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

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 full-fledge central bank. Consequently the Governor-general of Pakistan Quaid-I-
Azam 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

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 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

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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

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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

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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 pre-
tax 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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8
1.5 Organizational
President
Chart
Senior Executive Vice-President

Executive Vice-President

Senior Vice-President

Vice-President

Assistant Vice-President

Officer Grade 1
Branch Hierarchy

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

Foreign
Deposit Remittance Accouns Credit Govt. Admin
Exchange
Deptt. Deptt.
Deptt. Deptt. Deptt. Deptt. 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.
 The cheque is not crossed that it is open cheque.
 It is not stale or post dated.
 The drawer has signed the cheque.
 The amount written in words and figure is same.
 The drawer of the cheque duly signs all alteration or cancellation.
 The presenter has signed at the back of the cheque.
 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.
 The depositor signature is presented on the slip.
 The account number of depositor is written on both the sides of the slip.
 The word and figure of the amount tally with each other.
 The cheque is neither post dated nor stale.
 The drawer signature is present on the cheque.
 The drawer signs the alteration on the cheque.
 The cheque in name of the company, firm etc is not going into the account
of any person.
 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

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  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

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 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 mark-
up/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 mark-
up/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

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 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
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 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

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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.

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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.

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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

22
1.7 .6.1 NBP Advance salary

In January-2003, National Bank of Pakistan has launched a unique product, ‘NBP-

Advance 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.

24
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.
 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
 (Global Finance, USA)
 A secure and reliable government bank since 1949.
 A strong network with approximately 1200 branches around the world.
 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 – Pre-
shipment 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 2004 change RS. Change
Cash and Balance with
treasury banks 71196956 94446552 132.655 (23249596)
Balances with other banks 31019330 49784884 160.496 (18765554)
Lending to financial
institutions 16282942 10511322 64.5541 5771620
Current Asset 118499228 154742758 130.585 (36243530)
Investments 156985686 144735672 92.1967 12250014
Advances 268838779 221443963 82.3705 124103107
Other Asset 23941056 18339514 76.6027 5601542
Operating Fixed Asset 9454365 9202969 97.3409 251396
Defer tax Asset - 1275949
Total Asset 577719114 549740825 95.1571 27978289
Liabilities
Bills payable 1741156 7214671 414.360 (5473515)
Borrowings from
Financial 8756847 11084790 126.584 (2327943)
Deposits and other
accounts 463426602 465571717 100.462 (2145115)
Subordinates loan - - - -

29
Liabilities against leased
Asset 16629 17058 102.579 (429)
Other Liabilities 24974450 23068314 92.3676 1906136
Defer Tax Liabilities 4462718 29185 0.65397 4433533
Total Liabilities 503378402 506985735 100.716 (3607333)
Net Asset 74340712 42936442 57.756 31404270
Represented By
Share Capital 5908927 4924106 83.333 984821
Reserves 13536041 10813914 79.889 2722127
Unappropriated profit 16713506 9161747 54.816 7551759
36158474 24899767 68.862 11258707
Surplus revaluation of
asset 38182238 21345965 55.905 16836273
Total Representation 74340712 42936442 57.756 31404270

2.4 Vertical Analysis of Balance Sheet 2004-2005

%age %age
Particulars 2005 2004 2005 2004
Cash and Balance with
treasury banks 71196956 94446552 12.323 17.180
Balances with other banks 31019330 49784884 5.3692 9.0560
Lending to financial
institutions 16282942 10511322 2.8184 1.9120
Current Asset 118499228 154742758 20.511 28.148
Investments 156985686 144735672 27.173 26.327
Advances 268838779 221443963 46.534 40.281
other Asset 23941056 18339514 4.1440 3.3360
Operating Fixed Asset 9454365 9202969 1.6364 1.6740
Defer tax Asset - 1275949 0.2321
Total Asset 577719114 549740825
Liabilities
Bills payable 1741156 7214671 0.3458 1.4230
Borrowings from
Financial 8756847 11084790 1.7396 2.1864
Deposits and other
accounts 463426602 465571717 92.063 91.831
Subordinates loan - - - -
Liabilities against leased
Asset 16629 17058 0.0033 0.003364
Other Liabilities 24974450 23068314 4.9613 4.5500

