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The State Bank of Pakistan {SBP} 1

Central Banking

Introduction

A central bank is an apex

institute of the country about the

monetary point of view. A central

bank is the term, which is used to

describe the authority that is

responsible for policies, which can

affect a supply of money and credit

in the country.

In general, the central bank is a financial institution that manages the

government’s finance, controls the availability of money and credit to ensure the low

inflation, to boost up the high growth and stability to financial setup in the economy

and control the commercial banks.

Prepared by: Ali Raza / Ali Burhan / Hafiz Mehmeez


In the words of Lipsy, the central bank is defined as “a bank that acts as

banker to commercial banking system and to the government as well. In the

modern age, it is a government owned & operated institution that control the

banking system and act as the sole money issuing authority”.

So by above explanation, we can say that central bank has a pivotal position in

the banking system and have the ability to regulate & formulate the polices for

schedule commercial banks in the country. And it is also responsible for the financial

and economical stability of the country.

History – About Central Banks

In beginning of the banking sector, the concept about central bank was not

build. There were few of banks on local or zone levels with their own currency and

polices. These financial institutes were the pioneer of banking system in the history

of mankind.

In 1578, the conference in

Geneva, Switzerland, the economists

of developed countries took the

decision against the metallic or

commodity money and introduces

the fiat money in their economies.

The first bank whose considered, as first true central bank was “Bank of

Amsterdam” established in 1609. This bank was created by Scottish businessman

William Paterson to help the government of England in the situation of war.



In 1661, the “Riks Bank of Sweden” was established as a joint stock bank to

lend the government funds and to act as a clearing house for commerce. And in

1694, the “Bank of England” was chartered to raise the taxes and borrowing finance

to war zone, which was created in the Austria, England, France & the Netherland.

The “Banque de France” was created in 1800 by Napoleon Bonaparte, after

the deep recession and hyperinflation in the French Revolutionary period. With the

passage of time, the concept of Federal Reserve System in the central bank was

emerged in the twentieth century. According to this concept, the currency is defined

in terms of a fixed weight of gold. The central bank held a large gold reserve to

ensure that their notes could be converted into gold any time. So, by this concept

central bank is a primarily consolidate who have ability to issue various instruments

which are commonly used as currency for the public and provide the financial

stability to the economy.

After the World War I, there was complete and complicated confusion was

created in the currency and exchange markets. This happened due to the issuance of

large withdrawals from the banks as loans to pay for the war expenses. At that time,

there was no any institution that supervises to the banks and also serves as the fiscal

agent for the governments.

To resolves these economic issues, the conference was held at Brussels in

1920. It was decided that there should be a central bank that control the money

supply and credit creation in the economy. After the World War II, every country has

their own central bank to control the monetary system in their economy.



Central Bank in the Modern Economy

The governments can create central banks to perform a variety of functions.

These functions are actually performed just to stable the economic condition in the

country. The major functions of any central bank are may be as:

Government Bank towards the government

Apex Bank to control the banking sector

Monetary Policymaker of the country

Maintainer of Financial Stability

Handler of Future Challenges

As the government banker towards the government means that the

central bank can act as the repository organ for government receipts, collector agent

for taxes, and the auctioneer for government debt. Its also provides loans to

government for short terms with very small interest ratio.

As the apex banker towards the banking sector in the economy means that

the central bank can act as the repository organ also for the bank reserves,

supervisor and regulator of banks, the facilitator of interbank services and a lender

when banks need money.

As the monetary policymaker of the country means that the central bank

controls the amount of credit and money availability at the specific limits with the

weapons of interest rates and exchange rate. The most important parameter of any

policy is price stability in the value of money.



As the maintainer of the financial stability means that the stability of

economy should be have the parameters of high employment and sustainable

economic growth in the positive direction. Because enough not any economy has

smooth business cycle without any up & down. The stock market and housing booms

are often associated with the business cycle.

As the handler of future challenges means that the central bank should have

abilities to handle the future happening events in the efficient manner. The

credibility is the major issues which is always unknown in the up coming days

because the inflation & deflation factors are dependent on it. Another challenge is

also present which may be happening in the future for the central bank financial

innovations.

And except from these objectives central bank may handle also various

matters indirectly. For example, political instability, sharp variations in oil prices,

taxation structure of the economy, development programs for the public, purchasing

& selling ability in the economy an so many other affairs also.



Central Banks in the World

Now, there are 165 central banks in the world which control their own

economies in efficient manner as:

Sr. No: Country Central Bank1) Afghanistan Bank of Afghanistan2) Albania Bank of Albania3) Algeria Bank of Algeria4) Argentina Central Bank of Argentina5) Armenia Central Bank of Armenia6) Aruba Central Bank of Aruba7) Australia Reserve Bank of Australia8) Austria Austrian National Bank9) Azerbaijan Central Bank of Azerbaijan Republic10) Bahamas Central Bank of The Bahamas11) Bahrain Central Bank of Bahrain12) Bangladesh Bangladesh Bank13) Barbados Central Bank of Barbados14) Belarus National Bank of the Republic of Belarus15) Belgium National Bank of Belgium16) Belize Central Bank of Belize17) Benin Central Bank of West African States18) Bermuda Bermuda Monetary Authority19) Bhutan Royal Monetary Authority of Bhutan20) Bolivia Central Bank of Bolivia21) Bosnia Central Bank of Bosnia and Herzegovina22) Botswana Bank of Botswana23) Brazil Central Bank of Brazil24) Bulgaria Bulgarian National Bank25) Burkina Faso Central Bank of West African States26) Burundi Bank of the Republic of Burundi27) Cambodia National Bank of Cambodia28) Cameroon Bank of Central African States



29) Canada Bank of Canada - Banque du Canada30) Cayman Islands Cayman Islands Monetary Authority

31)Central African Republic

Bank of Central African States

32) Chad Bank of Central African States33) Chile Central Bank of Chile34) China The People's Bank of China35) Colombia Bank of the Republic36) Comoros Central Bank of Comoros37) Congo Bank of Central African States38) Costa Rica Central Bank of Costa Rica39) Côte d'Ivoire Central Bank of West African States40) Croatia Croatian National Bank41) Cuba Central Bank of Cuba42) Cyprus Central Bank of Cyprus43) Czech Republic Czech National Bank44) Denmark National Bank of Denmark45) Dominican Republic Central Bank of the Dominican Republic46) East Caribbean area Eastern Caribbean Central Bank47) Ecuador Central Bank of Ecuador48) Egypt Central Bank of Egypt49) El Salvador Central Reserve Bank of El Salvador50) Equatorial Guinea Bank of Central African States51) Estonia Bank of Estonia52) Ethiopia National Bank of Ethiopia53) European Union European Central Bank54) Fiji Reserve Bank of Fiji55) Finland Bank of Finland56) France Bank of France57) Gabon Bank of Central African States58) The Gambia Central Bank of The Gambia59) Georgia National Bank of Georgia60) Germany Deutsche Bundes bank61) Ghana Bank of Ghana62) Greece Bank of Greece63) Guatemala Bank of Guatemala64) Guinea Bissau Central Bank of West African States



65) Guyana Bank of Guyana66) Haiti Central Bank of Haiti67) Honduras Central Bank of Honduras68) Hong Kong Hong Kong Monetary Authority69) Hungary Magyar Nemzeti Bank70) Iceland Central Bank of Iceland71) India Reserve Bank of India72) Indonesia Bank Indonesia73) Iran The Central Bank of the Islamic Republic of Iran74) Iraq Central Bank of Iraq

75) IrelandCentral Bank and Financial Services Authority of Ireland

76) Israel Bank of Israel77) Italy Bank of Italy78) Jamaica Bank of Jamaica79) Japan Bank of Japan80) Jordan Central Bank of Jordan81) Kazakhstan National Bank of Kazakhstan82) Kenya Central Bank of Kenya83) Korea Bank of Korea84) Kuwait Central Bank of Kuwait85) Kyrgyzstan National Bank of the Kyrgyz Republic86) Latvia Bank of Latvia87) Lebanon Central Bank of Lebanon88) Lesotho Central Bank of Lesotho89) Libya Central Bank of Libya90) Lithuania Bank of Lithuania91) Luxembourg Central Bank of Luxembourg92) Macao Monetary Authority of Macao93) Macedonia, FYR National Bank of the Republic of Macedonia94) Madagascar Central Bank of Madagascar95) Malawi Reserve Bank of Malawi96) Malaysia Central Bank of Malaysia97) Mali Central Bank of West African States98) Malta Central Bank of Malta99) Mauritius Bank of Mauritius100) Mexico Bank of Mexico



101) Moldova National Bank of Moldova102) Mongolia Bank of Mongolia103) Montenegro Central Bank of Montenegro104) Morocco Bank of Morocco105) Mozambique Bank of Mozambique106) Namibia Bank of Namibia107) Nepal Central Bank of Nepal108) Netherlands Netherlands Bank109) Netherlands Antilles Bank of the Netherlands Antilles110) New Zealand Reserve Bank of New Zealand111) Nicaragua Central Bank of Nicaragua112) Niger Central Bank of West African States113) Nigeria Central Bank of Nigeria114) Norway Central Bank of Norway115) Oman Central Bank of Oman116) Pakistan State Bank of Pakistan117) Papua New Guinea Bank of Papua New Guinea118) Paraguay Central Bank of Paraguay119) Peru Central Reserve Bank of Peru120) Philippines Bangko Sentral ng Pilipinas121) Poland National Bank of Poland122) Portugal Bank of Portugal123) Qatar Qatar Central Bank124) Romania National Bank of Romania125) Russia Central Bank of Russia126) Rwanda National Bank of Rwanda127) San Marino Central Bank of the Republic of San Marino128) Samoa Central Bank of Samoa129) Saudi Arabia Saudi Arabian Monetary Agency130) Senegal Central Bank of West African States131) Serbia National Bank of Serbia132) Seychelles Central Bank of Seychelles133) Sierra Leone Bank of Sierra Leone134) Singapore Monetary Authority of Singapore135) Slovakia National Bank of Slovakia136) Slovenia Bank of Slovenia137) Solomon Islands Central Bank of Solomon Islands



