Top Banking Trends of 2018 in Pakistan

Top Banking 2018 Trends in Pakistan

Banking industry is shaping rapidly, in recent year we observed many changes in the industry and with the start of this year below mentioned trends observed in Pakistan’s banking and finance industry. We believe that will have a serious role in shaping the future of banking and finance.  

Digital Banking:  it is observed that almost every bank in Pakistan has started its digital banking more or less, some are making infrastructure if some have made infrastructure, some are on boom where some are starting. Digital financial services are playing the major role in it, till the end of 2017 25 banks offered internet and call centers/IVR (interactive voice response) banking services, while 18 banks dealt in the mobile phone banking. In 2016-17 total 625.8 million electronics transactions worth Rs. 37.1 trillion registered, internet banking increased 32% to 25.2 million transactions worth around Rs. 969 billion in fiscal year 2017, mobile accounts are increased to 33M within short span of time which are 67% of conventional banking accounts. So Trend towards digital banking will increase greatly in 2018.

By: Mazhar Mahmood Jatoi

Changing Consumer Behavior: Consumer behavior in all industries including banking industry is drastically changing and different than it was 5 to 10 years ago, with the inclusion of financial technology and surge of mobile banking over the past few years, now customer demand convenience & customer perspective. The branch banking is no longer the only way the customers can interact with their banks, Fintech have provide millions of solutions to interact with your banks without going to your banks hundred times in a day, they don’t want to go to their banks and waste their times, this is particularly a true story of millions of customers and exclusively millionaire customers. Fintech have totally changed the behavior of customers, which observed in past few years and will the top trend in 2018 as well.

Uncertainty in Regulations: In today’s political and social climate, the potential for increased regulation seems just as possible as the potential for dramatic deregulation. The issues are polarized, and the discussions tend to be rather emotional, social media have played a vital role in it. Now the regulatory banks can listen the voice of consumer’s even political cases and severe nature of criminal cases decisions are giving on social media pressure. Digital banking is on its rise almost 33M mobile accounts are registered but regulatory bank didn’t share its prudential regulations till date. In order to improve effectiveness and to Counter Terrorism Finance SBP is more vigilant and reviewing regulations to development a culture of controls. Today’s consumers are more educated and aware from the consumer protection laws of the country and international as well, so it’s a time to prioritize consumer protection and fair lending compliance. Not only will this signal a commitment to compliance, it can also serve as proof that you understand and prioritize the needs of your community to potential customers.

 Another significant factor for this uncertainty will be the decision of The Financial Action Task Force (FATF), the global money-laundering watchdog, to put Pakistan on the 'grey list', its impact would be very substantial on Pakistan’s banking industry and will create a pressure on state regulatory bank to review and strengthen its regulations on Combating terrorist financing, so the uncertainty of regulations will increase and will be a top banking trend this year.

Compliance: Banking compliance is something with you as an officer or leader is dealing with daily, it has become one of the most significant concerns for financial institutions in the recent years. With the surging of technology the compliance risk have become more higher. All banks are different in operations but they have common in compliance so compliance will be a top trend in 2018 as well.

I am the future - A Digital Citizen

I am the future - A Digital Citizen

Digital citizen is a person who utilize information technology (IT) to engage in society, politics, government and other aspects of life. It could be defined as a person who develops the skills and knowledge to effectively use the Internet and other digital technology, especially in order to participate responsibly in social and civic activities: K. Mossberger, et al. define digital citizens as "those who use the Internet regularly and effectively".

Technology has become a massive part in our society and day to day life, when we know more and more about the development in a technology and benefits of it we become able to take advantage of it. When a technology innovation achieves a certain point after it has been presented and promoted, it become part of our society. Now a days digital technology has entered each process and activity made by the social system.

Technology has already entered our lives that we depends on it from going to toilet in the morning to bed in night. Where Technology offering students great opportunities for self-exploration, creativity, connection and learning, there Oversharing and damage to reputation • Cyber-bullying • Not understanding how to analyze and evaluate the credibility of information

Digital rights and responsibilities is having the right and freedom to use all types of digital technology while using the technology in an acceptable and appropriate manner. As a user of digital technology, you also have the right to privacy and the freedom of personal expression.

