Corporate Governance

M.B.A

Batch: 11, Section: C

Group Members:

Ayyma Saman Gul Fouad Hameed

CIIT/FA08-MBA-019/LHR CIIT/FA08-MBA-031/LHR

Nimra Malik Ali Shabbar

CIIT/FA08-MBA-115/LHR CIIT/FA08-MBA-163/LHR

Saqib Murtaza M Faisal

CIIT/FA08-MBA-092/LHR CIIT/FA08-MBA-075/LHR

Sidra Iqbal AhsanSaeed

CIIT/FA08-MBA-139/LHR CIIT/FA08-MBA-010/LHR

Saftain Mohsin Saeed

CIIT/FA08-MBA-127/LHR CIIT/FA08-MBA-172/LHR
Hassan Bakhtiar Roi M. Riaz
CIIT/FA08-MBA-039/LHR CIIT/FA08-MBA-087/LHR

Ehsan Ullah Uzair Ahmed Sheikh

CIIT/FA08-MBA-043/LHR CIIT/FA08-MBA-155/LHR

PRESENTED TO:

Miss. Mahwish Irum

 Special Thanks

We are glad to tell that the staff helped us a lot we are really thankful to
all of them even we can’t give their thanks in words they teach us
everything regarding our project. We are pleased with all their support

Mr.Adnan-ul-haq (Vice President NIB)

Mr. Noman (OG 1 UBL)

Mr. Mohuindin Mahmood (In charge finance department ORIENT)

Mr. Qamar Latif (Manager, BOP)

Mr. Tariq Rahman (Industrial finance in charge JS Bank)

Mr. Arslan-ul-Haq (Student of BSC Finance LUMS)

Mr. Waqar (Head of Finance department ALI AKBAR Group)

Mr. Hanif (Manager Finance PEL)

They are the real professionals of their jobs they perform their jobs whole
heartedly.
Topic name: Products and services provided by banks
to industry.

Introduction

We chose this topic because as students of management sciences we should have a proper
knowledge of Pakistan's banking system and the products and services being offered by
banks currently functioning in market. Since 1972 different reforms have been introduced
to make the banks more responsive to the requirements of economics growth with social
justice. The reforms aimed at bringing about a more purposeful and equitable distribution
of bank credit, improving the soundness and efficiency of the banks, and securing greater
social accountability of the banking system as a whole.

In this research paper we have tried to figure out how the services being provided by
banks have evolved to fulfill the needs of ongoing process of industrialization. We looked
at different services that are being provided by multitude of banks and categorized these
practices as conventional and non-conventional. After this categorization we made sub-
classes and looked at what falls under each of these sections. In conventional practices
we have put services like working capital lines, demand finance, BMR etcetera, basically
the services which are offered by almost all banks and which have been for quite some
time now. In non-conventional services we discuss services like bullet loans and
derivatives which are offered by a limited number of banks and the services themselves
are relatively new.

After looking at the services being provided by banks, we pin point a couple of industries
which are benefitting from these products offered by banks. We observed that the
services of banks are quite flexible depending on the magnitude of customer and there's
quite a bit of flexibility in the services provided by banks depending on how big a client
is and how good the reputation of the client is.
Working Capital Lines (UBL, National Bank, Js Bank)

Working Capital Lines are the basic function of almost all banks because this line creates
a huge amount of revenue for banks. These lines are mostly used by industries in
different ways such as now-a-days textile industry is using working capital lines. Mostly
in working capital lines are available for a period ranging from 4 months to 3 years.

Unlike traditional form of loans offered by banks and other large financial institutions, a
working capital line of credit is acquired in a manner which is faster and whole lot easier.
The cash needed is readily made available in the shortest time possible, making it an ideal
option to answer to the urgent circumstances. With this, Industry owners are given the
opportunity to generate more profits by supporting them in their endeavors without
asking for any security.

To acquire of a working capital line of credit, there is no need for small business
industries owners to use any of their properties as collateral. Though this is the case, there
are still a few conditions that the lending banking company requires you to meet before
an agreement is drafted. Among these conditions are the invested interest of the business
owner, credit history, and the capacity of the enterprise or business to generate revenue
that would serve enough to accommodate the repayments. The last factor mentioned
which is the adequate cash flow coming into the business as profits is probably the most
critical thing to consider by the lending company.

