Final Repot Nbp

CHAPTER 1

1.1 INTRODUCTION

1.1.1 EVOLUTION OF BANK

1. It has not so far been decided as to how the word ‘Bank’ originated. Some

authors have got the opinion that this word is derived from the words ‘Bancus’ or

‘Banque’, which mean a bench. Other authorities hold the opinion that the word

‘Bank’ is derived from the German word ‘Back’, which means ‘joint stock fund’.

It is therefore, not possible to decide as to which of the opinion is correct, for no

record is available to ascertain the validity of any of the opinions.

2. Banking in fact is primitive as human society, for ever since man came to realize

the importance of money as a medium of exchange; the necessity of a controlling

or regulating agency or institution was naturally felt. Perhaps it was the

Babylonians who developed banking system as early as 2000 BC. It is evident

that the temples of Babylon were used as ‘Banks’ because of the prevalent respect

and confidence in the clergy.

1.2 HISTORY OF BANKING IN PAKISTAN

3. At the time of independence, there were 631 offices of scheduled banks in

Pakistan, of which 487 were located in West Pakistan alone. As a new country

without resources it was very difficult for Pakistan to run its own banking system

immediately. Therefore, the expert committee recommended that the Reserve

Bank of India should continue to function in Pakistan until 30th September1948,

so that problems of time and demand liability, coinage currencies, exchange etc.

are settled between India and Pakistan. The non-Muslims started transferring

their funds and accounts to India. By the end of June 1948 the number of officers

of scheduled banks in Pakistan declined from 631 to 225. There were 19 foreign

banks with the status of small branch offices that were engaged solely in export of

crop from Pakistan, while there were only two Pakistani institutions, Habib Bank

of Pakistan and the Australian Bank. The customers of the bank are not satisfied

with the uncertain condition of banking. Similarly the Reserve Bank of India was

not in the favor of Govt. of Pakistan. The Govt. of Pakistan decided to establish a

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full-fledge central bank. Consequently the Governor-general of Pakistan Quaid-I-

Azam inaugurated the State Bank of Pakistan on 1st July 1948. Thus a landmark

was made in the history of banking when the state bank of Pakistan assumed full

control of banking and currency in Pakistan. The banking structure in Pakistan

comprises of the following types.

4. State Bank of Pakistan

5. Commercial Bank of Pakistan

6. Saving banks.

7. Cooperative banks

8. Specialized credit institutions.

1.2.1 COMMERCIAL BANKS

9. Commercial banks have been the most effective mobilizes of savings and have

been providing short-term requirements of working capitals to trade, commerce

and industry.

10. Up to 31st December 1973, there were 14 Pakistan commercial banks that were

performing their functions all over the country and in some foreign countries

through a network of branches, the name of these were:

11. National Bank of Pakistan

12. Habib Bank Limited

13. Habib Bank (Overseas) Limited

14. United Bank Limited

15. Muslim Commercial Bank Limited

16. Commerce Bank Limited

17. Australia Bank Limited

18. Standard Bank Limited

19. Bank of Bahawalpur Limited

20. Premier Bank Limited

21. Pak Bank Limited

22. Lahore Commercial Bank Limited

23. Sarhad Bank Limited

24. Punjab Provincial Co-operative Bank Limited

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25. All these commercial banks were nationalized in 1stJanuary 1974, and were

recognized and merged into the following five banks:

26. National Bank of Pakistan

27. Muslim commercial bank limited

28. Habib Bank Limited

29. United Bank Limited

30. Allied Bank of Pakistan

31. The state bank of Pakistan is the Central bank of the country and was established

on 1st July 1948. The separation of East Pakistan and its repercussion in the form

of economic depression has caused a lot of difficulties to the banking system in

Pakistan. The network of bank branches now covers a very large segment of

national economy. The numbers of branches have increased appreciably and

there is now one branch of bank for every 3000 heads of population

approximately. There is done reasonable growth in deposits from the

establishment of Pakistan. Besides this growth, specialized credit and financial

institutions have also developed over the years.

32. The Government of Pakistan in the late 90’s introducing the need for the

privatization of state owned banks and companies. The private sector has

accepted the challenge and most of the banks are privatized today. The State Bank

of Pakistan issues the shares of these periodically. Bank employees and other

common the people can also purchase these shares and earn profit. Through out

the period of banking history the banks have been expanding rapidly and achieved

the desired goal of progress.

1.2.2 Commercial Banking in Pakistan

South Asia has proved to be fertile land, not just for crops, but also for intelligent and

learned brains. People of this area have God gifted ability of mathematics and

calculations. The Indian society was quite familiar with the banking right from the

beginning. Informal banking practices and banks existed in one form or the other.

The English, brought with them much developed and organized banking methods and

practices. Being home to nearly one third of world’s population, this region has always

been the center of attention of world’s economic powers. The sense of competition

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between the local and international banks has proved to be fruitful in the development of

the banking sector thus contributing towards the growth of the region’s economy.

At the time of independence, the areas which now constitute Pakistan were producing

raw material in the form of food grains and different other agricultural products. There

was practically no industry setup in Pakistan. However, the commercial banking facilities

were well established. As a country without enough resources it was very difficult for

Pakistan to run its own banking system but the father of the nation, Muhammad Ali

Jinnah took the bold step to establish the State Bank of Pakistan in July, 1948.

At the time of partition only 38 banks were operating in Pakistan. Out of 38 banks, only 2

were Pakistani, 29 were Indian and 7 were exchange banks. Commercial Banks have

constituted the most important part of the intuitional credit in the economy of Pakistan.

Being the largest source of credits, banking industry is the pivot of whole the economic

activities in Pakistan. State Bank of Pakistan Act of1965 lays down the rules and

regulations to organize banking companies known as scheduled bank.

1.2.3 OVERVIEW OF NATIONAL BANK OF PAKISTAN

HISTORY

National Bank of Pakistan was established on November 9, 1949 as a result of deadlock

with India and the devaluation of the Indian rupee where Pakistan much to India and

British consternation did not follow suit. The objective of establishing the bank was to

provide much needed financing to the agricultural sector, particularly to facilitate the

badly hit jute trade. The bank then went on to become the sole agent of the State Bank of

Pakistan for handling provincial and federal government receipts and payments.

The paid up capital of National Bank is 4924.106 million rupees. This is 14 percent of the

combined paid up capital of the 18 listed commercial banks amounting to Rs.3.528

billion. Such a large paid up capital places National Bank at the number one slot in the

entire financial sector. Muslim Commercial Bank Limited and Faysal Bank Limited are

placed second and third respectively on basis of paid up capital. Meezan Bank Limited is

last and smallest on the list with a paid up capital of Rs.1170.450 million.

The bank maintained its position as the largest bank deposit holder in Pakistan. The

integration of corporate and investment banking efforts in enabling the bank to offer

wider products range besides making it a major player in debt and equity market. The

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Bank has one joint venture in U.K. and one wholly owned subsidiary in Kazakhstan. The

U.K. Operations of the Bank were merged with that of United Bank Limited to form a

Joint Venture Bank namely Pakistan Investment Bank (PIB) incorporated in U.K. NBP

has 45% of share holding while the balance 55% is with UBL.

On the retail-banking front, the bank successfully launched a product “ghar ghar

television” which not only brought additional revenue but also served as a launching pad

for similar initiatives. NBP launched a housing scheme to cover all sections of the society

with monthly income starting from as low as Rs.5000/- per month. Branded as ‘NBP

Saibaan’ (Housing for all), the scheme offers a maximum loan of Rs.10 million in

accordance with the debt burden criterion. Loans are available for Home Construction,

Home Purchase and Home Improvement. For Home Improvement Loans the maximum

amount is Rs.2.00 Million.

NBP further consolidated its market position in the consumer financing and its product

“NBP-Advance Salary” has been availed by approximately 475,000 customers. Overall

loan growth was also impressive as net advances increased by Rs.26 billion as compared

to December 2003. Within a period of 18 months, NBP has disbursed approximately 23

Billion Rupees to over 425,000 customers under this scheme.

National Bank of Pakistan through its branch in Kabul formally commenced operations in

Afghanistan from October 07, 2003, thus becoming the first foreign commercial bank to

open its branch in Afghanistan. Since then, another branch has been added to it. NBP is

one of the top performers in Afghanistan and within a short span of one year; the deposit

base of NBP’s branches in Afghanistan has surged to Rs2 billion. With the opening of

trade prospects with India, the NBP would enter the competitive Indian banking market.

The State Bank of Pakistan has instructed all commercial banks to switch to only one

link, which would enhance the availability of numbers of ATM to cardholders by many

times. By the end of June 2004, NBP planned to have a minimum 70 new ATMs at

various business centers. With the current figures at 30, NBP has fallen far short of its

target. Interestingly, 16 of the ATM’s are in Islamabad along, that’s more than the

number in the rest of the country put together.

The National Bank has set a growth rate of eight per cent in its deposit base during 2004,

especially targeting deposits from the private sector. Recent surge in domestic interest

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rates poses no threat to the national economy. Blue chip companies are still getting loans

at competitive interest rates on the basis of their stable balance sheets.

The bank is witnessing major developments in the field of technology. For facilitating the

customers round the clock payment of utility bills, around 100 kiosks are being

established in the important cities. In addition, branches covering 80% business are

converted into fully automated on real time basis.

NBP is the most profitable bank in the history of Pakistan, with a record high before Tax

profit of over Rs.9.00 Billion. It is already the best bank in Asia and the 8th Best in the

world in terns of return on capital in 2002 and declared as one of the top Banks in

emerging market - 2003, by global finance USA as well as Bank of the year in 2001 and

2002 by the Banker Magazine UK. In its issue of March 2004, “Global Finance” has also

declared NBP as “The Best Foreign Exchange Bank” in Pakistan. With the technology of

modern cash flow based lending now in place, NBP will remain a strong force in the

national development. In short, NBP is the ‘Nation’s Bank’ with an international

recognition and acclaim, working towards national development and raising the overall

standard of the people of Pakistan.

The year 2003 saw National Bank post the highest ever profit for Pakistan’s financial

sector. This can be attributed to the successful strategic and operational repositioning of

the bank by management confronted with the dual challenges of appreciably lower

spreads and intense competition.

I believe that despite competitive interest rates, slim margins and standard retail banking,

NBP is expected to be a major beneficiary of our economic revival due to its low cost

deposit base and branch network. At the end of the financial year 2003 NBP realized a

pre-tax profit of Rs. 9 billion, a Rs. 3 Billion increase and a 50% growth over 2002. What

is more encouraging is that the boost to profitability was on account of the higher net

asset margin achieved from rebalancing of the bank’s earning asset mix. This was evident

from a 2% pretax return on assets, a 40% improvement over last year whereas the pre-

tax return on equity at 55% placed NBP in the top tier of Pakistan’s listed corporate and

financial institutions. Earning per share has consequently almost doubled from Rs. 5.49

in 2002 to Rs. 10.23, the highest in the banking sector.

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1.3 Mission of NBP

To be recognized in the market place by

Institutionalizing a merit & performance

Culture, creating a powerful & distinctive

brand identity, Achieving top-tier financial

Performance, and Adopting & living out

our core values.

