Lending, types, finances , agriculture, SME, corporate etc

2. Banking &
Financial
Institutions

3. Presented by
Farhana Shafique (1336-10)
Rafia Tufail (1327-10)
Sumrah Shakeel (1339-10)
Iqra Khalid (1407-10)
M.Sultan Bhatti (1319-10)
M.Zeshan Sarwar (1455-10)
M.Tariq Saleem (1328-10)
Presented to:
Prof. Naeem Amjad

4. What is lending? What are the main
sectors of lending?
Lending:
 Grant to (someone) the use of (something) on the
understanding that it shall be returned
 Allow (a person or organization) the use of (a sum of money)
under an agreement to pay it back later, typically with interest

5. Strategic Objectives of SBP
1- Broadening Access of Financial Services
2- Ensuring Soundness of the Financial
Sector
3- Maintaining Price Stability with Growth
4- Exchange and Reserve Management
5- Strengthening of Payment Systems

6. Broadening Access of Financial Services
Overview
 SBP in confluence with other stakeholders (government and the
banking sector) for financial broadening.
 Small & Medium Enterprises & Micro Finance, Islamic banking,
Housing & Infrastructure financing and agriculture credit were
the main areas of focus in its development finance paradigm.

7. SME Finance
 Growth engines of any economy due to their ability to create
jobs, foster entrepreneurship and to provide depth to the
industrial base of the economy
 3.2 million business enterprises1 in Pakistan, and SMEs
constitute over 99 percent of the aggregate
 In retail trade, wholesale, restaurants and hotel business SME
activity is 53%
 industrial establishments 20%
 service provision 22%

8. Contribution of SMEs (defined on the basis of
number of employees)
 Over 30 percent to GDP
 25 percent in export earnings

 35 percent in manufacturing value addition

9. Range of SMEs Loan
According to a market study conducted by
consultants from Bank academia
 30.7 percent of SMEs do not have a bank account at all
 85 percent do not take any loan from banks
 50.5 percent consider it very difficult to get loans from a bank

10. SBP’s Initiatives for Growth of SME
Finance
 Issuance of Separate Prudential Regulations for the SMEs, which
allow banks/DFIs lending to SMEs with a clean lending limit of
Rs.3 million
SME Finance via Downscaling Approach
 The downscaling approach is designed to provide existing
commercial banks with the technical know-how they need in
order to be able to disburse loans to very small and SMEs.

11. Performance of Micro Finance Banks
 After the Year 2000-01 the formal financial sector was opened to
Microfinance Banks (MFBs).
 The policy allowed institutional diversity as both regulated and
non-regulated institutions were allowed to cater to financial
services needs of the poor.
 Recently, SBP developed a strategy for expanding Microfinance
outreach, approved by the Prime Minister of Pakistan.
 This strategy provides Roadmap for expanding outreach from
existing one million to three million borrowers by Year 2010.

12. Export Finance Regime
 Major avenue for meeting the funding requirements of exporters.
Commodity-Wise Position
 Highest amount (Rs.219.823 billion) was disbursed to the textile
sector.

13. Ensuring Soundness of the Financial
Sector
 Undertaken to Strengthen the Banking
System Stability
 Prescribes significant up-gradation of risk management
standards and technological advancement within banks
 SBP has taken a number of initiatives and issued a roadmap for
implementation of Basel-II to ensure smooth transition to the
new regime
 Note:
Basel-II Capital Accord provides a comprehensive and more
risk sensitive capital allocation
methodology

14. Maintaining Price Stability with Growth
 Most desirable pre-requisite for growth and has become the
primary objective of central banks in industrialized as well as in
developing countries since 1990s
 Avoidance of high and volatile rate of inflation
 SBP tightened monetary conditions first by raising the Cash
Reserve Requirement (CRR) and Statutory Liquidity
Requirement (SLR) ratios
 Open market operations and pro-active liquidity management
strategy

