Final Repot Nbp

CHAPTER 1 1.1 INTRODUCTION 1.1.1 EVOLUTION OF BANK 1. It has not so far been decided as to how the word ‘Bank’ originated. Some authors have got the opinion that this word is derived from the words ‘Bancus’ or ‘Banque’, which mean a bench. Other authorities hold the opinion that the word ‘Bank’ is derived from the German word ‘Back’, which means ‘joint stock fund’. It is therefore, not possible to decide as to which of the opinion is correct, for no record is available to ascertain the validity of any of the opinions. 2. Banking in fact is primitive as human society, for ever since man came to realize the importance of money as a medium of exchange; the necessity of a controlling or regulating agency or institution was naturally felt.

Perhaps it was the

Babylonians who developed banking system as early as 2000 BC. It is evident that the temples of Babylon were used as ‘Banks’ because of the prevalent respect and confidence in the clergy. 1.2 HISTORY OF BANKING IN PAKISTAN 3. At the time of independence, there were 631 offices of scheduled banks in Pakistan, of which 487 were located in West Pakistan alone. As a new country without resources it was very difficult for Pakistan to run its own banking system immediately. Therefore, the expert committee recommended that the Reserve Bank of India should continue to function in Pakistan until 30th September1948, so that problems of time and demand liability, coinage currencies, exchange etc. are settled between India and Pakistan. The non-Muslims started transferring their funds and accounts to India. By the end of June 1948 the number of officers of scheduled banks in Pakistan declined from 631 to 225. There were 19 foreign banks with the status of small branch offices that were engaged solely in export of crop from Pakistan, while there were only two Pakistani institutions, Habib Bank of Pakistan and the Australian Bank. The customers of the bank are not satisfied with the uncertain condition of banking. Similarly the Reserve Bank of India was not in the favor of Govt. of Pakistan. The Govt. of Pakistan decided to establish a 1

full-fledge central bank. Consequently the Governor-general of Pakistan Quaid-IAzam inaugurated the State Bank of Pakistan on 1st July 1948. Thus a landmark was made in the history of banking when the state bank of Pakistan assumed full control of banking and currency in Pakistan. The banking structure in Pakistan comprises of the following types. 4. State Bank of Pakistan 5. Commercial Bank of Pakistan 6. Saving banks. 7. Cooperative banks 8. Specialized credit institutions. 1.2.1 COMMERCIAL BANKS 9. Commercial banks have been the most effective mobilizes of savings and have been providing short-term requirements of working capitals to trade, commerce and industry. 10. Up to 31st December 1973, there were 14 Pakistan commercial banks that were performing their functions all over the country and in some foreign countries through a network of branches, the name of these were: 11. National Bank of Pakistan 12. Habib Bank Limited 13. Habib Bank (Overseas) Limited 14. United Bank Limited 15. Muslim Commercial Bank Limited 16. Commerce Bank Limited 17. Australia Bank Limited 18. Standard Bank Limited 19. Bank of Bahawalpur Limited 20. Premier Bank Limited 21. Pak Bank Limited 22. Lahore Commercial Bank Limited 23. Sarhad Bank Limited 24. Punjab Provincial Co-operative Bank Limited 2

25. All these commercial banks were nationalized in 1stJanuary 1974, and were recognized and merged into the following five banks: 26. National Bank of Pakistan 27. Muslim commercial bank limited 28. Habib Bank Limited 29. United Bank Limited 30. Allied Bank of Pakistan 31. The state bank of Pakistan is the Central bank of the country and was established on 1st July 1948. The separation of East Pakistan and its repercussion in the form of economic depression has caused a lot of difficulties to the banking system in Pakistan. The network of bank branches now covers a very large segment of national economy. The numbers of branches have increased appreciably and there is now one branch of bank for every 3000 heads of population approximately. There is done reasonable growth in deposits from the establishment of Pakistan. Besides this growth, specialized credit and financial institutions have also developed over the years. 32. The Government of Pakistan in the late 90’s introducing the need for the privatization of state owned banks and companies.

The private sector has

accepted the challenge and most of the banks are privatized today. The State Bank of Pakistan issues the shares of these periodically. Bank employees and other common the people can also purchase these shares and earn profit. Through out the period of banking history the banks have been expanding rapidly and achieved the desired goal of progress. 1.2.2 Commercial Banking in Pakistan South Asia has proved to be fertile land, not just for crops, but also for intelligent and learned brains. People of this area have God gifted ability of mathematics and calculations. The Indian society was quite familiar with the banking right from the beginning. Informal banking practices and banks existed in one form or the other. The English, brought with them much developed and organized banking methods and practices. Being home to nearly one third of world’s population, this region has always been the center of attention of world’s economic powers. The sense of competition 3

between the local and international banks has proved to be fruitful in the development of the banking sector thus contributing towards the growth of the region’s economy. At the time of independence, the areas which now constitute Pakistan were producing raw material in the form of food grains and different other agricultural products. There was practically no industry setup in Pakistan. However, the commercial banking facilities were well established. As a country without enough resources it was very difficult for Pakistan to run its own banking system but the father of the nation, Muhammad Ali Jinnah took the bold step to establish the State Bank of Pakistan in July, 1948. At the time of partition only 38 banks were operating in Pakistan. Out of 38 banks, only 2 were Pakistani, 29 were Indian and 7 were exchange banks. Commercial Banks have constituted the most important part of the intuitional credit in the economy of Pakistan. Being the largest source of credits, banking industry is the pivot of whole the economic activities in Pakistan. State Bank of Pakistan Act of1965 lays down the rules and regulations to organize banking companies known as scheduled bank. 1.2.3 OVERVIEW OF NATIONAL BANK OF PAKISTAN HISTORY National Bank of Pakistan was established on November 9, 1949 as a result of deadlock with India and the devaluation of the Indian rupee where Pakistan much to India and British consternation did not follow suit. The objective of establishing the bank was to provide much needed financing to the agricultural sector, particularly to facilitate the badly hit jute trade. The bank then went on to become the sole agent of the State Bank of Pakistan for handling provincial and federal government receipts and payments. The paid up capital of National Bank is 4924.106 million rupees. This is 14 percent of the combined paid up capital of the 18 listed commercial banks amounting to Rs.3.528 billion. Such a large paid up capital places National Bank at the number one slot in the entire financial sector. Muslim Commercial Bank Limited and Faysal Bank Limited are placed second and third respectively on basis of paid up capital. Meezan Bank Limited is last and smallest on the list with a paid up capital of Rs.1170.450 million. The bank maintained its position as the largest bank deposit holder in Pakistan. The integration of corporate and investment banking efforts in enabling the bank to offer wider products range besides making it a major player in debt and equity market. The 4

Bank has one joint venture in U.K. and one wholly owned subsidiary in Kazakhstan. The U.K. Operations of the Bank were merged with that of United Bank Limited to form a Joint Venture Bank namely Pakistan Investment Bank (PIB) incorporated in U.K. NBP has 45% of share holding while the balance 55% is with UBL. On the retail-banking front, the bank successfully launched a product “ghar ghar television” which not only brought additional revenue but also served as a launching pad for similar initiatives. NBP launched a housing scheme to cover all sections of the society with monthly income starting from as low as Rs.5000/- per month. Branded as ‘NBP Saibaan’ (Housing for all), the scheme offers a maximum loan of Rs.10 million in accordance with the debt burden criterion. Loans are available for Home Construction, Home Purchase and Home Improvement. For Home Improvement Loans the maximum amount is Rs.2.00 Million. NBP further consolidated its market position in the consumer financing and its product “NBP-Advance Salary” has been availed by approximately 475,000 customers. Overall loan growth was also impressive as net advances increased by Rs.26 billion as compared to December 2003. Within a period of 18 months, NBP has disbursed approximately 23 Billion Rupees to over 425,000 customers under this scheme. National Bank of Pakistan through its branch in Kabul formally commenced operations in Afghanistan from October 07, 2003, thus becoming the first foreign commercial bank to open its branch in Afghanistan. Since then, another branch has been added to it. NBP is one of the top performers in Afghanistan and within a short span of one year; the deposit base of NBP’s branches in Afghanistan has surged to Rs2 billion. With the opening of trade prospects with India, the NBP would enter the competitive Indian banking market. The State Bank of Pakistan has instructed all commercial banks to switch to only one link, which would enhance the availability of numbers of ATM to cardholders by many times. By the end of June 2004, NBP planned to have a minimum 70 new ATMs at various business centers. With the current figures at 30, NBP has fallen far short of its target. Interestingly, 16 of the ATM’s are in Islamabad along, that’s more than the number in the rest of the country put together. The National Bank has set a growth rate of eight per cent in its deposit base during 2004, especially targeting deposits from the private sector. Recent surge in domestic interest 5

rates poses no threat to the national economy. Blue chip companies are still getting loans at competitive interest rates on the basis of their stable balance sheets. The bank is witnessing major developments in the field of technology. For facilitating the customers round the clock payment of utility bills, around 100 kiosks are being established in the important cities. In addition, branches covering 80% business are converted into fully automated on real time basis. NBP is the most profitable bank in the history of Pakistan, with a record high before Tax profit of over Rs.9.00 Billion. It is already the best bank in Asia and the 8th Best in the world in terns of return on capital in 2002 and declared as one of the top Banks in emerging market - 2003, by global finance USA as well as Bank of the year in 2001 and 2002 by the Banker Magazine UK. In its issue of March 2004, “Global Finance” has also declared NBP as “The Best Foreign Exchange Bank” in Pakistan. With the technology of modern cash flow based lending now in place, NBP will remain a strong force in the national development. In short, NBP is the ‘Nation’s Bank’ with an international recognition and acclaim, working towards national development and raising the overall standard of the people of Pakistan. The year 2003 saw National Bank post the highest ever profit for Pakistan’s financial sector. This can be attributed to the successful strategic and operational repositioning of the bank by management confronted with the dual challenges of appreciably lower spreads and intense competition. I believe that despite competitive interest rates, slim margins and standard retail banking, NBP is expected to be a major beneficiary of our economic revival due to its low cost deposit base and branch network. At the end of the financial year 2003 NBP realized a pre-tax profit of Rs. 9 billion, a Rs. 3 Billion increase and a 50% growth over 2002. What is more encouraging is that the boost to profitability was on account of the higher net asset margin achieved from rebalancing of the bank’s earning asset mix. This was evident from a 2% pretax return on assets, a 40% improvement over last year whereas the pretax return on equity at 55% placed NBP in the top tier of Pakistan’s listed corporate and financial institutions. Earning per share has consequently almost doubled from Rs. 5.49 in 2002 to Rs. 10.23, the highest in the banking sector.