In this digital world we have some rights and responsibilities, we have the right of privacy and freedom of expression likewise we do have the responsibility to respect the work of other. we have the right to credit for personal works, right to digital access, right to our identity. While the responsibilities are to report bullying, harassing, sexting, or identity theft, to cite works used for resources and researching, to download music, videos, and other material legally, to model and teach student expectations of technology use, to keep data/information safe from hackers, not to falsify our identity in any way.

We are moving to the extreme of the digital technology where technology have distinguish importance in our lives, from early wake up to reach offices, from shopping to financial investment decisions, from exercise to health tips, from personal to religious affairs we need convince. So we as a digital citizens of the digital world have to play our role to make it safe, easier and convenient use of it for everyone. We have to move together to the digital world where everyone's information is safe, where we respect the intellectual property, where we stand up cyber bullying when we see it happening, where we not only protect our digital right but also others in their absence.

By: Mazhar Mehmood Jatoi

FinTech Revolution and Our Banking Industry

          FinTech Revolution and Our Banking Industry

FinTech is transforming the banking industry and openhanding millions of people to access to financial amenities for the first time, new banking models are evolving with FinTech startups. Technology companies are becoming the face of the banks and the traditional bankers are getting limited till back end utility providers. In this article we will discuss how the FinTech is revolutionizing our banking industry, what will be the future banking models and our business schools and universities are preparing future bankers for these changes.

Henri Arslanian FinTech thought leader says that “we are going to one of the biggest transformation in financial history the FinTech revolution and it is going to transform banking. This revolution have significant impact on financial industry, it is reshaping the industry and the future bankers will be very different from the bankers of today. They will have different personalities, educational background and different skill sets”. 

“Fintech” stands for financial technology, is the innovative use of technology in the design in delivery of financial services and its transforming the banking mode, things from artificial intelligence, peer to peer lending, big data, block chain, crowdfunding, digital payments, and robot advisers are name of it.

Why it’s happening now? Historically as technology involved the banking industry was reasonably good and integrated these new technologies in order to better serve customers. But all of that change during the financial crises of 2008, banks were busy in dealing with a disaster situation, frequent new rules, regulatory requirements, and fines impose on them. But innovation became very distinguish importance, at the same time some of the most game changing technological innovations, they have transformed the way we live. They have become part of our everyday life just think about iPhone, Uber WhatsApp for example. The gap created at that time what your banks were offering you and you as customers expecting from your banks especially from user experience and convenience perspective.  And that gap is what the FinTech industry is tackling with that now.

That gap was so big that even nontraditional banking players decided to jump in and capturing this opportunity mainly technology firms. Such as Facebook have taken 50 different regulatory license as Facebook Payments Inc., these licenses that would allow Facebook users to transfer money via the messenger app in different states of USA. Amazon offering student loans and other financial services from its platform, Ali Baba’s financial arm and financial launch a money market fund they have become the third biggest money market fund in the world. That fund have more than 150M investors, who have an average investor less than a thousand dollar each, many of them have their first investment ever. Tencent QQ Messaging app has become most of the common source to transfer money. It not only allows you to buy insurance products or invest in funds directly from your smart phone but also but also book your next doctor appointment, order a taxi, donate to charity, and even find a date where ever you live.

The financial platforms of the future are not be a traditional banks but a technology firms. My one year son can probably open a bank account not with slandered charted, ABL, HBL or UBL but rather with Facebook or Apple. These technology firms have daily existence touch points with customers, and to certain extent they have customers trust and confidence. If you are comfortable enough to share your family Photos on Facebook or WhatsApp, will also use them to transfer money to your friends and family.

If you buy all your daily necessities on amazon, Alibaba or Draz.pk will also buy insurance products using their platforms. There now thousands of new and dynamics FinTech startups, they are offering products, which used to be offering previously by traditional banks, peer to peer lending platform now offers consumers and alternative to loans that used to be previously available mainly at banks. Robot advisory platforms offer consumers asset management solutions that are not only more transparent and what they charging but also substantially cheaper.

It’s very unlikely that you see the FinTech startup one thing that become deposit taking institution the wallet where the assets are held, they are very happy to control the front end the consumer facing part, and leave the boring backend that’s traditional bank things like reconciliation, regular reporting etc. In this may have created the new banking model of the future where traditional banks are handling the backend basically becoming utility providers to the technology firms and FinTech startups who control the front end and customer experience. But this FinTech revolution is also bring a lot of other positive developments one of the most important is financial inclusion. Currently in the world we have more than two billion people who are completely unbanked these are individuals who have no access to bank accounts, no way to borrow money for, they have only a way to save their money in their pillows or hiding down in their mattress. And in the first time in the history of modern age we are able to offer these individuals for financial services. This is the positive difference that according to the World Bank from last five years seven hundred million people went from being unbanked to being banked. And this is the beginning FinTech industry is continuously working on transforming our financial services are being delivered and consumers will be the biggest beneficiaries.

