Role of Commercial Banks in Developing The Economy of Pakistan

2nd Assignment
Role of Commercial Banks in Developing the Economy of Pakistan
ALLAMA IQBAL OPEN UNIVERSITY

(Department of Business Administration)
Assignment # 2
Banking Law and Practice (5548)
TOPIC: ROLE OF COMMERCIAL BANKS IN DEVELOPING

THE ECONOMY OF PAKISTAN
Submitted to: Sir Kamran Mehmood
Submitted by: Ishtiaq Ahmed
AH-526270
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Acknowledgement
All praises to Almighty Allah, the most Gracious, the most Beneficent and the most
Merciful, who enabled me to complete this assignment.
I feel great pleasure in expressing my since gratitude to my teacher, for his guidance
and support for providing me an opportunity to complete my Project.
My special thanks and acknowledgments to Mr. Zeeshan for providing me all relative
information, guidance and support to compile the practical study at MCB.
I will keep my hopes alive for the success of given task to submit this report to my
honorable teacher Sir Kamran Mehmood, whose guidance; support and
encouragement enable me to complete this assignment.
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Executive Summary
“A bank is a financial institution and a financial intermediary that accepts deposits

and channels those deposits into lending activities, either directly or through capital
markets” The word bank was borrowed in Middle English from Middle French
banque, from Old Italian banca, from Old High German banc, bank "bench, counter".
“A commercial bank (or business bank) is a type of financial institution and

intermediary. It is a bank that provides transactional, savings, and money market
accounts and that accepts time deposits.”
Commercial Bank is a back bone for any country. They play important role in the
development of that country. Commercial banks perform a lot of function and
provide many services for their customers.
MCB is one of the largest banks of Pakistan, founded in 1947. It is supported by a

strong Mian Mansha group. Muslim commercial Bank is playing an important role in
the developing economy of Pakistan. But there are still some weaknesses in its
system that can be taking some strong Steps.
Table of Contents
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Contents Page No
1. Title page 01
2. Acknowledgement 02
3. Executive Summary 03
4. Table of contents 04
5. Introduction to the topic 05
6. Practical study of organization 22
7. Practical study of organization with respect to the issue 25

8. SWOT analysis 14
9. Recommendations 35
10.Conclusion 36
11.References 37
Introduction to Topic
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Bank
“A bank is a financial institution and a financial intermediary that accepts deposits

and channels those deposits into lending activities, either directly or through capital
markets”
Due to their critical status within the financial system and the economy generally,
banks are highly regulated in most countries. Most banks operate under a system
known as fractional reserve banking where they hold only a small reserve of the
funds deposited and lend out the rest for profit. They are generally subject to
minimum capital requirements which are based on an international set of capital
standards, known as the Basel Accords.
Origin of the word:
The word bank was borrowed in Middle English from Middle French banque, from
Old Italian banca, from Old High German banc, bank "bench, counter". Benches were
used as desks or exchange counters during the Renaissance by Florentine bankers,
who used to make their transactions atop desks covered by green tablecloths.
One of the oldest items found showing money-changing activity is a silver Greek
drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern
Trabzon, c. 350–325 BC, presented in the British Museum in London. The coin shows
a banker's table (trapeza) laden with coins, a pun on the name of the city. In fact,
even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a
bank.
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History:
Banking in the modern sense of the word can be traced to medieval and early
Renaissance Italy, to the rich cities in the north like Florence, Venice and Genoa. The
Bardi and Peruzzi families dominated banking in 14th century Florence, establishing
branches in many other parts of Europe. Perhaps the most famous Italian bank was
the Medici bank, set up by Giovanni Medici in 1397. The earliest known state deposit
bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy.
Types of banks
Banks' activities can be divided into retail banking, dealing directly with individuals
and small businesses; business banking, providing services to mid-market business;
corporate banking, directed at large business entities; private banking, providing
wealth management services to high net worth individuals and families; and
investment banking, relating to activities on the financial markets. Most banks are
profit-making, private enterprises. However, some are owned by government, or are
non-profit organizations.
A. Types of retail banks

