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CONTENTS

09 The ‘bold’ economic demands of the Aurat March 13 Pakistan’s microfinance industry: A change brewing within? 16 What’s ahead for Pakistan’s startup?

20 20 solid growth - the amreli steels story 25 The no-confidence vote inspires little confidence Uzair Younus 27 Beware of Bancassurance Ammar H Khan 29 No-confidence - how we got here, what are the technicalities, and what will happen next

31 How Asaan are the new Asaan Digital Accounts? 35 What made the startups click in Pakistan? S. M. Talib Rizvi

Profit

37 What's going wrong in q-commerce and what we can do about it Saad Fazil

Publishing Editor: Babar Nizami l Editor: Khurram Husain lJoint Editor: Yousaf Nizami l Assistant Editor: Abdullah Niazi Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan l Meiryum Ali l Shahab Omer Chief of Staff & Product Manager: Muhammad Faran Bukhari Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Malik Israr (Isl) Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

Editorial Losing confidence The government has done the right thing to approach the Supreme Court regarding its allegations of “horse trading” in the run up to the vote of no confidence. All other options, that included mob actions in the streets, inevitably lead to more chaos besides being illegal. Fawad Chaudhry’s thinly veiled threats to all members of his own party that they would have to wade through a mob of a million party workers to get to the National Assembly on the day of the vote were fanning fears of a showdown in the streets as the vote approached. Worse still were the threats by the Interior Minister to impose Governor Rule in Sindh, even though this was a long shot. If they have evidence to back up their allegation that members of their party are being “bought” by the opposition to vote against the government, then they should present that evidence before the court and seek a legal remedy to their complaint, rather than resort to violence or threats of it. Both courses of action – mob violence and suspension of a provincial assembly – would be counterproductive for the government, and raise tensions to dangerous levels in the country. All parties should keep their actions within the bounds permitted by the constitution, and if there is disagreement over what the constitution really says in some places, the courts are the right place to dispel this, not the airwaves and certainly not the streets. The more clarity there is on what are the permissible bounds here in the run up to the vote, the more likely things will go smoothly and not spill over into the streets or via precipitous actions. On Saturday the Supreme Court gave an early indication of where the law comes in through all this mayhem. While hearing a petition moved by the Supreme Court Bar Association ordered the government to not delay the vote of no confidence. The fact that the vote has to happen cannot be denied. It is a constitutional procedure and has been used twice in the past, although in both cases those who moved the resolution were unable to muster the numbers required for it to pass. This time it is looking increasingly likely that the resolution will pass, although in Pakistan it is a good idea to not count one’s horses before they have

bolted. There are still some days to go before the crucial vote. One thing that is not changing, however, is the damage being wrought on the economy with the paralysis in the country’s decision making. The 7th review of the ongoing IMF facility has clearly hit an impasse. It has now been almost ten days since those talks were supposed to conclude, and all we are hearing is that both sides are still talking. The fund has described the talks as “constructive” while Finance Minister Shaukat Tarin is back to issuing statements about an imminent agreement. It would be a mistake to underestimate the importance of the fund program. If the impasse is prolonged, which it is likely to be given the situation prevailing in the country, the external sector will see mounting stress which will in turn reflect in the exchange rate. Already the rupee is seeing growing pressure, breaching 180 in the interbank market last week. This pressure is going to mount in the coming days in tandem with the uncertainty engulfing the country. There is little doubt that the exchange rate is unsustainable at its present level. Even the staff report issued by the IMF after the last review makes much mention of continued State Bank interventions in support of the rupee. But the rising tide of uncertainty is going to aggravate the situation. Exchange rate depreciation will then aggravate inflation. Whoever is ruling the country after this tumultuous vote is over will have an unenviable position. Another round of sustained adjustment will be required to repair the gaping deficits that are once again threatening macroeconomic stability, both internally as well as in the external sector. These adjustments always eat away the government’s political capital, and make the ruling party the subject of public ire. Prolonged uncertainty, especially if it spills over outside the confines allowed by the constitution, will only make matters worse. Let’s hope this is over sooner rather than later, and stability returns to the country so the focus of the rulers can return to critical decisions.

IN BRIEF No-confidence motion against PM

IMF seventh review to be prolonged

The opposition on Friday sent a letter to the Speaker of the National Assembly and to the National Assembly secretary urging them to immediately distribute the notice of no-confidence motion among the house members. On March 8, the joint opposition submitted a no-confidence motion against the chief executive of the country – Prime Minister Imran Khan – while pinning its hopes for the success of the motion on the estranged members of the ruling party and its allies.

The ongoing seventh review of the $6 billion Extended Fund Facility program is likely to be prolonged due to the announced Prime Minister relief measures as well as political situation. Sources said that Pakistan and the IMF representative are discussing matters related to the economy in ongoing talks. Pakistan and the IMF started negotiations on the ongoing seventh review of the $6 billion Extended Fund Facility program on March 4, 2022. Sources said that there is no cut off date of ongoing talks as Pakistan and IMF negotiations continued for seven weeks in September last year.

Large scale manufacturing grows 7.6pc in 7 months

Pakistan Bureau of Statistics reported that Large Scale Manufacturing Industries (LSMI) production grew by 7.6 per cent during the first seven months of the current fiscal year as compared to the corresponding period of last year. During July-January 2021-22, production of products that increased include food, tobacco, textile, wearing apparel, chemicals, iron and steel products, automobiles and furniture while production of fertilizer, pharmaceuticals, rubber products, and electrical equipment decreased over the same period of last year.

President sanctions Rs20bn to clear PDC of OMCs/refineries

President Arif Alvi has granted sanction for placement of Rs20 billion in the assignment account for reimbursement of Price Differential Claims (PDC) of Oil Marketing Companies (OMCs) and refineries. Earlier, the government had announced that it will bear Price Differential Claim (PDC) of up to Rs34.92 per liter in the prices of products till March 31,2022 in a bid to provide relief to the masses by maintaining prices of petroleum products at the same level.

Pakistan ships humanitarian assistance package to Ukraine

Pakistan on Tuesday transported humanitarian assistance for the people of Ukraine. The relief items were handed over to the Ukrainian Ambassador by Foreign Minister Shah Mahmood Qureshi. Two special C-130 flights are being sent to deliver more than 15 tons of humanitarian assistance items for the Ukrainian people. The humanitarian assistance package included emergency medicines, electro-medical equipment, winter bedding and food items. The shipment was transported on the request of the Government of Ukraine.

Rupee crosses 180-mark against US dollar

The downtrend in the local currency persisted on Thursday and the rupee fell to a fresh all-time low at Rs180.07 against the US dollar in the inter-bank market owing to expectations of an unsustainable current account deficit, according to a media report. The rupee has maintained a downward trend for the past 10 months. It has lost 18.25 per cent (or Rs27.8) to date, compared to the record high of Rs152.27 recorded in May 2021. With a fresh decline of 0.35 per cent, the Pakistani rupee has depreciated by 14.3 per cent (or Rs22.53) since the start of the current fiscal year on July 1, 2021, data released by the central bank revealed.

FBR removes seven officials on poor performance

The Federal Board of Revenue (FBR) has removed seven officials from their positions for poor and substandard performance. FBR Chief collector customs has removed Superintendent Jameel Akhtar Raja and Inspectors Bashir Ahmed, Azhar Hussain, Ali Raza, Muhammad Arshad, Muhammad Ahsan and Asif Mahmood from their positions for reasons of continuous poor and sub-standard performance.