1.4 Objectives of National Bank

Objectives are ends towards which an enterprise activity is aimed. The purpose of

business is production and marketing of economic goods and services but to accomplish

these objectives to a number of enterprise objectives may be necessary.

33. National bank of Pakistan has certain objectives. These objectives are

Advancing loans

Accept deposits

Remitting of funds

Sale of promissory notes

Selling and realizing property of bank claims

Investment or underwriting of stocks

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1.5 Organizational

ChartPresident

Senior Executive Vice-

President

Executive Vice-President

Senior Vice-President

Vice-President

Assistant Vice-President

Bra

nch

Hie

rarc

hy

Officer Grade 1

Officer Grade 2

Officer Grade 3

Senior Assistant

Assistant

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1.6 Departments in National Bank Main Branch1.6 Departments in National Bank Main Branch

Following departments are working in NBP main branch

Deposit

Foreign Exchange

Import and Export

Credit and Advances

Remittances and Deposits

Accounts

Government

Consumer retailing

Graphical representation of departments:Graphical representation of departments:

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Admin Deptt.

Deposit Deptt.

Remittance Deptt.

Foreign Exchange Deptt.

Accouns Deptt.

Credit Deptt.

Govt. Deptt.

Departments

1.6.1 Deposit Department1.6.1 Deposit Department

National Bank of Pakistan accepts/collects deposit from their accountholders. An

account opening form is provided to prospective Customer. At the same time introduction

of that Customer is an integral condition so that provided information by that Customer

may be got authenticated. An existing Accountholder may introduce the incoming

Customer. The Manager takes the Account holder’s specimen signatures on signature

Card in order to avoid future problems. At the occasion withdrawal of fund Accountant

compares the signature on cheque to the provided Specimen of Signatures.

1.6.1.1 Payment Of Cheque At CounterPayment Of Cheque At Counter

When cheque is presented at counter for payment, the officer examines the cheque before

issuing a token. The following is looked into:

The cheque is drawn on the same branch of the bank.

The cheque is not crossed that it is open cheque.

It is not stale or post dated.

The drawer has signed the cheque.

The amount written in words and figure is same.

The drawer of the cheque duly signs all alteration or cancellation.

The presenter has signed at the back of the cheque.

The cheque is not payable to the limited company.

1.6.1.21.6.1.2 Processing of Cheque Processing of Cheque

The accountant/authorized officer examines the cheque for the above mention things.

When cheque is found acceptable in all aspect, the signature of the drawer compared with

his signature on the Specimen Signature Card. When it is found similar to specimen

signature, he affixes SIGNATURE VERIFIED stamp, near the drawer signature in the

cheque and sign it. Then he checks the balance in the account, if the account has the

sufficient balance, the cheque is posted. The cheque is then handed over to the cashier.

The cashier calls the presenter and takes his token and compares the token

number with the number written at backside of the cheque. He takes out the cash to be

handed over to the presenter and writes its denomination at the back of cheque.

Thereafter, he gets signature of the presenter at the back of the cheque and hands

over cash to him and affixes CASH PAID stamp on cheque.

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1.6.1.3 Payment of Cheque in TransferPayment of Cheque in Transfer

The customer of the branch deposits the cheque drawn on the same branch, for

the payment to the credited into his account, attached with pay in slip. The officer accepts

it after looking into the following:

The person depositing the instrument for collection is the customer of branch.

The correct pay in slip (current/saving) is attached with the cheque.

The depositor signature is presented on the slip.

The account number of depositor is written on both the sides of the slip.

The word and figure of the amount tally with each other.

The cheque is neither post dated nor stale.

The drawer signature is present on the cheque.

The drawer signs the alteration on the cheque.

The cheque in name of the company, firm etc is not going into the account

of any person.

The cheque with PAYEE ACCOUNT ONLY crossing is not being

deposited into the account of any other person other than the person

mention on the cheque.

1.6.2 Foreign exchange department

Foreign exchange is an important department in bank system. In the foreign

exchange department all the operations of the bank are done in the same way as in all

other departments of the bank this department also involve in deposits, remittances and

advances but the difference with other department that the foreign exchange department

deals in foreign currency rather then in local currency. For opening of account in foreign

exchange the Minimum balance required is $100.This department is just like Cash

Department in local currency. In this department, the dealing is made in foreign

currency.

In National Bank of Pakistan, four currency accounts are available:

US Dollar

Pound Sterling

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Japanese Yen

Euro

1.6.2.1 Functions1.6.2.1 Functions

The department performs the following functions:

Account opening

Account closing

Inward/outward remittance

Issuance of traveler cheque

1.6.2.1.1 Account opening

Terms and conditions:

Account opening requires two things

National ID card of the customer and introducer

CustomerCustomer

Customer is the person who comes with the purpose of opening the account Customer is the person who comes with the purpose of opening the account

Introducer

Introducer is a person having the account in same branch and gives guaranteeIntroducer is a person having the account in same branch and gives guarantee

about the customer. If the introducer is not proper than state bank charges RS 5000/- perabout the customer. If the introducer is not proper than state bank charges RS 5000/- per

head from that employee of the bank who has opened the account of the customer on thehead from that employee of the bank who has opened the account of the customer on the

request of the introducer.request of the introducer.

1.6.2.1.2 Procedure of Account Opening and Depositing Foreign Exchange:1.6.2.1.2 Procedure of Account Opening and Depositing Foreign Exchange:

First of all, the customer is required to fill an application form. Then he attaches

the photocopy of his identity card and fills the signatory cards. Then he is allotted an

account number by entering in the account opening register. Now he fills the pay-in slip

and deposits money on the counter.

Following things are needed for opening of account:

Account opening form

Signature card

Letter of kinship

Letter of thanks

Issuances of cheque book

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1.6.2.1.3 Inward/Outward Remittances

The remittances are of following types:

Foreign Telegraphic Transfer (FTT)

Foreign Demand Draft (FDD)

Foreign mail transfer(FMT)

SWIFT

Western union money transfer(WUMT)

Foreign Exchange Bearer Certificates (FEBC)

Special US Dollar Bond

1.6.2.1.3 .1 WeWestern Union Money Transfer:stern Union Money Transfer:

Western union money transfer is a fastest way to receive money worldwide. It is

working in almost 200 countries. Different Govt and private organization are dealing

with WUMT

Govt organization e.g. banks

Private organizations e.g. Zarco, Money changer, Dollar East, Master Currency

Main office of WUMT is situated in Dubai; it is a procedure of counter payment

Time required in only one hour and deduction on it is $50.

1.6.2.1.3 .2 Procedure of paymentProcedure of payment

WUMT just needed identification, no need of a/c, its an counter payment

Procedure of payment is that the customer came to specific person who is dealing

with WUMT tell him the

1) MTC NOMTC NO

2)2) Receiver nameReceiver name

3)3) Sender nameSender name

4) Telephone no

5) Photo copy of ID card 5) Photo copy of ID card

6) Expected amount (10% margin is acceptable 6) Expected amount (10% margin is acceptable))

7) Test question 7) Test question

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1.6.3 Credit and advance department

1.6.3.1 Credit 1.6.3.1 Credit

It may be defined as

“The sale of goods and services and money claims in the present in exchange for a

promise to pay in future. “

The most important activity of the bank is the granting of credit to the customers.

NBP provides short term long terms financing for domestic and international trade. The

policies made by central office of the cash can be amended on the basis of the rules and

regulation, economic risk of each country board of directors and committee of the NBP

made this type of decisions and informed about these decisions to the branch managers.

Manager can grant the credit limit to each customer with in the declared limits approved

by the controlling offices i.e., co, GHQ, circle and zonal. Banks grant credit

TYPES OF ADVANCES

1.6.3.2 Demand Finance

One time disbursement of the whole amount sanctioned, as the limit for the credit

allows. Any person, individual, group, company, firm and all others can achieve this

Mode of financing. The mark-up or interest is calculated on the total amount

disbursed and requires to be paid before the date of final adjustment. Regarding the

amount, limit and period, it depends on the nature of the case in review.

1.6.3.3 Cash Finance

In this mode of financing the borrower is allowed to make withdrawals of funds as he

requires, but the total amount outstanding cannot exceed the limit sanctioned. The mark-

up/interest is calculated on the amount outstanding on his account. The calculation of

mark-up/interest is based on the number of days a specific amount is withdrawn. This

finance if normally borrowed by small traders or individuals for their petty matters

involving cash transactions up to rupees three hundred thousand maximum.

1.6.3.4 Running Finance

To assist a large-scale business operator to carry on his day to day requirements of

liquid funds, this account is opened is made operation in his favor. Running finance is

provided where the amount goes beyond rupees three hundred thousand. The

mark-up/interest is calculated the same way as in case of cash finance. Security against

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running finance is that which is easily convertible in to cash and bank kept 25% margins

with it.

TYPES OF LOANS

The credit department of NBP has providing the following types of loans

1. Short term loans

2. Long term loans

3. Working capital loan

4. Syndicate (project) loan

5. Monitoring

1.6.4 Criteria checked for loans

Major areas requiring focused attention of the analyst are:

1. Financial Condition

2. Structural Liquidity

3. Industry/Business of Operation

4. Debt Equity Management

5. Assets Management

6. Borrower’s Credit Worthiness

7 Management

8. Securities

1.6.5 Procedure of sanction of loan

In Credit department 1st step is to preparation of credit line proposal for the preparation

of credit report. For this following information required by the bank from the party

Purpose of loan

Details of all firms or companies associated with business

Name of proprietor/ partner/directors

Accurate and up-to-date balance sheet and profit and loss statement of last two years

of business

Market report of the borrower repute

Report from the bank if borrower has maintain his account with the bank

CIB report

Full details of existing limit and actual liability against the business

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Particular about the foreign exchange deposits and bills given by the borrower to the

bank

Memorandum and article of association in case of limited company

Audited report of balance sheet and income statement of last two years

After checking all the securities, customer verification the manager done the following

tasks

1.6.5.1 Preparation of credit proposal

After formal application for the credit the party submits approval. For this purpose

borrower can use coarse paper or the form provided by the bank. Along with the

application borrower also submits the documents required by the bank. The bank

manager evaluates the documents provided by the borrower. He gets the party’s

1.6.5.2 Prepare the Proposal about the customer

After preparing the proposal manger prepare the report about the customer. Report

contains the following information

Name of the company

Date of establishment

Address

Nature of business

Branch office

Worth of business

Date

Banker’s opinion

Head cashier opinion

Branch manger opinion

1.7 General Banking

General banking area is also call the operations group. It consist on following section

Accounts section

Remittance

Clearing system

Government section

Consumer and retail business

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Lockers

1.7 .1 Accounts section

Accounts Department of the bank can be considered the most important department. This

department is basically concerned with processes and activities of recovering, sorting,

summarizing and reporting data resulting from the whole day transactions of all the

departments. Department starts performing its function. Proof list is checked by the

This section performs the following functions:

Opening of Accounts

Issuance of cheque books

Closing of accounts

Payment of Cheque

1.7.1.1 Types of accounts

Following types of accounts are open in NBP

Saving account

Current or demand account

Fixed account

1.7.1.2 Saving account (PLS)

This type of account is designed to encourage the saving habit of the customer

and lead to a long-term banking or investment relationship.

