Profit E-Magazine Issue 144

CONTENTS 22

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08 Cocomos and IPO frenzy - this week in Pakistan’s business and economics Twitterverse 12 In its efforts to please expats, the govt gives a new lease on life to car manufacturers

18 18 Pakistan’s ticking pension time bomb Zafar Masud 22 Will the real payments revolution please stand up?

29 29 Putting women at the center of Asia’s pandemic recovery Sania Nishtar and Bambang Susantono 32 Why isn’t the PTA worried about the data of Pakistani citizens being misused?

Profit

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan Abdullah Niazi l Meiryum Ali l Shahab Omer Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) Layout: Rizwan Ahmad l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

Cocomos and IPO frenzy this week in Pakistan’s business and economics twitterverse

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n this week’s social media round up, Ariba Shahid walks us through the falling number of cocomos per packet, Karachi’s complex relationship with Tabish Gauhar, Waqar Zaka’s war on Elon Musk, as well as what to do if your boss sees your tweet about them. All this and more in this week’s social media roundup.

Conclusion

For the love of genres Minahil sums up what it’s like to be on twitter in a tweet. It’s crazy and we live for crazy

Not so impressive records

While we agree with Asra on how the population finds it cool to hate on Pakistani content, we can’t help but mention the fact that Hollywood comes out with hundreds of movies each year. A majority of those movies have nothing to do with the army. Pakistan comes out with a handful of movies in a year out of which more than half of them are either by the ISPR or about the army in some way. We even got a navy movie believe it or not. A romcom here or a comedy there that does not involve patriotism might be nice.

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If you do something specific enough, you will no doubt manage to create a world record, most probably because it just hasn’t been done before. The way there is a Guiness World Record for most soda cans opened with a parrot’s beak, or there is a record in cricket for fastest century in the first session of a test match (in terms of minutes). It really is a case of inventing records for yourself. In the same way, when it comes to financial news, it is always “First IPO of the year” this, and “IPO after x years” that, or “First (insert industry) IPO in x years”, and now “Two equity IPOs in a month”. What we’re trying to say is, you will always find a way to make an IPO sound special – but do we really need to celebrate IPOs? I mean after all, when are we going to normalize IPOs? Osman Mohiuddin, ex banker and startup founder rightly points out how the SECP needs to do more for minority investors, especially in light of more IPOs.

Notice me Elon

First impressions

Isn’t the whole point of crypto currencies to free oneself from the shackles of regulations and fiat? Well if that is the case, why is Zaka complaining now about the lack of regulation? Also, is he serious about getting twitter to ban Elon Musk (of course it is possible, remember what twitter did to Trump?). Would be cool if Musk files a lawsuit about Zaka and his allegations about Elon being a pumper and dumper. Then again, any attention from Musk would probably be incredible for Zaka.

Beware the bosses

Honestly, can’t say this enough but twitter seems more useful for work than linkedin is. It’s more informative if you follow the right people and better for networking. You can tell it’s better by the fact that we’ve completely stopped referring to linkedin posts in this roundup.

However, twitter is risky. Sometimes your tweets about your annoying bosses and coworkers go viral and end up reaching them. For that we suggest alt accounts. Maybe someday you’ll bump into mine.

Now or never Tabish Gauhar is the SAPM on power, however we all (Karachites) know him as the man that ran K electric. Because of that one job he held once upon a time, we will associate him to all the hours of load shedding we faced as a result. Tabish may go on to become the best thing for the power sector, but we do not care. All that matters for us is the load shedding we faced.

Same This is the literal translation of it is now or never. However, when you’re talking about your own venture, it’s not that simple and nor should it be. At least that’s what Zavain Dar thinks. Prioritizing the short term over the long term through quick decisions should not be a thing.

Hey Preeti, we agree 100% because we relate 100%.

SOCIAL MEDIA ROUNDUP

Readers Say Given the fact that the writer has fairly limited publicly available information on the topic it was a nice read. However for any meaningful analysis one will need to analyze the retail market in terms of its segments (men/women/children).

Apropos: Did Big Textile’s retail pivot work?

Fraaz Jamshed, Website

tion would be Σ(v_i • p_i) I presume. If we had the data. Ahhh, that's what I meant by Σ(v_i • p_i), the sum of all prices and their volumes. I should have been clearer. Why is that better though? Apropos: WorldCall: An acquisition or another Pump and Dump? @amingillani, Twitter

This very same situation can be found everywhere in Pakistan. It is only when a company is run by professional speculators that a company becomes host to speculation like this. This does not happen in a vacuum. And why focus on making the company better when you can just make big bucks by manipulating the stock market like this? Whatever else happens, it is an incredible shame because employees are suffering from the demise of good management. There are so many that are not even getting their salaries, while the corrupt elite running these companies make money at the expense of honest, hardworking, people. Apropos: WorldCall: An acquisition or another Pump and Dump?

Anonymous, Website

Case with the WTL is of an acquisition this time around. You might even see some official correspondence in the coming days. Not just a case of pump and dump. I have read the article and I know you are not denying acquisition, but I still think that this time around the acquisition business seems a bit more serious. There might be summaries being written to SECP by AKD securities to extend the acquiring date till July even as we speak. I still agree with the unfair advantage bit. Apropos: WorldCall: An acquisition or another Pump and Dump? @sporrtingnerd, Twitter

Usually, a pump and dump scheme can only work on the back of some positive news. This could include things like possible acquisition, a fancy joint venture announcement, large expansion plans, etc. To execute such a pump and dump successfully, the most critical aspect is having control of the supply of shares. Given that there is a large free float (the number of shares), it would really have to be an elaborate plan that has the backing of big players. To Keep it going mid-stream, additional news usually comes in to supplement earlier news, possibility of a new buyer in case of acquisition, story as to how company will benefit under different scenarios, etc.

Let's see what comes our way. Apropos: WorldCall: An acquisition or another Pump and Dump?

NAK, Twitter

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com.pk

HOW TO CONTACT

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Measure volume in rupees, not number of shares traded. Number of shares is a completely useless number. Always look at the value of shares traded. The PSX measures the exact value of each trade (volume multiplied by actual price of executed trade) for ALL trades that take place in a given trading day and publishes that number every day on its website. Apropos: WorldCall: An acquisition or another Pump and Dump? @FarooqTirmizi, Twitter That's a new idea to me. How come? And— given that they trade at different price points throughout the day—at what price would we be multiplying the total volume by? High, low, open, or close? The most accurate representa-

While the listed companies are a very tiny bit of the economy, they do reflect the overall business sentiment of the economy. And also they are integrated with a lot of suppliers, vendors, and clients within the economy. Apropos: WorldCall: An acquisition or another Pump and Dump? @ahmedfayy, Twitter Worldcall Telecom Limited needs to be kicked out of the Pakistan Stock Exchange. It is famous for its involvement in pump and dump schemes and is a bonafide Double Shah of the stock exchange. It's time they paid a price for that. Apropos: WorldCall: An acquisition or another Pump and Dump? @SyedHassanAmin, Twitter WorldCall with the entrepreneurship of the late Salman Taseer has seen days when it surpassed PTCL. In the era before spectrum auction for cellular phones invaded Karachi, Lahore and other big cities, Worldcall was the telecommunication company to envy. But with the tragic demise of the late Mr. Salman Taseer, everything changed. PTCL started expanding with its laid ducts/pipes with Dhobi Ghat cable, the thick aluminised cable with black plastic used for broadband/phone/data services. Then Worldcall also began going off the wagon, and while it tried to revive itself after it was sold off by the Taseer family, its fortunes have only continued to plummet. It is sad to see WTCL become a simple tool for pump and dump schemes in the stock market. Apropos: WorldCall: An acquisition or another Pump and Dump?

Haroon Rashid, Website

COMMENTS

IN BRIEF The Pakistan Stock Exchange (PSX) on Tuesday continued its upward trajectory, with the benchmark KSE-100 index rising by 294.92 points, or 0.62 per cent, and was being traded at 48,212 which is the highest level in the past four years due to the benchmark index adding 316 points.

Rs20 billion:

“Any form of wealth creation in Pakistan’s future is impossible without industrialisation, which is why our government is now focusing on sustainable growth. Pakistan is now on the path to prosperity with almost 4 percent growth rate predicted.”

Prime Minister Imran Khan

The ECC has approved a technical supplementary grant of Rs20 billion for procurement of 10 million doses of the Covid-19 vaccine in June. The meeting was specially called to provide a technical supplementary grant of $130 million to the National Disaster Management Fund (NDMF) to ensure timely procurement of the vaccine.

The National Assembly Standing Committee on Industries and Production expressed concern over the extra money being charged by the dealers and the issues being faced by the general public due to late delivery of cars by Morris & Garage (MG) company. It also claimed that MG was “wrongfully advertising about assembling vehicles in the country.”

