DEVELOPING A ROBUST BANKING SYSTEM IN BALOCHISTAN

SYED FAZL-E-HAIDER
Sep 15 - 21, 2008

Though banking has illustrated its capability to be strong and robust system which has great prospects and potential to grow given the retail market of the country, yet Balochistan sill needs an effective banking system channelizing the resources to the neglected economic sectors. Foreign banks are rapidly expanding their network in Pakistan by opening new branches and acquiring small and medium banks, especially those, which are financially weak and are unable to meet the central bank's requirement of enhancing the paid up capital over year. Banks can help exploit the potential opportunities of industrial development in fisheries, agriculture, handicrafts and other sectors of Balochistan economy. The efficient and professional bankers are needed to guide the potential investors and entrepreneurs, promote saving environment and mobilize the small businessmen in the province.

Banking system and its operation is not compatible with the requirements of the people of Balochistan. Few years back, many branches of banks were closed which caused difficulties for the people to deposit utility bills, draw salaries and pension etc. The people still have to travel longer distance to get these facilities in the province. The private banks are mostly concentrated in the provincial capital Quetta, which has the presence of many private banks like Standard Chartered, Al-Falah Bank, Al Habib Bank, KASB Bank, Faisal Bank, Prime Bank, Soneri Bank and Meezan Bank. Private banks are practicing customer-focused banking and providing modern banking facilities to their customers in Quetta. Most of their customers are flour mill owners, Ghee companies, shopkeepers, trading companies and from mining sector.

Balochistan lacks the genuine entrepreneurs and hence the private banks generally avoid giving loans for setting up small industries. Some private banks even banned loaning to the entrepreneurs in the province. Recovery of loans is the problematic area for the private banks due to the social, political and other barriers in the province. The banks flourish a saving culture among the people by introducing different saving schemes. The saving environment could not be created due to the lack of banking facilities in the province. The banks, nationalized and commercialized, did not play their key role in developing the local economy. There has also been a dearth of professional and skilled bankers in the province. Most of the bankers were unaware of the mechanism of banking system. There has been no concept of investment bank in Balochistan.

COMMERCIAL BANKING

Commercial banking can dent the vicious circle of poverty and underdevelopment by playing a crucial role in the economic development of the province. Unfortunately, the commercial banks merely played the role of collection booths in the province and hence could not promote industrialization by advancing loans to entrepreneurs. They could not perform their key functions of channelizing resources to different sectors of provincial economy, mobilizing the savings, promoting investment, accelerating industrialization and helping the government by providing it source of earning. Industry, Agriculture, Business, communication and services have been the most neglected sectors in the province. In capacity of good and progressive financial institutions, the commercial banks could not play their due role for the economic development of the province.

The banks should give loans to the potential investors providing them the necessary knowledge and help them establishing and launching industrial or commercial units, and thus creating job opportunities and developing human resources in Balochistan. In the past, the loans were not given to those who wanted to set up industrial units or launch some projects providing jobs and boosting economic activities in the province. On the other hand, shopkeepers and smugglers largely benefited from the bank loans. Most of the private banks were in control of commission mafia and getting kickbacks. The law and order situation and tribal culture has also been hampering the private commercial banks to play their role of key agents along with the entrepreneurs.

The government needs to formulate a viable strategy for promotion of commercial banking in Balochistan. First of all, law and order situation needs to be improved. Secondly, the infrastructure projects should be launched for improving access to the remote areas of the province. Thirdly, the banking network needs to be spread across the province by opening more branches of the commercial banks. The banking operations need to be diversified and banks should assume an active role in the economic development of the backward province. Fourthly, the efficient and competent bankers should be appointed in the branches of remote areas with a task to mobilize the genuine entrepreneurs and investors for launching industrial or commercial units. Finally, the government should also encourage the private banks to open their branches in remote areas of the province and help them to improve the recovery side of bank loans.

ISLAMIC BANKING

Balochistan is a society of tribal, traditional and religious-minded people. Generally, the local people abstain from purchasing insurance policies on religious grounds. Similarly, the local people have reservations on banking which also involves payment of interest. Local people believe that Islam forbids insurance due to involvement of fixed rate of interest and hence, they are more inclined to buying Shariah-compliant products. The concept of Islamic banking and insurance needs to be introduced for the promotion of Islamic banking and growth of insurance industry in the province. Islamic banking is a system of banking that is consistent with Islamic law and guided by Islamic economics. Islam prohibits usury, the collection and payment of interest. Presently, the provincial capital Quetta has the presence of different branches of Islamic banks such as Meezan bank, Saudi-Pak bank and Global Dubai Islami bank. Islamic banking can find rich social grounds for its growth and expansion in the province.

The emergence of Islamic banking in Balochistan would make banking easy for customers interested in financial products and services which are in harmony with their religious beliefs. Islamic banking brand can only meet customers' desire for Shariah complaint solutions. Islamic Banking should be promoted in the province as a client driven institution providing innovative solutions to cater to genuine customer needs. The central bank must actively and efficiently play its regulatory and supervisory role in the areas like risk management, corporate governance, prudential regulations, accounting and Shariah standards regarding Islamic banking. What primarily concerns the users of Islamic financial services is the Shariah compliance of the services. Noncompliance of Islamic law can result in withdrawal of funds from an Islamic bank. Hence, Shariah compliance is a serious matter for an Islamic bank.