State Bank of Pakistan is Yaseen Anwar after the resignation of Ex.Governor of SBP Mr.
Saleem Raza.
2.3 CENTRAL BOARD OF DIRECTORS:
1 Mr. Yasin Anwar
(Acting Governor)
Chairman
2 Mr. Salman Siddique Member/Director
3 Mr. Kamran Y. Mirza Member/Director
4 Mr. Zaffar A. Khan Member/Director
5 Mirza Qamar Beg Member/Director
6 Mr. Asad Umar Member/Director
7 Mr. Waqar A. Malik Member/Director
8 Mr. Aftab Mustafa Khan Corporate Secretary
2.4 MISSION:
2.5 VISSION:
2.6 ORGANIZATIONAL STRUCTURE OF STATE BANK OF
PAKISTAN:
Governor is the head of the State Bank of Pakistan (SBP) and has two Deputy Governors,
one each for Banking and Corporate Services. There is one Chief Economist in charge of
Banking Regulations.
State bank has 16 offices in Pakistan (2 in N.W.F.P, 1 in Baluchistan, 9 in Punjab, and 4
comes in Sindh region.) through which it controls all the G.OV.T transactions and also
monitors or manages commercial banks activities and accounts.
The field offices of SBP all over in Pakistan are as under:
1. Lahore, Rawalpinidi, Dera Ismail Khan, Islamabad,
2. Sukhar, Haiderabad, Bahalwalpur, Faisalabad,
3. Gujranwala, Azad Kashmir, Muzzafarabad, Sialkot
4. Peshawar, Multan, Quetta, Karachi,
The far places where there is no field office of the state bank so it has done the agreement
with the NATIONAL Bank, and according to that agreement National bank will do all
the transactions and all the other activities and operation of state bank on the behalf of
State bank. And this particular branch of national bank is called as CHEST branch of
state bank. There are total 260 chests offices in Pakistan and among these 30 are in
K.P.K. And for these services state bank pay some compensation to the National bank
2.7 FUNCTIONS OF (S.B.P)
Following are the functions performed by the SBP.
1. Banker to the Government: As banker to the government, SBP:
a. Receives deposits (taxes, fees, fines, etc.) on behalf of the federal government.
b. Disburses payments (tax refunds, interest, etc.) on behalf of the federal government.
c. Manages the national debt—buys, sells, and cashes government securities and pay
interest/profit on them.
d. Lends money to the federal government as needed.
2. Banker to Banks: As banker to the scheduled banks, SBP:
a. Holds deposits made by them as a part of their required reserves—5% at this time.
b. Lends them funds as a “lender of the last resort” to meet their pressing needs by
discounting their bills of exchange and other
3. Acts as a Clearing House:
Provides facilities, physical and/or electronic, to scheduled banks to clear cheques and
other claims drawn against each other—deposited by their customers for collection--by
adding up what they owe or owed them and transfer funds from their accounts at SBP.
4. Supervisor of Banks and other Financial Institutions:
One of the fundamental responsibilities of the State Bank is regulation and supervision
of the financial system to ensure its soundness and stability as well as to protect the
interests of depositors. The banking activities are now being monitored through a system
of ‘off-site’ surveillance and ‘on-site’ inspection and supervision. Off-site surveillance
is conducted through regular checking of various returns regularly received from the
different banks. On other hand, on-site inspection is undertaken by the State Bank in the
premises of the concerned banks when required.
To broaden financial markets as also to diversify the sources of credit, a number of non-
bank financial institutions were allowed to increase substantially. The State Bank has also
been charged with the responsibilities of regulating and supervising of such institutions.
5. Issuer of Paper Currency:
State Bank has the sole authority to issue paper notes. It has the prime
responsibility to control its supply in order to ensure a stable price of money, i.e., its
value or purchasing power. Its notes, however, are not convertible into gold or silver.
6. Exchange Rate Management and Balance of Payment:
The Bank is responsible to keep the exchange rate of the rupee at an appropriate level and
prevent it from wide fluctuations in order to maintain competitiveness of our exports and
maintain stability in the foreign exchange market. As the custodian of country’s external
reserves, it is responsible for management of the foreign exchange reserves.
7. Developmental Role of SBP:
The Bank’s participation in the development process has been widened in the form of
rehabilitation of banking system, development of new financial institutions and debt
instruments in order to promote financial intermediation, establishment of Development
Financial Institutions, directing the use of credit according to selected development
priorities, providing subsidized credit, and development of the capital market.
8. Non-traditional Role:
The non-traditional or promotional functions, performed by the State Bank include
development of financial framework, institutionalization of savings and investment,
provision of training facilities to bankers, and provision of credit to priority sectors. The
State Bank also has been playing an active part in the process of Islamization of the
banking system.
9. To Formulate and Implement the Monetary Policy:
The Bank is also in charge of conducting monetary policy which means changing the
supply of money in the economy. The tools of the monetary policy are:
a. Changing the monetary base:
This directly changes the total amount of money circulating in the economy. The State
Bank can use open market operations to change the monetary base. The Bank would
buy/sell bonds in exchange for hard currency. When the central bank sells government
bonds it receives hard currency in payment, thus reducing the money supply. It buys
government bonds and pays hard cash to the sellers, thus, increasing the money supply.
b. Changing the reserve requirements:
Monetary policy can be implemented by changing the proportion of total assets that
banks must hold in reserve with SBP. Banks only maintain a small portion of their assets
as cash available for immediate withdrawal; the rest is invested in illiquid assets like
mortgages and loans. By changing the proportion of total assets to be held as liquid cash,
the SBP changes the availability of loanable funds. This acts as a change in the money
supply.
c. Changing the discount rate:
Banks borrow money from the State Bank by cashing or discounting credit instruments,
such as bills of exchange. By raising the discount rate SBP discourages banks to borrow
money. If and when the goal is to increase the money supply, the Bank lowers its
discount rate to encourage borrowing by the banks and, thus, helps increasing the money
supply.