The banking landscape is changing and in order to survive banks need to evolve and adopt FinTech in the design and in delivery of financial services. Future bankers will also not the traditional bankers rather will be the designers, programmers and the creative thinkers. They could be financial designers, financial programmers, Fintech Developers and creative thinkers. But the point of concerns is that our business schools and universities are not developing future bankers’ rather traditional bankers which will be eliminated to 20% to 30% part of the future banking. We should have to plan accordingly if we want to survive in future banking and economic business model. Our universities should start offering courses on FinTech, financial designing, financial programming's to compete the world in future.   

By: Mazhar Mahmood Jatoi

Faisalabad Businessmen are Planing to Start their Own Bank

Sources: Business Recorder 

Shabbir Hussain Chawla President FCCI says that if local banks fail to cater their needs, Faisalabad Businessmen will establish their own bank. The business community in Faisalabad is unhappy with the way local banks are treating them, especially with their lack of interest in helping out Small Medium Enterprises (SMEs) established by entrepreneurs in the city.

According to the President of Faisalabad Chamber of Commerce and Industry (FCCI) Shabbir Hussain Chawla, local banks are refusing to lend money to businesses.

Shabbir says that banks feel secure loaning money to the government as they consider it a sound investment, with their profits intact in those cases. They however, won’t support local businessmen in this respect.

He further said that due to this lack of cooperation from the banking sector, Faisalabad’s industrial development has been hampered in recent years. Despite the huge amount of $89 billion that the government has borrowed, the industrial sector of the country has failed to grow, Mr. Chawla said.

Another reason behind the local industry’s lack of growth is due to the increasing trade deficit. Mr Chawla demanded that the government should put a ban on import of luxury items right away.

Faisalabad currently contributes 55% of the total textile exports of Pakistan.Chawla said that industries have failed to upgrade their units with the latest technology because banks aren’t providing funds at all. He remarked that even though Exim Bank is providing some capital to industrialists in the city, however that amount isn’t enough to cater to the needs of the whole industry.

According to him, banks that are providing money to businesses in rare cases are overcharging. These banks are charging extra markup along with the Karachi Inter-Bank Offered Rate (KIBOR), which has significantly increased production costs at factories and units in Faisalabad.

Mr Chawla said that if the banks continue to adopt such an anti-business attitude, the business community in Faisalabad has no option but to establish its own bank to fulfill the needs of the community. He further added that loans will be provided to businesses who enjoy a good reputation in the market, are honest, and in need of financial support.

Digital Banks in Pakistan

State Bank of Pakistan (SBP) is currently working on introduction of a separate category of banking services that they are calling Digital Banks. “Move will help achieving the maximum target of financial inclusion”, said sources.

Once allowed, Banks will be allowed to operate through internet only, i.e. they will be allowed to on-board customers through internet — without having any physical presence — while customers will be allowed to do all sorts of financial transactions while staying online through websites or mobile apps.

The Regulatory Framework, that SBP is yet to finalize, would ideally encompass following broader areas among others:

• Entry criteria for the establishment of Digital Banks
• Minimum Capital Requirement (MCR) for establishment of a Digital Bank and
• Customer on boarding criteria as well as digitization support for an Omni Channel Banking Paradigm

“Digital bank incorporates new and developing technologies throughout a financial services entity, in concert with associated changes in internal and external relationships, to provide enhanced customer services and experiences effectively and efficiently”, the SBP director said.

SBP Officials said that customers demand towards banking services are changing as they need more choices, immediate availability and direct access to ready-to-use services. Pakistan has come a long way from traditional banking services to create modern banks and a digital future.

“SBP is working on development of a concept paper on Digital Banks. This concept paper would include the international experiences of Digital Banks, regulatory framework available, best international practices etc”, told us sources.

SBP would develop a Regulatory Framework on Digital Banks after inviting feedback on the concept paper, he confirmed

It should be noted that millions of customers are using mobile banking services in Pakistan especially after the launch of branchless banking. The number of users is on the rise with the adoption of new services and availability of 3G and 4G services in different cities of Pakistan.