15. Exchange Rate & Reserve Management
 Foreign Exchange Market in the country continued to grow both
in terms of capacity and volumes, thus making a valuable
contribution to the overall economic objectives of the country
 On the SBP’s FX Reserve Management front, although foreign
exchange outflows including support for oil / commodities and
debt amounted to USD 10.9 billion, it were more than off-set by
healthy inflows of USD 13.4 billion on account of FDI,
Privatization Proceeds, Bond Issuance, Remittances and Market
Purchases

16. Strengthening of Payment Systems
 Payment Systems and Electronic Funds Transfer
 Real-Time Gross Settlement System
 Society for Worldwide Inter-bank Financial Telecommunication
(SWIFT)
 Management of ATM Cash and Downtime
 Utility Bills Payment through ATMs
 Performance of Retail Payment Systems
 E-banking Infrastructure
 Clearing of Paper Based Instruments

17. Types of Lending
Fund Based (Current and fixed assets)
Non-Fund Based ( Fee based)
Others

18. Types of Lending
Fund Based Others
Overdraft Lease Finance
Cash Credits Non-Fund Based Hire-Purchase
Bill Finance Issue of Guarantees Finance
Issue of LC Mortgage Loan
Demand Loan
Deferred Payment Running finance
Term Loans
Guarantee Retail Loan
Closed-Ended
Open-Ended Loans Business Loan
Loans Corporate Finance
Consumer Finance
Project
finance

19. What is Fund Based Lending?
Introduction:
 A Fund-based loan is a loan, often for a short
term, secured by a company's assets
 In case of fund based lending bank commits the physical
outflow of funds. As such, the funds position of the lending
bank gets affected. The fund based lending can be made by
the banks in the following forms…

20. Overdraft
 A facility provided by the bank to its client, that he can withdraw
a limited amount from the bank in excess of his original balance
Features:
 Current Account
 Application
 Credit Analysis
 Short Term
 Interest
 Securities
 Guarantee

21. Cash Credit
 A common form of advancing loan in all banks
 It grants against:-
Personal Security
Guarantee
Clean Cash Secure Cash
Finance Finance

22. Features of Cash Credit
Separate Account
Securities
Pledge
Term of Finance
Interest

23. Bill Finance
 Bankers purchase and discount Bills of Exchange and so provide
loan.
 Credit the consumer account with the amount of the bill after
deducting discount charges.
Features:
 Account
 Income
 Customer
 Margin
 Bills

24. Demand Loan
 Demand loans are short term loans (typically no more than
180 days)
 Not have fixed dates for repayment
 Carry a floating interest rate which varies according to the
prime rate.
 Can be "called" for repayment by the lending institution at
any time
 Demand loans may be unsecured or secured.

25. Term Loan
 A loan from a bank for a specific amount that has a
specified repayment schedule and a floating interest rate.
Term loans almost always mature between one and 10
years.
 Short term ( less than 1 )
 Medium Term ( 1 to 5 )
 Long Term ( more than 5)

26. Close Ended Loan
 Cannot be borrowed once they’ve been repaid
 Make payments on closed-ended loans, the balance of the
loan goes down
 Don’t have any available credit, can use on closed-ended
loans
 Need to borrow more money, would have to apply for
another loan
 Common types of closed-ended loans include mortgage
loans, auto loans, and student loans.

27. What is Non-Fund Based Lending?
Introduction:
 non fund based lending, the lending bank does not
commit any physical outflow of funds. As such, the funds
position of the lending bank remains intact. The non fund
based lending can be made by the banks in two forms.
It has two further kinds:-
 Issuance of Guarantee
 Issuance of LC

28. Issuance of Guarantee
 A loan which is granted on the basis of guarantee given by
the third reliable party.
 Loan can be provided without guarantee if the party is
highly reputable.
 In case of default of the party, the guarantor will be liable to
the bank