138) South Africa South African Reserve Bank139) Spain Bank of Spain140) Sri Lanka Central Bank of Sri Lanka141) Sudan Bank of Sudan142) Surinam Central Bank of Suriname143) Swaziland The Central Bank of Swaziland144) Sweden Sveriges Riks bank145) Switzerland Swiss National Bank146) Tajikistan National Bank of Tajikistan147) Tanzania Bank of Tanzania148) Thailand Bank of Thailand149) Togo Central Bank of West African States150) Tonga National Reserve Bank of Tonga151) Trinidad and Tobago Central Bank of Trinidad and Tobago152) Tunisia Central Bank of Tunisia153) Turkey Central Bank of the Republic of Turkey154) Uganda Bank of Uganda155) Ukraine National Bank of Ukraine156) United Arab Emirates Central Bank of United Arab Emirates157) United Kingdom Bank of England

158) United StatesBoard of Governors of the Federal Reserve System

159) Uruguay Central Bank of Uruguay160) Vanuatu Reserve Bank of Vanuatu161) Venezuela Central Bank of Venezuela162) Vietnam The State Bank of Vietnam163) Yemen Central Bank of Yemen164) Zambia Bank of Zambia165) Zimbabwe Reserve Bank of Zimbabwe

There are various ups & downs in the central banking history but the key force

is the independence of central bank towards their policies without any pressure from

the government. We know that the original central bank should be a private and

independent organization. It should have free & fair authority to maintain their

affairs in the better interest of the economy.



The Reserve Bank of Central India (RBI)

The central banks are the innovation of the early twentieth century. The

Reserve Bank of India was the fist central bank of the Sub-continent. The Reserve

Bank of India (RBI) was established on April 1, 1935, according to the provision of

Reserve Bank of Indian Act, 1934 by The Great Britain.

The head office of the RBI

was initially established in Kolkata but

was permanently moved to Mumbai in

1937. The RBI was established on the

recommendation of the “Hilton Young

Commission” for the Central India by

British Empire. This commission

submitted their report in the year 1926 to

Legislative Assembly of England.

The functions and focus to

establishment of this bank in Central India was to change the economic environment

in this British Control Territory. Following were the basic constituted to establish this

reserve bank as:

To regulate the issue of bank notes

To maintain the reserves to secure the monetary stability

To operate the credit and currency system



We know that, Burma (Myanmar) was

no more in Indian Union from 1937 but

the RBI continued their act as the central

bank for Burma upto April, 1947. And,

after the partition of Central India, the

RBI also served as the central bank of

Pakistan upto June 1948.

Pakistan - At the Time of Independence

We know that before the

independence August 1947, the RBI was

the central bank for Pakistan’s Economy

under the “Monetary System & Reserve

Bank Order 1947”. The immediate and

foremost task for the Pakistan’s

Government was to establish a central

bank for the issuances of independent

currency, independent banking system

and regulate the economic activities in the

positive manners.



But due to innumerable complex problems, it was decide that the RBI would

continue to act as the central bank and currency authority for the Pakistan till

September, 1948.

The main provisions of “The Monetary System & Reserve Bank Order 1947” were as:

The RBI would be the sole note issuing authority in Pakistan

The Indian Notes will remain legal tender in both Pakistan & India until

30th September, 1948.

The RBI would transfer the assets of equal value to Pakistani notes to

the Pakistan’s Government after the date of 30th September, 1948.

The Pakistan’s Government would also issue coins in the country after

the 30th September, 1948. The coins issued by the Indian’s Government

would remains legal tender in Pakistan for at least one year from the date id

issue of Pakistani coins.

The RBI would perform the full functions of “Central Bank of Pakistan”

upto September 23th, 1948.



Establishment of State Bank of Pakistan

Immediately after the independence,

the newly born state was faced with a serous

banking situation due to the migration of 6.5

millions people. The RBI showed reluctance

in solving the banking crisis in Pakistan. It

rather created further difficulties by refusing

to give Rs. 550 millions which was the share

cash balance of Pakistan.

Therefore, it is decided to

establish own currency regulating authority & policymaker institute. For this purpose

Governor General Quaid-e-Azam Muhammad Ali Jinnah issued order for the

establishment of State Bank of Pakistan on July 1st, 1948. The RBI relieved of its

functions & orders in the favor of Pakistan from the first of July, 1948.

Under the State Bank of Pakistan Order 1948 issued by Quaid-e-Azam

Muhammad Ali Jinnah, the state bank of Pakistan was charged with the duty to

"regulate the issue of bank notes and keeping of reserves with a view to

securing monetary stability in Pakistan and generally to operate the currency

and credit system of the country to its advantage".



The Governor General of Pakistan Barrister Quaid-e-Azam Muhammad Ali

Jinnah, while inaugurating the State Bank of Pakistan on July 1st, 1948, said:

“The bank

symbolized the

sovereignty of our

people in the financial

sphere. The Western

Economic System has

created many problems

for humanity. The

Western Economic

System would not help

us in setting up a

workable economic order. We should evolve an

economic system based on Islamic concept of

justice and equality”.

On December 30th, 1948 the British Government's commission distributed the

RBI’s reserves between Pakistan and India with the ratio of 30% and 70% for Pakistan

& India, respectively. The loss of Rs. 230 millions which incurred in the transition to

independence were taken from Pakistan.



The State Bank of Pakistan (SBP)

Introduction – The SBP

The State Bank of Pakistan (SBP) is the central bank of Pakistan. This bank is a

body corporate by the name of “State Bank of Pakistan” or “Bank Daulat-e-

Pakistan”, which having the perpetual succession and a common seal. According to

the constitutional point of view, the “State Bank of Pakistan Order, 1948” established

it in the July 1948.

The SBP is an apex institution of the Pakistan for the money supply & banking

companies. It has fully charged with the responsibility for maintaining the internal as

well as external affairs about the stability of economy of Pakistan. It has direct effect

in the promotion of economic development & public developmental programs in the



country. The headquarters of SBP is located in the financial capital of Pakistan,

Karachi with its official’s headquarters in the capital, Islamabad.

Major Functions and Responsibilities of SBP

We know that every central bank is responsible for the money supply & credit

creation in the financial market to maintain the stability of the economy. According

to the State Bank of Pakistan Act, 1956, the Central Board of Pakistan has following

functions & responsibilities in order to secure monetary stability and soundness of

the financial system.

To formulate & monitor the monetary and credit policy

Have a sole right to issues notes (legal tender)

To regulates & supervise the banking sector

To monitor the price development in the market

To manage the foreign exchange in the financial market

The clearing house for the commercial banks

As an advisor to government

The lender of last resort for commercial banks

To monitor the economic activities in the country

To collect the revenues for the government

To manage the public debt in efficient manner

To sale & purchase the prize bonds & others monetary certificates

To approve the credit requirements for the private sector



To submit their annual report to National Assembly

To monitor the balance of payment & trade

Act as advisor to FBR about taxation recovery affairs

To issue monetary legal tenders to stable the economic transitions

To settle the accounts of federal and provincial governments

To deals with Banking Services Corporation (BSC) in public interests

All others functions & responsibilities which are assigned by the Federal

Government of Pakistan

About - The SBP Act, 1956

We know that, the SBP was established by the short order of Governor

General of Pakistan to regulate the economy on hanky-panky basis. The State Bank of

Pakistan Order, 1948 was not able to provide the profit motive guidelines in its

operations. To fulfill these gapes parliament of President Sikander Mirza and Prime

Minister Ch. Muhammad Ali passed this act in the larger & better interest of

Pakistan.

The State Bank of Pakistan incorporated under the SBP Act, 1956 (Act No.

XXXIII of 1956) This Act provides an order for the establishment of State Bank of

Pakistan. It’s also tells by constitutional point of view, the state bank has the ability

to provide & regulate the monetary and credit system in the Pakistan and to foster

its growth in the best national interest with a view to securing monetary stability and

fuller utilization of the country’s productive resources in very efficient manner.

This Act also provides a very vast structure of the SBP with assigning their

rights & obligation to towards each other and towards others. Its give fully fledge



guarantee from the Federal Government to handle their assign matters in their own

will but in the better interest of the Pakistan.

History – The SBP in Last 60 years

The SBP began their operations on July 1, 1948 and became as a sole not-

issuing authority in Pakistan, but the Pakistan’s Government at that time had no note

printing press to print them on. The SBP faced the huge task of establishing a banking

system after the collapse at the time of partition. The first day of SBP has total bank

deposits of Rs. 1.1 Billion, which contain 73% by foreign banks whose activities were

largely confined to foreign trade.

In the first 18 months to the operations of SBP, 51 new branches were opened

in both East & West Pakistan. By December 1949, there were 35 scheduled banks in

Pakistan, of which four were Pakistani, 23 Indian, and eight were foreign exchange

banks. As the number of branches of commercial banks expanded in the 1950’s,

these banks continued to mobilize increasing domestic savings, which were hen

channeled into the demand for credit in the economy.

In 1963, there were 957 branches of commercial

banks in both wings of Pakistan. In this situation, the

SBP ordered to commercial banks to open one branch in

East Pakistan for each branch they had in the West

Pakistan. The fears that the SBP’s policy of opening new

branches in unbanked areas would be quite unsound

proved to be misplaced. Within the year of their establishment, most of the branches

had become viable. According to the SBP’s, officially record as:



“The branch licensing policy was not meant to obstruct the growth of the

banking system but to foster it in the best national interest”.