The central bank is also working to further streamline the operation and service level of mobile banking with the introduction of Third Party Service Providers (TPSP) in the sector. These operators will act as an aggregator and accelerator in the digital banking.

Also, the concept of digital bank branches have been introduced in the country as Standard Chartered Bank and United Bank Limited are separately operating their two branches in Karachi. These banks have plans to add more digital branches in future.

The central bank devised a plan named National Financial Inclusion Strategy (NFIS) with the target of 50% account ownership for the adult population and 25% for total adult women population by 2020.​

World Islamic Finance Forum (WIFF) 2018 to kick off on 19th March, 2018!

 Karachi, March 10: H.E Shaikh Ebrahim Bin Khalifa Al Khalifa, Chairman – AAOIFI Board of Trustees, would be the Chief Guest at World Islamic Finance Forum (WIFF) 2018, a unique conference being organized by CEIF-IBA in collaboration with LUMS and INCEIF, to bring together researchers, academicians and practitioners for generating innovative ideas to stimulate Islamic Finance growth while overcoming present day industry challenges. The two-day conference would be held at the Movenpick Hotel, Karachi on 19th and 20th March, 2018.

Governor State Bank of Pakistan Tariq Bajwa, Chairman, Securities Exchange Commission of Pakistan (SECP)  Zafar Abdullah, Dr. Ishrat Husain, Chairman, CEIF- IBA, Shaikh Muhammad Taqi Usmani, Shari’ah Board Chairman, Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI); Chairman Shari’ah Board, Meezan Bank and Deputy President, Dar ul Uloom, Karachi, Pakistan, Presidents of Islamic banks and many other important figures from national and international financial institutions are participating in this International Conference. These views were expressed by Mr. Ahmed Ali Siddiqui, Director, Centre for Excellence in Islamic Finance at Institute of Business Administration (CEIF-IBA) while addressing a Press Conference today. Dr. Farrukh Iqbal, Dean and Director, IBA and President, Meezan Bank Limited Mr. Irfan Siddiqui were also present on the occasion.

Ahmed Ali informed that prominent Shari’ah scholars, renowned academicians, State Bank of Pakistan (SBP), Securities Exchange Commission of Pakistan (SECP), Islamic Research and Training Institute (IRTI), Islamic Finance News (IFN), World Bank, Islamic Corporation for the Development of the Private Sector (ICD), International Centre for Education in Islamic Finance (INCEIF) , Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Deloitte & Touché in addition to key local and global Islamic financial institutions are participating in this mega event.

Overall, 17 global and 15 local institutions would be represented by industry experts on the Speaker Panels throughout the two-day conference at Movenpick Hotel. Global Islamic Finance Hubs including KSA, Bahrain, Malaysia and other GCC countries are participating in the conference. Additionally, speakers from Bosnia-Herzegovina, USA, UK, Turkey and China are also participating in WIFF.

Dr. Farrukh Iqbal, Dean and Director, IBA said that research papers and case studies presentation at WIFF 2018 would be focused on areas crucial for the expansion of Islamic Finance industry. Around 50 speakers representing regulatory bodies, Islamic finance infrastructure institutions, Islamic banks/windows, asset management companies, advisory firms and Takaful players will be part of the event.

Dr. Farrukh informed that research papers / case studies will be appraised by a renowned committee of practitioners and Shari’ah scholars. The 1st position has a hefty reward of $5000, whereas the 2nd & 3rd positions would be awarded $3000 & $2000 respectively. Furthermore, 3 consolation prizes of US$ 500 each will be given in the Conference.

President, Meezan Bank Limited Irfan Siddiqui said that World Islamic Finance Forum (WIFF) 2018 is a unique conference being organized by CEIF-IBA to bring together researchers, academicians and practitioners for generating innovative ideas to expand Islamic Finance growth through innovation, Fintech and Regulations. Against this backdrop, the role envisaged for various stakeholders, especially the regulator, to expand the outreach will be discussed by Islamic finance visionaries at the conference.

Managing Director & Chief Executive Officer, Takaful Pakistan, Mr. Rizwan Hussain appreciated the role of IBA CEIF in bridging the gap between industry and academia.