Bank saving accounts are in the nature of deposits accounts and are not normally

available for drawings. Rates of interest are typically ahead, by a small margin.

1.7 .1.3 Current or demand account

These are those deposits, which can be drawn by the depositor at my time by

presenting a cheque to the bank. People deposit their money in this account they gave a

ready command on their account in developed and under developed countries of the

world, a very significant part of money is kept under current or demand account.

1.7 .1.4 Fixed account

Fixed accounts are those, which are deposited for a fixed period of time and are

repayable after the expiry of stipulated time to the customers. Those people who have

surplus funds and want to have save investments deposit the amount in the fixed account.

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The rate of interest given to depositor varies with the length of deposit, i.e. it is higher for

longer period and lowers for shorter period. The rates on this type of deposits are higher

than the saving bank accounts.

1.7 .1.5 Payment of Cheque

It is bank’s primary function to repay the money required for its customer’s account

usually by honoring his cheques. It is a contractual obligation of a banker to honor its

customer’s cheque if the following essential are fulfilled

Cheque should be in a proper form

Cheque should not be mutilated

Cheque should be drawn in this particular branch

Cheque should not be damaged

No unauthorized material alterations

Funds must be sufficiently available

Cheque should not be post date or stale

Cheque should be presenting during the banking hours

1.7 .2 Remittances Section

a Instrumental Transfer

Instrumental transfers are following

1.7 .2 .1 Demand Draft

It is an instrument, which is payable on demand and it is only presentable in the

city/country. When any draft, i.e., an order to pay money, drawn by an office of bank

upon another office of the same bank for a sum of money payable to order on demand,

Purports to be issued by or on behalf of the payee, the bank are discharged by the

payment in due course.

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1.7 .2 .2 Pay Order

It is an instrument, which is payable in demand and only presentable in city. Pay order is

also called the banker’s cheque drawn upon the issuing bank itself. It is not negotiable

and therefore, bankers tend to cross the instrument “Payee’s account only” to avoid the

possibility of dealing with instruments with forged endorsement. The pay order is issued

favoring individuals, commercial concerns, and government departments.

1.7 .2 .3 Pay Slip

It is an instrument, which is issued by bank and used for expenditure purposes, i.e.,

electricity bills, maintenance bills, security bills, fixture and fitting, etc.

1.7 .2 .4 Call Deposit

Call deposit are not actual deposits of bank. It is in fact the liability of the bank. Call

deposit are ofently prepaid by the bank for contractors.

b. Electronic Transfer

Electronic transfer is of following types

1.7 .2 .5 Telegraphic Transfer

t is the message, which is sent from one branch to another on the order of payer to payee

through wire. It is one of the quickest means to transfer fund through the use of

Telex/fax/internet or cable. Payment to the beneficiary is affected directly by the drawee

office upon identification or through credit into beneficiary’s bank account. As such

Remitting office is not required to issue any instrument payment to the remitter

for delivery to the beneficiary.

1.7 .2 .6 Issuance and Payment of Telegraphic Transfer Outgoing

Application form is filled by the client in whom the name and account number of

the beneficiary, which is to be credited and name of customer, is required. For

telegraphic transfer, the payment can be made in case or by cheque or by debiting the

customer’s account if he is the account holder. The amount of Telegraphic Transfer

should be written on the form. The amount is transferred to beneficiary’s account in the

other bank. An advice is given to the customer but application is filled in the record of

the bank.

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1.7 .2 .7 Issuance and Payment of Telegraphic Transfer IncomingIssuance and Payment of Telegraphic Transfer Incoming

When a TT is received then an entry is passed in TT incoming register after verifying the

test. When a person comes and wants to encash his TT, bank checks the statements of

that person. If the bank finds any account credited to the person’s account against TT,

bank prepares a voucher for this payment against that TT. The customer then presents

that certificate to the cash counter and collects money.

1.7 .2 .8 Mail TransferMail Transfer

It is the same like TT, but in this type, the message is sent through mail rather than telex.

The procedure is same as TT, but the advice is sent through mail rather than wired.

1.7 .3 Billing and Government receipts/payments

This department is performing following functions

Collection of utility bills

Collection of dues of education institution

Payment of salaries

Payment of zakat

Payment of pension

1.7 .4 Clearing Department

The major function of Clearing Department is to receive the cheques, which are

drawn on some other bank. The customer can get the money in his account at NBP, from

the cheques drawn on another bank. The bank accepts these cheques and collects the

amount from that bank on which cheque is drawn through the Clearing House. Bank

charges some commission for this function.

1.7 .4.1 Procedure for Clearing the ChequesProcedure for Clearing the Cheques

1.7 .4.2 Pay-in SlipPay-in Slip

The customer fills pay-in slip. This slip is just like deposit slip. The cheque number,

date, amount and account number must be written on this slip.

1.7 .4.2 Stamping and ScrutinizingStamping and Scrutinizing

The officer on receipt of cheques and pay-in slip will stamp the pay-in slip with “cheque

received” and give a portion of slip to customer and the remaining portion is attached

with the original cheque.

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The original cheque will be marked with two stamps.

National bank of Pakistan

Clearing Stamp

At the end of day, all cheques are counted and then scrutinized in bank-wise and sent to

the Clearing House.

1.7 .5 Computer SectionComputer Section

Through this department bank has make its way to enter in twenty first century. This

department is playing a very important role in making the banking procedures faster and

helping the bank for providing new services to its customers. This division provided the

bank with online branches, systems to make the whole procedure foolproof.

1.7 .5.1 Data Entry DepartmentData Entry Department

The next task after receiving the data is to enter that data in to a computer. The floppy

disk is directly inserted in the computer. The program in used is based on “COBOL”

language. This program is designed in away that it demand “Hash Value” value before

opening the floppy for further action this value serve the purpose of password or pin code

send by the branch on entering that value the data enter in to the computer. This computer

is attached with the terminal of central computer. The operator of that terminal takes the

data from the computer and converted it in to a text file through that terminal the data

finally goes to the central computer.

1.7 .6 Consumer and Retail Banking SectionConsumer and Retail Banking Section

Consumer and retail banking department is offering following facilities to their customers

NBP Advance Salary

NBP Saiban

NBP Rozgar Scheme

22

1.7 .6.1 NBP Advance salaryNBP Advance salary

In January-2003, National Bank of Pakistan has launched a unique product, ‘NBP-

Advance Salary’. Currently this product is for fixed-income permanent employees of

Federal & Provincial Government, Semi-Government, Autonomous, Semi-autonomous,

local bodies and other Government organizations. The product is purely cash flow based

and offers its holder to avail 15 (fifteen) net salaries in one go to be repaid in up to 60

(sixty) months. With no collateral, insurance or processing fee requirements, Advance

Salary provides rapid disbursement in a short turnaround time.

NBP advance salary facility allows you to draw three months salary in one go.

NBP advance salary offers you

Take up to three months advance salary take home

Fastest processing and immediate disbursement

Easiest facility for 1 to 36 months

Minimum documentation

1.7 .6.2 Eligibility Eligibility

This facility will be available to permanent employee of

Federal and provincial Govt.

Semi Govt, autonomous, semi autonomous, local bodies and Govt corporations

Other corporations and organizations approved by NBP

Those who qualify for this scheme should have:

Three years of service age remaining

Salary account at NBP

1.7 .6.3 Limit of FinanceLimit of Finance

Three net take home salary

Customer must have account with national bank which show last three

months salary in his/her account

1.7 .6.4 Calculation of limitCalculation of limit

23

Average of three months and minimum salary which ever is less taken it as base and

multiply it by three

1.7 .6.5 Maximum duration of loan

Three years is max duration.

Requirements

Requirements are

Three months salary certificate

NIC photocopy

Auto roll over form

Application form

IB-12

Three undated cheques

Annexure C

Annexure D

Account opening form

1.7 .6.6 Procedure

After filling the application customer signed it with his salary-disbursing officer then

under taking is officer approving it. Open the account that is calls separate loan account,

which is once Debit and many time credits.

National Bank of Pakistan (NBP) has announced the launch of a housing scheme to cover

all sections of the society with monthly income starting from as low as Rs. 5000/- per

month*. *(Conditions apply)

Branded as 'NBP Saiban' (Housing for all), the

Scheme offers a maximum loan of Rs 10 million

In accordance with the debt burden criterion.

Loans are available for Home Construction,

Home Purchase and Home Improvement.

For Home Improvement Loans the maximum

Amount is Rs. 2.00 Million.

Home Construction and Home Purchase loans can be repaid over a period of 20 years,

whereas the repayment period for Home Improvement loan is 15 years.

24

The scheme was launched at a function in Karachi presided over by Mr. Shaukat Aziz,

Pakistan's Finance Minister.

What is NBP SaibanWhat is NBP Saiban??

NBP Saiban is the most affordable House Financing Scheme.

You can avail now and repay over a 3 to 20 years period.

Home purchase loans up to 10 million.

Home reconstruction loans up to 10 million.

Home improvement loans up to 2.0 million (3 to 15 years).

One of the Top Banks on Emerging Markets - 2002

(Global Finance, USA)

A secure and reliable government bank since 1949.

A strong network with approximately 1200 branches around the world.

Wide range of products and services

NBP Rozgar Scheme:-

President's Rozgar Scheme,

if you are aged between 18 and 40

years, you could be eligible for easy

financing for self employment in

the categories below:

NBP Karobar Utility Store

NBP Karobar Mobile Utility Store

NBP Karobar Mobile General Store

NBP Karobar Transport

Karobar PCO/ Tele-Centre

Another step towards your prosperity

25

1.7 .6.7 Equity Investments

NBP has accelerated its activities in the stock market to improve its economic base and

restore investor confidence. The bank is now regarded as the most active and dominant

player in the development of the stock market.

NBP is involved in the following:

Investment into the capital market

Introduction of capital market accounts (under process)

NBP’s involvement in capital markets is expected to increase its earnings,

which would result in better returns offered to account holders.

1.7 .6.8 Commercial Finance

Let us help make your dreams become a reality

Our dedicated team of professionals truly understands the needs of professionals,

agriculturists, large and small business and other segments of the economy. They are the

customer’s best resource in making NBP’s products and services work for them.

1.7 .6.9 Trade Finance Other Business Loans

Agricultural Finance Corporate Finance

1.7 .6.10 Agricultural Finance

NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers

who produce some of the best agricultural products in the World.

1.7 .6.11 Agricultural Finance Services:

“I Feed the World” program, a new product, is introduced by NBP with the aim to help

farmers maximize the per acre production with minimum of required input. Select farms

will be made role models for other farms and farmers to follow, thus helping farmers

across Pakistan to increase production.

1.7 .6.12 Agricultural Credit:

The agricultural financing strategy of NBP is aimed at three main objectives:-

Providing reliable infrastructure for agricultural customers

Help farmers utilize funds efficiently to further develop and achieve better

production

26

Provide farmers an integrated package of credit with supplies of essential

inputs, technical knowledge, and supervision of farming.

1.7 .6.13 Agricultural Credit (Medium Term):

Production and development

Watercourse improvement

Wells

Farm power

Development loans for tea plantation

Fencing

Solar energy

Equipment for sprinklers

1.7 .6.14 Farm Credit:

NBP also provides the following subsidized with ranges of 3 months to

1 year on a renewal basis.