In July 1969, the Indian Government had taken 14 major banks into the state

ownership. This influenced the thinking amongst planners in Pakistan. Of the four

largest banks in Pakistan, only one (National Bank of Pakistan) was state controlled,

while the industrial families such as the Habibs, Saigols and Adamjees owned the

other three. These four banks monopolized 75% of total deposits and 2-3rd of earning

assets. This sort of collusion gave rise to a further concentration of wealth.

However, the Prime Minister of Pakistan Mr. Zulfiqar Ali Bhutto (ZAB) wants

to nationalize all the banks and most prior organizations in the better and larger

interest of Pakistan, and also to get the rid from the structural & functional gaps,

corruption, nepotism, adverse activities in these organizations. And the

nationalization was the most adoptable & the international way of business in

1970’s.

In September 1970, the SBP report revealed that only 88 accounts in Pakistani

banks had access to as much as 25% of the total bank credit . In July 1974, the “Bank

Nationalization Ordinance 1974” was promulgated by the PM ZAB, according to

which the federal government has exclusive rights of ownership, management and

control of all banks in Pakistan. The shareholders of banks were compensated for

their holdings in the form of Federal Bonds repayable on par at any time within a

period of 15 days. The 14 banks were nationalized, of which 13 were merged into

five banks.



Most of the parameters of SBP were remains

unchanged until 1973 because the SBP Act, 1956

have not enough data, which is required for the

structure and function of any organizational bank.

To fulfill this gap, PM ZAB had issued an order to

nationalize the State Bank of Pakistan under the

“Nationalization of Bank Act, 1974”.

The official history of SBP writes, “This was perhaps the unique case in the

banking world where the central bank of the country was simultaneously

nationalized along with the commercial banks”.

Due to this great step, the scopes and functions of SBP were considerably

enlarged and changed. The SBP became the purely government owned institution.

The powerful and lucrative banking sector was in the hands of government, it was

open to political pressure and misuse.

In 1979, Pakistan’s Government embarked an extensive process of Islamization

in the financial sector and in others important arenas. The 2 months after coming to

power, in September 1977, General Zia-ul-Haq has asked the Council of Islamic

Ideology (CII) to prepare a blue print on an interest free economic system in the light

of Islamic teachings. Due to this aspect, the SBP wants immediate removal of interest



from financial institutions. The CII recommended also some financial institutions to

removal of interest phenomena from their structure.

In January 1981, all commercial banks

set up separate counters to accept the non-

interest-bearing profit and loss deposits

with the order of SBP. This order further

contains that, from the 1985 to onward, no

bank is allow to accept interest-bearing

deposits, except foreign currency accounts.

In addition to these steps, the SBP has also

launched three Islamic modes of financing

as Musharaka, Murabeha & Mudaraba.

In 1988, the structural adjustment program began actively was the key

element of transformation after the great incident of Berlin Wall in 1989 and return’s

of democracy in Pakistan. Under these reforming steps, the government issued

licenses to 10 new banks in private sector with the advisory will of SBP.

The process of privatization to banking sector & most prior organizations was

launched by PPP’s governments, to adopting the international way of business. The

SBP was also given considerable autonomy to act somewhat more neutrally.



Mr. Ashafaque Hassan Khan, explains about the structure and function of the

financial sector b/w 1972 and 1991 in these words as,

“Prior to undertaking financial sector reforms the hallmark of Pakistan’s

financial sector has been the direct controls on interest rate movements,

domestic credit controls, high reserve requirements, segmented financial

markets, the absence of well-developed securities commercial banks serving as

the captive institutions. In particulars, the policies of imposing ceilings on

interest rates accompanied by direct and rational allocation of credit to priority

sectors at low rates have led to widespread ‘financial repression’ in Pakistan.

The policies are seen to impede financial depending which, in turn, weakens an

important set of impulses to faster economic growth”.

A large number of reforms have taken place in the financial sector since 1992,

until now. These reforms includes the opening of new banks in private sector, to

privatize the nationalized banking sector, to decontrol the interest rates from

government intervention, to free the policymaking bodies, to privatize those public

organizations which show huge deficits annually, to improve the quality of financial

intermediation, to expands the financial sector, and creates an rapid increase in the

financial institutions.

In November 1993, the government took some steps against the monetary

policy & monetary management of the SBP, which have been undertaken by the

government’s agreements with the IMF and World Bank. By these decisions, the SBP



has no ability to introduce any new concessional lending scheme, and the rates of

returns will be liberalized, according to the latest “Policy Framework Paper” (PFP) of

the Federal Government.

Further it has been decided that the SBP’s lending rates to specialized financial

institutions will be reviewed in order to step will be taken to reduce the concessional

schemes and mandatory credit in total credit will be reduced, consistent with the

objectives of decreasing the concentration of wealth & credit in the economy.

In February 1994, the federal government provides full autonomy to State

Bank for the financial sector reforms in efficient manner. In January 21, 1997, this

autonomy was further strengthened when the government issued three Financial

Ordinances in the favor of the State Bank of Pakistan Act, 1956, Banking Companies

Ordinance, 1962 and Bank Nationalization Act, 1974. All these changes gave a full

and exclusive authority to the State Bank to regulate the banking sector, to conduct

an independent monetary policy and to set limit on government borrowings from the

State Bank of Pakistan.

The official records of 1993-99 showed a noticeable difference in efficiency

and performance b/w the state-owned nationalized banks and commercial banks.

The foreign banks had 31.4% growth rate but nationalized banks had 12.7% only. The

gross revenues of foreign banks were also more than the nationalized banks of the

country.

The financial year 1998/99 was the

one of the worst, in terms of economic



indicators, according to the SBP’s Annual Report and Pakistan Economic Survey’s

Report.

Although the May 1998 nuclear tests made the Pakistan’s strong but creates

deteriorated situation for Pakistan about economic point of view. The SBP’s Annual

Report for 1998/99 summarized as:

“The developments in May,

1998 had a major impact on

balance of payments, net foreign

assets of the banking system, stock

market and the exchange rate. The

nuclear blast by India immediately

affected the investor’s confidence

and the stock market declined, free market exchange rate depreciated, and

foreign currency deposits were withdrawn significantly during May 11-28, 1998.

Pakistan’s response on May 28, 1998 to the Indian detonation, followed by

economic sanctions by the United States, and a restraining stance adopted by

the G-7 countries with regard to the lending by the international financial

institutions, further contributed towards the erosion of confidence and reeking

of the budget and balance of payments”.

In January 2002, the Privatization Commission of Pakistan (was set up in Jan

1991) privatize the SBP in their status point of view. The government also introduced

revolutionary changes in the structure & functions of SBP, by commencing the



Banking Services Corporation (BSC) by the ordinance of Chief Executive Commander-

n-Chief General Pervaiz Musharaf. The State Bank of Pakistan Act 1956, with

subsequent amendments is in operations today.

Strategic Objectives of SBP

We know that the functions & operations of SBP are common like other

central bank of the any country.

1. To Broaden the Access of Financial Services

2. To Ensure the Soundness of Financial Sector

3. To Maintaining the Price Stability with Positive Growth

4. To Monitor the Exchange and Reserve Management

5. To Strengthen the Payment System

1.To Broaden the Access of Financial Services

We know that the co-relation b/w economic growth, development and

financial inclusion in the terms of Development Economics are major relationship.

From the first day the SBP is in effort to provide an enabling environment for

financial broadening with the help of others stakeholders and the banking sector. In

this perspective, Small & Medium Enterprises (SME) & Micro Finance, Islamic

banking, Housing & Infrastructure financing and agriculture credit are the main areas

of focus in its development.



2.To Ensure the Soundness of Financial Services

The prime responsibility of SBP is to ensure that the financial system,

particularly the banking system, is robust and well functioning in the economy. For

this purpose the SBP continuously work for the improvement of the banking

infrastructure, optimize its market potential and more importantly monitor the risk

profile of banking institutions to safeguard the interest of depositors. The Minimum

Capital Requirement (MCR), development of Roadmap for implementation of Basel-

II, enhancement of corporate governance standards and improvement, Islamic &

Microfinance institutions are the major developments by SBP.

3. To Maintain the Price Stability with Positive Growth

The price stability is generally and widely considered as the most

primary objective of central banks. The price stability simply means the avoidance of

high and volatile rate of inflation. The high and volatile inflation creates the

uncertainty & distortions in an economy and also affect the investment and growth

momentum. In this perspective, the SBP adopt the same policy of others central

banks, the low and stable inflation so that it does not hurt economic growth. For the

low & stable inflation the adjustments in monetary policy for the short run is

considered as the best weapon.



4. To Monitor the Exchange and Reserve Management

The Exchange Market is the source of Reserves Management, both of

them directly proportional to each others, because the value of money is dependent

on the others forex rates. And, the Exchange Market is the most sensitive transaction

market in the world, because the any event in the country can directly affect the

exchange rates. For the betterment of Exchange Markets, the SBP allowed to banks

to raise the Foreign Exchange (FCY) Loans from International Financial Institutions.

The Non-residents investors have been allowed to trade in shares through Special

Convertible Rupee Account. Furthermore, in order to further liberalize in the trade

regime, the SBP allowed Advance Payments against Letters of Credit. The SBP also

strengthen the regulatory framework about Exchange Companies in Pakistan.

5.To Strengthen the Payment System

The payment system is the backbone of any financial dispensation, and

the robust payment system is pillar of any sound economy. The Information

technology (IT) advancements give the revolutionary changes in the payment

systems. The SBP endeavors the payment system by the international best practices

and to be responsive to emerging the domestic and international requirements.



