Profit issue 13

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8 Weekly Roundup 12 Ricult: Cutting out the conventional middleman 18 Pakistan’s Best-performing Banks

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28 28 From inconsistent to competent 32 Leap of faith

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36 Four decades of quality food 39 Infotech: A lone wolf in Pakistan’s struggling it industry

CONTENTS

WELcOME

LAZY BANKING, NO MORE hey didn’t have to sing for their supper.

Life was nice and comfortable for the nation’s banking sector. How? Well, on the deposits side, the banks were following a simple build-it-and-they-willcome routine. The bigger banks had many branches and, instead of reaching out frantically for depositors, the latter would simply saunter into the network of bank branches themselves. And what made this deal even sweeter was that these weren’t expensive deposits either.

The banks themselves, however, charged their pound of flesh when it was them doing the lending. But even on that front, there wasn’t much work to be done: the government is a huge borrower. And one that pays up on time.

Alas, that gravy train is trickling to a halt. On the revenue front, the central bank has been consistently slashing interest rates. The government doesn’t pay up what it used to. And there is scarcely anything the banks can do on the cost front because they can’t cut into the already diminutive rates that they are paying the depositors.

So the banks should do business with the private corporate sector, you say? Alas, when it comes to the corporates, for the ones that actually have a good credit record, there is a fierce competition amongst banks themselves. These corporates are in a position to demand pretty low rates themselves.

The time has come for the banks to roll up their sleeves and finally do some proper banking. To explore the SME sector, which is doing pretty well right now and is al-

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ways in the need of investments. To go into the businesses of the rural and third-tier urban areas. To explore the agricultural sector.

But all this requires a lot of effort. At the risk of stating the obvious, big loans can be handled by a small team; Many small loans of the same cumulatively adding up to the same amount is going to require much more manpower. Plus, it requires an examination into the messy internal plumbing of the SME sector.

The financial bottomline here won’t be as easily discernable as it is when it comes to the government or the good corporates. In the past, there have been a lot of defaults and non-performing loans for the sector.

That could be improved by learning more. The banking sector could take a leaf out of the book of their counterparts in the region. They could improve their methods of evaluating risks. They could develop new proxy variables for credit worthiness and rely on Big Data and machine learning. God knows they have plenty of data to glean knowledge from now. The banks need to get creative.

In this issue we look at the best performing banks in the large, medium and small categories (National Bank, Meezan Bank and Sindh Bank respectively.) Let us see whether these, and others, will be able to weather the coming storm well or not.

Babar Nizami

Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Sub Editor: Fatima Farooq Editor Reporting: Farooq Baloch l Reporters Karachi: Aisha Arshad l Arshad Hussain & Usman Hanif Reporters Lahore: Syeda Masooma & Abbas Naqvi l Reporters Islamabad: Nida Jaffery l Ahmed Ahmedani & Amir Sial Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) Design & Layout: Rizwan Ahmad l Illustrator: ZEB Photographers: Zubair Mehfooz & Imran Gillani Publishing Editor: Arif Nizami Contact: profit@pakistantoday.com.pk

FROM THE MANAGING EDITOR

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“The government is completing all development schemes without any discrimination” Federal Parliamentary Secretary for Information and Broadcasting Mohsin Shahnawaz Ranjha

QUOTE

BRIEFING

“Increase in production capacity of local industries will help reduce trade deficit in the country” Minister for Planning, Development and Reform Ahsan Iqbal

3582.8MW electricity has been added to the national grid since 2013. As per details, during the year 2013, the authorities added 423.30 MW to the national grid, 1421 MW during 2014, 720 MW during 2015, 920 MW during 2016 and 99 MW have been added during 2017 so far.

In regard to reduction in load shedding timings as compared to what these were in 2012, the data reveals that during 2012, the duration of load shedding in urban parts was 12 hours and rural parts 13 hours and seven hours load shedding for mix and independent industries. Moreover, a comparison showing the percentage of reduction in load-shedding during 2017 as compared to 2012, it was revealed that 75 pc reduction had been witnessed in urban parts, 70 pc in rural while 100 percent reduction in the mix and independent industries.

worth of loans are being seeked by Pakistan from the Asian Development Bank (ADB) and France in the next two months in order to support the external account that has been strained due to the persistent trade deficit. Sources are reported to have said that negotiations have been underway between the finance ministry and the ADB to seek two policy loans, each of $300m, in the name of Public Sector Enterprises (PSEs) Reforms-tranche-II and Sustainable Energy Sector Reforms-tranche III. In addition, a $100m loan is likely to be negotiated with the French Development Agency (AFD) France in connection with the $300m ADB energy sector loan, it has been reported. Pakistan International Airlines, Pakistan Steel Mills, power distribution companies, and Pakistan Railways are likely to be the major beneficiaries of government’s cash assistance owing to the huge losses they have been rendering.

$700m

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Rs9.2b contract was awarded by the National Highway Authority (NHA) to the joint venture (JV) of construction firms SKB and KNK for the fifth and last section of the China-Pakistan Economic Corridor’s (CPEC) western route.

The contract was awarded on the basis of the lowest evaluated bid.

The contract involves the construction of the road from Rehmani Khel to Kot Belian (package 2A of section five). The approved project forms an important section of the Hakla-D I Khan Motorway. The contract was awarded in NHA’s executive board meeting chaired by the authority’s chairman Shahid Ashraf Tarar. The western route of the CPEC comprises of five different sections. Contracts for four sections have already been assigned.

The fifth section has been divided into three sections comprising of construction of a bridge on River Indus and two road segments consisting of 25 km each.

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“Pakistan and Tianjin have a stable and progressive relationship, there is good prospect of future cooperation” Pakistan’s Ambassador to China Masood Khalid

QUOTE

5.2pc

growth is expected in Pakistan’s economy according to a forecast of the World Bank. According to the report, the China Pakistan Economic Corridor (CPEC) projects have supported construction activity, which is expected to stimulate industrial sector growth, it added. These projects should help accelerating growth in the domestic construction industry and increase electricity generation, it said adding that sustainable and inclusive growth and poverty reduction, will require greater private sector investment and the longer term development of infrastructure.

rise in textile exports year on year was recorded in textile and clothing exports which reached $1.064b by March, mainly driven by value-added products such as garments. Cotton yarn exports also saw a rise year-on-year of 5pc. A decline in exports of cotton cloth and yarn (other than cotton’s) was recorded at 5.5pc and 26.9pc.The receipts from silk, art and synthetic textile rose by 2.7pc and the ones from raw cotton declined 2.9pc year on year. The exports of items like tents, canvas and tarpaulin rose by 71.8pc and made up articles excluding towels increased 16pc.In the current nine months of this FY 2016-17, a decrease of 0.89pc year on year was recorded in the exports of textile and clothing products. A 3pc decline was witnessed in total export receipts in the period of July-March 2017, reaching $15.118b

6.2pc

is the figure of current account deficit for the first nine months of the current financial year 2016-17. It has risen by 2.6 times in comparison to a year ago. This massive increase in current account deficit was largely in line with predictions made by financial pundits and did not come as a shock in any given sense of the word. This was largely expected due to rising pressure on the external front that has impacted dollar inflows greatly. As the trade deficit soared to an alarming all-time high of $23b during the period of JulyMarch, it greatly impacted the balance between the forex exchange inflows and outflows. The exports for the first 9 months of FY 2016-17 lingered around $16b and remained mostly unchanged in comparison to the previous year. In actuality, it was the imports that ballooned to $33.8b and registered an increase of more than $4b from the same period a year ago.

$6.13b

$6b

was the increase registered in Foreign Direct Investment (FDI) in the first three-quarters of 2016-17 primarily due to funds flowing in from China. According to The State Bank of Pakistan (SBP) on Monday, the country received $1.6b in JulyMarch against $1.42b a year ago. As the development projects kick off under the China-Pakistan Economic Corridor (CPEC), foreign direct investment (FDI) is expected to rise sharply. However, the year-on-year increase of just $176.4m in the nine-month period signifies that policymakers have been unable to attract significant foreign investors into the country. Besides China, major FDI inflows were from France $161m, Netherlands $465m, Turkey $133m, United States $52m and the United Kingdom $33m.

is the figure being targeted for software exports by 2020. According to a spokesperson of the Information Technology and Telecommunication Ministry, the government is aiming to boost software exports to $6b annually from the current $2.7b. In this regard, the ministry has directed to expedite work on the establishment of 7 technology incubation centers all over the country, to provide training facilities. The state minister stressed on the importance of incubation centres in the development of Information and Communications Technology (ICT) skills. This will aid and guide the youth to become successful entrepreneurs and earn a livelihood for themselves, she said. She added that the ministry is focusing on developing channels through which training can be provided in order to allow individuals to grow in the global free lancing market.