Other distinguished guests include Dato’ Dr. Azmi Omar, President & CEO, INCEIF, Mr. Najmul Hassan, Director FIDD, ICD (Saudi Arabia), Dr. Zamir Iqbal World Bank Islamic Finance Development Centre (Turkey), Dr. Muhammad Imran Ashraf Usmani, Group Head Product Development & Shari’ah Compliance and Resident Shari’ah Board Member, Meezan Bank, Mr. Amer Bukvic, CEO, Bosna Bank International (Bosnia-Herzegovina), Mr. Ashar Nazim, Managing Director, Finocracy (Bahrain), Mr. Saeed Ahmed, President & CEO, National Bank of Pakistan, Dr. Necdet Sensoy, Member of Board, Central Bank of the Republic of Turkey, Dr. Mukhtar Ahmed, Chairman Higher Education Commission (HEC), Mr. Farrukh Raza, Founder & Managing Director, IFAAS (UK), Dr. Salman Syed Ali, Senior Researcher, IRTI (KSA), Dr. Aishath Muneeza, Associate professor, INCEIF (Malaysia), Mr. Muhammad Nasir Ali Syed, CEO, Pak-Qatar Family Takaful amongst others.

Digital Marketing

Marketing is all about communicating the right message to the right people using the right channel. It is changing very fast from traditional to digital, days have gone when yellow pages were search engine, TV was YouTube, magazines were blogs, newspaper ads are almost gone, internet changed many things, things are also being change in Pakistan, and everything is going to be a digital, to communicate, for shopping, for information, for knowledge, for study, for entertainment ever from searching to purchasing people are looking for digital channels. Calling and old marketing is failing. Now is the time to accept Digital Marketing as well.

Digital Marketing term was first used in 1990, it is all about using digital platforms likes email, websites, blogs, social media, search engines and mobile marketing to reach target audience within no time. Digital marketing is present somehow but sure future of marketing, if you are still using traditional ways to promote your business, then it’s time to switch your focus to digital platforms for promotion. Digital marketing is easy to start, manage and monitor, affordable and less expensive than traditional marketing. Effective digital marketing is more effective than traditional marketing. Digital marketing is also known as internet marketing / online marketing because internet is the key enabler of digital marketing and it can’t exist without internet. Component of digital marketing are audience, contents, context and medium. Internet is the right medium to reach your target audience,

There are lots of digital channels, you can use for digital marketing of your business digital. But it mainly depends on the type of business you have and the kind of customers you are targeting for. Not all of these digital marketing tools are applicable or will work with your business. These are the most popular digital marketing channels: Email Marketing, Pay-per-click Advertising (PPC), Search Engine Optimization, Display Advertising, Social Media Marketing, Content Marketing, Affiliate Marketing, and Online Public Relations.

Digital marketing benefits businesses of all sizes by giving access to the mass market at an affordable price. Unlike TV or print advertising, it allows truly personalized marketing. The main advantage of digital marketing is that a targeted audience can be reached in a while with cost-effective and measurable way. Other digital marketing benefits include increasing brand loyalty and driving online sales.

The benefits of digital marketing include:

• Worldwide scope - a website allows you to find new markets and trade globally for only a small investment.
• Cheaper cost - a properly planned and effectively targeted digital marketing campaign can reach the right customers at a much lower cost than traditional marketing methods.
• Trackable, measurable results - with web analytics and other online metric tools makes it easier to establish how effective your campaign has been. You can obtain detailed information about how customers use your website or respond to your advertising. Web analytics can be set up to show you exactly how much money you make from each digital tactic.
• Personalisation - if your customer database is linked to your website, then whenever someone visits the site, you can greet them with targeted offers. The more they buy from you, the more you can refine your customer profile and market effectively to them.
• Customer Retention - by getting involved with and managing it carefully, you can build customer loyalty and create a reputation for being easy to engage with and retain them.
• Social Goodwill - digital marketing lets you create engaging campaigns using different types of rich media content. On the internet these campaigns can gain social goodwill - being passed from user to user and becoming viral.
• Improved Communication - if you have a website, then your customers are only ever a few clicks away from completing a purchase. Unlike other media which require people to get up and make a phone call, or go to a shop, digital marketing can be seamless and immediate.

Mobilink Bank - Providing Digital Financial Solutions

The revolutionary use of mobile phones in emerging markets presents MFIs / MFBs the opportunity to improve their customer service to current customers by providing digital financial solutions. It is Ubiquitous, safe and convenient ways to disburse and repay loans, save money, purchase their and their family members insurance & check their balance, to increase customer outreach by bringing services beyond brick and mortar branches.

