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Management of Financial Institutions

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Management of Financial Institutions - MGT 604
VU
Lecture # 39
Can Government of Pakistan Lay a Pivotal Role in this Sector?
In the recent past SMEDA stands out as a significant step towards Govt of Pakistan
commitment to SME development. Created as an autonomous institution with private
sector led governance structure, SMEDA promises to become an important institution
spearheading Government's SME development efforts. However, in absence of a
coherent SME development policy framework it is unrealistic to expect a single
organization such as SMEDA, to be able to implement aggressive SME development
initiatives because:
1. Issues to be addressed for SME development fall within the
purview of a large number of Ministries and Departments at the
Federal, Provincial and Local government levels. SMEDA has no
institutional jurisdiction or linkage with such institutions; and
2. 2. SMEDA has limited budget and manpower, posing restrictions
on its capacity to launch capital intensive initiatives and extend its
outreach Thus to provide a coherent policy mechanism, there is a
need to develop a comprehensive SME Policy for Pakistan that
defines the role of concerned public sector institutions. Such a
Policy framework will provide the required direction and focus
for achieving SME led economic growth resulting in job creation
and reduction in poverty. Private sector growth in SME sector (as
opposed to the large scale manufacturing) will result in lesser
investments per job created, wider geographic and social spread
of investments and better income distribution.
SME Policy & Their Objectives
The objective of SME Policy is to provide a short and a medium to long- term policy
framework with an implementation mechanism for achieving higher economic
growth based on SME led private sector development.
The SME Policy suggests concurrent and specific policy measures in all possible
areas of SME development:
1. Business environment
2. Access to finance
3. Human resource development
4. Support for technology up gradation and marketing
A single SME definition is recommended to be applicable to all institutions
countrywide to allow uniformity in designing support systems and incentives and
also to monitor progress.
The SME Policy also contains an implementation and adjustment mechanism that
identifies the following:
Implementation and monitoring mechanism
Capacity building requirements of the public institutions
Resource allocation and potential sources of funding
Linkages with other initiatives and public sector reform processes (Social
Sector Reforms)
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Management of Financial Institutions - MGT 604
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Self contained framework for ongoing feedback and adjustment
Role of various public and private sector players at Federal, Provincial and
Local levels
The Policy finds it appropriate to highlight the key principles on which i t is
being based. They are:
The recommendations proposed in the SME Policy may be implemented /
supported through an SME Act 2006
The SME Policy covers measures for promotion of `Entrepreneurship
Culture' and support for growth of existing enterprises
The SME Policy realizes the different approaches required for supporting
Small Enterprises as opposed to Medium Enterprises. Thus, wherever
required, separate policy measures are proposed for small and for medium
enterprise growth
Women and other marginalized groups are proposed to receive special focus
within the SME Policy.
Rural based and agro processing enterprises are proposed to receive special
attention while devising specific support mechanisms
SME development offers most viable option for private sector led growth
that reduces poverty and creates a large number of jobs all across Pakistan.
SME development must be at the center stage of all economic growth
policies of Pakistan
SME development in Pakistan will require decisive and concurrent measures
in a number of policy areas such as business regulations, fiscal, trade rules,
labour, incentives and support (Human Resource Development, Technology,
Marketing, etc.) leading to an `SME Space' in these domains.
Sues face inherent disadvantages (because of their size) vis-à-vis large firms,
which need to be offset by government support mechanisms and incentives
Effective implementation of the Policy framework will require ownership,
commitment and monitoring at highest level of the Government
SME development requires provision of level playing field for smaller firms
vis-à-vis large enterprises.
Private sector will be encouraged to play a key role in implementation of the
SME Policy including mobilization of capital and operational responsibility
for implementing policy measures suggested in this document.
Financial support to enterprises will be, wherever possible, at a collective
level, and will essentially require resource commitment on behalf of the
beneficiaries.
Pakistan does not have a single definition of Small and Medium Enterprises.