12pc

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“Political stability and continuity of policies is imperative to enhance business activities in the country” Mirza Ikhtiar Baig

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Rs 2.2b

worth of settlement contracts have been awarded by Wapda to a Chinese firm for Dasu power project. The contract-Dasu-LBRV-11 worth Rs1.2b pertains to the resettlement of people living in Khoshe, Logro and Uchar villages. Similarly, another contract Dasu-LBRV-12 worth Rs1.016b is for the resettlement of people of three other villages namely Barseen, Nasirabad and Kaigah/Dhaar. The project work comprises of land development, terracing and electrification, road networks, water supply and sewerage system and local amenities like schools, playgrounds, cattle sheds, etc. Both projects have a completion deadline of one year.

tax evasion has been unfolded by the Federal Board of Revenue (FBR) over a period of five years by a Lahore-based wholesale/retailer over a period of five years. The accused had been suppressing sales data of tyres and tubes between 2011 and 2015, hence manipulating income figures. The government, in 2013 had introduced additional sales tax of 2pc of the value of supplies of several goods, including tyres and tubes. The investigation disclosed numerous cases of non-payment of additional tax in the tyres and tubes sector. Furthermore, instances, where supplies were made without getting the sales tax registration during 2010 and 2015, were also unfolded.Between July 2010 and October 2015, it parked Rs 1.43b in 14 declared/undeclared bank accounts on account of concealed sales proceeds with outstanding tax liability amounting to Rs 254.52m.

Rs 900m

have been written off by Zarai Taraqiati Bank Limited (ZTBL) to 313,392 borrowers by the banks during last ten years (2006-07 to March 31, 2017). Khurram Dastgir Khan, Minister for Commerce informed the House that the amount of Rs 21.5b includes Rs. 14.5b were waived or written off by Zarai Taraqiati Bank Limited (ZTBL) during the same period. Out of the total waivers, Rs 2.13b were written-off under Prime Minister’s Relief Package for war-affected areas of Khyber Pakhtunkhwa (KPK)/Malakand and Federally Administered Tribal Areas (FATA) in 2009-10, he said. He also mentioned that currently an amount of Rs. 2.9b is outstanding against 5,991 tube wells in Balochistan and the government is considering its settlement in the upcoming budget.

Rs21.5b

has been released by the government for the construction of the China-Pakistan Economic Corridor (CPEC) project Burhan-Hakla on M-I to D.I. Khan Motorway out of total allocation of Rs 22b under Public Sector Development Programme (PSDP) for the year 2016-17. According to latest data released by the Ministry of Planning and Development, the total cost of the project is Rs 124.208b while Rs 10b had already been spent till June 30, 2016. Similarly, the government also released Rs 700m out of total allocation of Rs 16,500m for Thahkot to Havelian 118 KM (Construction). For the construction of Blacktopping of the access road from Makran Coastal Highway to New Gwadar International Airport under CPEC, an amount of Rs 62.15m has been released out of total allocation of Rs 100m for the current fiscal year.

Rs 15.4b

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Rs 15b has been contributed by Pakistan Tobacco Company (PTC) to the financial exchequer in the first quarter of 2017.

The chairman of PTC stated that it has been a difficult period for the company.

Illicit cigarette trade has seen an alarming rise, causing a decline in legitimate industry volumes. In the first quarter of this year, PTC has seen a decline in volumes by 48 per cent, compared to the first quarter of last year, 2016. Despite recent efforts by the law enforcement agencies, the illicit trade has grown to an unprecedented market share of 41 per cent as at March 31st, 2017. It is important that the government enforcement mechanism becomes more effective in order to create a level playing field and ensure that the illegal sector complies with all the laws.

BRIEFING

By: Abbas Naqvi

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ut yourself in the shoes of a man who owns very little land, owes a huge amount of money to middlemen and small financial institutions, is forced to sell his produce to his creditor only, and probably has a large family to cater to whose livelihood essentially depends on favourable climatic conditions for crops in a given year. that’s what it is like to be a smallholder farmer in Pakistan, and almost all developing countries – living under perpetual debt, fear and exploitation. the word smallholder is pretty much self-explanatory - farmers owning a small amount of land (10 acres or less) can be categorized as smallholder farmers. But does that mean that their contribution to the agriculture sector is small too? And, more importantly, what does it mean to be a smallholder farmer in a developing country like Pakistan?

Let’s get some facts straight. Census is being held after some eighteen years and most people estimate Pakistan’s population to be at 200 million people. Out of this 200 million, almost 40 million people are farmers, of which, 60 per cent or 24 million are smallholder farmers. the Consultative Group to Assist the Poorest (CGAP) launched the Smallholder Households Financial Diaries (the “Smallholder Diaries”) in June 2014 to track the cash flows of 270 households in Mozambique, tanzania, and Pakistan over one year of their lives.

CGAP is a global partnership of 34 leading organizations that seek to advance financial inclusion, and is housed at the World Bank.

It has three useful insights from the Smallholder Diaries, regarding Pakistan: Smallholder households earn income from both agricultural and nonagricultural sources; Smallholder households use a range of financial tools; and, Smallholder Diaries methodology reveals both complexity and opportunity.

In the words of the ever-useful Pakistan Bureau of Statistics (PBS), agriculture ac-

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“WE DON’T HAVE THE MONEY TO PURCHASE INPUTS FOR FARMING” Muhammad Akram, a small farmer based in district Kasur

Usman Javed, CEO and cofounder of Ricult Pakistan

counts for almost 24 per cent of the gross domestic product (GDP), employs half the labour force and is the largest source of foreign exchange for the country. According to the uN Food and Agriculture Organization (FAO), approximately 80 per cent of the food consumed in the developing world is produced by smallholder farmers.

In such a situation, a responsible government would attach immense importance to the welfare of this largely unregulated subsector of the economy: the smallholder farmers, who happen to be the actual backbone of the economy in Pakistan.

A vicious circle of exploitation here is a 7.5 billion dollar agriculture credit demand in Pakistan.

Around 3 billion dollars of this demand is catered to by the financial

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institutions and banks. the remaining gap between the demand and supply of agricultural credit is filled by Aarti (middlemen) - people living in villages looking to invest their spare capital in a smallholder’s farm and thus earn high profits.

Meet Muhammad Akram, a fortyyear old small farmer based in district Kasur who owns 8 acres of land. Donning a thin cotton shawl, Akram walks through his fields and explains the enigma of small farmers’ plight in Pakistan. He grows rice, potato, wheat and corn on his land.

“We don’t have the money to purchase inputs for farming,” says Akram, who has joined a group of four other farmers to get credit from Ricult Pakistan, a fintech aiming to solve small farmer's’ problems.

A smallholder farmer does not have the resources to buy farming inputs like seeds, fertilizers and pesticides etc. He owns a small amount of land, which, if put up as a collateral for a small loan from a bank, runs the risk of robbing the farmer of the only thing he has - land.

So, what does he do if borrowing from a bank is not possible? He pays a visit to the wealthy Aarti in his village, somebody who would be willing and able to lend him some money, in return for a profit. All seems fair and good till both the gentlemen sit down to work out the details of the agreement. the middleman sells cheap and low

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quality farming inputs to the smallholder farmer on credit at exorbitant rates. On this lent amount, he charges an annual markup of 60 per cent to 150 per cent, a variance which is subject to his generosity.

But it doesn’t stop here. Come harvest time and the creditor takes all the produce from the farmer at a lower rate than the market rate, sells it to the market at the market rate, and then deducts the amount owed to him by the farmer to return the remaining amount to him. In most cases, the middleman refuses to release the full amount he owes to the farmer, thereby exploiting the farmer even further.

And what recourse does the middleman adopt when a natural disaster like floods hit the crop? Lend some more to the farmer and make him pay the outstanding amount next year. Always keeping him dependent and entrapped in the never-ending cycle of falling profit margins and rising debt.

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“AFTER THE FARMER FILLS OUR APPLICATION FORM, HE IS INFORMED WITHIN 25 MINUTES WHETHER HE WOULD BE SOLD INPUTS ON CREDIT OR NOT” In fact, farmers dread the middlemen so much that Akram reiterated time and again about the Aarti’s behaviour being in complete sync with morality.

“The Aarti doesn’t do anything wrong. Please don’t write against him as he is our benefactor,” says Akram.

Ricult Pakistan aims to provide a solution intech startups are shaping today’s world, challenging the incumbents to adapt to the changing dynamics on the back of technological advancement.

One such pertinent example is Ricult

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Pakistan, a Fintech startup that aims to end the exploitation faced by smallholder farmers in Pakistan by providing easy access to low-interest loans without collaterals, selling high quality farming inputs at below market prices to the farmers, linking the farmers with buyers who can directly buy the produce and providing agronomy services such as soil testing.

“Ricult Pakistan is the first of its kind service in the world,” claims Usman Javed, CEO and cofounder of Ricult Pakistan. Founders of Ricult Inc, the VCfunded parent company of Ricult Pakistan, comprises of MIT graduates with experience in diverse fields such as credit risk modeling, machine learning, business

“PEOPLE SAY MOBILE PHONES ARE THE FUTURE OF THIS COUNTRY, I SAY IT’S THE PRESENT; IT IS ALREADY HAPPENING AROUND YOU” process optimization and agriculture marketing.

Ricult Pakistan’s business model is similar to the middleman’s way of doing business except that the interest rate is only 22 per cent, while the inputs are also 10-15 per cent cheaper than what the middleman sells them for, in addition to being delivered to the farmer’s doorstep for free.

It manages to sell these inputs at lower prices due to its partnerships with leading companies like Fauji Fertilizer Company and Guard Rice, among a few others.

On top of that, Ricult does not buy the produce from the farmer, but instead links them to its strategic partners like Engro and other food processing compa-

nies that directly buy the harvest if the farmer agrees. No compulsion.

Farmers owning ten acres or less are asked to form groups of five to ten people to diversify and reduce the credit risk involved.