Also by calling in existing loans or extending new loans, the monetary authority can
directly change the size of the money supply.
d. Affecting a change in nominal interest rates:
The contraction of the monetary supply can be achieved indirectly by increasing or
decreasing the nominal interest rates. By changing the Discount Rate and by conducting
Open Market Operations a change in money supply would affect the nominal interest
rates. A tight money supply tends to increase nominal interest rates while an increase in
money supply can help bring down the interest rates. A change in the nominal interest
rates influences the overall economic activity, rate of inflation, GDP, and economic
growth.
2.8 INTRODUCTION TO SBP-BSC
In order to concentrate on the core functions of a Central Bank, a subsidiary was created-
SBP Banking Services Corporation in January 2002 under an Ordinance.
Purpose of Creation
• To delegate the operational functions and activities of the State Bank for
exclusive handling thereof.
• Enable the top management of State Bank to focus their attention particularly on
core functions relating to:
1) Supervision of Banks
2) Monetary and Credit Policy
3) Foreign Exchange management and
4) Efficient Payment Settlement System; and authorized the Managing Director to
exercise the powers in relation to functions of Subsidiary.
Objectives
• Efficient Currency Management
• Customers Oriented Banking Services to Government Institutions, Financial
Institutions and Public
• Effective Management of Payment System
• Successful Implementation of State Bank’s Policies
2.9 DEPARTMENTALIZATION IN STATE BANK OF PAKISTAN
(BSC), PESHAWAR:
It seems quite apparent that if the stated goals and objectives of an organization are to be
attained, certain activities have to be performed and it would also seem that the
organizing function of a manager would involve grouping the functions and activities
necessary to attain the goals of an enterprise. The term for that process is
“Departmentalization” or Division of Organization.
In State Bank of Pakistan (BSC), departments are made on the bases of functions
performed by the bank. There are four (4) major divisions in the bank i.e.
1) Administration Department
2) Audit Division (Admin Department
3) Foreign Exchange Operations Division (Admin Department)
4) Prize Bonds Unit (Banking Department)
SERVICES OF SBP (BSC) PESHAWAR:
1. Remittances.
2. Export Refinance Scheme
3. Prize Bond.
4. National Saving Scheme (Special Saving Certificates, Defense Saving
certificates).
5. Foreign Exchange.
6. Issuance of Notes.
2.10 DEPARTMENTS I VISITED DURING INTERNSHIP:
I did my internship at State bank of Pakistan (BSC), Peshawar, for a total duration of six
weeks and the departments that I worked during that time are as follows:
1. Foreign Exchange Operation Department (FEOD)
2. Prize Bond Unit (PBU)
3. Currency Management Unit (CMU)
4. Deposit Account Unit (DAU)
5. Public Account Unit. (PAU)
6. Development Finance Support Unit (DFSU)
Chapter -3
DEVELOPMENT FINANCE:
3.1 INTRODUCTION:
Development finance may be broadly described as an extended branch of Development
Economics that explores strategies for providing financial resources to productive sectors
of economy with focus on under-served by financial market conditions. Catering to the
financial services needs of the sectors it helps enhance the productive capacity of the
economy by financing industrial projects, SMEs, agriculture and micro enterprises etc.
The State Bank of Pakistan (SBP) defines development finance as provision of financial
services to SMEs, agricultural & rural communities, micro-enterprises and to housing &
infrastructure projects. Lack of adequate financial resources has been one of the key
impediments in the development and growth of these sectors to their real potential.
3.2 DEVELOPMENT FINANCE INSTITUTIONS
(DFI) is generic term used to refer to a range of alternative financial institutions including
microfinance institutions, community development financial institution and revolving
loan funds. These institutions provide a crucial role in providing credit in the form of
higher risk loans, equity positions and risk guarantee instruments to private sector
investments in developing countries. DFIs are backed by states with developed
economies
3.3 HISTORY OF DEVELOPMENT FINANCE:
Concerted efforts have been made in the past both by Federal and Provincial
Governments and SBP to increase flow of funds to these sectors. Interventions in the past
subsidized and focused on directed credit schemes. These efforts met with no or limited
success and resulted in misallocation and mis-utilization of resources, limited outreach to
the target clients, poor credit culture, huge stocks of non-performing loans (NPLs) and
non-development of financial markets to serve these sectors.
SBP since last 6-7 years has adopted market oriented approach to achieve a sustained
growth in flow of financial services to the un-banked/under banked sectors and regions.
SBP’s Financial Inclusion Strategy (FIG) envisages development of an inclusive
financial system to cater to the financial services needs of all segments of the society and
all sectors/sub-sectors of the economy. A Development Finance Group (DFG) has been
set up in SBP to spearhead all development finance related initiatives of SBP. Mandate of
Agriculture Credit Department (ACD) has been broadened to facilitate development of a
self sustainable rural finance sector. Separate Departments have been set up to
exclusively focus on improving flow of financial services to SMEs, microenterprises and
households. In addition, a dedicated Infrastructure and Housing Finance Department
(IHFD) was established in the bank in September 2006. To guide development finance
policy, a focused Financial Inclusion Program Office (FIPO) has been recently set up
which is also mandated to coordinate, design and implement donor-supported initiatives.
Finally, the creation of Development Finance Support Department (DFSD) within the
SBP Banking Services Corporation (BSC), in the second half of 2007, to provide field
presence to DFG for continuous interaction with the stakeholders at grass roots level was
another significant initiative. The DFSD since then has established units in 13 BSC
offices and made them operational.