$500 million:

Prime Minister Imran Khan on Monday launched the country’s first green Eurobond by WAPDA to meet the financial needs concerning the construction of Diamer-Bhasha and Mohmand dam projects.

The bond has been floated for 10 years to raise $500 million at a competitive price of about 7.5 percent interest rate.

The Transparency International Pakistan (TIP) has asked Finance Minister Shaukat Tarin to take action against the National Bank of Pakistan (NBP) for the violation of PPRA rules in awarding a Rs26 billion contract of scanning and indexing documents to a single bidder.

The government will form new policy parameters in order to ensure the film industry’s revival and overall growth in the country to announce a substantive package and review of major taxes to spur productions, with all major taxes set to be abolished.

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By Ariba Shahid

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hat is the car buying experience like for the average Pakistani? Many people buy cars in Pakistan without bank financing, which means they pay a lump sum to a car dealership that then delivers the vehicle in the next six or so months. If they want a car immediately, they have to pay an ‘on’ price to drive away with the car the same day.

For people that cannot afford to pay in full, there is bank financing. However, this comes with an interest rate that hovers around 13% and a significant waiting period that depends on the scheme and bank you are using to finance your car.

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Along with the high-interest rate and waiting period, there are also the issues of expensive insurance, and high taxes.

What can be gauged from this is that buying a car in Pakistan is an unnecessarily complex and expensive process that is exacerbated by the woes of a high interest industry. And with car prices surging in the past couple of years, people looking to buy cars have had even more to be worried about.

With all this going on, what if we told you that the government had just launched a scheme that would lower interest rates to almost half, slash waiting times by half, decrease taxes due on the car, and offer cheaper insurance? Prospective buyers might sing for joy and do a little dance. But then what if we told you

that the offer was not available to people living in Pakistan? Prospective buyers might now be confused and offended.

This is exactly what is happening with the Roshan Digital Apni Car Scheme recently launched by the government. Under the scheme, if a non-resident Pakistani wants to buy a car for their family back home, they can finance a car digitally from across the world, at cheaper rates and more conveniently than Pakistanis living in Pakistan can. The idea is that non-resident Pakistanis will buy more cars at home, and send more remittances to do so.

“You give many more subsidies with much less return. Look at what India does with its Non-Resident Indians (NRI).

Overseas are your power bank and they’ve never gotten anything in return. We are

You give many more subsidies with much less return.

Look at what India does with its Non-Resident Indians (NRI).

Overseas are your power bank and they’ve never gotten anything in return. We are providing a finance facility like the rest of the world Zulfi Bukhari, Special Assistant to Prime Minister for Overseas Pakistanis and Human Resource Development

providing a finance facility like the rest of the world,” Zulfi Bukhari, Special Assistant to Prime Minister for Overseas Pakistanis and Human Resource Development, tells Profit. when asked about the preferential treatment to NRPs given through this scheme while speaking exclusively to Profit.

The answer is just what one would expect from a government official, filled with whataboutery, a comparison with another country, and immense love for NRPs. The only problem is that we have heard it before, and we have been over this before.

It is the same vapid appeasement of expats and desperation for their remittance money. Don’t get us wrong, as far as the deal is concerned, non-resident-Pakistanis are getting a good one through this new scheme.

They were also getting a good deal out of the Naya Pakistan Certificates. The problem with these expat-oriented schemes remains the same - the government is providing ridiculously high returns in comparison to global markets but at the cost of excluding local investors from benefiting. The questions are, how much money in remittances can the scheme actually make Pakistan, and what will the repercussions be of not giving this kind of facilitation to tax-paying Pakistanis that live in the country?

What exactly is the Roshan Digital Apni Car Scheme?

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on-resident Pakistanis that have Roshan Digital Accounts will be able to finance a new car through their account across the world.

The lowest possible interest rate for Roshan Digital Account holders is approximately 7 percent. For a resident Pakistani, the interest rate hovers at around 13 percent. They will also pay lower insurance fees, registration, and taxation fees. In addition to all this, applicants will get their cars sooner than local buyers.

Overall, the cost of getting a car will fall by around 20%.

The Roshan Digital account holder will be the primary customer of the bank. For the purpose of financing a car, a Roshan Apni Car Repayment Account will be set up. This account cannot be used for other transactions and will strictly serve as a non-checking account for payment of monthly rentals.

The account holder will appoint a nominee within Pakistan as a local contact point.

You can only appoint one nominee that has to be a spouse, parents, siblings, or child. The vehicle will be registered in the name of the co-applicant/ nominee residing in Pakistan.

In exchange for all of these benefits, the Pakistani government hopes to make bank on remittances. Essentially, these remittances will be the collateral that the government collects to finance the car loan. Shoring up remittances is the goal at the end of the day, and as the spokesperson for the SBP, Abid Qamar, explains “so far all schemes under Roshan Digital were devised to facilitate payments and investment into the country. There was no consumer-based product and so we introduced this scheme.”

Now, this is more beneficial to the government if NRPs choose to go for a lien-based loan because it will mean NRPs invest long term in either Roshan Digital accounts or in the Naya Pakistan Certificates. A lien is essentially a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. In this case, the repayments of a loan to buy a car. In cases where the borrower does not make timely payments or adhere to his or her agreement, the asset can be seized by the creditor.

For the Roshan Digital Apni Car, you could invest in Naya Pakistan Certificates, or deposit money into your account equivalent to the financing amount. This will be a lien or a pledge equal to the tenure of the financing or maturity. This means that you cannot sell your certificates, repatriate or withdraw from your account while availing of this scheme. It can only be done upon maturity of your certificate or after full settlement of the financing.

Non-Lien based financing is whereby the account holder is paying on the basis of income and remittances. Profit summarizes the minimum income requirement that has been set by different banks. This means that the conditions and criteria depend on banks.

Similarly, the decision on whether you can finance new, old, or reconditioned cars falls on the banks and their policies

Is the Apni Car Scheme giving non resident Pakistanis massive savings?

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et’s take a numerical example. For instance a consumer chooses to finance a Changan Alsvin worth Rs 2,449,000 with a down payment of Rs 541,610 over the span of 5 years. If someone chooses to finance the car from within Pakistan, they’ll pay Rs 1,061,362 in interest and insurance payment, compared to Rs 843,934 paid by someone who finances their car through their RDA. This means that through Roshan Digital Apni car, you’re saving 20.49% in interest payments, and 6.19% in the overall price of the car. In absolute terms, through RDA, consumers can save Rs 217,428. This is through their non-lien financing method. It is even cheaper if one chooses to go for lien financing.

So to answer the question, it depends.

If you think saving 20.49% on interest and insurance payments, and 6.19% on the price of a car is a massive advantage, then yes, the scheme is unfair to resident Pakistanis for this very reason.

Favorite child – and why explained by the SBP

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akistanis actually living in Pakistan have a right to be miffed. The government’s standard line is that expats have done a lot for Pakistan over the

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decades and that it is simply trying to give back to them as no other government has in the past. This admittance of preferential treatment is harrowing when one considers that remittances being sent from abroad are sent out of a love for one’s own family, not some warped sense of devotion to Pakistan’s national interest.

Then there is the question of what kind of NRPs this government in particular likes. As per data released by the Bureau Of Emigration & Overseas Employment, 11,436,280 Workers were registered for overseas employment as of March 2021. A quick analysis of that data shows that 38.47% of expats registered are laborers, 12.53% work as drivers, 6.88% as Masons, and 4.64% as carpenters.

Most of the expats that can afford to buy cars for their families back home are the ones working as accountants, artists, analysts, designers, doctors, engineers, managers, nurses, and teachers, and they make up a grand total of less than 3% of the expat population. It is this small fraction that the government of Pakistan is so enamored with, and for whom they launch schemes like the Roshan Digital Apni Car. Considering these statistics, it is very unlikely that an overwhelming majority of these individuals will be able to finance a car through this scheme.

Like most schemes, this too will only work out in favor of those that are well off.

The SBP, however, claims that the comparison between regular financing and this scheme is unfair because regular finance rates are done on the basis of a mortgage. “If someone is not able to pay back the money, the bank seizes that asset. Naya Pakistan Certificates are a much more liquid asset.

They save the cost of the bank and that is why they are offering lower rates to non-resident Pakistanis.”

While this explanation makes sense at first, it can be debunked with a simple example.

To put this in numbers, let’s say you have a credit limit of Rs 100,000. For this trip you need an additional limit of Rs 50,000;

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So far all schemes under Roshan Digital were devised to facilitate payments and investment into the country. There was no consumer-based product and so we introduced this scheme Abid Qamar, spokesperson SBP

making your limit Rs 150,000. Banks are often stingy when it comes to increasing credit card limits, while sometimes the process takes time which you may not have.