When the conditions have been met and the business proved to be eligible for a working
capital line of credit, the agreement will then be drafted. This comprises of the amount in
percentage of the overall revenue made by the business and the period of time to get the
borrowed amount fully paid. In accordance to the agreement, the access of the lending
company to a portion of the future profits through sales will continue to hold effective
until the predetermined time. In Working Capital Lines of Credit there are two types of
facilities that offered: Running Finance and Cash Finance.
a. Running Finance
Running finance is nothing but the finance offerings by financial institutions against
mortgages. It works under the working capital finance. Specifically, the running finance
is a credit facility established for a specific time limit at variable interest rates. Cottage
industry is a contributory agent for successful operation of the running finance scheme.
The running finance is implemented by means of allowing the over draft facility and the
corresponding amount is determined by the repaying capacity of the borrower.

Overdraft is one sort of offering credit by the account providers, in that withdrawals are
permitted exceeding available balance of the bank account. It is nothing but an over-
drawing leading to a negative balance. The situation is more common with the credit card
offerings by the banks. For enjoying overdraft facility, there should be some agreement
or approval in advance with the account provider. Generally, the over-draft facility is
offered by the banks for some maximum amount and the same is required to be returned
to them (in the respective account) within some specified time limit.

Non-compliance of these guidelines may impose heavy penalty on the account holders. In
any case, drawing an overdraft necessitates paying interest. Fees charged for providing
the overdraft facility and in case of going into unauthorized limits may vary from bank to
bank, but the principle remains the same.

b. Cash Finance:

Cash Finance facility is generally provided against pledge of goods. Under this type of
financial accommodation the facility amount is disbursed in specially opened account for
the purpose. The pledged goods are released to the borrower against cash payment only.
In case the goods pledged are seasonal in nature, the customer would be required to
adjust the facility before the season ends. Rollover shall not be allowed.
2. Demand Finance (UBL, National Bank, Js Bank)

As it is clear from its name demand finance is on the disposal of the industry. Suppose
the industry needs machinery worth Rs. 1,000,000/- the bank is allowed to sanction loan
unto 80% of total worth. Mostly this loan is used for renovation of business.

Credit facilities extended against registered mortgage of property (i.e, land/buildings

constructed or to be constructed) is by nature classified as a Secured Advance. A formal
charge on the property is established and recorded with the Registrar Land and Property
termed as registered mortgage. Advances are also made against equitable mortgage of
property, whereby the original title Deeds, are deposited with the Bank as Security and
the charge is registered with the Registrar SECP.

In case the Finance is allowed to Limited Companies, where the original title documents
of Land/Building and other Fixed Assets are held by the senior charge holders, our
charge (Pari-Pasu or ranking) as approved by Credit Committee, shall be recorded with
the Registrar Securities & Exchange Commission of Pakistan (SECP). However, in case
of Pari-Pasu Charge, NOCs from the senior Charge Holders shall be obtained before
registration of charge with SECP. In case of borrower’s failure to liquidate the obligation,
or on classification of the advance to “Non-Performing” the Bank has a legal recourse to
apply for a decree in a court of law, to sell off the mortgaged property through auction as
ordered by the court.

Example of demand finance is given below this product is offered by UBL Ltd.
Products available, criteria of selection and eligibility criteria is given below.

NIACF (Revolving Credit Scheme)

Loan Tenure 3 years
Documentation once for 3 years.
Cleanup once a year
Option for the farmer to use limit as per requirement
Markup is charged on amount used or withdrawn
Minimum Amount PKR 30,000
Maximum Amount as per requirement of the farmer
(Demand Finance Production)
Loan Tenure 3 months to 1 year
18 months for Sugar cane only
Lump sum disbursement of the limit for a specified period.
Repayment of loan in bullet payment on maturity (Principal and markup).
Minimum Amount PKR 30,000
Maximum Amount as per requirement of Farmer