29. Issuance of LC
 A letter of credit is a promise to pay
 Banks issue letters of credit as a way to ensure sellers that they
will get paid as long as they do what they've agreed to do
 Four parties that may involve in the process of letter of credit. A
customer, issuing bank, third party(beneficiary),paying bank
 Issuing bank reserves the right to cancel the LC at any time and
the bank will be under no obligation to give a notice of
cancellation to the beneficiary

30. Deferred Payment Guarantee

31. Open Ended Loan
 Loans that you can borrow over and over.
 Credit cards and lines of credit are the most common types
of open-ended loans
 With both of these loans, you have a credit limit that you
can purchase against
 Each time you make a purchase, your available credit
decreases
 As you make payments, your available increases allowing
you to use the same credit over and over.

32. What are other modes of Lending?
 Lease Finance
 Hire-Purchase Finance
 Mortgage Loan
 Running Finance
 Business Loan
 Retail finance
 Corporate Finance
 Consumer Finance
 Project Finance

33. What are other modes of Lending?
 Bad credit loans
 A bad credit loan usually refers to a loan offered to a borrower
who has a history of poor credit, and can be difficult to obtain
at affordable rates
 Debt Consolidation loans
 Combine your existing debts into one debt consolidation
loan, and you may significantly lower your monthly
repayments and reduce the total cost

34. Bank Lending
 Some areas or fields in a country depending on its
economic condition or government interest are prioritized
and are called priority sectors i.e. industry, agriculture.
these may further be sub divided
 Banks are directed by the state bank of the country that
loans must be given on reduced interest rates with
discounts to promote these fields.

35. Latest criteria of Lending
 Agriculture sector gets only 4.9 per cent share of the total
loans lent by the banks
 Corporate sector gains 63.5 per cent
 Bank’s staff gets 2.3 per cent
 Consumer financing attains 8 per cent
 SME gets 9.9 per cent.

36. Bank Lending Sectors
 Agriculture
 Small Scale Industries
 Small Road and Water Transport Operators
 Retail Trade
 Small Business
 Professional and Self-employed persons
 Education
 Housing Finance

37. Agriculture Sector
 The role of agriculture in Pakistan economy is of pivotal
nature
 Due to diverse geographical and climatic conditions the
country has tremendous potential for growth and
development in agriculture
 Adequate and timely financial assistance to the farmers
will improve production potential of agriculture sector in
the country.

38. Agriculture Sector
Banks authorized to provide agriculture credit to
farmers.
 SBP does not restrain any bank from providing agricultural credit.
However, under the Agricultural Credit Scheme indicative targets
are given to 21 banks on annual basis.
 These include; two specialized banks five major commercial banks and
14 domestic private commercial banks

39. Conditions for obtaining Agri. Loan
Application
Genuine Farmer/Tenant
Holder of a NIC
Not a defaulter of any Bank Financial Institution
Applicant must produce proper securities /
sureties or other collaterals acceptable to the banks

40. If one brother was declared defaulter, do
the banks provide loan to other brothers?
 Every individual could be separately considered for grant of
loans if he had credit worthiness and separate landed
property

41. Purposes of Agriculture Credit
 Complete value chain of activities such as production/crop
loans i.e. in-puts (seed, fertilizer, & pesticides etc.)
 Development loans (tractors &tube wells, agricultural
machinery / equipments / implements etc.)
 Corporate farming
 Marketing
 Cold storage (godowns) on farm & off farm, silos,
processing of crops (other than major crops), fruits &
vegetables, grading, polishing, packing, transportation and
exports of agricultural goods etc

42. Why the mark-up rate of Agricultural Credit
is higher than the mark-up rate of
Commercial/Industrial Credit?
 In the post financial sector reforms era, banks’ markup
rates are not fixed for different sectors
 Based on their cost structure and risk profile of the
borrowers and the sector
 Required to use KIBOR as a bench mark for determining
pricing of their loans

43. Is there any limit for agriculture financing?
 No, there is no limit on agricultural loans
 Loan limit amount is assessed by the ACO/branch manager
on the basis of financing appraisal or feasibility report etc

44. Is there any system/procedure under
which farmers can get agricultural loans
at their doorsteps?
 Mobile Credit Officers (MCOs) and Agricultural Credit
Officers of banks are visiting the farmers regularly to
ascertain the credit needs of the farmers and ensure its
availability at their doorsteps and also provide technical
help for different crops.