The ‘bold’ economic demands of the Aurat March The march commands great public interest. It is using it to advocate for the economic rights of women and marginalised groups

By Zunairah Qureshi

n 2018, the Aurat March was conceived as a concept for women looking to reclaim public space on the occasion of women’s day by organising a march. The idea resonated, and over the past four years the march has grown from a loose association of feminists into an organisation that advocates for progressive politics in Pakistan. Why is Profit talking about the Aurat March? Because it is currently perhaps one of the most significant organisations that commands increasing public attention with every passing year. Whether it is the cesspool of Facebook and Youtube based media ‘organisation’ that hound the march every year or the thousands of people that attend the event every year, the Aurat March has managed to get conversations started on taboo subjects something that could not have been dreamed off a few years ago. Using the momentum of the spotlight, the march has in years past and in this year in particular advocated for the economic rights of women. The Aurat March is a decentralised organisation. It is not a political party, it is not a Non-Governmental Organisation (NGO), and it is not a charity. The marches each year are organised by volunteers, and a large cross-section comes up with the manifestos for each year. This year, there has been a perceptible shift in demands that were, in earlier marches, more focused on women’s protection against harassment and violence to the realisation of their economic rights. This year’s march’s theme is best encapsulated in its slogan, ‘ek hi nara, ek hi junoon // ujrat, tahaffuz, aur sukoon’ (one slo-

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gan, one passion - wages, security, and peace). Demands were made for recognition of labour carried out by homemakers and caregivers through a substantial living wage or basic universal income under social security. The lack of enforcement of labour laws and minimum wage for domestic workers and other women in the informal labour force were other issues raised. Moreover, IMF-backed policy changes like the excessive privatisation of large-scale industries employing large numbers of low-income workers and increasing taxes were protested against for being ‘anti-poor’ in nature. The Aurat March’s mission and demands can be found in detail in their manifesto and charter which are available both in English and Urdu. It is clear that the march cannot be mistaken as a one-day jubilant affair but has come to stand as a political force that is likely pivotal for the country’s social as well as economic structure. So, we need to talk about the women’s movement because it cannot be ignored or fluffed aside any longer.

What is the Aurat March?

t all started in 2018 with a group of activists, members from concerned organisations, and others committed to the cause. The march started as a way to reclaim space for women and provide a platform for expression and to voice demands. In five years, the march has grown from a congregation of 5000 people in 2018 to 10,000 plus in Karachi alone. That is perhaps the most important part about the march - it is a sum of the attendees that make it up. Every banner that is brought in, every

poster, every interview given, every slogan chanted - all of them come from women and gender minorities that have found the march to be an outlet for self-expression and have found a voice through it. And while the march has a diverse group of attendees, it has over the years grown into an organisation that can largely be labelled a progressive movement advocating for political and economic policies meant to uplift women and the suffering masses. The march continues to grow in number and scope in Lahore and Islamabad as well but has also expanded to other cities such as Multan, Hyderabad, and Sukkur. It has also become more inclusive with time as members of various marginalised communities such as transgenders and religious minorities have found a space for themselves at the march. Pastor Ghazala who has been part of the Aurat March organising team since 2018 pointed out that, ‘Where most women from the Christian community were unwilling to join the march, this year they have come in full buses from nine to ten different areas.’ In Karachi, foreseeing a growing number of participants, the venue was shifted from the Frere Hall park, which is located in an up-scale commercial area to the more communal Jinnah Bagh and this further helped bring together a more diverse community. Pastor Ghazala elaborated, ‘A lot of poor women joined this time as well including domestic workers, sanitary workers, and women who have lost their homes.’ Though the Aurat March has become somewhat of a flagship women’s right movement in recent times, women’s movements and rights activism dates much further back. Dr. Shama Dossa, Associate Professor, Social De-

velopment and Policy at Habib University, who has researched feminist movements in Pakistan and also been part of the organising team of Aurat March 2020 told Profit, ‘There has been no such thing as a ‘rise’ of feminism in Pakistan. It’s nothing new. Muslim, and Sikh women have been fighting for their rights since centuries.’ She further added, ‘Many organisations have been working for women’s rights. For instance, the Women Action Forum has been combating issues such as the zina ordinance since the Zia period. How Aurat March is different is that it has reached out to today’s youth.’ Perhaps it is indeed the attendance of large numbers of young university-going and working women with a fresh approach towards wrestling their rights and bolder visions that makes the Aurat March stand out among other movements. Dr. Dossa told us that, ‘There are a number of movements, like the homemaker’s movement, the lady health worker’s movement, and the Hari women’s movements. Aurat March cannot equate to the work done by all these movements but it does provide a platform for cross-movement linkages.’ She also added that the march has ties with women’s movements across the border, in Sri Lanka, Nepal, and India, from where activist Arundhati Roy has frequented Pakistan to contribute to the shared cause. This is visible in the strength and coverage that other movements have derived from the impact of Aurat March as a number of them, like the Home-Based Workers’ Women Federation which has been operating since 2005, also set out on a march this Women’s Day. They demanded recognition and labour rights for women working from home for companies that sell their hard work in the national and international markets for minimal remuneration.

The demand for ‘Ujrat’ and why it is more important now than ever

akistani women are earning more money, have more disposable income at hand, and have access to social media that helps them discern between low and high quality products. The data on Pakistani women’s rising economic power is staggering. The female labour force participation rate rose from under 16% in 1998 to a peak of 25% in 2015 before declining slightly once again to 22.8% by 2018. That means there are millions of women who are currently working who might not have been, had labour force participation rates for women stayed the same. The total number of women in Pakistan’s

labour force – earning a wage outside the home – rose from just 8.2 million women in 1998 to an estimated 23.7 million by 2020, according to Profit’s analysis of data from the Pakistan Bureau of Statistics. That represents an average increase of 4.9% per year compared to an average of just a 2.4% per year increase in the total population. In short, the growth in the number of women entering the labour force is more than twice as high as the total rate of population increase. All of those women now in the workforce have more purchasing power than ever before. Women have always had some measure of purchasing discretion for their households. But now, with their own incomes, they have more ability than ever before to make discretionary purchases for themselves, rather than just making decisions for their households. This data means two things - the first is that the number of women in the labour force increasing here is largely the number of women working white-collar jobs. This does not account for either the unpaid labour that women undertake as homemakers, and it also does not include a large number of undocumented women labourers engaged in cottage industries and other sectors like agriculture. What it does mean, however, is that the trend of women from more affluent middle to upper class backgrounds joining the workforce in droves is that there is more unrest amongst this section of society. And because these women have a voice because of their relatively good position in society, their demands for better working conditions and equality can then reach the most marginalised women in Pakistani society. The Aurat March at times has been criticised as an ‘elitist’ event - and while it is true that the drivers behind the march are mostly women from solidly upper and upper middle class backgrounds (university goers, working

women, etc), the march has also made very concentrated efforts to not just try and bridge that gap but also advocate for the most economically, socially, and politically marginalised segments of society.