Development of an inclusive financial system in the country that could ensure access to
financial services to all segments/sectors of the economy is an important strategic
objective of SBP. The establishment of Development Finance Group (DFG) in SBP in the
recent past is aimed at creating the necessary institutional capacity in SBP to achieve this
strategic objective. While the DFG is engaged in enhancing its capacity to catalyze and
facilitate expansion of financial services in un-banked/under-banked areas/sectors, the
group based in Karachi, has no presence in the field to continuously interact with
grassroots level stakeholders and monitor banks’ progress (at regional/district level) to
develop and expand their development finance capacity. The SBP-BSC however has
presence in 16 key areas/regions across the country with immense potential for growth of
development finance.
3.4 BSC-DEVELOPMENT FINANCE SUPPORT DEPARTMENT
The Development Finance Support Department (DFSD) in the BSC is aimed at using the
BSC field offices across the country to augment the DFG capacity and its role for
connecting the un-banked/under-banked areas/sectors with the country’s financial
markets. The DFSD though based in BSC Head Office Karachi (HOK), it has gradually
established Units in field offices. The Divisions/Units in the field offices are the local
contact points for continuous interaction with stakeholders.
3.5 MISSION STATEMENT
Our mission is to facilitate development of an inclusive financial system in the country
through effective monitoring of banks, awareness and information dissemination
programs, targeted research and surveys and linkages and consultation with all key
stakeholders.
3.6 VISION STATEMENT
Our vision is to transform into a dynamic field force having capacity to connect un-
banked and under-banked areas/sectors to the country’s financial markets
3.7 OUR VALUES
• Open Communication
• Teamwork
• Efficiency
• Accountability
• Honesty
• Fairness and integrity
3.8 THE IMPORTANCE OF DEVELOPMENT FINANCE:
Monitoring
1. To coordinate and interact with DFG and banks to have region-wise and branch wise
plans/targets for financing to SMEs, Micro Enterprises (MEs) , low cost housing and to
farming/rural communities;
2. To monitor banks’ performance towards achievement of their regional and branch-wise
targets of development finance using the BSC field offices;
3. To collect regional and/or branch-wise data from Data Warehouse or DFG
Departments for assessing banks’ performance as well as to study regional trends in
growth and development of SMEs, Micro and Rural Finance;
4. To develop and maintain province-, region- and district-wise development finance
database; this will help us optimally target our resources to increase outreach of financial
services in un-banked/under-banked areas/sectors;
5. To monitor banks’ progress towards building and enhancing their retail capacity (in
terms of branch network, IT systems, human resources) to expand their development
finance outreach in different regions of the country;
Awareness and Information Dissemination
6. To organize programs/field visits/workshops/seminars in consultation with DFG to
create awareness amongst the target population viz. the SMEs, MEs and farming
community about financial services being offered by banks and financial institutions; (the
training and field visits programs undertaken by ACD, being the field activity, could be
transferred to the department; the capacity at field offices would be built gradually to
undertake such programs on more frequent basis)
7. To develop linkages with Small and Medium Size Enterprise Development Authority
(SMEDA), representatives/associations of SMEs and MEs, farming community,
chambers of commerce and agriculture, trade bodies for better and wider dissemination
of SBP Development Finance policies and approach;
8. To facilitate the DFSUs in conducting the meetings of Regional Focus Groups for
Agriculture, SME and Micro-finance. The Groups have been constituted in all BSC
offices to exclusively review the trends in each of these sectors and evolve operational
strategies to increase outreach of Agriculture, SME and Micro-finance in their respective
regions;
9. To develop linkages with provincial and District governments, agricultural research
and extension departments to explore synergies between their poverty alleviation and
information dissemination programs and the department’s goal for increasing outreach of
financial services in un-banked/under-banked areas/sectors;
10. To facilitate linkages/partnerships between technical and vocational institutes and
banks/MFBs for imparting technical/vocational training to the prospective clients of
banks/MFBs on cost sharing basis;
11. To develop linkages with universities and colleges in the region to initiate
development finance courses/specializations/majors to cater to the growing demand for
development finance.
Research & Surveys
12. To conduct/arrange/sponsor regional surveys/empirical studies on key and burning
issues relating to expansion, growth and impact of development finance. (Linkages with
research and educational institutions will be developed for the purpose
3.9 DETAILS OF THE DIVISIONS
3.9.1 SME DIVISION
The SME Division is the focal point of all SME related issues, programs and projects in
SBP (BSC) HOK. The Division coordinates with the DFSD Divisions/Units in field
offices and develops and maintains a consolidated database of financing to SMEs in the
country with regional as well as bank-wise break-ups; the banking industry’s overall
capacity to effectively cater to the financial services needs of the SME sector and the key
Issues/challenges/impediments in increasing the flow of funds to the sector. It also
develop/acquire detailed understanding of best practices in SME financing for
dissemination amongst the divisions/units in the field offices. Specifically the Division
undertake following functions:
• To coordinate with SMEs Department of SBP and Banks’ SME Divisions to get annual
targets and plans to expand the SME portfolio with region/district or branch-wise break-
ups; (the banks to be required to give the annual plan duly approved by CEO/Board for
increasing SME portfolio as well as the bank’s capacity (branch network, systems and
HR) in SME financing);
• To communicate the regional/branch wise targets and plans to the respective field office
unit along with the monitoring and reporting mechanism;
• To collect periodical data/info on SME financing from Data ware house, SMED, OSED
etc for forwarding the same to field units as well as maintaining for DFSD, HOK;
• To prepare periodical reviews and working papers on growth and expansion of
financing to SMEs and key issues/impediments faced by the sector. Also to contribute in
preparation of annual development finance review to be prepared by the department on
regular basis;
• To develop and maintain regional/district wise profiles on SMEs with information on
No. of SMEs (if available), total asset base/investment, total No. of employees, avg. size
(in terms of No. of employees and the asset base), key/major SME sub-sectors in the
region/district, business volumes (in terms of estimated sales and profits), exports if any,
linkages with Large Scale Industry and corporate sector, infrastructure condition/position
(road network, electricity etc), key issues/impediments faced by the sector in the region,
SMEs associations, trade bodies operating in the region along with their contact details;
• To maintain close liaison and coordination with SME Finance Department (SMEFD)for
detailed Understanding of SBP approach and policies for increasing flow of funds to
SMEs and ensure their adequate dissemination to the field units;
• To develop understanding of best practices in retailing SME finance and disseminate
the same to the field units;
• To develop training and development programs for the field units in SME financing;
• To develop/design/coordinate training and capacity building programs for banks in
consultation with SME Finance Department, the programs to focus on retail capacity of
banks and could be financed from different TAs/grants for improving access to finance;
• To facilitate the field units in a) designing and arranging field visit/information
dissemination programs/ workshops/seminars for SMEs b) developing linkages with
SMEs associations, chambers of commerce, trade bodies for consultation and feedback
on SME financing policies, issues, impediments etc. c) developing linkages with
educational and research institutions for conducting surveys, empirical studies etc on
burning questions regarding growth and impact of SME financing and d) in
developing/facilitating linkages between banks/MFBs and vocational training institutes
for imparting trainings to SMEs’ employees on cost sharing basis.
