There is a growing perception that in the absence of
DFIs in the country's companies undertaking leasing as core business
have become the only source for medium-term funds. However, the entry of
commercial banks in leasing business has resulted in severe competition,
which is being exploited by some of the clients. To find out the details
and possible remedies, PAGE talked to Basheer A. Chowdry,
Chairman, Leasing Association of Pakistan. Following are the excerpts
from the interview.
Leasing companies and a number of Modarabas have been
doing the core business of leasing for nearly two decades. However,
lately some of the commercial banks have entered the business purely to
utilize their excess liquidity. It has been observed that the banks are
offering the rates and other terms and conditions that are affecting the
overall health and stability of the leasing sector. While no one has any
objection on fair competition, there is an urgent need to bring the
leasing business of the commercial banks under the regulatory framework
of NBFC's Rules by establishing proper subsidiaries for this purpose.
Securities and Exchange Commission of Pakistan (SECP)
has developed prudential guidelines for various activities falling under
the NBFC umbrella. While some of the prudential measures would be common
for all the activities, it is encouraging that separate guidelines are
being developed for every activity to be conducted by the NBFCs, keeping
in view the particular risks and opportunities of the various types of
business. It is also useful that the respective Associations are being
consulted for the preparation of the prudential guidelines aimed at
creating an effective regulatory framework based on market realities.
It is no more possible for any entity with only one
service or products to survive and grow. The NBFC regulations are aimed
at providing ample opportunities to all the players to handle more than
one product and/or service in order to achieve diversity of operations.
We fully endorse the need for capital adequacy and the infrastructure to
handle any particular line of business. However, it may be pointed out
that the current formula of capital adequacy, requiring allocation of
specific blocs of capital for various types of businesses, favours only
the large organizations and hampers smooth operations of smaller
organizations, which actually need to diversify in order to enlarge
their business base.
It may be argued that the consolidations and mergers
of the organizations is a solution to overcome the prevailing situation
but it is also a harsh reality that most of the times it is difficult to
find suitable partners for the intended mergers. Therefore, it may be
appropriate that the formula of the capital adequacy may be reviewed in
order to compensate for the common functions among various types of
businesses and accordingly some concessions may be granted in
calculating the additional capital requirement. For example, investment
finance services and investment advisory services have some commonality
of operations and may be treated accordingly.
Growth of NBFCs is directly dependent on their
ability to mobilize resources at appropriate rates and maturities
relevant to their nature of business. This becomes more crucial for
companies undertaking leasing and housing finance business, requiring
funds of medium to long-term nature. While some of the NBFCs have issued
Term Finance Certificates (TFCs) and other debt instruments, it is
necessary that NBFCs be provided access to a pool of funding (possibly
managed by State Bank of Pakistan (SBP) and the SECP with appropriate
cost and maturity structure. Funds provided by multilateral agencies
aimed, at the deepening of the financial sector of the country, should
be diverted to such channels in order to enhance the business handling
capability of the NBFCs.
Recently, leasing companies have been made eligible
for the LLM Scheme under which soft-term refinancing is provided by the
SBP. Similarly, Export Finance Scheme should also be made available to
leasing companies to enhance their participation. Funds being allocated
by the donor agencies for the poverty alleviation could also be utilized
through the leasing sector for the micro and small leasing operations in
order to promote income generation at the lower strata of society.
It is also necessary that adequate training
facilities are made available at all levels of the staff of the NBFCs to
create a professionally strong infrastructure for handling various types
of products. It may be worthwhile to consider setting up an NBFC
Institute, on the pattern of the Institute of Bankers where suitable
courses and seminars are conducted for the benefit of the NBFC
executives and staff. Until such an institute becomes functional,
arrangements are being made with the Institute of Bankers to run
specific courses for the NBFCs. Various associations can lend effective
support by providing experienced instructors with practical knowledge to
undertake such courses.
The NBFCs have also embarked upon an active research
and product development programme to diversify their basket of services.
Experience of other emerging economies can be very useful and the
Leasing Association has been holding seminars, workshops and overseas
visits of its members for this purpose. Also, the outreach of the
leasing companies to the smaller towns has started to happen over the
last two years. This would have a beneficial effect particularly for
their marketing MSE and agricultural sectors.