1. Commercial bank: the term used for a normal bank to distinguish it from an
investment bank. After the Great Depression, the U.S. Congress required that
banks only engage in banking activities, whereas investment banks were
limited to capital market activities. Since the two no longer have to be under
separate ownership, some use the term "commercial bank" to refer to a bank
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or a division of a bank that mostly deals with deposits and loans from
corporations or large businesses.
2. Community banks: locally operated financial institutions that empower
employees to make local decisions to serve their customers and the partners.
3. Community development banks: regulated banks that provide financial
services and credit to under-served markets or populations.
4. Credit unions: not-for-profit cooperatives owned by the depositors and often
offering rates more favorable than for-profit banks. Typically, membership is
restricted to employees of a particular company, residents of a defined
neighborhood, members of a certain labor union or religious organizations,
and their immediate families.
5. Postal savings banks: savings banks associated with national postal systems.
6. Private Banks: banks that manage the assets of high net worth individuals.
Historically a minimum of USD 1 million was required to open an account;
however, over the last years many private banks have lowered their entry
hurdles to USD 250,000 for private investors.
7. Offshore banks: banks located in jurisdictions with low taxation and
regulation. Many offshore banks are essentially private banks.
8. Savings bank: in Europe, savings banks took their roots in the 19th or
sometimes even in the 18th century. Their original objective was to provide
easily accessible savings products to all strata of the population. In some
countries, savings banks were created on public initiative; in others, socially
committed individuals created foundations to put in place the necessary
infrastructure. Nowadays, European savings banks have kept their focus on
retail banking: payments, savings products, credits and insurances for
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individuals or small and medium-sized enterprises. Apart from this retail focus,
they also differ from commercial banks by their broadly decentralized
distribution network, providing local and regional outreach—and by their
socially responsible approach to business and society.
9. Building societies and Landesbanks: institutions that conduct retail
banking.
10. Ethical banks: banks that prioritize the transparency of all operations
and make only what they consider to be socially-responsible investments.
B. Types of investment banks
Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade
for their own accounts, make markets, and advise corporations on capital market
activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade finance. The
modern definition, however, refers to banks which provide capital to firms in the
form of shares rather than loans. Unlike venture capital firms, they tend not to invest
in new companies.
C. Both combined
Universal banks, more commonly known as financial services companies, engage in

several of these activities. These big banks are very diversified groups that, among
other services, also distribute insurance— hence the term bancassurance, a
portmanteau word combining "banque or bank" and "assurance", signifying that
both banking and insurance are provided by the same corporate entity.
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D. Other types of banks
Central banks are normally government-owned and charged with quasi-regulatory

responsibilities, such as supervising commercial banks, or controlling the cash
interest rate. They generally provide liquidity to the banking system and act as the
lender of last resort in event of a crisis.
Islamic banks adhere to the concepts of Islamic law. This form of banking revolves
around several well-established principles based on Islamic canons. All banking
activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank
earns profit (markup) and fees on the financing facilities that it extends to customers.
Commercial bank
“A commercial bank (or business bank) is a type of financial institution and

intermediary. It is a bank that provides transactional, savings, and money market
accounts and that accepts time deposits.”
Origin of the word:
The name bank derives from the Italian word banco "desk/bench", used during the
Renaissance by Florentine bankers, who used to make their transactions above a desk
covered by a green tablecloth. However, traces of banking activity can be found even
in ancient times.
In fact, the word traces its origins back to the Ancient Roman Empire, where
moneylenders would set up their stalls in the middle of enclosed courtyards called
macella on a long bench called a bancu, from which the words banco and bank are
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derived. As a moneychanger, the merchant at the bancu did not so much invest
money as merely convert the foreign currency into the only legal tender in Rome –
that of the Imperial Mint.
The role of commercial banks
Commercial banks engage in the following activities:
 Processing of payments by way of telegraphic transfer, EFTPOS, internet
banking, or other means.

 Issuing bank drafts and bank cheques.
 Accepting money on term deposit.
 Lending money by overdraft, installment loan, or other means.
 Providing documentary and standby letter of credit, guarantees, performance
bonds, securities underwriting commitments and other forms of off balance

sheet exposures.
 Safekeeping of documents and other items in safe deposit boxes.
 Sales/distribution or brokerage, with or without advice, of insurance, unit
trusts and similar financial products as a “financial supermarket”.

