Is the First Women Bank Limited too pink to fail? We hope so

By Zunairah Qureshi

If a ‘bank’ created for ‘women’, fails to either serve women, or function as a viable commercial bank, then why should it exist? That is the dilemma that the First Women Bank Limited (FWBL) faces today. Founded in 1989 under the patronage of then Prime Minister Benazir Bhutto, the charter drawn for the bank stated that it will be ‘undertaking the conduct of all forms of business of Banking Company in a manner designed to meet the special needs of women and to encourage and assist them in promotion and running of trade and industry and practice of profession.’ And alongside its unique charter, the bank also has to make money, just like any other commercial bank.

That is the problem: FWBL has struggled to survive as a viable commercial bank. Talks to privatise the bank have been on the table at least four times: in 1994, in 1996, in 2018 and most recently in 2021. In the latest update, the deadline has now been pushed to December 2022.

So what gives? The Privatisation Commission (PC) spokesperson told Profit that because the label of ‘women’ was attached to the project, it was deemed too risky to close

down a project that was supposed to symbolise women empowerment. Such a move would have been akin to admitting that any efforts to provide women financial alleviation and independence was set-up to fail.

Should the country’s only bank dedicated to women be privatised; and will the bank continue to serve women if it is indeed privatised?

Up for privatisation in less than a decade

The premise of the bank was simple: it would cater to women at all levels of economic activity, including micro, small, medium and corporate. It was the first commercial bank to launch microcredit in Pakistan.

The bank’s unique credit policies mean that it finances businesses where either women have 50% shareholding, a woman is the managing director or women employees make up 50% or more of the total workforce. It is also the only bank in Pakistan which offers women single and joint accounts, without any minimum balance requirements or penalties on low balances.

FWBL had an initial paid up capital of Rs100 million. About 90% of that came from the five state-owned banks at the time: the National Bank of Pakistan, Habib Bank, Muslim Commercial Bank (now MCB Bank), United Bank, and Allied Bank. The remaining 10% came from the federal government. For comparison, today, the Ministry of Finance holds an 82.64% share in the bank. Habib Bank has a 5.78% stake; MCB Bank, 5.78%; Allied Bank, 1.94%; National Bank of Pakistan, 1.93%; and UBL, 1.93%.

But despite the changes implemented, FWBL continued to grow at a sluggish pace. Consider, when Sultana started out, in 1989, FWBL had five branches across Pakistan. By 1993, this had expanded to 23. But in 2010, the bank had only grown to 38 branches; by the time Sultana left in 2014, the bank had only 41 branches.

One of our sources reminisced how in its foundational years the bank opened its first branches in posh localities and the women hired as staff similarly belonged to elite families who didn’t appear to care much about the larger goal of women’s development.

In 1996, FWBL incurred extreme losses owing to exchange rate exposure on faulty foreign investments. The same year, it was put up for privatisation for the first time but the process was suspended after the Women Action Forum made a case against it, calling for a termination of its privatisation. Later, disagreements continued regarding the bank’s purchase with one of the disqualified contenders making a case against the qualified party.

This was followed by years of underwhelming performance by the bank that made its ledger unattractive for a commercial bank. Through years 2001 and 2008, FWBL maintained a fluctuating yet profitable annual net income that averaged around Rs 124 million profit before tax. In 2009, it saw losses of Rs 80 million. In 2013 and 2014 the bank incurred losses of Rs 206 million and a shocking Rs 500 million respectively. As per the PC spokesperson, it was in 2016, when the FWBL board of directors decided to drop the policy of only providing loans to women entrepreneurs and became even more like a commercial bank by loaning out to everyone regardless of their gender that the bank’s health worsened and its losses deepened.

As per Profit’s previous story on FWBL published in 2020, former bank president Naushaba Shahzad, who was appointed in 2018, laid claim to a turnaround of pre-tax profits of Rs 282 million in just 6 months after six years of consistent losses. FWBL’s financials since September 2018 have not been published so it is not possible to verify its performance since then. However, a source has shared that the bank stands at a loss of Rs 250 million as of September 2021 when it faced an exchange rate exposure of around Rs 500 million.

FWBL has continuously found itself in rocky waters with major losses over the years. All this, despite exemptions such as the State Bank of Pakistan (SBP) allowing it a minimum capital requirement of Rs 3 billion instead of the Rs 10 billion requirement levied for commercial banks. Moreover, the Ministry of Finance injected Rs 1000 million into the bank over the years 2015 and 2016. Then in 2017, a new equity injection of Rs 500 million was administered by the Government.

A flawed business model

But exemptions and injections aside, a bank with a dual mandate to support its unique undertaking of women’s development as well as turning profits while competing with other commercial banks was perhaps never meant to be. Let’s recall that FWBL’s unique charter undertook the conduct of all forms of business of a banking company ‘in a manner designed to meet the special needs of women…’. This is only its partial promise as it also strived to encourage and assist them in trade, industry and practice of profession.

As per the charter, even if the bank was making profits, it wasn’t upholding its mandate if the profits were not the result of a system that was directly benefiting women in particular. But how was all this possible if FWBL was to function as any other profit-making commercial bank and struggled to meet its diverse stakeholders’ expectations?

While speaking to Pakistan and Gulf Economist in 2017, then President, Tahira Raza said that FWBL is regulated like a commercial bank without any additional funding stream for research and development. It had to work with its limited resources to survive as a commercial bank in a competitive market and pursue its mandate for women’s development.