Development Loan

Land Development, Equipments and Machinery

Financing for Land Improvement, Water course improvement, Tube wells, Lift pumps,
Deep turbine pumps, Cotton pickers, Godown, Cold Storage, Harvester, Thresher, etc
Loan Tenure 1 to 5 years
Lump sum disbursement of the limit for a specified period.
Repayment in installments (Principal with markup).
Repayment mode monthly, quarterly and half yearly
Minimum Amount PKR 30,000
Maximum Amount as per requirement of Farmer
Tractor & Vehicle Finance
To purchase Tractors, Delivery Vans, Mini Trucks, Motor Cycle and other vehicles used
for marketing Agri Products
Loan Tenure
1 to 3 years for Motor Cycle
1 to 7 years for Tractor
1 to 5 years for other 4 wheel vehicles
Lump sum disbursement of the limit for a specified period.
Repayment in installments (Principal with markup).
Repayment mode monthly, quarterly and half yearly
Minimum Amount PKR 100,000
Maximum Amount PKR 1,500,000
Eligibility
Should be a Pakistani & holding CNIC
Preferably an account holder of UBL
Permanent resident of the area
Should be Agri land owner
Self cultivator
Minimum 3 years experience in relevant field
Not a defaulter of any bank
Have repayment capacity
Able to produce proper securities / Passbooks / sureties
Collateral Requirement
Bank charge on Agri Land through Zarie Passbook
Mortgage of Rural / Urban property other than Agriculture Land
Hypothecation of Farm equipments with backup collateral
Join registration of Tractor / vehicle with backup collateral
Growers’ loans against continuing Guarantee of Agriculture processing units
Join registration of Tractor / vehicle with backup collateral
Liquid Securities (Defence Saving Certificates, National Saving Certificate, etc.)
Terms & conditions
Clean CIB
1 to 3 years for Motor Cycle
Markup payment frequency quarterly / half yearly for working capital loan
Installment repayment frequency monthly / quarterly / half yearly / yearly for Term
finance loans
Minimum landholding 10 acres for Tractor Financing
Equity for Tractor 10%
Equity for 4 wheelers except Tractor is 25%
3. Letter of Credit: (UBL, National Bank, Js Bank)

A standard, commercial letter of credit is a document issued mostly by a financial

institution, used primarily in trade finance, which usually provides an irrevocable
payment undertaking.

The LC can also be source of payment for a transaction, meaning that redeeming the
letter of credit will pay an exporter. Letters of credit are used primarily in international
trade transactions of significant value, for deals between a supplier in one country and a
customer in another. They are also used in the land development process to ensure that
approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The
parties to a letter of credit are usually a beneficiary who is to receive the money, the
issuing bank of whom the applicant is a client, and the advising bank of whom the
beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended
or cancelled without prior agreement of the beneficiary, the issuing bank and the
confirming bank, if any. In executing a transaction, letters of credit incorporate functions
common to giros and Traveler's cheques. Typically, the documents a beneficiary has to
present in order to receive payment include a commercial invoice, bill of lading, and
documents proving the shipment was insured against loss or damage in transit. However,
the list and form of documents is open to imagination and negotiation and might contain
requirements to present documents issued by a neutral third party evidencing the quality
of the goods shipped, or their place of origin.

How it works:

A business called the InCosmetika from time to time imports goods from a business
called BLISS, which banks with the ABC Bank. InCosmetika holds an account at the
Commonwealth Bank. InCosmetika wants to buy $500,000 worth of merchandise from
BLISS, who agrees to sell the goods and give InCosmetika 60 days to pay for them, on
the condition that they are provided with a 90-day letter of credit for the full amount. The
steps to get the letter of credit would be as follows:
• InCosmetika goes to The Commonwealth Bank and requests a $500,000 letter of
credit, with BLISS as the beneficiary.
• The Commonwealth Bank can issue an LC either on approval of a standard loan
underwriting process or by InCosmetika funding it directly with a deposit of
$500,000 plus fees which are typically between 1% and 8% of the face value of
the LC.
• The Commonwealth Bank sends a copy of the LC to the ABC Bank, which
notifies BLISS that payment is available and they can ship the merchandise
InCosmetika has ordered with the full assurance of payment to them.
• On presentation of the stipulated documents in the letter of credit and compliance
with the terms and conditions of the letter of credit, the Commonwealth Bank
transfers the $500,000 to the ABC Bank, which then credits the account of BLISS
for that amount.
• Note that banks deal only with documents required in the letter of credit and not
the underlying transaction.
• Many exporters have mistakenly assumed that the payment is guaranteed after
receiving the LC. The issuing bank is obligated to pay under the letter of credit
only when the stipulated documents are presented and the terms and conditions of
the letter of credit have been met.
4. Letter of Guarantee: (UBL, National Bank, Js Bank)