 Cash management and treasury.
 Merchant banking and private equity financing.
Traditionally, large commercial banks also underwrite bonds, and make markets in
currency, interest rates, and credit-related securities, but today large commercial
banks usually have an investment bank arm that is involved in the mentioned
activities.
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Types of loans granted by commercial banks”
1. Secured loan
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or
property) as collateral for the loan, which then becomes a secured debt owed to the
creditor who gives the loan. The debt is thus secured against the collateral — in the
event that the borrower defaults, the creditor takes possession of the asset used as
collateral and may sell it to regain some or all of the amount originally lent to the
borrower, for example, foreclosure of a home. From the creditor's perspective this is
a category of debt in which a lender has been granted a portion of the bundle of
rights to specified property. If the sale of the collateral does not raise enough money
to pay off the debt, the creditor can often obtain a deficiency judgment against the
borrower for the remaining amount. The opposite of secured debt/loan is unsecured
debt, which is not connected to any specific piece of property and instead the
creditor may only satisfy the debt against the borrower rather than the borrower's
collateral and the borrower.
2. Mortgage loan
A mortgage loan is a very common type of debt instrument, used to purchase real
estate. Under this arrangement, the money is used to purchase the property.
Commercial banks, however, are given security - a lien on the title to the house - until
the mortgage is paid off in full. If the borrower defaults on the loan, the bank would
have the legal right to repossess the house and sell it, to recover sums owing to it.
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In the past, commercial banks have not been greatly interested in real estate loans
and have placed only a relatively small percentage of assets in mortgages. As their
name implies, such financial institutions secured their earning primarily from
commercial and consumer loans and left the major task of home financing to others.
However, due to changes in banking laws and policies, commercial banks are
increasingly active in home financing.
Changes in banking laws now allow commercial banks to make home mortgage loans
on a more liberal basis than ever before. In acquiring mortgages on real estate, these
institutions follow two main practices. First, some of the banks maintain active and
well-organized departments whose primary function is to compete actively for real
estate loans. In areas lacking specialized real estate financial institutions, these banks
become the source for residential and farm mortgage loans. Second, the banks
acquire mortgages by simply purchasing them from mortgage bankers or dealers.
In addition, dealer service companies, which were originally used to obtain car loans
for permanent lenders such as commercial banks, wanted to broaden their activity
beyond their local area. In recent years, however, such companies have concentrated
on acquiring mobile home loans in volume for both commercial banks and savings
and loan associations. Service companies obtain these loans from retail dealers,
usually on a nonrecourse basis. Almost all bank/service company agreements contain
a credit insurance policy that protects the lender if the consumer defaults.
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3. Unsecured loan
[Unsecured Loans] are monetary loans that are not secured against the borrower's
assets (i.e., no collateral is involved). These may be available from financial
institutions under many different guises or marketing packages:
Bank overdrafts:
An overdraft occurs when money is withdrawn from a bank account and the available
balance goes below zero. In this situation the account is said to be "overdrawn". If
there is a prior agreement with the account provider for an overdraft, and the
amount overdrawn is within the authorized overdraft limit, then interest is normally
charged at the agreed rate. If the POSITIVE balance exceeds the agreed terms, then
additional fees may be charged and higher interest rates may apply on;
 Corporate bonds
 Credit card debt
 Credit facilities or lines of credit
 Personal loans
Operations of Commercial Banks:
Commercial banks are authorized to engage in only the following types of activities:
 Receiving interest-bearing and interest-free deposits (time, demand and other)

and other returnable means of payment;
 Extending consumer loans, mortgage loans other credits both secured and
unsecured credits and engaging in factoring operations with and without the
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right of recourse, trade finance including the granting of guaranties, letters of
credit, acceptance finance, and forfeiting.
 Buying, selling, paying and receiving monetary instruments, such as notes,
drafts and checks, certificates of deposit, as well as securities, futures, options
and swaps on debt instruments, and interest rates, currencies, foreign
exchange, precious metals and precious stones.
 Cash and non-cash settlement operations and the provision of collection
services.
 Issuing money orders and managing money circulation (including tax cards,
checks and bills of exchange).
 Securities brokerage services;
 Trust operations on behalf of clients and funds management
 Safekeeping and registration of valuables including securities;
 Credit-information services;
 Activities incidental to each of the above types of services.
Banking in Pakistan
Banking in Pakistan first formally started in Pakistan during the period of British
colonialisation in the South Asia. After independence from British Raj in 1947, and
the emergence of Pakistan as a country in the globe, the scope of banking in Pakistan
has been increasing and expanding continuously. Pakistan's oldest bank is the State
Bank of Pakistan, which is also the central bank of the nation. Before independence
on August 14, 1947, the Reserve Bank of India was the central bank of what is now
Pakistan. After independence, Muhammad Ali Jinnah took actions to establish a
central bank in Pakistan which resulted in the new founding of the State bank of
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Pakistan, with its headquarters to be based in Karachi. Only 7% of the population
uses the banks, has tremendous potential but this needs to be pushed a little further
The banking sector in Pakistan has been going through a comprehensive but complex
and painful process of restructuring since 1997. It is aimed at making these
institutions financially sound and forging their links firmly with the real sector for
promotion of savings, investment and growth. Although a complete turnaround in
banking sector performance is not expected till the completion of reforms, signs of
improvement are visible. The almost simultaneous nature of various factors makes it
difficult to disentangle signs of improvement and deterioration.
Pakistan’s Banking Sector can be classified under the following

broad categories:
Category Description
Central Bank and the Autonomous and

State Bank of Pakistan Governing Body for all banking operations
in the country
These deal primarily in industries of

banking and capital markets. They offer a
Nationalized Scheduled host of unique policies, banking training,
Banks services and products which include loans,
credit cards, savings and consumer banking
Banks engage in channeling funds from