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1.3 Mission of NBP To be recognized in the market place by Institutionalizing a merit & performance Culture, creating a powerful & distinctive brand identity, Achieving top-tier financial Performance, and Adopting & living out our core values.

1.4 Objectives of National Bank Objectives are ends towards which an enterprise activity is aimed. The purpose of business is production and marketing of economic goods and services but to accomplish these objectives to a number of enterprise objectives may be necessary. 33. National bank of Pakistan has certain objectives. These objectives are  Advancing loans  Accept deposits  Remitting of funds  Sale of promissory notes  Selling and realizing property of bank claims  Investment or underwriting of stocks

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1.5 Organizational

President

Chart

Senior Executive Vice-President Executive Vice-President Senior Vice-President

Vice-President Assistant Vice-President

Branch Hierarchy

Officer Grade 1 Officer Grade 2 Officer Grade 3 Senior Assistant Assistant

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1.6 Departments in National Bank Main Branch Following departments are working in NBP main branch  Deposit  Foreign Exchange  Import and Export  Credit and Advances  Remittances and Deposits  Accounts  Government  Consumer retailing Graphical representation of departments:

Departments

Deposit Deptt.

Remittance Deptt.

Foreign Exchange Deptt.

Accouns Deptt.

Credit Deptt.

Govt. Deptt.

Admin Deptt.

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1.6.1 Deposit Department National Bank of Pakistan accepts/collects deposit from their accountholders. An account opening form is provided to prospective Customer. At the same time introduction of that Customer is an integral condition so that provided information by that Customer may be got authenticated. An existing Accountholder may introduce the incoming Customer. The Manager takes the Account holder’s specimen signatures on signature Card in order to avoid future problems. At the occasion withdrawal of fund Accountant compares the signature on cheque to the provided Specimen of Signatures. 1.6.1.1 Payment Of Cheque At Counter When cheque is presented at counter for payment, the officer examines the cheque before issuing a token. The following is looked into: 

The cheque is drawn on the same branch of the bank.

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The cheque is not crossed that it is open cheque.

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It is not stale or post dated.

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The drawer has signed the cheque.

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The amount written in words and figure is same.

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The drawer of the cheque duly signs all alteration or cancellation.

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The presenter has signed at the back of the cheque.

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The cheque is not payable to the limited company.

1.6.1.2 Processing of Cheque The accountant/authorized officer examines the cheque for the above mention things. When cheque is found acceptable in all aspect, the signature of the drawer compared with his signature on the Specimen Signature Card. When it is found similar to specimen signature, he affixes SIGNATURE VERIFIED stamp, near the drawer signature in the cheque and sign it. Then he checks the balance in the account, if the account has the sufficient balance, the cheque is posted. The cheque is then handed over to the cashier. The cashier calls the presenter and takes his token and compares the token number with the number written at backside of the cheque. He takes out the cash to be handed over to the presenter and writes its denomination at the back of cheque.

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Thereafter, he gets signature of the presenter at the back of the cheque and hands over cash to him and affixes CASH PAID stamp on cheque. 1.6.1.3 Payment of Cheque in Transfer The customer of the branch deposits the cheque drawn on the same branch, for the payment to the credited into his account, attached with pay in slip. The officer accepts it after looking into the following: The person depositing the instrument for collection is the customer of branch. 

The correct pay in slip (current/saving) is attached with the cheque.

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The depositor signature is presented on the slip.

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The account number of depositor is written on both the sides of the slip.

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The word and figure of the amount tally with each other.

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The cheque is neither post dated nor stale.

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The drawer signature is present on the cheque.

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The drawer signs the alteration on the cheque.

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The cheque in name of the company, firm etc is not going into the account of any person.

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The cheque with PAYEE ACCOUNT ONLY crossing is not being deposited into the account of any other person other than the person mention on the cheque.

1.6.2 Foreign exchange department Foreign exchange is an important department in bank system. In the foreign exchange department all the operations of the bank are done in the same way as in all other departments of the bank this department also involve in deposits, remittances and advances but the difference with other department that the foreign exchange department deals in foreign currency rather then in local currency. For opening of account in foreign exchange the Minimum balance required is $100.This department is just like Cash Department in local currency. In this department, the dealing is made in foreign currency. In National Bank of Pakistan, four currency accounts are available:

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 US Dollar  Pound Sterling  Japanese Yen  Euro 1.6.2.1 Functions The department performs the following functions:  Account opening  Account closing  Inward/outward remittance  Issuance of traveler cheque 1.6.2.1.1 Account opening Terms and conditions: Account opening requires two things National ID card of the customer and introducer Customer Customer is the person who comes with the purpose of opening the account Introducer Introducer is a person having the account in same branch and gives guarantee about the customer. If the introducer is not proper than state bank charges RS 5000/- per head from that employee of the bank who has opened the account of the customer on the request of the introducer. 1.6.2.1.2 Procedure of Account Opening and Depositing Foreign Exchange: First of all, the customer is required to fill an application form. Then he attaches the photocopy of his identity card and fills the signatory cards. Then he is allotted an account number by entering in the account opening register. Now he fills the pay-in slip and deposits money on the counter. Following things are needed for opening of account:  Account opening form  Signature card  Letter of kinship 13

 Letter of thanks  Issuances of cheque book

1.6.2.1.3 Inward/Outward Remittances The remittances are of following types:  Foreign Telegraphic Transfer (FTT)  Foreign Demand Draft (FDD)  Foreign mail transfer(FMT)  SWIFT  Western union money transfer(WUMT)  Foreign Exchange Bearer Certificates (FEBC)  Special US Dollar Bond 1.6.2.1.3 .1 Western Western Union Money Transfer: Western union money transfer is a fastest way to receive money worldwide. It is working in almost 200 countries. Different Govt and private organization are dealing with WUMT Govt organization e.g. banks Private organizations e.g. Zarco, Money changer, Dollar East, Master Currency Main office of WUMT is situated in Dubai; it is a procedure of counter payment Time required in only one hour and deduction on it is $50. 1.6.2.1.3 .2 Procedure of payment WUMT just needed identification, no need of a/c, its an counter payment Procedure of payment is that the customer came to specific person who is dealing with WUMT tell him the 1) MTC NO 2) Receiver name 3) Sender name 4) Telephone no 5) Photo copy of ID card 14

6) Expected amount (10% margin is acceptable) acceptable) 7) Test question

1.6.3 Credit and advance department 1.6.3.1 Credit It may be defined as “The sale of goods and services and money claims in the present in exchange for a promise to pay in future. “ The most important activity of the bank is the granting of credit to the customers. NBP provides short term long terms financing for domestic and international trade. The policies made by central office of the cash can be amended on the basis of the rules and regulation, economic risk of each country board of directors and committee of the NBP made this type of decisions and informed about these decisions to the branch managers. Manager can grant the credit limit to each customer with in the declared limits approved by the controlling offices i.e., co, GHQ, circle and zonal. Banks grant credit TYPES OF ADVANCES 1.6.3.2 Demand Finance One time disbursement of the whole amount sanctioned, as the limit for the credit allows. Any person, individual, group, company, firm and all others can achieve this Mode of financing. The mark-up or interest is calculated on the total amount disbursed and requires to be paid before the date of final adjustment. Regarding the amount, limit and period, it depends on the nature of the case in review. 1.6.3.3 Cash Finance In this mode of financing the borrower is allowed to make withdrawals of funds as he requires, but the total amount outstanding cannot exceed the limit sanctioned. The markup/interest is calculated on the amount outstanding on his account. The calculation of mark-up/interest is based on the number of days a specific amount is withdrawn. This finance if normally borrowed by small traders or individuals for their petty matters involving cash transactions up to rupees three hundred thousand maximum.

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1.6.3.4 Running Finance To assist a large-scale business operator to carry on his day to day requirements of liquid funds, this account is opened is made operation in his favor. Running finance is provided where the amount goes beyond rupees three hundred thousand. The markup/interest is calculated the same way as in case of cash finance. Security against running finance is that which is easily convertible in to cash and bank kept 25% margins with it. TYPES OF LOANS The credit department of NBP has providing the following types of loans 1. Short term loans 2. Long term loans 3. Working capital loan 4. Syndicate (project) loan 5. Monitoring 1.6.4 Criteria checked for loans Major areas requiring focused attention of the analyst are: 1. Financial Condition 2. Structural Liquidity 3. Industry/Business of Operation 4. Debt Equity Management 5. Assets Management 6. Borrower’s Credit Worthiness 7 Management 8. Securities 1.6.5 Procedure of sanction of loan In Credit department 1st step is to preparation of credit line proposal for the preparation of credit report. For this following information required by the bank from the party  Purpose of loan  Details of all firms or companies associated with business  Name of proprietor/ partner/directors  Accurate and up-to-date balance sheet and profit and loss statement of last two years of business 16

 Market report of the borrower repute  Report from the bank if borrower has maintain his account with the bank  CIB report  Full details of existing limit and actual liability against the business  Particular about the foreign exchange deposits and bills given by the borrower to the bank  Memorandum and article of association in case of limited company  Audited report of balance sheet and income statement of last two years After checking all the securities, customer verification the manager done the following tasks 1.6.5.1 Preparation of credit proposal After formal application for the credit the party submits approval. For this purpose borrower can use coarse paper or the form provided by the bank. Along with the application borrower also submits the documents required by the bank. The bank manager evaluates the documents provided by the borrower. He gets the party’s 1.6.5.2 Prepare the Proposal about the customer After preparing the proposal manger prepare the report about the customer. Report contains the following information  Name of the company  Date of establishment  Address  Nature of business  Branch office  Worth of business  Date  Banker’s opinion  Head cashier opinion  Branch manger opinion