It isn’t just about equal wages

any associate feminism with gender equality, and it is that. But it is also more than that. The economic rights that the Aurat March cries for addresses economic justice as well, such as equal pay for all genders, among many others, but what it really demands is change at the structural level. The Aurat March 2022 manifesto starts off with these words: ‘This year we march for our labor… We march for a living wage. We march for social security…’ In a radical move it calls out the current capitalist system for running on the exploitation of women’s unpaid domestic labour by only remunerating ‘labor that is ‘productive’ or can produce tangible commodities’. Their charter of demands refers to a ‘care economy’ that is based on women’s home-making and care services for their families. While in 2019 the demand was simply for recognition of women’s unpaid ‘care’ labour, in 2022, they proposed the solution of introducing a basic living wage or universal income for the social security of all paid and unpaid workers, whether employed in the formal or informal sectors. Pastor Ghazala told Profit, ‘In the first one to two years of the march, we focused on the issues of harassment, rape, and forced conversion. Then we began to notice the immense exploitation and misery of marginalised communities which is why we worked more for their economic development.’ This year there was a particular focus

on domestic workers and their lack of labour rights. Demands included recognising their labour as legitimate by mandating employment contracts and minimum wage. ‘The minimum wage was set at Rs 25000 by the government (in July 2021) but like other laws, this is not enforced.’ Pastor Ghazala explained further, ‘No one checks if maternity leaves are implemented and women workers are kicked out during their seventh month of pregnancy. Factories employ home-based working women, where the middlemen don’t let them come to the factories and instead treat their work as part informal labour with no rights protection.’ Similarly sanitary workers employed by private companies are underpaid and forced to face severe health hazards when they are not provided safety gear or any kind of equipment to work in sewerage lines, even during the covid-19 pandemic. Lady polio vaccine workers are also exploited and even though these women know their rights are being quashed, they do not have the strength to stand up for themselves. This is why the Aurat March and associated bodies are essential in highlighting women’s economic labour issues. Safina Javed, a women’s activist and founding member of the Aurat March emphatically declared, ‘Don’t think that Aurat March happens once a year. Our work extends all year round as we lobby for women’s rights.’ The Aurat March is organised by the Siyasi Aurat Tehreek. This group in collaboration with other organsiations, like the Sindh Human Rights Commission, research institutions, and devoted individuals, such as lawyers, work towards solving a multitude of issues by engaging with communities and lobbying the government. Safina Javed associates the abolishment of the two-finger test in rape cases, and growing awareness among women about their rights against harassment to their efforts and the Aurat March’s success. ‘You can see more cases are being reported. Young girls aren’t as scared anymore. Workplaces and universities have had to put in place sexual harassment laws.’ The Aurat March has been demanding proper implementation of the Protection Against Harassment of Women at Workplace Act, 2010 for a long time. In the past, they

have also pushed for the health budget to be decreased to 5% of the GDP. This year, in addition to the above mentioned, their charter included demands for increased representation of women in trade unions, access to clean air, safe environments, and public spaces, protection of the Transgender Persons Act, and reforms for the justice system among many more.

Women scream for ‘Azadi!’ but what from

t is important to understand that the Aurat March is not just for women. It is for all persons and beings that are ‘under threat by the oppressive system’. This includes the poor, children, religious minorities, transgenders, children, and others. The Aurat March and its affiliated workers stay with the times and recognise systematic modes of exploitation that affect weaker persons in society. One of their most fervent demands calls for the limitation of IMF-backed policies that hit the poor members of society the hardest. According to Safina Javed, ‘Under the oppressive system that we live in, poverty is increasing, upon which more taxes are being placed, and there is no gas or heat. The increase in privatisation of public facilities leaves many unemployed and a lot of the poor class insecure.’ Since the Aurat March is a movement powered by the young, it has a presence that is intermeshed with the social media culture. This also means that it is open to and at the brunt of harsh and many times, plainly obscene responses by all kinds of social media users. This in itself is reflective of a problem women march for. Many male members of society and traditionalists do not understand Aurat March’s main purpose. They choose to troll the

march - what is clearly a political movement in its own right – for being something of frivolous showcase. When a large group of women step out on the roads to speak up for themselves in a conservative society like Pakistan’s, the act in itself is seen as improper and even ‘vulgar’. However, the women persist because they want to be able to walk their own streets safely and reclaim public spaces for themselves. For the past few years, each International Women’s Day, the Aurat March faces a showdown with the ‘Haya March’ that is led by a group of burqa-clad women from religious political parties. They bear slogans that say, ‘Men and women are not competitors but compatriots,’ showing a deep misunderstanding between the two parties. In fact, many don’t understand the rights that the Aurat March campaigns for. They question, ‘Why do women need rights when our religion and culture already offer them respect and the rights they deserve?’ The answer is that the Aurat March and its feminist doctrine does not simply ask for one or two rights that are missing or aren’t enforced, instead it recognises the existing system as a problem. It is a socialist movement that does not agree with capitalism to the extent that the organisers told us that they do not take any funding from the corporate sector or sell any sponsorships. Safina Javed explained to us that, ‘All our funding comes from our own pockets and through fundrasiers.’ Pastor Ghazala was livid when she said that, ‘They (opponents of the march) say we are foreign-funded. But we all have our accounts; can they show us a single rupee that is coming from outside?’ Not everyone will agree with the feminist movement’s socialist ideas. However, it is hard to deny or ignore the fact, as highlighted by the Aurat March, that gender discrimination is a systematic and structural problem. This is what makes the Aurat March and other bodies like it so relevant. They recognise that many developments and pressing issues like the IMF-sanctioned budget cuts, privatisation programmes, and lack of climate action need to be re-evaluated and revised for its impact on the marginalised communities. n

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Pakistan’s

microfinance industry: A change brewing within? As the microfinance banking model becomes increasingly unviable, players in the industry are reassessing their options By Ahtasam Ahmad and Taimoor Hassan

anking as a sector is increasingly being pulled and shaped in different positions. From Telenor selling its bank, to Bank of Punjab announcing its plans to acquire a strategic stake in NRSP all has added to speculations about the economic feasibility of operating a bank in the segment. Telco players like Jazz are trying to explore additional avenues to consolidate in their existing financial service models while commercial banking players like HBL, who has recently rebranded First Microfinance Bank to HBL microfinance bank, are solidifying their grip on existing investments. Amidst all the changes happening within the sector, the question arises whether microfinance banks are commercially viable for the investors or are there other strategic motives for operating in the market?

