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Pakistan has positive business sentiment and low inflation bodes well for the future

Meezan Bank is leading the Pakistan’s banking sector to pass health benefits to the consumers
Interview with Mohammad Raza — Group Head Customer Support, Meezan Bank

Profile

Mohammad Raza is currently serving Meezan Bank as the Group Head of Customer Support. He graduated with a Bachelor of Engineering from DCET-NED University of Engineering & Technology and holds a Masters degree in Business Administration from Institute of Business Management (CBM).

He is a DAIBP and has also completed a Post Graduate Diploma in Islamic Banking and Finance from the Centre of Islamic Economics.

He joined Meezan Bank in February 2003 as Branch Manager, Gulshan-e-Iqbal Branch. Having an excellent exposure of branch banking coupled with deposit mobilization and customer services, he was given the task of managing liability products and Service Quality in 2005. In early 2009, with the management’s decision of combining Liability Products and Consumer Financing, he was assigned with the responsibility of Heading the Consumer Banking Department.

ABOUT MEEZAN BANK:

Meezan Bank was launched in 1997 as an Investment Bank with an initial capital of Rs1 billion. Our main objective was to introduce the concept of Riba-free banking as an alternative to conventional banking. The Bank was envisaged and established without first developing a financial feasibility, since the purpose behind the establishment of Meezan Bank was to establish and promote Islamic Banking in Pakistan; however, Alhamdulillah, ever since our inception, the Bank has been profitable since the very first month of its operations.

For the first five years of our operations as an Investment Bank, we functioned with a workforce of only 30 people. In 2002, Al-Meezan Investment Bank stepped into the domain of Islamic commercial banking through the acquisition of Pakistan operations of Societe Generale and was issued first Islamic commercial banking license. Converting Societe Generale’s four-branch conventional banking operations into a Shariah-compliant bank at that time was also an achievement for us.

We operated as Pakistan’s only Islamic commercial bank for the next two years. Al-Meezan was thus renamed as Meezan Bank.Meezan Bank was established as Pakistan’s first Islamic bank offering products and services in line with the principle of Shariah. As we developed over the years, we brought new and innovative Riba-free products and solutions in an industry that was solely based on interest.

Meezan Bank, however, took up the challenge and through our determination, perseverance and team of well-rounded members, managed to emerge as Pakistan’s premier and largest Islamic bank offering Islamic banking products that are at par with conventional offerings in the country. Alhamdulillah, Meezan Bank has witnessed an average of 40-50% growth in the size of its branch network each year ever since its inception; beginning with four branches in 2002 to reaching a nationwide network of 571 full-fledged commercial banking branches today.

In its fifteenth year of operations, the Bank is not only the largest Islamic Bank in Pakistan but is now also the 8th largest commercial bank in Pakistan in terms of branch network. Meezan Bank has also been recognized as the best Islamic Bank in Pakistan by numerous local and international organizations consistently over the past several years.

PAGE: WHAT IMPACT COULD BE SEEN ON BANKING PROFITABILITY IN THE CURRENT BANKING YEAR DUE TO THE PREVAILING INTEREST RATES?

MOHAMMAD RAZA: Alhamdulillah, Pakistan’s economy performed well during the year 2016 with GDP growing consistently over the last few years to touch an eight-year high of 4.7% for the fiscal year 2015-16. This growth was driven by strong domestic demand that stems primarily from a burgeoning middle-class estimated to account for 38% of the country’s total population or approximately 76 million people – roughly equivalent to the entire population of Germany or Turkey. This coupled with a stable political environment and improved law and order, a positive business sentiment and low inflation bodes well for the future.

