More lending, financing under renovate banking sector.

Byline: Syed Fazl-E-Haider

Banking sector accounts for around three-fourth of Pakistan's financialsector. A robust banking sector is a healthy sign for the economy of a country. It is this sector that plays the role of financial intermediation between savers and investors, which actually determine the rate of economic growth. The banking sector plays a critical role in mobilization of savings from households from across the country and placing them at the disposal of entrepreneurs. There is a dire need to make efforts for making the banking system more inclusive and focus its lending activities on the SMEs and agriculture sector. The banking authorities should reduce spreads between the deposit and lending rates and increase the profits on deposits so as to encourage the depositors to save more rather than consume.

The country's banking sector witnessed unprecedented growth after 2001 due to low interest rate and product innovation in consumer financing. Information and communication technologies (ICT) have brought about a revolutionary change in the financial sector. This revolution finds manifestations today in shape of innovative banking products and services such as Automated Teller Machines (ATMs), internet banking, tele-banking and so on. The online banking has accelerated financial inclusion gradually changing the financial landscape in the country. The banking industry, however, faces tough competition unleashed in the global arena. Pakistan has witnessed in recent years a growing trend toward branchless banking, which is actually a distribution channel strategy used to deliver financial services without relying on bank branches.

It can also be used as a separate channel strategy that entirely forgoes bank branches. Initially, internet banking was launched in Pakistan to provide a limited number of services. In 2002, the government of former President Pervez Musharraf took a landmark step for promotion of electronic banking in the country by promulgating the Electronic Transaction Ordinance 2002, which provided legal recognition of digital signatures and documentation reducing the risks associated with the use of electronic media in business. Branchless banking regulation was first introduced in the country in 2008. Today, ATMs, tele-banking, internet banking, credit cards and debit cards have emerged in Pakistan as effective delivery channels for traditional banking products.

Consumer financing has emerged out as one of most...