National University of Modern Languages

Islamabad

Topic: Financial System in Pakistan

Submitted To: Mr. Muhammad Haroon

Submitted By: Wazir Akhtar

Bs Economics and Finance 8th Semester

Roll No: 3021

Financial intermediary
Definition:

an institution, such as a bank, building society, or unit-trust company, that holds funds from
lenders in order to make loans to borrowers.

Explanation:

Financial intermediary is basically an institution or any individual who plays the role of
middleman among the lenders and borrowers of funds. For example, take a simple who is
operating in our area what does he do is, he gets money from savers or depositors and he also
provide financial assistance to other individuals and institutions who need funds for their
investment, and they are ready to pay the cost of it in future.

Functions of Financial Intermediary:

1. They take deposits from general public and lend money to others.
2. They make a pool of money and try to earn some profit through it by investing in stocks,
bonds and other financial assets.
3. They also provide lending facilities to small businesses and customers.

Examples of Financial Intermediaries

 Insurance Companies

If you have a risky investment. You might wish to insure, against the risk of default. Rather than
trying to find a individual to insure you, it is easier to go to an insurance company who can offer
insurance and help spread the risk of default.

Insurance Companies in Pakistan

At present there are 54 insurance companies out of which 49 companies offer non-life insurance
and 5 offer life insurance services. The non-life insurance industry also includes six companies
that also provide health insurance coverage. Some big names in this sector are

a) Jubilee Life Insurance

b) EFU Life insurance
c) Adamjee Insurance Company
d) Alfalah Insurance
e) State Life Insurance Corporation of Pakistan
  Financial Advisers

A financial adviser doesn’t directly lend or borrow for you. They can offer specialist advice on
your behalf. It saves you understanding all the intricacies of the financial markets and spending
time looking for the best investment.

 Credit Union

Credit unions are informal types of banks which provide facilities for lending and depositing
within a community.

1) Tri-Star Mutual Funds Limited

2) Habib sons Bank Ltd.
3) Golden Arrow Selected Stock Funds Limited
4) KASB Bank Ltd.
5) Union Bank Ltd.

 Mutual funds/Investment trusts

These are mutual investment schemes. These pool the small savings of individual investors and
enable a bigger investment fund. Therefore, small investors can benefit from being part of a
larger investment trust. This enables small investors to benefit from smaller commission rates
available to big purchases.

Mutual Fund companies in Pakistan

Mutual Fund is a specialized investment arrangement that is created and managed by Asset or
Fund Managers. Fund Managers or Asset Management Companies collect money from investors
and then that pool of money is invested in top performing securities, stocks, bonds and other
similar assets. A mutual fund is managed professionally by creating a highly diversified portfolio
of investment. Any dividends or income earned from the mutual fund investment is then
distributed into the shareholders of that mutual fund. Fund Managers or Asset Management
Companies are regulated by the Securities and Exchange Commission of Pakistan (SECP). They
charge nominal fee to manage the funds on behalf on their investors.

1) MCB Arif Habib.

2) UBL Fund Managers.
3) Al Meezan Investments.
4) ABL Asset Management.
5) Faysal Funds.
Regularity bodies in Financial sector of Pakistan
 The Planning Commission (PC)

It is a financial and public policy development institution which comes under the umbrella of
ministry of planning, development and reforms. he Planning Commission undertakes research
studies and state policy development initiatives for the growth of national economy and the
expansion of the public and state infrastructure of the country in tandem with the Ministry of
Finance (MOF). Since 1952, the commission have had a major influence and role in formulating
the highly centralized and planned five-year plans for the national economy, for most of the 20th
century in Pakistan. Although the five-year plans were replaced by Medium Term Development
Framework, the commission still played an influential and central role in the development of the
programmed. Furthermore, the Public Sector Development Programmes (PSDP) also placed
under the domain of the planning commission. The commission's authoritative figures include a
Chairman who is the Prime Minister, assisted by the deputy chairman, and a science advisor.

 Securities & Exchange Commission of Pakistan

The SECP, securities and exchange commission of Pakistan was founded in 1999 it has
investigative and enforcement powers in finance sector the SECP has the following mandates

a) Includes corporate sector and capital market regulations

b) Supervision and regulation of the finance companies in Pakistan.
c) The non-banking finance companies and private pension schemes’ supervision and
regulation also comes under SECP
d) Supervision of external services providers to corporate and financial sector which
includes chartered accountants credit rating agencies, corporate secretaries etc.