45. Education Sector
 Though 62 years have been passed and 23 policies and action
plans have been introduced yet the educational sector is waiting
for an arrival of a savior
 the allocation of funds for education are very low. It is only 1.5 to
2.0 percent of the total GDP
 It should be around 7% of the total GDP

46. Industrial Sectors
IT Industry:
 Pakistan’s IT industry has been rising steadily since the last three years.
 The total number of IT companies increased to 1306 and the total
estimated size of IT industry is $2.8 billion
 In 2007, Pakistan was for the first time featured in the Global Services
Location Index by A.T. Kearney and was rated as the 30th best location
for offshoring
 By 2009, Pakistan had improved its rank by ten places to reach 20th.

47. Industrial Sectors Cont’d
Textiles
 3% of United States imports regarding
clothing and other form of textiles is
covered by Pakistan
 Textile exports in 1999 were $5.2 billion and rose to
become $10.5 billion by 2007.
 Textile exports managed to increase at a very decent
growth of 16% in 2006.

48. Industrial Sectors Cont’d
Mining
 Based on available information, the country's
more than 6,00,000 km² of outcrops area
demonstrates varied geological potential for metallic and
non-metallic mineral deposits.
 The discovery of coal deposits having over 175 billion tones
of reserves at That in the Sindh province has given an
impetus to develop it as an alternate source of energy.
 Currently about 52 minerals are under exploitation
although on small scale.
 The current contribution of the mineral sector to the GDB
is about 0.5%

49. Industrial Sectors Cont’d
SME:
 In Pakistan SMEs have a significant
contribution in the total GDP of Pakistan,
according to SMEDA and Economic survey reports,
the share in the annual GDP is 40%
 Small and medium scale firms represent nearly 90% of
all the enterprises in Pakistan and employ 80% of the
non-agricultural labor force.

50. Industrial Sectors Cont’d
Automobile industry
 Pakistan is an emerging market for automobiles
and automotive parts offers immense business
and investment opportunities.
 The total contribution of Auto industry to GDP in 2007 is
2.8% which is likely to increase up to 5.6% in the next 5
years.
 Auto sector presently, contributes 16% to the
manufacturing sector which also is expected to increase
25% in the next 7 years
 Car ownership in Pakistan has risen by 40% per annum
since 2001

51. Industrial Sectors Cont’d
CNG industry
 As of 2010, Pakistan is one of the largest
users of CNG (compressed natural gas)
in the world.
 It has provided employment to over 50,000 people in
Pakistan
 Presently, more than 3,000 CNG stations are operating
in the country in 99 cities and towns, and 1000 more
would be set up in the next two years.

52. Industrial Sectors Cont’d
Cement industry
 In 1947, Pakistan had inherited four cement
plants with a total capacity of 0.5 million
tons
 Some expansion took place in 1956–66 but could not keep
pace with the economic development and the country had
to resort to imports of cement in 1976-77 and continued to
do so till 1994-95.
 The cement sector consisting of 27 plants is contributing
above Rs. 30 billion to the national exchequer in the form
of taxes

53. Procedure of lending
 Activities Covered in the Bank Loans Policy Procedure
 Assessing Capital Requirements
 Preparing the Loan Application
 Applying for the Loan
 Closing the Loan
 Loan Service and Reporting
 Loan Analysis
 Forms Included in the Bank Loans Policy Procedure
 Loan Application Checklist Form