“We have run a pilot already, wherein we lent almost 80,000 dollars to 150 farmers in Kasur region of Punjab,” says Usman. He further reveals that all the farmers who had completed their crop cycle have returned the money.

Ricult Pakistan has targeted the Kasur region for a number of reasons: it’s one of the most fertile lands in Pakistan and hosts a breed of farmers which are progressive in nature and already in-

dulging in modern farming techniques – something which Ricult is bringing and promoting in the country.

But one has to ask: how does it ensure that the farmers don’t default on the loans?

“We believe that all financial institutions spend most of their efforts in getting their money back after lending it, while we worry about who’s the right person to lend to,” says Usman. Ricult Pakistan has developed a credit scoring tool based on different algorithms which can ascertain if a farmer will pay back or not.

“After the farmer fills our application form, he is informed within 25 minutes whether he would be sold inputs on credit or not,” says Usman, while adding that the tool is still in the making and would be fully functional by May 2017.

Ricult Pakistan is one of the three winners of Fintech Disrupt 2016, a competition organized by Karandaaz Pakistan in

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Team Ricult Pakistan

collaboration with Bill & Melinda Gates Foundation and Lahore University of Management and Science’s Centre for Entrepreneurship.

Ricult will receive a grant of up to $100,000 over a period of six months as the winning prize, tied to the attainment of certain milestones set by the investors.

“Karandaaz Pakistan has not linked the disbursal of the grant with revenue or profitability as key performance indicators (KPIs) since it would have been unrealistic to achieve those in six months,” says Usman.

The targets and tasks set by the investors focus on infrastructure building, team building, marketing and building technological platforms. At the moment, Ricult has only 12 employees in Pakistan but it plans to take it up to sixty employees by next year, which would be made possible by the funding it would get from Karandaaz.

“We aim to scale up to one thousand farmers next year and breakeven by 2018,” says Usman, adding that the scale would be achieved successfully once their technological platform is fully developed.

Over 45,000 farmers exist in the seven union councils that form the initial target market of Ricult. Expanding to other parts of the country is definitely on the table but only once they have successfully covered

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the farmers in these union councils.

“We have been approached by farmers, NGOs and even feudal lords from Sindh and other parts of the country who are interested in working with us,” says Usman.

Ricult Inc has global plans, and aims to simultaneously launch in China and Thailand in mid-2017. Two of the founding members of Ricult Inc belong to each of

Punjab Agriculture Department has also invited Ricult to learn more about its aims, objectives and the way it would help the smallholder farmers. Although no agreement or partnership has been reached with any government agency, Ricult Pakistan is being encouraged by all stakeholders (except the middlemen, maybe) for it promises a brighter future for so many

“WE BELIEVE THAT ALL FINANCIAL INSTITUTIONS SPEND MOST OF THEIR EFFORTS IN GETTING THEIR MONEY BACK AFTER LENDING IT, WHILE WE WORRY ABOUT WHO’S THE RIGHT PERSON TO LEND TO” Usman Javed, CEO and cofounder of Ricult Pakistan

these countries, and also have a farming background.

A silver lining to the walked-upon smallholder farmers is the fact that the

distressed people in the country.

“People say mobile phones are the future of this country, I say it’s the present; it is already happening around you,” says Usman, while stressing on the significance of rising internet users in the country and the potential it holds to solve their issues.

How it would cover the entire sector of smallholder farmers in Pakistan remains to be seen, and whether it would provide a sustainable benefit to the farmers also remains to be seen. Because 45,000 farmers getting an easy solution while the rest still suffer from the same old exploitation is not really a win-win situation for the sector. n

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COVER STORY

By: Farooq Baloch

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akistani banks have long been criticized for making risk-free money by investing into securities, backed by Government of Pakistan, which remains their singlelargest borrower for over a decade – those golden days seem to be over since there are no easy bucks now.

The bankers’ ability to make money was tested in mid-2015 when the State Bank of Pakistan, the apex regulator, started reducing its monetary policy rate, taking life out of the otherwise lucrative Pakistan Investment Bonds (PIBs): the biggest investment avenue for the country’s banks in recent years.

The banking sector’s earnings remained flat last year, courtesy three-year PIBs, which reached maturity in mid-2016 and ate up most of their earnings.

Banks had invested a major chunk, about 30% or Rs1.2 trillion of their deposits into PIBs at a much higher rate of 12% three years ago, said Umair Naseer, Senior Research Analyst at Topline Securities. After these bonds reached maturity, the banks had to reinvest the money in new PIBs at less than 6%, which dented their profit margins, he added.

“The core banking side is at a historic low,” Insight Securities’ Head of Research Zeeshan Afzal said referring to the central bank’s policy rate, which is hovering at 5.75% since May 2016, its lowest level in the last 42 years. Low interest rate environment is currently the biggest challenge facing the banking sector, the analyst said.

The SBP’s policy rate is the rate at which commercial banks borrow from the central bank’s discount window on an overnight basis. Simply put, it affects every other interest rate in the market.

Explaining the phenomenon to Profit, senior banker and former Finance Minister

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“SINCE THERE ARE QUITE A FEW BRANCHES, AND THE COST OF FUNDS WAS VERY LOW, THEY [BANKS] WERE MAKING BETWEEN 5% AND 7% RISK-FREE SPREAD DURING THESE YEARS, NO WONDER, MORE THAN 60% OF BANKS’ ADVANCES WERE PARKED IN THE PUBLIC SECTOR AT ONE POINT” Shaukat Tarin, Advisor to Chairman, Silk Bank

Shaukat Tarin said, “The government has been borrowing heavily for the past several years, and the banks have become used to investing in the government paper.” The government had been issuing three-year, five-year, and 10-year PIBs for the past few years on a higher rate as compared to those offered by one-year Treasury bills, the banker said. This ‘incremental spread’ gave the kicker to banks as most of them are sitting on large deposits. Since there are quite a few branches, and the cost of funds was very low, they [banks] were making between 5% and 7% risk-free spread during these years, he added – no wonder, more than 60% of banks’ advances were parked in the public sector at one point.

However, banks’ earnings were affected after the discount rate started coming down in 2015, Tarin said. On the other hand, the government also worked to consolidate its fiscal position, bringing down fiscal deficit, that is the government’s ap-

THE DOWNWARD REVISION OF INTEREST RATES IS ALSO THE REASON WHY BANKING SPREADS HAVE SHRUNK TO THEIR LOWEST LEVEL IN OVER A DECADE WHICH IS WHY, WITH THE EXCEPTION OF STANDARD CHARTERED BANK PAKISTAN, NO OTHER BANK HAD A NET INTEREST MARGIN OF OVER 5% LAST YEAR

petite to borrow also came down, he added.

The market analysts Profit spoke to couldn’t agree more.

The downward revision of interest rates is also the reason why banking spreads have shrunk to their lowest level in over a decade. With the exception of Standard Chartered Bank Pakistan, no other bank had a net interest margin of over 5% last year – a bank’s spread or net interest margin is the difference between borrowing rate (how much banks pay to depositors) and lending rate (how much banks charge from borrowers). In other words, it is the bank’s equivalent of profit margin thus the higher the spread, the more it earns.

Because of compressed banking spreads, nearly half of the 25 banks we studied for this report saw their operating profits decline during the period, a trend that is likely to continue this year.

“The driving engines of any bank depending on their strategy are either the corporate business, or the SME business or the consumer business,” Tarin says, which begs the question: why would banks invest so heavily in long-term government paper?

“Credit offtake has remained low since 2012 as loans were not increasing,” says Syed Fawad Basir, Senior Investment Analyst at Arif Habib Limited. According

BANKING

“BANKS HAD INVESTED A MAJOR CHUNK, ABOUT 30% OR RS1.2 TRILLION OF THEIR DEPOSITS INTO PIBS AT A MUCH HIGHER RATE OF 12% THREE YEARS AGO AND AFTER THESE BONDS REACHED MATURITY, THE BANKS HAD TO REINVEST THE MONEY IN NEW PIBS AT LESS THAN 6%, WHICH DENTED THEIR PROFIT MARGINS” Umair Naseer, Senior Research Analyst at Topline Securities

to market analysts, banks’ reluctance towards lending to private sector was partly due to the risk of defaults. Many borrowers – including some big shots – had defaulted on their payments following the financial crunch of 2008-2009, they say.

That resulted in higher non-performing loans (NPLs) growth for banks, which were discouraged from further lending to the private sector.

The outliers ower PIB yields, poor credit offtake and little investment opportunities kept banks’ earnings under pressure, but they also pushed the best out of them. Bankers have been trying to weather the storm through improved cost efficiencies, quality of assets, and quality of their balance sheets. They have also shifted focus back on consumer financing. Despite pressures on profitability, the banking sector, in its entirety, remained on the growth track, with most banks witnessing double-digit growth in both their deposits and advances last year. In this report, Profit takes a look at

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how some of these banks delivered strong financial performances in a challenging environment.

“The idea is to capture and appreciate the growth observed in banks, while not ignoring the balance sheet and operational quality,” said Abdul Ghani Fatani, an Investment Analyst at Intermarket Securities who dug into the balance sheets of these banks to compile three-year old data for this study.

Explaining, the analyst said banks sought support from cost efficiencies, improved non-performing loans (NPLs) recoveries and higher current account savings account (CASA) balances to limit earnings depletion in 2016.

