Banking system in Pakistan

The trend of loan advances on political consideration and practices of professional dishonesty were at their height during 1980-90. Although the five nationalized commercial banks showed some progress in the early years of privatization because merger of small banks into a single entity and the expansion in bank operations for the benefit of the people living in the remote and rural areas of the country, yet the expansion in banking network proved counter productive later on as the branches operating in smaller areas started showing losses during 1970-80. The Pakistan Banking Council which was supposed to monitor banking sector decided to close down the operations of the bank branches running in losses which ultimately affected growth of the banking sector in 1980s as compared to the growth achieved in 70s. It is worth mentioning that after privatization, the banking sector continued to experience the ups and downs and failed to achieve a sustainable growth rate due to excessive politicization in the financial sector. From 1974, which was the year of privatization, and 1977 the size of the bank deposits were doubled, however this pace of growth became stagnant during 1977-80. The next five year from 1980 to '85 showed some improvement but again suffered a slow growth rate from 1985 to 1988. It was in 1990 when the wheel of banking sector started in reverse direction when Nawaz Sharif government privatized two public sector banks. First of them was Muslim Commercial Bank (MCB) which was handed over to Mian Mansha of Lahore comparatively at a lower bid. After privatization of MCB, Hussain Lawai, a thorough professional was assigned the task as the chief executive of that bank. Unfortunately, Hussain Lawai, who had started his career from MCB, tried to have close association with the top ranking politicians in the country and allegedly pleased them by offering undue advances and violated prudential banking rules. His association with politicians of a particular party brought a stigma on his professional expertise as he was found guilty when the caretaker government came into power. Hussain Lawai somehow or the other managed to leave Pakistan. After his leaving of the country, Mian Mansha, who was the chairman of the bank, also took over charge of the Chief Executive of the bank. The other bank privatized by Nawaz Sharif government was the Allied Bank. It was sold to the employees and the executives of that bank. This exercise created some problems in the bank and the names of two chief executives of the Allied Bank started appearing in the newspapers off and on. They had to face some legal issues and litigations. According to current situation, National Bank is moving towards the status of first position instead of the Habib Bank. The government in order to improve situation at Habib Bank has appointed a professional from Citibank as the president of Habib Bank. On the other hand, the United Bank which always showed remarkable profits had to suffer losses during 1995 for the first time in its history. The facts and figures stated above indicate that the privatized banks have shown better performance as compared to rest of the three banks running in the public sector. The better performance shown by the privatized banks are attributed to their aggressive marketing and banking policies. However some professionals are expressing doubts about sustainability of their banking operations. The patriots are of the view that the remaining banks in the public sector will not be handed over to the foreigners as a result of privatization process being carried out by the government. The government has recently privatized the Habib Credit and Exchange Bank formerly a part of BCCI to the Al-Nayhan group of United Arab Emirates.

Losses on Bad Loans

During the 1960s and 1970s, light industry expanded rapidly especially textiles, sugar refining, fertilizers, and other manufactures derived from local raw materials. Large government investments in the 1970s established the country's first large-scale ship-building and steel milling operations; the production of chemical fertilizers was also given special government support. The Pakistan Industrial Development Corp., established in the early 1980s with IDA credit, developed industrial estates for small- and medium-scale industries, assisting their occupants in obtaining credit, raw materials, technical and managerial assistance, access to production facilities, as well as marketing support. Despite steady overall industrial growth during the 1980s, the sector remains concentrated in cotton processing, textiles, food processing and petroleum refining. The 1973 nationalization program, which placed 10 basic industries wholly within the public sector, was reversed in 1991 with the enactment of an ambitious privatization program. In 1992, the government began auctioning off majority control in nearly all public sector industrial enterprises, including those manufacturing chemicals, fertilizers, engineering products, petroleum products, cement, automobiles, and other industrial products requiring a high level of capital investment, to private investors. In 1995, however, the speed of privatization began to slow as the sale of some large state-owned units were stalled and postponed. In 2002, the public industrial sector, under the Production Wing of the Ministry of Industries and Production consisted of eight public holding companiesPakistan Steel, the State Cement Corporation (PACO), Federal Chemical and Ceramics Corporation (FCCC), State Petroleum Refining and Petrochemical Corporation (PERAC), State Engineering Corporation (SEC), the Pakistan Industrial Development Corporation (PIDC), the state fertilizer corporation and Pakistan Automobile Corporation. The majority of the 74 production enterprises controlled by these holding companies have been privatized, and most of those remaining are scheduled to be sold. The public sector continues to dominate in steel, heavy engineering, automobiles, petroleum and defense-related production. Cotton textile production is the most important of Pakistan's industries, accounting for about 19% of large-scale industrial employment, and 60% of total exports in 2000/01. Pakistan has become self-sufficient in cotton fabrics and exports substantial quantities. Some long and extra-long staple cotton is imported to meet demand for finer cottons. About 80% of the textile industry is based on cotton, but factories also produce synthetic fabrics, worsted yarn and jute textiles. Jute textile output amounted to 70,100 tons in 1999/00. The textile industry as a whole employs about 38% of the industrial work force, accounts for 8.5% of GDP, 31% of total investment, and 27% of industrial value-added. Other important industries include food processing, chemicals manufacture, and the iron and steel industries. Food processing is considered Pakistan's largest industry, accounting for slightly more than 27 of value-added production. Pakistan Steel, the country's only integrated steel mill, employs about 14,500 workers and has an annual production capacity of 1.1 million tons. The government plans to expand the mill's annual capacity to 3 million tons. Pakistan Steel produces coke, pig iron, billets, hot and cold rolled coils and sheets, and galvanized sheets. In June 1999, the first tin-plating plant began operation, a joint venture with Japan. Pakistan has ten fertilizer plants, six state-owned and four private, with a total annual production capacity of 4.65 million tons. Production in 2000/01 was 3.66 million tons, up 10.5% from 1999/00. There are 21 cement plants, four stateowned and 17 private, with an annual production capacity of 19.2 million tons. Production in 1999/00 was 9.9 million tons., up 4% from 1999/98. Pakistan's chemical industry produces an number of basic chemicals used in its other industries, including soda ash, caustic soda and sulfuric acid. Industrial output from other major industries also includes refined sugar, vegetable ghee, urea, rubber tubes, electric motors, electrical consumer products (light bulbs, air conditioners, fans refrigerators, freezers, TV sets, radios, and sewing machines), and pharmaceuticals. Zia ul Haq period 1977-88. The reversal of state role under Islamic Capitalization The focus of economic policy under Zia regime (1977-88)

