An Interview with Saeed Khan — a Prominent Pakistani Banker Based in London

Dec 08 - 14, 2003



In all the developing nations of the world, the development programs have suffered a setback due to one essential factor — 'shortage of housing' and so is the case with Pakistan.

These observations were made by M. Saeed Khan, a seasoned banker settled in the United Kingdom and currently visiting Pakistan. Being a patriot Pakistani, Saeed Khan takes keen interest in the socio-economic development programs being carried out in Pakistan. Involving people at grass root as the stakeholders in the process of development has played a key role in all the developed nations and the developing nations too will have to follow suit to make their social, economic or political program a success.

In this respect, Saeed Khan has suggested establishment of Building Societies in Pakistan in the private sector which will not only activate the commercial climate but will add to the color of presently booming trade in stock exchange of the country.

His thought provoking ideas already moved for consideration of the people at the helm of affairs and is being outlined herewith.

"Introduction, of scarce and valuable capital into various industries that all such development programs triggers an influx of population from rural areas to urban ones, as people have to look for a better life style. The streets of any major city in such countries are paved with the proverbial gold. This illusion is soon shattered when the great mass of population discovers that they are not doing as well as they had imagined by moving to the cities but, that they are also facing a problem of housing shortage of acute proportions. The basic tenets of human existence in society, whether ancient or modern remain, food, clothing and shelter. Food and clothing are obtained willy nilly, sometimes people to with a drop of intake of these essentials but shelter is the crux of the problem. Thus faced with unattainable, the great mass of populations are forced to shelter in the best way they can, resulting in slums beyond all proportions springing up wherever a man can have a patch of land, often obtained by illegal possession. These slums not only mar the beauty of the areas being developed but also add to various ills already proliferated by people residing in them.

'Every man's home is his castle' is a saying we all well know the meaning of. Faced with the newly-acquired stressful living the cities, man retires to his home, so to speak to lick his wounds and seek solace and brace himself to cope with another day out into a fiercely competitive world. A home is a place where he shuts out, albeit, for a short peaceful few hours, the harsh reality of life. Another factor that adds to mans desire to own a house is that it represents his personal stake in society especially in developing countries. He feels part of the development efforts of the country and takes pride in it. But when at the end of the day he has to face a slum or shabby dwelling, which too is owned by someone else, his mentality towards his work suffers. His efficiency is impaired. Development and better housing are invariably linked with as one thing leads to another. The best and well intentioned ambitious programs have founded by a lack of 'will of develop' to the people. In my opinion 'will to develop' is an essential pre-requisite of any development process and better housing 'ipso facto' is an essential ingredient!

"Man is a conscious being, and not a machine. It is his love for his little nest that he has which projects itself into love for his country. What is it to him who sleeps on the footpath — soaks in the rain, roasts in the sun and bathes in gutter esterσhe has no stake in the country, and the stake is what makes a man tick in society".

A house gives a sense of self respect and solidarity, financial security and physical protection to a family and provides roots and sense of belonging to youngsters. A good healthy, mentally balanced and patriotic citizen is born, bread and brought up within the four walls of this home and heart.



Human settlement is a man made environment in which most economic and social activities take place. It is a permanent dwelling place of people, which is well planned and developed a positive contribution to the development of surrounding areas and overall national development. However a settlement with its basic needs in terms of services and facilities may become a major impediment to the process of development and "economic development is meaningless without first providing habitual shelter to the people".

The back-log of housing in Pakistan which was estimated at 2.7 million in 1980 may cross figure of 10 million units by the year 2005. Practically all the major cities of the country are in need of services like water, electricity and other infra-structural facilities which are essential to development of housing. Inflation erodes the savings of the low and middle income groups. For them owning a house is a dream never to be realized. Prices of houses are just beyond their will and ability to 'save' enough money during a life time.

What is the solution to this problem in Pakistan today?

The first pre-requisite for the successful implementation of the low cost housing program is the establishment of an independent 'Housing Bank' but the difficulties this bank will face is proposed financing for developing land and services e.g. water and electricity supply to new areas, provision of new roads etc. is immense. In most countries, finance for house purchase is provided by a variety of institutions, including commercial banks, saving banks, and specialist institutions such as Building Societies. The latter institution mentioned is the ideal solution to the housing problem in Pakistan. It is a refreshing idea. Pakistan is now ripe for the introduction of a Building Society based on a tried and trusted formula and which has functioned for a long time all over Europe had solved the housing problem faced by the people of these countries during the 18th and 19th century onwards and after World War II, hereby raising the overall standard of living in the country.

It is time to establish a Building Society to tackle all the housing shortage problems. The 1980 census survey depicts a population growth of 3 per cent per annum, and unless housing keeps pace with it, it would over-power all development plans of the country. In fact despite increased imports being injected into the economy by increasingly ambitious development programs, real development would be seriously impaired, and may even backslide.

