FINANCIAL MARKETS IN PAKISTAN

Financial Markets of Pakistan

State Bank of Pakistan

In May,1948, Muhammad Ali Jinnah took steps for the central bank of Pakistan and it became operational in July1,1948. The principal officer of the SBP is the Governor. The current Governor of State Bank of Pakistan is Yaseen Anwar The Central Board consists of nine members:

the Governor (who is Chairman), the Secretary, Finance Division, Government of Pakistan and seven Directors, including one Director from each Province, to be nominated by the Federal Government ensuring representation to agriculture, banking and industrial sectors.

Role of State Bank of Pakistan

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

State Banks Shariah Board approves essentials and model agreements for Islamic modes of financing Procedure for submitting claims with SBP in respect of unclaimed deposits surrendered by banks/DFIs

Banking sector supervision in Pakistan

Microfinance Small and medium enterprises (SMEs) Minimum capital requirements for Banks Remittance facilities in Pakistan Opening of foreign currency accounts with banks in Pakistan under new scheme Handbook of corporate governance Guidelines on risk management Guidelines on commercial paper

Guidelines on securitization

Commercial Banks

A type of bank providing checking and saving accounts, credit cards and business loans.
Deposit Mobilization Money transfer Financing Working Capital Financing other trade related mode (import and export) Investing in government securities Call money operations

These banks are of three categories (i) Public Sector Banks, (ii) Private Bank and (iii) Foreign Banks.

INVESTMENT BANKS

Primarily, they assist corporations to raise equity-capital by underwriting the public issues. They also assist companies desiring of mergers and acquisition and derivatives. Such banks cannot take deposits. They manage their affairs by charging fees such as (i) retainer fee, (ii) advisory fees based on the transactions, (iii) commission on underwriting

DEVELOPMENT BANKS

These banks provide guidance in selection of industrial units and extend direct financial assistance to partly cover their financial requirements.

Their core functions are:

Direct financial assistance Catalytic function Mobilization of domestic savings Ensuring balance regional and industrial growth Expanding entrepreneurial base by encourage new comers

MICROFINANCE BANK

Microfinance bank provides credit to those poor who are not considered creditworthy by the commercial banks and other financial institutions. The main aim of microfinance institutions is alleviation of poverty through helping poor persons to earn some money especially the women.

ISLAMIC BANKS

Islamic bank refers to a banking activity which is consistent with the Sharia, the Islamic Laws.

DISCOUNT HOUSES

A Discount House is a financial institution devoted to trading in money market securities in the secondary market. These are firms which buy and discount bills of exchange, banker' acceptance, commercial paper, etc.

Securities Exchange and Commission of Pakistan

The Securities and Exchange Commission of Pakistan (SECP) is the financial regulatory agency in Pakistan whose objective is to develop a modern and efficient corporate sector and a capital market based on sound regulatory principles, in order to encourage investment and foster economic growth and prosperity in Pakistan. The SECP incorporate under the SECP Act,1997 and became operational in January 1999 and has come a long way since then. Operational and executive authority of the SECP is vested in the Chairman who is the SECP's Chief Executive Officer (CEO); Moazzam M Malik. He is assisted by four (4) Commissioners, particularly to oversee the working of various operational units as may be determined by him. The SECP is divided into the following divisions:

Company Law Division Securities Market Division Specialized Companies Division Insurance Division

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

Role of Securities Exchange and Commission of Pakistan

It was initially concerned with the regulation of corporate sector and capital market. Over time, its mandate has expanded to include supervision and regulation of insurance companies, non-banking finance companies and private pensions. The SECP has also been entrusted with oversight of various external service providers to the corporate and financial sectors, including chartered accountants, credit rating agencies, corporate secretaries, brokers, surveyors etc. The challenge for the SECP has amplified manifold with its increased mandate.

INSURANCE COMPANIES

Insurance is a hedge against the risk of a contingent and uncertain loss. In other words, it is the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. For this service, the insurer charges a fee called premium depending upon the risk involved. Takaful is an Islamic insurance concept based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants. These companies believe in promoting the cause of Takaful as well as promoting the insurance business in a Shariah Compliant i.e. halal and absolutely Riba-Free insurance.

STOCK EXCHANGES

Stock exchange is a place where securities are bought and sold. Such securities include shares, derivative, and bonds. In order to list a security on the stock exchange, there are certain requirements. Transactions in the stock exchange are conducted by members only. Stock exchange serves both as a primary market for the initial public offerings and as a secondary market for their subsequent buying and selling. Investors are not bound to sell stock or bond through the stock exchange. They can directly deal with the seller. Similarly, there is no compulsion that stock must be traded on the exchange. The securities can change ownership out of the exchange which is called over the counter or curb dealings.

LEASING

It is a contract where owner(lessor) of an asset agrees to allow someone(lessee) to use it for a fixed rental.

Types of lease:
Financial

lease Operating lease Wet lease Dry lease

Leasing

The financial lease is long-term and noncancellable contract where the user assumes some of the risks of ownership and has the right to keep the assets or get it transferred to its own name after fulfilling the necessary conditions. In operating lease, the owner transfer only the right to use the assets which is returned back at the end of the lease. In wet lease, a company agrees to provide an aircraft along with pilot and crew and would be responsible for the maintenance of the aircraft. Dry lease, on the other hand, refers to leasing only the aircraft.

MODARBA

It is a form of partnership which has two distinct parties: (i) the financier and (ii) the manager. The financer takes no part of management of the business. The profits are distributed among the subscriber while the manager is paid the usual salary. Modarba is one of the modes of Islamic finance. It is like mutual fund minus its unIslamic features.

MUTUAL FUND

It is a professionally managed type of pooled investment for acquiring securities like stocks, bonds, marketable securities and commodities. The profit is distributed by way of dividend to all investors.