To overcome this, they ask you to deposit Rs 50,000 into your account and they block that amount. This means you are not allowed to spend it in exchange for an enhanced credit card limit. If you default on this credit, the bank seizes Rs 50,000. This seems like a safe bet for the bank too. Yet, in this case, you are still charged exuberantly high interest on late payments. There is no discount or concession despite the collateral or lien.

What this means is that the only reason the SBP is being benevolent to expats is that they want dollars.

By their own admittance, the SBP’s aim with this scheme is shoring up remittance.

What this means is that the only reason the SBP is being benevolent to expats is that they want dollars. “The key intention seems to be increasing remittances, of which this scheme would work just as well as any asset financing scheme,” says Dr. Sheheryar Banuri, a behavioral scientist, public policy expert, and Associate Professor at the University of East Anglia “One might even argue that this is

sensible, as overseas Pakistanis (on average) may carry lower risk profiles than ordinary Pakistanis (and indeed, given more mature credit markets abroad, that further lowers potential default risk. Hence, this is unfair in the same way that the poor facing higher interest rates is unfair. The key intention here is the increase in remittances, and in face of that, the scheme is sensible. Growth is a seeming byproduct, as is the negative environmental impact which would exist with any reduction to the barriers of owning cars.”

Did the auto industry really need a scheme?

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f there are two groups of people that are happy with this arrangement, it is the NRPs and the automobile industry, and making the automobile industry happy these days is a big deal. The SBP has said categorically that their aim was not to help car manufacturers but to do something for NRPs. That has not stopped car manufacturers from scrambling to assure the Prime Minister of their support and that they will deliver cars within 30 days to people that buy them under the scheme. But it is important to try and understand the scale of

The key intention seems to be increasing remittances, of which this scheme would work just as well as any asset financing scheme. One might even argue that this is sensible, as overseas Pakistanis (on average) may carry lower risk profiles than ordinary Pakistanis (and indeed, given more mature credit markets abroad, that further lowers potential default risk)...

Hence, this is unfair in the same way that the poor facing higher interest rates is unfair. The key intention here is the increase in remittances, and in the face of that, the scheme is sensible.

Growth is a seeming byproduct, as is the environmental impact Dr. Shehryar Benuri, Associate Professor University of East Anglia

the impact this will have on the automobile industry because that is our only way of estimating the remittances the country might get from this scheme.

Pakistan’s annual car sales are estimated to be over 180,000 units with market size of Rs550bn ($3.5bn) while the average per car value (including taxes and FED) is around Rs3m (Rs5.3m including car financing on five-year terms).

According to the SBP, currently, nine million Pakistanis are residing abroad, out of which around 0.12m have opened RDAs in the last eight months. So far, NRPs are maintaining an average account size of $8,300 out of which 65pc is allocated to Naya Pakistan Certificates (NPCs), 25pc in shares market (PSX) while the rest is allocated in deposit accounts.

According to one report in Dawn, overseas Pakistanis have the potential to buy 10,000-13,000 cars every year during the next two years, which would mean that the annual car demand may increase by 5-7pc, which is positive for local car assemblers. According to one Sherman Analyst that spoke to the media, the Pakistani car market may attract $200-300 million over the next two years. “Assuming 15-2pc of overseas Paki-

stani families’ open RDAs during next two years and divert 10pc of the funds towards automobiles, the local car market may attract $200-300m during next two years.”

There are some problems with this analysis. For starters, it assumes that 10 percent of funds that are being parked in deposit accounts in RDAs will be utilized for the purchase of local cars. This might be a reasonable enough assumption given the significance of cars in Pakistan as a status symbol, but it is also mostly liberal guesswork.

In a report titled “Glory lies beyond the Horizon” issued on 19 April 2021, Arsalan Hanif, an analyst at Arif Habib Limited, said that “We believe volumes are expected to skyrocket in FY21 and are expected to grow by 81% YoY to 202,776 units (112,266 units in 2020). “We expect industry volumes to grow at 3-yr CAGR of 32%.” This report was released before the announcement of the scheme, and despite this positive outlook, Hanif now gives a more conservative estimation of how the scheme might play into things.

“While one cannot be certain how many overseas Pakistanis will avail the scheme, I believe that the scheme will result

in a 2-3% increase in volumes or approximately 4,000 – 6,000 units per annum,” he tells Profit.

“It is a very good initiative by the Government of Pakistan and we fully support it and will give delivery within 30 days,” Ali Asghar Jamali, CEO of Indus Motor Company, tells Profit. While he would not comment on the future impact on sales and demand saying they would have to wait and watch, he seemed hopeful that the scheme would benefit both the auto industry and the government.

Hassan Mansha, CEO Hyundai Nishat Motors, on the other hand, was more open with his projections for the future, calling the scheme “very positive” and saying that his company is “anticipating the conversion of a large chunk of used car imports into locally assembled cars which is good for the auto industry at large to achieve economies and revive large scale manufacturing growth in the country.”

“The RDA scheme shall have an expansionary impact in the overall market size which the local industry would benefit from and so do we. We foresee a demand growth of [10%] in short-mid-term from this scheme.

Our expectations though would hinge on the

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Once you get the car, you can then sell it at a premium of Rs 0.4 million. You could either keep this to yourself or give your uncle a cut. That is completely up to you. However, in doing so, you managed to push up the rates for that car and other cars in general in the local market. Cars are already sold at a premium in Pakistan considering the excess demand in comparison to supply. However, as a result of this scheme, the SBP has created a parallel grey market that in reality hurts local buyers more than expats – Ammar Habib, Economist

banking sector dynamics,” Mansha claims.

The industry is already witnessing growth due to the impact of the AIDP policy entering its last year and showing its full effects. In addition to that, the revitalization of economic activity has played an important role. Consumers are more willing to spend considering lower levels of uncertainty tied to the virus.

The local manufacturing industry has also gained due to strict regulatory requirements that have resulted in fewer imported used cars coming into the country. On the consumer behavior side, we can also see the introduction of new brands and models has been well received by the targeted consumers.

However, it is important to note that the uptick is also due to the cheaper interest rates if compared to a year ago. In addition to that, one could also take into account the increase in remittances and the impact it has on consumption and disposable income.

Keeping this in mind, it does not really make sense to promote an industry that did not really need any help and had healed on its own.

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The creation of a grey market

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he one fear that any reader familiar with the Pakistani car market will have had at the prospect of such a scheme is the possibility of a grey market developing. The problem with this form of concessional lending is that it is creating a distortion in the market for an industry that is not underserved.

Even as car manufacturers gave glowing reviews to the schemes that promised priority delivery, the fears of such a grey market have increased, with the main worry being that through the existence of priority delivery, a grey market emerges where individuals that get their vehicles before others sell their cars on a premium in the market. Anyone that books a car through Roshan Digital is given priority delivery.

Priority delivery varies from brand to brand. For instance, Indus Motors claims to provide cars within a month.

“We aim to deliver after 30 days of

receiving full payment. However, multiple factors are associated with delivery time, such as; the vehicle type, specific dealership, color of the vehicle, shipment timing and so on. All customers are equally important to us. However, to facilitate the customers booking through RDA, we will provide them priority delivery through enhancement of our production capacity faster than our plans. Master Changan Motors Limited is always onboard with helping our economy grow and supporting the government in such holistic initiatives.”

Now, companies like Changan claim that the preferential deliveries to RDA holders will not impact the committed delivery time of other customers, but it is difficult to understand how this will not be the case. And since deliveries of cars to regular customers will possibly become slower because of an influx of cars being ordered through the RDA account, deliveries could become even later than expected, beginning a vicious cycle.

“As far as Roshan Digital Apni Car is concerned, we feel that it will create extra demand. Approximately 10% of total volume may

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come from this stream. As a result we will need more capacity going forward,” admits Mohammad Faisal, COO of KIA Lucky Motors. But he feels that this will result in an overall increase in capacity, which will mean quicker overall deliveries. The lending appetite of banks have improved and automotive dynamics have improved too. Keeping that in mind, we are going to expand soon. We produce every day and make use of as many kits as we have available,” he said. However, he also acknowledged that the global semiconductor shortage, which will likely ease by September, has thrown a spanner in their execution of expansion plans. With such things out of their control happening, this hope that supply to regular customers will not be affected is very hopeful thinking.

To put this in numbers, let’s take the total outstanding car loans which are approximately 272 billion rupees. If we assume the average price of a car at 2 million rupees, that means there are approximately 136,000 cars financed out there. That is enough to show that you have a fine working vibrant market.

But let us say, for instance, you have an uncle in the KSA that is eligible to finance a car through this scheme. He finances a car worth 2 million and names your mom as a nominee (considering he can nominate his siblings).

Not only will you enjoy having to pay lower interest rates on the car, but you’ll also get your car sooner. Let’s say the usual delivery time is 6 months that means you’ll get your car in 3 months.