Various Government agencies, e.g., State Bank of Pakistan (SBP), Federal
Bureau of Statistics (FBS), Provincial Labour Depts., etc. use their own
definition. Absence of a single SME definition makes it difficult to identify
target firms, align development programs, collect data and monitor progress.
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Management of Financial Institutions - MGT 604
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Business Environment
The fiscal, labour and enterprise regulations of the Federal and Provincial
Governments in Pakistan do not provide for a focus on SMEs that is in line with
their specific needs. Generally the fiscal regulations divide enterprises by income
levels and labour related regulations realize only two forms of enterprises, small and
large, thus, not providing laws and implementation mechanisms that are sensitive to
SME needs. Largely, the support and grievance redressal regime of the Government
does not differentiate between enterprises on the basis of their size thus making i t
difficult for SMEs to access public support programs and attention of public
authorities when competing for i t with the large firms. This dilutes the ability of
SMEs to effectively compete with large firms.
Access to Finance & Related Services
Now banks provide for only 7-8% of the total funding requirement of SMEs. Also,
as per a study by researches on `Barriers to SME Growth in Pakistan: An Analysis
of Constraints' , access to finance, was identified by SMEs, as the single most
important impediment to growth. This problem increases in magnitude with
reduction in size and experience of the firm. With the promulgation of the Prudential
Regulations for SME Financing by SBP, the basic regulatory framework for
promoting SMEs' access to formal financing has been provided. However, increased
SME access to financing will require interventions in all three areas of SME
financing, i.e., demand side (SMEs), supply side (Banks) and intermediaries and
regulators (SBP, SMEDA, etc)
Supporting Human Resource Development Technology Up- gradation &
Marketing
Need Assessment Survey to identify major SME needs in HRD, technology
up gradation and marketing.
Establishment of Institutes of Small and Medium Enterprise &
Entrepreneurship Development in select business schools.
Capacity building and up-gradation (curriculum redesign, provision of
equipment, teachers training, SME liaison, etc.) of selected sector specific
technical training institutes serving in major SME clusters and establishment
of such institutes where none exist.
Encouraging use of the technical t raining infrastructure by the private sector
BDSPs serving SME sector and incentives for investment in setting up SME
training facilities Induction of genuine SME representatives in private sector
boards of the technical training institutes.
Entrepreneurship Development
Pakistan is a society of `employees'. The education and social system does not
encourage entrepreneurship as a preferred career option amongst the youth.
Entrepreneurship is usually undertaken by those belonging to the existing business
families. As a result the economy witnesses a small number of new enterprises being
created and that too in traditional areas of business overcrowding the supply/product
base and their markets. On the other hand, there are no limitations in the
entrepreneurial capabilities in the populace. If, this entrepreneurial potential can be
unleashed, by providing level playing field, information, awareness and support in
establishing enterprises, Pakistan can witness fast paced growth in establishment of
new enterprises creating new employment opportunities, improving distribution of
wealth and exploiting the opportunities offered by international markets in the
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Management of Financial Institutions - MGT 604
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liberalized WTO regime. The past Government programs to encourage
entrepreneurship were limited and not too comprehensively designed and thus
achieved little in promoting entrepreneurship amongst the educated Pakistani youth.
There is a need for Govt. to actively promote entrepreneurship through changes in
education curricula, by creating awareness amongst youth and by providing effective
support to those who wish to establish new enterprises.
SME Policy Ownership and Implementation
A large number of Government Ministries and organizations (in addition to the
private sector) will have to play their role in removing impediments and providing
support for SME growth. Therefore, it is imperative that the SME Policy is approved
by the Prime Minister and endorsed by all Provincial Governments. Such support
coupled with clear definition of responsibilities of various Government institutions
will provide the required policy vehicle for promoting SME led economic growth in
Pakistan.
SME Policy Investment & Expected Impact
The SME Policy also presents the estimates of public and private sector investments
for implementation of the policy recommendations and envisages benefits in terms
of enterprise growth, job creation and poverty reduction.
