Yaseen Anwar: Role of Financial Institutions and Capital Markets in Pakistan's Economy
Yaseen Anwar: Role of Financial Institutions and Capital Markets in Pakistan's Economy
Pakistan’s economy
Speech by Mr Yaseen Anwar, Governor of the State Bank of Pakistan, at the PAF Air War
College, Karachi, 21 December 2011.
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The Commandant PAF Air War College, Members of the Faculty and the Future Leaders of
the Armed Forces
I am delighted to be invited by the PAF Air War College which is one of our premier
institutions of the armed forces of Pakistan, to share my views on the Role of Financial
Institutions and Capital Markets in the Pakistan Economy.
The importance of Financial Institutions (FIs) cannot be overemphasized. FIs perform the
vital function of intermediation between providers of investable funds (depositors, securities
holders etc) and the users of such funds (namely businesses). No economy can progress
unless its financial sector facilitates its business activity consistently, and in the case of a
developing country like Pakistan, these FIs act as a necessary catalyst for economic growth
as well.
The State Bank of Pakistan, as the central bank of a developing country, has played two very
critical roles with respect to the financial sector. Firstly it ensures soundness of banks and
DFIs through prudential oversight with a view to maintain financial stability; secondly it
pursues a developmental objective under which it facilitates financial markets developments
and enhancement of access to finance. Over the years much has been accomplished, yet a
lot more is yet to be achieved.
The banking system, which constitutes 88 percent share of the total financial sector, is
comprised of 34 commercial banks and 4 specialized banks. The share of non-bank financial
institutions is approximately 12 percent, and includes leasing companies, Mudarabas,
insurance companies, investment banks, housing finance companies, venture capital
companies, and mutual funds. The Banking sector of an economy is generally the most
significant player and performs three primary functions which include the facilitation of the
payment system, mobilization of savings, and allocation of loanable funds. By virtue of its
pivotal role, the banking sector can exert its positive influence on various other segments of
the economy.
During the course of my speech, I would be giving you a historical perspective of the
development of financial sector in Pakistan, followed by a discussion of challenges and
opportunities of present scenario. Finally, I would like to share with you our priorities related
to the banking sector for the future to come.
Historical perspective
The current structure of the financial sector in Pakistan is the result of several policy shifts
and developments. The eras of financial sector developments in Pakistan can broadly be
segregated into 1947–70, 1971–90 and 1991 to date period. Prior to 1971, the primary focus
was on developing commercial banks in the private sector and creating development finance
institutions backed by the government. The private sector development, however, almost
clogged during the period 1971–1990, owing to the nationalization policy of the government.
During this period, the banking sector came under the government’s control. Since 1990s,
more liberal and market-based reforms have been followed.