1.7 General Banking General banking area is also call the operations group. It consist on following section 17

 Accounts section  Remittance  Clearing system  Government section  Consumer and retail business  Lockers 1.7 .1 Accounts section Accounts Department of the bank can be considered the most important department. This department is basically concerned with processes and activities of recovering, sorting, summarizing and reporting data resulting from the whole day transactions of all the departments. Department starts performing its function. Proof list is checked by the This section performs the following functions:  Opening of Accounts  Issuance of cheque books  Closing of accounts  Payment of Cheque 1.7.1.1 Types of accounts Following types of accounts are open in NBP  Saving account  Current or demand account  Fixed account 1.7.1.2 Saving account (PLS) This type of account is designed to encourage the saving habit of the customer and lead to a long-term banking or investment relationship. Bank saving accounts are in the nature of deposits accounts and are not normally available for drawings. Rates of interest are typically ahead, by a small margin. 1.7 .1.3 Current or demand account These are those deposits, which can be drawn by the depositor at my time by presenting a cheque to the bank. People deposit their money in this account they gave a 18

ready command on their account in developed and under developed countries of the world, a very significant part of money is kept under current or demand account. 1.7 .1.4 Fixed account Fixed accounts are those, which are deposited for a fixed period of time and are repayable after the expiry of stipulated time to the customers. Those people who have surplus funds and want to have save investments deposit the amount in the fixed account. The rate of interest given to depositor varies with the length of deposit, i.e. it is higher for longer period and lowers for shorter period. The rates on this type of deposits are higher than the saving bank accounts. 1.7 .1.5 Payment of Cheque It is bank’s primary function to repay the money required for its customer’s account usually by honoring his cheques. It is a contractual obligation of a banker to honor its customer’s cheque if the following essential are fulfilled  Cheque should be in a proper form  Cheque should not be mutilated  Cheque should be drawn in this particular branch  Cheque should not be damaged  No unauthorized material alterations  Funds must be sufficiently available  Cheque should not be post date or stale  Cheque should be presenting during the banking hours 1.7 .2 Remittances Section a Instrumental Transfer Instrumental transfers are following 1.7 .2 .1 Demand Draft It is an instrument, which is payable on demand and it is only presentable in the city/country. When any draft, i.e., an order to pay money, drawn by an office of bank upon another office of the same bank for a sum of money payable to order on demand, Purports to be issued by or on behalf of the payee, the bank are discharged by the payment in due course. 19

1.7 .2 .2 Pay Order It is an instrument, which is payable in demand and only presentable in city. Pay order is also called the banker’s cheque drawn upon the issuing bank itself. It is not negotiable and therefore, bankers tend to cross the instrument “Payee’s account only” to avoid the possibility of dealing with instruments with forged endorsement. The pay order is issued favoring individuals, commercial concerns, and government departments. 1.7 .2 .3 Pay Slip It is an instrument, which is issued by bank and used for expenditure purposes, i.e., electricity bills, maintenance bills, security bills, fixture and fitting, etc. 1.7 .2 .4 Call Deposit Call deposit are not actual deposits of bank. It is in fact the liability of the bank. Call deposit are ofently prepaid by the bank for contractors.

b. Electronic Transfer Electronic transfer is of following types 1.7 .2 .5 Telegraphic Transfer t is the message, which is sent from one branch to another on the order of payer to payee through wire. It is one of the quickest means to transfer fund through the use of Telex/fax/internet or cable. Payment to the beneficiary is affected directly by the drawee office upon identification or through credit into beneficiary’s bank account. As such Remitting office is not required to issue any instrument payment to the remitter for delivery to the beneficiary. 1.7 .2 .6 Issuance and Payment of Telegraphic Transfer Outgoing Application form is filled by the client in whom the name and account number of the beneficiary, which is to be credited and name of customer, is required.

For

telegraphic transfer, the payment can be made in case or by cheque or by debiting the customer’s account if he is the account holder. The amount of Telegraphic Transfer should be written on the form. The amount is transferred to beneficiary’s account in the other bank. An advice is given to the customer but application is filled in the record of the bank.

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1.7 .2 .7 Issuance and Payment of Telegraphic Transfer Incoming When a TT is received then an entry is passed in TT incoming register after verifying the test. When a person comes and wants to encash his TT, bank checks the statements of that person. If the bank finds any account credited to the person’s account against TT, bank prepares a voucher for this payment against that TT. The customer then presents that certificate to the cash counter and collects money. 1.7 .2 .8 Mail Transfer It is the same like TT, but in this type, the message is sent through mail rather than telex. The procedure is same as TT, but the advice is sent through mail rather than wired. 1.7 .3 Billing and Government receipts/payments This department is performing following functions  Collection of utility bills  Collection of dues of education institution  Payment of salaries  Payment of zakat  Payment of pension 1.7 .4 Clearing Department The major function of Clearing Department is to receive the cheques, which are drawn on some other bank. The customer can get the money in his account at NBP, from the cheques drawn on another bank. The bank accepts these cheques and collects the amount from that bank on which cheque is drawn through the Clearing House. Bank charges some commission for this function. 1.7 .4.1 Procedure for Clearing the Cheques 1.7 .4.2 Pay-in Slip The customer fills pay-in slip. This slip is just like deposit slip. The cheque number, date, amount and account number must be written on this slip. 1.7 .4.2 Stamping and Scrutinizing The officer on receipt of cheques and pay-in slip will stamp the pay-in slip with “cheque received” and give a portion of slip to customer and the remaining portion is attached with the original cheque. 21

The original cheque will be marked with two stamps.  National bank of Pakistan  Clearing Stamp At the end of day, all cheques are counted and then scrutinized in bank-wise and sent to the Clearing House. 1.7 .5 Computer Section Through this department bank has make its way to enter in twenty first century. This department is playing a very important role in making the banking procedures faster and helping the bank for providing new services to its customers. This division provided the bank with online branches, systems to make the whole procedure foolproof. 1.7 .5.1 Data Entry Department The next task after receiving the data is to enter that data in to a computer. The floppy disk is directly inserted in the computer. The program in used is based on “COBOL” language. This program is designed in away that it demand “Hash Value” value before opening the floppy for further action this value serve the purpose of password or pin code send by the branch on entering that value the data enter in to the computer. This computer is attached with the terminal of central computer. The operator of that terminal takes the data from the computer and converted it in to a text file through that terminal the data finally goes to the central computer. 1.7 .6 Consumer and Retail Banking Section Consumer and retail banking department is offering following facilities to their customers NBP Advance Salary NBP Saiban NBP Rozgar Scheme

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1.7 .6.1 NBP Advance salary In January-2003, National Bank of Pakistan has launched a unique product, ‘NBPAdvance Salary’. Currently this product is for fixed-income permanent employees of Federal & Provincial Government, Semi-Government, Autonomous, Semi-autonomous, local bodies and other Government organizations. The product is purely cash flow based and offers its holder to avail 15 (fifteen) net salaries in one go to be repaid in up to 60 (sixty) months. With no collateral, insurance or processing fee requirements, Advance Salary provides rapid disbursement in a short turnaround time. NBP advance salary facility allows you to draw three months salary in one go.  NBP advance salary offers you  Take up to three months advance salary take home  Fastest processing and immediate disbursement  Easiest facility for 1 to 36 months  Minimum documentation 1.7 .6.2 Eligibility This facility will be available to permanent employee of  Federal and provincial Govt.  Semi Govt, autonomous, semi autonomous, local bodies and Govt corporations  Other corporations and organizations approved by NBP Those who qualify for this scheme should have:  Three years of service age remaining  Salary account at NBP 1.7 .6.3 Limit of Finance  Three net take home salary  Customer must have account with national bank which show last three months salary in his/her account 1.7 .6.4 Calculation of limit 23

Average of three months and minimum salary which ever is less taken it as base and multiply it by three 1.7 .6.5 Maximum duration of loan Three years is max duration. Requirements Requirements are  Three months salary certificate  NIC photocopy  Auto roll over form  Application form  IB-12  Three undated cheques  Annexure C  Annexure D  Account opening form 1.7 .6.6 Procedure After filling the application customer signed it with his salary-disbursing officer then under taking is officer approving it. Open the account that is calls separate loan account, which is once Debit and many time credits. National Bank of Pakistan (NBP) has announced the launch of a housing scheme to cover all sections of the society with monthly income starting from as low as Rs. 5000/- per month*. *(Conditions apply) Branded as 'NBP Saiban' (Housing for all), the Scheme offers a maximum loan of Rs 10 million In accordance with the debt burden criterion. Loans are available for Home Construction, Home Purchase and Home Improvement. For Home Improvement Loans the maximum Amount is Rs. 2.00 Million.

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Home Construction and Home Purchase loans can be repaid over a period of 20 years, whereas the repayment period for Home Improvement loan is 15 years. The scheme was launched at a function in Karachi presided over by Mr. Shaukat Aziz, Pakistan's Finance Minister. What is NBP Saiban? Saiban? NBP Saiban is the most affordable House Financing Scheme. You can avail now and repay over a 3 to 20 years period. 

Home purchase loans up to 10 million.

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Home reconstruction loans up to 10 million.

Home improvement loans up to 2.0 million (3 to 15 years). 

One of the Top Banks on Emerging Markets - 2002

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(Global Finance, USA)

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A secure and reliable government bank since 1949.

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A strong network with approximately 1200 branches around the world.

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Wide range of products and services

NBP Rozgar Scheme:Another step towards your prosperity

President's Rozgar Scheme, if you are aged between 18 and 40 years, you could be eligible for easy financing for self employment in the categories below: NBP Karobar Utility Store NBP Karobar Mobile Utility Store NBP Karobar Mobile General Store NBP Karobar Transport Karobar PCO/ Tele-Centre 25

1.7 .6.7 Equity Investments NBP has accelerated its activities in the stock market to improve its economic base and restore investor confidence. The bank is now regarded as the most active and dominant player in the development of the stock market. NBP is involved in the following: 

Investment into the capital market



Introduction of capital market accounts (under process)



NBP’s involvement in capital markets is expected to increase its earnings, which would result in better returns offered to account holders.

1.7 .6.8 Commercial Finance Let us help make your dreams become a reality Our dedicated team of professionals truly understands the needs of professionals, agriculturists, large and small business and other segments of the economy. They are the customer’s best resource in making NBP’s products and services work for them. 1.7 .6.9 Trade Finance Other Business Loans Agricultural Finance Corporate Finance 1.7 .6.10 Agricultural Finance NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who produce some of the best agricultural products in the World. 1.7 .6.11 Agricultural Finance Services: “I Feed the World” program, a new product, is introduced by NBP with the aim to help farmers maximize the per acre production with minimum of required input. Select farms will be made role models for other farms and farmers to follow, thus helping farmers across Pakistan to increase production. 1.7 .6.12 Agricultural Credit: The agricultural financing strategy of NBP is aimed at three main objectives:

Providing reliable infrastructure for agricultural customers

26



Help farmers utilize funds efficiently to further develop and achieve better production



Provide farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming.