A significant milestone achieved during the year was the formal inauguration of the Gwadar port in November 2016, which means that China-Pakistan Economic Corridor (CPEC) is now a reality. CPEC is part of Chinese President Xi Jinping’s vision of a “One Belt, One Road” that will revive the Old Silk Route and in the case of CPEC give the western provinces of China direct access to the Arabian Sea through the Khunjerab Pass – one of the highest border crossings in the world at 15,300 feet. China has committed over US$ 50 billion to support projects, primarily in infrastructure and energy, including the Gwadar Port, roads and railway, and the Thar Coal project.

We believe that CPEC in general and the development of the enormous Thar coal project in particular, will be ‘game-changers’ for Pakistan and may prove to be the catalyst for significant economic growth in the future. The improved economic outlook led to an upgrade of Pakistan’s sovereign rating to B from B with a ‘stable outlook’ by S&P.

The State Bank of Pakistan paused its monetary easing policy after a 25 basis points cut in May 2016 and has kept the Policy Rate unchanged at 5.75% ever since. Pakistan’s banking sector has shown immense growth and potential over the years. The current profit rates, however, have created increased pressure on banks in terms of maintaining their profitability. This coupled with the fact that the banking sector in Pakistan is also facing various challenges pertaining to liquidity and solvency has created a greater competitive environment.

For conventional banks and particularly for Islamic banks, this impact has been felt significantly on their performance. Alhamdulillah, notwithstanding the lower discount rate scenario as mentioned above, Meezan Bank continued its growth momentum and maintained its position as the leading Islamic bank in Pakistan (amongst both Islamic as well as conventional banks) as well as the fastest growing bank in the country. The Bank posted a profit after tax of Rs5.56 billion compared to Rs5.02 billion in the previous year, a growth of 11%. A significant achievement was the impressive increase in the financing portfolio of the Bank that increased by 50%, from Rs208 billion to Rs312 billion.

PAGE: COULD YOU TELL US ABOUT THE CONSUMER FINANCING BY YOUR BANK IN PARTICULAR?

MOHAMMAD RAZA: Meezan Bank is the pioneer in providing Shariah-compliant consumer products in the country. Meezan Bank offers wide range of consumer products and at present Meezan is the leading Islamic bank to have the variety of consumer products, which includes Easy Home (Housing Finance), Car Ijarah (Auto Financing), Bike Ijarah (Motorcycle Financing), Consumer Ease (Durable goods financing) and Meezan Labbaik (Haj & Umrah Financing).

Meezan Easy Home is a Shariah-compliant home financing facility through which a customer can buy or build a house, renovate an existing house or transfer the conventional house loan to Islamic Housing facility. Car Ijarah is the auto financing facility whereby customer gets new or used car on leasing for a period of 1 to 7 years.

Meezan Bank is always striving to provide products and services enabling to meet all the banking needs of consumer through Riba-free banking and our latest facility, Meezan Consumer Ease is another major step in this direction. Through Meezan Consumer Ease, customers can buy a wide range of household goods like LED TVs, washing machines, air conditioners, smart phones etc. on easy instalments.

Few years back, Bank had started financing facility for laptops and generator. Meezan Labbaik facilitates customers who wish to perform Hajj or Umrah via renowned travel agents on Banks panel. Customers have multiple payment options allowing them to make full payment of the travel package or pay in monthly instalments.

The Bank’s financing portfolio has also grown by an impressive 50% to Rs312 billion, outpacing the industry average of 17% by a huge margin. Owing to its well diversified product range and its professional expertise of providing tailored solutions to cater to the ever evolving needs of its customers, the Bank excelled in all segments including Corporate, SME/Commercial and Consumer Financing that grew by 42%, 62% and 66% respectively.

The Advances to Deposits Ratio (ADR) of the Bank stood at 55% – well above the banking industry average of 50%. The Bank maintained a high quality financing portfolio with an infection ratio as low as 2.14%, against the industry average of 11%.

PAGE: WHAT BENEFITS HAS AN ORDINARY PAKISTANI GOT FROM THE BANKING SECTOR OF PAKISTAN?