3.9.2 MICROFINANCE DIVISION
The Microfinance Division is the focal point of all microfinance related activities,
programs and projects in SBP (BSC) HOK. The Division coordinates with the DFSD
Divisions/Units in field offices and develops and maintain a consolidated database of
financing to micro-enterprises/low income individuals and low cost housing in the
country with regional as well as MFBs/bank-wise break-ups; the MFBs’ overall capacity
to effectively cater to the financial services needs of the sector and the key
issues/challenges/impediments in increasing the flow of funds to the sector. It also
develop/acquire detailed understanding of best practices in microfinance with particular
focus on retailing microfinance, for dissemination amongst the divisions/units in the field
offices.
Specifically the Division undertake following functions:
• To coordinate with Microfinance Department of SBP and MFBs/NGO-MFIs to get
annual targets and plans to expand the MF portfolio with region/district and/or branch-
wise break-ups; (the MFBs/banks to be required to give the annual plan duly approved by
CEO/Board for increasing MF portfolio as well as the MFB/bank’s capacity (branch
network, systems and HR) to achieve the desired/targeted expansion in MF portfolio;
• To communicate the regional/branch wise targets and plans to the respective field office
unit along with the monitoring and reporting mechanism;
• To collect region/district wise periodical microfinance data from PMN/Data ware
house/MFD/OSED for reviewing regional trends, transmission to field units; (no extra
reporting burden/cost to be imposed on MFBs/banks; rather banks’ internal reporting
system should be used to capture the regional/district wise data);
• To prepare periodical reviews and working papers on growth and expansion of
microfinance and key issues/impediments faced by the sector. Also to contribute in the
half yearly development finance review to be prepared by the department on regular
basis;
• To develop and maintain region/district wise Microfinance profiles with information on
potential MF client base (total number of Micro enterprises, low income
individuals/households etc), the demographic data, the No. of MFBs/banks and their
branches operating in the region, the number of NGOs and NGOMFIs having presence in
the region along with their key objectives, interventions, membership/client base and
contact details, the number of community/women/village organizations formed by
MFBs/banks/NGOs for the purpose of extending microfinance and other facilities (only
the COs etc that are operative), the number of depositors & borrowers of MFBs, the size
of MF portfolio, the nature and types of businesses for which microfinance facilities
could be extended, the potential for development of low cost housing and financing
thereof by MFBs/banks, the infrastructure condition/position (road network, electricity
etc), the small scale industry (SSI) operating in the region and their associations, if any,
the provincial SSI development bodies/departments and their key interventions, the key
issues/impediments faced by the sector etc.
• To maintain close liaison and coordination with Microfinance Department for detailed
understanding of SBP approach and policies for increasing flow of funds to micro-
enterprises and low income individuals and ensure their adequate dissemination to the
field units;
• To develop understanding of best practices in retailing microfinance and disseminate
the same to the field units;
• To develop training and development programs for the field units in microfinance;
• To develop/design/coordinate training and capacity building programs for MFBs/banks
in consultation with DFG/MFD, the programs to focus on retail capacity of MFBs/banks
and could be financed from different TAs/grants for improving access to finance;
• To facilitate the field units in a) designing and arranging field visit/information
dissemination programs/ workshops/seminars for microfinance clientele, b) developing
linkages with SSI associations, NGOs and NGO-MFIs, government departments dealing
with microfinance and poverty alleviation for consultation and feedback on microfinance
policies, issues, impediments etc. c) developing linkages with educational and research
institutions for conducting surveys, empirical studies etc on burning questions regarding
growth and impact of microfinance and d) in developing/facilitating linkages between
banks/MFBs and vocational training institutes for imparting trainings to micro-
enterprises and potential microfinance clients borrowers on cost sharing basis.