Letter of guarantee or popularly known as Bank Guarantee widely used in industries and
is a form of indemnity letter issued by bank on behalf of its client, whereby the bank
promises to indemnify the beneficiary in the event of default of its client. The most
commonly used BGs in any form of trade (Domestic or International) are either the
financial letter of guarantee or Performance letter of guarantee.

Like that of Letter of Credit the Bank Guarantee can also be issued in any currency. The
major difference between these two instruments is that the banks liability in LC arises on
happening of an event and that in BG arises on non-happening of an event . Bank
guarantees are becoming popular medium of facilitating trade and business especially in
construction an infrastructure sector.

The Bank Guarantees can be of varied nature depending on their usage, the most
commonly used Bank Guarantees in domestic/ international trade are as mentioned
below:

• Bid Bond Guarantee: Such a BG is basically used in projects awarded through

tenders. Such a bank guarantee is given for the shortest of the tenure and is
returned back if in case the work is not allotted. The same can later be treated as
Performance Guarantee if in case the work is allotted.
• Advance Payment Guarantee: Such a BG if used wherein the employer / principal
of the contract agrees to pay a portion of total contracted value in advance. In lieu
of the advance the employer / principal of the contract asks for a guarantee from
the contractor to ensure that the commitment would be honored. Contractor then
approached the bank for issue of Bank Guarantee in favor of the employer. Such a
BG is equivalent to the amount of advance given.
• Performance Guarantee: A guarantee given by the seller to the buyer to honor any
claims by the buyer on seller in case of default in delivery or performance of the
goods or work executed.
 • Shipping Guarantee: A shipping guarantee is used by the buyer to be given to the
customs. In case where the goods reach the destination before the bill of lading
the customs ask for such a guarantee before releasing of the goods. Such a
guarantee secures the claim of the customs against the buyer if in case the Bill of
lading is not submitted with the allotted time frame.
• Retention money Guarantee: After execution of the work, the employer usually
retains back certain percentage of the value of total work executed as security for
quality of the work performed. This may vary from contract to contract but is
usually in range of 5-10% of the contract value. The contractor can get this money
released by way of providing a bank guarantee for equivalent amount to
employer. This guarantee is known as Retention money Guarantee.

Bank Guarantees are issued through the financial institutions mostly a Bank. Before
issuing such an instrument the bank takes care of its own interest in the event of
invocation of such an instrument. Further commission earned on issuance of bank
guarantees forms an important part of banking industry’s revenue. The Bank Guarantee
can be issued in three ways:

• Backed by Cash Margin: This is the simplest way of getting a BG issued from a
bank. In case of domestic BG, bank seeks a cash margin of 100% in form of Fixed
Deposits and that in case of any foreign BG the cash margin can range any where
from 105% to 110% depending from bank to bank. The additional margin kept in
case of foreign BG is to take care of currency rates fluctuations.
• Through Credit Lines : As compared to the Cash margin this is most desired way
of getting a BG issued though such a facility is not available to every client. In
such a case a bank opens a credit line for BG in the name of client on the basis of
credit appraisal and collateral securities. Unlike the first option here client is
required to pay lesser cash margin for the BG. The cash margin can range from
10% to 25% depending from bank to bank and also on the credit rating of the
client seeking the facility. This enables the client to maintain the liquidity within
his system as he is required to take out lesser cash out of the business for a BG.
 • Backed by Counter Guarantee : This is just like that of BG issued backed by cash
margin .Security here is the counter guarantee of another financial institution in
place of Fixed Deposits. Such a facility is subject to approval of credit of the bank
issuing the BG.