Executive Bodies of the SBP

Governor of SBP

Syed Salim Raza took over post of Governor of

State Bank of Pakistan, on January 02, 2009 as the

15th Governorship. The assumption behind to take

over the office of Governor was that, Mr. Raza was

the Chief Executive Officer (C.E.O) of Pakistan

Business Council (PBC) since February 2006. Mr.

Raza, the master’s degree holder from Oxford

University with the experience of 36 years in the

international banking. His business experience covers credit and corporate finance,

real estate and global asset (bonds & equities) management.

He was the executive employee of Citibank for number of years and also was

the Country Head in Pakistan from 1983 to 1987. He has been instrumental in

preparing innumerable reports, surveys and recommendations covering a variety of

subjects including a dynamic role for public-private partnerships, the broadening and

deepening of capital markets, the creation of long-term corporate debt markets, the



corporate governance, the competitiveness capacity building and a variety of other

associated themes.

The Board of Members

Sr. No. Name Status

1. Syed Salim Raza Chairman/Governor

2. Salman Siddique Member

3. Kamran Y. Mirza Member

4. Zaffar A. Khan Member

5. Tariq Sayeed Saigol Member

6. Mirza Qamar Beg Member

7. Asad Umar Member

8. Waqar A. Malik Member

9.Aftab Mustafa Khan Corporate

Secretary



History of Governors of SBP

Sr. No: NameJoin the

Office

Leave the

Office

1 Zahid Hussain 1948 1953

2 Abdul Qadir 1953 1960

3 Shujaat Ali Hasnie 1960 1967

4 Mahbubur Raschid 1967 1971

5 S.U. Durrani 1971 1971

6 Ghulam Ishaq Khan 1971 1975

7 S. Osman Ali 1975 1978

8 A G N Kazi 1978 1986

9 V.A. Jaffrey 1986 1988

10 I.A. Hanfi 1988 1989

11 Kassim Parekh 1989 1990

12 Mohammad Yaqub 1993 1999

13 Ishrat Husain 1999 2005

14 Shamshad Akhtar 2006 2009

15 Syed Salim Raza 2009 Present



Hereciary of SBP


GovernorDeputy Governor (Banking Sector)

Deputy Governor (Corporate Sector)

Chief Economist (Reserach)

Deputy Governor (Banking Sector)

Executive Director (Finance

Department)

Executive Director (Banking

Supervision)

Executive Director (Banking Policy &

Regulation)

Deputy Governor (Corporate Sector)

Comptroller Finance (Financial Markets

& Reserve Management)

Group Head (Human Resources)

IT & Museum Group

Federal Government

Chief Economist (Reserach)

Economic Advisor (Policy & Reserach)

Director (Monetary Policy)

Director (Economic Analysis)

Director (Reserach)

Director (Statistics & Data Wearhouse)

Director (Finance Stability)

Chief Librarian (Library)


Mission – The SBP

The Pakistan (SBP) is working with the mission to promote monetary and

financial stability and want to achieve a sound and dynamic financial system with the

sustained and equitable economic growth and prosperity in the larger interest of

Pakistan. The primary function o0f this organization is issuance of notes, regulates

the financial system, lender of the last resort, and conduct with monetary policy in

efficient manner. The SBP vision is not to become a monopolist but to become a

serving institute of the Pakistan. The money supply & credit creation should be in the

public interests.

Departments – The SBP

Following are the departments which are working in the State Bank of Pakistan

(SBP) to manage all the affairs & functions which are allocated by Federal

Government of Pakistan as:

The Agricultural Credit Department

The Banking Inspection Department

The Banking Policy & Regulations Department

The Banking Surveillance Department

The Business Support Services Department

The Domestic Market & Monetary Management Department



The Economic Analysis Department

The Exchange Policy Department

The External Relations Department

The Finance Department

The Financial Markets Strategy & Conduct Department

The Financial Stability Department

The General Counsel's Office

The Human Resource Department

The Information Systems & Technology Department

The Infrastructure / Housing Finance Department

The Internal Audit & Compliance Department

The International Markets & Investments Department

The Islamic Banking Department

The Monetary Policy Department

The Museum & Art Gallery Department

The NIBAF Karachi & Islamabad

The Office of the Corporate Secretary

The Off-site Supervision & Enforcement Department

The Payment System Department

The Research Department



The Risk Management and Compliance Department.

The Real Time Gross Settlement System (RTGS System)

The Microfinance Department

The SME Finance Department

The Statistics and Data Warehouse Department

The Strategic and Corporate Planning Department

The Training & Development Department

The Treasury Operations Department

To deal with banking sector in the country, Chief Executive General Musharaf

ordered to SBP to establish a separate & independent institution under the head of

SBP. Now all the banking sector affairs & modifications are in the hands of “Banking

Services Corporation”, which act as subsidiary to SBP.



Currency of Pakistan

Following notes are working in Pakistan as the currency standards…

Value Sketch

1 Rupee

2 Rupees

5 Rupees

10 Rupees



20 Rupees

50 Rupees

100 Rupees

500 Rupees

1000 Rupees



5000 Rupees

Banking Services Corporation (BSC)

With the changing environment in the banking sector on international level

the government took decision to establish an organization which controls the money

supply & truncations policies in the banking sector under the supervision of SBP. For

this purpose, Government of Pakistan introduced the Banking Services Corporation

(BSC), as the subsidiary organization to the State Bank of Pakistan in January 2002.

Key Functions of BSC

Following are the major functions and operational areas, by which BSC

performs their duties in very efficient manner under the head of SBP as,

Currency Management in Banking Sector

Foreign Exchange Operations and their Adjustments

Export Finance Schemes

Payment and Settlement Systems

Banking Services to the Government

Operational Work on Government Securities



Except from these, the SBP is now working very closely with BSC to develop a

strategy for the withdrawal of some old functions and perform consolidation b/w

SBP & BSC.

Departments of BSC

Following are the departments which are working in the supervision of BSC. All

of these departments are isolated from the departments of SBP but the co-

ordination b/w BSC & SBP’s department is handle by an executive post.

Accounts Department

Currency Management Department

Internal Audit Department

Development Finance Support Department

Engineering Department

Foreign Exchange Operations Department

Foreign Exchange Adjudication Department

Internal Bank Security Department

General Services Department

Personnel Management Department

Training and Development Department

Quality Assurance Department



Boards of Directors of BSC

Following are executive authorities who supervise this organization as,

Name Status

Syed Salim Raza (SBP) Governor/Chairman

Mr. Qasim Nawaz Managing Director

Mr. Mohsin Aziz Member

Mr. Kamran Y. Mirza Member

Mr. Zaffar A. Khan Member

Mr. Tariq Sayeed Saigol Member

Mr. Mirza Qamar Beg Member

Mr. Asad Umar Member

Mr. Waqar A. Malik Member

Mr. Salman Siddique Member

Mr. Aftab Mustafa Khan Corporate Secretary



Supervision of SBP

The BSC is under the supervision of SBP because central bank has abilities to

give the directions to BSC, but only in these conditions as,

In the larger Public Interest

To prevent the affairs of Banking Sector, in the legal interests of its

customers

To secure the Proper Management of the BSC.

It is necessary by time to time to issue directions to BSC by SBP. The BSC shall

be bound to comply with such directions. The SBP may, modify, cancel or confirm

any direction at any time by their own will. The boards of directors of State Bank are

not able to become the member of BSC also, but except from Chairman. The

employees of SBP and BSC may be same on the basis of additional duties or co-

ordination cases.

Powers & Authorities of BSC

The BSC is a corporate body which having the perpetual succession and a

common seal, it may sue or be sued. The BSC has ability to handle the receipt, supply

and exchange of bank notes and coins which are act as legal tender in the market.

Also performs the operations of (issue, supply, sale, encashment) of prize bonds.

The BSC have powers to make rules & regulations with the prior approval of

the State Bank. The rules & regulations must not be inconsistent with the provisions

of BSC Ordinance, in such case, SBP amend or rescind this rule.


Chairman (Governor of SBP)

Board of Directors

Managing Director (C.E.O)

Head Office (Karachi)

Field Offices


The Managing Director of BSC is appointing by SBP with the advice of Finance

Ministry, but he should not be a member of SBP. The Managing Director is the Chief

Executive Officer in nature. The liquidation of BSC is not direct happen by an order or

resolution of State Bank. In this manner, the SBP give an advice to Federal

Government of Pakistan.

Hereciary of BSC



National Bank of Pakistan (NBP)

Introduction

The Government of Pakistan wanted

own bank which has no foreign influence in it

to fulfill the day-to-day transactions in the

banking sector. For this purpose, the National

Bank of Pakistan (NBP) was established under

the “National Bank of Pakistan Ordinance,

1949” as the government-owned bank as

subsidiary of State Bank of Pakistan in November 21, 1949.

So, from the first day, the NBP is working as the agent of SBP, wherever the

State Bank has not its own branch. It also performs government treasury operations

in very efficient manner.

Now, the NBP is the largest commercial bank which operating in Pakistan. Its

balance sheet size is tremendous as compared to the any other bank commercial in

Pak-Economy. Recently it has redefined its role and takes a better move from a

public sector organization into a modern commercial banking. The NBP headquarters

is located in Karachi, with over 1,200 branches country wide. The bank provides both

commercial and public sector banking services in very efficient manner. It has assets

worth of US $12.35 Billion.



The NBP is not a national bank, its also has offices in USA, Canada, Germany,

France, Bahrain, Egypt, Bangladesh, Hong Kong, Japan, South Korea, China,

Afghanistan, Turkmenistan, Kyrgyz Republic, Kazakhstan, Uzbekistan and Azerbaijan

which are working in the better interest of Pakistan.