3.9.3 RURAL FINANCE DIVISION
The Rural Finance Division is the focal point of all rural finance related issues, programs
and projects in SBP (BSC) HOK. The Division coordinates with the DFSD
Divisions/Units in field offices and develops and maintains a consolidated database of
financing to agriculture/rural areas in the country with regional as well as bank-wise
break-ups; the banking industry’s overall capacity to effectively cater to the financial
services needs of the rural/farming community and the key
issues/challenges/impediments in increasing the flow of funds to the sector. It also
develop/acquire a detailed understanding of best practices in rural financing for
dissemination amongst the divisions/units in the field offices. Specifically the Division
undertake following functions:
• To coordinate with Agriculture/Rural Credit Department (ACD) of SBP and Banks’
Rural Finance Divisions to get annual targets and plans to expand the rural finance
portfolio with region/district or branch-wise break-ups; (the banks to be required to give
annual plan duly approved by CEO/Board for increasing rural finance portfolio as well as
the bank’s capacity (branch network, systems and HR) in rural finance);
• To communicate the regional/branch wise targets and plans to the respective field office
unit along with the monitoring and reporting mechanism;
• To collect periodical agri-credit data for onward transmission to field units to enable
them to monitor the agri-credit trends in the respective region;
• To prepare periodical reviews and working papers on growth and expansion of
financing to rural/ agricultural communities and key issues/impediments faced by the
sector. Also to contribute in the half yearly development finance review to be prepared by
the department on regular basis;
• To develop and maintain regional/district wise profiles on agriculture crops and rural
enterprises with information on total number of villages, union councils, towns, districts
etc in the region, demographic data of the region, the total cultivable area and the area
under cultivation, the major and minor crops of the region/district, avg. size of crops
(produce weight/volume etc) in the area/region, total number of livestock in the region
with break-up of buffalos, cows, goat/sheep etc, No. of farmers/farming households with
break-ups in subsistence, economic and above economic holding land ownership, No. of
farmers having bank accounts, No. of farmers availing credit from banks for crops,
livestock and other non-farm activities, infrastructure condition/position (farm to market
road network, electricity, water resources, research & extension department network,
veterinary hospitals, access to quality seeds and other inputs etc), key issues/impediments
faced by the sector in the region, farmers’ associations, chambers of agriculture, market
committees operating in the region along with their contact details;
• To maintain close liaison and coordination with Agricultural Credit Department for
detailed understanding of SBP approach and policies for increasing flow of funds to
agricultural/rural communities and ensure their adequate dissemination to the field units;
• To develop understanding of best practices in retailing rural finance and disseminate the
same to the field units;
• To develop training and development programs for the field units in rural financing;
• To develop/design/coordinate training and capacity building programs for banks in
consultation with ACD; the programs to focus on retail capacity of banks and could be
financed from different TAs/grants for improving access to finance;
• To facilitate the field units in a) designing and arranging field visit/information
dissemination programs/ workshops/seminars/farmers’ meetings for agricultural/rural
communities, b) developing linkages with farmers’ associations, chambers of agriculture,
market committees, artees for consultation and feedback on rural financing policies,
issues, impediments etc. c) developing linkages with educational and research institutions
for conducting surveys, empirical studies etc on burning questions regarding growth and
impact of rural financing and d) in developing linkages with provincial agricultural
departments, revenue departments and research & extension departments to explore
synergies between their information dissemination programs and the SBP promotional
campaign for rural finance.
3.10 SUMMARY of DEVELOPMENT FINANCE QUARTERLY REVIEW- MARCH, 2010
Introduction
At the end of March 2010, the Development Finance (DF) outstanding portfolio
witnessed a slight increase of 0.83% compared to the 2.7% increase at the end of
corresponding period of 2009. However, the DF portfolio stayed relatively stable for the
period under review. This partly reflects the cautious lending approach of the banking
industry towards the priority sectors of the economy as compared to others. Moreover,
DF could also not flourish mainly on account of factors like rising interest rates, power
outages, domestic law and order situation and overall shyness of the industry towards the
mentioned sectors.
Following the usual trend, SME Finance outstanding decreased by 6.33% QoQ basis
while the same had decreased by 6.90% at the end of the corresponding period of 2009.
The trend of decline at the end of the first quarter of each year can be attributed to
seasonal nature of financing activities. Further, SME borrowers have also recorded a
slight slash of 1.77% along with the industry trend as the total industry borrowers have
seen a meager decline of 0.25% in the period under review. SME NPLs have increased
by 4.39% as of March, 2010. Total advances of Microfinance Banks (MFBs) recorded an
impressive growth of 10% over the quarter under review reaching to Rs. 9.38% billion.
Similarly Microfinance borrowers have also increased by 3.2% in first quarter of the
current year.
Microfinance NPLs have gone down by 5% during the period of March’09-March’10.
Agriculture credit disbursement stood at Rs. 62.2 billion during first quarter of 2010
compared to Rs. 52.4 billion in corresponding period of 2009. Whereas, NPLs of the
Agriculture Credit stood at 18.8% of the outstanding portfolio as of the March, 2010
quarter compared to 19.9% during corresponding period of 2009. Moreover, Agricultural
finance outstanding has recorded a growth of 6.13% Quarter on quarter QoQ basis.
Total outstanding of housing finance stood at Rs. 79.9% recording a quarterly decline of
3.48%. Likewise, housing number of borrowers also condensed by 8.9% year on year
(YoY) basis. Housing NPLs have recorded a growth of 28.58% during the period March
09- March10. Whereas Infrastructure financing has recorded a rise of 8.16% during first
quarter of 2010; however, a decline of 8.9% has been registered on YoY basis. Further, a
total of Rs. 9.6 billion was disbursed during Jan-March 2010 compared to Rs.38 billion
during corresponding period of 2009.
State Bank of Pakistan is working to develop market supporting mechanisms for the
development of priority sectors of the economy. In this regard, Credit Guarantee Scheme
for Small & Rural enterprises has been launched to provide access to finance to small
borrowers which normally lack collateral. Further, to enhance the flow towards SME
sector, a Refinance Scheme for Revitalization of SMEs of Khyber-Pakhtoonkhwa, FATA
& Gilgit-Baltistan, has also been introduced. Additionally, introduction of Branchless
Banking, Infrastructure Development & Financing Institution, and Mortgage Refinance
Company in the near future, as well as number of other such strategic measures are
expected to bring about a positive impact on the performance of the Development
Finance Sector.