Pakistan’s microfinance industry

he objective of microfinance is similar to that of microcredit; its goal is to provide financial services to help encourage entrepreneurs in impoverished nations to act on their ideas and obtain the financial tools available to do so and to eventually become self-sustainable. In Pakistan, however, the microfinance sector has evolved to adopt the vital role of filling in the gaps left by commercial banks in the country’s financial infrastructure. As per a PACRA report issued in 2021, a total of 36 entities have microfinance operations in the country which can broadly be divided into three categories; Microfinance Banks (MFBs), Rural Support Programs (RSPs) and Microfinance

BANKING

institutes. The report also states that 73% of the sector’s lending is carried out by MFBs. Moreover, only MFBs are authorised to receive deposits in the sector. Therefore, it further elevates their importance given that by the end financial year 2021, they held Rs423 billion worth of deposits. Yet, in recent times these MFBs have seen a decreasing trend in profitability primarily due to high operational costs. The overall sector has been posting losses for the last two years and by the first half of 2021, it stood at a loss of Rs3 billion. A surge in the losses could be attributed to a scam unearthed at Telenor Bank in June 2019, which took down the industry bottom line to negative figures. But even after excluding Telenor Bank the would still be left with low profitability figures. The advent of microfinance was for a social cause but with the introduction of private sector Microfinance Banking licenses through Microfinance Institutions Ordinance 2001 started an era of commercialization for the industry. The main investors in these banks are Commercial Banks, Telcos, Nonprofit entities/ rural support programmes and specialized microfinance institutes. The NPO backed MFBs include the likes of NRSP bank backed by the NRSP NGO, while Agha group’s philanthropy wing also has investments in the sector and so does Kashf foundation. The investments are an extension of vision of these organisations which is based on poverty alleviation through financial inclusion. The telcos adventure in the sector started after the state bank authorised the issuance of branchless banking licenses in 2008. This presented an opportunity for the telcos to collaborate with banks to launch mobile financial service products in the country. Telenor was the first one to do this when it joined hands with Tameer microfinance bank to launch easypaisa in 2009 while Jazz followed

by launching Jazzcash in 2012. The telcos soon bought the majority stakes in these banks and rebranded them. Tameer became Telenor Bank, Waseela converted to Mobilink bank while Rozgar microfinance bank was renamed as Ubank after acquisition by PTCL. The telcos now use these banks to operate their branchless licenses under JV agreements. The bank takes care of regulatory compliance, risk and operational needs while telcos are focused on the marketing and distribution. So that means everyone holding a Jazz cash account actually has an account with Mobilink microfinance bank and the same is the case with Upaisa and Easypaisa customers. These Telco backed banks own a 30% share of the sector’s lending portfolio with around Rs 78 billion lended out of the industry total of 261 billion as per PACRA report issued in 2021. Additionally, the mobile wallets account for 80% of the total microfinance deposit accounts. Another key player in the sector are the commercial banks. The likes of HBL Microfinance bank and Khushali Microfinance Bank (30% ownership of UBL) are examples of investment of conventional banks into the sector. The reason for commercial banks needing to acquire microfinance banks to apparently conduct a similar business is quite simple. The microfinance operations are focused on the least serviced rural population that has a massive potential as a developing market segment. The commercial banks have acknowledged this fact, but also are aware of their limitations to serve these sectors. The conventional banking models right from customer experience to products are not suitable for microfinance operations. The resources of the commercial sectors are trained to serve the corporate and the government clientele. Therefore, by acquiring MFBs, they are enabling themselves to service this segment. Sardar Abubakr, the Chief Finance &

Digital Officer of Mobilink Bank, while talking to profit said, “The commercial banks were late to the party when it comes to the micro level financial services and this is part of the reason why telcos were able to make inroads in this market.” CEO of Telenor Bank, Mudasar Aqil, had similar thoughts on the matter, “Commercial banks are rapidly moving towards digital processes and operations, expanding reach to unbanked and underbanked segments across Pakistan. In light of their efforts, these institutions, rather than trying to establish their own footprint, are partnering with established players having solid footing in this space, to enter the market and reap its benefits.”

The sector lends at expensive rates. But where are the profits?

constant criticism of the Microfinance Banks have been their high interest rates. They charge anywhere from 35%-40% for lending out the money - predatory in every sense. Officials in the microfinance sector cite high operational costs to justify high interest rates. An extensive field operation and a borrower base located in sparsely populated remote areas makes the costs of running microfinance operations high. On the other hand, the size of the loans is small, which means that it needs to be deployed to more people to make operations efficient. The average loan size of these banks stood around Rs60,000 as per PACRA report. Therefore, the advantages of economies of scale are missing in the sector. Further as per, The How & the Why of Microfinance Lending Rates, a study conducted by Pakistan Microfinance Network in 2019, the operational costs comprised around 22% of average gross loan portfolio for the overall microfinance sector including Non-Banking

Microfinance Companies. Additionally, the cost of funds for these institutions is also high as they have to offer premium rates in order to compete with conventional alternatives for attracting depositors.

The way forward?

major concern for the sector is its asset quality. When Covid-induced restrictions started to take a toll on the economy, the risk for microfinance loans defaulting also increased. However, the State Bank stepped in with a loan deferment/ restructuring program to protect the portfolio of the banks and allow the borrowers some relief. As per SBP data, around 1.7 million applications were received for deferment/restructuring that amounted to Rs121 billion. However, as

“Commercial banks are rapidly moving towards digital processes and operations, expanding reach to unbanked and underbanked segments across Pakistan. In light of their efforts, these institutions, rather than trying to establish their own footprint, are partnering with established players having solid footing in this space, to enter the market and reap its benefits” Mudasar Aqil, CEO of Telenor Bank

the deferment period expired in March last year, the banks also started to see a declining trend in asset quality. Further, as per experts, due to the increasing economic pressure, the non-performing loans most likely will see a rising trend in the near future. All this adds up to the risk of operating a commercially motivated business in the sector. Therefore, the decision to stay or leave the microfinance banking sector will highly depend on the long term objectives of the key players in the sector. The telcos might find it hard to justify continuing operations in the sector as their ability to operate completely digitally is enhanced through the issuance of Digital Banking Regulations by State Bank. “As Telenor looks to exit the market, the market leader in the mobile wallet space, Jazz might also re-think its presence in the

“In the case of Telenor Bank the acquirers are more interested in easypaisa rather than the microfinance bank itself. The bank has posted heavy losses and a declining asset base which doesn’t leave much value in it” Ammar Habib, analyst

microfinance banking sector,” said an official associated with the bank. The business case for operating a bank is not there. The case for branchless banking, which has been the mainstay of players like Mobilink Bank and Telenor Bank, is also under pressure because of the central bank’s interventions on the funds transfers. Amid the pandemic, the State Bank issued a circular instructing banks to abolish IBFT charges to account holders who could no longer go to bank branches or branchless banking agents because of the pandemic restrictions to make these transfers. Slashing of IBFTs and the pandemic naturally pushed digital payments but cut a major source of revenue for branchless banking players like Mobilink Bank and Telenor Bank through JazzCash and EasyPaisa, hurting their P&L and putting the feasibility of this model into question as well. According to a source in the industry, because of the funds transfers charges being slashed, commercial banks have started pushing their customers to branchless banking agents for funds transfers, relieving footfall from their branches and increasing at the agents. Branchless banking service providers, on the other hand, are disallowed by the central bank to charge on other services like cash-in. In the presence of a fee waiver on funds transfers and no avenue to recover that money, the branchless banking players are in a fix, unsure of what their future is going to be. The deposit base of Mobilink Bank that primarily includes current and P&L accounts

