Jan 4 - 10, 20

Whilst significant inflows of foreign investments poured in to the financial sector of Pakistan within last seven years, has the reduction of urban-rural divide in financial services been as significant?

From $3.55 million in financial 2001-02, foreign direct investments in financial business rose to as high as $1865 million in FY08, without privatization proceeds, to $707 million in FY09. Ups and downs in inflows continued during the period, however it was only during last one and half year that foreign investments in the financial sector started shrinking, falling even 95 percent in July-November 2009. This decline, however, is not an excuse for concentration of financial businesses in the urban areas of the country since the total foreign investments so far reached to $4.56 billion (FY02-Nov 2009)-total assets of banking system stood at Rs6,105 billion in September. It is safe to assume that had half of the funds transferred to the corporate sector been directed towards agriculture economy, financial standing of the sector would have been much different.

By September 2009, there were four public sector commercial banks, 25 local private banks, seven foreign banks, and four specialized banks operating in the country. Corporate sector remains a magnetic force for the funds of banks in the country and there is no parallel of this segment in terms of leveraging funds from the banks. Corporate sector had 61 percent share in the total loans sanctioned by all banks up to September 2009 as it borrowed Rs2,081 billion out of a whole disbursement of Rs3,412 billion. Agriculture and small and medium sectors and commodity financing that have direct bearings on small and underserved markets had shares in total loans not more than 4.54 percent, 9.69 percent, and 11.70 percent, respectively. Even share in loans of consumer sector was 9.03 percent.

A large population of Pakistan is concentrated in rural areas, depending on agriculture to earn livelihoods. While the central bank focuses as priority area to extending financial services to underserved population by enhancing agriculture credits for instance, the financial services are still skewed inaccessible to a sizeable bankable population. Lack of opportunities to realize investments in rural areas of the country are forcing people to migrate to urban areas. According to the last population census, Sindh was the most urbanized province in the country with 49 percent of its population living in urban areas. While this migration under distress is a problem for planner, financial institutions should not be deluded at the prospect of new customers since most of the migrants are not economically well off and inflicted with poverty. By only increasing number of branches in rural areas, financial institutions can give a boost to growth in assets.

Development finances are now springing up as safe bet for commercial financial institutions world over and specialized banks are departing from the status of fundraiser to operate as full-fledged commercial banks. It is worthwhile to mention that Citigroup and Deutsche bank planned to enter microfinance because of the profitability the field offered. According to United Nations, studies conducted in India, Kenya, and the Philippines found that average return on investments by microfinance institutions ranged from 117 percent to 847 percent.

Chinese central bank detected a bottleneck of limited financial services in the rural areas in effective implementation of its credit and monetary policy and by introducing reform in the micro credit it removed the bottleneck efficiently. The reform opened doors for private financial institutions to expand outreach of development finances in the rural population. What it did was to promote participation of the private sector within the financial system, which used to be state-owned thus far. The new initiative was driven by the realization that access and not money was the hurdle in bridging rural-urban divide in financial services. The promotion of private sector specialized microfinance banks proved successful in turning rural borrowers back to formal banking channel from moneylenders, pawnshop, and other informal sources. There may be a lesson for present reforms of financial inclusion in Pakistan.

With the advent of technology, commercial financial institutions are making use of it to enhance their market shares in far-flung localities in the country. Usage of technology reduces cost of financial transactions while expanding business outreach. Not only banks but also all financial institutions in the country are geared towards utilization of technology to tap small and underserved markets. Mobile banking can bring them in to the financial system since there are over 90.5 million cellular subscribers.

Islamic financial institutions can be effective in promoting financial products the rural sections of Pakistan. Since most of the population in these areas is driven by Islamic doctrine, conventional financial products even if penetrated in the society found it hard to make clientele. Various surveys in the rural areas proved the dominated influence of religion on decision of financial services and revealed what stopped Muslim community to indulge in transactions with conventional financial institutions. Especially financing has still low reach in these areas because of the mindset. Agriculture community resorts to borrowing from informal moneylenders and avoid formal and sophisticated channel of financial transactions of banks or specialized banks. Interest-based financial product remains an underlying cause of farmers going to informal sources.

According to a conservative estimate, upon need of money if five percent rural people apply for loan in banks 95 percent are comfortable in seeking money from informal sources. Share of agribusiness in Islamic banks' financing is low. Islamic banks loaned Rs1.0 billion to agribusiness, 0.9 percent of total agribusiness loans, in the first quarter while concentration of funds was seen in individual financing Rs31 billion (22.2 percent), and textile Rs27 billion (19.7 percent). Foreign investments in rural financial sector can be of mutual benefits for financial institutions and local economy. By expanding branch network, Islamic financial institutions can grab a large share in rural areas.



Mobilink, Pakistan's market leader in Cellular Services and part of Orascom Telecom Holding, holds 39% of the market share in terms of revenue for the year 2009, according to the Annual Report 2009 issued recently by the Pakistan Telecommunication Authority (PTA).

In addition to holding the lion's share in terms of revenue, other favorable performance trends sustained by Mobilink and recognized by the report for the financial year 2009 include the highest Average Revenue Per User, the largest number of post-paid connections (0.5 million), largest coverage footprint with over 7,900 cell sites and the largest franchise network (429 franchises).

The report also states that Mobilink holds the largest share in terms of subscribers with 29.14 million subscribers at the end of June 2009. It is worth highlighting here that according to the Authority's website Mobilink has added more than one million subscribers since July and its subscriber base as of October 2009 stands at 30.28 million.

Rashid Khan, President and CEO, Mobilink, expressed satisfaction over the performance of the company. 2009 was a tough year for the economy and the country as a whole. However, the support by PTA, Ministry of IT and consistent efforts of the employees has enabled us to successfully propel our operations in a favorable strategic direction. I would also like to thank our loyal subscribers who continue to trust Mobilink, making it Pakistan's largest and favorite cellular family. 2010 is around the corner and we look forward to continue adding value to the lives of our consumers through quality of service and innovation."