CHAPTER 4
ROLE OF DEVELOPMENT FINANCE SUPPORT
UNITS:
4.1 DFSD Field Units
The DFSD Field Units have been established in 14 Field Offices of SBP (BSC) out of
Karachi;
• Each office has been assigned a geographic area comprising various districts primarily
based on the geographical proximity of the office with the district;
• The units will be staffed with suitably qualified and self motivated officers/staff
preferably from the same field office.
• The CMs shall be primarily responsible for effective and efficient operations of the
field units and shall ensure that all development finance activities, functions and
projects as advised by DFSD are undertaken and completed within the
agreed/stipulated time;
• The officers/staff will be provided training both on and off the job in development
finance.
4.2 KEY FUNCTIONS AND ROLE OF DFSU’s
1. Monitoring of banks to:
a. assess progress towards disbursement and portfolio build-up targets in the region under
the field office jurisdiction (as agreed at HO level and broken down at regional/branch
level);
b. assess progress on banks’ plans to enhance their development finance related capacity
(as agreed at HO level and broken down at regional/branch level)
c. assess compliance with SBP development finance policies.
2. Developing and maintaining an updated consolidated database of banks dealing in
SME, Micro and Rural Finance in the region (field office jurisdiction) with following
details;
Total banks in the region, Total No. of branches in the region, No. of branches dealing in
SME, Micro and Rural Finance, the No. of borrowers of SME, Micro and Rural Finance,
total development finance portfolio (with SME, Micro and Rural finance break-ups), avg.
loan size for each sector;
3. Developing and maintaining Bank/MFB Profiles operating in the region with
information on- Bank Name, Total No. of branches in the region, No. of branches dealing
in SME, Micro and Rural Finance, the No. of development finance borrowers with SME,
Micro and Rural Finance break-ups, avg. loan size for each sector, total development
finance portfolio (with SME, Micro and Rural finance break-ups), the contact details of
regional chiefs, SME, Micro and Rural Finance heads/key persons in the region, No. of
officers/staff engaged directly with development finance along with their qualification
and experience, the nature and type of SME, Micro and Rural Finance products offered,
the products marketing and sales strategies/systems, the loan appraisal systems (credit
scoring, quantitative and qualitative assessment by the loan officer etc), the disbursement
mechanism (particularly for micro-credit and rural credit), the loans monitoring systems,
the recovery mechanism, the loan classification systems, the bank’s internal reporting
mechanism for development finance etc.
4. Developing and maintaining database of NGO-MFIs and NGOs operating in the region
with comprehensive information about their objectives, functions and capacity along with
address and key person (s) contact details etc.
5. Developing and maintaining database of public and private technical and vocational
institutes operating in the region with complete details about the trainings they offer, their
repute in the market and their overall capacity, this would enable us to link the reputed
institutes with banks, MFBs, NGO-MFIs and NGOs to impart vocational trainings to the
prospective borrowers/clients of banks/MFBs/NGOs on cost sharing basis.
6. Developing linkages with SMEDA, provincial and district governments, agricultural
research and extension departments to explore synergies between their poverty alleviation
and information dissemination programs and the department’s goal for increasing
outreach of financial services in un-banked/under-banked areas/sectors;
7. Developing linkages and continuous coordination with chambers of commerce,
agriculture, Small Scale Industry/SME associations, MSEs’ associations (if any), market
committees, farming communities to have grassroots level understanding of key issues,
challenges and impediments in development and growth of financing to these sectors and
thus develop policy recommendations for consideration of DFSD/DFG;
8. Developing linkages with universities and colleges in the region to initiate
development finance courses/specializations/majors to cater to the growing demand for
development finance;
9. Developing linkages with educational and research institutes to conduct surveys,
research, empirical studies on key and burning issues/questions of development finance.
(The surveys and studies etc would be designed by DFSD and implemented/conducted by
the units or outsourced to universities/research institutes as advised by DFSD);
10. To organize programs/field visits/workshops/seminars to create awareness amongst
the target population viz. the SMEs, MEs and farming community about financial
services being offered by banks and financial institutions
4.3 DEVELOPMENT FINANCE SUPPORT UNIT PESHAWAR
WHY IS IT OPENED?
1) To provide wide range of banking facilities (Financial Inclusion), the main aim is to
extend /access the financial services to the un-banked sector of the economy.
2) To enhance the comfort level
3) To conduct awareness program at specific un-banked area.
4) Formers have big problems of marketing
5) Maintaining a Directory of Stakeholders
4.4 STACK HOLDER OF DFSU
1) Farmers
2) Commercial Banks
3) Micro Finance Institutions (MFI’s)
4) Small & Medium Size Enterprises (SME’s)
5) Micro Finance Banks (MFB’s)
6) Government
4.5 FOCUS GROUP MEETINGS
There are four vocational focus groups, meetings are arranged periodically.
1) SME Focus Group
2) MFI Focus Group
3) Agri Finance Focus Group
4) Tobacco Focus Group (it is operational in Khyber Pakhtun Khawa (KPK) only)
4.6 SME FINANCE
WHAT IS SME?
SME means an entity, ideally not a public limited company, which does not employ more
than 250 persons (if it is manufacturing/ service concern) and 50 persons (if it is trading
concern) and also fulfils the following criteria of either ‘a’ and‘c’ or ‘b’ and ‘c’ as
relevant:
(a) A trading / service concern with total assets at cost excluding land and building upto
Rs50 million.
(b) A manufacturing concern with total assets at cost excluding land and building upto
Rs100 million.
(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs300
million as per latest financial statements.
The Small Medium Enterprises have played key role in development of economies like
Japan. It has also been playing key role in providing impetus to the development of some
of the world’s best economies like Taiwan, Korea, Hong Kong and China. Countries in
South America and India have also been concentrating their efforts in developing the
SME sector. Pakistan in not an exception to this as both the Government of Pakistan and
the State Bank has been trying to give impetus to their efforts aiming to develop SME
sectors in Pakistan. In this regard government has restructured the key support
institutions such as SMEDA and SME Bank.