Although FWBL had a relaxation in its minimum capital requirement, its required capital adequacy ratio, at 18%, is higher in comparison to other commercial banks. Commercial banks are required to maintain a capital adequacy ratio of around 12% while microfinance banks must maintain it at 15%. So then, does it all come down to a flawed business model? Our source believes so. When the bank was founded in 1989, microfinance was not a major thing in Pakistan. This is why FWBL was granted a commercial banking

license and had to uphold what this license entailed alongside its unique mandate. At its onset, FWBL was the pioneering institution working towards financial services and banking solutions for women. The bank’s President shared with us how FWBL has been a first of its kind institution in the world when it comes to providing financial support for women, with India and Tanzania following in its footsteps. It is a shame then, that the bank got caught up in the brutal grind of churning profits in a competitive market and gradually became more and more similar to other commercial banks.

Understandably so, it’s hard to identify exactly how FWBL is a ‘women’s bank’. Now that it no longer provides loans exclusively to women entrepreneurs, what is it that it does to actually contribute to women’s development and put into practice its mandate? I have tried to learn more about this from former President, Nuashaba Shahzad and approached FWBL as well. However, I haven’t found a satisfactory response if there was any at all.

The FWBL President, Farrukh Iqbal Khan, who joined office at the start of the year told Profit about the bank’s following initiatives towards women’s development and inclusion, ‘Adhering to its objective of ensuring financial inclusion FWBL has, since its inception, facilitated women across all segments, from small borrowers to SMEs.’

He further added, ‘As a niche player, with a focus on the ‘S’ of the SME market segment over the years, FWBL has developed several products to promote the SME sector in the country. Currently, the Bank is an active participant in the Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme and also the Mera Pakistan Mera Ghar Financing scheme. In both schemes, our focus is on benefiting women.’

The current President came over from Askari Bank with years of experience in commercial banking much like his predecessors and his fellows on FWBL’s Board of Directors. This isn’t to cast doubt onto the President’s abilities right before he even settles into office, but going off of past record, it begs the question whether only hiring commercial bankers helps execute FWBL’s unique and ambitious mandate. However, despite being bound by LHC to fulfil its mandate, as one of our sources put it, SBP seems to continually cut FWBL slack for failing to meet its mandated goals instead of taking action.

Moreover, it is the first time in its almost 30 years of existence that FWBL has a male President. Now, I agree with their spokesperson’s rebuttal that women’s development doesn’t mean that men can’t work for and towards women’s alleviation in society. But there’s something called public image and with a management team which is 7/11 male and not much to show for women’s development, what is it that makes FWBL unique? This is further intriguing if we consider that a source has confirmed that the FWBL cited their increased employment of women as evidence for following the mandate.

It has also been pointed out that we can’t expect much difference from the people given charge of the bank. They are hired for 3 years at a time at a bank that is set to be sold and its fate lies uncertain. The smartest route to take in this scenario is to worry about making revenue out of the bank’s continuous losses. Will anyone really step up to devise an action plan for revising the bank’s structure from a commercial one to something that would specifically cater to women?

If those behind the bank, and this includes FWBL’s management as well as the Ministry of Finance and SBP, truly wanted to see an institution that would do something for women’s banking and financial support, they should have learnt from the lack of results for years and stepped forward to change strategy. One way this could have been done was by granting the bank a microfinancing licence when it became available in 2001 and freeing it from the regulations of a commercial bank.

The bank’s unique credit policies mean that it finances businesses where either women have 50% shareholding, a woman is the managing director or women employees make up 50% or more of the total workforce. It is also the only bank in Pakistan which offers women single and joint accounts, without any minimum balance requirements or penalties on low balances

Second attempt at privatisation

In October 2018, FWBL was up for privatisation for a second time. And this is where the question of FWBL’s future as an institution for women really lies. Will the bank remain a women’s bank once it’s privatised? FWBL President chose not to comment on this. However, our source informed us it’s unlikely. If the bank could not adequately fulfil its mandate in 30 years under the government after being granted multiple exemptions, it was difficult to expect it would do so after being sold. According to our source, once privatised FWBL’s minimum capital requirement will be raised to Rs 6 billion from the current Rs 3 billion and its 18% capital adequacy ratio will drop to 16%. We learned that FWBL has received a valuation of Rs 4.5 billion – which includes a considerable hike-up just because of its ‘women’ label. However, not a single commercial bank is interested in its purchase. There have only been reports of a number of microfinance institutions showing interest.

While there may have been talks about acquiring a microfinancing licence for the bank, nothing can be confirmed in this regard but this would surely help in its sale since its figures do not look great for a commercial bank. While the PC spokesperson hoped the sales purchase agreement (SPA) will include the women’s development mandate, it can’t be confirmed as of yet. Perhaps a microfinancing reconstitution is what can salvage the banks future as an institution that will work for women. The FWBL spokesperson however, was expecting that the bank would get a digital banking licence. Which is something it definitely needs to catch up with the commercial market and also for supporting women’s financial activities in general.

Previously, the current government had promised to privatise FWBL by March 2021. However, the deadline was pushed to December 2022 and according to PC, the process is well on track. FWBL’s board had been dysfunctional since 2018 and wasn’t reinstated until late 2021, soon after the current President finally took over office even though he had been appointed two years ago.

It was because of the board’s absence that audits could not be conducted and FWBL was receiving exemptions for its 6-month audits from late 2018. Finally, it received further exemption from scrutiny by statutory audits as it got approval to retain Klynveld Peat Marwick Goerdeler (KPMG) as its auditor for a sixth year in 2021.

The Ministry of Finance informed us that the reason KPMG was renewed as auditor for FWBL was the convenience of having the former auditor while there was still uncertainty regarding the bank’s board and future. Once the board was in place, it also decided to have KPMG audit financials for the years 2018 to 2020. According to the ministry FWBL’s missing financial statements are soon to be made available once the audits get approved and this will further advance the privatisation process. n