Board of Directors

Islamic Banking by NBPPrepared by: Ali Raza / Ali Burhan / Hafiz Mehmeez

Sr. No. Name Status

01 Mr. Syed Ali RazaChairman &

President

02 Mr. Muhammad Raheel Sarshar Director

03 Mr. Mian Kausar Hameed Director

04 Mr. Ibrar A. Mumtaz Director

05 Mr. Tariq Kirmani Director

06 Mr. Sikandar Hayat Jamali Director

07 Mr. Azam Faruque Director

08Mr. Muhammad Ayub Khan

TarinDirector

09 Mrs. Haniya Shahid Naseem Director

10 Mr. Ekhlaq Ahmed Secretary


The NBP established their First Islamic Banking Branch in Karachi on December

15, 2006 by order of SBP. The two more branches started their operations in the end

of 2007, in the Peshawar and Lahore for Islamic Banking promotion. At present,

there are 8 Islamic Banking branches are functional all over Pakistan. Mr. Shafiq Khan

is newly appointed Group Chief of Islamic Banking Group. For Islamic Banking advisor

is Mr. Mufti Abdul Sattar Laghari.

The subsidiaries under the head of NBP are NBP Capital, NBP Modaraba

Management Company, NBP Exchange Company, Taurus Securities, NBP Almaty et

al.'

State Bank of Pakistan Library

For any organization, especially which is based upon on the sensitive natures

required huge research & data to manage their structure & policies. For this purpose,

the SBP established an information cell for their Research Departments and other

employees in the form of digital & manual library, in 1949 at Central Directorate,

Karachi. Now the SBP Library has their own specific building in Karachi.

The SBP library has a rich collection of books, technical reports, Government

documents, periodicals and magazines mainly relating to the subjects of Economics,

Banking, Finance, Management, Commerce, etc. the books on different languages

are also present here. Over the years, the library has grown into one of the biggest

and well-stocked libraries of the country on these subjects.



In addition to printed resources, the library provides online access to research

journals and a host of digital resources to the readers, and provides the adequate

modern facilities and services to its

readers in a very friendly & conducive

environment.

Policy about the

Collection

The SBP library has been financed

by annual budget as well as special

grants for the procurement of books

and periodical literature. The library adheres the policy to spend its annual and

special grants into the ratio of 75:25 b/w the major & minor subjects. (The major

subject includes Economics, Banking, Finance, Commerce, Monetary Systems, etc & a

minor subject includes the Islam, Geography, Politics, Languages, etc).

This library also have a Books Selection Committee, comprising highly qualified

and experienced researchers and bankers, meets on monthly basis to select the

latest books received from market. Moreover, requests from departments, individual

researchers or other employees also handle in very effective manner.

The SBP library also receives publications of central banks from United Nations

organs including IMF, the World Bank, ESCAP, WTO, UNCTAD, etc. & others

international organizations like OPEC, OECD, Asian Development Bank, Islamic

Development Bank, Bank for International Settlements, etc. the Budget Documents



of Pakistan & various countries, Officials Gazettes, Governmental Published Reports

on various topics, United Nations Publications and so many.

Books in SBP Library

Subject Books

Economics, Banking, Finance & Commerce 32,000

Management, Accountancy & IT 5000

Islam 5000

General & Applied Sciences 5000

History, Biographies, Geography & Travel 5000

Art & Literature 6000

Laws, Political Science, Agriculture, Education,

Sociology, Psychology20,000

English & others English terms in various subjects 65,000

Urdu & others Oriental Languages 12100

Regional Languages in Pakistan 1,100

Others Books 900



Periodical Literatures

Literatures & Journals Numbers

Foreign Literatures 118Local Literatures 23

Journals & Literatures on different Researches 107Annual Reports different Central Banks 75Annual reports of Financial Institutions 10

Annual Reports of Local Organizations & Institutions 94Annual Reports of Companies 76

Annual Reports of Foreign Banks 45

The SBP Library is an active capital for Central Bank of Pakistan and also for

outsiders, means universities students, in-services & retired officials, lawyers,

honorable & senior citizens.

SBP’s Learning Resource Centre (LRC)



To realize the corporate social responsibility & show a meaningful role in the

development of the banking and financial sector, the management of SBP took the

initiative to establish state-of–art Learning Resource Centre (LRC). The major purpose

to build this LRC was the establishment of a house, inside the premises of the State

Bank of Pakistan. This learning school was inaugurated on 22nd November 2005 by

Dr. Ishrat Hussain; the thirteenth Governor of SBP with the sole purpose to supports

the teaching, learning and research.

Mission of LRC

The LRC strives to provide an appropriate range of good quality, well managed

services and resources, supported by a well trained, pro-active and responsive team

who actively encourage the involvement in the development of the service and who

work to ensure the Service is accessible, without prejudice and that the centre is an

effective place to meet and learn.

Environment in LRC

LRC is the knowledge hub of training and development activities at the SBP.

Basically, its offer training and technical assistance in the better environment of

world class conferences, seminars, meetings and training sessions in a very safe and

secured manner. Our facility offers well equipped and fully experienced computer

training. The audio & visual presentation system on the several events in learning

process is much more convenient, interactive and enjoyable for learning students.

Others Offers by LRC



The LRC don’t facilities only SBP’s officials and its subsidiaries but also various

institutions and organizations which are working for the capacity building of the

Banking and Financial Sector. Moreover, Business School, summer and winter

Internship programs arranged for university students also remain a very important

feature of the activities at the Centre throughout the year.

Place Facilities in LRC

3 Executive’s Conference Rooms

Boards Conference Room

Seminar Room

Internet Connectivity Cubical

Multi-Purpose Hall

Auditorium

The LRC is a complete school for any organization under the head of SBP. It

provides a lot of training experience to various organizational employees in very

efficient & effective manners.



Financial Derivatives Business Regulations

(FDBR)

Introduction

The Financial Derivatives Business Regulations is a type of contract b/w SBP

and any financial institute to deal in the business of derivatives. The FDBR have been

formulated by SBP under Banking Companies Ordinance 1962 and Foreign Exchange

Regulations Act 1947, to permit, regulate, and supervise the financial institutions to

enter into derivative transactions.

The SBP is the supervisory authority for all banks and financial institutions

which are engaging in Derivative Business. To deals in derivative business financial

institute is legally bound to get the approval of the State Bank of Pakistan. All the

derivatives business users are bound under the supervision and scrutiny of SBP.

Explanation

The word “Derivative” refers the Regulation which means a type of financial

contract, the value of which is determined by reference of one or more underlying

assets.

The derivative business refers those regulations which are under these

classified categories as:



The Derivative Transactions occurs for the purpose of hedging the risks

which arises from its own assets or liabilities or for altering the risks profile.

The Derivatives Transactions should be executed by Financial Institution

with its customer. In this case, the Financial Institution does not face any

market risk on its own books and covers the transaction the same day on a

back-to-back basis. These institutions are regarded as “Non-Market Maker

Financial Institutions” (NMI).

Any Financial Institution may provides derivative trading services to

their customers and other financial institutions and quote prices to other

institutions and customers and can take market risk on its own books. These

institution are refers as “Authorized Derivatives Dealer” (ADD). Its not

necessary for these institution to cover its position on a back to back basis,

however, it has to remain within its allowed limits when prescribed by State

Bank of Pakistan.

Rights of Financial Institutions

The Financial Institution is bound to establish a Risk Management System,

Internal Control System, and Processing System to deal with the nature, scale, and

complexity of derivative business in the legal supervision of SBP. The senior

management of this financial institute has ability to review and approve the policies,

procedures, organization and delegated authorities of the business operation system

and risk management system in business derivatives with their own responsibilities.

Under this contract the financial institution which are dealing in the activities

of derivatives business are able to formulate the clear standards on the qualifications



of dealers, analysts and other staff. It is able to setup a sound operational risk control

mechanism and system to strictly control any operational risk.

Powers of SBP as Supervisor

All the regulations about financial institutes are may be interpreted by the

State Bank of Pakistan. The SBP may suspend or withdraw the status of any Financial

Institution as an NMI or an ADD to carry out the Derivative Business if it has found

that the financial institute is involve in the violation of the rules & regulations. The

SBP may examine all the statements of the financial institution which are related to

derivative business at any time, and periodically.

The senior management of a financial institution is bound to adopt the

standards and methods for measuring the risks of its derivative business which are

appropriate for such institution, and allocated by SBP.

Financial Institutes in Pak-Economy



The list of Banks and Financial Developments Institutions in Pakistan which are

working in Pakistan as secluded banks of SBP as,

Public Sector Commercial Banks

a) First Women Bank Ltd.

b) National Bank of Pakistan

c) The Bank of Khyber

d) The Bank of Punjab

Specialized Scheduled Banks

a) The Punjab Provincial Co-operative Bank

b) SME Bank Limited

c) Zarai Taraqiati Bank Limited

Private Local Banks

a) Allied Bank Limited

b) Askari Bank Limited

c) Bank Al-Falah Limited

d) Bank Al-Habib Limited

e) My Bank Limited

f) Creascent Commercial Bank Limited

g) NIB Bank Limited

h) Faysal Bank Limited

i) Habib Bank Limited

j) KASB Bank Limited



k) MCB Bank Limited

l) Meezan Bank Limited

m) Atlas Bank Limited

n) Saudi Pak Commercial Bank Limited

o) Soneri Bank Limited

p) United Bank Limited

q) Arif Habib Bank Limited

r) Dubai Islamic Bank Pakistan Limited

s) Bank Islami Pakistan Limited

t) Royal Bank of Scotland

u) Habib Metropolitan Bank Limited

v) JS Bank Limited

w) Standard Chartered Bank (Pakistan) Limited

x) Emirates Global Islamic Bank

y) Dawood Islamic Bank Limited

Foreign Banks

a) Al-Baraka Islamic Bank B.S.C. (E.C.)

b) Citibank N.A.

c) Deutshe Bank A.G.

d) The Hong Kong & Shanghai Banking Corporation Limited

e) Oman International Bank S.A.O.G.

f) The Bank of Tokyo – Mitsubishi UJF Limited

Development Financial Institutions



a) Industrial Development Bank of Pakistan

b) Pak Kuwait Investment Company of Pakistan (Pvt) Limited

c) Pak Labya Holding Company (Pvt) Limited

d) Pak Oman Investment Company (Pvt) Limited

e) Saudi Pak Industrial & Agricultural Investment Company (Pvt) Limited

f) Pak – Brunai Investment Company Ltd.

g) Pak – China Investment Co. Ltd.

h) Pak – Iran Joint Investment Co. Ltd.

