Country’s growth will progress steadily in the coming years
Pakistan’s banking heading towards more convenient payment solutions
Interview with Mohammad Raza — Group Head Customer Support, Meezan Bank
PAGE: Tell me something about yourself and your bank, please:
Mohammad Raza: I currently serve Meezan Bank as the Group Head of Customer Support. As far as my educational background is concerned, I graduated with a Bachelor of Engineering from DCET- NED University of Engineering & Technology and hold a Master’s degree in Business Administration from Institute of Business Management (CBM). I am a DAIBP and have also completed a Post Graduate Diploma in Islamic Banking and Finance from the Centre of Islamic Economics.
I 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, I was given the task of managing liability products and service quality in 2005. With the management’s decision of combining Strategy Support, Innovation & Transformation and Service Quality units, I have been assigned with the responsibility of heading the Customer Support Group at Meezan Bank.
Meezan Bank was launched in 1997 as an Investment Bank with an initial capital of Rs. 1 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 principles 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 over 750 full-fledged commercial banking branches today.
Today, 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 are your views on the financial sector of Pakistan?
Mohammad Raza: Pakistan’s challenges with the macroeconomy continue to persist with a decelerating growth in the FY 2020. The year 2019 ended with its share of challenges and bleak financial conditions, with higher taxes and stringent monetary conditions. There has been a significant decline in investor confidence in the country. Private and small to medium businesses have faced a rough patch while large scale businesses too have faced a sharp contraction in their business activities. Despite the increase in policy rate, inflation rates have maintained an upward trajectory.
For the Banks, this has increased the risks on their asset book, with slowing credit uptake; increase in cost of advances and a consequent impact on the customer’s repayment capacity. While the economy remains a burning issue, there is a critical need to focus on various aspects for a more stable outlook. The second quarter for FY 2020 has posted a surplus in the current account balance which is a welcome improvement, but the need for more deep-rooted structural reforms is now more evident than ever. I do feel that there is an urgent need to bring in policies that can pave a feasible path for foreign investment in the country. The lack of financial access too, is also a major contributing factor in the country’s declining growth rate. With merely 21% of banked population, steps need to be taken to broaden the access of formal financial services to the masses.
We have missed opportunity costs associated with an estimated 100 million adults who have the potential to contribute to the private sector through start-ups and SMEs. Pakistan has the widest gender gap in account ownership in the world. However, more than 77% of the country’s population has a mobile phone and are aware of mobile money. Here lies a massive opportunity for Banks and for Digital Financial Services that can power inclusive growth in an emerging economy like ours. This coupled with a stable political environment and improved law and order, a positive business sentiment and low inflation should bode well for the future. It is important, however, to consider the impact of key risks such as growing geopolitical tensions that might have an adverse impact on the economy.
PAGE: How would you comment on the growth of banking sector?
Mohammad Raza: Pakistan’s banking sector has tremendous opportunities thanks to the possibilities opened up by partnering with start-ups, financial firms and Fintechs. I believe we are heading towards more convenient payment solutions. Banks now have the benefit of better understanding their customer needs, designing agile products and services through partnerships with start-ups. Moreover, Fintechs, with their appetite to discover new areas of interests for customers can help banks offer financial services to meet unattended and specialized needs that they generally tend to overlook. While traditional financial institutions focus on identifying the areas of problems, Fintechs provide utile and innovative solutions creating a win-win solution for everyone involved.
In my view Fintechs are also helping banks lower the overall cost of innovation. Pakistan’s tumultuous economy does not promise a smooth path for the banking sector. Moreover with growing economic threats worldwide, there is much to be done in order to provide reliable, trustworthy and safer financial experience for the customers. What Banks must do in order to sustain their growth is to focus on innovation, agility and speed.
PAGE: Your views on financial inclusion in Pakistan?
Mohammad Raza: The growth of financial inclusion in Pakistan has been considerably slower as compared to its peers in the South Asian region. Currently, the country has an estimated 100 million adults who remain unbanked. While the Government and Regulators have been focusing on broadening access to formal financial services, in real, these efforts have produced sluggish results.
Pakistan is still struggling with its goal of providing either a Bank or a mobile account to atleast 50 percent of its population. Challenges such as lack of financial awareness, poor financial literacy, inadequate financial infrastructure and the complications and tardy documentations surrounding account registration have hindered the progress considerably. While the circumstances remain bleak, there is still considerable effort being made to encourage inclusion. With the advent of Islamic finance in the region, individuals who had previously avoided the interest-based system are now being drawn in towards a Riba-free system.
Meezan Bank too is playing a major role in drawing in more people towards financial inclusion. The introduction of a reduced KYC account called MeezanAsaan Account, which was later launched by the State Bank of Pakistan as a standard product for the whole banking industry, is one such example. Asaan account has become an astounding success, and has emerged as a billion dollar brand in a short span of 3 years only.
The State Bank of Pakistan has also introduced the Asaan Mobile Account — an extension of Asaan Account. This is a great initiative by SBP as this account will be opened digitally and the account holder can open this account through mobile phone. It can be very helpful in on boarding a large number of customers. Now, with a more focused approach on Digital Financial Services, more and more individuals are being drawn towards technology-based payments that offer fast and secure transactions.
In the same vein, Meezan Bank launched Pakistan’s first QR-based payment innovation. Through this initiative, the Bank aimed to promote digital payments in Pakistan’s cash-heavy economy, to develop an ecosystem of Masterpass QR-enabled retail payments using the FonePay App in Pakistan.
QR-based payments help the State Bank of Pakistan’s financial inclusion and digitization objectives, bringing merchants an efficient and cost-effective solution to offer their customers digital payments. Having said this, financial inclusion in the country is dependent on many other barriers especially for the low-income segment. The need of the hour is to focus efforts towards the circumstances and needs of the unbanked population in order to identify opportunities and offer them adequate products and services.
PAGE: Your views on the growth in business activities during next fiscal year?
Mohammad Raza: I believe that with the State Bank of Pakistan’s recent forecast of the country missing its target of 4% GDP growth; there lie ahead multiple challenges for the country’s economy. Pakistan needs to move forward with a host of macroeconomic and structural reforms, which can support the public and private sectors. Over the past few years, there has been little accomplished in the name of improving the entrepreneurial environment in the country.
In addition, significant rupee depreciation has created inflationary pressures on the economy, effecting both large and small business. Tight monetary policy and the current phase of fiscal consolidation are conditions that are likely to continue in FY 2020 making this a tough year for many. However, I am hopeful that with the gradual improvement in macroeconomic conditions and with the influx of more investments supported by structural reforms, the country’s growth will progress steadily in the coming years.
There has been a fall in current account deficit. In addition, there is a considerable decline in the trade gap as compared to previous months. This is likely to reduce the pressure on forex reserves in the near future. The rupee might gain value once the economic recovery starts. However, for investment-friendly policies to fully take effect, the economy might need another year to recover. Finally, with the recent restrictions imposed on the National Accountability Bureau towards suspected misconduct or tax evasion, business sentiment and confidence is likely to improve.