Private Scheduled Banks depositors to lenders against the primary
objective of acquiring profit i.e. Bank
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Spread
These concentrate primarily on

Foreign Banks International Trade Finance, Innovative
Credit Orientation and Plastic Money
Investment Banks act as underwriter or

Development/ agent serving as intermediary between an
Cooperative/ Investment issuer of securities and the investing public
Banks
These banks are created with specific

Specialized Banks interest thus specializing and catering to a
particular sector industry.
Categorical Listing of Operating Banks

Central Bank State Bank of Pakistan
First Woman Bank Ltd.
Nationalized Scheduled Banks
National Bank of Pakistan
Zari Taraqiati Bank (ZTBL)
Specialized Banks Industrial Development Bank of Pakistan
Punjab Provincial Cooperative Bank Ltd
Private Scheduled Banks Askari Commercial Bank Limited
Bank Al-Falah Limited
Bolan Bank Limited
Faysal Bank Limited
Bank Al-Habib Limited
Metropolitan Bank Limited
KASB Commercial Bank Limited
Prime Commercial Bank Limited
PICIC Commercial Bank Limited
Soneri Bank Limited
Union Bank Limited
Meezan Bank Limited
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Saudi-Pak Commercial Bank Limited
Crescent Commercial Bank Limited
Dawood Bank Limited
NDLC-IFIC Bank Limited (NIB)
Allied Bank of Pakistan Limited
United Bank Limited
Habib Bank Limited
SME Banks
ABN Amro Bank N.V

Albaraka Islamic Bank BSC (EC)
American Expresss Bank Limited
Bank of Tokyo Mitsubishi Limited
Citibank N.A
Foreign Banks Deutsche Bank A.G.
Habib Bank A.G. Zurich
Hongkong & Shanghai Banking Corp Limited
Oman International Bank S.O.A.G
Rupali Bank Limited
Standard Chartered Bank Limited
Crescent Investment Bank Limited
First International Investment Bank Limited
Atlas Investment Bank Limited
Security Investment Bank Limited
Fidelity Investment Bank Limited
Prudential Investment Bank Limited
Investment Banks
Islamic Investment Bank Limited
Asset Investment Bank Limited
Al-Towfeek Investment Bank Limited
Jahangir Siddiqui Investment Bank Limited
Franklin Investment Bank Limited
Orix Investment Bank (Pak) Limited
Role of Commercial Banks in the Economic Development

of Pakistan
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Banks play an important role in the economic development of a country. It the
banking system is unorganized and inefficient, it creates maladjustments and
impediments in the process of development. In Pakistan, the banking system is very
well organized. The State Bank of Pakistan established on July 1, 1948 stands at the
apex and is responsible for the operation of the banking system in Pakistan. The other
banks which form the banking structure in Pakistan are playing an active role in the
economic development of the Country.
The role of the commercial banks in the growth and development of sound and
healthy economy of the Pakistan is briefly discussed as under:
1. Saving mobilization. The commercial banks namely National Bank of Pakistan,
Habib Bank, Allied Bank, United Bank and Muslim Commercial Bank has opened up
branches in urban and rural areas to mobilize savings of the people.
2. Financing development project. The banks and other development finance

institutions like IDBP, Zarai Taraqiati Bank Limited, PICIC etc. advance short and
medium term loans for financing of the development projects both in the private and
public sectors and thus help in accelerating the rate of economic development in the
country.
3. Facilitating trade activities. The credit institutions collect the savings of the
people arid make them available for facilitating trade activities both inside and
outside the country.
4. Creating climate for capital formation. A developed banking system is a
stimulant to growth and is creating favorable climate for capital formation in the
country.
5. Helping SBP in achieving monetary policies. The commercial banks under

the supervision and guidance of the State Bank of Pakistan help in implementing and
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achieving the objectives of the monetary policy which vary from time to time.
6. Assisting in the development. The commercial banks are profit seeking

enterprises. In order to maximize the profits, they have the incentive to maximize the
loans. An organized banking system keeps a balance between liquidity and
profitability and thus assists in the planned development of the economy.
7. Provision of agency services. The commercial banks provide agency services

to the clients. They receive and pay cheques. They collect dividends and pay interest
and premium on behalf of the clients. They keep their valuables in safe custody. They
help in the mobility of capital and thus stimulate capital in the country.
8. Making capital available for investment. The organized banking system

helps in directing physical resources into productive channels. It also keeps a balance
between the availability and requirements of the capital in the country.
9. Less reliance on foreign capital. A planned banking system by launching a