The Building Society, Saeed Khan feels can take over the function of providing housing costing unto say Rs one million — two million of Rupees to provide houses for those most affected by the problem, and who in their life time cannot afford to buy a house i.e. the middle class income earning office worker, businessman. The low class income earning people like semi-skilled and unskilled labor, constitute the great mass of the population of Pakistan and are backbone of the country i.e. the man in the street.

A Building Society is the natural corollary of the age old credit co-operation. Co-operatives were/are formed to provide loans to members from the funds collected from the members themselves. But in the Building Society there is one essential improvement, the Building Society loans out 100 percent finance to purchase (usually against 10/20 percent of the total purchase price) to its members but on the savings side attracts funds not only from members but also from the public at large. The savings side holds the personal sectors liquid financial assets and performs the role that in many countries is undertaken by specialized banks. In Pakistan that need would be obliterated by creating a Building Society similar to the Building Society Act of 1982 in the UK. Like in the UK the law shall provide that the Building society is a special type of institution, that is to say, it will not be a company subject to company law, nor will it be a bank. The purpose for which is that of raising, by subscriptions of the members a stock or fund for making advances to members out of the funds of the Society upon security by way of mortgage of the freehold of the estate i.e. house.



The following important legal certainty under which the building society must operate are:

— A society can be formed by the Act of Law by the founders, invest unto Rs1/2 billion in the society.

— In order to achieve trustee status (in practice the building society in the UK have such status). The building societies must hold liquid assets 7.5 percent of its total assets and reserves.

— Societies are mutual organizations with investing members that is shareholders becoming members. However, in practice investing members tend to regard themselves as depositors only.

— The Chief Registrar (or any other name desired by the government) will be the government official responsible for ensuring that the legislation relates to the building society is observed. In certain circumstances he will make orders against the society and he will also be responsible for various statutory investments which will apply to the society.

— The manner in which the Society can invest surplus funds, that is those funds not lent on mortgage or held in property and so on, would be closely circumscribed, not too much by the requirement that a society must held seven and half percent of its assets in liquid form but rather by a statutory instrument, say an authorized investments order which stipulates which investments the society is able to hold. Basically. the society can only be allowed to invest in bank accounts and government and public sector securities. The objectives would be, a) to achieve 100 percent security and b) increase investment or surplus funds into the government thereby adding to funds of the government.

— The Society must only be allowed to lend only on the security of the freehold or leasehold of the property and this would set it apart from other institutions.

From the above it will be clear the operations of the Building Society would be closely circumscribed. Effectively the law would limit the societies to its basic functions of accepting investments and making loans to home buyers with surplus funds to be invested in a very narrow range of securities. Thus the Building Society will not be permitted to hold land except for the purpose of conducting its business, like office premises etc. Moreover by getting the Building Society apart from other institutions e.g. banks, the legislation would make it impossible for the Building Society to be controlled by another institution or for the Building Society to gain control of any other commercial organization i.e. it would be forced by law to concentrate its efforts on the task for which it is created by the Act viz accept deposits from investors and give loans for purchase of houses to:

a) Individuals against 10 percent margin (to be saved with the Building Society or deposited with the Building Society).
b) Provide loan financing to building loan companies for construction of badly needed additional housing units.

A single purpose Institution is needed if the housing problem in Pakistan is to be solved.

The introduction of Building Societies concept in Pakistan would lead not only to more houses being built but also to a better standard of housing being built. In fact quality construction would come into fashion by building companies if they are to obtain finance from the Building Societies. This would also help discourage the trend of unsound buildings presently being constructed by some of the builders which remain a threat to human life especially in a country like Pakistan with its extreme temperatures. Intense heat and intense cold compounded by rains in the monsoon particularly in the provinces of Punjab and NWFP which adversely affect the foundations of poor constructions being foisted by some of the builders on the unsuspecting public of Pakistan.

In Pakistan where mortality rate is high and in most families there is only one bread winner, death of that member of the household often spells disaster and hardship for the entire family. By covering his life for the entire period of the loan and covering the Building Society by the resultant insurance policy, the government would ensure that in case of such eventuality, an unfortunate and untimely bereavement, the families are not deprived of the shelter of the house. Rather the loan to the Building Society is paid in full and the house is fully paid up and belongs to the nominees of the bereaved borrowers. Thus chances of families becoming destitute would be reduced. At least they would have shelter to alleviate their hardship in such an event.

The proposed Building Society will have branches encompassing initially the following areas: Greater Karachi, Greater Lahore, Greater Peshawar, Greater Hyderabad and Greater Quetta.

The Building Society would be formed with 10 private investors investing Rs50 million each with small investors providing the additional funds.

The government would benefit in many was by the formation of a Building Society so it is fair that they should set the ball in motion. The political gains for the politician who take this bold step would be a tremendous one. The politician who sets up the means of providing the most important of these essentials viz shelter to the masses a Building Society will long be remembered by them as their Champion. So very effective results can be expected financially, development-wise and politically in passing an Act with expediency in Parliament and allowing a Building Society to open its doors first in Karachi and later, Lahore, Peshawar, Hyderabad and Quetta.