5. Bullet Loan/ Balloon payment: (UBL, National Bank, Js

Bank)

Bullet loans are sanctioned to the industry, the mechanism is that an industrialist who
needs financing goes to bank and says that I have 4 million stuck in a consignment and it
will be returned to me next month. Currently I am running short of capital so I want 2
million on urgently. Now the bank gives 2 million and the person is going to return it in
lump sum.

In banking and finance, a bullet loan is a loan where a payment of the entire principal of
the loan, and sometimes the principal and interest, is due at the end of the loan term.
Likewise for bullet bond. A bullet loan can be a mortgage, bond, note or any other type of
credit.

The payment that is due at the end of the loan is referred to as the bullet payment or
balloon payment.

Bullet loans are common, and usually referred to by other names; bullet loan is a generic
and unofficial term. Many types of publicly-traded bonds and notes constitute bullet
loans: the face value of the bond is payable at bond maturity and only interest payments
are due during the interim periods. Short-term bonds or notes which pay no interest are
also a form of bullet loan.
6. Derivative (UBL, National Bank, Js Bank)

Derivatives come under modern banking. Industries utilize derivatives in multiple ways.

A derivative is a financial instrument that is derived from some other asset, index, event,
value or condition (known as the underlying asset). Rather than trade or exchange the
underlying asset itself, derivative traders enter into an agreement to exchange cash or
assets over time based on the underlying asset. A simple example is a futures contract: an
agreement to exchange the underlying asset at a future date.

Derivatives are often highly leveraged, such that a small movement in the underlying
value can cause a large difference in the value of the derivative.

Derivatives can be used by investors to speculate and to make a profit if the value of the
underlying asset moves the way they expect (e.g. moves in a given direction, stays in or
out of a specified range, reaches a certain level). Alternatively, traders can use derivatives
to hedge or mitigate risk in the underlying, by entering into a derivative contract whose
value moves in the opposite direction to their underlying position and cancels part or all
of it out

There are three major classes of derivatives:

1. Futures/Forwards are contracts to buy or sell an asset on or before a future date at

a price specified today. A futures contract differs from a forward contract in that
the futures contract is a standardized contract written by a clearing house that
operates an exchange where the contract can be bought and sold, while a forward
contract is a non-standardized contract written by the parties themselves.
2. Options are contracts that give the owner the right, but not the obligation, to buy
(in the case of a call option) or sell (in the case of a put option) an asset. The price
at which the sale takes place is known as the strike price, and is specified at the
time the parties enter into the option. The option contract also specifies a maturity
date. In the case of a European option, the owner has the right to require the sale
to take place on (but not before) the maturity date; in the case of an American
 option, the owner can require the sale to take place at any time up to the maturity
date. If the owner of the contract exercises this right, the counterparty has the
obligation to carry out the transaction.
3. Swaps are contracts to exchange cash (flows) on or before a specified future date
based on the underlying value of currencies/exchange rates, bonds/interest rates,
commodities, stocks or other assets.

7. Banks as Underwriters: (UBL, National Bank, Js Bank)

When a bank acts as an underwriter, it is basically performing the functionalities of an

investment bank. When a company or other organization wants to raise funds, it
frequently does so by issuing and selling new securities, such as stocks or bonds. An
investment bank usually helps in this process by providing expertise and customers to
buy the securities. A company does not need to use an investment bank, but it usually
does, because it is less costly than trying to sell securities directly to the public.

An investment bank is not a bank in the usual sense. It doesn't have checking or savings
accounts, nor does it make auto or home loans. It is a bank in the general sense, in that it
helps businesses, governments, and agencies to get financing from investors in a similar
way that regular banks help these organizations get financing by lending money that the
banks' customers have deposited in the banks' savings, checking, and money market
accounts.

An investment bank helps an organization, which may be a company, or a government or

one of its agencies, in the issuance and sale of new securities. It is usually a division of a
brokerage firm, because many of their activities are related. When an organization needs
funds, it will first discuss the options and possibilities with an investment banker: how
much money will be needed, what type of security to sell and any special features it
might have, at what price, and how much this will cost the company.
Underwriting Agreement — Firm Commitment

If the investment bank and company reach an agreement to do an underwriting—also

known as a firm commitment—then the investment bank will buy the new securities for
an agreed price, and resell the securities to the public at a markup, bearing all of the
expenses associated with the sale. The company gets the guaranteed funds even if the
investment bank does not sell all of the securities. Thus, the investment bank takes a
significant risk in a firm commitment. Often, the investment bank becomes a broker-
dealer, or market-maker, in the new security.