Mobilink Microfinance Bank Ltd. grab this opportunity and with 11 million mobile wallets, Mobilink Bank has become the Pakistan's Largest Digital Bank within a 4 years span of period. Its innovative financial solutions include a diversified range of products and services such as Domestic Remittance, International Remittance, G2P Disbursements, Utility Bills Payment, Inter-Bank Fund Transfer (IBFT), Pre & Post-Paid Top-Ups, Real time Fee/Loan/Donation/Insurance/Passport/Tickets Payments, Digital Account opening through bio-metric verification, Loans Disbursements, CASA/TDR accounts, Bankers Cheques and Running Finance. These services are accessible through both Branch and Branchless Banking Platforms, and can be accessed real time through Branchless Banking, over-the Counter, Internet Banking, Mobile Application, CCDMs/ATMs/POS/Other-ADC Channels.

Mobilink Microfinance Bank’s financial solutions have transformed the microfinance industry in Pakistan. In the last five years it has introduced a diversified portfolio of financial products and spearheaded the launch of a cutting-edge branchless banking service under the brand JazzCash making it a leading player in technology driven microfinance solutions in Pakistan.

Similarly, the Bank continues to invest in technology and systems to maintain it’s leading position in digitalization of financial services. Its strategy is to take banking from the confines of a limited number of brick and mortar structures to customers’ cell phones thereby removing a major barrier in expanding coverage and outreach, significantly increasing access to financial services such as savings, loans, insurance and transactional services.

Digital Banking – The Bank at Your Fingers

Traditional banks are organized around money in branches, their thinking, their technology, their incentive systems, and their knowledge about customers — are all structured around branches and product lines. Cell center systems were layered on top, with the result that customer service reps sometimes needed six open windows to see a customer’s business with the bank.

While digital banks have to focus on electronic platforms and data as their core and branches as secondary. Their thinking, their technology, their systems, data of customers– are all structured around data hubs.

Digital means democratization and decentralization. We are putting power into the customers’ hands and so, rather than having multiple identifier from a bank who issues him with proofs of access, customer now have his own digital bucket for which he can issue access to his account on an as-needed basis.

Now we live in a world that is turning digital, Banking Accounts revolving in Mobile accounts. Customer demands digital solution of their needs, they don’t have time to go for shopping, money transfer, bill payments and financial services, they want a single touch solution of all problems. So in future banks will have make place at the fingers of their customers.

Digital banking war has begun in Pakistan also, there are many banks providing digital solutions to their customers but with over 10 million mobile wallets, Mobilink Microfinance Bank Ltd. (Mera Phone, Mera Bank) becomes the largest digital bank in Pakistan in terms of coverage in partnership with JAZZ, Pakistan's largest telecom & Technology Company. Digital wallets allow users to send and receive money including wages, pensions and other welfare payments , get loans disbursed, pay utility bills, pay for groceries and buy airtime etc digitally.

The decision for banks to add more digital solutions at all operational levels will have a major impact on their financial stability and future survival. Otherwise, it would be very difficult for them to sustain financial stability.

Digital Microfinance - Challenges & Problems facing Microfinance Industry in Pakistan

Microfinance is a fragmented but have become huge industry in Pakistan, cross to 152 billion in terms of gross loan portfolio, serving about 4.9 million people in 105 districts of the country, consisting of 51 micro finance services providers including MFBs, MFIs, RSPs & others with 3422 branches/units . It has also 22.5M savers with 120.5 Billion amount, 6.2M policy holders with sum insured of  165.9 Billion. with quarterly growth recorded in first quarter of 2017 is outreach 9%, and GLP 13% (figures are as of 31st March 2017). These are indeed impressive figures, but ground realities are much less healthy, and the industry facing some fundamental problem and challenges.

Microfinance industry suffers from certain client related problems such as flavoring new clients, retaining existing clients, lack of information about existing and potential clients. Then there are staff related problems such as transparency, educational level and skill development of staff. However, the more fundamental problems faced by the industry are the system related problems such as high cost loans, profit performance and interest rate. Microfinance institutions have to lend out small loans so they have to keep balance between interest rate and loan repayment. To ensure 100% recovery of loans they need to employ lot of field staff to work in the field, disburse loans, follow-up and collection. But this is very costly which increase interest rate that borrowers have to pay. Whether organizations want to keep interest rate as low as market competitive.

