A direct benefit to the people

Nov 28 - Dec 04, 2005

'Consumer-orientation' is a buzzword these days. It has been focus of attention in all kinds of businesses across the globe but such a situation was almost non-existent in Pakistan until early 1990s. Borrowing money for housing, personal reasons, businesses etc. was beyond the reach of the people at grassroots level in country. Only the privileged ones were bestowed upon with such benefits. And ironically, majority of those who were showered with such privileges never bothered to return the loans bagged from the public sector banks.

Alas! our beloved country, the dream of Iqbal, was economically handicapped by a few enemies of the state. Those in power used the public property and wealth ruthlessly and no voice was raised to bring such plunderers to book. Time heals all wounds. To some extent, our wounds have been healed by the corrective measures of some of our sincere leaders. It seems as if there was a ray of hope and that hope has been rekindled over last decade or so, to be precise.

It was in early 1970s when nationalization movement engulfed the country. The enthusiastic support of the majority expedited the movement and hence we witnessed all Pakistani organizations being nationalized and banking sector was no exception. Once banks became state proprietary, there were of course no chances of foreign investment in the banking sector. Though ABM-AMRO was the first foreign bank set up right after the independence of Pakistan, yet it was none other than the Bank of Credit and Commerce International (BCCI) which maintained high profile and seemed a formidable force. I don't think there was any other foreign investment in the banking sector in Pakistan. ABM-AMRO was not known by millions of Pakistanis until recently. Of course BCCI supervised by a renowned Pakistani banker was in good books of the politicians, since it was perhaps meant for them and their families. And we all have seen what happened to BCCI throughout the world.

My contention is that the masses in Pakistan got literally no benefit from the first foreign bank established in 1948 and the BCCI founded in 1972. It was only until recently that the masses have been focused which to me is the key to success. The credit goes to 1991 ruling government of our country which thought of privatizing the sick public sector banks for whatever reason. This economic impetus of private banking sector revived the banking industry and attracted foreign investment immensely. Nationalized banks such as Allied Bank and Habib Bank were privatized in 2002 and 2004, respectively, after the precedent of the Muslim Commercial Bank and the Allied Bank which were the first gift of privatization in 1991. The commercial banking revolution in Pakistan produced 14 private commercial banks by the year 2000. According to State Bank of Pakistan's Annual Report 2000-2001, there were 19 foreign banks operating in Pakistan. The tragic collapse of BCCI in 1991 and Mehran Bank's fraud scandal in 1994 could not hinder the foreign investment which kept into pouring due to a potentially sound market. The 1996 crisis in the banking sector is an exception as the ups and downs are part and parcel of daily life. The financial reforms of early 1990s brought about a large number of domestic and foreign banks. This evolution was greeted by the masses. The foreign investment in banking sector familiarized us with friendly banking system and international standards. Getting personal loans, money for housing, vehicle financing/leasing and availing credit and debit cards and on-line banking have become a common feature. Thanks to some politicians at the helm of leadership.

The first and foremost mark was made by some American banks Citibank, American Express Bank and Bank of America (Union Bank since 2000) in the boom of banking industry. Citibank, one of the largest foreign banks in Pakistan, nurtured the concept of consumer banking in Pakistan and was pioneer in offering automobile loans, Visa Card, a Photo Credit Card and individual mortgages in 1990s. Apart from Citibank, three other banks, Standard Chartered, Askari Commercial Bank since 1992 and Bank Alfalah Limited since 1997, have marketed themselves vigorously and been instrumental in providing services to the common Pakistanis.

Banking sector boom particularly over last five years has been immense. Now we have plenty of banks vying for consumers as compared to the past when the customer orientation did not prevail. The names like Citibank, Bank Alfalah Limited, Standard Chartered Bank, Askari Commercial Bank Ltd, Union Bank Limited, ABN Amro Bank, Habib Bank A.G. Zurich, Bank Al-Habib Limited, PICIC Commercial Bank Ltd, My Bank (previously Bolan Bank Limited), Faysal Bank Limited, Meezan Bank Limited, Metropolitan Bank Limited, Soneri Bank Limited, Mashreq Bank were scarce commodities in bygone days but are not anymore. These banks are there to provide services with convenience. I respect the ideas of those who think that consumption culture is being promoted but at the same time I would negate their suggestions of encouraging savings. Of course savings do help economy but reduced consumer spending jeopardizes the economy as well. Reduced consumer spending leads organizations to the brink of bankruptcy and the production level plummets. Till the beginning of this year, the interest rate were lowered which saw phenomenal growth and prosperity, though inflation increased. No pains, no gains. 2001-02 were quite successful years in terms of FDI. And the following year was quite productive for the banking sector since $214 million were invested through FDI, making it the leading sector in terms of foreign investment.

FDI in banking sector can be expedited by removing a few impediments such as lowering corporate tax rate, having stable political system and solving dispute cases by the investors rapidly.

Pakistan needs to reduce its corporate tax rate which is 35 per cent excluding the federal, provincial and local government taxes. On the other hand, India has reduced it to 30% and in other Asian countries it is 22% in Singapore and 17% in Hong Kong. Pakistan needs to establish active one window facility for local and foreign investors as recommended by the Investment and Privatization Minster Dr. Abdul Hafeez Shaikh.

Liberalization of banking sector which previously comprised only state-owned banks has vitalized the sector for which private banks are playing a significant role. The banking system has been revamped. Much has been done and there is a lot to be done to attract foreign investment which is productive for the country and benefits the ordinary citizens directly.