54. Advantages of Bank Lending
 Competitive Interest rates(as compared to unconventional
lenders)
 Easy availability(because of bank’s profit and depositors of
the bank)
 No need to specify use of the money(in case of personal
loans)
 Speed(within one hour if appropriate documents are
available)
 Credit(businesses using bank loans increase
Their stability and credit score)

55. Advantages Cont’d
 Growth(in size of business and more profits)
 Uses(can be used in various dimensions)
 No need for collateral(in case of personal loans)
 Good lending terms and relations with the bank(bank
facilitates is lending criteria is met properly)

56. Disadvantages of Bank Lending
 Borrowers over-borrow(loans should be according to
repayment capacity)
 Prepayment penalty(payment of loan before the stipulated
date, charges penalty)
 Restrictions(good credit history and about the use of debt)
 Cash flow(decreasing cash flow due to too much
borrowing)
 Possible Delay In Getting the Loan(busy personnel and
inappropriate documentation)
 Not Everyone Qualifies for a Bank Loan(good credit score
required)

57. Disadvantages Cont’d
 Entire amount not granted(usually 70 or 80% granted)
 Inflexible( usually in payment terms)
 Security(lose of security in case of defaults)

58. STATE BANK OF PAKISTAN
CENTRAL BANK OF PAKISTAN
30 July , 2011
National Data Summary Page
Real Sector Fiscal Sector Financial Sector External Sector Population
Observations
Data Category Unit Period of Previous Links at Source
Latest data
latest data data
Real Sector
National Accounts
Gross Domestic
Product (Current Million Rs. FY11 18,062,901 14,836,536 FBS
Prices)
Agriculture Million Rs. FY11 3,698,658 2,978,950
Crops Million Rs. FY11 1,788,676 1,344,994
Livestock Million Rs. FY11 1,802,221 1,533,716
Fishing Million Rs. FY11 61,403 60,347
Forestry Million Rs. FY11 46,358 39,893

59. Industry Million Rs. FY11 4,323,057 3,577,659
Manufacturing Million Rs. FY11 3,167,947 2,487,069
Mining and Quarrying Million Rs. FY11 431,907 371,233
Construction Million Rs. FY11 396,777 352,530
Electricity & Gas
Million Rs. FY11 326,426 366,827
Distribution
Services Million Rs. FY11 9,085,772 7,509,906
Wholesale & Retail Trade Million Rs. FY11 3,115,906 2,464,342
Transport Storage &
Million Rs. FY11 2,132,844 1,846,735
Communication
Finance and Insurance Million Rs. FY11 649,701 616,116
Ownership of Dwellings Million Rs. FY11 401,687 345,555
Public Administration &
Million Rs. FY11 975,296 757,140
Defence
Community, Social &
Million Rs. FY11 1,810,338 1,480,018
Personal Services

60. Gross Domestic
Product (Constant Million Rs. FY11 5,817,406 5,681,531 FBS
Prices)-1
Agriculture Million Rs. FY11 1,216,523 1,201,945
Crops Million Rs. FY11 509,393 519,132
Livestock Million Rs. FY11 670,743 646,783
Fishing Million Rs. FY11 22,041 21,626
Forestry Million Rs. FY11 14,346 14,404
Industry Million Rs. FY11 1,499,360 1,500,345
Manufacturing Million Rs. FY11 1,085,440 1,054,276
Mining and Quarrying Million Rs. FY11 140,971 140,378
Construction Million Rs. FY11 146,169 144,985
Electricity & Gas
Million Rs. FY11 126,780 160,706
Distribution
Services Million Rs. FY11 3,101,523 2,979,241
Wholesale & Retail
Million Rs. FY11 1,000,477 963,368
Trade
Transport Storage &
Million Rs. FY11 581,388 574,101
Communication
Finance and Insurance Million Rs. FY11 260,172 277,555
Ownership of Dwellings Million Rs. FY11 158,707 155,916
Public Administration &
Million Rs. FY11 385,506 340,508
Defence
Community, Social &
Million Rs. FY11 715,273 667,793
Personal Services