For example, Fatani said four large private banks witnessed 12% growth in advances last year compared to 2015, backed by recovery of working capital financing and robust long-term credit. Investment growth decelerated as banks showed a slight shift in focus towards T-bills and deposits base increased by 13% last year on the back of improvement in domestic CASA (current

account saving account) balances across the board, he noted.

Before we get into what challenges lie ahead, let’s take a look at some of the banks that performed exceptionally well last year.

National Bank of Pakistan: a turnaround story in the offing ne example that explains improvement in quality of assets is National Bank of Pakistan, which surprised the market by booking its highest-ever after-tax profit to date – NBP’s net earnings clocked in at Rs23 billion, which was well above market consensus.

With core earnings not improving, the state-owned banking giant demonstrated improved asset quality, loan growth and cost control last year. It booked a loan provision reversal of Rs2.25 billion in the last quarter of 2016 for the first time since 2007, according to Intermarket Securities. The bank saw its NPLs drop by 6% in the outgoing year, which helped it increase operating profit (net profit before tax) by 10% in the year.

Tier-I return on equity (ROE) clocked in at 19%, its highest level since 2009 and close to that of top-tier banks.

NBP was a top performer in the last three years, says Naseer from Topline Securities. Being a state-owned bank, NBP’s major problem was recoveries. For example, it may benefit from certain government projects, but also faces high NPL as credit to public-sector entities is often

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hard to recover, he adds. “NBP has done well on that front [recoveries], which translated to recurring income.”

However, not all analysts seem to agree on NBP’s performance being a function of core banking.

“National Bank certainly had a stellar run last year, but one should also look at where this growth came from,” Basir of Arif Habib Limited said. “For example, they booked Rs10 billion reversal from NPLs, which is not core earnings,” he added – Profit’s queries to NBP were not entertained.

Innovation, network expansion, increased financing power Meezan’s northbound journey he expansion in Meezan Bank’s branch network helped improve their deposits while double-digit growth in Islamic banking, a new segment which is growing significantly also helped Meezan, analysts say.

One of the major distinguishing factors in Meezan’s case was not investing in PIBs since it’s an Islamic bank and doesn’t invest in securities that are not Sharia compliant, analysts say.

However, the leadership of the

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“NATIONAL BANK CERTAINLY HAD A STELLAR RUN LAST YEAR, BUT ONE SHOULD ALSO LOOK AT WHERE THIS GROWTH CAME FROM, FOR EXAMPLE, THEY BOOKED RS10 BILLION REVERSAL FROM NPLS, WHICH IS NOT CORE EARNINGS” Fawad Basir of Arif Habib Limited

fastest growing Islamic Bank seems to have a different take on reducing policy rates.

“For Islamic banks, this has translated into greater challenges given the shortage of liquidity instruments available,” President and CEO, Meezan Bank Irfan Siddiqui said in an email response to Profit.

Asked how the bank was able to perform well under these challenging circumstances, the CEO said Meezan’s recent success was due to a myriad of efforts.

“We have recently embarked on the aim of further strengthening our technological backbone. To give an example, we have recently deployed the Oracle Exadata Database Machine to cut the close of business time by 30%,” Siddqui said. “We have also been able to reduce our data centre footprint and administrative efforts by running our core banking database on Oracle’s flagship engineered system.”

Meezan has been expanding its network quite aggressively and its chief claims it is the fastest growing bank in the country – the bank has increased its financing portfolio by an impressive 50% this year. The Bank actively pursued growth in financings in all segments especially in SME or Commercial and Consumer Financing (primarily Car Ijarah and Easy Home) that grew by 62% and 66% respectively over the last year.

Giving further details, Siddiqui said the reduction in the bank’s ratio of nonperforming financings to total financing (NPL ratio) was another achievement. Its NPL ratio now stands at 2.14%, down from 3.27% in 2015 as a result of major recoveries made during 2016. This NPL ratio is among the lowest in Pakistan’s banking industry whose average NPL ratio is 11%, Siddiqui said.

Meezan Bank maintains a very comfortable level of provisions against its non-performing financings with coverage ratio of 118%. The focus is to build a high quality and well-diversified portfolio targeting top-tier corporate, commercial and

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retail clients, he said.

Islamic banking Industry deposits account for almost 13% of the total banking industry deposits. Meezan Bank’s market share amongst the full-fledged dedicated Islamic Banks operating in Pakistan is approximately 56%. Meezan’s market share for the Islamic Banking industry as a whole including Islamic Banking windows of conventional banks in Pakistan is 34%, making it the largest player in Islamic Banking.

Stunning growth in deposits, fee income help Sindh Bank outshine peers ince Sindh Bank is not a listed entity, it is hard to find analyst comments on its performance, but Umair Naseer, one of our research partners for this report, believes a strong growth in its deposit base and fee income over the last three years helped it shine in the small banks category.

Sindh Bank posted deposit growth of 42% in 2016, significantly higher than the industry average. This sharp uptick in deposit growth helped Sindh bank post flat Net Interest Income (NII) on YoY basis despite pressure on Net Interest Margins.

The bank posted profit growth of 13% in 2016, which was driven by lower provision expense, down 36% YoY. “The thing that makes Sindh Bank stand out in small bank is the exceptional growth it has seen in the last few years,” Naseer says. Deposits of the bank have

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“WE HAVE RECENTLY EMBARKED ON THE AIM OF FURTHER STRENGTHENING OUR TECHNOLOGICAL BACKBONE, FOR EXAMPLE, WE HAVE RECENTLY DEPLOYED THE ORACLE EXADATA DATABASE MACHINE TO CUT THE CLOSE OF BUSINESS TIME BY 30%” Irfan Siddiqui, President and CEO, Meezan Bank

grown by a three-year CAGR of 38%, which is well above the industry average within the small banks category. “This has helped Sindh bank rapidly increase its book size and profitability,” he adds.

The Topline analyst further says with growing deposits and branch network, the bank has also witnessed one of the highest fee incomes growth within the small banks, which clocked in to the tune of 30% (aprox.) in the last three years.

Amongst the small banks, it also has one of the lowest loss ratios (2.8% as in 2016) after Dubai Islami. Furthermore, the bank’s capital adequacy ratio of 18% is well above target of 11%, making it less prone to risks, Naseer says.

Rise of digital: Telcos and FinTech companies gaining ground into banking hile Pakistan continues to operate with the traditional legacy banking, bankers all over the world are increasingly moving away from the brick and mortar model. In fact, they see the rise of FinTech companies as a big threat to their business.

According to the Global FinTech Report 2017 by PricewaterhouseCoopers (PwC), about 80% of financial services and FinTech executives surveyed for the study believe “business is at risk”.

“Many fear losing business to innovators, starting with payments, fund transfer and personal finance sectors,” the study says. The vast majority (88%) of participants indicated that they are worried that part of their business is at risk to standalone FinTech companies, it adds.

“This business at risk is due to developments in FinTech and has grown to an estimated 24% of revenues.”

Explaining the threat, the PwC study says cutting-edge FinTech companies and financial innovation are changing the competitive landscape, and are redrawing the lines of the Financial Services industry.

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“Innovation is coming from outside financial services and being driven by a variety of sources including tech companies, e-retailers, and social media platforms,” it says adding this approach certainly has been prevalent in some Asian markets.

The study says ICT and large tech companies are seen as potentially large disruptors to the banking sector as they are able to innovate at a far faster pace than incumbents -- no wonder, funding of FinTech startups has increased at a compound annual growth rate of 41% over the last four years, with over $40 billion in cumulative investment.

As we type this report, Pakistan’s top bankers are holding seminars on digital banking, mobile commerce and FinTech to discuss challenges and form strategies to adapt to this change.

“Fintech is going to continue to grow beyond payments, it's going to be credit, it's going to be savings is going to be much more,” says Nadeem Hussain, who is considered to be a pioneer of FinTech in Pakistan.

There are currently 23 FinTech companies in Pakistan, out of which seven belong to Planet N Group of Companies, which is 90%-owned by Hussain, who has, perhaps, the most bullish take in FinTech.

His holding company is in the process of launching another FinTech company.

“We're looking over time to provide financial services based on data in your phone,” Hussain said adding the new company is structuring a deal to offer nano credit, nano savings, nano insurance and then nano private pension based on data on your phone.

Hussain further said there will be smartphone information-based solutions

“BANKS ARE POOR AT PUTTING THEMSELVES IN CUSTOMERS’ SHOES AND THEY SEE MOBILE WALLETS AS MONEY TRANSFER SERVICE, AND NOT AS BANK ACCOUNTS WHICH IS WHY WE HAVE TO START WORKING ON IT AND DEVELOP AN ECOSYSTEM FOR WHAT YOU CAN BUY FROM MOBILE WALLET” Sima Kamil, Deputy CEO of United Bank

coming up and commercial banks will have to create their own solutions or absorb those coming from outside banking.

Commercial banks will have to open up the core systems to FinTech because the customers will demand it, he says, adding it will be a customer driven demand not a fintech driven demand.

Hussain believes commercial banks will have to open up to FinTech, but it may not be swift as is the understanding of some other top bankers.

“Banks will not move immediately to digital because of the legacy banking mindset. They have been associated with this comfort zone for long and find it difficult to transition quickly,” Bank Alfalah Limited’s CEO Atif Bajwa said during a panel discussion at Digital Banking and Mobile Payments Summit 2017.