30
Defer Tax Liabilities 4462718 29185 0.8865 0.0057
Total Liabilities 503378402 506985735
Net Asset 74340712 42936442
Represented By
Share Capital 5908927 4924106 1.0228 0.8957
Reserves 13536041 10813914 2.3430 1.9670
Unappropriated profit 16713506 9161747 2.8930 1.6665
Total 36158474 24899767 6.2588 4.5293
Surplus revaluation of
asset 38182238 21345965 6.6091 3.8829
Total Representation 74340712 42936442

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: Year 2004:

=118499228 – 167708076 NWC=154742758-177058128

= (49208848) = (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 2005 Change Change
Cash and Balance with
treasury banks 78625227 71196956 90.5523 7428271
Balances with other banks 40641679 31019330 76.3239 9622349
Lending to financial
institutions 23012732 16282942 70.7562 6729790
Current Asset 142279638 118499228 83.2886 23780410
Investments 139946995 156985686 112.175 (17039591)
Advances 316110406 268838779 85.0458 47271627
Other Asset 27113698 23941056 88.2987 3172642
Operating Fixed Asset 9681974 9454365 97.6491 227609
Defer tax Asset - - - -
Total Asset 635132711 577719114 90.9603 57413597
Liabilities
Bills payable 10605663 1741156 16.4172 8864507
Borrowings from
Financial 11704079 8756847 74.8187 2947232
Deposits and other
accounts 501872243 463426602 92.3395 38445641
Subordinates loan - - - -
Liabilities against leased
Asset 13235 16629 125.644 (3394)
Other Liabilities 2659300 24974450 939.136 (22315150)
Defer Tax Liabilities 2387073 4462718 186.953 (2075645)
Total Liabilities 553178593 503378402 90.9974 49800191
Net Asset 81954118 74340712 90.7101 7613406
Represented By
Share Capital 7090712 5908927 83.3333 1181785
Reserves 13879260 13536041 97.5271 343219
Unappropriated profit 32074677 16713506 52.1081 15361171
Total 53044649 36158474 68.1661 16886175
Surplus revaluation of
asset 28909469 38182238 132.075 (9272769)
Total Representation 81954118 74340712 90.7101 7613406

2.6.2 Vertical Analysis of Balance Sheet 2005-2006

37
 %age %age
Particulars 2006 2005 2006 2005
Cash and Balance with
treasury banks 78625227 71196956 12.3793 12.3238
Balances with other banks 40641679 31019330 6.39892 5.36927
Lending to financial
institutions 23012732 16282942 3.62329 2.81848
Current Asset 142279638 118499228 22.4015 20.5115
Investments 139946995 156985686 22.0342 27.1733
Advances 316110406 268838779 49.7707 46.5345
Other Asset 27113698 23941056 4.26898 4.14406
Operating Fixed Asset 9681974 9454365 1.52440 1.63649
Defer tax Asset - - - -
Total Asset 635132711 577719114
Liabilities
Bills payable 10605663 1741156 1.91722 0.34589
Borrowings from
Financial 11704079 8756847 2.11578 1.73961
Deposits and other
accounts 501872243 463426602 90.7251 92.0632
Subordinates loan - - - -
Liabilities against leased
Asset 13235 16629 0.00239 0.00330
Other Liabilities 2659300 24974450 0.48073 4.96136
Defer Tax Liabilities 2387073 4462718 0.43151 0.88655
Total Liabilities 553178593 503378402
Net Asset 81954118 74340712
Represented By
Share Capital 7090712 5908927 1.11641 1.02280
Reserves 13879260 13536041 2.15525 2.34301
Unappropriated profit 32074677 16713506 5.05007 2.89301
Total 53044649 36158474
Surplus revaluation of
asset 28909469 38182238 4.55172 6.60913
Total Representation 81954118 74340712

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: NWC=Current Assets-Current Liabilities

Year 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: Debt To Assets Ratio=TL/TA*100

Year 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)

52
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 low-

income 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 self-

regulation. 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

2001 2004-05 2006-07

Extremely Poor 1.1 1.0 .73
Ultra Poor 10.8 6.5 5.4
Poor 22.5 16.4 15.1
Vulnerable 22.5 20.5 20
Quasi Non-Poor 30.1 35.0 38.95
Non-Poor 13.0 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 Status in society

Micro financing Education and Health

Poverty

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 Option #1 Option#2 Option#3 Option#4
What is your way of 10% 21.67% 56.67% 11.67%
earning?
Why you feel the need of 18.33% 45% 26.67% 10%
micro financing
Is this your first time of 46.67% 53.33% - -
getting loan from any micro Y N
financing institution
When did you last get loan 35.0% 28.33% 23.33% 13.33%
from micro financing inst.