Micro Finance Banks

a) Khushhali Bank

b) Network Micro Finance Bank Limited

c) The First Micro Finance Bank Limited

d) Rozgar Micro Finance Bank Limited

e) Tameer Micro Finance Bank Limited

f) Pak Oman Micro Finance Bank Limited



Reformed Islamic Banking by SBP

The recent re-launch of Islamic Banking in Pakistan by SBP has been based not

only on the lessons learnt from the history of Islamic Banking efforts in Pakistan but

also on the experiences of other countries in the world that are currently known for

their lead role in Islamic finance sector e.g. Malaysia and Bahrain.

By this new approach, the SBP is focused on providing the users of Islamic

banking with the solutions they seek for managing their financial relationships with

others. These solutions will be as functional and cost effective according to the

Shariah compliant. The essential of Islamic Banking is based upon on the sound

regulatory framework with flexible nature, market driven and the international

practices.

A sound Shariah compliance mechanism which is comprehensive, flexible,

multi layered and acceptable locally and internationally in nature is also most

important for the success of Islamic Banking in Pakistan.



About Islamic Banking

“And Allah has permitted trading, and prohibited Riba.”

(The Holy Quran)

“The comforting and encouraging fact is that Islamic World has

collectively launched Islamic Finance with a greater degree of commitment with

the adequate capital. Now, the institutional frameworks which are

internationally recognized according to the regulatory and accounting

frameworks for Islamic finance industry are also available. I hope that the

effective implementation of the Islamic strategy will be helpful in achieving the

optimum yield of Islamic Finance.”

(Dr. Shamshad Akhtar, Governor)

"The very important objective of the Shariah is to promote the welfare of

the people, which lies in safeguarding their faith, their life, their intellect, their

posterity and their wealth. Whatever ensures the safeguarding of these five

serves public interest and is desirable."



(Al-Ghazali)

"The basis of the Shariah is wisdom and welfare of the people in this

world as well as the Hereafter. This welfare lies in complete justice, mercy, well-

being and wisdom. Anything that departs from justice to oppression, from

mercy to harshness, from welfare to misery and from wisdom to folly, has

nothing to do with the Shariah."

(Ibn-al-Qayyim)

Vision

The vision of SBP is to develop the Islamic Banking as the banking of first

choice in Pakistan, which capable of being providing the leadership to the global

Islamic finance industry and facilitating equitable economic growth.

Mission

The SBP is working on the mission to promote and develop the Islamic banking

industry in line with best international practices, ensuring the Shariah compliance &

transparency in the world.



Objectives

We want to achieve following objectives till 2012 as,

To achieve a market share of 12% only

To expand and extend the outreach of Islamic banking products in existing

Consumer and Corporate sectors as well as introduce it in the Micro Finance,

Agriculture and SME and all other sectors.

To provide the strength to Shariah Compliance framework

To strengthen the regulatory framework in the line with global best practices

To establish a specialized institution to develop Human Resource for the

industry

To integrate all the elements of Islamic Financial Services Industry

Be a part of the international Islamic banking community, appropriately

positioned to attract foreign direct investment

Pillars of Islamic Banking

To achieve the objectives and to capitalize the strengths in Islamic Banking, the

SBP has work on these five pillars of promotion as,

To extension of outreach - both breadth and depth.

To strong the Shariah compliance mechanism



To robust the regulatory framework which is able to accommodate the unique

aspects of Islamic banking transactions

To provide the capacity building through human resource development

Strategy for Islamic Banking

To achieve the objectives, the SBP

make a strategy. According to this

strategy, the Pakistan has several

comparative advantages in the Islamic

Banking space because we have a large

population of 160 million people with

97% population being Muslim. This

provides a huge domestic market base,

second only to Indonesia.

In fact our Banking Companies Ordinance, 1962 (BCO) has been amended to

suit the Islamic Banking principles and concepts which can explain the fairly well

developed regulatory and legal framework to underpin our current developments.

The SBP’s strategy based upon on these accounts as,

To formulate the offerings which are comparable and compatible with

conventional banking but are in line with Shariah

To build the existing regulatory framework to accommodate the Islamic

banking transactions by retaining the elements that are common to both

systems and adding on those elements that are not currently available to

accommodate the unique differences of Islamic banking.



To strengthen the Shariah compliance mechanism and position it as

being acceptable globally thus helping Pakistan’s Islamic banking to integrate

well with the global Islamic banking industry.

To co-ordinate with other regulators/agencies to lay down the

foundation for a consolidated regulatory framework across all sectors of

Islamic Financial Services Industry

Current Status

As compared to our past experience our new approach provides flexibility to

the Islamic Banking Institutes (IBI’s). At the end of 2003, there was only one bank

operated as a full-fledged Islamic bank and three conventional banks were operating

Islamic banking branches.



Today there are 6 full fledge licensed Islamic banks (IBIs) and 12 conventional

banks have licenses to operate dedicated Islamic banking branches (IBBs). All of the

five big banks of Pakistan are providing Islamic banking services in their branches.

The total assets of the Islamic banking industry are over Rs. 225 billion.

The total branch network of this industry comprises of more than 330

branches with presence in over 50 cities & towns covering all the four provinces of

the country and AJK.

Stock 2003 2004 2005 2006 2007

Deposits 8379 30185 49932 83740 147361

Borrowings 1899 6559 9006 10843 15042

Capital 1994 5123 7811 16348 29526

Liabilities 625 2276 4745 8363 14017

Investments 1242 2007 1854 7328 30961

Cash & Bank

Balance1979 11900 19314 31358 38996

(Rs in Millions)

The SBP want to achieve the establishment of Islamic banking in the country as

a parallel banking system which is comparable and compatible with the conventional

banking system while being Shariah compliant.

Now the SBP is in continue working to built regulatory framework of different

standards of accounts in Islamic terms with the help of international bodies like IFSB,

AAOIFI and IIFM.



Banking Reforms in Pakistan

Introduction

We know that, a growing and dynamic banking sector is essential for economic

growth in Pakistan, as growth in the banking sector and the real economy are

mutually interlinked with each other. The banking sector constitutes the core of the

financial sector in Pakistan.

Pakistan’s banking industry and the broader financial sector has enormous

potential to support faster economic growth and development but in comparison

with other emerging market countries (EMCs), we have small growth in this sector.

In recent years, a wide range of important structural reforms already have

taken place but more reforms are needed for the banking sector to grow into its full

potential for supporting the strong and sustained economic growth and

development. These reforms are take place under the head of “The Banking Sector

Strategy” (BSS). The BSS focuses on reforms that the SBP has the power and

resources to implement or substantially influence in the economy.

The BSS has been developed by the SBP, which has full ownership of the

reform agenda. In developing the BSS, the SBP focus the international experience

through the technical assistance of Asian Development Bank (ADB), the International



Monetary Fund (IMF) and the Department for International Development (DFID) of

the United Kingdom.

Current Situation

The Pakistan’s financial system has

grown in recent years but continues to

have an enormous growth potential. Now

the banking sector has gained dynamism,

profitability, respectability and strength.

The deposit base rose to Rs. 4.1 trillion and

gross advances to Rs. 3.3 trillion. By the

support of growing financial

intermediation process, banks’ aggregate profitability raised Rs. 46 billion.

Vision and Objectives for BSS Reforms

We know that the financial sector growth and real economic growth are

directed to each other. The ratio of total financial assets to GDP is generally used as a

measure of financial sector, the higher ratio considered as the more support to

financial sector and vice versa. All of us are agreed that the substantial financial

growth is feasible only when the macroeconomic policies and financial incentives are

present in appropriate political, institutional, business and administrative conditions.

The specific targets by these reforms include increases in banking sector

financial assets and credit to the private sector. This credit expansion would be

mainly facilitated by growth in banking sector deposits, but also by development of

the private debt market.