1.7 .6.13 Agricultural Credit (Medium Term): 

Production and development



Watercourse improvement



Wells



Farm power



Development loans for tea plantation



Fencing



Solar energy



Equipment for sprinklers

1.7 .6.14 Farm Credit: NBP also provides the following subsidized with ranges of 3 months to 1 year on a renewal basis. 

Operating loans



Land improvement loans



Equipment loans for purchase of tractors, farm implements or any other equipment



Livestock loans for the purchase, care, and feeding of livestock

1.7 .6.15 Production Loans: Production loans are meant for basic inputs of the farm and are short term in nature. Seeds, fertilizers, sprayers, etc are all covered under this scheme. 1.7 .6.16 Corporate Finance 1.7 .6.17 Working Capital and Short Term Loans: Loans NBP specializes in providing Project Finance – Export Refinance to exporters – Preshipment and Post-shipment financing to exporters – Running finance – Cash Finance – Small Finance – Discounting & Bills Purchased – Export Bills Purchased / Pre-shipment / Post Shipment Agricultural Production Loans 1.7 .6.18 Medium term loans and Capital Expenditure Financing: 27

NBP provides financing for its clients’ capital expenditure and other long-term investment needs. By sharing the risk associated with such long-term investments, NBP expedites clients’ attempt to upgrade and expand their operation thereby making possible the fulfillment of our clients’ vision. This type of long term financing proves the bank’s belief in its client's capabilities, and its commitment to the country. 1.7 .6.19 Loan Structuring and Syndication: National Bank’s leadership in loan syndicating stems from ability to forge strong relationships not only with borrowers but also with bank investors. Because we understand our syndicate partners’ asset criteria, we help borrowers meet substantial financing needs by enabling them to reach the banks most interested in lending to their particular industry, geographic location and structure through syndicated debt offerings. Our syndication capabilities are complemented by our own capital strength and by industry teams, who bring specialized knowledge to the structure of a transaction. 1.7 .6.20 Cash Management Services: With National Bank’s Cash Management Services (in process of being set up), the customer’s sales collection will be channeled through vast network of NBP branched spread across the country. This will enable the customer to manage their company’s total financial position right from your desktop computer. They will also be able to take advantage of our outstanding range of payment, ejection, liquidity and investment services. In fact, with NBP, you’ll be provided everything, which takes to manage your cash flow more accurately.

28

CHAPTER 2 Financial Analysis of the Bank Analysis of financial statements is called financial analysis of the organization These are three types of analysis 2.1 Horizontal analysis In this analysis one particular can compare with the same category of item of other year. More than one year data is required for this analysis. 2.2 Vertical analysis In common size or vertical analysis we take total assets as a base year and compare it to all other factors. Company may purchase some fixed assets and giving loans to their customers. Same like this investment also increases which means that the company advances the loans and their ability of work increased due to this. 2.3 Horizontal Analysis of Balance Sheet 2004-2005 Percentage Particulars 2005 Cash and Balance with

2004

change

RS. Change

treasury banks 71196956 Balances with other banks 31019330 Lending to financial

94446552 49784884

132.655 160.496

(23249596) (18765554)

institutions Current Asset Investments Advances Other Asset Operating Fixed Asset Defer tax Asset Total Asset Liabilities Bills payable Borrowings from

16282942 118499228 156985686 268838779 23941056 9454365 577719114

10511322 154742758 144735672 221443963 18339514 9202969 1275949 549740825

64.5541 130.585 92.1967 82.3705 76.6027 97.3409

5771620 (36243530) 12250014 124103107 5601542 251396

95.1571

27978289

1741156

7214671

414.360

(5473515)

Financial Deposits

8756847

11084790

126.584

(2327943)

463426602 -

465571717 -

100.462 -

(2145115) -

and

accounts Subordinates loan

other

29

Liabilities against leased Asset Other Liabilities Defer Tax Liabilities Total Liabilities Net Asset Represented By Share Capital Reserves Unappropriated profit Surplus

revaluation

16629 24974450 4462718 503378402 74340712

17058 23068314 29185 506985735 42936442

102.579 92.3676 0.65397 100.716 57.756

(429) 1906136 4433533 (3607333) 31404270

5908927 13536041 16713506 36158474

4924106 10813914 9161747 24899767

83.333 79.889 54.816 68.862

984821 2722127 7551759 11258707

38182238 74340712

21345965 42936442

55.905 57.756

16836273 31404270

%age

%age

of

asset Total Representation

2.4 Vertical Analysis of Balance Sheet 2004-2005 Particulars 2005 Cash and Balance with

2004

2005

2004

treasury banks 71196956 Balances with other banks 31019330 Lending to financial

94446552 49784884

12.323 5.3692

17.180 9.0560

institutions Current Asset Investments Advances other Asset Operating Fixed Asset Defer tax Asset Total Asset Liabilities Bills payable Borrowings from

16282942 118499228 156985686 268838779 23941056 9454365 577719114

10511322 154742758 144735672 221443963 18339514 9202969 1275949 549740825

2.8184 20.511 27.173 46.534 4.1440 1.6364

1.9120 28.148 26.327 40.281 3.3360 1.6740 0.2321

1741156

7214671

0.3458

1.4230

Financial Deposits

8756847

11084790

1.7396

2.1864

accounts 463426602 Subordinates loan Liabilities against leased

465571717 -

92.063 -

91.831 -

Asset Other Liabilities

17058 23068314

0.0033 4.9613

0.003364 4.5500

and

other

16629 24974450

30

Defer Tax Liabilities Total Liabilities Net Asset Represented By Share Capital Reserves Unappropriated profit Total Surplus revaluation of

4462718 503378402 74340712

29185 506985735 42936442

0.8865

0.0057

5908927 13536041 16713506 36158474

4924106 10813914 9161747 24899767

1.0228 2.3430 2.8930 6.2588

0.8957 1.9670 1.6665 4.5293

asset Total Representation

38182238 74340712

21345965 42936442

6.6091

3.8829

2.5 Ratio Analysis 2004-2005 For the analysis of the financial statements of the NBP we use the ratio analysis in order to get a clear vision about the financial position with simple interpretation. 2.5.1 Liquidity Ratios The liquidity of a business firm is measured by its ability to satisfy its short-term obligations as they came due. Liquidity refers to the solvency of the firm’s overall financial position the ease with which it can pay its bills. Basic measures of liquidity are:  Current ratio  Net working capital  Cash ratios

2.5.1.1 Current ratio Formula:

Current Ratio=Current Assets/Current Liabilities

Year

2005:

Year

2004:

=118499228/167708076

=154742758/177058128

=0.70658

=0.874

Interpretation: A current ratio of 1.0 is occasionally cited as acceptable, but a value’s acceptability depends on the industry in which the firm operates. In 2004 bank was more liquid as 31

compare to 2003. Current Liabilities are more then current assets. Its means that bank is financing its fixed assets (long term investment & deposits) with the current Liabilities, which is profitable but risky at the same time. In 2004 the current liabilities (current deposits) of the bank have increased but the rise in the current assets (short advances) is more. So in 2004 bank has improved its liquidity position by investing more in current assets rather then in fixed assets. 2.5.1.2 Net working capital: Formula:

NWC=Current Assets-Current Liabilities

Year

2005:

=118499228 – 167708076 = (49208848)

Year

2004:

NWC=154742758-177058128 = (22315370)

Interpretation:

Net working capital is commonly used to measure a bank overall

liquidity. NBP has more current Liabilities (current deposits) then current assets (short term advances & investments). So bank is using very aggressive approach by investing current liabilities in fixed assets. Bank earning profit but at the same time taking risk as well. In 2004 the NWC of Bank had improved a bit by investing more in current assets rather then in fixed assets. So bank has improved its liquid position by investing more in current assets. 2.5.1.3 Cash to current liability ratio Cash to current liability ratio =Total Cash/Current Liability Year

2005:

Year

2004:

=102216286/167708076

=144231436/177058128

=0.609489

=0.8146 32

Interpretation This ratio will compare the most liquid asset cash with the most short term liability(current deposits). NBP has less cash then the current Liability (current deposits) so its means that bank has invest the depositors money in different ventures. 2.5.1.4 Cash to Total Assets Cash to total assets= Total cash/ Total assets Year

2005:

Year

2004:

=102216286/577719114 *100

=144231436/549740825 *100

=17.69%

=26.24%

Interpretation This ratio will shows that how much the cash has maintained by the bank out of its total assets. NBP has its assets in the form of investment, advances so bank is availing its opportunity cost and still has sufficient cash reserves only to fulfill the demands of Account holders & other financial institution. 2.5.2 Debt Ratio The debt position of a bank indicates the amount of other people’s money being used in attempting to generate profits. Formula: Debt To Assets Ratio=TL/TA*100 Year

2005:

Year

2004:

= 503378402/57719114 * 100

=506804383/549740825*100

= 87.13%

=92.21%

Interpretation: The debt ratio measures the proportion of total assets financed by the bank creditors (depositors). The higher this ratio the greater the amount of other people money being used in an attempt to generate profits. In 2004 bank leverage ratio had 33

decreased because the total assets (advances & investments) of the bank has been increased more than total liabilities (current deposits). 2.5.2.1 Debt to Equity Ratio: Formula:

Debt to equity ratio=Total Liability/S.H.E

YEAR 2005

YEAR 2004

=503378402/36158424

= 506804383/42936442

= 13.92

= 11.80times

Interpretation: The debt-equity ratio indicates the relationship between the total funds provided by creditors and those provided by the bank owners. It is commonly used to measure the degree of financial leverage. In 2004 debt to equity ratio has decreased then as compared to 2003 .Although in 2004 this ratio was less but still amount of interest given by the bank was greater then amount of dividend distributed by the bank to share holders. 2.5.2 .2 Return on Assets: Formula:

ROA=NPAT/TA*100

YEAR 2005

YEAR 2004 =6242929/549740825 * 100

=12709444/577719114 * 100

=1.14%

= 2.19% Interpretation: 0.895% indicates that bank earned 0.895% paisas on each rupee of asset invested in 2003 which was quiet low then 2004 return. NPAT of bank has increased in 2004, because no extra payment has been made to depositors, more commission has been received in 2004 on wider & better services& more compensation has been collected by bank on delays of payments from customers & tax concession. 2.5.2 .3 Return on Equity: 34

Formula:

ROE=NPAT/S.H.E

YEAR 2005

YEAR 2004

=12709333/36158474

= 6242929/42936442

= 0.3514

=0.1454

Interpretation: Return on S.H.E measures the overall effectiveness of management in generating profits with its available equity. The higher the firm’s return on equity, the better. 14.54% in 2004 indicates that bank’s share holders have earned 14.14 paisas on each rupee invested which is lesser than 2003

35

36

2.6.1 Horizontal Analysis of Balance Sheet 2005-2006 Percentage

RS.