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Table of Contents:
  1. Financial Environment & Role of Financial Institutions:FINANCIAL MARKETS &INSTITUTIONS
  2. FINANCIAL INSTITUTIONS:Non Banking Financial Companies
  3. CENTRAL BANK:Activities and responsibilities, Interest Rate Interventions
  4. POLICY INSTRUMENTS:Open Market Operations, Capital Requirements
  5. BALANCE OF TRADE:Balance of Payments Equilibrium, Public Policy and Financial Stability
  6. STATE BANK OF PAKISTAN:History, Regulation of Liquidity, Departments
  7. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS:Banking Inspection Department
  8. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Debt Management
  9. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Training Programs by SBP
  10. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Human Resources Department
  11. MAJOR DRIVERS OF FINANCIAL INDUSTRY:GLOBAL FINANCIAL SYSTEM, The World Bank
  12. INTERNATIONAL FINANCIAL INSTITUTIONS:ADB Projects in Pakistan, Paris Club
  13. PAKISTAN ECONOMIC AID & DEBT:Macroeconomic Stability, Strengthening Institutions
  14. INCREASING FOREIGN DIRECT INVESTMENT:Industrial Sector, Managing the Debt
  15. ROLE OF COMMERCIAL BANKS:Services Typically Offered by Banks, Types of banks
  16. ROLE OF COMMERCIAL BANKS:Types of investment banks, The Management of the Banks
  17. ROLE OF COMMERCIAL BANKS:Public perceptions of banks, Capital adequacy, Liquidity
  18. ROLE OF COMMERCIAL BANKS:Problem bank management, BANKING SECTOR REFORMS
  19. ROLE OF COMMERCIAL BANKING:Private Deposit Insurance,
  20. BRANCH BANKING IN PAKISTAN:Remittances, Online Fund Transfer
  21. ROLE OF COMMERCIAL BANKS IN MICRO FINANCE SECTOR
  22. Mutual funds:Types of international mutual funds, Mutual funds vs. other investments
  23. Mutual Funds:Criticism of managed mutual funds, Money Market Fund
  24. Mutual Funds:Balanced Funds, Growth Funds, Specialized Funds, Measuring Risks
  25. Mutual Funds:Cost of Ownership, Redemption Fee, Reports to Shareholders
  26. Mutual Funds:Internet Fraud, The Pyramid Scheme, How to Avoid Investment Fraud
  27. Mutual Funds:Investing In International Mutual Funds, How to Pre-Select a Mutual Fund
  28. Role of Investment Banks:Recent evolution of the business, Possible conflicts of interest
  29. Letter of Credit:Elements of a Letter of Credit, Commercial Invoice, Tips for Exporters
  30. Letter of Credit and International Trade:Terminology, Risks in International Trade
  31. Foreign Exchange & Financial Institutions:Investment management firms, Exchange Traded Fund
  32. Foreign Exchange:Factors affecting currency trading, Economic conditions include
  33. Leasing Companies:Basic Purpose of Leasing, Technological Benefits
  34. The Leasing Sector in Pakistan and its Role in Capital Investment
  35. Role of Insurance Companies:Indemnification, Insurer’s business model
  36. Role of Insurance Companies:Life insurance and saving
  37. Role of financial Institutions in Agriculture Sector:What is “Revolving Credit Scheme”?
  38. Agriculture Sector and Financial Institutions of Pakistan:What is SMEs
  39. Can Government of Pakistan Lay a Pivotal Role in this Sector?:Business Environment
  40. Financial Crimes:Process of Money Laundering, Terrorist Financing
  41. DFIs & Risk Management:Managing Credit Risk, Managing Operational Risk
  42. Banking Fraud & Misleading Activities:Rogue Traders, Uninsured Deposits
  43. The Collapse of ENRON:Auditing Issues, Corporate Governance Issues, Corrective Actions
  44. Classic Financial Scandals:Corruption, Discovery, Black Wednesday
  45. RECAP:FINANCIAL INSTITUTIONS, CENTRAL BANK,