“Mobilink has a keen interest in the digital financial sector of Pakistan and we see a huge potential market in the growing MSMEs of the country” Sardar Abubakr, chief finance and digital officer of Mobilink Bank

is dominated by Jazz Cash user accounts. In 2020, Rs29.4 billion out of a total Rs36.5 Billion current and saving deposits came from Jazz cash accounts. This means that 80% of the portfolio consists of funds that have mostly zero cost. If these funds and the share of branchless income was to be eliminated from mobilink microfinance’s books, it would be hard for the bank to sustain. Officials associated with the industry tell us that Jazz has bigger plans for the sector and unlike pulling itself back like Telenor, it aims to increase its footprint in the Digital Financial Services (DFS) segment. Sardar Abubakr, the chief finance and digital officer of Mobilink Bank, while talking to Profit said, “Mobilink has a keen interest in the digital financial sector of Pakistan and we see a huge potential market in the growing MSMEs of the country.” When asked whether carrying out operations as a microfinance bank is still a feasible model, he replied, “We are evaluating the best structure going forward in the financial service market. The current arrangement may or may not change depending on the value we can extract from other available options.” He further added, “Right now the digital banking licensing framework is new and has certain restrictions of scale. However, we are actively engaged with the regulator to ensure that the framework caters to the digital needs of all the market players.” The other important player in the sector are the commercial banks. Some have recently made investments in the sector while others are contemplating a move. The motive behind these vary. “In the case of Telenor Bank the acquirers are more interested in easypaisa rather than the microfinance bank itself. The bank has posted heavy losses and a declining asset base which doesn’t leave much value in it,” commented Ammar Habib, an independent economist. “The microfinance banks will be a tool for financial inclusion used by the government and NGOs primarily but not in its current form, it is too expensive. The acquisitions that you see from the likes of government owned banks like BOP are in line with that,” he went on to say. The government is more than interested

in using the reach of MFBs to promote financial inclusion. Recently, SBP has revised the prudential regulations to increase the loan size limit for housing loans and lending to MSEs. The effects of it are quite visible on the sector’s loan portfolio. The MFB’s gross loan portfolio increased by around 20% and as per Pakistan Microfinance Network, the main reason for that was the ability to disburse larger loans amid the push from the central bank to increase disbursement of low cost housing and micro enterprise loans. However, as per some industry analysts, the private sector commercial banks in the sector are holding onto their investments and gearing up for the losses to come. The NPLs have been on the rise and pure microfinance players like Khushali and HBL Microfinance are on the receiving end. The feasibility of their existing business model is inversely correlated with the technology adoption amongst financially excluded sectors of our society. President and CEO of UBank, Kabeer Naqvi in an interview with a private publication stated that due to the low literacy rates and internet penetration, the existing Microfinance Banking model is still necessary to reach out to the rural masses. “Over the last decade and especially during the pandemic, digital financial services have made their mark and are disrupting the traditional methods of access to finance. This is a key focus area for us as well, as by syncing our branch business model with our flagship digital payments platform Easypaisa”, commented M. Mudassar Aqil, CEO, Telenor Microfinance Bank/ Easypaisa. It is quite certain that the microfinance banking sector will grow in the near future given that a huge chunk of the rural population is still deprived of access to financial services. However, there is a consensus amongst the industry that the existing model might not be the most commercially viable one. Digital is the way forward for them and their ability to move towards this model is highly dependent on external factors including internet penetration and the vision of the regulator. n

BANKING

By Taimoor Hassan

t’s been a little over three months since the year 2022 started and Pakistan’s startups have announced raising investments worth $130 million. Just yesterday, B2B startup Bazaar announced a hefty $70 million raise in Series-B round. The momentum seems to be steady for startups after a joyous year, and as startups enter into a new stage of growth, new challenges mount. A recently launched “Pakistan Entrepreneurship Ecosystem Report 2021” by venture capital and insights firm Invest2Innovate (i2i) discusses what these new challenges look like. According to Kalsoom Lakhani, the co-founder and general partner at i2i, initial challenges for startups were an overall lack of funding, no support space and lack of regulations. “That’s changed now for the better,” says Kalsoom. As the startups enter a new phase of growth, the ecosystem has to worry about new problems that come at this stage. Lack of access to growth stage capital, for instance. Pakistan had an exceptional last year, with startups collectively raking in $352 million in 2021. This amount is exceptional in a seven year context: since 2015, Pakistan’s startups have in total raised $563.5 million. A multitude of factors explain last year’s boom: Pakistan is the last big untapped market for foreign venture capital investments which peaked globally last year; increasing cell phone and broadband penetration accelerated growth of startups; and foreign educated startup founders moving back to Pakistan helped raise more capital overall. While the trend has been encouraging, challenges lie ahead in raising later-stage funding for these startups. An overwhelming majority of the startup deals (60 of the 81 total) last year were early-stage investments. The number of deals and the total investment could have been bigger during last year and will pose a challenge ahead because of a limited number of local angel investors and their willingness to invest only small amounts. For the ones that were able to raise funding in their early stages, follow-on capital is going to be a challenge because of limited capital of local VC funds. These funds and the international VCs that invested in Pakistan are mostly early-stage investors themselves. According to the report, international VCs which are investors did not prefer investing in later stages. According to the report, the total market capitalization for all Pakistani startups currently lies between an estimated $1.5 billion and $2 billion, and is expected to increase to $6 billion over the next five years and to $30 billion by 2031. There is, however, a correction

required as to how Pakistan’s startups are valued. High valuations in Pakistan have been brought about to a large extent by looking at comparables in mature markets, which isn’t a true representation of the actual opportunity in Pakistan. High valuations have also brought into question the possible exit routes for Pakistan’s startups. The Pakistani stock market in its current state is not going to give startups the valuations they are able to secure during private fundraising. Interest towards acquisitions is not promising either, with the acquisition of Daraz by AliBaba in 2018 the only instance in the last few years. “Pakistani startup ecosystem thus faces a predicament. Despite a substantial increase in investment activity, there have been few exit events to prove the case for investment outcomes within the Pakistani market. This can potentially discourage VCs, which have an average investment cycle of around five years and a fund duration of usually 10 years, from writing bigger cheques or investing strategically in Pakistan if they are unclear of long-term prospects locally,” the report notes. Support infrastructure such as startup incubation centers are mostly focused on driving investment into startups, but remain inefficient in doing that. i2i’s interview data shows most dissatisfaction among entrepreneurs who are looking to scale and raise capital with the services currently offered by these support organisations. “For instance, both entrepreneurship support organisation (such as incubation centers) personnel and founders shared that attempts on part of these organisations to help startups raise investment have often not come to fruition either due to investors not following up after a few initial conversations or because they were matched with investors that were not a fit for the founders and vice versa,” the report notes. Pakistan has a sizable network of support infrastructure, with. 98 entrepreneurship support organisations (ESOs) operating in the country. These range from incubators (22) and accelerators (13) to coworking spaces (18).

Additionally, University-based Business Incubation Centers (24) and other organisations including foundations, business associations, and conferences/challenges (13) form the local business support ecosystem. Although the availability of a larger number of support programs is a positive sign and indicates greater accessibility of support services to young startups, the report highlights several shortcomings among support services such as the lack of bespoke services for more experienced founders and startups at later stages of their business lifecycle, as well as a noticeable lack of effective investor-readiness elements within local support programs. The report also highlights that additionally, there is a disconnect between the startup sector and universities which creates challenges for startups. According to the report’s findings, universities in Pakistan do not equip students adequately to launch a business. This can be attributed to why foreign educated founders have been more successful at raising capital than local founders. Startup growth in part has been fueled by the launch of Electronic Money Institution (EMI) regulations by the State Bank of Pakistan (SBP) and now the Digital Banking Policy 2022, allowing holding companies abroad and setting up of the regulatory sandbox by the Securities and Exchange Commission of Pakistan’s (SECP). In addition, Digital Pakistan Policy, National eCommerce Policy, GEM Board listing and the Special Technology Zones (STZAs) are measures that are seen as significant by ecosystem commentators, regulatory bottlenecks with regards to these measures persist which create problems for startups. Taxation is a particular point of concern for startups. The report underlines two areas in taxation as points of concern: a lack of clarity in terms of sector specific taxation policies, and concerns around taxation on capital gains in the case of exits. “More sector specific consistency of tax policy, including new and emerging business models and verticals, which have not been looked at from a