“Once you get the car, you can then sell it at a premium of Rs 0.4 million. You could either keep this to yourself or give your uncle a cut. That is completely up to you. However, in doing so, you managed to push up the rates for that car and other cars in general in the local market. Cars are already sold at a premium in Pakistan considering the excess demand in comparison to supply. However, as a result of

While one cannot be certain how many overseas Pakistanis will avail the scheme, I believe that the scheme will result in a 2-3% increase in volumes or approximately 4,000 – 6,000 units per anum Arsalan Hanif, Analyst at AHL

this scheme, the SBP has created a parallel grey market that in reality hurts local buyers more than expats,” says Ammar Habib, Economist.

“In addition, while the SBP restricts who can and cannot be nominated as a nominee, in a country like Pakistan where you don’t necessarily need title ownership for assets such as cars, people will often find loopholes,” Habib adds. Another distortion that you may or may not think is a downside is the fact that while this is bringing in remittances, it is also propping up the country’s trade deficit. This is because, in order to manufacture cars in Pakistan, the industry needs to import raw materials and parts that are not made here.

Lower interest rates incentivize more people to buy cars. However, this also results in an increase in the country’s trade deficit. So while we’re working on the current account, the trading account suffers as an unintended consequence.

However, a lot of times automobile manufacturers provide priority delivery to consumers that finance their vehicle through partner banks.

Verdict on the scheme

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he scheme seems uncessary. It is pushing up consumption through the sale of cars. While the SBP is not subsidizing the interest rate, it is making it unfair for resident Pakistanis that earn in the country and pay taxes here. Moreover, the scheme is creating a parallel grey market which will require further check to mitigate and control. It is also helping an industry that had been doing fine without the need of such a scheme. Moroever, the environmental impact of this scheme has also been ignored.

The scheme, however, could be said as a means to lure consumers to sign up for Roshan Digital Accounts and to send more money to Pakistan in the form of consumption as opposed to investment.

So what should the State Bank actually be doing? For starters, it needs to stop pulling popularity stunts. It is highly unlikely that the SBP is doing this as a way to lobby for autonomy, but this does show how important autonomy is.

First and foremost, the SBP and government should look towards underserved industries and segments such as SME financing which remains a struggle, student loans, and housing loans. It should also remove all concessions associated with expats due to its greed for dollars.

“Creating a concessional lending scheme for a sector which is not underserved, and which already has a vibrant auto loan market is why we need an independent central bank – so that policies are not designed to support populist whims,” says Habib.

It also needs to stop over-promising especially in the form of faster car deliveries, which is inadvertently making a bigger problem than existed. Reza Baqir needs to stop falling into the whims of the government. He’s the governor of the State Bank, not a finance minister that needs to be reelected. n

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OPINION

Zafar Masud

Pakistan’s ticking pension time bomb The government must change its pension plans unless it wants to buckle under the weight of pension liabilities

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t was at a seminar organized by the SDPI on pension reforms that it struck me just how grave the issue of pension liability has gotten. Generally, I had always been aware about the seriousness of the issue and its implications for government and public sector entities.

I had been invited to the panel discussion because of my experience on the board of various public sector entities and my work on tapping long term project finance funding through capital market instruments. However, this panel discussion became eye-opening. The pension issue is not just one that is a growing financial burden, but it is also one that has a direct impact on the performance of the government and it’s delivery, because of the effect it has on the performance of civil servants. This was what

Zafar Masud is a seasoned banker and entrepreneur with over 25 years of experience. He presently serves as the President and CEO of Bank of Punjab

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Employers that offer pension plans are actually offering their employees a retirement plan that requires an employer to make contributions to a pool of funds set aside for a worker’s future benefit.

The pool of funds is invested on the employee’s behalf, and the earnings on the investments generate income to the worker upon retirement inspired me to dive in head-first on the topic of pension reform, and if there is one thing I have learned, it is this: in one way or the other, pension reforms affect all of us.

The pension problem

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et us begin with some context to understand the extent of the challenge that faces us in the shape of a rising pension bill. Just in the past year, the federal pension bill has increased from Rs 150 billion in 2020 to Rs 480 billion in 2021. Now, very basically, this means that the government or any public sector company for that matter has a pension bill that they need to pay off, and they need to be making money for that. The government’s main source of revenue is taxation, and they must collect enough to pay salaries to their employees as well as pension to retirees. This is their pension liability - the amount of money that a private company—or a city or state or federal government—has to account for in order to make future pension payments. In other words, a pension liability is the difference between the total amount due to retirees and the actual amount of money the company has on hand to make those payments. According to reports from donors, the federal government’s unfunded liability currently stands at around Rs 3 trillion.

Post the 7th National Finance Commission award, provincial governments’ pension bills have also increased exponentially from Rs 75 billion in 2011 to Rs 500 billion in 2020. This is clearly an unsustainable path. Studies suggest that with no changes to the existing pension arrangements, the federal pension bill will rise to an alarming level of Rs 750 billionn by 2023. Provinces are likely to face similar challenges.

This is a very frightening situation which becomes more complicated due to the

presence of fiscal pressures from compromised tax collections, losses by state owned enterprises, accumulating circular debt, and other economic hardships faced by Pakistan.

However, the silver-lining is that out of all fiscal challenges that the government faces, this is one that is easier to plug because we have real life examples of how other countries have dealt with the same issues. In the developed world, where life expectancy is much higher and the population is not very young, rising pension liability has been a major issue that has been successfully tackled.

Some pension basics

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efore we get into the details about pension scheme options, it is important to understand how pension works. Most people think that a company simply uses a part of its profits to keep giving a monthly or yearly pension to its former employees. In fact, ideally, this is not how pension plans should be working. Employers that offer pension plans are actually offering their employees a retirement plan that requires an employer to make contributions to a pool of funds set aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf, and the earnings on the investments generate income to the worker upon retirement. A percentage of your pay is put into the pension scheme automatically every payday, and when you retire, you can choose between a lump-sum payout or a monthly “annuity” payment.

Employee benefits classify post-employment plans into two categories: The first category is called Defined Contribution (DC), in which the employer’s liability is limited to the amount that it agrees to contribute to the post-retirement fund, consequently, actuarial risk and investment risk falls on the employee. In other words, the risk of investment performance of the fund, and resultant pension returns, rests with the employee or its representatives. The return could be better or worse depending on market factors and competence of the fund managers.

Essentially, this means that when you retire, the company invests your money, usually through their fund managers, and the pay out you receive depends on how well the fund is doing.

The other category is that of Defined Benefit (DB), which is a scheme in which the amount of pension benefit is defined; therefore, all actuarial as well as investment risks are borne by the employer. Irrespective of what the market circumstances are, and if pension liability is funded or not, the employee will get a defined (pre-set) return post retirement; there will be no upside or downside for the employee, unlike in the DC method.

The Defined Benefit method is a more stable payout for employees, and in the case of governments, this is how pension is generally paid. It is also how pension liabilities are quickly becoming such a burden on the government. This is exactly why this method is beginning to feel outdated and has been changed in many developing countries This is a more stable payout for employees, and in the case of governments, this is how pension is generally paid after being funded by payroll or other taxes. It is also how pension liabilities are quickly becoming such a burden on the government as the pension bill keeps increasing. This is exactly why this method is beginning to feel outdated and has been changed in many developing countries.

Changing trends

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he past three decades show that there have been significant changes in pension schemes in most developed and emerging markets. As per international best practices, the Pakistan Government’s DB and unfunded pension arrangements are out of line. Non-contributory, or DB, schemes are reducing and many countries have switched to DC plans due to financial stress caused by large pension bills.

The advantage of such a switch is that the financing burden can be spread across different periods in a more stable and predictable manner. New accounting standards have helped Governments to better understand the underlying accrued liabilities and the longterm costs of their pension arrangements. DC pension programs, therefore, are replacing DB plans. The DC system by its very nature ensures that the accrual of benefits are fully funded. Thus, employers are guaranteed that no unfunded liabilities would emerge.

However, this could have an adverse impact on employees since the value of their accumulated pension assets are not defined, and because they depend on the investment performance of underlying pension funds.

Most importantly, DC schemes allow employees to play a role in the investment decisions.

This allows individual risk/reward preferences as well as leaves room for other considerations like wanting to invest only in Islamic securities. The employee will essentially become masters of their own destiny with respect to investment decisions about their retirement benefits, and may fetch more satisfying returns (both financially and otherwise) than they could have under the guaranteed DB system. The DB system is easier and safer,

but the DC system is not a burden and it also allows for more freedom.

With enhanced life expectancy and widening fiscal deficits in emerging markets, this problem is becoming more glaring. There are successful examples from countries where the make-up of the society and the community are very similar to Pakistan that have managed to curb the mushrooming concerns around this dilemma. Some of these examples are worth evaluating as possible base models for Pakistan in tackling this issue. The three examples that are the most important and most similar to Pakistan are India, the Philippines, and Thailand.