Banking Sector Reforming Strategy

The SBP is now launching a 10 year Banking Sector Reform Strategy (BSS)

which has been depend upon on the following parameters as,

A comprehensive assessment and evaluation of the banking sector and the

broader financial system that has helped to handle the key issues and

limitations in the Pakistan Economy

To arrange the lectures, lessons & training workshop under the various abroad

economists, and get the experience from other countries as well as the

emerging regional and global financial architecture

Like other developing countries, the BSS has a vision to received technical

assistance from the ADB, UK DFID and the IMF

To changes in legislation regarding these reforms have been already in drafted

form, and legal amendments and new legislation will require the necessary

time for Cabinet review and endorsement

To regulate & supervised the banking sector by strengthening the SBP

independence and its powers to maintain monetary and financial stability;

with the help of updating legislation and regulations

To make the banking sector more responsive & reliable to fulfill the needs of

the economy in the way of rapid and sustainable economic growth,

innovation, competition, new product delivery channels, effective mobilization

of reserves and to enhance the private sector are included in this reform



To provide more infrastructures for financial intermediation in banking sector,

and also to the others sectors to increase their efficiency and reduced

uncertainty

The political stability and efficient policy-making environment are the key

elements for the macroeconomic growth; the fiscal policy and public debt

management are also supportive in expansion of financial sector

Equal Opportunities in SBPState Bank focuses on EEO a lot. Whenever new job opportunities arrive the

quota system is maintained for each and every province of Pakistan. The sub quota

consists of different demographic factors like:

Age

Gender

Different technological backgrounds

But there comes some reverse discrimination when there are some more

highly potential workforce is there but quota is completed. As far as age is concern, it

focuses on the experience of the workforce. State Bank has a mix of workforce with

diversified Ages and experience levels. In genders, females also have the quota but

due to the less female workforce in the market the quota level is very low for

females.



But now, in recent years the quota for females has been increased to almost

double. State Bank is a growing organization and requires employees qualified in

different specialized skills like:

Information Technology

Administration

Economics

Management

Finance

Sociology

And a lot more...



An Overall View on Pak-Economy

The economy of Pakistan is the 27th largest economy in the world in terms of

purchasing power. Pakistan has a semi-industrialized economy, which mainly

encompasses the textiles, chemicals, food

processing, agriculture and other

industries. The economy has suffered in

outgrowing parameters due to internal

political disputes. The currency in

Pakistan is Rupee {Rs. PKR} and 1 Rupee =

100 Paisa’s. The GDP growth ratio is 2.0%

(est.) with the 23% population which is

living below the poverty line. The labor

force of this up-growing economy is 49.18 Million with the unemployment rate of

7.5%.

The Public Debt of Pakistan is $ 45 Billion (Rs. 3802.5 Billions) and the revenues

of Pakistan Government are $ 27.5 Billions (Rs. 2323.75 Billions). The Governmental

Expenses are $ 35 Billions (Rs. 2957.50 Billions).


http://en.wikipedia.org/wiki/File:Pakistani_Rupee.jpg


Economic History

The Pakistan was a very poor and predominantly agricultural country when it

gained independence in 1947 from Britain. The average annual GDP growth rates

were 6.8% in the 1960s, 4.8% in the

1970s, and 6.5% in the 1980s. Then

this average annual growth fell to

4.6% in the 1990s and now we have

only 2.0%, really shameful.

In the regime of General Ayub

Khan (1960s), Pakistan was seen as

a model of economic development around the world. Especially, the Karachi was

seen as an economic role model around the world, and there was much praise for

the way its economy was progressing.

Later, the economic mismanagement and fiscally imprudent economic policies

caused a large increase in the country's public debt and led towards the slower

growth in the 1990s. The two wars with India adversely affected economic growth.

The great recession in the economic output occurs when the nationalizations

legislations were passed in mid-1970s. This recession were recovered during the

1980s via a policy of deregulation, as well as an increased inflow of foreign aid and

remittances from expatriate workers.



FY Year GDP (Rs. Millions) US $ Exchange Rate

1960 20,058 4.76 Pakistani Rupees




1985 569,11416.28 Pakistani

Rupees

1990 1,029,09321.41 Pakistani

Rupees

1995 2,268,46130.62 Pakistani

Rupees

2000 3,826,11151.64 Pakistani

Rupees

2005 6,581,103 59.86 Pakistani



Rupees

2009 3825315084.50 Pakistani

Rupees

The GDP growth was in the 6-8% range in 2004-06 due to economic reforms in

the year 2000 by the General Musharaf’s Government. In 2005, the World Bank

named Pakistan the top reformer in its region and in the top 10 reformers globally.

But fiscal deficit was also curse in the result of ineffective low tax collection and

increased spending; including the reconstruction costs from the devastating Kashmir

earthquake in 2005 was manageable.

Overall Current Situation

The Pakistan’s Government has made substantial economic reforms since

2000, and medium-term prospects for the job creation and poverty reduction are the

best in nearly a decade. The government revenues have greatly improved in recent

years, as a result of economic growth, tax reforms, self-assessment scheme and

corruption controls.

The liberalization process in the international textile trade has already yielded

the benefits for Pakistan's exports, and the country also expects to generate profit

from free trade in agriculture sector. The growing stability in the nation's monetary

policies has contributed to reduce the money market by which the interest rates as

well as great expansion are in control. In 2005, the World Bank reported that…!



"Pakistan was the top reformer in the region and the number 10 reformer

globally — making it easier to start a business, reducing the cost to register

property, increasing penalties for violating corporate governance rules, and

replacing a requirement to license every shipment with two-year duration

licenses for traders."

Stock Market of Pakistan

In the first four years of the 21st century, the Pakistan's KSE 100 Index was the

best-performing stock market index in the world as declared by the international

magazine “Business Week”. The stock market capitalization of listed companies in

Pakistan was valued at $ 5,937 million (Rs. 356220 Millions) in 2005 by the World

Bank. But in 2008, after the General Elections, uncertain political environment, rising

militancy along western borders of the country, and mounting the inflation and

current account deficits resulted in the steep decline of the KSE 100 Index. As a

result, the corporate sector of Pakistan has declined dramatically in significance in

recent times.

Manufacturing and Finance in Pakistan

The Pakistan's manufacturing sector has experienced double-digit growth in

recent years, from 2000 to 2007, with large-scale manufacturing growing from a



minimal 1.5% in 1999 to a record 19.9% in 2004-05. The Federal Bureau of Statistics

valued the finance and insurance sector at Rs. 311,741 millions in 2005.

Foreign Exchange Reserves of Pakistan

At the end of Prime Minister

Shaukat Aziz’s tenure (Oct 2007), the

Pakistan Foreign Reserves were rose

up to $ 16.4 Billions as record. But

after Oct 2008, the SBP reported that

country's foreign exchange reserves

had gone down by $ 571.9 Millions to

$ 7749.7 Millions. Now the foreign

exchange reserves had declined more

by $ 10 Billions to an alarming rate of

$ 6.59 Billions.

The Pakistani Nation have hop on Allah Almighty who gives us their blessings

and help us to become a unbearable economy of the world. (Amen)

Interest Structure by SBP



We know that interest is the major phenomena in any economy. The rate of

interest directly show the condition of economy because if the rate of interest is high

then the market face the depression or recession period in the economic activities or

if the rate of interest is low then the market abolish the boom or recovery period. In

the economy of Pakistan interest structure by SBP is not satisfactory in terms of

economics. Anyway, the brief analysis about interest (discount rate) structure in

Pakistan as that,

Term Rate (%age)

Oct 05, 2000 13.00

June 07, 2001 14.00

July 19, 2001 13.00

Aug 17, 2001 12.00

Oct 22, 2001 10.00

Jan 23, 2002 9.00

Nov 18, 2002 7.50

April 11, 2005 9.00

July 22, 2006 9.50

Aug 01, 2007 10.00

Feb 02, 2008 10.50

May 23, 2008 12.00

July 30, 2008 13.00

Nov 13, 2008 15.00

April 21, 2009 14.00

Aug 17, 2009 13.00



Nov 25, 2009 12.50

By this analysis we get conclusion that SBP is not in good direction for the

betterment of Economy. We commonly observes that 12.5% is a huge discount rate

for developing economy, but now government wants to fall the rate of interest in the

economy to boost up the economic activities in the country.

Tax Collection by SBP

The tax collection by the SBP is appreciating step because SBP is only one

monetary organization in the Pakistan who take over all the monetary issues in very

efficient manners.

The Federal Board of Revenue

(FBR) is the tax authority in Pakistan,

who has ability to imposed tax on each

& every citizens in terms of law. From

all over the Pakistan, SBP collects the

taxation amount and provide to

government & others institutions for

their expenditures.



So, the taxation collection task is good in the hands of SBP. The tax collection

in previous terms is as below,

Period Direct Tax Sales Tax Excise TaxCustom

Duty

Total

Revenue

(FY) (M Rupees) (M Rupees) (M Rupees) (M Rupees) (M Rupees)

2000-01 124585 153656 49080 65047 392277

2001-02 142505 166561 47186 47818 404070

2002-03 151898 195139 44754 68836 460627

2003-04 165079 219167 45552 91045 520843



2004-05 183372 238537 53104 115374 590387

2005-06 224988 294798 55272 138384 713442

2006-07 333737 309396 71804 132299 847236

2007-08 387487 376930 92185 150579 1007181

2008-09

(est.)440271 452294 116055 148382 1157002

Real GDP Rate of Pakistan

We know that Real Gross Domestic Product Rate is the growth rate of the

country which explains the total production & consumption in the economy in very

short value. The GDP of Pakistan-Economy is good but satisfactory according to the

international levels, we considered as the consumption economy not a productive

economy.

GDP

Growth

2003

-

2004

2004

-

2005

2005

-

2006

2006

-

2007

2007

-

2008

2008

-

2009

Agriculture 964853 1027403 1092098 1137037 1149270 1203308



Industry 1076808 1207268 1256827 1367532 1390810 1341031

Services 2173947 2358559 2511551 2687140 2864406 2968106

Total GDP 4215608 4593230 4860476 5191709 5404486 5512445

The Total GDP includes the all sectors of the economy. (M Rs)

Total Deposits & Advances in Pakistan

Year Deposits Advances

2002 1532168 1000331

2003 1793176 1169986

2004 2161098 1589870

2005 2661697 2043982

2006 2999895 2409478



2007 3565537 2651173

2008 3801411 3141028

2009 4161958 (Aug) 3154737 (Aug)

(Rs. In Millions)

Inflation – The Curse

Year Food ItemsNon-Food

Items

Overall Core

Inflation

2000 0.6 2.9 -

2001 3.0 9.1 -

2002 0.9 1.5 -

2003 3.5 7.1 -



2004 7.0 8.6 3.9

2005 10.7 4.0 8.8

2006 7.0 12.4 7.0

2007 8.9 5.6 6.9

2008 19.0 14.6 10.2

2009 23.2 14.4 19.2

Economy is Still Fragile…!

