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FINANCIAL MARKETSIN PAKISTAN

Financial Markets of Pakistan

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State Bank of Pakistan

In May,1948, Muhammad Ali Jinnah took steps for the central

bank of Pakistan and it became operational in July1,1948.

The principal officer of the SBP is the Governor. The current

Governor of State Bank of Pakistan is Yaseen Anwar

The Central Board consists of nine members:

the Governor (who is Chairman),

the Secretary,

Finance Division,

Government of Pakistanand

seven Directors, including one Director from each Province, to be

nominated by the Federal Government ensuring representation to

agriculture, banking and industrial sectors.

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Role of State Bank of Pakistan

The State Bank of Pakistan looks into many ranges of banking to deal with changesin the economic climate and different purchasing and buying powers.

State Banks Shariah Board approves essentials and model agreements for Islamic modes

of financing

Procedure for submitting claims with SBP in respect of unclaimed deposits surrendered bybanks/DFIs

Banking sector supervision in Pakistan

Microfinance

Small and medium enterprises (SMEs)

Minimum capital requirements for Banks

Remittance facilities in Pakistan

Opening of foreign currency accounts with banks in Pakistan under new scheme

Handbook of corporate governance

Guidelines on risk management

Guidelines on commercial paper

Guidelines on securitization

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Commercial Banks

A type of bank providing checking and saving

accounts, credit cards and business loans.

Deposit Mobilization

Money transfer Financing Working Capital

Financing other trade related mode (import and

export)

Investing in government securities

Call money operations

These banks are of three categories (i) Public

Sector Banks, (ii) Private Bank and (iii) Foreign

Banks.

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INVESTMENT BANKS

Primarily, they assist corporations to raise

equity-capital by underwriting the public

issues.

They also assist companies desiring ofmergers and acquisition and derivatives.

Such banks cannot take deposits. They

manage their affairs by charging fees such as(i) retainer fee, (ii) advisory fees based on the

transactions, (iii) commission on underwriting

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DEVELOPMENT BANKS

These banks provide guidance in selection ofindustrial units and extend direct financialassistance to partly cover their financialrequirements.

Their core functions are:

Direct financial assistance

Catalytic function Mobilization of domestic savings

Ensuring balance regional and industrial growth

Expanding entrepreneurial base by encourage newcomers

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MICROFINANCE BANK

Microfinance bank provides credit to those

poor who are not considered creditworthy by

the commercial banks and other financial

institutions. The main aim of microfinance institutions is

alleviation of poverty through helping

poor persons to earn some money especially

the women.

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ISLAMIC BANKS

Islamic bank refers to a banking activity which

is consistent with the Sharia, the Islamic Laws.

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DISCOUNT HOUSES

A Discount House is a financial institution

devoted to trading in money market securities

in the secondary market.

These are firms which buy and discount bills ofexchange, banker' acceptance, commercial

paper, etc.

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Securities Exchange and Commission of

Pakistan

The Securities and Exchange Commission of Pakistan (SECP) is the financialregulatory agency in Pakistan whose objective is to develop a modern and efficientcorporate sector and a capital market based on sound regulatory principles, in orderto encourage investment and foster economic growth and prosperity in Pakistan. TheSECP incorporate under the SECP Act,1997 and became operational in January1999 and has come a long way since then.

Operational and executive authority of the SECP is vested in the Chairman who isthe SECP's Chief Executive Officer (CEO); Moazzam M Malik. He is assisted by four(4) Commissioners, particularly to oversee the working of various operational units asmay be determined by him.

The SECP is divided into the following divisions:

Company Law Division

Securities Market Division

Specialized Companies Division

Insurance Division

The SECP's head office is located in the NIC Building on Jinnah Avenue in the BlueArea of Islamabad, Pakistan's capital. It also has regional offices called Company

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Role of Securities Exchange and Commission of

Pakistan

It was initially concerned with the regulation ofcorporate sector and capital market. Over time, itsmandate has expanded to include supervision andregulation of insurance companies, non-banking

finance companies and private pensions.

The SECP has also been entrusted with oversightof various external service providers to thecorporate and financial sectors, includingchartered accountants, credit rating agencies,corporate secretaries, brokers, surveyors etc. Thechallenge for the SECP has amplified manifoldwith its increased mandate.

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INSURANCE COMPANIES

Insurance is a hedge against the risk of a contingentand uncertain loss. In other words, it is the equitabletransfer of the risk of a loss, from one entity toanother, in exchange for payment. For this service,

the insurer charges a fee called premium dependingupon the risk involved.

Takaful is an Islamic insurance concept based on

mutual co-operation, responsibility, assurance,protection and assistance between groups ofparticipants. These companies believe in promotingthe cause of Takaful as well as promoting theinsurance business in a Shariah Compliant

i.e. halal and absolutely Riba-Freeinsurance.

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STOCK EXCHANGES

Stock exchange is a place where securities are bought andsold. Such securities include shares, derivative, and bonds.

In order to list a security on the stock exchange, there are

certain requirements. Transactions in the stock exchange areconducted by members only. Stock exchange serves both asa primary market for the initial public offerings and as asecondary market for their subsequent buying and selling.

Investors are not bound to sell stock or bond through thestock exchange. They can directly deal with the seller.Similarly, there is no compulsion that stock must be traded onthe exchange. The securities can change ownership out ofthe exchange which is called over the counter or curb

dealings.

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LEASING

It is a contract where owner(lessor) of an asset

agrees to allow someone(lessee) to use it for a

fixed rental.

Types of lease:

Financial lease

Operating leaseWet lease

Dry lease

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Leasing

The financial lease is long-term and non-cancellable contract where the user assumessome of the risks of ownership and has the rightto keep the assets or get it transferred to its own

name after fulfilling the necessary conditions. Inoperating lease, the owner transfer only the rightto use the assets which is returned back at theend of the lease.

In wet lease, a company agrees to provide anaircraft along with pilot and crew and would beresponsible for the maintenance of the aircraft.Dry lease, on the other hand, refers to leasing

only the aircraft.

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