Direct responsibilities in an underwriting include registering the new securities with the
Securities and Exchange Commission, setting the offering price, possibly forming and
managing a syndicate to help sell the new securities, and to peg the price of the new issue
by buying in the open market, if necessary.

Selecting the Right Offer Price is very important in an Underwriting

If the offer price is too high, the investment bank will fail to sell all of the new issue (aka
under-subscription), then it will have to hold some of the issue in inventory, hoping to
sell it later. If the investment bank holds the new issue in inventory, this will tie up
capital that can be used elsewhere, or, worse yet, it will have to borrow money.
Furthermore, the initial customers who paid a higher price for the new issue will be
disappointed that they paid a higher price, and the investment bank may lose these
customers in a future offering. The bank will also probably submit a stabilizing bid until
either the new issue sells out, or it ends the offering and just takes the loss.

If the offering price is too low, then the new issue will quickly sell out, and the price of
the new issue will rise quickly because the supply will be limited (aka oversubscription),
inducing the initial investors to sell for quick profits—commonly called flipping.
However, the company will not reap any of this extra money, and it will be disappointed
that the initial offering price was not higher. Investment banking is a very competitive
business. The issuer and other companies will see this as a failure to set the best price,
and may take its future business elsewhere.
8. Banks as brokerage houses (UBL, National Bank, Js
Bank)

A brokerage house is a place from which a broker conducts business. The term brokerage
house is often referred to as a broker, brokerage, or a brokerage firm. Working through a
licensed brokerage house, your broker buys and sells shares of stock for your portfolio as
per your instructions. A full service brokerage house provides a wide range of services to
its clients, including advice and recommendations concerning which stocks to buy and
when to sell. A lot of banks like UBL, National Bank and JS bank provide some of the
services provided by brokerage houses. With your permission your brokerage house may
allow your broker to buy and sell shares in your name at the broker's discretion. In
exchange for these services, a full-service brokerage house often charges higher
commissions than a discount brokerage house. A discount brokerage house typically
provides few services other than the actual placement of buy and sell orders. A discount
brokerage house typically refrains from offering recommendations or advice. As the
name implies, a discount brokerage house typically has lower commission rates.

JS group provide brokerage services for its customers in Pakistan. JS Group's securities
brokerage business is run through JS Global Capital Limited (JSGCL). JSGCL is a
market-leader in Pakistan's equity, fixed income and foreign exchange brokerage
markets. In 2004 and 2006, JSGCL was the winner of Asia money’s 'Best Equity House'.
In 2004 Asia money magazine also declared JSGCL 'Best Bond House' for Pakistan. In
2005, the CFA Association of Pakistan voted JSGCL 'Best Equity Brokerage House'.
JSGCL is one of the largest securities brokerage firms in Pakistan by volume and team
size and serves more than 1,000 clients, both local and foreign.
9. Micro financing (UBL, National Bank, Js Bank)

“Microfinance” is often defined as financial services for poor and low-income clients. In
practice, the term is often used more narrowly to refer to loans and other services from
providers that identify themselves as “microfinance institutions” (MFIs). These
institutions commonly tend to use new methods developed over the last 30 years to
deliver very small loans to unsalaried borrowers, taking little or no collateral. These
methods include group lending and liability, pre-loan savings requirements, gradually
increasing loan sizes, and an implicit guarantee of ready access to future loans if present
loans are repaid fully and promptly.

More broadly, microfinance refers to a movement that envisions a world in which low-
income households have permanent access to a range of high quality financial services to
finance their income-producing activities, build assets, stabilize consumption, and protect
against risks. These services are not limited to credit, but include savings, insurance, and
money transfers.

JS group provide brokerage services for its customers in Pakistan. JS Group views the
Micro Finance sector as an essential part of its overall financial services portfolio to tap
into a new market segment while acting in accordance with its social responsibilities as a
corporate citizen. JS Group established Network Microfinance Bank in partnership with
Network Leasing, a specialist micro-leasing company.