tax perspective,” Ali Mukhtar of Fatima Gobi Ventures suggests. From an investment point of view, the current regulatory atmosphere prevents local or international VC funds from soliciting funds from within Pakistan. This limits participation of Pakistani High Networth Individuals, family offices or institutions from participation in the fund and limits avenues of raising money for a Pakistan focus fund. This can eventually put a limit on the availability of capital for future investments into Pakistan’s startups. Foreign investors have also voiced concerns if they would be able to repatriate their profits in case of an exit. Pakistan has conservative foreign exchange rules with extra controls on outflow of funds from Pakistan and majority of investors, according to the report, believe “a lack of laws allowing for the seamless inflow of foreign investment capital into the country is an obstacle.” “While the government is making headways in being more receptive to the needs of the key ecosystem players, the SBP still holds a great level of regulatory control (and enforces stringent reporting requirements) on how domestic investors can direct their capital flows to holding companies established abroad. This limits their contribution to the overall growth of the ecosystem and pushes Pakistani startups to rely more on international investors for growth capital. Therefore, the need to ease regulations pertaining to international VCs is more important now than ever, not only to make processes friendlier but also to channel more local liquidity into venture funds,” says Amad Mian, partner at VC firm Karavan surveyed by i2i. Key stakeholders highlighted that in regards to human capital, while the supply of technical talent in Pakistan is sufficient, it lacks several key attributes such as critical thinking abilities, product-oriented experience, and cross-functional flexibility compared to their counterparts in other regional ecosystems. The startup sector saw a growth in female participation as well last year. Women-founded startups managed to raise $4 million in 2021 compared to all previous years combined ($3.9 million). The 2021 funding fig-

ure, however, is a fraction of that raised by female co-founded startups ($144 million across 43 deals) and male-founded startups ($412 million across 194 deals) from 2015-2021. As a result of this growth, the average ticket size to female-founded startups increased to $2 million in 2021, from $900,000 in 2020. Female-founded startups account for only 1.4% ($7.91 million /$563 million) of the total amount raised and 6.7% (17/255) of the total deals from 2015 to 2021. Challenges cited by female-founded teams during the investment raising process was finding a suitable investor (with 84% of respondents stating as such). Generally, female founders perceived investment-related challenges as greater in magnitude than those facing female co-founded and male-founded teams. According to i2i’s Deal Flow Tracker, female-founded startup investment grew from $1.8 million in 2020 to $4 million in 2021. In

2020 female-founded startups accounted for 6.3% of the deal count and 2.8% of the total amount raised compared to 2021 where the deal count and the total amount raised by female-founded startups was 3.6% and 1.1%, respectively. Despite the growth, the relative share of investment in female founded startups is tiny. According to the report, a limited pipeline of female founded businesses and potential bias in perceptions against women-founded businesses are two major reasons behind lower access to finance for women. It further outlines that women founded businesses represent a low volume of investment worthy female-founded startups which limits the number of deals they can evaluate. According to Ali Mukhtar, the disparity in funding is perhaps because there is a relatively lower pool of female founders applying for VC funding. Low pool of female founders in Pakistan can be attributed to the overall lack of labor force participation of women which stands at 21% compared to 79% male labor force participation. A predominantly male dominated atmosphere limits opportunities for women, the report argues. One way to overcome the lack of female participation in the tech sector is to strengthen support infrastructure for females, such as initiating dedicated programs for women at incubators and accelerators. n

COVER STORY

Solid growth THE AMRELI STEELS STORY COO and CFO Fazal Ahmed sits down with Profit in this one-on-one interview

Sponsored Content Profit: To start off with, how has your journey at Amreli Steels been like and what, in your opinion, has been the greatest achievement(s) by Amreli Steels. Fazal Ahmed: It has been a phenomenal journey and a dream come true for me. I was able to put all my knowledge and skills to use initially as the CFO of the Company and then as the COO (Operations) along with being the CFO. I was lucky to play an instrumental role in the rapid transformation of this company in all facets of business, which helped us grow exponentially in the last thirteen years. This growth cannot be attributed to a single defining achievement. It is the culture of excellence in Amreli Steels which brings out the best in everyone and enables us to push the envelope of what is possible every day. Our revenue has grown from PKR 4 Billion in 2009 to PKR 39 billion in 2021. We sold 69,000 tons in 2009 and 367,000 tons in FY 21. This translates into a compounded annual growth of 21% in value and 15% in volume over a period of 12 years. This is an exceptional growth given our product category and the kind of unfair competition we face from the undocumented sector. Almost all departments have experienced an extraordinary transformation. Starting from Finance, IT, Sales, Marketing, Supply Chain, HR to the composition and working of the Board of Directors. I can safely say that we have one of the best human resource ensemble a company can wish for – people who are expertly guided by a very seasoned and diverse Board of Directors. The Sponsors showcased a great amount of flexibility in the devolution of power which was pivotal in the fast transformation of this company from a typical private limited organization to one of the best listed companies of Pakistan. By the grace of Allah, Amreli Steels is considered to be a benchmark in Technology, Transparency, Disclosures, Efficiency and a Brand leader for all stake holders. Amreli Steels has a home grown Vision & Mission Statement and deeply imbued Core Values. The CEO of the Company was instrumental in making this possible. The extraordinary growth and success story is also well reflected in Credit Rating of the Company which has never gone down below the category “A” since inception of its rating by PACRA, six years ago. Profit: What do you think was the major turning point for Amreli Steels, in reversing its losses of Rs 1.126 billion with an EPS of Rs -4.18 to massive profits amounting to Rs

1.368 billion with an EPS of Rs 4.61. Fazal: First and foremost, it was the full year of operation in FY 21 vis-a-vis ten months in FY 20 which made a big difference. In FY 20, we lost two full months of operations due to covid-19 related lockdown. The full year of operations in FY21 helped us in increasing capacity utilization available at hand. The demand picked up as a result of stimulus package offered by the Government. In FY 21, the construction industry was dubbed as the most favored industry of Pakistan. Pent up demand also played a role as our sales grew by 34% in terms of volume touching 367,000 tons - the highest ever sales quantity in the history of Amreli Steels. The miscalculated hike in interest rates introduced in 2019 to contract the economy was rationalized and brought down by 50% which reduced the financing cost substantially. A lot of planning and adjustment also went in across the operational spectrum of the company. Days receivable which had soared to 66 were brought down substantially and a tight inventory management enabled an efficient utilization of the working capital. Profit: How has the change in import taxes, customs duties, currency devaluation and logistic costs impacted the raw materials import of Amreli and in-turn the prices. Fazal: Increased Sales Tax @ 17% instead of 14% at import stage of raw material has negatively affected the cash flows and in turn, the financing cost. Unfavorable Custom Duties on import of HMS has limited the purchase options and the bargaining power. Currency devaluation affects us the most as it increases almost all costs. Not all of these increased costs can be passed through to the consumers which results in the company taking a hit on its profitability. This is very obvious from the fact that the GP margins for the company, which used to be in the vicinity of 19% from 2014 to 2018 went down to less than 9.5% between 2019 and half year 2022. Profit: What impact has the shortage of vessels caused on the production activity at Amreli steels? Are there irregularities in imports? If yes, are there any operational discrepancies because of this? Fazal: There haven’t been any production disruptions due to the shortage of vessels so far. There were some irregularities in delivery time though, which has prompted us to increase the safety stock levels. The supply chain disruption has increased the cost of raw material substantially. Procurement of capital items has been affected the most due to the non-availability of containers and vessels.