 State Bank of Pakistan

The State Bank of Pakistan is the central bank of Pakistan. Under the State Bank of Pakistan
Order 1948, the Bank is responsible to "regulate the issue of Bank notes and keeping of reserves
with a view to securing monetary stability in Pakistan and generally to operate the currency and
credit system of the country to its advantage".

Some of the major functions of state bank of Pakistan can be following enlisted functions.

a) Issue of notes
b) Regulation and supervision of the financial system
c) Bankers’ bank
d) Lender of the last resort
e) Banker to Government
f) Conduct of monetary policy.

 Competition Commission of Pakistan

Competition Commission of Pakistan (CCP) is an independent agency of the Government of

Pakistan for the enforcement of economic competition laws in Pakistan. It was created in 2007
by the President of Pakistan through the promulgation of the Competition Ordinance, 2007
replacing Monopoly Control Authority, later Parliament of Pakistan passed Competition Act,
2010 to give legal cover and powers to the commission.

The State Bank of Pakistan and its Regulations

State bank is the central bank of Pakistan. It was inaugurated in early years of independence it
has branches which are working under the arm of central bank of Pakistan. It regulated the
monitory and credit policy in accordance with governments target for growth and the inflation
with the recommendation monetary and fiscal policy.

The state bank of Pakistan also controls the volume of the credit, different uses and the sectors. it
makes use of both direct and indirect instrument of monetary management. A reserve money
management program has been developed for intermediate target, that would be achieved by
observing the desired path of reserved money. The state bank of Pakistan has changed the format
and design of bankers notes which are circulated in Pakistan.

Furthermore, the state bank’s shariah board has approved the Islamic mode of financing in
different commercial banks. It also supervises the different banking sectors in Pakistan. It has
introduced the micro finance and small medium enterprises SME’s).

However, it facilitates the remittances and foreign currency accounts with banks is Pakistan. At
last it guides the risk management and securitization for commercial banks.
Challenges faced in this sector and recommendations

the very first thing is that Pakistan banking sector reforms strategy needs to be broad based and
well sequenced. Secondly while promoting banking sector liberalization SBP ensured
introduction of effective and comprehensive regulation, consistent with international standards
and best practices and implemented institutional restructuring and strengthening.

The control over money laundering was one of the main issues faced by the SBP for past many
years but it has taken a good step to control money laundering by The State Bank of Pakistan in
2020, the Anti-Money Laundering, Combating the Financing of Terrorism and Counter
Proliferation Financing Regulations for regulated entities. In particular, the Regulations require
regulated entities to take a risk-based approach to anti-money laundering and combatting the
financing of terrorism, conduct customer due diligence, implement appropriate internal policies
and procedures for politically exposed persons, as well as ensure compliance with relevant
record-keeping requirements including retention periods. Furthermore, the Regulations outline,
among other things, a number of additional measures that regulated entities should take when
providing correspondent banking services and require a review of any risks that may arise in
relation to the use of new or developing technologies.

The Infrastructure development All around the world the share of private sector participation is
increasing tremendously in the area of infrastructure development. Through most of 1990s, the
investment in infrastructure projects with private participation rose steadily and of these the most
successful projects were implemented in 136 low- and middle-income countries. In Pakistan, the
conventional form of financing infrastructure projects only through Public Sector Development
Programmed has resulted in congestions and bottlenecks that have raised the need to find alternative
way of fostering private-public partnership in the areas of infrastructure development. This success
story of private sector in infrastructure development has also set challenges to the local banking
industry to learn from the 4 experience of other emerging market economies and innovate and design
the different modes of infrastructure financing and the associated risk management systems

Development of Liability Products It should be noted that although new products have been introduced
in preceding three years on asset side, including, consumer finance, SME finance, etc., but little attention
has been paid on developing and innovating the liability products. This one-sided approach has proved
adverse for the local banking industry as these are the savers and depositors that provide financial
resources to the banks to perform their intermediation business. The stagnant financial savings in the
economy for last few years is an outcome of this neglect and this has raised the need to design the
lucrative savings products in the country to look after the interest of the small savers and mobilize their
savings in an efficient way

Another area where still a lot of progress should be made is the Ebanking. Although small and medium
banks are now offering on-line services to their customers, the large banks, with more expanded branch
network and number of customers, are required to move more expeditiously to optimally utilize the
Ebanking network. This will not only lower the transaction costs but will also help in improving the
customer services. The ATM penetration ratio is still quite low in Pakistan and the efforts are needed to
not only further expand the ATM network more aggressively but also to improve upon the security
standards.