The most relevant example is India, and they beat us to pension reforms by nearly two decades. All new entrants in the government with effect from 2004 were hired on the National Pension System, a DC pension arrangement into which 10% of pay is contributed by both the employee and the employer.

Those hired prior to 2004 continue to receive pension benefits based on the earlier DB pension program. In 1997, the Philippines set up an institution called the Government Service Insurance System (GSIS), which provides DB retirement benefits. Employees pay 9% of their salary to GSIS and the employer adds another 12%. Retirement benefits are determined based on age and years of contribution and are a combination of lump-sum amount and lifetime annuity. In Thailand, for new hires starting 1997, parametric changes were made in the DB pension method, supplementing it with a DC pension arrangement to which employee and employer contribute 3% each. Therefore, Pakistan has ample instances to draw on, in order to box-in this looming crisis of sorts at the Government level.

There are, however, some islands of excellence in this space within our own country, albeit on a micro-level, and that also in the public sector only, which shall be looked at, celebrated and encouraged in other public sector entities. The Oil & Gas Development Company Limited (OGDCL) management and board, in June 2016, took cognizance of the menacing situation of ballooning pension liability for the company, which was posing

COMMENT

an unprecedented threat to cash flows and sustainability of the pension scheme itself.

So they decided to rationalize the pay package and introduced far-reaching changes in the structure of both pay and pension, as they both go hand in hand and cannot be separated.

Accordingly, maximum salary caps were introduced for each pay-scale, which by default put a check on the extent of extreme liability for each grade of employee, plus started creating much-needed difference between performers and non-performers within the organization. Concurrently, effective since 1st January 2016, DB pension formula was discontinued for new inductees. While existing employees continued to enjoy protection of their terms & condition of service, including DB pension entitlement, new inductees have been governed under a gratuity scheme which does not put the company under any long term obligation. As a result of foregoing steps, at that time, actuaries worked out a cumulative benefit of Rs. 186bn to OGDCL in the form of savings in salaries and pension contribution over the next 10 years.

What is to be done

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ased on the above, it can be concluded that on the fiscal management front, Pension Reforms are “low hanging fruit in relative terms” and could be fixed while keeping a few basic considerations in mind. The first and most important step is that there must be political will to get this done. Once it is established that this is there, tried and tested solutions could be borrowed from across the globe. All new hiring in the government shall be under DC system immediately with restructured pay-scales having ranges backed by pension fund management structure.

Other than maximum salary and pension entitlement capping, halt on retrospective increase in future retirees, and (subject to legal provisions) cull the number of pension beneficiaries; extending retirement age, or providing fewer benefits in early retirements are options which could be implemented in the existing DB plans as a package. There is no argument that pension funds need to be developed in Pakistan, and pension liability of the Government is required to be funded. There has to be a plan which should be managed through a pension fund regime only.

Existing DB pension liability shall be funded through a combination of in-kind assets of the Government (for example, existing properties/ offices given to pension funds and rented back by the Government, lands could be handed to funds for development, etc.) and in-cash, albeit in tranches, as funding in

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one-go is not possible, as Government is in borrowing mode and that would put unnecessary debt burden on the Country. This plan ticks lots of boxes, with the biggest box being conversion of dead assets into earning ones.

What this does for Pakistan

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ension Funds have multifaceted benefits for any country. With regards to Capital Market Development, the assets of OECD countries’ in pension assets stood at over US$ 33 trillion (38% of Global GDP) in 2020. The US has the largest pension assets (88% of GDP), followed by the UK (123% of GDP), Australia (132% of GDP) and Switzerland (143% of GDP).

Pension funds are also the biggest investors in the global equity and bond markets, contributing 70% of the market capitalization in some of the OECD markets.

Unfunded government pension arrangements are a key factor for the low depth in our bond and equity markets. And since they are also used for real estate and mortgage funding, this means real estate developments will help grow the market for pension funds and vice versa. Most important will be the growth in long term debt markets through a pick-up in housing market mortgages as they require purchase value of the home to be spread out over around twenty years or more, at a fixed rate. Buyers of such long-term Fixed Rate bonds are typically pension and life insurance fund managers. This whole idea fits perfectly with the Government’s vision of promoting housing and construction activities, particularly low cost housing.

They will also give enhanced saving options. In Pakistan, the overall saving rates are one of the lowest in the world. In 2020, the national savings fell below 10% of GDP. Even the Bond markets in Pakistan are small at less than 5% of GDP. Corporate bond markets are virtually non-existent, which will be given a necessary boost by active pension funds; thus, offering safe & secure saving products to the general public.

Pension funds also offer an alternative to the Government’s Public Sector Development Program (PSDP). Pension funds, by their very nature of return requirements, typically have long term liquidity and appetite for high risk assets which generally are out of the scope of banks. A robust pension fund regime would mitigate the fiscal pressure on the Government for funding important infrastructure projects with long gestation periods.

On the investment in commerce and industry front, if we look around the globe, pension funds own large businesses and industries; thus, offering a very solid partnership opportunity for local and international investors to promote trade and commerce and create jobs. These funds also encourage the development of universal health insurance schemes, which can be launched by the province under the Assets Under Management (AUMs) of the insurance companies, a key component of the pension arrangements in most countries. n Note of thanks: I feel obliged to thank my colleagues, Sayem Ali and Irteza Qureshi, who had done the research for me on this very critical topic which helped me realize how this existing/emerging fiscal burden could be addressed.

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COVER STORY

By Farooq Tirmizi

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evealed preferences are a beautiful thing: they give you proof of what people really think, regardless of what they say.

If you ask people to say what they think about Pakistani attitudes towards internet-based payments, they will tell you that Pakistanis do not trust the internet to make payments, that we are a cash-loving people who will take a very long time to adjust to making internet-based payments. That is what you call stated preference.

Revealed preference – or what people’s actual behaviour suggests they prefer – is practically screaming the opposite.

Data from the State Bank of Pakistan (SBP) is unambiguous on this point: strip out the internet-based payments system (bank websites, mobile apps, and e-commerce), and the rest of the country’s payment system (mostly cash, ATMs, and branch banking) has grown at just 6.7% per year on an annualized basis, between the third quarter of 2016 and the fourth quarter of 2020. Inflation during that period, by the way, averaged 7.5% per year, meaning the real purchasing power of the non-internet-based payments system went down during that period.

What happened to the internet-based payments volume during that period? They went up by an annualized averaged of 70.1% per year.

And by the way, when we say internet-based transactions, we mean bank websites, bank and payment provider mobile apps, and credit and debit card transactions on e-commerce websites (excluding cash-on-delivery transactions).

The numbers get more astounding the more you dig deeper into them, and we will later into this story. But we wanted to start off by disabusing the reader of the notion that somehow Pakistanis are a cash-obsessed society. We are

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absolutely not. If the data is any indication, the entire Pakistani body economic is screaming in agonized unison: FOR THE LOVE OF GOD, LET US TRANSACT ONLINE! In this story, we will start off by offering compelling evidence that suggests that Pakistanis do not use cash because they want to, but rather because the formal financial system makes it difficult to use formal non-cash payment methods. We will then examine why that is the case, followed by an assessment of the new, internet-based payments methods, including an examination of the competing infrastructure providers for payments in Pakistan.

Finally, we will look at the recent spurt of venture capital interest in Pakistani payments providers, and whether or not that has the potential to change the landscape of Pakistan’s payment infrastructure.

Cash is easy, mobile is easier

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or this story, we have utilized the State Bank of Pakistan’s quarterly reports on the payments systems, from the third quarter of 2016 through the fourth quarter of 2020. The reports extend much further back into the past as well, but the data appears to be compiled using a different methodology in prior years, and we included only data from the years where it seemed most directly comparable.

Unless we specify otherwise, all growth rates mentioned in this article refer to the total value of transactions, not volume.

We also felt this was the most pertinent period to examine, since this is also the time when Pakistanis began to gain access to the internet in large numbers, following the auction of the 3G and 4G mobile broadband internet spectrum, which gave tens of millions of Pakistanis access to the internet for the first time.

That being said, let us dig into the story

that the data are telling us. There are two things immediately obvious at first glance. The first is that the paper-based system of cheques, deposit slips, travelers’ cheques, etc. is dying. It is the only part of the payments system to witness negative growth, declining by an average of about 0.8% per year during the four years between 2016 and 2020.

The second is that the only parts of the system that are growing at appreciable above the rate of inflation are, in order of growth rate, mobile app-based payments (142% per year average annual growth rate between 2016 and 2020), card-based e-commerce (55%), desktop browser-based internet banking (50.2%), and online B2B transfers (50%).

There are some respectable growers as well, including the real-time online banking (RTOB), which many businesses use to make transactions such as salary payments, which grew at nearly 20% per year during the previous four years. This is a reflection of the fact that more and more businesses in Pakistan increasingly want to conduct business transactions online, if only their banks would make it easier to do so.