Particulars 2006 Cash and Balance with

2005

Change

Change

treasury banks 78625227 Balances with other banks 40641679 Lending to financial

71196956 31019330

90.5523 76.3239

7428271 9622349

institutions Current Asset Investments Advances Other Asset Operating Fixed Asset Defer tax Asset Total Asset Liabilities Bills payable Borrowings from

23012732 142279638 139946995 316110406 27113698 9681974 635132711

16282942 118499228 156985686 268838779 23941056 9454365 577719114

70.7562 83.2886 112.175 85.0458 88.2987 97.6491 90.9603

6729790 23780410 (17039591) 47271627 3172642 227609 57413597

10605663

1741156

16.4172

8864507

Financial Deposits

11704079

8756847

74.8187

2947232

accounts 501872243 Subordinates loan Liabilities against leased

463426602 -

92.3395 -

38445641 -

Asset Other Liabilities Defer Tax Liabilities Total Liabilities Net Asset Represented By Share Capital Reserves Unappropriated profit Total Surplus revaluation of

13235 2659300 2387073 553178593 81954118

16629 24974450 4462718 503378402 74340712

125.644 939.136 186.953 90.9974 90.7101

(3394) (22315150) (2075645) 49800191 7613406

7090712 13879260 32074677 53044649

5908927 13536041 16713506 36158474

83.3333 97.5271 52.1081 68.1661

1181785 343219 15361171 16886175

asset Total Representation

28909469 81954118

38182238 74340712

132.075 90.7101

(9272769) 7613406

and

other

2.6.2 Vertical Analysis of Balance Sheet 2005-2006

37

%age

%age

Particulars 2006 Cash and Balance with

2005

2006

2005

treasury banks 78625227 Balances with other banks 40641679 Lending to financial

71196956 31019330

12.3793 6.39892

12.3238 5.36927

institutions Current Asset Investments Advances Other Asset Operating Fixed Asset Defer tax Asset Total Asset Liabilities Bills payable Borrowings from

23012732 142279638 139946995 316110406 27113698 9681974 635132711

16282942 118499228 156985686 268838779 23941056 9454365 577719114

3.62329 22.4015 22.0342 49.7707 4.26898 1.52440 -

2.81848 20.5115 27.1733 46.5345 4.14406 1.63649 -

10605663

1741156

1.91722

0.34589

Financial Deposits

11704079

8756847

2.11578

1.73961

accounts 501872243 Subordinates loan Liabilities against leased

463426602 -

90.7251 -

92.0632 -

Asset Other Liabilities Defer Tax Liabilities Total Liabilities Net Asset Represented By Share Capital Reserves Unappropriated profit Total Surplus revaluation of

13235 2659300 2387073 553178593 81954118

16629 24974450 4462718 503378402 74340712

0.00239 0.48073 0.43151

0.00330 4.96136 0.88655

7090712 13879260 32074677 53044649

5908927 13536041 16713506 36158474

1.11641 2.15525 5.05007

1.02280 2.34301 2.89301

asset Total Representation

28909469 81954118

38182238 74340712

4.55172

6.60913

and

other

2.7 Ratio Analysis 2005-2006 For the analysis of the financial statements of the NBP we use the ratio analysis in order to get a clear vision about the financial position with simple interpretation. 2.7.1 Liquidity ratio 38

The liquidity of a business firm is measured by its ability to satisfy its short-term obligations as they came due. Liquidity refers to the solvency of the firm’s overall financial position the ease with which it can pay its bills. Basic measures of liquidity are:  Current ratio  Net working capital  Cash ratios 2.7.1 .1 Current Ratio Formula:

Current Ratio=Current Assets/Current Liabilities

Year

2006:

Year

2005:

= 142279638/196138268

=118499228/167708076

= 0.72540478

=0.70658

Interpretation: A current ratio of 1.0 is occasionally cited as acceptable, but a value’s acceptability depends on the industry in which the firm operates. In 2004 bank was more liquid as compare to 2003. Current Liabilities are more then current assets. Its means that bank is financing its fixed assets (long term investment & deposits) with the current Liabilities, which is profitable but risky at the same time. In 2004 the current liabilities (current deposits) of the bank have increased but the rise in the current assets (short advances) is more. So in 2004 bank has improved its liquidity position by investing more in current assets rather then in fixed assets. 2.7.1 .2 Net working capital: Formula: Year

NWC=Current Assets-Current Liabilities 2006:

Year

2005:

= 142279638 – 196138268

=118499228 – 167708076

=(53858630)

= (49208848)

39

Interpretation:

Net working capital is commonly used to measure a bank overall

liquidity. NBP has more current Liabilities (current deposits) then current assets (short term advances & investments). So bank is using very aggressive approach by investing current liabilities in fixed assets. Bank earning profit but at the same time taking risk as well. In 2004 the NWC of Bank had improved a bit by investing more in current assets rather then in fixed assets. So bank has improved its liquid position by investing more in current assets. 2.7.1 .3 Cash to current liability ratio Cash to Current Liability ratio =Total Cash/Current Liability

Year

2006:

Year

2005:

= 119266906/196138268

=102216286/167708076

=0.60807565

=0.609489

Interpretation This ratio will compare the most liquid asset cash with the most short term liability(current deposits). NBP has less cash then the current Liability (current deposits) so its means that bank has invest the depositors money in different ventures. 2.7.1 .4 Cash to Total Assets Cash to Total Assets= Total Cash/ Total Assets * 100 Year

2006:

Year

2005:

= 119266906/635132711 * 100

=102216286/577719114 *100

= 21.56%

=17.69%

Interpretation This ratio will shows that how much the cash has maintained by the bank out of its total assets. NBP has its assets in the form of investment, advances so bank is availing its opportunity cost and still has sufficient cash reserves only to fulfill the demands of Account holders & other financial institution. 40

2.7.2 Debt Ratio: The debt position of a bank indicates the amount of other people’s money being used in attempting to generate profits. Debt Ratio: Formula:

Year

Debt To Assets Ratio=TL/TA*100

2006:

Year

2005:

= 553178593/635132711 * 100

= 503378402/57719114 * 100

= 87.09%

= 87.13%

Interpretation: The debt ratio measures the proportion of total assets financed by the bank creditors (depositors). The higher this ratio the greater the amount of other people money being used in an attempt to generate profits. In 2004 bank leverage ratio had decreased because the total assets (advances & investments) of the bank has been increased more than total liabilities (current deposits). 2.7.2.1 Debt to Equity Ratio: Formula:

Debt to equity ratio=Total Liability/S.H.E

YEAR 2006

YEAR 2005

=553178593/53044649

=503378402/36158424

= 10.42

= 13.92

Interpretation: The debt-equity ratio indicates the relationship between the total funds provided by creditors and those provided by the bank owners. It is commonly used to measure the degree of financial leverage. In 2004 debt to equity ratio has decreased then 41

as compared to 2003 .Although in 2004 this ratio was less but still amount of interest given by the bank was greater then amount of dividend distributed by the bank to share holders. 2.7.2.2 Return on Assets: Formula:

ROA=NPAT/TA*100

YEAR 2006

YEAR 2005

= 17022346/635132722 * 100

=12709444/577719114 * 100

= 2.68% = 2.19% Interpretation: 0.895% indicates that bank earned 0.895% paisas on each rupee of asset invested in 2003 which was quiet low then 2004 return. NPAT of bank has increased in 2004, because no extra payment has been made to depositors, more commission has been received in 2004 on wider & better services& more compensation has been collected by bank on delays of payments from customers & tax concession. 2.7.2.3 Return on Equity: Formula:

ROE=NPAT/S.H.E

YEAR 2006

YEAR 2005

= 17022346/53044649

=12709333/36158474

= 0.32090

= 0.3514

Interpretation: Return on S.H.E measures the overall effectiveness of management in generating profits with its available equity. The higher the firm’s return on equity, the better. 14.54% in 2004 indicates that bank’s share holders have earned 14.14 paisas on each rupee invested which is lesser than 2003 2.7.3 Earning Per Share2005 Earning Per Share Rs. 17.92 2.7.4Earning Per Share200 42

Earning Per Share

Rs. 24.01

2.7.5 Financial year The financial year of the Bank commences from the 1st day of January and ends on the 31st day of December every year.

43

CHAPTER 3 SWOT ANALYSIS STRENGTHS WEAKNESSES OPPORTUNITIES THREATS (SWOT) ANALYSIS SWOT is the abbreviation of strengths, weaknesses, opportunities and threats. Strength of the organization can be measured from the activities and resources that give it a competitive edge over competitors. Weaknesses reflect areas where the organization lacks better performance .threats are the environmental condition that can affect the performance of the organization in order to be more competitive. In light of the SWOT analysis, management also reevaluates its current mission and objectives. Are they realistic? Do they need modification? As we where we want to be right now? 3.1 STRENGTHS 

NBP one of the largest financial institutions of Pakistan with eight million of customer base NBP holds 24.6% share of time and demand deposits in the country. Local currency deposits comprise 67% of bank's total deposits while foreign currency deposits account for the rest.



NBP has an extensive domestic branch network of 1200 (according to the latest data) branches located all over Pakistan. The Bank also has a presence in 19 international locations including the USA, United Kingdom, Europe and the Far East.



NBP's total assets stood at Pak Rs.370 billion on December 2000. This included total earning assets of about Pak Rs.268 billion with gross loan portfolio of Pak Rs.140 billion. The bank also has an investment portfolio of Pak Rs.91 billion, which comprises treasury securities, corporate bonds, shares and other securities.



NBP cash provision as percentage of non performing loans equal to 60% this coverage factor for the non performing loans is the highest amongst the nationalized commercial bank.

44



NBP is working as right arm government of Pakistan as it is responsible for all claims of government for recovery as well as payment. All depositor of NBP are in relief that their money security is guaranteed by government of Pakistan.



It acts as an agent of the Central Bank wherever the State Bank does not have its own Branch.

3.2 WEAKNESSES 

NBP staff especially at lower considers their work as burden. They usually waste time in other task a part in performing their duty. Using government property for there own need. They are reluctant to accept change brought by latest restructuring efforts.