Operating loans

Land improvement loans

Equipment loans for purchase of tractors, farm implements or any other

equipment

Livestock loans for the purchase, care, and feeding of livestock

1.7 .6.15 Production Loans:Production Loans:

Production loans are meant for basic inputs of the farm and are short term in nature.

Seeds, fertilizers, sprayers, etc are all covered under this scheme.

1.7 .6.16 Corporate FinanceCorporate Finance

1.7 .6.17 Working Capital and Short Term LoansWorking Capital and Short Term Loans:

NBP specializes in providing Project Finance – Export Refinance to exporters – Pre-

shipment and Post-shipment financing to exporters – Running finance – Cash Finance –

Small Finance – Discounting & Bills Purchased – Export Bills Purchased / Pre-

shipment / Post Shipment Agricultural Production Loans

1.7 .6.18 Medium term loans and Capital Expenditure Financing:

NBP provides financing for its clients’ capital expenditure and other long-term

investment needs. By sharing the risk associated with such long-term investments, NBP

27

expedites clients’ attempt to upgrade and expand their operation thereby making possible

the fulfillment of our clients’ vision. This type of long term financing proves the bank’s

belief in its client's capabilities, and its commitment to the country.

1.7 .6.19 Loan Structuring and Syndication:

National Bank’s leadership in loan syndicating stems from ability to forge strong

relationships not only with borrowers but also with bank investors. Because we

understand our syndicate partners’ asset criteria, we help borrowers meet substantial

financing needs by enabling them to reach the banks most interested in lending to their

particular industry, geographic location and structure through syndicated debt offerings.

Our syndication capabilities are complemented by our own capital strength and by

industry teams, who bring specialized knowledge to the structure of a transaction.

1.7 .6.20 Cash Management Services:

With National Bank’s Cash Management Services (in process of being set up), the

customer’s sales collection will be channeled through vast network of NBP branched

spread across the country. This will enable the customer to manage their company’s total

financial position right from your desktop computer. They will also be able to take

advantage of our outstanding range of payment, ejection, liquidity and investment

services. In fact, with NBP, you’ll be provided everything, which takes to manage your

cash flow more accurately.

28

CHAPTER 2

Financial Analysis of the Bank

Analysis of financial statements is called financial analysis of the organization

These are three types of analysis

2.1 Horizontal analysis

In this analysis one particular can compare with the same category of item of other year.

More than one year data is required for this analysis.

2.2 Vertical analysis In common size or vertical analysis we take total assets as a base year and compare it to all other factors. Company may purchase some fixed assets and giving loans to their customers. Same like this investment also increases which means that the company advances the loans and their ability of work increased due to this.

2.3 Horizontal Analysis of Balance Sheet 2004-2005

Particulars 2005 2004

Percentage

change RS. Change

Cash and Balance with

treasury banks 71196956 94446552 132.655 (23249596)

Balances with other banks 31019330 49784884 160.496 (18765554)

Lending to financial

institutions 16282942 10511322 64.5541 5771620

Current Asset 118499228 154742758 130.585 (36243530)

Investments 156985686 144735672 92.1967 12250014

Advances 268838779 221443963 82.3705 124103107

Other Asset 23941056 18339514 76.6027 5601542

Operating Fixed Asset 9454365 9202969 97.3409 251396

Defer tax Asset - 1275949

Total Asset 577719114 549740825 95.1571 27978289

Liabilities

Bills payable 1741156 7214671 414.360 (5473515)

Borrowings from

Financial 8756847 11084790 126.584 (2327943)

29

Deposits and other

accounts 463426602 465571717 100.462 (2145115)

Subordinates loan - - - -

Liabilities against leased

Asset 16629 17058 102.579 (429)

Other Liabilities 24974450 23068314 92.3676 1906136

Defer Tax Liabilities 4462718 29185 0.65397 4433533

Total Liabilities 503378402 506985735 100.716 (3607333)

Net Asset 74340712 42936442 57.756 31404270

Represented By

Share Capital 5908927 4924106 83.333 984821

Reserves 13536041 10813914 79.889 2722127

Unappropriated profit 16713506 9161747 54.816 7551759

36158474 24899767 68.862 11258707

Surplus revaluation of

asset 38182238 21345965 55.905 16836273

Total Representation 74340712 42936442 57.756 31404270

2.4 Vertical Analysis of Balance Sheet 2004-2005


%age

2005

%age

2004


treasury banks 71196956 94446552 12.323 17.180

Balances with other banks 31019330 49784884 5.3692 9.0560


institutions 16282942 10511322 2.8184 1.9120

Current Asset 118499228 154742758 20.511 28.148

Investments 156985686 144735672 27.173 26.327

Advances 268838779 221443963 46.534 40.281

other Asset 23941056 18339514 4.1440 3.3360

30

Operating Fixed Asset 9454365 9202969 1.6364 1.6740

Defer tax Asset - 1275949 0.2321

Total Asset 577719114 549740825

Liabilities

Bills payable 1741156 7214671 0.3458 1.4230

Borrowings from

Financial 8756847 11084790 1.7396 2.1864

Deposits and other

accounts 463426602 465571717 92.063 91.831



Asset 16629 17058 0.0033 0.003364

Other Liabilities 24974450 23068314 4.9613 4.5500

Defer Tax Liabilities 4462718 29185 0.8865 0.0057

Total Liabilities 503378402 506985735

Net Asset 74340712 42936442

Represented By

Share Capital 5908927 4924106 1.0228 0.8957

Reserves 13536041 10813914 2.3430 1.9670

Unappropriated profit 16713506 9161747 2.8930 1.6665

Total 36158474 24899767 6.2588 4.5293


asset 38182238 21345965 6.6091 3.8829

Total Representation 74340712 42936442

2.5 Ratio Analysis 2004-2005

For the analysis of the financial statements of the NBP we use the ratio analysis in order

to get a clear vision about the financial position with simple interpretation.

2.5.1 Liquidity Ratios

31

The liquidity of a business firm is measured by its ability to satisfy its short-term

obligations as they came due. Liquidity refers to the solvency of the firm’s overall

financial position the ease with which it can pay its bills. Basic measures of liquidity are:

Current ratio

Net working capital

Cash ratios

2.5.1.1 Current ratio

Formula: Current Ratio=Current Assets/Current Liabilities

Year 2005: Year 2004:

=118499228/167708076

=0.70658

=154742758/177058128

=0.874

Interpretation:

A current ratio of 1.0 is occasionally cited as acceptable, but a value’s acceptability

depends on the industry in which the firm operates. In 2004 bank was more liquid as

compare to 2003. Current Liabilities are more then current assets. Its means that bank is

financing its fixed assets (long term investment & deposits) with the current Liabilities,

which is profitable but risky at the same time. In 2004 the current liabilities (current

deposits) of the bank have increased but the rise in the current assets (short advances) is

more. So in 2004 bank has improved its liquidity position by investing more in current

assets rather then in fixed assets.

2.5.1.2 Net working capital:

Formula: NWC=Current Assets-Current Liabilities

Year 2005: Year 2004:

32

=118499228 – 167708076

= (49208848)

NWC=154742758-177058128

= (22315370)

Interpretation: Net working capital is commonly used to measure a bank overall

liquidity. NBP has more current Liabilities (current deposits) then current assets (short

term advances & investments). So bank is using very aggressive approach by investing

current liabilities in fixed assets. Bank earning profit but at the same time taking risk as

well. In 2004 the NWC of Bank had improved a bit by investing more in current assets

rather then in fixed assets. So bank has improved its liquid position by investing more in

current assets.

2.5.1.3 Cash to current liability ratio

Cash to current liability ratio =Total Cash/Current Liability

Year 2005: Year 2004:

=102216286/167708076

=0.609489

=144231436/177058128

=0.8146

Interpretation This ratio will compare the most liquid asset cash with the most short

term liability(current deposits). NBP has less cash then the current Liability (current

deposits) so its means that bank has invest the depositors money in different ventures.

2.5.1.4 Cash to Total Assets

Cash to total assets= Total cash/ Total assets

Year 2005: Year 2004:

=102216286/577719114 *100

=17.69%

=144231436/549740825 *100

=26.24%

33

Interpretation

This ratio will shows that how much the cash has maintained by the bank out of its total

assets. NBP has its assets in the form of investment, advances so bank is availing its

opportunity cost and still has sufficient cash reserves only to fulfill the demands of

Account holders & other financial institution.

2.5.2 Debt Ratio

The debt position of a bank indicates the amount of other people’s money being used in

attempting to generate profits.

Formula:

Debt To Assets Ratio=TL/TA*100

Year 2005: Year 2004:

= 503378402/57719114 * 100

= 87.13%

=506804383/549740825*100

=92.21%

Interpretation: The debt ratio measures the proportion of total assets financed by the

bank creditors (depositors). The higher this ratio the greater the amount of other people

money being used in an attempt to generate profits. In 2004 bank leverage ratio had

decreased because the total assets (advances & investments) of the bank has been

increased more than total liabilities (current deposits).

2.5.2.1 Debt to Equity Ratio:

Formula: Debt to equity ratio=Total Liability/S.H.E

YEAR 2005 YEAR 2004

=503378402/36158424

= 13.92

= 506804383/42936442

= 11.80times

34

Interpretation: The debt-equity ratio indicates the relationship between the total funds

provided by creditors and those provided by the bank owners. It is commonly used to

measure the degree of financial leverage. In 2004 debt to equity ratio has decreased then

as compared to 2003 .Although in 2004 this ratio was less but still amount of interest

given by the bank was greater then amount of dividend distributed by the bank to share

holders.

2.5.2 .2 Return on Assets: Formula: ROA=NPAT/TA*100

YEAR 2005 YEAR 2004

=12709444/577719114 * 100

= 2.19%

=6242929/549740825 * 100

=1.14%

Interpretation: 0.895% indicates that bank earned 0.895% paisas on each rupee of asset

invested in 2003 which was quiet low then 2004 return. NPAT of bank has increased in

2004, because no extra payment has been made to depositors, more commission has been

received in 2004 on wider & better services& more compensation has been collected by

bank on delays of payments from customers & tax concession.

2.5.2 .3 Return on Equity:

Formula: ROE=NPAT/S.H.E

YEAR 2005 YEAR 2004

=12709333/36158474

= 0.3514

= 6242929/42936442

=0.1454

35

Interpretation: Return on S.H.E measures the overall effectiveness of management in

generating profits with its available equity. The higher the firm’s return on equity, the

better. 14.54% in 2004 indicates that bank’s share holders have earned 14.14 paisas on

each rupee invested which is lesser than 2003

36

2.6.1 Horizontal Analysis of Balance Sheet 2005-2006


Percentage

Change

RS.