was an attempt at market- friendly deregulation and liberalization of economy besides, besides promoting healthy relation ship between public and private sector. The main aim of Zia policy is to encourage private sector investment through trade and industrial policies. Economic policies provided additional export incentives, focused on the need of flexible exchange rate management and improve the climate for private sector both in agriculture and industry by removing political uncertainty and reducing the role of state in price fixing.

Role of Entrepreneurship in Economic Development of Pakistan

Entrepreneurship spurs improvements in productivity and economic competitiveness, and with technological advances and economic liberalization, the assumption that fostering entrepreneurship means promoting a country's competitiveness today appears more valid than ever. Entrepreneurship development has the potential to create jobs through the formation of new business ventures; utilization of available labor and resources to create wealth, stimulate growth, boost the economy and increases a nation's GDP, and reducing dependence on social welfare programs. Pakistan ranks 101 amongst 134 countries based on several pillars determining competitiveness, according to Global Competitiveness Index. Factors for such traditionally low levels of entrepreneurial drive lie within our culture, bureaucracy, financial hurdles and academic perceptions of entrepreneurship. Entrepreneurship is equated with small and cottage industries; there is a stigma with failure and a general resistance to new ideas; businesses are rooted in traditional and low valueadded sectors such as textiles, rice and leather. Also, younger business communities, often educated abroad, do not have the requisite experience or financing to establish businesses, family-owned businesses are slow to adopt professional modes of management; business culture is excessively male dominated with very few women entrepreneurs or business heads. Other factors include corruption at practically all levels, high taxes and stringent government regulation creating unnecessary hurdles for entrepreneurial businesses. On the private sector front, multinational corporations and international banks have rapidly expanded their presence and they provide good, salaried opportunities to young professionals. Other hurdles towards establishing independent businesses include financial barriers to entry. The venture capital industry is almost absent in Pakistan. Despite reforms initiated by the State Bank of Pakistan, access to equity and formal debt financing have not improved. Access to finance is a recurring constraint to enterprise development in Pakistan, especially in the case of new and small enterprises. Given the weak, scattered and excessively academic focus on entrepreneurship teaching, societal and cultural views along with excessive government and financial hurdles a huge opportunity exists for an institution that can educate, advocate, enable and encourage independence and innovation. The educated, young, and emerging entrepreneurs need to take the lead and be encouraged to become the vanguard of Pakistans economic growth. Many international surveys rank Pakistan was one of the most corrupt countries in the world. Entrepreneurs are cautioned. Although it has strong potential to be an entrepreneurial nation, there are certain problems that prevent it from being so. The first is the entrepreneurs effort to become wealthy overnight, without having to move up the ladder gradually. This overconfidence and lack of understanding for proper business techniques causes the demise of many entrepreneurial ventures. The second issue that is preventing entrepreneurial growth in Pakistan is that the women are not given the opportunity to start a venture and nurture it into a successful business. Women are looked as the food-makers rather than the food-earners. However, research does show that those women who have been given the chance and the proper resources have worked to become strong entrepreneurs. As an increasing number of women are fighting for their right to enter into the business world, entrepreneurship amongst women is giving rise to some excellent business ventures.Why Countries are poor even they are rich in resources:-This question gives us the answer that why an entrepreneur is called a rent-seeker. People

choose occupations with highest private returns. The ablest people choose occupations with increasing returns to ability. What determines the attractiveness of an occupatio n to talent?1) The market size2) Diminishing returns to scale (firm size)3) The compensation contract . Pakistans economy is facing numerous challenges, including twin deficits - current account deficit and fiscal deficit - as well as stagnant exports, tax revenues and almost a halted privatization process. Inflation is another big challenge for the upcoming economic managers and improving the supply side coupled with better management can reduce woes on this front. Pakistan is an agricultural country as 75% of its population relies on agriculture. Remaining 25% are workers, industrialists, government officials etc. Currently government is trying to improve the system of tax collection. As far as local industrys production is concern, it is struggling due to several reasons. The main reason behind it is current energy crisis in Pakistan. Due to this crisis local products are very expensive. This created a big gap for countries like China who are capable of taking full advantage of this gap. Due to the increase in prices inflation rate is increasing. This results in the form of currency devaluation. One would say that, currency devaluation would result in increase the export and exporter would earn more revenue. There is another threat to its economy that is terrorism. It is preventing foreign investors from investing in Pakistan which is slowing down the economys growth. This threat is also affecting one more area which is tourism. Pakistan has a lot of potential in tourism department but, it is lagging behind due to this threat. This threat is not limited to Pakistan. It has struck its neighboring country Afghanistan. Afghanistan has no infrastructure. There is a lot of development going on in there. This is a very good opportunity for Pakistans economy.