Talking about challenges and reluctance to invest in FinTech at the board level, the banker said this is a phase, which is still evolving and nobody knows what’s the exact model of digital banking.

“If you make a major investment today and fail to make money, we don’t know how the board would review it.”

According to Bajwa, Pakistan needs people in C-Suite who understand Fintech.

However, if one goes by global stats, the picture is not very rosy.

“Only 3% of CEOs of leading banks have professional technology experience,” says Chris Skinner, who is a Fintech Titan and one of the Wall Street Journal’s Top 40 Fintech Influencers Globally -- he was the main speaker at the Digital Banking and Mobile Payments Summit 2017.

Sharing the same number for Board of Directors of these leading banks, Skinner said only 6% of BoD members have professional technology experience while and only 40% banks have adapted professional technology.

“This is a fundamental weakness and we are missing out on huge opportunity,” Skinner said. The main problem is some consumers think these Fintech startups are not banks, they are banks’ clients -- when it comes to banks, the mindset doesn’t seem to be any different.

“Banks are poor at putting themselves in customers’ shoes. They see mobile wallets as money transfer service, and

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not as bank accounts,” says Sima Kamil, Deputy CEO of United Bank. “We have to start working on it and develop an ecosystem for what you can buy from mobile wallet.”

Kamil further said, “Youth is where we have to focus. They want to move away from cash and we have to give simple ways of doing it, that is what everyone is giving them in the world.”

Besides Fintech, telecom operators have also increasingly focussed on financial services. Almost every company has its own mobile financial services arm, offering some of the personal banking services to customers.

The SBP is targeting 50 million mobile wallet accounts by 2020, with major mobile MFS players like EasyPaisa and JazzCash pushing for a slice of the pie.

These mobile MFS players are luring ecommerce users, the market catered to by conventional banks, by offering them discounts on online shopping. The recent Black Friday Sale by Daraz.pk is a case in point.

JazzCash teamed up with Yayvo.com while EasyPaisa has been partnering with Daraz.pk for the last two years -- the latter managed Rs1 billion in sale on a single day (Black Friday) with 35% of the total orders being prepaid transactions with Easypaisa mobile account last year.

As Kamil pointed out banks see these MFS players as payment services, but they are not going to stop here.

“Mobile phones have become a remote control of our lifestyle, which opens up a window of opportunity,” Irfan Wahab, CEO Telenor said. Explaining, he said with a reach of 140 million customers, the

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“BANKS WILL NOT MOVE IMMEDIATELY TO DIGITAL BECAUSE OF THE LEGACY BANKING MINDSET AS THEY HAVE BEEN ASSOCIATED WITH THIS COMFORT ZONE FOR LONG AND FIND IT DIFFICULT TO TRANSITION QUICKLY” Atif Bajwa, CEO Bank Alfalah Limited

reach of Telcos is far superior than banking. For example, he said more than 80% of population is deprived of banking while more than 70% have access to mobile SIMs. All telcos need to leverage their large customer base by offering banking services. In fact, as we write this report, the SBP has already announced it is coming up with a new set of regulations for digital banks, a clear indication of where the regulator is going.

The way forward atani of Intermarket expects similar trends to continue in 2017. “This year will be similar to 2016 because profitability will remain under pressure,” he said adding, “I don’t see interest rate changing (increasing) this year.”

Basir, too, thinks 2017 will be a little bit tough for the banks and expects 8%

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growth in banks’ earnings in the current year. The banks’ income is shrinking but their cost is also decreasing, he said. For example, their deposit expense is falling because of low interest rates. Banks are streamlining their admin expenses as well.

Going forward, he said CPEC will also result in higher advances for banks.

“2017 is likely to be worse than 2016 because a five-year PIB is maturing this year,” says Afzal of Insight Securities. This PIB is worth Rs500 billion or 10% of banks’ total advances, which will affect their earnings, he adds.

The analyst acknowledged that banks are on the growth track but added they are unlikely to hit their 2014-2015 peak anytime soon. “I think things will normalize in 2018, which will be better than current year as NIMs will improve by then.”

Most analysts, however, agree that business and economic outlook is positive and CPEC will also provide some boost to economic activity. Banks’ NPLs have fallen now and they have started lending to private sector, and credit offtake is improving, analysts say.

According to SBP, loans to private sector increased to Rs360 billion in JulyFeb period of FY2017, up from Rs277 billion of the corresponding period. Similarly, advances to businesses increased to Rs303 billion in the same period, up from Rs219 billion of the corresponding period.

Similarly, consumer financing has also increased to Rs47.3 billion in July-Feb FY2017 compared to Rs11.4 billion of the same period of last year -- an indication that consumer demand is on the rise and people’s income level has increased and they are buying things on loan and have

“WITH A REACH OF 140 MILLION CUSTOMERS, THE REACH OF TELCOS IS FAR SUPERIOR THAN BANKING, FOR EXAMPLE, MORE THAN 80% OF POPULATION IS DEPRIVED OF BANKING WHILE MORE THAN 70% HAVE ACCESS TO MOBILE SIMS” Irfan Wahab, CEO Telenor

confidence to pay back, say analysts.

Although banks are now shifting focus back on their core segment, advances to private sector, businesses and personal finance, it may take much more than that to make big bucks.

“I have a sense that we will stay dependent on the government. Some of these banks have almost forgotten how to lend,” Tarin says. “It will take them a long time to build the capacity to lend to customers.”

Tarin says banking has a very small footprint in the economy, which is a basic problem that needs to be addressed.

“We have coverage of only 33% of GDP as far as total banking is concerned,” the banker said adding that the number will be even worse if one takes into account informal economy.

“The biggest challenge that the policy makers and banks have is to increase this footprint,” Tarin said. He further said that lending to SMEs is about 7% to 8%, to consumer is also in the 7% to 8% range while credit to agriculture is about 5% to 6% so the bulk of our lending is corporate sector, which has to change. Then you need to expand geographically, he said referring to eight or nine cities which consume over 80% of all banking credit Talking about future of banking, Tarin said the brick and mortar model will be gone in few years and the very essence of banking will be taken over by large companies, the likes of Google and Amazon because they have the customer base.

“All they have to do is to spin around that customer base with the financial products,” Tarin said.

With additional input from Syeda Masooma and Aisha Arshad

Pakistan’s best banks:

how we did it By: Farooq Baloch or Profit’s first-ever best-performing banks study, we have tried to keep it simple and based our rankings purely on the banks’ financial performance. We dropped specialized banks and mircofinance banks this year. We also dropped banks that had not published their annual accounts at the time of data collection, which brought our list down to 25.

Then, we classified them into three categories based on the size of their balance sheets as on December 31, 2016 so that we could make an apple-to-apple comparison.

Banks with a balance sheet size of at least Rs1 trillion were classified as large banks; those with balance sheet size of more than Rs500 billion but less than Rs1 trillion were classified as mid-sized banks and banks with balance sheet size of less than Rs500 billion were classified as small banks.

Next, we collaborated with experts from Intermarket Securities, Topline Securities, Arif Habib Limited, Insight Securities, and CitiBank to help us identify parameters for ranking these banks. After some deliberation over the key performing indicators gathered from these research firms, we divided the banks’ financial performance into three broader parameters: Growth, Size and Strength and gave them weightage of 50%, 10%, and 40% respectively.

We split these broader parameters into sub-parameters to cover a wide spectrum of financial performance indicators. For the purpose of simplicity as advised by most experts, we gave equal weightage to each of these sub-parameters.

In ‘Growth’, we considered the growth in banks’ deposits, loans and advances, fee income, operating profit (profit before tax), and Current Account Savings Account (CASA) balances.

Similarly, in Size we considered total deposits, operating profit and total assets. And in ‘Strength’, we considered the following sub-parameters: quality of assets, productivity and efficiency, quality of earnings, and capital adequacy.

To offset the impact of any short-term gains or losses, we collaborated with Abdul Ghani Fatani, Investment Analyst at Intermarket Securities, and Umair Naseer, Senior Research Analyst at Topline Securities to provide us with three-year data (based on consolidated annual accounts) for each of these parameters.

For each bank, we assigned a ranking point to all sub-parameters with lowest value depicting the best performance in the given parameter. We then added the score of each sub-parameter in the ‘Growth’ segment and multiplied the sum to the category’s weight to reach a final score for that segment. We applied the same method on ‘Size’ and ‘Strength’ segments and then added the totals of all three categories to reach a final score, which decided the winners – the lowest value depicted the best performance.

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large banks

mid-sized banks

small banks

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AN upsurge iN the NumBer of totAl (full-time ANd pArt-time) freelANcers will Also Be oBserved with expectAtioNs oNe iN every three employees will Be providiNg freelANce services By 2020

By: Nida Jaffery

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remendous well-paying job opportunities are available for freelancers in Pakistan mainly because they have succeeded in changing their previous image of “inconsistent” to “competent” and are wellversed at what they do, according to industry experts.

“The quality of projects delivered by Pakistani freelancers is at par with our top freelancer countries from around the globe,” matt Cooper, Vice President of International enterprise for elance-odesk Inc. said in one of his interviews. “Pakistan ranks fifth on the top freelancers countries’ list because Pakistani freelancers are regularly delivering quality work in a timely fashion on projects ranging from web design to blog and art jobs.” experts believe Pakistanis are well positioned to take advantage of opportunities international freelance market is likely to offer in coming years.