Profit: What has been Amreli’s export strategy, and does the company plan to enhance its exports to hedge its risk against currency devaluation? If so, then how? Fazal: I say this with great regret that no rebar manufacturer in Pakistan including Amreli Steels exports steels rebar. There are three simple reasons for the lack of competitiveness in the global market for our locally produced rebars: the lack of economies of scale, high cost of electricity and lack of availability of local scrap or a substitute raw material. Profit: As per Amreli Steels’ financials, despite a major rebound in the company’s profitability in FY2021, it has not declared dividends, especially since the past three years. Please shed some light on this, and explain why Amreli Steels is offering low to no dividends to its shareholders? Fazal: The dividends declared up till 2018 were from the profits earned from the operations of our old plant. The funds generated through listing were deployed in increasing capacities which came online at the beginning of FY 19. FY 2019, as we all know, was a year of contraction by design. Base rate interest was jacked up by more to 14% which also resulted in more than 100% increase in banking spreads. PKR devalued by 37%. The cost of energy also increased many folds. Documentation drive was triggered simultaneously. Too many buttons were pressed at the same time which weakened the consumer confidence and suppressed demand. Our company, therefore, could hardly manage to breakeven after tax. However, loss before tax was to the tune of PKR 67 million. The fiscal tightening continued in FY 20 and the problems were compounded many folds when the pandemic broke out across the globe and prompted Pakistan, like many other countries, to put strict and complete lockdowns. Amreli Steels remained closed for 60 days with zero production and zero recovery of receivables. The only thing that continued to remain in full force was the INTEREST that put huge constraints on the resources of the company. However, the sponsors of the company did not ever consider lay-offs. Even the contractual and daily wage earners at Amreli Steels were retained and full salaries were paid without any deductions. The company incurred a loss of PKR 1.9 billion before tax. The year 2021 was the year of recovery and company recorded a profit before tax of Rs. 1.4 billion. One can see that the losses accumulated in FY 19 and 20 has barely been recovered

NATIVE CONTENT

in FY 21 and First half of FY 22. Declaring dividend was, therefore, not an option for the company in FY 21. Profit: Has Amreli incorporated integrated technology into its workflow? If yes, then how? Fazal: Investment in state-of-the-art manufacturing and associated technologies is a key part of our mission statement. Just like we have always introduced the latest steel manufacturing technologies in Pakistan, we have also pioneered the integration of technology in our business operations. Amreli Steels is the first steel rebar company to invest in SAP. We are the first steel rebar company and the 5th company in Pakistan to invest in SAP Successfactors. Most of our administrative processes have been digitalized through the integration of Microsoft Sharepoint. Every month, our trade marketing’s field staff audits our entire retailer network across Pakistan on a “Trade Eye” mobile application that is linked to our database in SAP. Our retailers have been given access to a web-based and mobile-based “Business Partner Portal” where they can check the status of their orders, track their deliveries and check their outstanding payments. We are the first steel rebar company to have a dedicated business application development team with the sole purpose of optimizing our business processes through digitalization. We aim to become completely paperless by 2025. Profit: In the context of current Ukraine-Russia looming around, what impact do you perceive it will have on the cost and hence the profitability of Amreli Steels Fazal: It’s a very complex and a discouraging situation. The sanctions being imposed on Russia by Europe and the West and the measures Russia is taking to salvage itself has already set off an economic chain reaction because of the countless economic interdependencies between these countries and the rest of the world. Supplies of Energy, particularly gas, food (wheat, sunflower, corn), metal (Steel both Flat and Long, Iron Ore,) are all at great risk especially to the European countries. Ship owners may soon avoid using the Black Sea as a preferred route that will further increase the cost of transportation for the rest of the world. As a result of the ongoing conflict, commodity prices have already skyrocketed. Cost of Scrap has shot up by almost USD 100 in 10 days. Prices of coal and oil are also on the rise. The oil import bill will put more pressure on PKR and I suspect faster devaluation in the coming days. With the increased trade deficit and the balance of payment, targeting GDP

growth of 5% will be a huge challenge. As the markets heat up for growth, it is highly probable that SBP will hike the interest rates to curb the imports. Cost of construction will go up further as the manufacturers, especially that of construction steel sector who work on a very thin margins, will have no choice but to pass through the increased costs to the consumers. This cycle will subdue the demand of construction steel, which will obviously reduce the profitability of the company in FY

22 below the projections at the beginning of the year. Profit: How do you hedge your risk against fluctuating commodity prices such as oil & gas? Fazal: The impact of increases in the prices of oil and gas is felt in the cost of energy used to convert scrap (raw material) to rebars (finished goods). The energy cost generally constitutes to about 10% to 12% of the total cost

of goods manufactured. Any increase in the cost of production, in the absence of export of construction steel, cannot be hedged, except by investing in renewable energy. However, it is a great challenge in itself to run a steel plant on renewable energy. Studies are being carried out to explore possibilities of using renewable energy in steel making. Profit: How do you see Amreli Steels’ future outlook and where do you see it in the next 10 years? Fazal: Amreli Steels has done well in the first half of the current financial year. The Post-Covid prices of scrap had apparently become less volatile for the first time in 4 years. This fact can be gauged from the standard deviation in scrap prices, which came down from 78 in 2021 to 14 by February 2022. The stability in scrap prices increased the consumer confidence and with robust demand, capacity utilization also increased. The company was looking at a volumetric growth of 8 to 10% in FY22 as compared to FY21, with a record expected profit. However, the Russia-Ukraine crisis has thrown all forecasts and estimates out of the window. The world has once again returned to a period of great uncertainties similar to the first wave of Covid. USA and the West have already imposed heavy sanctions on Russia. Europe has decided to stop the import of steel from Russia. A supply chain crises is already unfolding. Ukraine, with an annual steel production of 25 million+ tons, is the 13th largest steel producer in the world. It was exporting 80% of its total production out of which 65%-70% went to countries like Italy, Turkey, Egypt, Poland, Bulgaria, Algeria, Iraq, UK and even Russia, and the remaining to the rest of the world. With 44 to 45 million tons of iron exports, Ukraine is the 5th largest iron ore exporter in the world. The conflict has already disturbed this equation. Who fills this void remains to be seen. The iron ore importing countries will now require more scrap than ever before or a balancing act could be the slowing down of global economy. In my opinion, FY23 could be more challenging than FY22 as 8 months of the current financial year has already passed and major raw material purchasing for the last month of FY 22 has already been secured. However, in the medium to long term, I see a very bright future for Amreli Steels because of our brand image, more than 50 years of experience in steel business, our distribution network, national presence, under-utilized capacity at hand, a fantastic team of professionals running the show with complete succession planning in place, and the able leadership of a relatively young but a very dynamic CEO. Amreli Steels is also

working on addressing its cost of energy and is continuously striving to improve efficiencies where ever possible. The Company is also considering product diversification. With a check on the cost of energy, increased capacity utilization of around 80% and some diversification, I see Amreli Steels becoming a debt free company in five years starting from the date the efficient energy comes into our system.