Network Micro Finance Bank (NMB), Pakistan's third such financial institution,
launched its services in 2004. Network Micro Finance Bank is the first Micro Finance
institution in Pakistan to be listed on a stock exchange (the Karachi Stock Exchange).

Network Micro Finance Bank provides a full range of banking services to micro-
entrepreneurs and people belonging to a low income category. The bank makes special
efforts to support and finance women entrepreneurs. State Bank of Pakistan has a
prudential regulation applicable to micro finance banks which fixes the maximum loan
size at Rs 150,000. Network Micro Finance Bank's primary commercial banking function
will be to provide short and medium term loans for working capital and other productive
uses to small, under-financed and under-banked segments of the country, with emphasis
on Karachi.

10. Bank assurance

Bancassurance take place in the forms of a) distribution agreements, b) setting-up joint
ventures by mutually subscribing to the shareholding, and c) setting-up subsidiary by
bank and then selling its products.
Bancassurance in Pakistan: There is no restriction by SBP on Bancassurance taking
place in the form of Distribution Agreement between independent insurers and the banks
to sell insurance products, on stand-alone basis or offering their own products bundled
with insurance products. It is important to mention here that the Draft Banking Act, 2006
also allow the banks to sell insurance products of insurance companies.
Insurance provided by a bank. For example, a bank could offer life insurance in addition
to its savings, loan, and investment services. Proponents argue that bancassurance can
streamline internal and government regulations. For example, a bank offering a mortgage
may require borrowers to buy homeowners insurance; if bancassurance is available, the
borrower could purchase a policy directly from the bank without needing to shop around.
However, bancassurance is somewhat controversial; critics contend that allowing banks
to sell insurance gives them too much control over the financial services sector. As a
result, some countries prohibit it. The United States has allowed it since the passage of
the Gramm-Leach-Bliley Act.
 Problems

Even though the industries using these facilities provided by banks are quite satisfied
with the services being offered to them, still there are some areas where improvement is
possible. We identified some problems which we are listing below:

 The banking system as we see today here is majorly imported from west, but the
market realities of Pakistan are very different from what is present abroad. To say
the least, the market is much more efficient abroad and the customer is way more
informed as compared to a Pakistani customer. The end result is that this gives
Pakistani banks a chance to exploit its customers which are industries or even
individuals in certain instances. For example, a farmer who wants loan for his
tractor might not be aware of the going interest rate in the market and due to lack
of resources, financial or otherwise, might not even be able to carry out a proper
market survey. This gives the bank a chance to exploit such customer, as in
charge a higher interest rate and exploit him.
 The role of the banking system had been truly spectacular in mobilizing savings
of the community and meeting the credit needs of the economy. But at the same
time, the banks had generally neglected their role in promoting social justice and
had failed to play an effective role in ensuring a wider and more equitable
dispersal of the benefits of economic growth. In particular the inter locking of
ownership with commercial and industrial interests had led to the misuse of bank
resources. There was a heavy concentration of credit in big accounts and in urban
area. Credit facilities for agriculture, small business, newly emerging exports and
housing had remained obviously inadequate while the banks indulged in capital
financing in few selected business sectors and issued guarantees on behalf of
favored clients, term clients, term financing facilities for industry were wholly
absent.
 The facilities which are being offered under non-conventional banking system are
relatively new, an example of that is derivatives. Derivatives are complex in
 nature and require specialized knowledge if they have to be utilized fully by an
industry. Since the trade in derivatives is relatively new, banks haven't yet
employed enough experts that they can perform financial engineering to an
optimal level and benefit their customers to fullest. As a result the returns
investors get out of derivatives provided by the banks are less than efficient and
these services can be improved.
 Even though micro financing is available and a number of banks are offering
loans to SME's but the concept is still new for Pakistan. The loans which are
available for cottage industry normally require collateral or incorporate a
condition or two which make it harder for people to take full advantage of these
loans. Micro financing as it exists has a long way to go in its practices.
Practical Problems:
 Credit Eligibility criteria is tough. Eg no proper collateral
 TAT Term around time min 7 days of evaluation
 Mark up rate is higher bargaining is possible
 EW early warning market credibility of industry
 All r major element of risk analysis
 Making gas station govt criteria eg gas station
 Directors CIB Central Investigation burro check of directors credibility.
 Personal guarantee of director
 Previous loans
 Political problems
 PNW personal network statement personal assets included
 Directors loan subordinate preference over directors loan
 default loans
 1 Nature of industry
 2 financial of co
 If the check of organization bounce4 times the banks reject the loan
 Documentation ,securities
 Solutions