Amidst forecasts of a digital boom in the next five years, freelancers in the world are expected to make up to 50 percent of the full-time workforce. An upsurge in the number of total (full-time and part-time) freelancers will also be observed with expectations one in every three employees will be providing freelance services by 2020.

The scenario speaks for itself as the opportunities for Pakistani freelancers are not any different. At a time when the world freelance market is reeling with positivity, the growth for freelancers in Pakistan is certainly on the cards.

Hassan Abdullah is, perhaps, a good example for aspiring freelancers who want to earn big bucks.

An engineering student enrolled in the

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undergraduate program of a reputable university in Islamabad, Abdullah started working as a freelance digital marketer in 2014.

Currently, the young techie earns about rs1 million a year – over rs80,000 a month – through online freelancing. This leaves him with enough finances to take care of all his and his brother’s expenses including education and lodging.

“Freelancing has enabled me and my brother to pursue higher education,” said Abdullah. “The hours are flexible. Though the work is hectic, it is manageable with

largest online job portal in the world. moreover, Pakistani freelancers’ earnings were fifth highest in the world during the same period.

“In my five year experience of online freelancing, the basic compensation I receive has increased from $5 an hour to $25 an hour,” said Abid Hussain, a freelancer registered on upwork.com. “If a job is too technical, one can earn even up to $50 or $60 an hour.”

Hussain further added that he prefers freelance work over jobs that require him to

“ONE ONLY NEEDS A COMPUTER AND AN INTERNET CONNECTION TO WORK AS AN ONLINE FREELANCER. THE ENTIRE GLOBAL COMMUNITY BECOMES YOUR CLIENT” Badar Khushnood, Country | Consultant for Twitter Pakistan and product growth consultant Facebook Pakistan

studies.”

Abdullah and many others, not only in Pakistan but also in the entire world, earn their living through digital freelancing. This global community of freelancers is growing each year with many joining the market for better opportunities.

With a population difference of more than a million from the market topper, usA, Pakistan is exhibiting relatively buoyant growth in its freelance market.

Pakistan ranked on number four among the top 10 freelancers countries in the world in 2014, according to the Global online employment report by elance-odesk Inc, the

be physically present because the work hours are flexible and he saves time and money that he’d otherwise have to spend on commute.

A freelancer spends no time commuting to and from the office, whereas other workers spend a median of 32 minutes in traveling each day, as mentioned in the elance-odesk Inc’s Annual Impact report 2014.

Freelancing also allows needy individuals to take several jobs at a time. some freelancers take up to five small and largescale projects simultaneously.

“It is important to maintain quality. As long as you are an A player at what you do, you can take as many projects as you can handle,” said Hussain.

With the increasing acceptance of technology, the number of macro level op-

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portunities for IT freelancers has surged to commendable levels.

Over the years, requirements of expertise in the field of IT have maintained implication over the fundamentals of the freelance market. Almost 50 percent of the online work spend by employers was made in the technology sector in 2014. IT led the market with a work spend of almost $486 million, followed by $110 million on admin support and $109 million on writing and translation.

Some other services that are highly sought-after in the market include sales and marketing, design and multimedia and finance and legal assistance.

Freelancing also helps connect with the global market on a whole while a physical job usually restricts the employee to a certain location.

“One only needs a computer and an internet connection to work as an online freelancer. The entire global community becomes your client,” said Badar Khushnood, Country Consultant for Twitter Pakistan and product growth consultant Facebook Pakistan.

“This can aid tremendously in filling the employment gap in the country.”

Another reason for the increasing number of freelancers is people’s frustration towards the fluctuating economies of their own countries. They feel insecure working in their own economies and the compensation they get elsewhere is far better.

“One of the benefits of online work is the opportunity for contractors (and businesses) to ‘escape’ their local economies,” said Kjetil Olsen, Vice President Europe at

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“THE QUALITY OF PROJECTS DELIVERED

BY PAKISTANI FREELANCERS IS AT PAR WITH OUR TOP FREELANCER COUNTRIES FROM AROUND THE GLOBE” Matt Cooper, Vice President of International Enterprise for Elance-oDesk Inc.

Elance-oDesk Inc. “A number of countries in Europe have weak economies and the workers in these countries are seeking work online.”

The scenario mentioned is applicable

to Pakistan also as freelancers in Pakistan seek work outside the country to be able to earn in dollars and pounds (the common currencies for freelance payment transactions).

A number of websites are available for freelancers to work online including freelancefree.com, 99design.com, elance.com, guru.com, peopleperhour.com and freelancer.com.

These websites are global markets within themselves as each website has users from various different countries in the world.

These include both clients/busi-

ness owners and online freelancers.

As per industry experts the freelance industry of Pakistan is growing 10 to 25 percent each year. Freelancers especially tech experts are taking refuge in freelancing mainly because of the current lack of digital laws to provide support to the workers who intend to start online businesses of their own.

“I’ve thought of opening my own digital marketing firm plenty of times but the lack of facilitation by the government makes it difficult for individuals to open small digital businesses, said Shummas, a digital marketing expert and a freelancer on several different online platforms.

“Eighty five percent of the software used in Pakistan are pirated.

We rank on number 116 out of 143 countries in the world where the intellectual property theft is very frequent and the offender does not face many consequences either.”

These and many other mal practices need to be eliminated to encourage individuals to provide further boost to the industry.

Meanwhile, the unavailability of suitable payment solutions in the country is also a huge hurdle for Pakistani freelancers.

Services that are commonly used around the world like PayPal, an online money transfer solution, should be accessible for freelancers in Pakistan for easy transaction.

“We need cyber laws. We need regulations and above all we need PayPal.” Shummas said of the hurdles in the growth of the market. n

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OPINION

Muhammad Usman Gilani

Leap of faith few months ago I took my head office team to a team building session at a nearby resort. Although I was heading the HR function for this company, but a trainer at heart I facilitated the sessions myself. During a specific activity, Tug of war, my fellow colleagues asked me to compete along with them too. As a trainer, I had previously made many teams to do this activity. To me, it just seemed a great energizer and fun activity. The debriefing sessions had also always been fun as people would actively participate and talk much about resilience, teamwork and skill.

However surprisingly this was the first time that I stood holding the rope along with my team. At the blow of the whistle everyone started to pull. Within seconds I no longer knew where my team members were, I was determined to not let go till the whistle rang again. The seconds started to seem like hours, draining me of every bit of energy left. I was thirsty, out of breath and very weak in the legs. Once or twice we were pulled forward and that for me meant more effort to pull us back. All this seemed like a never ending ordeal, I did know what my motivation was and there was no compelling reason to struggle and suffer, but somehow I knew I couldn’t give up at any cost! Later when I think about it, it felt like my heart would have stopped had I continued any longer. The game ended and we were victorious.

Several months down the lane, I decided to quit my job for

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Muhammad Usman Gilani, PHR The author is a Trainer & an Entrepreneur

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greener pastures. The decision was never abrupt, nor very well planned. I had been wanting to start a venture of my own since the day I had taken this new role as head of HR. Discussion amongst friends and professional peers would often revolve around possibilities, many a times I would find those with similar ambitions, tired of their current organizations culture, boss or the general slow growth path that their company had to offer. Most employees aspired self-employment or were jealous of those who walked that path. However, most ideas that emerged in these gatherings either died the very same day and some attempts, that were made, just lasted long enough to face the first obstacle. I waited too long for opportunities to knock on my door and when I realized that it wouldn’t happen, I decided it was time to take a leap of faith.

This leap was not very simple. It was a long lasting, intense war between the fear of failure amidst such uncertainty and my ambitions. Fear led to lack of confidence. Mostly I would settle by convincing my mind how I was fulfilling the responsibilities of a large family unit and being the single bread earner was in itself an achievement. Why they, my family, should suffer just because I wanted to adventure on my own. Inspiration is important! When Denzel

“MY FAITH WITH ALLAH HAS BECOME STRONGER, AS I NO LONGER SEEK TO GROW UNDER THE SAFE SHADOWS OF OTHERS”

Washington says “If I am to fall I would rather fall on my face”. Or when Tony Robbins , explains how he drafted every single details of how he wanted his life to be and mapped out how he was going to get there. One should be inspired and take such sources of inspiration to heart. I believe entrepreneurs not only have the ability to inspire but they are also looking for it all the time. Well I guess in my case, I found it from everywhere, friends, online coaches, books and most importantly my lovely wife. I took the leap!