MOHAMMAD RAZA: The banking sector has created new possibilities for documenting the economy down to the last details. Banks have allowed the creation of savings instruments for the unbanked sector of the economy. The same holds true for individuals who belong to the underprivileged sector of the society.

Apart from these benefits, I feel the biggest advantage has been the technological penetration that has allowed consumers with greater ease and banking on-the-go. Banks have enabled customers to move beyond the cash culture towards digital transactions and plastic money. Consumers can now pay bills via their mobile phones. From top-ups to transferring funds to online shopping, the freedom offered is phenomenal.

In order to facilitate more efficient payment systems to its customers, Meezan Bank has also joined hands with 1LINK (Guarantee) Limited, the largest interbank payment network service provider in the country to issue PayPak branded Debit Cards. ‘PayPak’ is Pakistan’s first Domestic Payment Scheme that aims to provide an indigenous alternative to international payment schemes. It will help Meezan Bank penetrate the market, which is currently not tapped by International Payment Schemes.

PayPak will pave way for low cost merchant acquisition leading to expansion of merchant base in Pakistan. By providing a viable alternative to high cost international payment networks PayPak will go a long way towards developing an indigenous payment scheme. Through efficient and cost effective payments services for every citizen of Pakistan, PayPak will not only improve the access to ATMs and point-of-sale terminals across the country but it will also complement the Government’s objective of greater financial inclusion in Pakistan.

It is worth mentioning here that even today, transactions over POS through Debit Cards is an area where most of the banks struggle to show any significant traction. It is still mostly used by Credit Card customers. On the other hand, through conscious efforts, awareness campaigns, branch trainings, customer loyalty programs and various other initiatives, Alhamdulillah, Meezan Bank has continued to achieve highest POS spend numbers among all banks who route their transactions through 1-link.

The Bank is also making efforts to support the e-commerce industry of Pakistan. We are introducing 3DSecure service for e-commerce transactions. In the meantime, Meezan Bank partnered with leading e-commerce players to introduce the new way to shopping convenience to its customers through various strategic alliances.

Meezan Bank signed up with Invo8 to roll out FonePay digital payments. The FonePay platform is a complete digital ecosystem powered by MasterCard’s digital wallet solution, Masterpass. All Meezan Bank merchants on FonePay will pay the lowest MDR (Merchant Discount Rate) of only 1% on retail transactions, whereas industry average on conventional acquiring is between 1.5-2%.Meezan Bank was also the first bank to launch this payment platform for both its customers and merchants in January 2017 on pilot basis.

PAGE: ARE THE CPEC PROJECTS AN EXCELLENT OPPORTUNITY FOR THE BANKING SECTOR OF PAKISTAN?

MOHAMMAD RAZA: The China-Pakistan Economic Corridor (CPEC) is a tremendous opportunity for Pakistan and for Islamic banking. We are identifying the routes the CPEC will take in order to establish branches there. With $45 billion worth of infrastructure projects under CPEC, the opportunities to offer Islamic bonds (sukuk) for infrastructure will grow.

As far as the spread of Islamic banking is concerned, I certainly think this shall favour the growth of this industry further. It is worth mentioning here that Meezan Bank has recently entered into strategic cooperation alliance with Pak China Investment Company Limited (PCICL) for promotion of bilateral trade and investment between Pakistan and China. As per the agreement, Meezan Bank and PCICL shall strive to facilitate businesses of both the countries in undertaking strategic projects, particularly those covering China-Pakistan Economic Corridor (CPEC). Meezan Bank and PCICL shall collaborate in various areas of bilateral cooperation, where PCICL will benefit from Meezan’s commercial banking operations and extensive branch network of over 550 branches, corporate & investment banking, trade, commercial/ SME financing, treasury operations etc. Whereas PCICL with a strong presence in China through its parent organization China Development Bank (CBD); holds a strong industry standing and will introduce Chinese investors/corporations to Meezan Bank in order to mutually explore business avenues for greater cooperation and benefit via CPEC projects.

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