It may be reiterated that in line with other developing countries, the SME sector in
Pakistan also do not have adequate access to financing from the formal sector and has
been primarily relying on the credit facilities from the informal sector, at a cost even
higher than the cost paid by those borrowers from SME sector who are able to avail
facilities from the formal sources like banks. Our experience/ interaction with the banks
has transpired that one basic reason for reduced access to financing from banks by SME
borrowers has been inadequate, enabling regulatory environment, in the absence of which
banks are forced to evaluate the financing requests from prospective borrowers under the
existing prudential regulations which are basically driven by their requirements for
lending to corporate sector. The State Bank has already drafted draft Prudential
Regulations for the SMEs, which are likely to be made operational shortly. Once these
are made operational they would go a long way in developing the skills / mind set in the
commercial banks for financing to SMEs. For the purpose we have also asked the banks
to establish dedicated departments for handling the SME financing requirements.
As already stated, the SME bank is undergoing a restructuring; where after the bank is
expected to become a beacon for financing to the SME sector. The SME bank has been
conceived as a leader in developing the program lending, to be developed as a model.
Other banks desirous to provide lending to SME sector can then use these models. For the
purpose of facilitating credit decision, the SBP is also contemplating to set up Credit
Information Bureau in the private sector for collection/compilation of data on the credit
history of SMEs, which will ultimately improve the credit risk appraisal capacity of the
banks and reduce the non performing loans.
By the end of March 2010, total outstanding exposure to SME sector stood Rs. 326.1
billion compared with Rs. 349 billion for the corresponding period of 2009. During first
quarter, SME credit portfolio exhibited a decline of 6.34% whereas in the year 2009, it
had declined by 6.90%. An analytical look at declining trend in SME exposures of first
quarters of last few years reveals that SME financing trends follow the total industry
financing trends as well as seasonal nature of financing. Moreover, banks’ perceived
concern regarding rising NPLs by SME sector also remained a reason for decreased SME
credit exposure. Hence, the share of SMEs in total industry’s credit has shrunk by 43.5%
during the period March’06 to March ’10
4.7 MICROFINANCE
What is Microfinance?
Microfinance is the provision of financial services including Credit, Savings, Insurance
etc, to those sectors of economy, which are not serviced by traditional formal financial
institutions viz. commercial banks and non-banking financial institutions.
Microfinance caters to the financial services needs of the poor and micro enterprises and
is normally collateral-free short term facility whereas the commercial banks generally
deal with corporate clients, SMEs and individuals with larger income levels and extend
financing facilities primarily based on collaterals and borrowers capacity to repay.
4.8 DIFFERENT TYPES OF INSTITUTIONS PROVIDING
MICROFINANCE/MICROCREDIT IN PAKISTAN.
Broadly there are two types of institutions in Pakistan
providing
Microcredit/microfinance services to the poor households/micro enterprises a) the Non
Government-Microfinance Institutions (NGO-MFIs) /Rural Support Programs (RSPs)
extending microcredit to the poor through sources other than public savings and b) the
formal microfinance banks providing a range of financial services to the poor and micro
enterprises including microcredit, savings, payment transfers etc. The formal
microfinance banks are required to take license from State Bank of Pakistan under MFIs
Ordinance 2001 to operate as microfinance bank and are under the regulatory ambit of
the State Bank, whereas the NGO-MFIs/RSPs are registered with Registrar
NGOs/Provincial Cooperative Departments and are not under the regulatory ambit of
State Bank. While the Microfinance Banks are eligible to mobilize public savings to
finance their operations, the Government has established a wholesale window, the
Pakistan Poverty Alleviation Fund (PPAF), to provide wholesale funds/credit lines and
grants to NGOs for on lending to the poor and capacity and infrastructure building.
Presently two microfinance banks viz. Khushhali Bank and The First Microfinance Bank
Ltd. and a number of NGOs/RSPs including National Rural Support Program (NRSP),
Punjab Rural Support Program (PRSP), Sarhad Rural Support Program (SRSP) KASHF,
DAMEN, OPP, SUNGI, Tarraqi Trust, HDF and SPO are operating in the country.
4.9 MINIMUM AND MAXIMUM LIMITS OF LOANS AND
MATURITY PERIODS
There is no prescribed minimum lending limit, the SBP however, prescribes the
maximum limit in consultation with stakeholders and the present limit is Rs.100, 000/- to
a single borrower.
The microfinance sector remained in consolidation phase during the quarter ending
March 2010, evident from its slow growth. In order to mature into an industry capable of
reaching millions in Pakistan through various channels and financial services,
strengthening industry fundamentals would be the step in right direction. The remarkable
highlight of the quarter was the expression of interest and submission of business
proposals by strong private sector players with large distribution network to venture into
microfinance services.
In order to stimulate sustainable growth of the sector, State Bank of Pakistan in
consultation with stakeholders is presently developing a medium term microfinance
strategic framework for the year 2010 to 2015. The framework will include a specific
action plan to facilitate industry strengthening and development. Broadly, the framework
will focus on development of sound institutions through improvement in capacity and
governance, improvement in access and quality of financial services especially deposits,
and promotion of enterprise lending initiatives. These objectives will be achieved through
providing a regulatory structure that encourages diverse and strong players to enter the
market, smart subsidies that lead to sustainable initiatives, and a supportive environment
to encourage public-private partnerships.
4.10 AGRICULTURE FINANCE
The Agricultural Credit Advisory Committee (ACAC) in its annual meeting held on 18th
August, 2009 had set an agricultural credit target of Rs 260 billion for 2009-10. The
target was 11.6% higher than the disbursement of Rs 233 billion in 2008-09. Out of Rs
260 billion, Rs 174 billion were allocated to commercial banks, Rs 80 billion to ZTBL
and Rs 6 billion to Punjab Provincial Cooperative Bank Limited (PPCBL).