The general out look and interior layout of branches are not as required according to modern banking



NBP bearing up large burden in running those branches, which are not producing any income but keep on adding expenditure.



NBP is relying on its traditional sources of income it has not taken benefit from innovation in banking like introducing retail banking or consumer banking and using any type of scheme to generate more deposits and producing more advances. Further, more don’t even continue its credit card due mismanagement and lack of control.



NBP is far behind in offering modern banking facility like automated teller machines then other commercial bank in Pakistan as only eighteen branches in all over country have this facility.



NBP has only forty-four on line branches. While from remaining branches data gathering is time consuming, and not fool proof. Quantum of settlement within



Different branches are pending because of this updating daily record is becoming very difficult.



Customers have to fallow long lengthy procedure for opening of account as well applying for debt. Which discourage most of the people to invest in NBP?



In NBP, most of the time merit not has importance in hiring of employees. Such practices are black spot on the face of bank and resulted big losses and fraudulent acts by NBP own employees.

45

3.3 OPPORTUNITIES Reorganizing efforts going on in the NBP has open many opportunities for NBP to grow. NBP current management has boarder vision. They have taken steps to improve customer services, streamline internal procedure and creating a delectating climate for technology initiative. To achieve above mention objective they have created operation group 

Starting of the retail banking initial working.



Setting of target for of making at least 300 branches country wide on line.



Closing of all those branches, which are burden on NBP.



Management to offer specialized services to major corporate including advisory and debt syndication introduces the concept of relationship manager.



Comprehensive training programs has been develop to up grade the core banking skills of the existing staff as well as integrate high quality hiring.



To improve the motivation of staff a merit-based culture is being promoted. Through overhauling the manpower recruitment preservation and performance appraisal system. These actions taken by current management provide a great opportunity for NBP for

making it future prosper and can make NBP not less than any modern commercialize bank in Pakistan. 3.4 THREATS Following are the major threats which national bank of Pakistan is facing: 

Major threats NBP facing is from its competitor especially from denationalized commercial bank. In which MCB is on the top of the list, The Bank provides 24 hour banking convenience with the largest ATM network in Pakistan covering 15 cities with over 100 ATM locations.



Retail banking and consumer banking resulting in the products such as credit cards, housing finance and automobile finance lending to small individual consumers, and purchases of automobiles, housing, and consumer goods are generally made on a cash basis. These are causing another threat, if not counter will result in significance loss of customers

46



Recently banks and other financial institutions have introduced innovative schemes to attract deposits, like gift cheque scheme by MCB. These schemes offer prizes on short and long term fixed deposits, through lucky draws.



Now banks are using technology which covers the distance no matter how far away any one, through a satellite based, on-line real-time banking system and by offering telephone banking, electronic funds transfer, E-Banking and other modern facilities.

3.2 Suggestion 

NBP major fault is that wasn’t keeping its pace with on going changing in banking industry unlike other banks. Now this bank combining all it power and trying to approach other banks.



Latest reorganizing efforts are necessary to make it cost effective also making its facility accordingly to modern banking. These must continue.



Bank management has to put its all effort to change the prevailing culture of the bank and to put the foundation stone of business oriented culture. In which employees give important to the bank and its customer.



To attract the customer in the future NBP have to make extensive effort to give facilities of retail and consumer banking. Plus the technology in the banking which will be necessary for future banking is another week area need to be stressed.



The outlook and interior lay out of the branches is another thing which needs to be improved.



The procedure of taking services from the bank must be made easier and straight forward not involving long difficult procedure for simple task.

To remain in the market bank need to be vigilant in the eyes of customer. One way is through promotion efforts, so that people aware about he services of the banking and any addition which the bank as made in the portfolio of its services.

47

CHAPTER 4 Impact of micro financing on poverty reduction. 4.1. Introduction to the Topic The strong economic growth is bound to create employment opportunities and therefore reduced unemployment. The evidence provided by the Labor Force Survey 2005 (First two quarters) clearly supports the fact that economic growth has created employment opportunities. Since 2005-06 and until the first half of 2006-07, 5.82 million new jobs have been created as against an average job creation of 1.0 – 1.2 million per annum. Consequently, unemployment rate which stood at 8.3 percent in 2001-02 declined to 7.7 percent in 2003-04 and stood at 6.5 percent during July –December 2005. The rising pace of job creation is bound to increase the income levels of the people. Agriculture, housing and construction, IT and Telecom sector, and SME are the sectors, which have created relatively more jobs. .

4.2 The Poverty Impact of Microfinance A perfect impact evaluation really needs to answer a counter factual question: how does the status of participants in the program compare with how those same individuals would have fared in the absence of the program Or, alternatively, how would non-participants have fared in the presence of a program The problem with cross-sections of data (observations on many individuals at a given point in time) is, of course, that at any given point in time individuals are observed to be either participants or not.. In reality,

48

researchers must settle for estimates of the average impact of the program on a group of participants in the program are usually different from non-participants in many ways: programs are usually carefully placed in specific areas, participants within those areas may be screened for participation, and the final decision on whether or not to participate is usually voluntary. To the extent that these factors are known and can be measured, they can be controlled for in the empirical analysis, but in most cases the placement of the program and self-selection of participants in those areas into the program are based on unobservable factors.

4.3 Broad Problem Area Currently in Pakistan there is very limited primary data or secondary analysis with which to understand how the poor use microfinance services (both formal and informal) or to understand whether the poor had access to the services being provided by the new wave of microfinance institutions, and the study also undertook a small ‘financial diaries’ survey. The conclusions that can be drawn for the reanalysis of the Pakistan Integrated Household Survey (PIHS) and the Pakistan Socio-Economic Survey (PSES) are that in 2000 the poor had very little access to formal and semi-formal credit markets; the vast majority of loans were used for consumption rather than investment; large loans were provided by formal and semi-formal credit providers; and lastly, the availability of credit may have played a significant role in reducing the poverty impact of the drought in NWFP and Punjab. However, in Sindh and Balochistan, covariate risks (i.e. suppliers of credit were unable to supply when the users of credit needed it most) may have severely reduced the role that credit might have played in maintaining consumption levels. There was some randomness involved in the selection of the surveyed localities, but none at all

49

in the sampling of households to be interviewed. Therefore the results are in no way representative.

4.4 Literature Review Definition of Microfinance Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and, their micro enterprises. Three types of sources provide Microfinance services: • Formal institutions, such as rural banks and cooperatives societies; • Semiformal institutions, such as nongovernmental organizations; and • Informal sources such as money lenders and shopkeepers. Institutional microfinance is defined to include microfinance services provided by both formal and semiformal institutions. Microfinance institutions are defined as institutions whose major business is the provision of microfinance services. (Callister, P. 1997) 4.4.1 ADB & Microfinance About 90% of the 180 million poor households in the region still lack access to institutional financial services. Most formal financial institutions deny the poor financial services because of •

Perceived high risks

•

High costs involved in small transactions

•

The Poor’s inability to provide marketable collateral for loans

50

ADB, through its Microfinance Development Strategy, aims to ensure permanent access to institutional financial services for the region's poor people and their small businesses. 4.4.2 Recommendation To achieve this objective, ADB will focus on •

Creating a microfinance-friendly policy environment

•

Developing financial infrastructure

•

Building viable retail institutions

•

Supporting pro-poor innovations

•

Supporting social intermediation

Providing the poor with improved facilities to save and to have better access to credit helps them manage risk, build assets, increase income, and enjoy a better life. 4.4.3 Need for a development strategy for microfinance During 1988-1998, ADB approved 15 microfinance projects totaling about $350 million, 6 projects with microfinance components valued at about $53 million, and 34 technical assistance activities for about $18 million to support microfinance operations. ADB has, however, provided this assistance without a well-defined strategy and, as a result, has not been able to fully harness the potential of microfinance for poverty reduction. Once almost exclusively the domain of donors and experimental credit projects, institutional microfinance has evolved during the last decade into an industry with prospects for financial viability, offering a broader range of services and significant 51

opportunities for expansion. The prospects for financial sustainability are revolutionizing the microfinance field and suggest that a large proportion of the millions of poor people can be provided access to institutional microfinance. This change has important implications for ADB. ADB needs to take cognizance of the challenges and prepare to effectively harness the opportunities in its DMCs. Given the diverse requirements in the sector, the competing demands for ADB funds, the increasing pressure on resources in the Asian Development Fund, and the growing complexities and challenges of improving the quality of life of over 900 million poor people in the Region, ADB must reinforce its emphasis on efficient allocation and use of resources at its command. A strategy is necessary to ensure that ADB addresses these concerns effectively and consistently within its objective of poverty reduction. A strategy can also: (i)

Provide a clear and consistent link between ADB’s microfinance operations and its overarching objective of poverty reduction;

(ii)

Facilitate promotion of a common approach to microfinance operations throughout ADB, which will also contribute to better coordination with other funding agencies;

(iii)

Provide a consistent basis for policy dialogue with the DMCs on microfinance and related issues;

(iv)

Assist ADB’s ongoing efforts to improve the quality of project design, processing, and implementation of microfinance operations; and

(v)

Facilitate adoption of a longer term perspectives than in the past in providing assistance for microfinance. (Burgess, S. and H. Rees. 1998)

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4.4.4 Demand for microfinance services The poor and low-income households and their micro enterprises in the Region are a diverse group. Their demand for microfinance services also reflects this diversity. The collective demand of these groups for financial services is large and the types of services they demand vary across households and micro enterprises and over time. Poor and lowincome households and their micro enterprises in the Region have a large demand for safe and convenient deposit services. This demand reflects the importance of savings for these households and micro enterprises for a variety of reasons. The poor need to save for emergencies, investment, consumption, social obligations, education of their children and many other purposes. They have the capacity and willingness to save. Savings are important for micro enterprises and provide them with a major source of investment funds. For example, the number of savings accounts in unit desas of BRI increased, from 5.0 million in 1988 to 16.1 million in 1996. Most of these accounts belong to poor households. The cooperative rural banks in Sri Lanka had 4.7 million deposit accounts at the end of 1998; while the Association for Social Advancement, a micro finance NGO in Bangladesh, had over 1.4 million active savings accounts of poor households at the end of 1999. In some countries, the poor pay high prices to those providing deposit services. The demand for micro credit that originates both from households and micro enterprises is also large. Poor households in the Region require micro credit to finance livelihood activities, for consumption smoothening, and to finance some lumpy nonfood expenses for purposes such as education (e.g., school fees and books), housing improvements, and