ATM transactions as well as point-of-sale card transactions (when you pay by credit or debit card at a store) have also grown above inflation, at averages of 13.1% and 12.5% per year respectively. ATM transactions have grown by only marginally more than the number of debit cards, which rise by 11.3% per year during the same period, meaning that while more people are able to use ATMs than before, those who already have ATM cards are not necessarily increasing their usage of them.

And the less said about POS machines the better. How many times have you walked into a store or restaurant that ostensibly claims to accept credit and debit cards, but the staff there comes over to you and says “sir, we’re having a problem with the card machine. Can you please

pay cash?”

POS machines are a stalling business in Pakistan, with the total number going up by less than 5% per year between 2016 and 2020.

Once you factor that tepid growth in the number of store accepting cards into the equation, the actual amounts per POS machine have gone up by almost exactly the same number as inflation, meaning there has been no real growth in the volume of transactions that stores pass through cards versus physical cash.

What does all of this data tell you? It tells you that where Pakistanis have unfettered access to the ability to pay through an online system, they are using it with gusto and they are actively decreasing their use of non-cash-based formal money (cheques, etc.). And where they should be using more electronic money (POS machines), the hurdle seems to be more the accepting merchants, and not the users themselves.

Well, what about physical cash itself, you might ask? Your data may be skewed by the fact that it does not include physical cash transactions that do not touch the banking system. Fair enough. Let us take a look at what is happening with cash.

While the volume of cash transactions is not directly measured by the State Bank of Pakistan, because it issues bank notes, it has a fairly good idea of exactly how much physical cash is in circulation at any given moment in time.

We made a simplifying assumption that the velocity of transactions involving physical cash is approximately the same as that involving the payments system, and came up with an estimate that, in the calendar year 2020, the total volume of cash-based transactions that were executed outside the banking system was approximately Rs199 trillion, or about 25.4% of the Rs780 trillion in total transactions in the econo-

my. [Note: yes, the volume of transactions in an economy is typically several times the size of its GDP.] We also estimated that approximately 93% of all cash transactions do not involve the banking system at all.

So how much have physical cash transactions grown during the period for which we have comparable payments data. Surprisingly less than one might think. Our admittedly very simplistic estimates suggest that transactions involving physical cash grew by an average of only about 11.6% per year between 2016 and 2020.

That is higher than the 7.5% per year inflation rate, but not really that much higher, suggesting that the informal sector which mostly uses the cash is not that much more robust than the rest of the economy.

In other words, the people who are using physical cash are not transacting significantly more than the people who use the non-internet-based part of banking system to transaction.

So, we can say with a reasonable degree of certainty: the internet may only account for only about 1.7% of all transactions in Pakistan right now, but there is no question that it is the only form of payments that Pakistanis clearly want to use more of than they are now. Nothing else comes even remotely close.

Why the system looks the way it does

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here are significant implications of the data we have just presented.

Firstly, the non-internet-based side of the banking system’s payments infrastructure is quite literally too slow to accommodate the pace of transactions the economy is demanding, and while cash remains the most popular mode of transactions, it appears people

do not actually prefer it. They are just used to it.

So why is the system still so sclerotic?

Why are the most convenient modes of payment still less than 2% of total transactions?

It is easy to blame the banks for this, and there is certainly a lot of room for improvement on the part of the banks, but the hard truth is this: the Zardari Administration’s delays in launching 3G and 4G internet by over five years are coming to bite the economy. Most Pakistanis who currently have the internet have it because of their mobile broadband internet connection, which was only made possible after the 3G ad 4G spectrum auctions in 2014 and 2016 respectively. By contrast, India auctioned both in 2010.

Simply put: why would the banking system invest in an internet-based payments system when the overwhelming majority of people in the country did not have access to the internet? Now that they do, the increase in transaction volume clearly shows that there is both increased desire and ability to use such means to transact.

Secondly, the banks in any country will not do anything until the regulator makes them do it. Any bank in the world – barring a handful of the most sophisticated ones – hate the idea of any deposits leaving their bank for any other and tend to make it as difficult as possible for that to happen. In other countries, the central banks often mandate more openness as a means of ensuring that individuals and businesses can conveniently transact.

The State Bank of Pakistan has some rules that do this, but it is only now catching up to the changed reality of the financial sector and the broader economy. The State Bank has long since mandated ease of interbank transfers with respect to ATMs, a mandate that directly

COVER STORY

resulted in the creation of the 1Link system in 2004 and which was later expanded to create the interbank fund transfer (IBFT) system, which allows for account holders at one bank to send money to account holders at any other bank in the country via their browser-based and mobile app-based banking systems.

And in many ways, these systems work reasonably well, the monthly outages at the major banks notwithstanding. As more and more people gain access to the internet and to bank accounts, the value of transactions on the internet appear to be going up.

The banks, for their part, appear to have noticed. One after the other, the banks have started announcing that their account holders will be able to use their debit cards over the internet without having to first call their customer services helpline to enable their cards for online transactions before each transaction. One could argue that such a requirement should never have existed in the first place, but far be it for us to quibble when the necessary finally happens. Der ayad, durust ayad.

What is missing from the system

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aving said that, a lot is still missing in the existing system, and the lack of those things explains why card-based e-commerce is growing

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slower than, for instance, mobile banking.

The biggest hurdle in Pakistan is that the banks are not required to create open APIs (application programming interfaces) that would allow both other banks as well as non-banking fintech and other payments providers to easily build payments solutions that interact with their account holders.

The lack of such APIs and other transaction protocols, and the inability of payments providers to build anything other than users entering their credit or debit cards and authorizing each individual transaction. For example, when you subscribe to this magazine, our payment system cannot save your card information and bill it automatically every month or every quarter, or even every year. You have to manually make a payment, and since the banks’ APIs are not open, Profit has no way of linking your payment hitting the magazine’s bank account to the online system that tracks your username and password.

An open API, for instance, would allow for a payments provider to link transactions from bank accounts to accounts at online merchants such as this magazine, allowing things like subscription payments to be smoothly processed. And ideally, of course, the bank would also have payments protocols that allow for pull transactions by merchants who have received the authorization from a customer to charge their cards at recurring intervals.

This may seem like a small type of transaction, but it is not. The entire multi-trillion-dollar software-as-a-service (SaaS) industry is built on the ability to charge monthly recurring payments to both individuals and companies and the inability of payments providers to deliver such transactions is a significant limiting factor for many types of businesses in Pakistan to even exist.

Raast to the rescue.., sort of

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he State Bank is well aware of these limitations and of the necessity of it playing a role in building a better payments infrastructure in Pakistan.

Instead of going the route of mandating openness by the banks and then allowing payments providers to build multiple competing payments systems, the State Bank has effectively decided to build one itself, and one that will be designed not with ATM transactions (like 1Link), but instead the internet economy in mind.

That system is called Raast, and it is a simple tool that will allow for not just real-time settlement, but for complex transactions and tracking. For instance, it will allow for automatically letting a recipient know not just that they have received a payment, but that they have received it from, say Mr Siddiqui,

TEXTILES

who is paying the school fees for their son at Beaconhouse Margalla Campus. It would allow for specificity in what the transaction is for, to a degree that is not possible under the current 1Link system (though 1Link is trying hard to build it into their system), and thus would lower transaction costs and vastly improve the experience of making payments online.

The issue with Raast however, is twofold. Firstly, the State Bank has only allowed banks to use it in the first phase, though payments services providers (PSPs) are expected to eventually have access to it as well. Secondly, the central bank has currently only enable one feature on it: one-to-many payments, where one bank account is the origin of payments going to several other bank accounts (like, for example, the Ehsaas program, which is what it is built to support at the moment.)

Of course, both of these are temporary hurdles. The State Bank will make Raast more available to fintech players, and it will enable more types of transactions over the next two years. Raast also has the added advantage of being significantly cheaper than other alternatives. While the 1Link system can cost as much

as 1.5% of the total transaction value, sources tell Profit that the State Bank will likely price Raast at considerably lower than that, and possibly even as low as a flat one rupee per transaction.

The payments fintech wave

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dd in the yearning among Pakistani consumers for online transactions with the State Bank taking it upon itself to build a unified payments infrastructure that is low-cost, instantaneous, and finally built for the internet age, and one can see why the fintech space in Pakistan is heating up and why venture capitalists appear to be landing in Pakistan with dump trucks of funding for startups that are trying to solve the payments pain points for Pakistani consumers.

The list of impressive names and resumes in this space is quite long. The most recent entry is of course the eponymous Tag, named after its founder Talal Ahmed Gondal. Tag has only just been accepted to the summer 2021 batch of the San Francisco-based startup incu-

The entire multi-trillion-dollar software-as-aservice (SaaS) industry is built on the ability to charge monthly recurring payments to both individuals and companies and the inability of payments providers to deliver such transactions is a significant limiting factor for many types of businesses in Pakistan to even exist

bator YCombinator, and it has already raised a $5.5 million pre-seed round of funding from several marquee investors. Tag is currently an electronic money institution (EMI), but plans to eventually apply for a digital banking license.