Karachi, Pakistan.

November 24, 2009.

The Governor, SBP Syed Salim Raza said,

“Although the inflation and current account deficit have come down and the

economy continues to be fragile. The tight monetary stance has helped bring down

inflation from the peak of 25.3% (Aug 08) to 13.1% (June 09) and the current deficit

account shrunk as percentage of GDP last fiscal year.

These positive developments need to be viewed with caution, however, given

that the economy continues to be

fragile, and an assessment of the

balance of risks continues to present a



mixed picture. Because according to the stabilization measures, the fiscal deficit was

substantially contained at 5.2% of GDP in FY 2008-09 down from 7.4% in previous

years on back of elimination of subsidies as well as a cut in development

expenditure.

The step to transfer the responsibility to decide the cut-off yields of T-bills and

PIBs was shifted to the Ministry of Finance was taken to communicate that changes

in the cut-off rate are not reflective of the monetary policy stance, while allowing

SBP to focus on liquidity management consistent with the requirements of monetary

policy implementation.

In response to the changing the economic and business cycle, the central bank

also stepped in to facilitate the banking sector by rationalizing the minimum capital

requirements to Rs. 10 billions, to be implemented in a phased manner by December

2010, and allowing the use of 30% of the Forced-Sale Value of collateral”.

We know that in November 2008, the SBP also announced interim monetary

policy measures which cause the uncertain and rapidly changes in the

macroeconomic environment. Due to this growth, the SBP decided to increase the

frequency of its monetary policy statements in January 2009. To further enhance the

transparency and credibility of the monetary policy formulation process, the SBP

constituted an independent Monetary Policy Committee (MPC) consisting of both

internal and external members.

In January 2009, the responsibility of deciding the cut-off yields in the primary

auctions of Treasury Bills (T-bills) and Pakistan Investment Bonds (PIBs) was shifted

to the Ministry of Finance, while SBP’s role was to manage the operational aspect of

the auctions.



Electronic Bond Trading System

Mr. Syed Salim Raza, Governor

SBP has said that the central bank

intends to introduce an electronic

bond trading platform early next

year. This will provide investors real‐

time information about market yields

resulting in enhanced liquidity and

the better price discovery in the

fixed income market. ‐

By delivering a keynote address on “Developing the Next Generation Capital &

Commodity Markets Ecosystem in Pakistan” at the “South Asian Federation of

Exchanges (SAFE) Country Roundtable” held in Karachi.

Mr. Raza said that in the initial stage only sovereign paper will be traded on

the platform resulting in a liquid sovereign yield curve that would provide better

representative of benchmarks for issuance of the corporate debt instruments. This

platform will also help in shifting government debt from banks to other institutional

investors thus freeing up funds for private sector credit hence facilitating the

development of real economy.



The State Bank during the last decade has been at the forefront of broadening

not only the investment instruments and risk management tools but also supporting

the broadening of the participants that have a need to use these to address their

investment mandates.

He further said the he believes that there is a room to accommodate more

investor groups in the local currency Government Debt program and one such group

might consist of investors currently accessing the National Savings Scheme (NSS).

Mr. Raza said that SBP feels that financial institutions have a significant role to

play to by taking on the role of financial advisors to the public in general. This would

include selecting the appropriate mix of asset classes, setting the liquidity/maturity

targets, tax planning services and provide their services of financial intermediation to

enable them to invest and rebalance their retirement/investment portfolios

periodically.

Mr. Raza stressed that the State Bank has played a role in supporting the price

risk management activities by allowing the banks to provide financial intermediation

in the currency & commodities hedging, interest rate risk management, etc. and

would continue to do so as institutional activity evolves.

Mr. Raza said the key advantage of having institutions like National

Commodities Exchange would be to provide price discovery and marking to market

taking place in local time zone rather than having to hedge price risk in European,

Asian or American time zone. “It is expected that technological innovation would be

at the forefront of such development, introducing transparent electronic trading and

mechanism to minimize the resultant settlement and price risk.



Current Situation of SBP

According to Dawn News, the SBP has consolidated accounts of FY 2009-10

with profit of Rs. 204.2 Billions from the last FY 2008-09 with the profit value of Rs.

164.8 Billions. The net discount and interest earnings are only 61% of the total profit

in FY 09 year. In FY09, the share of interest earnings in total profits raised to 85.6%

which showing huge increase in profitability. This huge profit has been appears only

due to the high interest rates the SBP charged without any enhanced operational

efficiency in the economy.

The other major source of income

for SBP in this huge gain is depending

upon the daily exchange transactions.

Because the total foreign currency

reserves of the SBP rose from Rs 636.3

Billions in FY 08 to Rs 808.2 Billions in

FY 09. Thus the rate of return on the

SBP’s foreign reserves fell from 9.8%

in FY 08 to 3.9% in FY 09. A major



cause of such a decline was the dramatic rise in the share of currency accounts in the

SBP reserves portfolio.

The investments reserves fell from Rs. 241.9 Billions in FY 08 to Rs. 138.8

Billions in FY 09. These investments held to maturity with relatively high expected

return which has been totally eliminated falling from Rs. 1.7 Billions in FY 08 to zero

in FY 09. The switch from investment to currency accounts during FY 09 is quite

inexplicable. It is clear that the SBP’s capability of management of foreign currency

reserves is meager.

During FY 07-09, there are 63 Involuntary Separations have been instituted in

the economy. In addition, there have been about 200 Voluntary Separations. The

promotions have been fallen from 119 in FY 08 to just 55 in FY 09.

The analysis of the SBP’s Profit and Loss Statement (P & L a/c) for FY 2009 does

not reveal any evidence of SBP efficiency. The SBP is right to point out that a large

proportion of the decline in foreign exchange earnings is due to payments to the

IMF. IMF financing is undoubtedly becoming exploitative but the SBP also made a

large loss on open market operations and placements earnings declined significantly.



The Fragile Monetary Policy by SBP

According to Dawn News, the IMF has

mandated that legislation must be

introduced during fiscal 2010 to strengthen

the SBP’s enforcement powers in banking

supervision under the Standby Agreement

2009-14. By the IMF schedule, the SBP has

responded by removing all cash margin

requirements on letters of credit.

Further, the institutions of “corridor for overnight money market rates” are

bound on 300 basic points to ensure that the prevalence of high interest rates in the

inter-bank market and creation of an “Independent Monetary Committee”. The SBP

has complied with all these demands.

We saw an actual practice; the SBP’s Monetary Policy Statement of October

2009 was a virtual photocopy of the relevant paragraphs of the IMF’s document.

Now the SBP is no longer free to establish its own monetary policy targets for Pak-

Economy.



The IMF mandates that SBP’s primary monetary policy objective is to reduce

the inflation with strengthen the international reserve position and to avoid SBP

financing of the budget deficit. The SBP is also ordered not to lower its policy rate

during FY 2009-10. Any further reduction in the policy rate will await a significant and

sustained decline in core inflation.

The SBP is also instructed to pursue a flexible exchange rate policy in the

foreign exchange market mainly to achieve the targets. The SBP has also agreed to

adopt “IMF’s Problem Bank Management and Contingency Plan” and the Fund is

planning to undertake a comprehensive safeguards assessment of the SBP, especially

its internal control and risk management systems soon.

The government expenditure is to be expected at 19% of GDP and

development expenditure at 22% of the total public expenditure during the 2009 to

2014 period. The health and public education sector will continue to be grossly

neglected.

The pitiable situation is that the SBP’s fix inflation deceleration at specific rate.

Its means that the inflation for highest the income group is not sufficient but the

pitiable for monthly income level of Rs. 5,000 or less.

According to recent research by IMF the interest rate impulse shocks have

virtually no impact on output and price changes in Pakistan. This empirical work has

shown that the savings have very low interest elasticity and investment response to

interest rate changes is unpredictable.

So we conclude that the monetary policy initiatives by IMF have failed in every

respect. They have been ineffective in reducing inflation and have restricted



employment and productivity growth in the economy. The acceptance of IMF over-

lordship by the SBP has been a total and unmitigated disaster.

ConclusionFrom all our discussion we commonly concluded that

the State Bank of Pakistan is not an independent

organization under the hidden supervision of Federal

Government & others international monetary organizations.

Our contracts from these international organizations are the

hurdles for the independent and well-effected monetary

policy. We should get the advice of SBP and other important

institutions of the Pakistan Economy to enter into any

contract. Our great country has all the resources but not

efficient management and effective plans for the long-term

strategies.



Bibliography

By the Internet means,

Microsoft Encarta Encyclopedia 2005

Google Search Engine

Wikipedia Search Engine

The official Web of SBP {www.sbp.gov.pk}

Latest Economic Survey of Pakistan

Dawn News Network

The official Web of Reserve Bank of India {www.rbi.gov.in}

The official Web of IMF

By the Books Material,



“Issues in Pakistan’s Economy” by S. Akbar Zaidi

“Money Banking & Finance” by M. Saeed Nasir

“Money, Banking and Financial Markets” by Stephen G. Cecchetti

“The Business of Banking” by Geoffrey Lipscombe & Keith Pond

“Money & Banking” by Dudley G. Luckett

‘Bank Management & Financial Services” by Peter S. Rose& Sylvia C. Hudgins