vigorous campaign of mobilizing idle saving in the country can meet the capital
development requirements from within the country. The country will thus have to
rely less on foreign capital for financing the development projects
10. Profit, sharing scheme. The commercial banks receive surplus balances of
households and business and pay interest on the deposits of the clients. The banks
have now introduced interest free banking in Pakistan. The depositors instead of
having a fixed return on the deposits will share in the profit and loss of the banks. The
Profit and Loss Sharing (PLS) arrangement which is an alternative to interest under an
Islamic Economic System is now operating in Pakistan.
11. Provision of Qarze Hasna. Qarz-e-Hasna Scheme has been prepared and
launched by Pakistan Banking Council through nationalized commercial banks. Under
the Qarz-e-Hasria Scheme, financial assistance is provided to the students of in
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sufficient means and of outstanding caliber who are unable to pursue their studies
due to financial difficulties. Loans are provided for pursuing studies both within and
outside Pakistan.
12. Export promotion cell. In order to boost the exports of the country, the banks
have established Export Promotion Cell for the information and guidance of the
exporters.
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Practical Study of the Organization
Vision Statement:
“TO BE THE LEADING FINANCIAL SERVICES PROVIDER, PARTNERING WITH OUR
CUSTOMERS FOR A MORE PROSPEROUS AND SECURE FUTURE”
Mission Statement:
“WE ARE A TEAM OF COMMITTED PROFESSIONALS, PROVIDING INNOVATIVE AND
EFFICIENT FINANCIAL SOLUTIONS TO CREATE AND NURTURE LONG-TERM
RELATIONSHIPS WITH OUR CUSTOMERS. IN DOING SO, WE ENSURE THAT OUR
SHAREHOLDERS CAN INVEST WITH CONFIDENCE IN US”
History of the Organization:

MCB Bank Limited (Formerly Muslim Commercial Bank) was incorporated by
the Adamjee Group on July 9, 1947, under the Indian Companies Act, VII of 1913 as a
limited company. The bank was established with a view to provide banking facilities
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to the business community of the South Asia. The bank was nationalized in 1974
during the government of Zulfikar Ali Bhutto. This was the first bank to be privatized
in 1991 and the bank was purchased by a consortium of Pakistani corporate groups
led by Nishat Group. As of June 2008, the Nishat Group owns a majority stake in the
bank. The president of the bank is M.U.A Usmani.
Founded in 1948, Nishat Group is one of the leading and most diversified business
groups in Pakistan. The group has strong presence in the most important business
sectors of the country such as banking, textile, cement and insurance.
Mian Mohammad Mansha is the Chairman of the group (and also MCB).
MCB is Pakistan’s largest bank by market share 18% its assets are of PKR 605 bln
(apprx.)(US$ 7.02 billion) in 2011, and the largest by market capitalization having a
market capitalization of US$ 1.8 billion. The Bank has a customer base of
approximately 4.5 million and a nationwide distribution network of 1,130 branches,
including 8 Islamic banking branches, and over 600 ATMs, in a market with a
population of over 160 million. (July 2011 record)
In 2011, MCB reported a profit after tax of PKR 15.5 billion (appx. US$183 million)
and generated a return on average equity of 27.35% and a return on assets of 3.25%.
The Bank’s asset quality is strong with a gross NPL ratio of 8.62%.
Office in Dubai, UAE. The Bank has also formed a private company in Hong Kong
(fully owned subsidiary of MCB) in partnership with Standard Chartered Bank,
handling trade transactions of select countries in the Asia-Pacific region.
MCB Bank Ltd

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Type Public (KSE:[2])
Industry Banking
Capital Markets
Founded 1947
Headquarters Registered Office: Islamabad, Principal

Office: Karachi Pakistan
Key people Mian Mohammad Mansha(Chairman)
Products Loans, Credit Cards, Savings, Consumer

Banking etc.
Revenue PKR 35.782 Billion (2011)
Net income PKR 26.753 Billion (2011)
Total assets USD 6.02 Billion
Website www.mcb.com.pk
CORPORATE PROFILE
Board of Directors
Mian Chairman
Mohammad Mansha
Mr. S. M. Muneer Vice Chairman

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Mr. Tariq Rafi Director
Mr. Shahzad Saleem Director
Mr. Sarmad Amin Director
Mr. Mian Raza Mansha Director
Mr. Mian Umer Mansha Director
Mr. Aftab Ahmad Khan Director
Mr. Manzar Mushtaq Director
Mr. Ahmad Alman Aslam Director
Dato' Seri Ismail

Director
Shahudin
Mr. Abdul Farid Bin Alias Director
Mr. M.U.A. Usmani President / CEO
Practical Study of the Organization with respect to

the Issue
Role of Muslim Commercial Bank in the Economic

Development of Pakistan
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Muslim Commercial banks playing an important role in the process of economic
development of Pakistan, which is clear from the following points:
 Capital Accumulation or Formation:

Capital formation refers to the increase in the existing stock of capital goods in an
economy. Muslim Commercial banks remove the capital deficiency by encouraging
saving and investment. The Muslim commercial bank is promoting capital formation
in the country by moving the resources to the productive uses. Rate of capital
formation is 5 % in Pakistan.
 Mobilization of Savings:
There operates vicious circle of poverty in developing countries like Pakistan. So,
savings remain at the lowest level. Savings of people are very low due to international
demonstration effect in Pakistan. Muslim Commercial Bank is playing important role
in the mobilization of saving by introducing a variety of saving schemes. Banks induce
the people to earn interest through saving and it provides various facilities in a
country to create a will and power to save. Domestic savings are 9.5 % of GDP.
 Availability of Funds:
An additional point of role of banks is more availability of funds. Poor population has
poor resources for the economic development in poor countries like Pakistan. The
activities like inventions and innovations, research and development and initiatives
(effectiveness in responding to challenges) are impossible due to insufficiency of
funds in these countries. Banks remove the deficiency of capital by providing
different types of funds that leads to economic development.
 Attaining Self Sufficiency:
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A major problem faced by the developing countries is burden of foreign debts and
dependence on other countries. Muslim Commercial bank provides incentive for the
entrepreneurs to take risks and to use idle resources for more and better production.
So, banks are helpful in attaining self-sufficiency. Banks provide loan to develop the
various economic sectors. It results in reduction in imports and increase in exports.
Accordingly, banks are very important to achieve the self-sufficiency.
 Implementation of Modern Technology:

Economic development without use of advanced and the most up-to-date technology
is impossible. Almost in all the economic sectors backward techniques of productions
are used due to poverty in third world countries like Pakistan. Muslim Commercial
bank provides more funds to people to make it possible to use the modern
techniques of production. Due to implementation of modern technology, there is
increase in production level, decrease in cost and save in time.
 Development of Agriculture Sector:

All the regions and all the sectors of the economy are not equally efficient and
developed in an economy. There is big need to develop the backward regions and
sectors for the economic development. Rural areas and agricultural sector is still
backward n Pakistan. Muslim Commercial Bank is playing an important role in the
development of rural and agriculture sector. Growth rate of agricultural sector is 1.2
%.
 Development of Industrial Sector:

Industrial sector is the backbone of their economies in rich nations. It is still backward
in Pakistan and other poor countries. Muslim Commercial bank provides different
types of loans for the development of industrial sector. Industrial development leads
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to agricultural development and it results in economic development. Growth rate of
industries is 1.7%.
 Expansion of Market:
Muslim Commercial banks help in the expansion of market. They help in the
formation of sound economic infrastructure in order to raise living standards and to
expand trade and commerce of an economy. Muslim Commercial bank causes
development of industrial as well as agriculture sector. Accordingly, there is
expansion of market that results in economic development.
 Essential for Foreign Trade:

Foreign trade is one of the most important needs of all the countries of the world.
Today international trade, without involving banks, is so difficult. International trade
is necessary for the economic development. Muslim Commercials bank is helpful in
increasing international trade through following ways:
 Provision of credit facilities
 Low rate of interest for the exporters
 Opening of letter of credit (L/C)
 Arrangement of foreign exchange
 Opening of foreign currency accounts
 Muslim Commercial bank have $ 2.2571 billion of foreign exchange reserves
 Remove Budget Deficits:

The Muslim commercial bank is very helpful for the government. Now a day, the
government has to face the budget deficits because of increased expenditures and
falling revenues. In this situation, government has to depend upon deficit financing to
meet the budget deficits. To cover the gap between the expenditures and revenues,
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government borrows from the banks. As a result, the development process can be
started through borrowed money from banks.
 Optimum Utilization of Resources:

Muslim Commercial bank helps in the just and optimum allocation of resources.
Some mega projects cannot be started due to the lack of capital. Muslim Commercial
bank provides loans and removes the problem of deficiency of capital. Due to use of
resources in an economy, there is increase in production, income and employment
etc. Increase in these things leads to economic development.
 Creators and Distributors of Money:

Creation of money and distribution of money are the two main objectives of Muslim
commercial bank. Muslim Commercial banks move the finances toward productive
uses. There are a lot of problems in the way of economic development like inflation,
deflation, low investment and saving etc. All these problems are possible to remove
through creation and distribution of money by Muslim commercial bank. So,
fluctuation in the supply of money can attain the economic development.
 Provision of Valuable Services:

