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More microcredit access can end income inequality; IOT and Fintech ready to transform future banking

Setting up export-oriented industries is the only way for economic growth for our country

Interview with Mr Tanweer Haral — Head Strategic Marketing, National Rural Support Program (NRSP) Microfinance Bank Limited

PROFILE:

Mr Tanweer Haral is currently working as Head Strategic Marketing at NRSP Microfinance Bank Limited. He also worked for MCB Arif Habib Savings and Investments Limited spanning over 11 years where his last assignment was Head of Sales, Marketing. He even had the privilege of gaining a lot of experience in Corporate Banking with the leading banks for more than 6 years after completing MBA from IBA Karachi. NRSP MFB’s sponsors include NRSP, IFC, KfW and Acumen Fund. It enjoys entity rating of ‘A’ (long-term) and ‘A1’ (short-term) from both PACRA & JCR-VIS, while TFC issue is also rated ‘A’ by PACRA. NRSP MFB operates through more than 100 branches established across Pakistan. It has the distinction of operating the only Islamic window in Microfinance sector currently having 10 branches.

PAGE: YOUR VIEWS ON THE PERFORMANCE OF THE MICROFINANCE BANKING OF PAKISTAN OVER THE PERIOD OF LAST 06 MONTHS (JANUARY TO JUNE 2017):

TANWEER HARAL: In the last 6 months, Microfinance sector has further consolidated its footprint through new branches, enhanced lending and deposit base as well as added new products e.g. tractors Ijara/leasing, motorcycle & rickshaws Ijara/leasing. Low interest rates environment has enabled MFBs to procure deposits at slightly higher rates as compared to National Savings, Commercial Banks and other Financial Institutions in order to lend to less privileged segments of the society while focusing on high poverty areas. The growth in balance sheets of most of the MFBs has been quite healthy while delinquent portfolio has been at reasonable and sustainable levels.

PAGE: WHAT ROLE COULD BANKS PLAY FOR THE GROWTH IN THE RURAL ECONOMY?

TANWEER HARAL: NRSP MFB has the distinction of focusing on eradicating poverty in rural areas and has transformed lives in the rural sector by allocating highest microcredit volume & percentage of its Gross Loans Portfolio towards agriculture and livestock amongst all Microfinance banks. Other Microfinance banks do not have high penetration in rural areas and are more focusing on semi-urban and urban areas. Need of the hour is to allocate higher microcredit in rural areas in order to provide access to credit to less-privileged segments. This will also help in bridging the income disparities among urban and rural population which will ultimately result in lower population shift towards urban areas, employment generation and overall economic well-being.

PAGE: WHAT INNOVATION HAS THE BANKING SECTOR OF PAKISTAN ADOPTED IN TERMS OF NEW PRODUCTS, CONVENIENCE TO CUSTOMERS ETC.?

TANWEER HARAL: FinTech revolution is also happening in Pakistan. Millennials are increasingly relying on digital banking even in rural and semi urban areas for payments and remittances as Internet and Mobile technology has penetrated quite aggressively in our population. Smart phones have made lives easier and convenient for ordinary person. Internet of Things (IoT) and FinTech will transform banking in years to come and there will be low reliance on brick and mortar branches. Awareness and training to use mobile banking amongst lower and middle class segments is important for lower cost usage amongst them.

PAGE: HOW WOULD YOU COMMENT ON THE PERFORMANCE OF BANKING SECTOR IN THE NEXT 06 MONTHS OF THE CURRENT BANKING YEAR?

TANWEER HARAL: Overall banking sector’s profits have thinned due to lower yields on government securities. Besides agriculture loans, consumer lending for personal loans, credit cards, auto leasing/Ijara, housing loans need to be increased by banks to enhance their lending portfolios to balance out their earnings, which will also result in higher productivity and employment generation and economic growth for the country. With foreign exchange reserves, stock market and USD-PKR parity under pressure, next 6 months will be testing times for the banking sector.

PAGE: YOUR VIEWS ON THE CURRENT STATE OF ECONOMY:

TANWEER HARAL: Government’s quite a few incentives for setting new businesses and enhanced taxation measures on existing players have created anomalies. Spending on infrastructure has propelled cement, steel and construction related industries resulting in jobs creation. LSM has also risen with increasing auto and truck sales. Need of the hour is harnessing the enhanced energy by setting up export-oriented industries, which is the only way for economic growth for our country. This will ultimately result in bringing prosperity to the masses.

Sales tax rate is too high and needs to be brought down to 13% across Pakistan. Incidentally, only Sindh charges 13% GST while other provinces charge higher rates. Sales tax refunds have been a problem for industry and finance cost to manage their working capital ruins their profitability. Government shall pay penalty over delayed sales tax refunds as well as penalize tax & MOF officials who are responsible for it. Unless government is serious about this issue, refunds cannot be made in a timely manner and hamper growth and new investment.

Local investors have not been happy with Darnomics over the last 4 years. WHT on bonus shares was a bizarre policy, which has still not been done away with. Tax rates for Capital Gains and dividends have been gradually increased each year. One cannot do tax planning in Mr Dar’s tenure as he changes policy each year. Few years back, capital gains were exempted on holding for more than one year then it was increased to two years and then four years. Slab wise reducing CGT has been changed to flat rate which curbs medium to long holding and rather encourages speculation and day trading.

I agree with higher rates for non-filers so that they are incentivized to file tax returns. On account of GDP growth and fiscal deficit, I will give full marks to the current government, however, they have failed in managing trade deficit. They should have made luxury goods more expensive by enhancing custom tariffs. More than a billion dollars spent on importing smart phones and generators each. Government could have incentivized for their local production to decrease much needed foreign exchange in testing times when our exports have not grown. IT sector was unjustly taxed in reaction of which they established their bases in tax friendly countries for inward remittances. Engineering and value-added sector shall be promoted and competencies developed for export led growth, as dependence on cotton related goods cannot get us to prosperity and strategically is too primitive as well as risky for our economy.

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