IMPROVING THE ROLE OF BANKS FOR DEVELOPMENT OF BALOCHISTAN
Aug 24 - 30, 2009
The banks can play a significant role in the economic development of Balochistan, the least developed but resource-rich province of the country. Banks can help exploit the potential opportunities of industrial development in fisheries, agriculture, handicrafts, and other sectors of local economy. The province direly needs an effective banking system to channelize its resources to the neglected economic sectors. Unfortunately, the banks, nationalized and commercialized, did not play their key role in developing the local economy.
The commercial banks perform significant functions like channelizing resources to different sectors of economy, mobilizing the savings, promoting investment, accelerating industrialization and helping the government by providing it source of earning. Unfortunately, the commercial banks in the most backward province could not promote industrialization by advancing loans to entrepreneurs. 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 enjoyed benefits 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 province faces the shortage of entrepreneurs.
The banks should provide loans to the potential investors, provide 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.
Industry, agriculture, business, communication, and services have been the most neglected sectors in the province. 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.
The provincial capital Quetta has the presence of many private banks like Standard Chartered, Bank Al-Falah, Al Habib Bank, KASB Bank, Faisal 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 flourmill owners, Ghee companies, shopkeepers, trading companies, and from mining sector.
Balochistan is the most backward and poorest province of the country. The living standards of the people are incomparable to that of other provinces. The consumer financing can help improve the living standards of local people. The consumer financing is basically aimed at providing consumers with financing support to enhance their consumption and improving their standards of living through an institutional arrangement. The consumer financing is a lending to consumers by the banking sector and financial institutions. It is designed to provide the individuals with necessary finance for personal purchases ranging from buying a car, shopping purchases, to buying a house. Consumer financing is broadly categorized into the following four types of products: personal loans, auto loans, housing finance and credit cards, which include any card, which a customer can use to borrow credit from a bank.
The banking sector has been actively engaged in consumer financing over the last seven years by unleashing a variety of products. Consumer financing has however dropped almost 50 per cent in the country over a period of one year, according to the recent studies. Most banks have either decreased or put a stop to their consumer finance products owing to higher default rates.
The higher interest rate is the major reason behind rising number of default cases over the last one year. The slowdown in consumer financing is mainly attributed to the spiking cost of credit, as the central bank increased its key discount rate by 15 per cent in less than 18 months. It is still at 13 percent, highest in Asia. The rise in default cases forced the banks to sharply reduce their consumer financing business
Islamic banking is a system of banking that is consistent with Islamic laws and guided by Islamic economics. Islam prohibits usury, the collection, and payment of interest. Islamic banking does suit to a tribal, traditional, and religious mindset in Balochistan where the people generally 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 finance needs to be introduced for the promotion of Islamic banking and insurance industry in Balochistan. The emergence of Islamic banking as a dynamic and vibrant economic sector in the province would not only make banking easy for customers interested in financial products and services which are in harmony with their religious beliefs but also create enormous job opportunities for the educated local youth.
Islamic Banking should be promoted in the province as a client driven institution providing innovative solutions to cater to genuine customer needs. There is absolute dearth of professional Islamic bankers in Balochistan. The capacity building for the promotion of Islamic banking should be the top most priority area in the province. 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.
Presently, Quetta has the presence of different branches of Islamic banks such as Meezan bank, Saudi-Pak bank and Dubai Islami bank. Islamic banks can play a key role in the growth of Islamic insurance industry in Balochistan.
Spread of awareness about Islamic insurance business is essential for the growth and development of insurance industry in Balochistan. Insurance business in the province has remained underdeveloped despite having immense growth potential. Insurance sector operations have two main categories: life insurance and non-life insurance. There is need to highlight the importance of life insurance, which provides income and security for dependents after the death of the life-insured person. The growth of non-life insurance depends on industrial development in the province, which even lacks a sound industrial base. The life-insurance business can be flourished through an effective mass awareness program in the province. The awareness campaigns should be launched across the province offering the people Shariah-compliant products.
Micro financing can prove a vital approach to alleviate poverty and combat joblessness in the province, as it would help build human capacity. Provision of credit to the people at grassroots level and small firms is an excellent strategy to boost economic activities and generating job opportunities. The micro-credit banking in private sector can play a vital role in accelerating economic growth, facilitating finances to the downtrodden sections for their socio-economic uplift and eradicating poverty from Balochistan.
A strategy should be devised to ensure the access of poor and low-income households to institutional financial services. The government should encourage the micro finance practitioners and help them develop a formal and sustainable finance system for expanding micro finance supply across the province.