Change


treasury banks 78625227 71196956 90.5523 7428271

Balances with other banks 40641679 31019330 76.3239 9622349


institutions 23012732 16282942 70.7562 6729790

Current Asset 142279638 118499228 83.2886 23780410

Investments 139946995 156985686 112.175 (17039591)

Advances 316110406 268838779 85.0458 47271627

Other Asset 27113698 23941056 88.2987 3172642

Operating Fixed Asset 9681974 9454365 97.6491 227609

Defer tax Asset - - - -

Total Asset 635132711 577719114 90.9603 57413597

Liabilities

Bills payable 10605663 1741156 16.4172 8864507

Borrowings from

Financial 11704079 8756847 74.8187 2947232

Deposits and other

accounts 501872243 463426602 92.3395 38445641



Asset 13235 16629 125.644 (3394)

Other Liabilities 2659300 24974450 939.136 (22315150)

Defer Tax Liabilities 2387073 4462718 186.953 (2075645)

Total Liabilities 553178593 503378402 90.9974 49800191

Net Asset 81954118 74340712 90.7101 7613406

Represented By

Share Capital 7090712 5908927 83.3333 1181785

Reserves 13879260 13536041 97.5271 343219

38

Unappropriated profit 32074677 16713506 52.1081 15361171

Total 53044649 36158474 68.1661 16886175


asset 28909469 38182238 132.075 (9272769)

Total Representation 81954118 74340712 90.7101 7613406

2.6.2 Vertical Analysis of Balance Sheet 2005-2006


%age

2006

%age

2005


treasury banks 78625227 71196956 12.3793 12.3238

Balances with other banks 40641679 31019330 6.39892 5.36927


institutions 23012732 16282942 3.62329 2.81848

Current Asset 142279638 118499228 22.4015 20.5115

Investments 139946995 156985686 22.0342 27.1733

Advances 316110406 268838779 49.7707 46.5345

Other Asset 27113698 23941056 4.26898 4.14406

Operating Fixed Asset 9681974 9454365 1.52440 1.63649

Defer tax Asset - - - -

Total Asset 635132711 577719114

Liabilities

Bills payable 10605663 1741156 1.91722 0.34589

Borrowings from

Financial 11704079 8756847 2.11578 1.73961

Deposits and other

accounts 501872243 463426602 90.7251 92.0632



Asset 13235 16629 0.00239 0.00330

Other Liabilities 2659300 24974450 0.48073 4.96136

39

Defer Tax Liabilities 2387073 4462718 0.43151 0.88655

Total Liabilities 553178593 503378402

Net Asset 81954118 74340712

Represented By

Share Capital 7090712 5908927 1.11641 1.02280

Reserves 13879260 13536041 2.15525 2.34301

Unappropriated profit 32074677 16713506 5.05007 2.89301

Total 53044649 36158474


asset 28909469 38182238 4.55172 6.60913

Total Representation 81954118 74340712

2.7 Ratio Analysis 2005-2006

For the analysis of the financial statements of the NBP we use the ratio analysis in order

to get a clear vision about the financial position with simple interpretation.

2.7.1 Liquidity ratio

The liquidity of a business firm is measured by its ability to satisfy its short-term

obligations as they came due. Liquidity refers to the solvency of the firm’s overall

financial position the ease with which it can pay its bills. Basic measures of liquidity are:

Current ratio

Net working capital

Cash ratios

2.7.1 .1 Current Ratio

Formula: Current Ratio=Current Assets/Current Liabilities

Year 2006: Year 2005:

= 142279638/196138268

= 0.72540478

=118499228/167708076

=0.70658

40

Interpretation:

A current ratio of 1.0 is occasionally cited as acceptable, but a value’s acceptability

depends on the industry in which the firm operates. In 2004 bank was more liquid as

compare to 2003. Current Liabilities are more then current assets. Its means that bank is

financing its fixed assets (long term investment & deposits) with the current Liabilities,

which is profitable but risky at the same time. In 2004 the current liabilities (current

deposits) of the bank have increased but the rise in the current assets (short advances) is

more. So in 2004 bank has improved its liquidity position by investing more in current

assets rather then in fixed assets.

2.7.1 .2 Net working capital:

Formula: NWC=Current Assets-Current Liabilities

Year 2006: Year 2005:

= 142279638 – 196138268

=(53858630)

=118499228 – 167708076

= (49208848)

Interpretation: Net working capital is commonly used to measure a bank overall

liquidity. NBP has more current Liabilities (current deposits) then current assets (short

term advances & investments). So bank is using very aggressive approach by investing

current liabilities in fixed assets. Bank earning profit but at the same time taking risk as

well. In 2004 the NWC of Bank had improved a bit by investing more in current assets

rather then in fixed assets. So bank has improved its liquid position by investing more in

current assets.

2.7.1 .3 Cash to current liability ratio

Cash to Current Liability ratio =Total Cash/Current Liability

Year 2006: Year 2005:

41

= 119266906/196138268

=0.60807565

=102216286/167708076

=0.609489

Interpretation This ratio will compare the most liquid asset cash with the most short

term liability(current deposits). NBP has less cash then the current Liability (current

deposits) so its means that bank has invest the depositors money in different ventures.

2.7.1 .4 Cash to Total Assets

Cash to Total Assets= Total Cash/ Total Assets * 100

Year 2006: Year 2005:

= 119266906/635132711 * 100

= 21.56%

=102216286/577719114 *100

=17.69%

Interpretation

This ratio will shows that how much the cash has maintained by the bank out of its total

assets. NBP has its assets in the form of investment, advances so bank is availing its

opportunity cost and still has sufficient cash reserves only to fulfill the demands of

Account holders & other financial institution.

2.7.2 Debt Ratio:

The debt position of a bank indicates the amount of other people’s money being used in

attempting to generate profits.

Debt Ratio:

Formula: Debt To Assets Ratio=TL/TA*100

Year 2006: Year 2005:

42

= 553178593/635132711 * 100

= 87.09%

= 503378402/57719114 * 100

= 87.13%

Interpretation: The debt ratio measures the proportion of total assets financed by the

bank creditors (depositors). The higher this ratio the greater the amount of other people

money being used in an attempt to generate profits. In 2004 bank leverage ratio had

decreased because the total assets (advances & investments) of the bank has been

increased more than total liabilities (current deposits).

2.7.2.1 Debt to Equity Ratio:

Formula: Debt to equity ratio=Total Liability/S.H.E

YEAR 2006 YEAR 2005

=553178593/53044649

= 10.42

=503378402/36158424

= 13.92

Interpretation: The debt-equity ratio indicates the relationship between the total funds

provided by creditors and those provided by the bank owners. It is commonly used to

measure the degree of financial leverage. In 2004 debt to equity ratio has decreased then

as compared to 2003 .Although in 2004 this ratio was less but still amount of interest

given by the bank was greater then amount of dividend distributed by the bank to share

holders.

2.7.2.2 Return on Assets: Formula: ROA=NPAT/TA*100

YEAR 2006 YEAR 2005

= 17022346/635132722 * 100

= 2.68%

=12709444/577719114 * 100

= 2.19%

Interpretation: 0.895% indicates that bank earned 0.895% paisas on each rupee of asset

invested in 2003 which was quiet low then 2004 return. NPAT of bank has increased in

43

2004, because no extra payment has been made to depositors, more commission has been

received in 2004 on wider & better services& more compensation has been collected by

bank on delays of payments from customers & tax concession.

2.7.2.3 Return on Equity:

Formula: ROE=NPAT/S.H.E

YEAR 2006 YEAR 2005

= 17022346/53044649

= 0.32090

=12709333/36158474

= 0.3514

Interpretation: Return on S.H.E measures the overall effectiveness of management in

generating profits with its available equity. The higher the firm’s return on equity, the

better. 14.54% in 2004 indicates that bank’s share holders have earned 14.14 paisas on

each rupee invested which is lesser than 2003

2.7.3 Earning Per Share2005

Earning Per Share Rs. 17.92

2.7.4Earning Per Share200

Earning Per Share Rs. 24.01

2.7.5 Financial yearFinancial year

The financial year of the Bank commences from the 1st day of January and ends on the

31st day of December every year.

44

CHAPTER 3

SWOT ANALYSIS

STRENGTHS WEAKNESSES OPPORTUNITIES THREATS (SWOT)STRENGTHS WEAKNESSES OPPORTUNITIES THREATS (SWOT)

ANALYSISANALYSIS

SWOT is the abbreviation of strengths, weaknesses, opportunities and threats. Strength

of the organization can be measured from the activities and resources that give it a

competitive edge over competitors. Weaknesses reflect areas where the organization

lacks better performance .threats are the environmental condition that can affect the

performance of the organization in order to be more competitive.

In light of the SWOT analysis, management also reevaluates its current mission and

objectives. Are they realistic? Do they need modification? As we where we want to be

right now?

3.1 STRENGTHS

NBP one of the largest financial institutions of Pakistan with eight million of

customer base NBP holds 24.6% share of time and demand deposits in the country.

Local currency deposits comprise 67% of bank's total deposits while foreign currency

deposits account for the rest.

NBP has an extensive domestic branch network of 1200 (according to the latest data)

branches located all over Pakistan. The Bank also has a presence in 19 international

locations including the USA, United Kingdom, Europe and the Far East.

NBP's total assets stood at Pak Rs.370 billion on December 2000. This included total

earning assets of about Pak Rs.268 billion with gross loan portfolio of Pak Rs.140

billion. The bank also has an investment portfolio of Pak Rs.91 billion, which

comprises treasury securities, corporate bonds, shares and other securities.

NBP cash provision as percentage of non performing loans equal to 60% this

coverage factor for the non performing loans is the highest amongst the nationalized

commercial bank.

45

NBP is working as right arm government of Pakistan as it is responsible for all claims

of government for recovery as well as payment. All depositor of NBP are in relief that

their money security is guaranteed by government of Pakistan.

It acts as an agent of the Central Bank wherever the State Bank does not have its own

Branch.

3.2 WEAKNESSES

NBP staff especially at lower considers their work as burden. They usually waste time

in other task a part in performing their duty. Using government property for there

own need. They are reluctant to accept change brought by latest restructuring efforts.

The general out look and interior layout of branches are not as required according to

modern banking

NBP bearing up large burden in running those branches, which are not producing any

income but keep on adding expenditure.

NBP is relying on its traditional sources of income it has not taken benefit from

innovation in banking like introducing retail banking or consumer banking and using

any type of scheme to generate more deposits and producing more advances. Further,

more don’t even continue its credit card due mismanagement and lack of control.

NBP is far behind in offering modern banking facility like automated teller machines

then other commercial bank in Pakistan as only eighteen branches in all over country

have this facility.

NBP has only forty-four on line branches. While from remaining branches data

gathering is time consuming, and not fool proof. Quantum of settlement within

Different branches are pending because of this updating daily record is becoming

very difficult.

Customers have to fallow long lengthy procedure for opening of account as well

applying for debt. Which discourage most of the people to invest in NBP?

In NBP, most of the time merit not has importance in hiring of employees. Such

practices are black spot on the face of bank and resulted big losses and fraudulent acts

by NBP own employees.

46

3.3 OPPORTUNITIES

Reorganizing efforts going on in the NBP has open many opportunities for NBP to grow.

NBP current management has boarder vision. They have taken steps to improve customer

services, streamline internal procedure and creating a delectating climate for technology

initiative.

To achieve above mention objective they have created operation group

Starting of the retail banking initial working.

Setting of target for of making at least 300 branches country wide on line.

Closing of all those branches, which are burden on NBP.

Management to offer specialized services to major corporate including advisory and

debt syndication introduces the concept of relationship manager.

Comprehensive training programs has been develop to up grade the core banking

skills of the existing staff as well as integrate high quality hiring.