CHAPTER 5
RECOMMENDATIONS AND ACTION PLAN
Recommendations and Action Plan:
“Advice is seldom welcome; and those who want it the most, always like it the least.”
Recommendation suggests improvements in area which have a room for polishing and
progress. Recommendations are based on the previous sections of a report and are
suggestions, that the analyst feels are required to be implemented in order to improve further
the standing and position of the firm in the financial world. These are thus based on the
findings and shortcomings noted in an organization. While, working with it then writing on
it.
Following are the findings and recommendations for this department that were felt, are
required while consulting the staff members of SBP.
CAREER DEVELOPMENT OF OFFICERS:
It has been noted that the officers of the department do not involve themselves much with
the other operations of the bank and thus remaining on the very same post and seat
throughout their banking career. This is against the modern day policies of organizations
giving their employees conducive rewarding and equal opportunity of prospering and
growing with it.
Thus the HR department, at the Head Office should prepare a plan that shows the future
growth potential of the employee based on their job performance and evaluation and
make it known to all.
CUSTOMER RELATONSHIP:
Knowing the customers and their needs is the key to business success. By attitude the
manager can improve the relationship with the customers. By having the understanding
what a customer wants, the manager can improve the relationship with the customers.
SBP should understand that the commitment to satisfy customer’s needs must be fulfilled
within a professional an ethical framework. They should observe a culture of high ethical
standards based upon development of right attitude.
Although, SBP has been improving its corporate behavior, even then they should
continue their effort for better corporate behavior. There is a need of improving customer
relations in SBP. For attitude improvement special courses should be arranged under
specialized teachers through lectures, seminars and other interactive technical. It will cost
the bank but will be more profitable for the bank in the long term.
PARTICIPATIVE MANAGMENT:
Participative management concept should be adopted, where ideas from the employees
should also be taken, not only for developing products but also on service, efficiency,
employee morale etc. in order to improve them.
WORKSHOPS AND COUNCILS:
Workshop programs should be conducted in every city, rather than just two centers, for
all SBP employees. These workshops should relate to all aspects of banking and may also
be conducted with other banks as a joint program.
Also as parts of the human resource training, counseling programs should be started for
junior executives or new entrants into the bank, introducing them to their prospects in this
industry.
The lower staff employed at SBP should also be given a chance to succeed in life by
training them in different simple jobs at the bank, which my include sorting of cheques,
cash, etc.
HUMAN RESOURCE:
To induct from fresh blood in the bank and cater for future needs, a new batch of officers
has been selected strictly on merit. After through training, these officers have been
inducted in various divisions. Attention is paid to upgrade operational and managerial
skills staff and a member of professional courses are conducted at SBP staff and training
institutes during the year 2009. The management has also continued the program of
hiring of some senior level Banking Executives, from the market, whenever necessary.
AUTOMATION:
All the field offices of SBP are fully computerized barnacles. A globus program was put
into place. The progress is as per plan. Where there is no field office of SBP, National
Bank of Pakistan acts as a Chest in that region on behalf of SBP.
FIELD OFFICES OF SBP:
SBP has increased its branch network upto 260 chests offices and 16 field offices till now
during the year. SBP has the honor of being the banker to the banks. A separate Islamic
banking division has been established in SBP. The SBP should try to facilitate customers
in every city of Pakistan.
Clarity of Plans/Strategies
The management should clearly discuss plans/strategies and once adopted the
plans/strategies should be clear to all levels of management in the bank, as this improves
the implementation of plan/strategy
Training of Staff
Employees should be provided constant on job training, refresher courses and workshops,
so to get the required knowledge. Every member should be provided with a particular
department, training.
Introduction of Management By Objectives (MBO)
The concept of management by objectives should be introduced in the bank where the
subordinates should be expected to formulate objectives for themselves. This will ensure
the setting up of objectives according to the capabilities of the individuals. In addition to
this, it will also help in achieving the goals because they are involved in the process of
goal setting.
Extend the Network of Field Offices
SBP should expand its field offices. They should expand their branches to the potential
area. A field office should be opened in Mardan Division to provide better services to the
people living there.
Encouragement of Innovation
The SBP should encourage the process of innovation, strengthening of R&D, so that bank
introduces more services and facilitate Exporters, Farmers, SMEs, MFIs, and Agriculture
sector according to stack holders’ needs and wants.
Friendlier Environment
Friendlier environment should be created because it will help to gain the interest of
employees in work. Noise in the office should be reduced because it has unfavorable
impact on the working environment. Separate place or section should be created for each
separate task and more space should be provided. It would also be of greater help in
establishment of friendly environment. During internship some noise was observed in the
office at 2nd floor.
Modes of Financing
The bank should focus on Islamic Banking. Innovative modes of financing should be
launched in accordance with sharia. By doing so, the country would gradually and
steadily become an interest free banking. One of our teachers has an idea of Zero
Banking (an idea of total interest free banking), he can prove that scientifically and
statistically.
Qualified Staff
The first priority is to be given to highly qualified staff. SBP should acquire highly
qualified persons for its banking operations. They should never compromise on lower
level of management. The bank should hire well and experienced persons for its
management, because management plays a huge role in the improvement of an
organization.
RFERENCES
Web References:
1. www.sbp.org.pk
2. www.wikipedia.com
3. www.pmn.com
Persons References:
Bank Employees
LIST OF PERSONS INTERVIEWED:
Name of The
Organization
Department Designation Name of Person Time and Date
SBP-BSC PBU officer Abdul Haq 3pm,2nd Aug’10
SBP FOREX FOREX Mr. Muzaffar Ali 4pm,2ndAug’10