Then there is Safepay, which bills itself as the Stripe of Pakistan and has managed to raise a seven-figure amount from several investors including Stripe itself. (For those unfamiliar, the US-based Stripe is the world’s largest payments startup that is still private.)

Finja, another YCombinator alum startup, has thus far managed to raise $36 million in funding from several investors, both local and foreign. Its local investors include a debt investment from Habib Bank Ltd. We could keep listing more startups with astonishingly high levels of funding (by Pakistani standards), but you get the idea.

This is a hot space, and the VCs are chasing after whoever they think will build a winning platform.

Regardless of whether one startup succeeds or many of them do, one thing is clear: the Pakistani consumer – and Pakistani businesses – are likely to be able to find it significantly easier to do business online, which is especially welcome at a time when more and more of us are becoming comfortable using the internet for commercial transactions and would like the convenience of having our payments being online as well.

For all the talk of Pakistanis being old-fashioned and cash-obsessed, the data suggests the opposite: they are hungry for technological change. If only the industry can keep pace. n

COVER STORY

OPINION

Dr. Sania Nishtar

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Putting women at the center of Asia’s pandemic recovery Bridging the gender divide is crucial to economic recovery and prosperity

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ven before the pandemic, women in Asia and the Pacific were already at a clear disadvantage in the labor market. Their jobs were often low-skilled and low-paid.

They worked the longest hours in the world due to the combination of both paid and unpaid work.

The pandemic has made their predicament even more dire. Those low-skilled jobs were some of those that disap-

Dr. Sania Nishtar is the Special Assistant to the Prime Minister and the Federal Minister for Poverty Alleviation and Social Safety in Pakistan Dr. Bambang Susantono is the Vice-President for Knowledge Management and Sustainable Development of the Asian Development Bank COMMENT

Dr. Bambang Susantono

The economy is not a level playing field. Interventions in the public and private sectors will not have the same impacts on women as they do on men.

Sex-disaggregated data and gender analysis in key policy areas are not used enough to inform public interventions and monitor and assess progress

peared during lockdowns. The burden of largely invisible unpaid care work, already four times heavier for women than men, escalated as families were confined to their homes.

The region cannot truly rebuild better from the pandemic without making women central to the recovery. In fact, a women-focused recovery makes sound economic sense. In Mongolia, ADB estimates that eliminating gender inequalities in the labor market could add 16.1% to gross domestic product over the next 30 years. This echoes the findings of similar studies.

As the region rebuilds, we have a chance to disrupt business-as-usual approaches to empower women. Three key principles can underpin national recovery strategies, and transform how women live and work.

The first principle is to recognize and measure the nature and context of gender inequality that the pandemic has exacerbated. The economy is not a level playing field.

Interventions in the public and private sectors will not have the same impacts on women as they do on men. Sex-disaggregated data and gender analysis in key policy areas are not used enough to inform public interventions and monitor and assess progress. These data gaps “hide” gender differentials, leading to gender-blind responses. Systematic sex-disaggregated data collection makes gender inequality in the world of work (and beyond) visible and, importantly, actionable.

The second step is setting and monitoring gender targets across government and corporate recovery programs promotes equitable access to critical resources. This was a valuable lesson learned in 2020, when ADB and the Government of Pakistan set targets to

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ensure women could directly benefit from cash assistance to daily workers or from entrepreneurship support funds. This approach was applied across ADB’s support to its developing member countries in combating the effects of COVID-19. In Pakistan, women constituted 54% of the recipients of COVID-19 cash assistance distributed through the Ehsaas Emergency Cash program. Targets should be accompanied by proactive measures to reach out to women: women are often not aware of their entitlements or miss out because of bias in favor of men, and targets get missed as a result.

Targets are also effective tools to help ensure commitments are allocated appropriate resources: they anchor rhetoric on gender equality in a concrete and transparent framework.

Lastly, a women-focused recovery requires a whole-of-society response. Governments of course can play a key role in enabling and encouraging the private sector to act for gender equality through standard-setting regulations, stamping out discriminatory laws, as well as innovating through fiscal subsidies in favor of childcare. This must be a whole-of-government approach, with close coordination between sector ministries and ministries of women and gender. However, responsibility for achieving gender equality during the recovery from COVID-19 should not fall solely on governments. Partnerships

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The private sector can play a leading role by increasing gender-lens investments and by spearheading innovations and technologies that help bridge the gender divide. Civil society organisations and development partners also play critical roles in providing direct, on the ground support to women and girls across a spectrum of actors can break down silos and lead to transformative change.

For example, the private sector can play a leading role by increasing gender-lens investments and by spearheading innovations and technologies that help bridge the gender divide. Civil society organisations and development partners also play critical roles in providing direct, on the ground, support to women and girls. They are often on the frontlines to help mitigate negative impacts on gender equality. Partnerships and coalitions to rebuild better for women and girls are a winwin, as economies also prosper when half the population enjoys full rights and equal access to opportunities.

At this year’s Annual Meeting of ADB’s Board of Governors webinar, ADB and its key partners deepened their shared commitment

to promoting gender equality and a women-focused recovery. We heard of new initiatives, such as blended finance for women-owned businesses, including gender bonds; using new apps to track and support women’s businesses in the supply chain, that are already creating momentum for better conditions and more opportunities for women in the region.

These inspiring narratives reveal multiple pathways for a pandemic recovery to foster greater inclusion, resilience and equality for women and girls. Development partners (including civil society organisations), governments, and the private sector must collaborate to put women at the center of the region’s recovery. Only then will women and girls be able to change their lives, and in doing so, make an even greater contribution to the region’s prosperity. n

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OPINION

Sehar Raothar

Why isn’t the PTA worried about the data of Pakistani citizens being misused?

data. A more comprehensive definition is that provided by the European Union’s General Data Protection Regulation (GDPR), which came into effect in April 2016.

Personal data subjects are identifiable if they can be directly or indirectly identified, especially by reference to an identifier such as a name, an identification number, location data, an online digital app like Chinese TikTok or Indian MX TAKATAK which expresses the physical, physiological, genetic, mental, commercial, cultural or social identity of these natural persons. As Pakistanis continue to use apps like these, the fear is that since governments often have strange level of control on apps running in their countries, As Pakistanis’ digital footprint grows, so they might try to use information gathered on the citizens of other countries for nefarious purposes. do the threats to the confidential details of As digital transformations take over government processes, its citizens. Without data protection laws almost each and every one of us has a digital footprint — whether in place, bad actors in India may be able to we notice it or not. Take, for example, the information entered into misuse Pakistani citizens’ private data that your Android phone. These details include your name, telephone number, addresses, etc. In a way, we voluntarily hand over personal they should not even have access to data with some degree of confidence that our details will not be used or abused. here was a time when linking to a national identity card But things do not always pan out that way. and a passport was the most popular and accessible A bigger moment of reckoning arrived recently when the FIA means to have private data stored in one place. And as announced that the data of millions of customers from “almost all” NADRA came into being, much of this, as well as data banks operating in the country was stolen and allegedly dumped on child registration certificates or family registration on the ‘dark web’ — a collection of websites that exist on an encertificates was computerized and added to a central crypted network and cannot be found by using traditional search storage. engines or visited by using traditional browsers. It was the biggest According to Privacy International, any data which can be used data breach to hit the banking industry in the country. According to identify an individual directly or indirectly can be termed personal to the FIA, an international company named Group-IB, which was working in Pakistan to prevent cyberattacks had discovered the payment details of 177,878 plastic cards from Pakistani and other international banks.

None of the companies or organizations that had data leaks had to face any repercussions or even tough questions about putSehar Raothar ting sensitive user data at risk. There remains a lot of obscurity about whether proper mechanisms leads strategy for the BL are in place to prevent such incidents in the future and, for that matter, details about the nature of Group Of Companies and attacks and what is done to address them.

In the absence of any legislation on data protection, a common citizen has no way to legally can be reached on sehar. ask questions from the government departments and private companies as to how and why their raothar@gmail.com data is being held, retained, processed, and shared.

The first real debate about privacy and data protection after the telco and digital boom in Pakistan started in 2012 when the Pakistan Telecommunication Authority (PTA) ordered telecom

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companies to terminate late-night call packages and reportedly used transcripts of a private phone conversation between two people as the justification for its decision in court.

Civil society and even individuals meted out severe criticism to the authority, which is responsible for the establishment, operation, and maintenance of telecommunications in Pakistan. Experts questioned if the PTA had any authority to intercept private phone calls between common citizens, much less present them in court as evidence. And would PTA even have any means to ensure there is no citizen data exploitation across borders through digital applications if it cannot even control local illegal data usage?!