53

migration. Many Asian countries have numerous small farms and their operators also require microfinance services. The other source of demand is non-farm micro enterprises, which cover a wide array of activities such as food preparation and processing, weaving, pottery, mat and basket making, furniture making, and petty trading. The demand for other financial services among poor and low-income households and their micro enterprises could also be significant A private insurance company in Bangladesh that started to provide micro-insurance services to low-income households on a commercial basis, for example, found that its client base was expanding rapidly. At the end of 1999, this company had over 800,000 clients, about 50,000 of which are considered poor. This experience shows that the supply of such services creates its own demand because the real demand for such services remains hidden when suitable products are not available in the market. ( Griffeth, R., P. Hom and S. Gaertner. 2000) 4.4.5 Supply of microfinance services The market structure in microfinance varies significantly across countries in the Region depending on their stage of financial development, level of economic development, policy environment, and other factors. However, aspects of the supply, particularly about different types of suppliers, may be usefully discussed. The microfinance services are supplied mainly by informal sources. Their collective outreach, both breadth and depth, is vast in most countries. They supply mainly short-term credit and charge higher interest rates than semiformal and formal sources. Because of the relatively greater bargaining power enjoyed by the informal suppliers in general, the terms and conditions under which services are provided do not enable the clients to fully harness economic opportunities. The informal sources operate in highly localized areas. Therefore, their contribution to

54

financial intermediation and improvement of resource allocation is also limited. For example, informal sources do not allow savings to be collected from more than a small group of individuals well known to one another, and they do not move funds over large distances. The involvement of formal sources in microfinance has increased during the last two decades. This greater involvement has stemmed from: (i)

The expansion of the scope of formal institutions into microfinance through downscaling and establishment of linkage programs with semiformal sources of different types;

(ii)

The emergence of new formal institutions focused on microfinance, such as the Grameen Bank of Bangladesh and Khushhali bank of Pakistan;

(iii)

Reforms of state-owned financial institutions such as unit desas of BRI; and

(iv)

The introduction of new microfinance programs by the governments through non-financial institutions.

However, the formal operations concentrate mostly on providing credit facilities, and savings mobilization has yet to receive adequate attention, with few exceptions. Formal microfinance has changed to some extent with increasing involvement of private sector institutions. The Bank Dagang Bali in Indonesia has expanded its microfinance operations and increased its clientele. Badan kredit-besas, owned by Indonesian villagers, now reach 1.7 million clients, and the Grameen Bank in Bangladesh, owned largely by its borrower members, operates in over 38,000 villages with 1,140 branches and reaches about 2.4 million clients and Khushhali bank in Pakistan covers round about 520,000 clients through out the country. Cooperatives are also playing a significant role as financial intermediaries in the Region,

55

particularly in India, Sri Lanka, Thailand, and Viet Nam. In many countries, the cooperatives have begun to explore possibilities for deeper penetration into the microfinance market and show a greater concern about their financial viability than they did in the 1980s. A major feature of semiformal microfinance sources in the Region is the extensive involvement of NGOs. The small average loan sizes of NGOs, which usually range from about $30 to $150 per active loan account, suggest that their clients include the poorest. NGOs in some countries are trying to organize themselves into national coalitions to improve the industry standards and selfregulation. A few NGOs in the Region have plans to transform themselves into formal financial institutions. (Bedeian, A.G., and A.A. Armenakis. 1998) 4.4.6 Major achievements in microfinance The MFIs (micro financing institutions) and (OFIs) other financial institutions providing microfinance services have expanded their outreach from a few thousand clients in the 1970s to over 10 million in the late 1990s. (i) MFIs and OFIs mobilizing voluntary savings have shattered the myth that poor households cannot and do not save, and proved that savings can be successfully mobilized from poor households. (ii) MFIs, OFIs, and their clients have shown that the poor are creditworthy (poor women, in particular) and financial services can be provided to and accessed by the poor on a profitable basis at low transaction costs without relying on physical collateral. (iii) Microfinance services have triggered a process toward broadening and deepening of rural financial markets.

56

(iv) Micro finance services have strengthened the social and human capital of the poor, particularly women, at the household, enterprise, and community level. (v) Sustainable delivery of microfinance services on a large scale in some countries has generated positive developments in microfinance policies and practices among all stakeholders: governments, central banks, microfinance service providers, and external funding agencies. (Griffeth, R. and P. Hom. 1995) Comparative Poverty Profile 2001, 2004-05& 06-2007 Percentage of Population Extremely Poor Ultra Poor Poor Vulnerable Quasi Non-Poor Non-Poor

2001 1.1 10.8 22.5 22.5 30.1 13.0

2004-05 2006-07 1.0 .73 6.5 5.4 16.4 15.1 20.5 20 35.0 38.95 20.5 19.82 (Source Economic Survey of Pakistan 2006-2007)

4.4.7 Micro financing and Agricultural Sector There are two main sources of agricultural credit: Institutional and non-institutional. The non-institutional sources are neither sufficient nor reliable to meet credit needs of farmer making it necessary for the Government to operate in this field and extend credit to farmers through its agencies. The Government agencies, which provide credit to farmers, are: (i)

The Revenue Department

(ii)

The agricultural Development Bank of Pakistan

(iii)

Commercial Banks

(iv)

The federal bank for Cooperatives.

The Government introduced interest-free credit program. Subsequently, it was replaced by mark-up free credit for small farmers. The share of mark-up free loans in total 57

agricultural loans going to small farmers in Pakistan was 01 per cent in 1984-85 (Govt. of Pakistan, 1985 and 1986). The small farmers primarily need funds to meet their production requirements, and commercial banks and cooperatives are the only sources of mark-up free production credit for them. During the first tow years o commercial banks f their operation, their contribution rose from zero to 31 per cent in total agricultural credit in Pakistan. Moreover, their share in 1984-85 was 45 per cent. (Cotton, J. and J. Tuttle. 1986)

4.5 Objectives of the Study The specific objectives for the study are outlined as follow: 1. To estimate the proportion of cooperative loans reaching the small farmers 2. To identify the shortcomings, if any, in the flow of cooperative credit to the small farmers/SMEs 3. To see the impact of cooperative loans on the use levels 4. To evaluate the impact of cooperative loans on the yields of the loaners. 5. To suggest policy measures to improve the system of cooperative loans. 6. To see how much loan is taken by poor

4.7 THE THEORETICAL FRAME WORK After conducting the unstructured interviews, structured interviews, and the Literature survey the researcher come to know that the “Micro financing “ has the most related impact on the reduction of the poverty. And after the literature survey it was also noticed that the Micro financing with the impact on poverty has also impact on the social status of the household and on Education and health expenditure and also on the income generation and saving of the household. Its relation can be seen that when one household

58

uses micro financing and increase their income and save some amount and then they increase their expenditure on education and health and when they fulfill their basic needs they participate in social welfare and invest money on social welfare. So we can develop some hypothesis from this cycle and will testify our results with some statistical tools.

Theoretical Framework

Independent Variable

Dependent Variables

Micro financing

Poverty

Status in society

Education and Health

Help in Income Generation 4.7.1Types of Variables In this research 2 types of variables will be discussed. In this research one to one relation between Micro financing and Poverty will be discussed. This one to one relation will further be described by seen the relationship between some other factors also. 4.7.2 Dependent variable The independent variable is the variable of primary interest to the researcher. It is the goal of researcher to understand and describe the dependent variable. In this research we have to see the Impact of Micro financing on the poverty. We have seen how much micro

59

financing effects the poverty and also some other consequences of the poverty. So in this research poverty and its consequences are the dependent variables. 4.7.3 Independent variable An independent variable is one that influences the dependent variable either in positive or negative way that is when the independent variable is present, the dependent variable is also present, and with each unit of increase in the independent variable, there is an increase or decrease in dependent variable also. In this research micro financing is independent variable, which influences the poverty and other consequences of the poverty. 4.7.4 Poverty The main dependent variable in this research is poverty. Poverty can be described as “Relative measure within a society, being the state of having income and/or wealth so low as to be unable to maintain what is considered a minimum Standard of Living.” Micro financing has a broad impact on the poverty. The basic purpose of this study is to. 4.7.5 Status in society Social status is one of the most important consequences of the poverty. If one person become in a position to support his family and fulfill his basic needs then he can be in a position to participate in the social welfare and improve the society. 4.7.6 Education and Health When a household uses micro financing and increase his income, he will ultimately increase his expenditure on the education and health. Its means that micro financing has ultimate effect on expenditure of a household on education and health.

60

4.7.7 Help in Income Generation The third consequence, which may be affected by the micro financing, is Income generation and savings. When a household get loan and start working and properly utilize the loan. He will be able to increase his income and after fulfilling of his basic needs he will be able to save some amount for his future needs.

4.8 DEVELOPMENT OF HYPOTHESIS Once we have identified the important variables in the situation and established the relationships among them through logical reasoning in the theoretical framework, The “Impact on Poverty” is influenced by the following variables a) Income Generation and Savings b) Social Structure and social status c) Education and Health The increase in the extent and frequency of above variables causes a positive impact over

4.8.1 Poverty Hypothesis in statistical form is narrated as H0:

µ

=

0

i.e. there is no relationship of the above mentioned variables with the poverty H1:

µ

<

1

That there is a positive relationship of Income Generation and Savings, Social Status and 4.8.2 Education and Health with micro financing. Or we can say that  An appropriate financing tool for low-income people leads them to uplift their income and savings.

61

 Increase in income and savings of low-income people enable them to contribute in the development of social status and social structure.  When the income of a household will increase, it will ultimately increase the expenditure on education and health.

4.9 PURPOSE OF THE STUDY This study is a Descriptive study as it was not much known about the problem before the study that how much micro financing has impact on poverty and its other consequences. Before this study we were unable to judge the different variables and find out the relationship between micro financing and poverty. So due to this study we find all those factors, which are related to the poverty.

TYPE OF INVESTIGATION Types of investigations, categorizes the Research studies in basic three categories. These categories are Causal Relationship, Correlation, and Group Inferences types. In causal relationships type of investigation, focus is to establish definite cause of a problem. In the case of correlation type of investigation, effort is to identify important factors or variables associated with problem. While group inferences type of investigation, ranking is done on the bases of greater intensity and smaller intensity. Talking particularly within the scope of this study “Impact of micro financing on poverty” is a correlation study because there are more then two dependent variables, which are correlated to an independent variable. And here effort is to identify independent variable, which correlates with dependent variables, and these variables are Income generation and savings, Social Status and expenditure on education and health with the independent variable micro financing. 62

It also indicates the nature and extends of relationship of those dependent variables with one single independent variable and also the degree to which these are related to each other.