To improve the motivation of staff a merit-based culture is being promoted. Through

overhauling the manpower recruitment preservation and performance appraisal

system.

These actions taken by current management provide a great opportunity for NBP for

making it future prosper and can make NBP not less than any modern commercialize

bank in Pakistan.

3.4 THREATS

Following are the major threats which national bank of Pakistan is facing:

Major threats NBP facing is from its competitor especially from denationalized

commercial bank. In which MCB is on the top of the list, The Bank provides 24 hour

banking convenience with the largest ATM network in Pakistan covering 15 cities

with over 100 ATM locations.

Retail banking and consumer banking resulting in the products such as credit cards,

housing finance and automobile finance lending to small individual consumers, and

purchases of automobiles, housing, and consumer goods are generally made on a cash

basis. These are causing another threat, if not counter will result in significance loss

of customers

47

Recently banks and other financial institutions have introduced innovative schemes to

attract deposits, like gift cheque scheme by MCB. These schemes offer prizes on

short and long term fixed deposits, through lucky draws.

Now banks are using technology which covers the distance no matter how far away

any one, through a satellite based, on-line real-time banking system and by offering

telephone banking, electronic funds transfer, E-Banking and other modern facilities.

3.2 Suggestion

NBP major fault is that wasn’t keeping its pace with on going changing in banking

industry unlike other banks. Now this bank combining all it power and trying to

approach other banks.

Latest reorganizing efforts are necessary to make it cost effective also making its

facility accordingly to modern banking. These must continue.

Bank management has to put its all effort to change the prevailing culture of the bank

and to put the foundation stone of business oriented culture. In which employees give

important to the bank and its customer.

To attract the customer in the future NBP have to make extensive effort to give

facilities of retail and consumer banking. Plus the technology in the banking which

will be necessary for future banking is another week area need to be stressed.

The outlook and interior lay out of the branches is another thing which needs to be

improved.

The procedure of taking services from the bank must be made easier and straight

forward not involving long difficult procedure for simple task.

To remain in the market bank need to be vigilant in the eyes of customer. One way is

through promotion efforts, so that people aware about he services of the banking and any

addition which the bank as made in the portfolio of its services.

48

CHAPTER 4

Impact of micro financing on poverty reduction.

4.1. Introduction to the Topic

The strong economic growth is bound to create employment opportunities and therefore

reduced unemployment. The evidence provided by the Labor Force Survey 2005 (First

two quarters) clearly supports the fact that economic growth has created employment

opportunities. Since 2005-06 and until the first half of 2006-07, 5.82 million new jobs

have been created as against an average job creation of 1.0 – 1.2 million per annum.

Consequently, unemployment rate which stood at 8.3 percent in 2001-02 declined to 7.7

percent in 2003-04 and stood at 6.5 percent during July –December 2005. The rising pace

of job creation is bound to increase the income levels of the people. Agriculture, housing

and construction, IT and Telecom sector, and SME are the sectors, which have created

relatively more jobs.

.

4.2 The Poverty Impact of Microfinance

A perfect impact evaluation really needs to answer a counter factual question: how does

the status of participants in the program compare with how those same individuals would

have fared in the absence of the program Or, alternatively, how would non-participants

have fared in the presence of a program The problem with cross-sections of data

(observations on many individuals at a given point in time) is, of course, that at any given

point in time individuals are observed to be either participants or not.. In reality,

researchers must settle for estimates of the average impact of the program on a group of

participants in the program are usually different from non-participants in many ways:

49

programs are usually carefully placed in specific areas, participants within those areas

may be screened for participation, and the final decision on whether or not to participate

is usually voluntary. To the extent that these factors are known and can be measured, they

can be controlled for in the empirical analysis, but in most cases the placement of the

program and self-selection of participants in those areas into the program are based on

unobservable factors.

4.3 Broad Problem Area

Currently in Pakistan there is very limited primary data or secondary analysis with which

to understand how the poor use microfinance services (both formal and informal) or to

understand whether the poor had access to the services being provided by the new wave

of microfinance institutions, and the study also undertook a small ‘financial diaries’

survey. The conclusions that can be drawn for the reanalysis of the Pakistan Integrated

Household Survey (PIHS) and the Pakistan Socio-Economic Survey (PSES) are that in

2000 the poor had very little access to formal and semi-formal credit markets; the vast

majority of loans were used for consumption rather than investment; large loans were

provided by formal and semi-formal credit providers; and lastly, the availability of credit

may have played a significant role in reducing the poverty impact of the drought in

NWFP and Punjab. However, in Sindh and Balochistan, covariate risks (i.e. suppliers of

credit were unable to supply when the users of credit needed it most) may have severely

reduced the role that credit might have played in maintaining consumption levels. There

was some randomness involved in the selection of the surveyed localities, but none at all

in the sampling of households to be interviewed. Therefore the results are in no way

representative.

50

4.4 Literature Review

Definition of Microfinance

Microfinance is the provision of a broad range of financial services such as deposits,

loans, payment services, money transfers, and insurance to poor and low-income

households and, their micro enterprises. Three types of sources provide Microfinance

services:

• Formal institutions, such as rural banks and cooperatives societies;

• Semiformal institutions, such as nongovernmental organizations; and

• Informal sources such as money lenders and shopkeepers.

Institutional microfinance is defined to include microfinance services provided by both

formal and semiformal institutions. Microfinance institutions are defined as institutions

whose major business is the provision of microfinance services. (Callister, P. 1997)

4.4.1 ADB & Microfinance

About 90% of the 180 million poor households in the region still lack access to

institutional financial services. Most formal financial institutions deny the poor financial

services because of

Perceived high risks

High costs involved in small transactions

The Poor’s inability to provide marketable collateral for loans

ADB, through its Microfinance Development Strategy, aims to ensure permanent access

to institutional financial services for the region's poor people and their small businesses.

51

http://www.adb.org/Documents/Policies/Microfinance/default.asp?p=microfnc

4.4.2 Recommendation

To achieve this objective, ADB will focus on

Creating a microfinance-friendly policy environment

Developing financial infrastructure

Building viable retail institutions

Supporting pro-poor innovations

Supporting social intermediation

Providing the poor with improved facilities to save and to have better access to credit

helps them manage risk, build assets, increase income, and enjoy a better life.

4.4.3 Need for a development strategy for microfinance

During 1988-1998, ADB approved 15 microfinance projects totaling about $350 million,

6 projects with microfinance components valued at about $53 million, and 34 technical

assistance activities for about $18 million to support microfinance operations. ADB has,

however, provided this assistance without a well-defined strategy and, as a result, has not

been able to fully harness the potential of microfinance for poverty reduction.

Once almost exclusively the domain of donors and experimental credit projects,

institutional microfinance has evolved during the last decade into an industry with

prospects for financial viability, offering a broader range of services and significant

opportunities for expansion. The prospects for financial sustainability are revolutionizing

the microfinance field and suggest that a large proportion of the millions of poor people

52

can be provided access to institutional microfinance. This change has important

implications for ADB. ADB needs to take cognizance of the challenges and prepare to

effectively harness the opportunities in its DMCs. Given the diverse requirements in the

sector, the competing demands for ADB funds, the increasing pressure on resources in

the Asian Development Fund, and the growing complexities and challenges of improving

the quality of life of over 900 million poor people in the Region, ADB must reinforce its

emphasis on efficient allocation and use of resources at its command. A strategy is

necessary to ensure that ADB addresses these concerns effectively and consistently

within its objective of poverty reduction. A strategy can also:

(i) Provide a clear and consistent link between ADB’s microfinance operations

and its overarching objective of poverty reduction;

(ii) Facilitate promotion of a common approach to microfinance operations

throughout ADB, which will also contribute to better coordination with other

funding agencies;

(iii) Provide a consistent basis for policy dialogue with the DMCs on microfinance

and related issues;

(iv) Assist ADB’s ongoing efforts to improve the quality of project design,

processing, and implementation of microfinance operations; and

(v) Facilitate adoption of a longer term perspectives than in the past in providing

assistance for microfinance. (Burgess, S. and H. Rees. 1998)

53

4.4.4 Demand for microfinance services

The poor and low-income households and their micro enterprises in the Region are a

diverse group. Their demand for microfinance services also reflects this diversity. The

collective demand of these groups for financial services is large and the types of services

they demand vary across households and micro enterprises and over time. Poor and low-

income households and their micro enterprises in the Region have a large demand for

safe and convenient deposit services. This demand reflects the importance of savings for

these households and micro enterprises for a variety of reasons. The poor need to save for

emergencies, investment, consumption, social obligations, education of their children and

many other purposes. They have the capacity and willingness to save. Savings are

important for micro enterprises and provide them with a major source of investment

funds. For example, the number of savings accounts in unit desas of BRI increased, from

5.0 million in 1988 to 16.1 million in 1996. Most of these accounts belong to poor

households. The cooperative rural banks in Sri Lanka had 4.7 million deposit accounts at

the end of 1998; while the Association for Social Advancement, a micro finance NGO in

Bangladesh, had over 1.4 million active savings accounts of poor households at the end

of 1999. In some countries, the poor pay high prices to those providing deposit services.

The demand for micro credit that originates both from households and micro enterprises

is also large. Poor households in the Region require micro credit to finance livelihood

activities, for consumption smoothening, and to finance some lumpy nonfood expenses

for purposes such as education (e.g., school fees and books), housing improvements, and

migration. Many Asian countries have numerous small farms and their operators also

require microfinance services. The other source of demand is non-farm micro enterprises,

54

which cover a wide array of activities such as food preparation and processing, weaving,

pottery, mat and basket making, furniture making, and petty trading. The demand for

other financial services among poor and low-income households and their micro

enterprises could also be significant A private insurance company in Bangladesh that

started to provide micro-insurance services to low-income households on a commercial

basis, for example, found that its client base was expanding rapidly. At the end of 1999,

this company had over 800,000 clients, about 50,000 of which are considered poor. This

experience shows that the supply of such services creates its own demand because the

real demand for such services remains hidden when suitable products are not available in

the market. ( Griffeth, R., P. Hom and S. Gaertner. 2000)

4.4.5 Supply of microfinance services

The market structure in microfinance varies significantly across countries in the Region

depending on their stage of financial development, level of economic development,

policy environment, and other factors. However, aspects of the supply, particularly about

different types of suppliers, may be usefully discussed. The microfinance services are

supplied mainly by informal sources. Their collective outreach, both breadth and depth, is

vast in most countries. They supply mainly short-term credit and charge higher interest

rates than semiformal and formal sources. Because of the relatively greater bargaining

power enjoyed by the informal suppliers in general, the terms and conditions under which

services are provided do not enable the clients to fully harness economic opportunities.

The informal sources operate in highly localized areas. Therefore, their contribution to

financial intermediation and improvement of resource allocation is also limited. For

example, informal sources do not allow savings to be collected from more than a small

55

group of individuals well known to one another, and they do not move funds over large

distances. The involvement of formal sources in microfinance has increased during the

last two decades. This greater involvement has stemmed from:

(i) The expansion of the scope of formal institutions into microfinance through

downscaling and establishment of linkage programs with semiformal sources

of different types;

(ii) The emergence of new formal institutions focused on microfinance, such as

the Grameen Bank of Bangladesh and Khushhali bank of Pakistan;

(iii) Reforms of state-owned financial institutions such as unit desas of BRI; and

(iv) The introduction of new microfinance programs by the governments through

non-financial institutions.