For what purpose, you got 40.0% 25.0% 28.33% 6.67%

loan from micro financing
institution.

How you have used your - - - -

loan
Why you have selected
comercial bank for micro - - - -
financing
How satisfied are you 43.33% 31.67% 10.0% 15.0%
overall with micro financing
institution.

Are you satisfied with the 28.33% 23.33% 18.33% 30.0%

system of Repayment
Are you satisfied with the 20.0% 28.33% 13.33% 36.67%
interest rate charged by the
micro financing institution.
?
Are you earning so many
amounts from loan that you
can pay interest to bank 80.0% 20.0% - -
Are you now in a position to
support your family by 88.33% 11.67% - -
yourself

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.

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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.

(X-X)2 (X- X)2 X

S no: 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 66.265

2
‫ג‬ =∑ [(X-X) 2 X]

= 2‫ג‬ 66.265

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 Critical Region

Degree of freedom n-1 = 3

Level of significance = 5% or 0.05

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

Ho: 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.

X probability (X-X)2 (X-X)2 X

S no: 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 80.04

2
‫ג‬ =∑ [(X- X) 2 X]

= 80.04

Critical Region
Degree of freedom n-1 = 3

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 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.

(X-X)2 (X-X)2 X
S no: 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

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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 = 3

Level of significance = 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, well-

managed 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.

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 CHAPTER 5

REFERENCES

• Aryee, S., V. Luk and R. Stone. 1998. Family-responsive variables and retention-
relevant outcomes among employed parents . Human Relations 51(1): 73-87
.[CrossRef][ISI]
• Bedeian, A.G., and A.A. Armenakis. 1998. The cesspool syndrome; how dreck
floats to the top of declining organisations . Academy of Management Executive
12(1): 58-67 .
• Boxall, P. 2003. New Zealand. In The handbook of human resource management
policies and practices in Asia-Pacific economies, volume 2, eds, Michael Zanko
and Matt Ngui, 228-284. Cheltenham: Edward Elgar .

72
• Burgess, S. and H. Rees. 1998. A disaggregate analysis of the evolution of job
tenure in Britain, 1975-1993 . British Journal of Industrial Relations 36(4): 629-
655 .
• Callister, P. 1997. Trends in employee tenure, turnover and work scheduling
patterns: A review of the empirical research evidence. New Zealand Department
of Labour : Occasional Paper, 1997/1.
• Campbell, A. 2002. Loyalty stems from life, work balance. NZ Herald, 24 July.
Online http://www.nzherald.co.nz.
• Cotton, J. and J. Tuttle. 1986. Employee turnover: A meta-analysis and review
with implications for research . Academy of Management Review 11: 55-70 .
• Dalton, D.R. and W.D. Todor. 1979. Turnover turned over: an expanded and
positive perspective . Academy of Management Review 4(2): 225-235 .
Department of Labour (DOL). 1972. Labour turnover: A practical guide.
Wellington: Dept of Labour .
• Department of Labour (DOL). 2002. Labour market policy group: Skill shortages
- September 2002 quarter.
• Eisenberger, R., F. Stinglhamber, C. Vandenberghe, I.L. Sucharski, and L.
Rhoades. 2002. Perceived supervisor support: Contributions to perceived
organisational support and employee retention . Journal of Applied Psychology
87(3): 565-573 .[CrossRef][ISI][Medline] [Order article via Infotrieve]
• Freeman, R. and J. Medoff. 1984. What do unions do? New York: Basic Books .
• Fry, F.L. 1973. More on the causes of quits in manufacturing . Monthly labour
Review, June, 48-49 .
• Griffeth, R. and P. Hom. 1995. The employee turnover process . In Research in
personnel and human resources management 13, 245-293 (ed. G.R. Ferris).
Greenwich, CT: JAI Press .
• Griffeth, R., P. Hom and S. Gaertner. 2000. A meta-analysis of the antecedents
and correlates of employee turnover: Update, moderator tests, and research
implications for the next millennium. Journal of Management 26(3): 563-588 .
• Khushhali bank.com
• Annual Reports of National Bank of Pakistan.

73
 • www.nbp.pk
• Meetings
• Staff members of National Bank of Pakistan
• Friends
• Googal.com
• Ask.com
• Answer.com
• Grameen bank.com

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

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

76