This would be a great read if now I could share my success stories with you, but I can't. Because it's only been a few days that I took the leap. However I can share with you what has changed since then. ! I am in deep waters! For a while there was nothing but darkness, yet the hope of a bright future has lit up my life. Never in my life has creativity flowed with such ease. This urgency and energy was always a dream until now. It is like the universe is conspiring for my glory. At the same time, I feel like I did when I was pulling the rope while playing tug of war. Every day is like those never ending minutes of struggle. Islamic teachings or sayings tell us how a martyr finds more pleasure in every drop of blood that he sheds, than he or anyone could have ever accumulated in a lifetime. I will not discuss the spiritual side of this experience, but surely he must have seen something so much better awaiting ahead that the pain itself turns

DENZEL WASHINGTON SAYS “IF I AM TO FALL I WOULD RATHER FALL ON MY FACE”

into pleasure. I can see that light at the end of the tunnel. Only I can see it and this grind, the thought of not being able to fulfill my responsibilities towards my family is no longer painful. I am aloof of the fears that had previously prevailed in my life. My faith with Allah has become stronger, as I no longer seek to grow under the safe shadows of others. I look at the eagles in the sky as they glide effortlessly across and I can tell them “look I can fly too, I can”. The FUN BEGINS ONCE YOU ARE NOT SCARED ANYMORE. When I was a kid I figured that the mind could be tricked into enjoying intense physical pain. Every time I went to a dentist I would train my mind to try and find pleasure in pain. Sometimes it didn’t work, but mostly I was able to sustain much pain without complaining. I know this time around the pain is more psycho-

logical. It is stressful, but I have to ensure I enjoy this challenge. A wise grey haired man, an entrepreneur turned tycoon once advised me “enjoy these days as you are making stories. When you have achieved what you set out for, it will only be these stories that would be most valuable. You will not pull your hand out of your pocket and show your money to people.” n

ENTREPRENEURSHIP

International experience, love for food and quality control are the main ingredients that make Mahmood Akbar’s Salt’ n Pepper one of the best in the business lizabeth Olsen said, “I get way too much happiness from good food.” And honestly, who doesn’t? Food is an expression of happiness in times of celebration just as much as being a source of comfort in times of distress for most people.

The Pakistanis and their love affair with food has remained consistent throughout history.

Taking this a little further, zinda dillaney Lahore are known for their ultimate love for food in every season and every shade. Some of these zinda dil people have taken their love for food to another level. They not only fancy delectable foods for themselves but also make it available to others, sometimes as a business. One such food connoisseur is Mahmood Akbar , the owner and CEO of the renowned restaurant chain, Salt’n Pepper (SnP).

Mahmood Akbar was no novice in the food business when he decided to launch his own busi-

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ness in Pakistan in the early eighties. He obtained an Associate degree in Hotel management from Miami in the early days of his professional life while concurrently working for Sheraton Hotels.

Later, he moved to Connecticut where he secured a BSc. degree also in Hotel Management from University of New Haven. Upon graduation and with sufficient experience under his belt, he then felt confident to join Hilton International Hotels as a Food and Beverage Manager and was sent to Lahore for the opening of Lahore Hilton (now Avari Hotel).

Later he also worked with Hilton Hotels in Hong Kong and then went on to work at hotels in the far east. Hilton provided him with five years of extensive exposure into the hospitality business. In 1983, Mahmood felt it was time to launch his own brand of restaurants. Mahmood’s first personal business venture was Salt n’ Pepper which was a huge success considering how it has not only maintained its appeal to the Lahorites but has been able to grow into a number of

branches.

Talking about the multitude of challenges being faced by the restaurant industry in Pakistan, Mahmood explained that the success rates of businesses in the local market has been and continues to be very low. This can partially be explained by a multitude of new food outlets opening every year since the food business does not require massive start up capital. He quoted American figures of success rate of restaurants as merely 10% . “In the last 10 years, 25 restaurants opened and closed on M M Alam Road alone.”

He mentioned the lack of qualified personnel as another major hurdle in the Pakistani market. “The restaurant business doesn’t require heavy start-up capital, rather it is more labor intensive and there are not many skilled people here.” This problem is aggravated when businesses are forced to poach competitor's workforce. It is worse for businesses that invest in employee training. “For them it is a bigger loss when their trained workforce leaves and they have to rehire and train more people.”

According to Mahmood, this problem is easily solvable by establishing professional training institutes. He said, “We blame the government but the truth is that we just don’t have enough private institutions to train chefs, managers and other related workforce. There are a select few but they also don’t reach the desirable standards.” Drawing comparisons to our neighboring nations, he said that India has a lot more institutions and that has allowed them to keep up with their hospitality needs.”

Further explaining the challenges in the industry, he highlighted the absence of any food processing industry to support restaurants as the biggest problem. “Back in 1983, and even now, there is no commercial food processing industry so to speak of.”

The processing companies that are present cater to the domestic consumer only.

He said that this makes it much more

MARKETING AND ADVERTISEMENTS ARE CONSIDERED TO BE THE BACKBONE OF ANY BUSINESS IN THE MODERN DAY, BUT SNP HAS BEEN ABLE TO SURVIVE AND THRIVE WITH LITTLE OR NO ADVERTISEMENT AT ALL Mahmood Akbar, CEO Salt n Pepper

difficult and costly for restaurants to get quality food. The available supplies are in smaller packaging and that makes it less cost effective for businesses that need to buy in bulk amounts. “Americans learnt the lesson of economies of scale very early.

Where bulk products are produced, the cost automatically falls.”

In his opinion, processing companies would not only be profitable on their own but would also be of massive help in the expansion of restaurants business.

Despite all these challenges, SnP has been able to shine and progress. Speaking of his business Akbar recounted, “We had a 90 seat restaurant in Liberty Market basement in Lahore. Now it has expanded to 350 seats. On Mall Road we had a 50 seat restaurant which now has 175 seats.” According to him the reason for this continued success is better management, food control and purchasing decisions. “We purchase our supplies daily and ensure that they are of high quality and are fresh.”

His take on competition is somewhat surprising considering the plethora of restaurants in existence these days. He said that when he opened his first SnP restaurant, there weren’t many competitors. To him competition is good for restaurant

MAHMOOD’S FIRST PERSONAL BUSINESS VENTURE WAS SALT N’ PEPPER WHICH WAS A HUGE SUCCESS CONSIDERING HOW IT HAS NOT ONLY MAINTAINED ITS APPEAL TO THE LAHORITES BUT HAS BEEN ABLE TO GROW INTO A NUMBER OF BRANCHES

business. “More restaurants attract more people to the industry but it is only the quality that retains them.” According to him, restaurants in Pakistan normally open to target a specific niche and to cater to different customers. “Most of the places here are dedicated to particular cuisines or desserts or some form of special food.”

This makes the actual direct competition very little for a restaurant like SnP since a single restaurant or restaurant chain doesn’t sell all type and variety of food.

He compared the Pakistani industry with those in other countries by saying, “In foreign countries people go out to eat on average of 21 times per week. Their lifestyle demands so. In Pakistan the average for people to go out to eat is once per week.” With this routine, the restaurants compete with each other on a daily basis.

When people decide on their dining out trips, they already have some special kind of food in their minds, so they go to places serving that particular kind of food.

Marketing and advertisements are considered to be the backbone of any business in the modern day, but SnP has been able to survive and thrive with little or no advertisement at all. Mahmood said that back in the early days it used to be word of mouth and even now it is somewhat the same.

“There used to be few English and Urdu newspapers and an advertisement in each of them was enough to tell everyone about the new restaurant. After that it was through the word of mouth.”

He said that in Pakistan, food is

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mostly prepared at home, so it is a rarity for most people to go out to eat. “We have now started to explore social media for marketing but our prime focus remains the word of mouth of our customers.”

Regarding placement decisions he said, “In Pakistan the case is opposite to most other places. Here we have the land or a building first and then we make a decision about what to do with it.” So the restaurants were not opened according to their location feasibility, but they were rather random decisions. Just like the locations, Mahmood Akbar is also least worried about the recipes of his dishes. He has even published a book of recipes of the dishes served in his restaurants and is not afraid of the recipes being stolen. “I am simplifying

food instead of making it difficult. It’s my way of giving back to the community.”.

He is against processed foods and believes that through his recipes he is providing people with “quick, easy and economical” ways to prepare and eat healthy foods. He considers it absurd to think that someone will follow all his recipes and have another restaurant with all the same dishes. If one or two of them are replicated, however, he considers it a good thing as opposed to a loss.

Mahmood Akbar says he loves food and understands its complexities. He has ensured to keep food of high quality and taste yet at competitive prices. “We have been able to control our costs by effective management of the entire process. Our

MAHMOOD AKBAR OBTAINED AN ASSOCIATE DEGREE IN HOTEL MANAGEMENT FROM MIAMI IN THE EARLY DAYS OF HIS PROFESSIONAL LIFE WHILE CONCURRENTLY WORKING FOR SHERATON HOTELS 38

wastage is low and our productivity is high.

So even at lower prices we are good.”

He himself is a fan of Dall Gosht and Chawal. Despite being a connoisseur of food, he never puts down less than delicious food. “I have eaten rubbish quietly and still praised it. The fact is that if someone offers me food, to them it is the most delicious and filled with pure sincerity, so it deserves nothing but praise.”

He recalled the time when Lahori’s were quantity eaters and not so pushed about food quality. “Things have changed now, especially with the younger generation. To them quality comes first and that is a welcome change.” He said, “Make quality your hallmark and you will succeed in this business.”

Growth and expansion are in his plans for the future but he has pledged to continue remaining sincere to food and maintaining its quality. He has already penetrated the London eatery market and hopes to see Salt’n Pepper expanding.n

By Syeda Masooma

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khtar brought Infotech to profitability and continues to build on that success with double digit year-onyear growth. he is a sought-after speaker, technology mentor and served as the Chairman of Pakistan’s It industry association P@Sha in 2013. akhtar has also been honored with numerous industry awards and accolades. at Infotech, akhtar sets the corporate direction and strategy for all lines of business; he focuses on customers, strategy and innovation and has been responsible for multimillion dollar revenue generating product roadmaps that have disrupted major industries including Capital Markets, G2C and Smart Grids. the company empowers businesses by providing information technology solutions to achieve optimal results and return-on-investment. Other than Pakistan, they have offices in UaE, Singapore, and Ghana.