However, the formal operations concentrate mostly on providing credit facilities, and

savings mobilization has yet to receive adequate attention, with few exceptions.

Formal microfinance has changed to some extent with increasing involvement of

private sector institutions. The Bank Dagang Bali in Indonesia has expanded its

microfinance operations and increased its clientele. Badan kredit-besas, owned by

Indonesian villagers, now reach 1.7 million clients, and the Grameen Bank in

Bangladesh, owned largely by its borrower members, operates in over 38,000 villages

with 1,140 branches and reaches about 2.4 million clients and Khushhali bank in

Pakistan covers round about 520,000 clients through out the country. Cooperatives

are also playing a significant role as financial intermediaries in the Region,

particularly in India, Sri Lanka, Thailand, and Viet Nam. In many countries, the

cooperatives have begun to explore possibilities for deeper penetration into the

56

microfinance market and show a greater concern about their financial viability than

they did in the 1980s. A major feature of semiformal microfinance sources in the

Region is the extensive involvement of NGOs. The small average loan sizes of

NGOs, which usually range from about $30 to $150 per active loan account, suggest

that their clients include the poorest. NGOs in some countries are trying to organize

themselves into national coalitions to improve the industry standards and self-

regulation. A few NGOs in the Region have plans to transform themselves into

formal financial institutions. (Bedeian, A.G., and A.A. Armenakis. 1998)

4.4.6 Major achievements in microfinance

The MFIs (micro financing institutions) and (OFIs) other financial institutions

providing microfinance services have expanded their outreach from a few thousand

clients in the 1970s to over 10 million in the late 1990s.

(i) MFIs and OFIs mobilizing voluntary savings have shattered the myth that poor

households cannot and do not save, and proved that savings can be successfully

mobilized from poor households.

(ii) MFIs, OFIs, and their clients have shown that the poor are creditworthy (poor

women, in particular) and financial services can be provided to and accessed by

the poor on a profitable basis at low transaction costs without relying on physical

collateral.

(iii) Microfinance services have triggered a process toward broadening and

deepening of rural financial markets.

(iv) Micro finance services have strengthened the social and human capital of the

poor, particularly women, at the household, enterprise, and community level.

57

(v) Sustainable delivery of microfinance services on a large scale in some

countries has generated positive developments in microfinance policies and

practices among all stakeholders: governments, central banks, microfinance

service providers, and external funding agencies. (Griffeth, R. and P. Hom. 1995)

Comparative Poverty Profile 2001, 2004-05& 06-2007 Percentage of Population

2001 2004-05 2006-07

Extremely Poor 1.1 1.0 .73

Ultra Poor 10.8 6.5 5.4

Poor 22.5 16.4 15.1

Vulnerable 22.5 20.5 20

Quasi Non-Poor 30.1 35.0 38.95

Non-Poor 13.0 20.5 19.82

(Source Economic Survey of Pakistan 2006-2007)

4.4.7 Micro financing and Agricultural Sector

There are two main sources of agricultural credit: Institutional and non-institutional. The

non-institutional sources are neither sufficient nor reliable to meet credit needs of farmer

making it necessary for the Government to operate in this field and extend credit to

farmers through its agencies. The Government agencies, which provide credit to farmers,

are:

(i) The Revenue Department

(ii) The agricultural Development Bank of Pakistan

(iii) Commercial Banks

(iv) The federal bank for Cooperatives.

58

The Government introduced interest-free credit program. Subsequently, it was replaced

by mark-up free credit for small farmers. The share of mark-up free loans in total

agricultural loans going to small farmers in Pakistan was 01 per cent in 1984-85 (Govt. of

Pakistan, 1985 and 1986). The small farmers primarily need funds to meet their

production requirements, and commercial banks and cooperatives are the only sources of

mark-up free production credit for them. During the first tow years o commercial banks f

their operation, their contribution rose from zero to 31 per cent in total agricultural credit

in Pakistan. Moreover, their share in 1984-85 was 45 per cent. (Cotton, J. and J. Tuttle.

1986)

4.5 Objectives of the Study

The specific objectives for the study are outlined as follow:

1. To estimate the proportion of cooperative loans reaching the small farmers

2. To identify the shortcomings, if any, in the flow of cooperative credit to the small

farmers/SMEs

3. To see the impact of cooperative loans on the use levels

4. To evaluate the impact of cooperative loans on the yields of the loaners.

5. To suggest policy measures to improve the system of cooperative loans.

6. To see how much loan is taken by poor

4.7 THE THEORETICAL FRAME WORK

After conducting the unstructured interviews, structured interviews, and the Literature

survey the researcher come to know that the “Micro financing “ has the most related

impact on the reduction of the poverty. And after the literature survey it was also noticed

that the Micro financing with the impact on poverty has also impact on the social status

59

of the household and on Education and health expenditure and also on the income

generation and saving of the household. Its relation can be seen that when one household

uses micro financing and increase their income and save some amount and then they

increase their expenditure on education and health and when they fulfill their basic needs

they participate in social welfare and invest money on social welfare. So we can develop

some hypothesis from this cycle and will testify our results with some statistical tools.

Theoretical Framework

Independent Variable Dependent Variables

4.7.1Types of Variables

In this research 2 types of variables will be discussed. In this research one to one relation

between Micro financing and Poverty will be discussed. This one to one relation will

further be described by seen the relationship between some other factors also.

4.7.2 Dependent variable

Poverty

Micro financing

60

Status in society

Education and Health

Help in Income Generation

The independent variable is the variable of primary interest to the researcher. It is the

goal of researcher to understand and describe the dependent variable. In this research we

have to see the Impact of Micro financing on the poverty. We have seen how much micro

financing effects the poverty and also some other consequences of the poverty. So in this

research poverty and its consequences are the dependent variables.

4.7.3 Independent variable

An independent variable is one that influences the dependent variable either in positive or

negative way that is when the independent variable is present, the dependent variable is

also present, and with each unit of increase in the independent variable, there is an

increase or decrease in dependent variable also. In this research micro financing is

independent variable, which influences the poverty and other consequences of the

poverty.

4.7.4 Poverty

The main dependent variable in this research is poverty. Poverty can be described as

“Relative measure within a society, being the state of having income and/or wealth so

low as to be unable to maintain what is considered a minimum Standard of Living.”

Micro financing has a broad impact on the poverty. The basic purpose of this study is to.

4.7.5 Status in society

Social status is one of the most important consequences of the poverty. If one person

become in a position to support his family and fulfill his basic needs then he can be in a

position to participate in the social welfare and improve the society.

4.7.6 Education and Health

61

http://www.answers.com/topic/standard-of-living

When a household uses micro financing and increase his income, he will ultimately

increase his expenditure on the education and health. Its means that micro financing has

ultimate effect on expenditure of a household on education and health.

4.7.7 Help in Income Generation

The third consequence, which may be affected by the micro financing, is Income

generation and savings. When a household get loan and start working and properly utilize

the loan. He will be able to increase his income and after fulfilling of his basic needs he

will be able to save some amount for his future needs.

4.8 DEVELOPMENT OF HYPOTHESIS

Once we have identified the important variables in the situation and established the

relationships among them through logical reasoning in the theoretical framework, The

“Impact on Poverty” is influenced by the following variables

a) Income Generation and Savings

b) Social Structure and social status

c) Education and Health

The increase in the extent and frequency of above variables causes a positive impact over

4.8.1 Poverty

Hypothesis in statistical form is narrated asH0: = 0

i.e. there is no relationship of the above mentioned variables with the poverty

H1: < 1

That there is a positive relationship of Income Generation and Savings, Social Status and

4.8.2 Education and Health with micro financing.

62

Or we can say that

An appropriate financing tool for low-income people leads them to uplift their

income and savings.

Increase in income and savings of low-income people enable them to contribute in

the development of social status and social structure.

When the income of a household will increase, it will ultimately increase the

expenditure on education and health.

4.9 PURPOSE OF THE STUDY

This study is a Descriptive study as it was not much known about the problem before the

study that how much micro financing has impact on poverty and its other consequences.

Before this study we were unable to judge the different variables and find out the

relationship between micro financing and poverty. So due to this study we find all those

factors, which are related to the poverty.

TYPE OF INVESTIGATION

Types of investigations, categorizes the Research studies in basic three categories. These

categories are Causal Relationship, Correlation, and Group Inferences types. In causal

relationships type of investigation, focus is to establish definite cause of a problem. In the

case of correlation type of investigation, effort is to identify important factors or variables

associated with problem. While group inferences type of investigation, ranking is done on

the bases of greater intensity and smaller intensity.

Talking particularly within the scope of this study “Impact of micro financing on

poverty” is a correlation study because there are more then two dependent variables,

which are correlated to an independent variable. And here effort is to identify

63

independent variable, which correlates with dependent variables, and these variables are

Income generation and savings, Social Status and expenditure on education and health

with the independent variable micro financing.

It also indicates the nature and extends of relationship of those dependent variables with

one single independent variable and also the degree to which these are related to each

other.

4.9 TIME HORIZON

Time horizon is also an important factor during the course of research study. The

research study may be Cross-sectional or it may be Longitudinal. Cross-Sectional

research study is conducted and executed only for one period of time. This period may be

a day long, or a week long, or it may be a month long. Basic point is that the research is

conducted only one for one time. There is no gap and interval between the steps and

phases of the research process. While on the other hand, Longitudinal Study is the study

of information at more than one period of time. There may be gaps and breaks during the

course of execution and conduction of the research study.

4.9.1 Sample Size

I have floated 80 questionier in the market which has given the positive result in research

for the topic.

4.9.2 UNIT OF ANALYSISThe unit of analysis provides the level of aggregation of the data collected during data

analysis. In this research the unit of analysis is the individuals (Clients of Khushhali

Bank Ltd.)

individuals

64

4.9.3 GOODNESS OF MEASURE4.9.3.1 ValidityEvidence that the instrument or technique or process used to measure a concept does

indeed measure the intended concept. For checking the validity of the questionnaire and

the further hypotheses about the validity of the quality of the teacher-student relationship

structured interviews and questionnaires are designed to be filled by them. These

questionnaires are filled up with the necessary and relevant items that ensure the

measurement of the right concept that the question wants to measure

4.9.3.3 Data Analysis

In this research report, researcher has studied one to one relation between poverty and

micro financing. In this report, we have discussed how micro financing may have effect

on poverty. Here is micro financing is our dependent variable and poverty is independent

variable. Independent variable of poverty may further be divided into three variables.

Those variables are: social status, Health and education and income generation and

savings. Its means that we can see the impact of micro financing on poverty may be

measured through these three consequences. The relationship between these all variables

may be judged through the following circle:

Loan

Social Contribution Utilization

Repayment and savings

Income generation

65

AGRIGATE ANSWERS;

Query Option #1 Option#2 Option#3 Option#4What is your way of earning?

10% 21.67% 56.67% 11.67%

Why you feel the need of micro financing

18.33% 45% 26.67% 10%

Is this your first time of getting loan from any micro financing institution

46.67%Y

53.33%N

- -

When did you last get loan from micro financing inst.