1. In order to make the market more efficient the flow of information

has to be regulated so that the customers are not exploited. For this purpose joint
efforts of government (state bank) and other banks are required. To have a more
informed consumer, campaigns need to be run to reach out to all sorts of
consumers, industrial or individual, to dissipate all sort of information regarding
interest rate prevailing in market, types of loans available, documentation required
for different loans etc.
2. To take full advantage of the complex serviced benign offered such
as derivatives specialize knowledge is required so that optimal amount of
financial angering is done and portfolios are built which give maximum return for
a given amount of risk. For this to happen experts need to be highbred, preferably
those who have experience in dealing with derivatives.
3. The credit terms and collateral requirements put forward by banks
for availing micro finance facilities are very rigid considering the clientele for
such facilities. Micro financing needs to start on more favorable terms for
consumer so that they can gain maximum out of these loans which are extended to
them. The model given by Muhammad Younus is a good starting point in
considering how micro financing should be done.
4. To counter practical problems the Banks should have flexible
polices. Actually eligibility criteria and documents required criteria is very much
tough.
 Conclusion

In this project we have discussed all the product lines available for industries by
the bank. We have discussed each and every point in detail we have consulted the
personals of organization who helped us a lot. We selected JS Bank, UBL, NIB.
In industries we selected power generation sector represented by ORIENT and
PEL. And on behalf of agriculture we have selected ALI AKBAR Group. We
conclude that suppose if bank provide 10 services then the industry is using 6
services. The representatives of industry say that we are using 4 major services
eg. Working capital lines, Demand Finance, Letter of credit and letter of
guarantee. Now we identify some major problems and their solution is also given.
We can say that banks are doing their best to facilitate the industries.
 References

Web Sited:

http://ezinearticles.com/?Working-Capital-Line-of-Credit&id=1509680
http://www.blurtit.com/q481941.html
http://www.bop.com.pk/CashFin.aspx
http://www.bop.com.pk/DemandFinance.aspx
http://en.wikipedia.org/wiki/Letter_of_credit
http://www.finance-strategy.com/letter-of-guarantee.html
http://en.wikipedia.org/wiki/Bullet_loan
http://thismatter.com/money/stocks/investment-banking.htm
http://www.investorglossary.com/brokerage-house.htm
http://www.microfinancegateway.org/p/site/m/template.rc/1.26.9183/

Books:

Siddiqi H Israr Law and practice banking in Pakistan.

Gilbert J.W principles and practice.

Sir Paged John The law of Banking, page 51.

Sir Paged John The law of Banking, page 51.

 Team leader

Uzair.A.Sheikh

Work Distribution

Droup 1

Ayyma Saman, Nimra Malik, Sidra Iqbal

Collect data from net about different industries and their requirements. Actually
their part only consists of literature so that we could make our basis for this
project. Actually they have worked on initial stage of this project.

Group 2
Fouad Abdul Hameed, Ali Shabbar, Saqib Murtaza
They are supposed to submit data on Banks. I have assigned them this task
because they have done internships in banks so, they are more awarded of the
banking practices. Valuable data is collected from them. They submit their task
before time bank in which they have done internships are UBL and Bank Alflah.

Group 3
M Faisal, Mohsin Saeed, Hassan Bakhtiar Roi, M. Riaz
They are suppose to submit data on industry. I have assigned them this task
because they have done internship in PEL and in Orient. They face many
problems regarding data collection because of holidays.

Group 4
Ahsan Saeed, Saftain, Ehsan Ullah
They are supposed to submit data on industry and on NIB. I have assigned them
this task because they have done internship in Js Bank and in Ali Akbar group.