Infotech has worked with various local and international companies such as the Ghana Stock Exchange, Dhaka Stock Exchange, ECO Bank, renaissance Group, PIa, Crescent Bahuman, NaDra, as well as leading Pakistani banks. the company has also successfully installed smart meters in karachi for k-Electric, formerly kESC. Infotech has also won another project, following a competitive bidding process – based on its experience with similar solutions within and outside Pakistan, including CIS, Billing and Smart Grid initiatives at SSGC (Sui Southern Gas Company) and kE (k-Electric) – to implement resource planning and customer information systems at Peshawar Electric Supply Company (PESCO). the project is funded by USaID under PDaP (Power Distribution automation Program) and administered by International resources Group (IrG-USa).

Infotech is also working on another project with Dubai Customs and successfully implemented ErP in PIa. Profit: How and when was the idea of launching InfoTech born?

Naseer Akhtar (NA): the first time I thought of it was perhaps in 1984 or ’85.

When you work for somebody else and you’re not satisfied with how things are being done, there comes a time when you have to call it a day because it’s their com-

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pany and they decide what to do. It’s like: my way or the highway. So I resigned and launched my own company.

Profit: Which company were you working for?

NA: I was working at BCCI (Bank of Credit and Commerce International – defunct in 1991) as their territory Executive for developing non-banking businesses such as technology, logistics etc. I left them in 1987 started a company by the name of

South technology and Services – it was renamed Infotech in 1995.

Profit: Why is the company headquartered in Singapore?

NA: Singapore serves as our global headquarter but Infotech is incorporated in Pakistan and owns all the offices abroad. all our global offices in the U.k, UaE and africa report to Singapore, which in turn is reporting to us here, in Lahore.

Profit: What is the ownership structure

of the company?

NA: It’ a private limited company with family members as the shareholders. Our core business is system integration and we provide IT solutions to five different sectors which include: financial markets (banks, stock exchanges etc.); energy distribution; public sector e-government (citizen services like computerized ID cards); retail distribution (supply chain) and lastly, innovative technologies like IoT (Internet of Things) and Blockchain; research-oriented technologies that can be applied to any industry.

These technologies are evolving.

Profit: Which sector among these five contributes the most revenue?

NA: Financial sector contributes the most revenue because it’s well established. And within the financial sector, banks contribute the most.

Profit: What’s the percentage share of revenue-contribution from local and international banks?

NA: It’s 70:30. Local banks contribute more revenue.

Profit: Which regions do the international banks belong to?

NA: Mostly Middle East, Africa, and Asia Pacific.

Profit: Please name your major competitors both in the local and international arena.

NA: We don’t have a competitor here in Pakistan, no other player in the country can match our scale or diversity of products offered. Globally, we compete with the likes of Tata, Infosys, Tech Mahindra etc.

Profit: So we’re lacking behind in the international market?

NA: Of course we are. And it’s not just one thing that we lack in, we lack in every field.

Profit: How many employees do you have and what is your major expense?

NA: We have about 350 employees. And human resource costs us the most since our work is labour-intensive. HR constitutes sixty per cent of our total cost.

Profit: How much do you spend on research and development?

NA: Around 15-20 per cent of our net profit is spent on R&D. Profit: What are your future plans?

NA: We are jumping into new areas, like: ecommerce and IoT (Internet of Things) etc.

We are expanding our footprint in these upcoming industries and obviously, we need to grow globally. That’s essentially because

the local market is not expanding as much as the international market. The international market offers us more leverage, room to expand, and profitability as well.

Profit: How so? Aren’t the margins smaller in the international market since the market already has a lot of competition?

NA: No, we make more money by selling our products outside this country than we make from Pakistan.

Profit: What is the reason for that?

NA: It’s because Pakistan is a low price market, and is saturated. Companies do not have the power to invest, not enough spending power. For example, a service that we in Middle East or Africa fetches us five times the money we make by the selling the service in Pakistan.

Profit: Considering all that you just said, are you focusing more on international expansion rather than growing locally?

NA: No, you can’t call it ‘focus’. We are forced to have a decent mix in order to stay financially viable.

Profit: What is the ratio of your revenue is earned from the local and international market?

NA: It’s 50-50.

Profit: Do you think that the SMEs in Pakistan are shifting towards such solutions as ERP (Enterprise Resource Planning) programs etc?

NA: Yes, but not as much as they should be.

Their purchasing power is not enough and they remain under pressure.

Profit: How have you maintained the firm’s competitiveness in the ERP mar-

AT INFOTECH, AKHTAR SETS THE CORPORATE DIRECTION AND STRATEGY FOR ALL LINES OF BUSINESS; HE FOCUSES ON CUSTOMERS, STRATEGY AND INNOVATION AND HAS BEEN RESPONSIBLE FOR MULTIMILLION DOLLAR REVENUE GENERATING PRODUCT ROADMAPS THAT HAVE DISRUPTED MAJOR INDUSTRIES INCLUDING CAPITAL MARKETS, G2C AND SMART GRIDS TECH

ket?

NA: By repeatedly doing the same job. We have achieved sharper skills and intellectual property in the sense that we can understand those problems better than the rest, and thus provide better solutions to it. For example, if we deploy an ERP solution for a particular industry or company, suppose we automate LESCO; we get to know their processes and the problems they are facing.

Once we fix these problems, we can solve issues of similar nature in other such companies like FESCO and KEPCO. Then it becomes far more easier and economical to deploy a solution.

Profit: What challenges are being faced by the Pakistani sector?

NA: The biggest challenge is that the market is not growing. Public sector spending on IT sector is not as much as it should be.

It’s inadequate.

Profit: What’s your opinion about the Punjab Information Technology Board (PITB) and the work it is doing in the IT sector.

NA: The problem with PITB is that they want a job done (solution) at a cost of only Rupees one lakh, while the solution costs Rs1 crore in the international market. They are doing nothing but make-believing the entire thing.

Profit: Do you think all the progress that they’re showing is a facade?

NA: Why are you asking me? The whole world knows that it’s a facade.

Profit: Why have we not been able to produce a single company worth a valuation of $100m, let alone a billion-dollar startup?

India has more than ten such companies.

NA: It’s because there are no opportunities here and we don’t have an IT ecosystem.

Profit: What do you mean by that, is it the government that does not support the industry?

NA: Firstly, the government doesn’t recognize us. I’ll explain it to you. Look at the textile industry, its exports are declining.

Our government has given them a Rs 180

“WE DON’T HAVE A COMPETITOR HERE IN PAKISTAN, NO OTHER PLAYER IN THE COUNTRY CAN MATCH OUR SCALE OR DIVERSITY OF PRODUCTS OFFERED. GLOBALLY, WE COMPETE WITH THE LIKES OF TATA, INFOSYS, TECH MAHINDRA ETC” Naseer Akhtar, CEO Infotech

billion package to boost their exports. The industry will do what is has done since the last thirty years. They have taken almost Rs 30 billion in the form of rebates alone over the last three decades. The money was spent on setting up sugar and cement factories by these people.

They have taken rebates up to 24 per cent. It has reduced in the last few years and now it’s 8 per cent, because it’s a declining sector. It is a labour-intensive industry and I am not suggesting that the industry should not be promoted, it’s just that the IT sector has high-value and high yield export potential.

There is no value-addition being done in the textiles sector. IT exports are growing at 15-17 per cent year-on-year.

This can jump up to 50 per cent YoY. If they give even half the amount of the package given to the textile industry to the IT industry, it will have a much greater impact in terms of increase in value of exports. Take a look at the government’s Vision 2025, it clearly says that we wish to create a knowledge economy, which includes: IT industry, engineering industry;

INFOTECH HAS ALSO WON ANOTHER PROJECT, FOLLOWING A COMPETITIVE BIDDING PROCESS – BASED ON ITS EXPERIENCE WITH SIMILAR SOLUTIONS WITHIN AND OUTSIDE PAKISTAN, INCLUDING CIS, BILLING AND SMART GRID INITIATIVES AT SSGC (SUI SOUTHERN GAS COMPANY) AND KE (K-ELECTRIC) 42

pharmaceuticals industry etc. Words won’t make it real; the government needs to invest in it.

Profit: When can we expect Pakistan to have a $100 million tech company?

NA: We can’t say for sure, the pace is really slow.

Profit: What’s your opinion about Tech Incubators like Plan9 and likes of it, are they producing good startups?

NA: This is because what they’re doing is unnatural. It’s like they’re teaching you entrepreneurship, which is not true. Entrepreneurship cannot be taught in classes, it’s an in-built capability. It comes from within.

Universities offer knowledge and what Pakistanis are trying to copy (West) is not possible because that place has an entirely different and much advanced ecosystem present. In Silicon Valley, you can access investors and win their trust. All of that is missing from the domestic scene. Planning is something else and actually executing it is something completely different. A powerpoint presentation and an excel sheet does not make a business.

Profit: So you don’t see any IPOs from tech companies?

NA: There will be a few. One or two each year.

A: So where is the problem coming from?

NA: Scalability is the issue. My team has been asking me to make the company public since the last five years. But where would I spend the funds raised by the IPO? How would I increase value for my investors and myself? All because we lack a robust ecosystem.

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