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Consumer finance business taking great effects in Pakistan banking sector

Published on 10th Oct, Edition 41, 2016


Meezan Bank’s Vendor and Distributor Financing Program strengthening the small scale industries
Interview with Muhammad Raza — SEVP & Group Head-Customer Support, Meezan Bank


Muhammad Raza is currently the Group Head of Customer Support at Meezan Bank, Pakistan’s first and largest Islamic bank. His educational background includes a Bachelor of Engineering from DCET, NED University of Engineering & Technology and a Master’s degree in Business Administration from Institute of Business Management (IoBM). He also holds an Associate Diploma from the Institute of Bankers, Pakistan and a Post Graduate Diploma in Islamic Banking and Finance from the Centre of Islamic Economics.

He has over 25 years of diversified banking experience in the areas of retail and consumer banking and 13 years of experience in Islamic banking in the areas of branch banking, liability sales & marketing, liability product developments, service quality, consumer finance, wealth management, collection & recovery, training and marketing.

He is a certified trainer and conducts both in-house and external training on various subjects and is also a member of various committees at State Bank of Pakistan, including PBA consumer sub-committee and Chairman of Mortgage Forum of Pakistan Bankers Association (PBA).


PAGE: Your views on the performance of Islamic banking in Pakistan:

Muhammad Raza: The Islamic banking share in the banking industry is growing annually by approximately 1.1 percent and this may increase to 2-2.5 percent when the smaller Islamic banks start growing. At present, Islamic banking assets and deposits account for approximately 11.2 percent and 13.1 percent respectively of Pakistan’s total banking industry, and given the number of Islamic banks, this could grow to 15 percent over the next couple of years.

We currently have 6 dedicated Islamic banks and 17 window operation of the conventional banks. Overall, the banking industry is growing at a rate of ten percent, yet the financing portfolio of Meezan grew by 18 percent in 2015. The growth potential is very high and this is one of the reasons why all the banks are taking keen interest in promoting Islamic banking.

Meezan Bank has launched Meezan Upaisa – world’s first Islamic branchless banking services and this will prove transformational for the Islamic banking sector across the globe.

The China Pakistan Economic Corridor (CPEC) is also a tremendous opportunity for Pakistan’s Islamic banking sector. With $45 billion worth of infrastructure projects under CPEC, the opportunities to offer Islamic bonds (sukuk) for infrastructure will grow. As far as the spread of Islamic banking is concerned, I certainly think this shall favour the growth of this industry further.

PAGE: How would you comment on innovation in banking sector of Pakistan?

Muhammad Raza: Innovation is new way of doing things or better solutions that meet customers requirement. The innovation part is an ongoing process which has picked up its pace with the advent of digitalization.

Fortunately, Pakistan’s banking sector has been one of the early adopters of digital solutions in terms of allowing its customers with Internet banking, SWIFT transfers and further advanced systems designed to allow easier cash management.

Over the last one decade we have seen several banks adapt as best they can to this digital revolution that has significantly reshaped banking services. I believe as banks struggle to further strengthen their technological backbone, the impact of these remains largely functional. However, the past few years have also spurred a new type of revolution — with the introduction of smartphones. This ‘personalised digital revolution’ is an immense opportunity as well as a challenge for Pakistani banks.

Corporate banking is no longer limited to smart services but also extends to personal user experiences for firms, companies and the people working in these organizations. Innovation to me, therefore, is not a one-dimensional approach but a cultural change in which product development, service, quality, customer satisfaction and personalisation need to be addressed.

In Pakistan, the government and regulators have taken great strides for the expansion of Islamic finance in the region, but much work still needs to be done. For Meezan Bank, our customers lie at the heart of every strategy we implement. As we grow now, we are focusing on bringing innovation in the growing areas of Islamic banking from corporate to investment and branchless banking. In addition, we are focusing heavily on the consumer segment by providing our customers with financing solutions for their personal financing needs.


PAGE: Your views on consumer financing by banks during this year:

Muhammad Raza: The consumer finance business in Pakistan has tremendous potential. In the current financial market where the discount rate is on decline and banks are looking for ways of revenue generation, consumer finance now comes on the top priority of the banks. Till last year, banks were busy parking most of their funds in treasury bills, Sukuk and bonds and completely ignored the consumer financing segment. But things now seem to become better and better for consumer business. The low interest rate induced customers to jump in for getting consumer loans and the banks are also ready to extend consumer financing realizing that retail finance brings higher returns and stability in their earnings.

In the present market, we see that car sales is on a rising trend, housing finance is back and getting momentum and the demand for consumer durable goods also increasing; it is thus a golden opportunity for the banks to tap the consumer market and invest in the infrastructure and human assets for consumer business.

For Meezan Bank, the year 2015 proved to be very progressive in terms of retail financing business. In housing finance, the bank managed highest-ever disbursals amounting to Rs3.6 billion in a single year.

In auto leasing, disbursements were Rs8.3 billion during the year 2015, which is yet another record of highest acquisitions. Our retail business further gained momentum in the year 2016 with a very good start as in just two months (Jan-Feb-16) Bank’s consumer financing acquisition crossed the figure of Rs2.0 billion.

According to a recent Automobile Industry Survey issued by Pakwheels.com, Pakistan’s #1 automobile website, Meezan Bank has been ranked the most popular in Pakistan’s Islamic auto financing industry, capturing more than 47 percent popularity share among all Islamic banks in the country. As per the survey, conventional auto finance dominates the auto finance sector with 73 percent popularity ratio while Islamic auto financing is limited to 27 percent. This difference is owed to a number of factors, the major one being that the Islamic banking industry started very late. I do believe, however, that our growth is satisfactory and that we have the right strategy and have been able to build the right culture for an Islamic bank. To ensure our success, we adhere to the principles of Shariah, continuously strive to adopt international best practices and stay customer-focused.

PAGE: What is your take on the financing facilities for SMEs?

Muhammad Raza: SMEs are the backbone of Pakistan’s economy and a key contributor to achieving sustainable economic growth. A major bottleneck to Pakistan’s economic growth is the lack of adequate access to finance. Meezan Bank has employed a dedicated team to cater to the banking needs of this segment of the economy.

Meezan Bank has also entered into a Vendor and Distributor Financing Program with Karandaaz Pakistan, a private company that promotes access to finance for small businesses through a commercially directed investment platform. The company has financial and institutional support from leading international development finance institutions; principally the United Kingdom Department for International Development (UKAid) and Bill & Melinda Gates Foundation. The Consultative Group to Assist the Poor (CGAP), a member of the World Bank Group, managed the start-up phase of the company and continues to provide technical support.

Objective of the Vendor and Distributor Financing Program is to provide risk capital to small and medium enterprises by providing short term and long term funded facilities to the clients, vendors and distributors of corporate clients through a cash flow based lending model. Meezan Bank is keen to facilitate small and medium size customers through this structured financing program by taking leverage from its existing corporate portfolio. The Bank anticipates that this program will provide healthy returns and also contribute towards the society by strengthening the small scale industries in Pakistan.


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