The Muslim commercial bank is providing a lot of valuable services for the economic
development. Some of the most important services provided by Muslim commercial
bank are as under:
 Due to use of credit instruments like cheques, drafts and bills of exchange,
banks have reduced the use of currency at the cheapest costs and in the safest
manner.
 Banks serve as business and commercial agents of their customers.
 Banks provide locker facility.
 Banks accept the various utility bills.
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2nd Assignment
 They guide the investors while making investment decisions.
 Banks advance loans for education in foreign countries.
 Modern Facilities:
Now Muslim commercial bank is providing various modern facilities like:
 PC & Internet banking since 2003, PC banking available to all MCB customers in
14 cities.
 ATM & Online facilities & Balance ready cash etc.
 Mobile Banking and Call Centers, Smart Card and Debit Card.
 DD issuance, Statement inquiry and credit cards.
SWOT analysis
The acronym SWOT stands for a firm is internal Strengths and Weaknesses and its
external Opportunities and Threats. The purpose of such analysis is to build on
company’s strengths in order to exploit opportunities and counter threats and to
correct company’s weaknesses.
SWOT analysis is based on the assumption that if managers carefully review such
strengths, weaknesses, opportunities, and threats, a useful strategy for ensuring
organizational success will become evident.
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2nd Assignment
Strengths and weaknesses typically relate to the internal environment of an
organization, whereas opportunities and threats are brought about by the
external environment of an organization. In the following section both internal
and external analyses of MCB are outlined:
Strength:
Strength can be defined as an area where a company is best at doing something or a
feature that puts the company at an advantage in comparison to its competitors.
MCB enjoys the following strengths:
 MCB is a well established bank enjoying long history of over 55 years of

experience and profitable operation.
 MCB is the largest private bank in Pakistan and third largest bank among all
banks.
 It has the largest branch network among private banks of Pakistan.
 MCB is the market leader in introduction of e-banking and it has the largest
ATM network in the country.
 MCB has the ability to bring innovative products and services like personalized
service, electronic funds transfer, sophisticated financial products such as
electronic banking, auto-teller machines and evening banking.
 Excellent branches appearance gives an edge to MCB over other banks. The
branches are well furnished even in less developed areas where other banks
branches give a poor view.
Weakness:
A weakness is defined as an area in an organization where the organization is not as
good at doing something as its competitors or a thing which an organization lacks
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2nd Assignment
thus putting the organization at disadvantage in comparison to its competitors. Based
on the above definition, MCB has the following weaknesses.
 Though MCB is third largest bank in Pakistan, yet the fact remains that it is not
market leader as HBL and NBP.
 The overseas branch network of MCB is limited. It has only four overseas
branches whereas HBL has twenty overseas branches, three subsidiaries, two
affiliates, and one representative office. Similarly NBP has fifteen overseas
branches, one subsidiary, and four representative offices.
 Employees at branch level are not properly motivated to work by heart. They
take the all routine activities as a boring job.
 Most of the employees lack managerial training as they are not properly
educated. Due to seniority, they have moved up on the hierarchy line to Grade-
I, II or III positions having hardly bachelor degrees. This type of senior staff
cannot apply the modern and innovative techniques of management in
decision making.
Opportunities:
An opportunity can be defined as a change in external environment which if properly
exploited with the organizational strengths will result in enhanced sales market share
or income. Using its strengths MCB can avail the following opportunities.
 It can introduce debit card system or may convert the existing ATM cards into a
complete debit card.
 New products like personal loans mortgage and auto leasing and each
management which diversify credit risk and add to revenue generating
products are currently provided in big cities like Lahore, Islamabad, Karachi and
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2nd Assignment
Rawalpindi, these products may be tested for success in other areas like
Peshawar, Quetta and Sargodha.
 Developing network for electronic transaction require huge investment which

can’t be made all at once, there exists an opportunity for MCB to enter into
agreement with other banks to use each other’s ATMs which will result in an
increased convenience to MCB customers and customers of other banks.
 As all around the world remittances of money are strictly monitored so as the
money remitted may not fall in hands of so called terrorists for that all
conventional money laundering through Hundies have been stopped there is
an opportunity for MCB to extend its branch network to various countries
emphasizing mainly on introducing electronic fund transfer facilities.
Threats:
Threat can define as a change in external environment which if not met with proper
strategies will result in loss of revenues market share or income. In the context of
MCB’s external environment the following potential threats exist:
 Change in interest rate from SBP.
 The frequent reduction on 6-month and 12-month Treasury Bills discount rates
by SBP may create pressure on the banks profitability.
 The low discount rates are also negatively influencing the advances rates which
may affect the banks profits from the other side.
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2nd Assignment
Recommendation
First of all, the management needs to overlook the major problems that the
organization is currently facing and then develop strategies to solve them.
Some of the suggestions that I would like to give at the end are:
 MCB does not offer any chances of chances of social gathering for staff. There
should be some informal meeting arrangements to restore the atmosphere of
mutual trust and confidence and to give them respect. Job rotation for
employees.
 MCB is not currently giving owner ship to employees. It should give certain
percentage of shares to employees to develop a feeling of belonging in them.
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2nd Assignment
When employees own the on. They own its strengths and weal nesses also. So
they readily start working for its progress.
 In MCB, there is no culture of encouraging new ideas. Employees should not be
considered on Robots. They have brains of their own. They should be thought
to use the brains on well on hand. Because they won the night people who are
as possible for operations and can give best suggestion.
 MCB has not built any connection with its customers. For knowing their
suggestions about you services. There should be a proper channel for them.
Conclusion
I have concluded that.
 “A bank is a financial institution and a financial intermediary that accepts

