CURRENT TRENDS IN THE FINANCIAL INDUSTRY

IN PAKISTAN
18231554-004,018,023,038
Innovations in Banking and
Finance
 Banking system have been continually evolving over
the past two centuries.
 Overtaken by new and innovative developments,
rapidly changing information, communications
technology and globalization of financial markets.
 Banking services can be delivered through Alternative
Delivery Channels(ADC) such as branchless banking,
mobile banking and internet banking.
Branchless Banking
 Branchless banking is a type of banking where the
banking customer does not need to visit a branch or
central location of the bank
 Banking activities completed through technological
services, such as online, over he phone, through ATM
 Bank may offer services in third party locations such
as post office or grocery stores.
Advantages of Branchless
Banking
 No need to take time out of the day to visit a bank.
 Instant access to see if check have been cleared, or if
automatic bill payments have been made.
 Many people are able to log an to their bank’s website
through a smartphone and so it is no longer even
necessary to have access to a computer.
 Branchless banking often help to save the bank
money.
Advantages of Branchless
Banking
 Using banking agents and electronic payments to pay
utility bills takes less time than traveling to and
queuing in a range of utility offices, thereby bringing
very tangible benefits.
 Similarly collecting a pension, remittances receipt,
and welfare or salary payments is a strong driver for
opening accounts.
Downsides of Branchless
Banking
 Accessing one’s account through the computer or a
smartphone may not be as secure
 There is always the potential for virus or spyware to
be present on the computer
 The best idea might be to do one’s banking business
with a local bank that also offers online banking
services and convenient ATM locations.
Downsides of Branchless
Banking
 Customers primarily make payments and send
transfers through branchless banking channels, even
when most of these channels offer a broader range of
services including account opening, cash deposits and
cash withdrawals.
 Most customers either time their deposits to coincide
with bill payments or cash withdrawals
Steps that should be taken
 Innovations such as branchless banking, mobile
banking and internet banking have led to a need for
further tightening the security aspects of banking.
Risk mitigation is an important sector for the banks
and bankers today.
Risk Mitigation
 Risk mitigation has emerged as one of the biggest
challenge for bankers worldwide. With the advent of
modern technology and the globalization to the size
and range of portfolios that banks currently undertake.
This has led to the high amount of leverage that banks
have taken on, which ultimately results in bank
meltdowns.
Basel II
 Global initiatives, such as the Basel II Accord, were
instigated, in part, to raise awareness of the need for
better risk management.
 Basel II is the second of the Basel Accords which are
recommendations on banking laws and regulations
issued by the Basel Committee on Banking
Supervision.
Purpose of Basel II
 The purpose of Basel II, which was initially published
in June 2004, is to create an international standard that
banking regulators can use when creating regulations
about how much capital banks need to put aside to
guard against the serious financial and operational
risks banks face.
 Protect the international financial system from the
types of problems
Basel III
 Basel III is a new global regulatory standard on bank
capital adequacy and liquidity agreed by the members
of the Basel Committee on Banking Supervision.
 The third of the Basel Accords was developed in
response to the deficiencies in financial regulation
revealed by the global financial crisis.
 It strengthens bank capital requirements and
introduces new regulatory requirements
Purpose of Basel III
 Basel III purposes many newer capital, leverage and
liquidity standards to strengthen the regulation,
supervision and new capital buffers will require banks
to hold more capital and higher quality of capital than
under current Basel II rules.
 The medium-term impact of Basel III implementation
on GDP growth is in the range of 0.05 to 0.15
percentage point per annum.
Risk Mitigation Initiatives
 Risk mitigation initiatives such as Basel III are
extremely important for developing economics such
as Pakistan. However, the banks and financial
institutions in Pakistan have not been able to meet
these standards as of mid-2011. the State Bank of
Pakistan has set milestones and deadlines for the
implementation.
Interest Free Banking:
 Important element of financial system of country.
 Exclude Muslims from paying or receiving interest.
 Interest free banks give return annual basis.
 Banks concur indispensable value of Islamic banking.
 Banks differ in services ,benefits the offer.
 Difference occur due to individual country rules.
 Needs of inhabitants ,bank’s experience and objectives.
Interest Free Banking:
 Outstanding feature is helping person to become debt free.
 Lender must take share of the profits.
 Or losses incurred by borrower and enterprise.
 Mandatory to share profit and the losses.
 Lender and borrower are more like partners.
 Help to remove discrimination between rich and poor.
 Traditional banking system collects huge amount of
interest.
Islamic Banking:
 Consistent with the principles of Islamic law(sharia).
 Sharia prohibits the acceptance of specific interest.
 Investing in businesses that provide goods or services
considered contrary to Islamic principles is haram(forbidden).
 In 20th century number of Islamic banks were formed.
 Islamic banking without interest started around nineteenth
century.
 When Muslims were doing well both politically and
economically.
 Islamic banks started in Islamic and non Islamic countries.
Islamic Banking:
 Introduced in July, 1979 in banking and financial system of
Pakistan.
 Amendments were made to banking laws in June, 1980 in
Pakistan.
 Various companies allowed to start business on basis of interest
free system.
 Many people not know about the benefits of interest free
system.
 Islamic banks required to establish a Shariah Supervisory
Board.
 To advice them about the shariah principles.
 Already established for the banks working in Pakistan.
Prohibitions in Financial
Activities:
 Avoidance of Riba.
 Avoidance of Gharar.
 Avoidance of Exploitation.
 Avoidance of Gambling
 Avoidance of Haram.