This is where the digital solutions have the potential to revolutionize the industry. MFIs can reduce cost with a big margin if they take everything digitize. There would be no or less offices, lowest staff with all the information available online and in their mobile phones reinforced by a robust mobile app.  

With this digital technology MFIs can meet challenges & overcome problems they are facing in Pakistan. They can; increase outreach digitally with lowest one time cost, Improve customer service to current and potential customers by providing safe and convenient ways to disburse and repay loans, cut cost, gathered information make data base of existing and potential customers, make sure that appraisal process takes place at the clients door step with using GPS and take geo location of customers house as well, Empower customers to choose the best suit interest rate, loan amount, loan tenure, repayment mode from available product line and many other. The issue of cost, time and transparency would also be resolved.

Digital technology is changing various traditional industry sectors in dazzling ways. Today when technology is affecting almost everything making it more convenient and efficient, micro finance industry cannot remain untouched for long. According to the Pakistan Economic and Social Review, the potential customers of the microfinance  credit range between 25 to 30 million borrowers, it means there are still 20 to 25 million borrowers could be marketed, which cannot be reached with traditional ways. So we need to digitization microfinance industry, it will not only boost the industry but also provide smart solutions of all problems and challenges facing microfinance institutions in Pakistan.

Smart Credit Policy for Microfinance Banks

Credit policy has direct effects on the cash flow of any business and financial resources are the back bone of any financial institution without it institutions could not run its operations. Credit policy of a Microfinance Institution clearly defines its business. A credit policy that is too strict will turn away potential customers, reduce sales and finally lead to a decrease in the amount of cash inflows to the business. On the other hand, accredit policy that is too liberal will attract slow paying (even non-paying)customers ,increase in the business average collection period for accounts receivables ,and eventually lead to cash inflow problems. A good credit policy help management to attract and retain customers, without having negative impact on cash flow.

Credit policy simply defines (In 2002 Ahimbishwe) “Credit policies are set of objectives, standards and parameters to guide bank officers who grant loans and manage the loan portfolio. Thus, they are procedures, guidelines and rules designed to minimize costs associated with credit while maximizing the benefit from it. initially microfinance was limited as only provision of micro loan to the poor entrepreneurs and small businesses lacking access to banks and related services then the cocept of financial inclusion introduced and based on the guidelines given by different regulators in different countries MFIs defines their credit policies. And so on different authors intellectuals and microfinance practitioners defines what should be the credit policy for MFIs.

But now in this smart age of world where things are being smart from wallet to airplanes, from toys to towers. Artificial intelligence have become an industry, even recently UAE announced their ever first Minister for artificial intelligence. Different digital companies are keeping a close eye on customer’s behaviors that what are their needs, life styles, spending patterns, liking disliking, daily routines, even their thoughts on different social, political & other issues are being observed. Customers behaviors are also being sold by data companies to other companies those are directly marketing their products. Even in banking industry customers are rapidly shifting to Mobile Banking services which is more convenient easy to use and time saving then conventional banking for a common user.

 SBP shared statistics on 8th International Mobile Commerce Moot, total user of Branchless Banking customers are 5Million in Pakistan with 24Millions monthly volume and total value of 125 Billions. PTA and the State Bank of Pakistan (SBP) are working in close coordination to develop the regulatory framework that supports growth in the mobile banking sector. Furthermore, Ashraf Mahmood Wathra, governor of the central bank, told that SBP recently developed in collaboration with the World Bank The National Financial Inclusion Strategy, envisions that the uptake of M-wallet accounts will cross 50 million over the next five years.

With all these perceptive and future financial trends there is a need of smart credit policy for microfinance banks, which should determines customer behaviors, their actual needs, livings, consumption patterns, repayment behaviors, financial & mental capacity to rebuild in disasters, financial & living developments from previous years, probability of default, social behaviors etc.

 Currently the credit policies are adopted by different MFIs are not supportive to the employees, uses directive approach instead of supportive approach to make the decision easy for employees. Not easy to understand which resulted wrong product selection for customers with wrong repayments patterns and become the mean reason of default. Rather smart credit policy will assist employees, in decision making that which product, repayment pattern is most suitable for the customer of which data is inputted using artificial intelligence. This is only one example of its effectiveness but there are many more. Moreover as the technology will improve this smart credit policy will be updated and its efficiency, authenticity and accuracy will be improve, and similarly credit risk will reduced on optimum level.