deposits and channels those deposits into lending activities, either directly or
through capital markets” The word bank was borrowed in Middle English from
Middle French banque, from Old Italian banca, from Old High German banc,
bank "bench, counter".
 “A commercial bank (or business bank) is a type of financial institution and
intermediary. It is a bank that provides transactional, savings, and money
market accounts and that accepts time deposits.”
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2nd Assignment
 Commercial Bank is a back bone for any country. They play important role in
the development of that country. Commercial banks perform a lot of function
and provide many services for their customers.
 MCB is one of the largest banks of Pakistan, founded in 1947. It is supported by

a strong Mian Mansha group. Muslim commercial Bank is playing an important
role in the developing economy of Pakistan. But there are still some
weaknesses in its system that can be taking some strong Steps.
Reference
Project report “Role of Commercial Banks in developing the Economy of Pakistan”
www.slideshare.com
http://www.mcb.com.pk/
http://www.mcb.com.pk//whyMCB.php
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2nd Assignment
http://en.wikipedia.org/wiki/MCB_Pakistan
http://www.scribd.com/doc/24651033/HR-REPORT-cultural-compatible-practices-
in-
MCB
36

Role of Commercial Banks in Developing The Economy of Pakistan

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Role of Commercial Banks in Developing The Economy of Pakistan

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2nd Assignment

Role of Commercial Banks in Developing the Economy of Pakistan

ALLAMA IQBAL OPEN UNIVERSITY

Banking Law and Practice (5548)

TOPIC: ROLE OF COMMERCIAL BANKS IN DEVELOPING

Submitted by: Ishtiaq Ahmed

“A bank is a financial institution and a financial intermediary that accepts deposits

“A commercial bank (or business bank) is a type of financial institution and

MCB is one of the largest banks of Pakistan, founded in 1947. It is supported by a

5. Introduction to the topic 05

6. Practical study of organization 22

7. Practical study of organization with respect to the issue 25

“A bank is a financial institution and a financial intermediary that accepts deposits

Origin of the word:

A. Types of retail banks

B. Types of investment banks

Universal banks, more commonly known as financial services companies, engage in

Central banks are normally government-owned and charged with quasi-regulatory

“A commercial bank (or business bank) is a type of financial institution and

Origin of the word:

The role of commercial banks

Commercial banks engage in the following activities:

 Processing of payments by way of telegraphic transfer, EFTPOS, internet

banking, or other means.

 Accepting money on term deposit.

 Lending money by overdraft, installment loan, or other means.

 Providing documentary and standby letter of credit, guarantees, performance

bonds, securities underwriting commitments and other forms of off balance

 Sales/distribution or brokerage, with or without advice, of insurance, unit

trusts and similar financial products as a “financial supermarket”.

 Merchant banking and private equity financing.

Types of loans granted by commercial banks”

Operations of Commercial Banks:

 Receiving interest-bearing and interest-free deposits (time, demand and other)

Pakistan’s Banking Sector can be classified under the following

Central Bank and the Autonomous and

These deal primarily in industries of

Banks engage in channeling funds from

These concentrate primarily on

Investment Banks act as underwriter or

These banks are created with specific

Categorical Listing of Operating Banks

ABN Amro Bank N.V

Role of Commercial Banks in the Economic Development

2. Financing development project. The banks and other development finance

5. Helping SBP in achieving monetary policies. The commercial banks under

6. Assisting in the development. The commercial banks are profit seeking

7. Provision of agency services. The commercial banks provide agency services

8. Making capital available for investment. The organized banking system

9. Less reliance on foreign capital. A planned banking system by launching a

Practical Study of the Organization

History of the Organization:

MCB Bank Ltd

Type Public (KSE:[2])

Headquarters Registered Office: Islamabad, Principal

Key people Mian Mohammad Mansha(Chairman)

Products Loans, Credit Cards, Savings, Consumer

Revenue PKR 35.782 Billion (2011)

Net income PKR 26.753 Billion (2011)

Total assets USD 6.02 Billion

Mr. S. M. Muneer Vice Chairman

Mr. Tariq Rafi Director

Mr. Shahzad Saleem Director

Mr. Sarmad Amin Director

Mr. Mian Raza Mansha Director