4.9 TIME HORIZON Time horizon is also an important factor during the course of research study. The research study may be Cross-sectional or it may be Longitudinal. Cross-Sectional research study is conducted and executed only for one period of time. This period may be a day long, or a week long, or it may be a month long. Basic point is that the research is conducted only one for one time. There is no gap and interval between the steps and phases of the research process. While on the other hand, Longitudinal Study is the study of information at more than one period of time. There may be gaps and breaks during the course of execution and conduction of the research study. 4.9.1 Sample Size I have floated 80 questionier in the market which has given the positive result in research for the topic.

4.9.2 UNIT OF ANALYSIS The unit of analysis provides the level of aggregation of the data collected during data analysis. In this research the unit of analysis is the individuals (Clients of Khushhali Bank Ltd.)  individuals

4.9.3 GOODNESS OF MEASURE 4.9.3.1 Validity Evidence that the instrument or technique or process used to measure a concept does indeed measure the intended concept. For checking the validity of the questionnaire and 63

the further hypotheses about the validity of the quality of the teacher-student relationship structured interviews and questionnaires are designed to be filled by them. These questionnaires are filled up with the necessary and relevant items that ensure the measurement of the right concept that the question wants to measure

4.9.3.3 Data Analysis In this research report, researcher has studied one to one relation between poverty and micro financing. In this report, we have discussed how micro financing may have effect on poverty. Here is micro financing is our dependent variable and poverty is independent variable. Independent variable of poverty may further be divided into three variables. Those variables are: social status, Health and education and income generation and savings. Its means that we can see the impact of micro financing on poverty may be measured through these three consequences. The relationship between these all variables may be judged through the following circle: Loan

Social Contribution

Utilization

Repayment and savings

Income generation AGRIGATE ANSWERS;

64

Query What is your way of earning? Why you feel the need of micro financing Is this your first time of getting loan from any micro financing institution When did you last get loan from micro financing inst.

Option #1 10%

Option#2 21.67%

Option#3 56.67%

Option#4 11.67%

18.33%

45%

26.67%

10%

46.67% Y

53.33% N

-

-

35.0%

28.33%

23.33%

13.33%

For what purpose, you got loan from micro financing institution.

40.0%

25.0%

28.33%

6.67%

How you have used your loan Why you have selected comercial bank for micro financing How satisfied are you overall with micro financing institution.

-

-

-

-

-

-

-

-

43.33%

31.67%

10.0%

15.0%

Are you satisfied with the system of Repayment Are you satisfied with the interest rate charged by the micro financing institution. ? Are you earning so many amounts from loan that you can pay interest to bank Are you now in a position to support your family by yourself

28.33%

23.33%

18.33%

30.0%

20.0%

28.33%

13.33%

36.67%

80.0%

20.0%

-

-

88.33%

11.67%

-

-

4.9.4 Interpretation of the table

65

Khushhali bank was formed to provide finance and to promote individuals who want to start their own business or to promote it but due to lack of finances it is difficult for them to proceed. For 5 years Khushhali bank is working in different regions of the country this study basically helps bank’s management to design some policies, which are more beneficial for its customers as it is customer-oriented bank. A question-to-question analysis and interpretation of table is discussed below. 56.67% of the people having loan from Khushhali bank opted that they are making their earnings from their own business of running shop which means that there is vast potential finance requirement for the private individuals wanted or doing their own business as starting business from a shop need comparatively less finances and also not well structured business plan and other expenses. Finances are the basic requirement for all kind of business either it is well reputed grown up business or the business at its infancy stage, money is required from time to time. For question No2, 45.0% people having finances from Khushhali bank stated that they are having finances for the purpose that they want to expand business. Expansion in business means that industry is growing which is beneficial for the bank as well as pay back percentage of the loan improves. Customer retention is very important aspect in any business either it is banking or any other servicing or manufacturing business, because it adds to the life to dealing. About 53.33% of the current customers are the regular customer of Khushhali bank which means that Khushhali bank is very efficient in retaining its customer by providing them with the facilities its customers wants whereas increasing trend with 46.67% indicates that the number of customer are at its increasing trend.

66

4.9.5 Hypothesis Testing Hypothesis # 1 Ho:

An appropriate financing tool for low income people/ household will not lead

them to uplift their income and savings. H1:

An appropriate financing tool for low income people/ household will lead them to

uplift their income and savings.

S no:

(X-X)2

(X- X)2 X

X

probability

X

1

135.0

0.25

99.585

1254.23

12.959

2

140.0

0.25

99.585

1633.37

16.402

3

41.67

0.25

99.585

3354.15

33.681

4

81.67

0.25

99.585

320.95

3.223

∑

398.34

1.0

2

‫ג‬

=∑ [(X-X) 2

= 2‫ג‬

66.265

X]

66.265

67

Critical Region Degree of freedom

n-1 =

3

Level of significance =

5% or 0.05

7.815 = 2 ‫ג‬ 2

‫ג‬

cal > 2 ‫ ג‬tab

Ho:

=66.265 > 7.815So H1 accepted and Ho rejected. Hypothesis #2

Increase in income and savings of low income people will not enable them to

contribute in the development of social status and social structure. H1:

Increase in income and savings of low income people enables them to contribute

in the development of social status and social structure.

S no:

X

probability

(X-X)2

(X-X)2 X

X

1

150.0

0.25

125.0

625.0

5.0

2

173.33

0.25

125.0

2335.79

18.69

3

135.0

0.25

125.0

100.0

0.80

4

41.67

0.25

125.0

6943.89

55.55

∑

500.0

1.0

2

80.04

‫ג‬

=∑ [(X- X) 2 =

X] 80.04

Critical Region Degree of freedom

n-1 =

3 68

Level of significance =

5% or 0.05

7.815 = 2 ‫ג‬ 2

‫ ג‬cal > 2 ‫ ג‬tab

80.04 > 7.815 So H1 accepted and Ho rejected. It means that increase in income and savings of low income people enable them to contribute in the development of social status and social structure. Hypothesis # 3 Ho:

When the income of a household will increase, it will not increase the expenditure

on education and health. H1:

When the income of a household will increase, it will ultimately increase the

expenditure on education and health.

S no:

(X-X)2

(X-X)2 X

X

probability

X

1

388.33

0.25

175.0

45509.69

260.06

2

186.67

0.25

175.0

136.19

0.77

3

71.67

0.25

175.0

10677.09

61.01

4

53.33

0.25

175.0

14803.59

84.59

∑N=4 ∑ X =700.0

1.0

406.43

69

X = ∑X/N = (388.33+186.67+71.67+53.33)/4 =700/4 =175.0 2

‫ג‬

=∑ [(X- X) 2

X]

406.43 = 2 ‫ג‬ Critical Region Degree of freedom

n-1 =

Level of significance =

3 5% or 0.05

7.815 = 2 ‫ג‬ 2

‫ ג‬cal > 2 ‫ ג‬tab

406.43 > 7.815So H1 accepted and Ho rejected. It means that when the income of a household will increase, it will ultimately increase the expenditure on education and health.

4.10 Conclusion Poverty is a complex phenomenon, and we know that economic growth per head does not necessarily alleviate it. Poverty has been alleviated by direct measures: development programs, savings and credit schemes, employment programs, and social insurance and security measures. Currently attention is focused on making micro finance widely available. Given that poverty is complex, this smacks of a technical fix: however, wellmanaged credit is a sufficiently flexible tool to enable poor people to decide for themselves how they will use the resources. This is its attraction over more prescriptive development programs. The aspect, which is most glaringly missing from most rural development policies, is social security. There is a range of approaches to security form employment schemes, through food security measures, to a variety of insurance schemes. 70

Here then is great scope for innovation, in business and local governance. This is particularly important as the very poor rarely benefit from savings and credit.

Recommendations •

Government should focus its activities towards a few critical areas mainly poverty reduction through employment generation.

•

Government should not only act as a facilitator and but actively engaged in developing economic and social infrastructure, particularly water, roads, schools, hospitals, training and skill development facilities.

•

Agriculture sector should be developed through the timely availability of critical inputs.

•

The government should protect poor farmers from volatility in prices of agricultural produce.

•

Development of farm to market roads should be given the utmost priority.

•

The government and NGOs involvement should educate the locals how to make best use of micro-credit facilities

•

The government should disseminate information about its poverty reduction initiatives and how the poor can benefit from the government’s policies and programs.

•

School and hospital staff should be recruited from amongst local residents. The communities should be involved in the selection process.

71

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CHAPTER 6 Questionnaire This Questionnaire is developed to judge the opinion of different clients of micro financing institution (such as National Bank Of Pakistan, Khushali Bank, Zari Tariqiyati Bank etc) and observe the impact of micro financing on the poverty reduction. Please ensure that the information given in this questionnaire is correct and actual. Name: _____________________

Age: _______

Sex: _____________

Loan Cycle: _______

Q. 1

What is your way of earning. o Govt. job o Private job 74

o Own shop o Shared Business o Any other _____________ Q. 2

Why you feel the need of micro financing. o Need Money o Want to expand business o For additional income o For Primary income

Q. 3

Is this your first time of getting loan from any micro financing institution. o Yes o No

Q.4

When did you last get loan from micro financing institution. o Currently using o 1 year ago o 2 years ago o 3 years ago

Q. 5

For what purpose, you got loan from micro financing institution. o For own Shop o For livestock o For working Capital o Any other ____________

Q. 6

How you have used your loan.

_______________________________________________________________________ ____________________________________________________________

Q. 7

Why you have selected micro financing institution for financing.

_______________________________________________________________________ ______________________________________________ Q. 8

How satisfied are you overall with micro financing institution. o Very satisfied o Quit satisfied o Neither satisfied Nor dissatisfied o Quite dissatisfied 75

o Very dissatisfied Q. 9

Are you satisfied with the Repayment system o micro financing institution’s o o o o o

Very satisfied Quit satisfied Neither satisfied Nor dissatisfied Quite dissatisfied Very dissatisfied

Q. 10 Are you satisfied with the interest rate charged by the micro financing institution. o Very satisfied o Quit satisfied o Neither satisfied Nor dissatisfied o Quite dissatisfied o Very dissatisfied Q. 11 Are you earning so much amount from loan that you can pay interest to bank and can also save something for yourself. o Yes o No Q. 12 Are you now in a position to support your family by yourself. o Yes o No

Thank you

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