35.0% 28.33% 23.33% 13.33%

For what purpose, you got loan from micro financing institution.

40.0% 25.0% 28.33% 6.67%

How you have used your loan

- - - -

Why you have selected comercial bank for micro financing

- - - -

How satisfied are you overall with micro financing institution.

43.33% 31.67% 10.0% 15.0%

Are you satisfied with the system of Repayment

28.33% 23.33% 18.33% 30.0%

Are you satisfied with the interest rate charged by the micro financing institution.?

20.0% 28.33% 13.33% 36.67%

Are you earning so many amounts from loan that you can pay interest to bank 80.0% 20.0% - -

Are you now in a position to support your family by yourself

88.33% 11.67% - -

4.9.4 Interpretation of the table

66

Khushhali bank was formed to provide finance and to promote individuals who want to

start their own business or to promote it but due to lack of finances it is difficult for them

to proceed. For 5 years Khushhali bank is working in different regions of the country this

study basically helps bank’s management to design some policies, which are more

beneficial for its customers as it is customer-oriented bank. A question-to-question

analysis and interpretation of table is discussed below.

56.67% of the people having loan from Khushhali bank opted that they are making their

earnings from their own business of running shop which means that there is vast potential

finance requirement for the private individuals wanted or doing their own business as

starting business from a shop need comparatively less finances and also not well

structured business plan and other expenses.

Finances are the basic requirement for all kind of business either it is well reputed grown

up business or the business at its infancy stage, money is required from time to time. For

question No2, 45.0% people having finances from Khushhali bank stated that they are

having finances for the purpose that they want to expand business. Expansion in business

means that industry is growing which is beneficial for the bank as well as pay back

percentage of the loan improves.

Customer retention is very important aspect in any business either it is banking or any

other servicing or manufacturing business, because it adds to the life to dealing. About

53.33% of the current customers are the regular customer of Khushhali bank which

means that Khushhali bank is very efficient in retaining its customer by providing them

with the facilities its customers wants whereas increasing trend with 46.67% indicates

that the number of customer are at its increasing trend.

67

4.9.5 Hypothesis Testing

Hypothesis # 1

Ho: An appropriate financing tool for low income people/ household will not lead

them to uplift their income and savings.

H1: An appropriate financing tool for low income people/ household will lead them to

uplift their income and savings.

S no: X probability X(X-X)2 (X- X)2 X

1

2

3

4

135.0

140.0

41.67

81.67

0.25

0.25

0.25

0.25

99.585

99.585

99.585

99.585

1254.23

1633.37

3354.15

320.95

12.959

16.402

33.681

3.223

∑ 398.34 1.0 66.265

ג 2 =∑ [(X-X) 2 X]

ג 2= 66.265

68

Critical Region

Degree of freedom n-1 = 3

Level of significance = 5% or 0.05

ג 2 = 7.815

ג 2 cal > 2ג tab =66.265 > 7.815So H1 accepted and Ho rejected. Hypothesis #2

Ho: Increase in income and savings of low income people will not enable them to

contribute in the development of social status and social structure.

H1: Increase in income and savings of low income people enables them to contribute

in the development of social status and social structure.

S no:X probability

X(X-X)2 (X-X)2 X

1

2

3

4

150.0

173.33

135.0

41.67

0.25

0.25

0.25

0.25

125.0

125.0

125.0

125.0

625.0

2335.79

100.0

6943.89

5.0

18.69

0.80

55.55

∑ 500.0 1.0 80.04

ג 2 =∑ [(X- X) 2 X]

= 80.04

Critical Region


69


7.815 = 2ג

2ג cal > 2ג tab

80.04 > 7.815

So H1 accepted and Ho rejected. It means that increase in income and savings of low

income people enable them to contribute in the development of social status and social

structure.

Hypothesis # 3

Ho: When the income of a household will increase, it will not increase the expenditure

on education and health.

H1: When the income of a household will increase, it will ultimately increase the

expenditure on education and health.

S no: X probability X (X-X)2 (X-X)2 X

1

2

3

4

388.33

186.67

71.67

53.33

0.25

0.25

0.25

0.25

175.0

175.0

175.0

175.0

45509.69

136.19

10677.09

14803.59

260.06

0.77

61.01

84.59

∑N=4 ∑ X =700.0 1.0 406.43

70

X = ∑X/N

= (388.33+186.67+71.67+53.33)/4 =700/4

=175.0

ג 2 =∑ [(X- X) 2 X]

406.43 = 2ג

Critical Region



7.815 = 2ג

2ג cal > 2ג tab

406.43 > 7.815So H1 accepted and Ho rejected. It means that when the income of a

household will increase, it will ultimately increase the expenditure on education and

health.

4.10 Conclusion

Poverty is a complex phenomenon, and we know that economic growth per head does not

necessarily alleviate it. Poverty has been alleviated by direct measures: development

programs, savings and credit schemes, employment programs, and social insurance and

security measures. Currently attention is focused on making micro finance widely

available. Given that poverty is complex, this smacks of a technical fix: however, well-

managed credit is a sufficiently flexible tool to enable poor people to decide for

themselves how they will use the resources. This is its attraction over more prescriptive

development programs. The aspect, which is most glaringly missing from most rural

71

development policies, is social security. There is a range of approaches to security form

employment schemes, through food security measures, to a variety of insurance schemes.

Here then is great scope for innovation, in business and local governance. This is

particularly important as the very poor rarely benefit from savings and credit.

Recommendations

Government should focus its activities towards a few critical areas mainly poverty

reduction through employment generation.

Government should not only act as a facilitator and but actively engaged in

developing economic and social infrastructure, particularly water, roads, schools,

hospitals, training and skill development facilities.

Agriculture sector should be developed through the timely availability of critical

inputs.

The government should protect poor farmers from volatility in prices of

agricultural produce.

Development of farm to market roads should be given the utmost priority.

The government and NGOs involvement should educate the locals how to make

best use of micro-credit facilities

The government should disseminate information about its poverty reduction

initiatives and how the poor can benefit from the government’s policies and

programs.

School and hospital staff should be recruited from amongst local residents. The

communities should be involved in the selection process.

72

CHAPTER 5

REFERENCES

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relevant outcomes among employed parents . Human Relations 51(1): 73-87 .

[CrossRef] [ISI]

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floats to the top of declining organisations . Academy of Management Executive

12(1): 58-67 .

Boxall, P. 2003. New Zealand. In The handbook of human resource management

policies and practices in Asia-Pacific economies, volume 2, eds, Michael Zanko

and Matt Ngui, 228-284. Cheltenham: Edward Elgar .

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http://apj.sagepub.com/cgi/external_ref?access_num=000071454600005&link_type=ISI

http://apj.sagepub.com/cgi/external_ref?access_num=10.1023/A:1016953900821&link_type=DOI

Burgess, S. and H. Rees. 1998. A disaggregate analysis of the evolution of job

tenure in Britain, 1975-1993 . British Journal of Industrial Relations 36(4): 629-

655 .

Callister, P. 1997. Trends in employee tenure, turnover and work scheduling

patterns: A review of the empirical research evidence. New Zealand Department

of Labour : Occasional Paper, 1997/1.

Campbell, A. 2002. Loyalty stems from life, work balance. NZ Herald, 24 July.

Online http://www.nzherald.co.nz.

Cotton, J. and J. Tuttle. 1986. Employee turnover: A meta-analysis and review

with implications for research . Academy of Management Review 11: 55-70 .

Dalton, D.R. and W.D. Todor. 1979. Turnover turned over: an expanded and

positive perspective . Academy of Management Review 4(2): 225-235 .

Department of Labour (DOL). 1972. Labour turnover: A practical guide.

Wellington: Dept of Labour .

Department of Labour (DOL). 2002. Labour market policy group: Skill shortages

- September 2002 quarter.

Eisenberger, R., F. Stinglhamber, C. Vandenberghe, I.L. Sucharski, and L.

Rhoades. 2002. Perceived supervisor support: Contributions to perceived

organisational support and employee retention . Journal of Applied Psychology

87(3): 565-573 .[CrossRef] [ISI] [Medline] [Order article via Infotrieve]

Freeman, R. and J. Medoff. 1984. What do unions do? New York: Basic Books .

Fry, F.L. 1973. More on the causes of quits in manufacturing . Monthly labour

Review, June, 48-49 .

Griffeth, R. and P. Hom. 1995. The employee turnover process . In Research in

personnel and human resources management 13, 245-293 (ed. G.R. Ferris).

Greenwich, CT: JAI Press .

Griffeth, R., P. Hom and S. Gaertner. 2000. A meta-analysis of the antecedents

and correlates of employee turnover: Update, moderator tests, and research

implications for the next millennium. Journal of Management 26(3): 563-588 .

Khushhali bank.com

Annual Reports of National Bank of Pakistan.

74

http://apj.sagepub.com/cgi/external_ref?access_num=12090614&displayid=137283&link_type=INFOTRIEVE

http://apj.sagepub.com/cgi/external_ref?access_num=12090614&link_type=MED

http://apj.sagepub.com/cgi/external_ref?access_num=000176417700015&link_type=ISI

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http://www.nzherald.co.nz/

www.nbp.pk

Meetings

Staff members of National Bank of Pakistan

Friends

Googal.com

Ask.com

Answer.com

Grameen bank.com

CHAPTER 6

Questionnaire

This Questionnaire is developed to judge the opinion of different clients of micro financing institution (such as National Bank Of Pakistan, Khushali Bank, Zari Tariqiyati Bank etc) and observe the impact of micro financing on the poverty reduction. Please ensure that the information given in this questionnaire is correct and actual.

Name: _____________________ Age: _______

Sex: _____________ Loan Cycle: _______

Q. 1 What is your way of earning.

o Govt. job o Private jobo Own shop

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http://www.nbp.pk/

o Shared Businesso Any other _____________

Q. 2 Why you feel the need of micro financing.o Need Moneyo Want to expand businesso For additional incomeo For Primary income

Q. 3 Is this your first time of getting loan from any micro financing institution.o Yeso No

Q.4 When did you last get loan from micro financing institution.o Currently usingo 1 year agoo 2 years agoo 3 years ago

Q. 5 For what purpose, you got loan from micro financing institution.o For own Shopo For livestock o For working Capitalo Any other ____________

Q. 6 How you have used your loan.

___________________________________________________________________________________________________________________________________

Q. 7 Why you have selected micro financing institution for financing.

_____________________________________________________________________________________________________________________

Q. 8 How satisfied are you overall with micro financing institution.o Very satisfied o Quit satisfiedo Neither satisfied Nor dissatisfiedo Quite dissatisfiedo Very dissatisfied

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Q. 9 Are you satisfied with the Repayment system o micro financing institution’s

o Very satisfied o Quit satisfiedo Neither satisfied Nor dissatisfiedo Quite dissatisfiedo Very dissatisfied

Q. 10 Are you satisfied with the interest rate charged by the micro financing institution.o Very satisfied o Quit satisfiedo Neither satisfied Nor dissatisfiedo Quite dissatisfiedo Very dissatisfied

Q. 11 Are you earning so much amount from loan that you can pay interest to bank and can also save something for yourself.

o Yes o No

Q. 12 Are you now in a position to support your family by yourself.o Yeso No

Thank you

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Final Repot Nbp

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