Today, there are virtual profiles of each one of us on the internet, accessible to anyone, made using data that we may or may not have agreed to be shared. How? Through digital apps which we use – be it MX Takatak which is an Indian App similar to TikTok. It can trace out an entire profile of you by looking at the places you frequent, your home, your family, your culture, and your psychographics.

Notice how an ad flashes of a product or service on Facebook soon after you talk about said product or something similar with your friend. The world’s most valuable resource is data. Attempts to hack and dump this valuable resource have increased more than ever globally and even nationally.

While some government departments such as Nadra and PITB have data protection clauses in the laws governing these bodies, Pakistan has no all-encompassing legislation that would cover the Pakistani citizens’ data.

Prevention of Electronic Crimes Act (Peca) shouldn’t have been passed in the first place in 2016 without a data protection law in place. In the absence of a law, citizens remain vulnerable to having their personal and private data used against them, even if there is nothing criminal about it.

Especially if it is being used on the dark web through Indian spyware on Indian digital applications. Pakistan has seen a significant uptick in cybercrime, including online abuse, online banking fraud, ATM skimming, impersonation, hacking, etc., in the last decade.

Many of these cyber crimes involve accessing a user’s data through some means.

Media outlets reported dozens of cases in which fake bank accounts were set up in a person’s name, who was oblivious to this, with money

Today, there are virtual profiles of each one of us on the internet, accessible to anyone, made using data that we may or may not have agreed to be shared. How? Through digital apps which we use – be it MX Takatak which is an Indian App similar to TikTok. It can trace out an entire profile of you by looking at the places you frequent, your home, your family, your culture, and your psychographics being dumped in the accounts. One case included that of a bank account opened in a dead person’s name – the speculation was, where did that data come from?

Up until now, the only prognosis is that officials are still struggling to come to terms with how technology is being misused and abused. The danger in Pakistan, due to the absence of laws and regulations, is that law enforcement routinely crosses the line between surveillance and safety, although they are not one thing. And in such situations, common citizens shall always be vulnerable.The government of Pakistan recently passed a new set of regulations that critics say will give the government more control over how Pakistanis can use social media.

The "Citizens Protection (Against Online Harm) Rules, 2020" oblige social media platforms like Facebook, Twitter, and Google to block or remove posts that are considered objectionable by the government. The government can also acquire data and information from the companies.

However, how far can the government go in controlling the citizens from downloading digital applications which very well could be Trojanized?

Officials maintain that the regulations will help them monitor and mitigate online content that has to do with "terrorism, spying, extremism, hate speech, fake news, incitement to violence and national security." Social media companies like TIKTOK Pakistan will also be required to set up a physical presence in the country (which they have) and appoint a contact person who will report to a "National Coordinator" at Pakistan's Ministry of Information and Telecommunications. However, this means that MX Takatak will soon be banned along with similar apps like Snack Video, etc.

The selection of apps is highly peculiar, as they are neither the most popular, nor particularly unique apps like MX Takatak. There’s no indication that the publishers of the original apps are aware that these Trojanized versions even exist

Surprisingly the laws were reportedly approved by the government without public consultation and enacted behind closed doors.

A joint statement from various Pakistani civil society actors said that the new social media laws "point towards the centralization of power to exercise strict controls over digital and online narratives." Even though the statement is a paradox in itself because, in order to control citizens’ private data, such restrictions are required to be implemented.

"The policy itself is dictatorial and unresponsive to the global digital environment," said the statement from the Media Matters for Democracy initiative. "We believe that rather than protecting citizens from online harm, these rules stand to create significant harm by isolating Pakistani citizens from the global Internet."

Many Pakistani civil society activists fear that restrictions on social media companies may lead to strained relations between the platforms and the government of Pakistan at a time when the vital digital economy of the country is beginning to take off.

However, with all this advantage comes a lot of risks. And since most of these apps are used by young people, they are generally less concerned about taking these risks. This raises the question, do we completely shift the onus to PTA for not being vigilant? A small cluster of Trojanized versions of Android apps has been discovered recently, mainly marketed to people who live in Pakistan. Someone has modified these otherwise legitimate apps (clean versions are available for download on the Google Play Store) to add malicious features that seem completely focused on covert surveillance and espionage.

The modified apps look identical to their legitimate counterparts, and even perform their normal functions, but are designed to, initially, profile the phone, and then download a payload in the form of an Android Dalvik executable (DEX) file. The DEX payload contains most of the malicious features, which include the ability to covertly exfiltrate sensitive data like the user’s contact list and the full contents of SMS messages. The app then sends this information to one of a small number of command-and-control websites hosted on servers located in the

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sub-continent.

The selection of apps is highly peculiar, as they are neither the most popular, nor particularly unique apps like MX Takatak. There’s no indication that the publishers of the original apps are aware that these Trojanized versions even exist.

What was also found was modified versions of a Muslim prayer-clock app called Pakistan Salat Time; an app used to price-compare mobile phone plans called Mobile Packages Pakistan; a utility that can check a phone’s SIM card for validity called Registered SIMs Checker, and a maliciously modified version of the original app published by TPL Insurance, a company that describes itself as “the first insurance company in Pakistan to sell general insurance products directly to the consumer.”

One anomalous app I could find no specific benign analog of called itself Pakistan Chat.

This app appears to leverage the API of an otherwise legitimate chat service called ChatGum, and connects to a ChatGum server, but also conducts covert surveillance and exfiltration of data from the user’s phone.

The apps all feature, as their primary set of functions, code that appears to be focused on espionage and covert data exfiltration: When run, the apps initially send the device’s unique IMEI identifier and timestamp along with a username and password combination, to a command-and-control (C2) server by means of an HTTP POST request to the server.

Now consider the incessant usage of digital applications like MX Takatak. "Short-form videos are so easy to make, and users love it, as it is so easy to consume," said a Pakistani MX Takatak user, who had been using TikTok for communicating with followers and had roughly 200k followers on the Chinese app. "So, honestly, I felt very relieved when MX Takatak came out and I found it can be a good replacement of TikTok," she said.

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MX Takatak, is now regarded as a leader among Indian short video-sharing apps.

According to Indian media journalists, the short video-sharing app market, in terms of the average number of monthly active users, grew ninefold from 20 million in 2016 to 180 million in the first six months of 2020 with continued and rapid growth to date.

This outpaced the growth of social media, whose monthly active users increased from 200 million to 300 million in the same period, and YouTube, which is used mainly to share longform videos and whose monthly active users increased from 150 million to 325 million.

In June, MX Takatak's monthly active users reached 167 million, indicating the Indian app was almost identical in size to the whole short video-sharing market. Therefore the sudden exit of TikTok created a huge ready-to-befilled vacant space in the rapidly growing short video-sharing market, and domestic start-ups would not miss that opportunity opening right in front of them, in the subcontinent.

Several start-ups launched short video-sharing apps within a month of the TikTok ban, and three out of the four most popular apps today -- Josh, MX TakaTak, and Moj -- were among those new entrants who were all heavily downloaded by Pakistani youth – knowing the repercussions or maybe not?!

These new digital applications indicate that Indian apps if combined, have somehow acquired a user base comparable in size to TikTok before it was banned. It is estimated that Pakistanis spent a total of 165 billion minutes on short video-sharing apps during the peak of the pandemic, of which TikTok accounted for 8590%. In October 2020, the time spent on sharing short videos totaled 80 billion minutes.

Some people find the quality of content on Indian alternatives unsatisfactory compared to TikTok and are resisting to migrate, but neither TikTok nor MX Takatak is the safe route of

entertainment.

It is projected that the level of monthly time spent on short video apps will increase fourfold to 400 billion to 450 billion minutes by 2025. What can PTA do then? How can this volcanic eruption be curtailed?! How can the private data of each citizen be ensured to remain private?!

All these major Indian start-ups that are leading in the space have investors with strong global names. Tencent Holdings is behind MX Player, which operates MX TakaTak, and Moj is backed by Twitter and Shunwei Capital of China.

Interestingly, ByteDance made its first investment in India in 2016 in a strategy to add content-source partners for its TikTok operation in India. Now that TikTok has been banned and MX Takatak has been launched, the investment has turned into an indirect contingency channel to profit from the growth of the Indian short-video market. The effect of which is being absorbed by Pakistani youth as well.

All of these players are raising funds to accelerate the growth and MX Takatak is reportedly in the process of new fundraising. So how can Pakistan stop it from affecting its citizens?

Allowing TikTok to officially open their HQ in Pakistan and in return ban all Indian digital applications – which is now a reality.

These Indian apps have English-language interfaces, which have paved the way for tapping markets outside India. Depending on the U.S. government's treatment of TikTok and on the international community's stances on China's aggression and oppression on many fronts -- including the East China Sea, the South China Sea, Hong Kong, Tibet, and Xinjiang, in addition to the India-China borders -- there may be huge opportunities in the subcontinent and around the world for these digital applications to replace TikTok – which will directly and adversely affect our country. n

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