Profit: Amreli steels recent performance vis-a-vis competitors? Fazal: By the grace of Allah and due to the relentless efforts of our team members, Amreli Steels is the leading brand in the steel rebar category. We are at the undisputed leader in terms of Sales Volume, Sales Value and Profit after Tax for rebars. We are easily the most recommended brand for all architects, structural engineers, consultants and contractors. n

NATIVE CONTENT

OPINION

Uzair Younus The no-confidence vote inspires little confidence

As a result, the dream of a society where the constitution would reign supreme soon turned into a nightmare. Trampling the constitution and making a mockery of the very idea of Pakistan became the norm. Jinnah, one of the greatest constitutional minds of his era, could not have imagined in his wildest dreams that his great achievement would end up as a society ruled by men who represented values that he abhorred the most. The vote of no confidence in parliament may be constitutional. It A narrow segment of elites across may also seem like progress to some: after all, we have gone from outright coups and dismissals of parliament by presidents, to judicial dismissals of institutions are engaged in a cynical, prime ministers, to votes of no confidence in parliament. As flawed as this Machiavellian war where there is upcoming vote might be, some would argue, it is parliament exercising its constitutional right. They would also argue that this hybrid regime, neither honor nor a greater purpose represented by Imran Khan, is not democratically elected and that the opposition is empowering parliament to remove a man who should not be epeating the same experiment over and over again occupying the prime minister’s office in the first place. is the definition of insanity; experiments have been These arguments have merit. But democracies are governed as Pakistan’s greatest tragedy. As this latest bout of much by norms as they are by the letter of the law. The vote itself is political instability unfolds, Pakistan’s ordinary parliament’s right. Khan was elected in a dubious election, and that is an citizens find themselves on their knees, almost understatement at best. However, the how and why Khan is facing ouster down for the count. Meanwhile, a narrow segment now has very little to do with an underlying change in the nature and of elites across institutions are engaged in a cynical, Machiavellian exercise of power, and how its corroding influence has hollowed Pakiwar where there is neither honor nor a greater purpose. The only stan’s political economy. In fact, the ongoing drama is only being played motivating factor is the desire to make some immediate gains and because the theater director permits it; this newly united cast of the same chalk up a win, as Pyrrhic as it might be. characters is enacting just a newer version of a production that has been It is this protracted, nasty battle for power and influence that playing for seven decades. has turned Pakistan from a high potential country that awed the Whether Khan or his opponents win, the ultimate loser will be global community, especially the post-colonial Muslim world, to a Pakistan and the tens of millions who call it home. Facing one economic global basket case. Gone is the generation that waged an intelleccrisis after another, they are at their wits end; the permanence and mutual and moral battle to win independence from an imperial power. tation of radicalization in Pakistani society is evidence of that. They are The foresight of that generation was such that it saw the threat of falling behind their peer households in other parts of the world. A new majoritarian rule and right-wing radicalism, sought constitutional generation is growing up stunted, undereducated, and in an environment protections, and when denied, secured freedom for the lands that where regular access to clean air is a luxury. This generation is tuned into are now known as Pakistan and Bangladesh. Their successors failed the world and global in its outlook. It is seeing the achievements of its to build upon the work of their ancestors and for power cynically generational peers around the world. They are dreaming but are being fueled the very right-wing radical movements that their ancestors held back by the immorality of a fossilized, insular, and short-sighted sought protection from. elite. This generation is getting angrier and is voicing it on social media, on the streets of the country’s urban and semi-urban streets, and in the madressahs and schools across the land. The writer is Director Pakistan’s elites across institutions and organizations do not have a plan to meet the ambitions and aspirations of the Pakistan of this younger generation. They do not even seem to care about the implications of their failures. Perhaps they do Initiative at the not even realize what is bubbling around them, which would be par for the course given their limited intellectual facAtlantic Council, a ulties. This ongoing saga will soon be over, but the pain and misery will continue. This pain will only end if and when Washington D.C.Pakistan’s political economy reverts to constitutionalism. This requires elites to respect and abide by the letter and based think tank, and spirit of the constitution., as Jinnah envisioned. The journey will be tough and painful, requiring a lot of tolerance, host of the podcast patience, and respect. It is time this drama culminated and Pakistanis created a newer script for themselves, one that Pakistonomy. He inspires the world and represents the very best of us. The first step towards that is possible, but it requires a change tweets @uzairyounus. in the behavior and influence of the theater director. n

COMMENT

OPINION

Ammar H. Khan

Beware of Bancassurance Bank staff prey on the vulnerable, who just want to park their funds in a safe investment product, and only later find out that they are underwater

e all know someone who has a bancassurance story, whether a recent retiree, an elderly person, or someone with minimal financial literacy. The moment a large sum enters your account, a representative of your bank’s branch would schmooze you into buying a great investment product, which can solve all your income related problems. The representative would paint a rosy picture, and make unreasonable assumptions about the future without fully apprising you of the risks. More importantly, the representative exploiting your lack of financial literacy would only mention in passing that a hefty commission would be charged from the premium that you would pay during the first three years – so much so that it may take you seven years just to break even in nominal terms. Such is the math of bancassurance. Bank staff prey on the vulnerable, who just want to park their funds in a safe investment product, and only later find out that they are underwater till the seventh year or so. Savings schemes tied with a term life insurance are sold by insurance companies through banks under a nomenclature of bancassurance. Banks charge a hefty commission during the first year, often ranging between 60 to 80 percent, while the

The writer is an independent macroeconomist and energy analyst.

COMMENT

Most buyers of such policies do not understand the math behind this, and are vulnerable to the same. Most insurance policies sold are not even tailored to the life circumstances of policy holder. It is entirely possible that someone who has low risk tolerance unknowingly invests in a product which has high risk

same reduces to 30 to 50 percent in second year, and a slightly lower number in the third year. In-effect, if someone pays a premium of Rs. 100,000 during the first year, effectively only Rs. 20,000 to Rs. 40,000 is invested, while the remaining is deemed as income of the bank. The illustration below further clarifies the same, where a commission of 60%, 20%, and 10% is charged in the first three years respectively. Net return is actually what you get. The policy holder keeps paying a premium every year, and if he is lucky finally breaks even around the seventh-year mark in nominal terms – may even remain underwater if market returns stay low. Most buyers of such policies do not understand the math behind this, and are vulnerable to the same. Most insurance policies sold are not even tailored to the life circumstances of policy holder. It is entirely possible that someone who has low risk tolerance unknowingly invests in a product which has high risk. On the flipside, if someone wants to invest in a mutual fund, the asset manager is required to conduct thorough risk assessment of the investor. Meanwhile, such assessment does not exist in the case of bancassurance other than some half-hearted circulars. Misrepresentation and mis-selling as rampant as representatives informally, and sometimes even formally promise returns which are well in-excess of the risk-free rate. Such promises cannot be made for mutual funds, other than for very specific schemes. Talking of risk-free rate, a policy holder would actually be better off just investing in a risk-free asset issued by the sovereign, which would yield a higher return than the policy, while also providing easy liquidity vis-à-vis an insurance policy. It may seem a bit fatalistic, but the only time a policy is actually useful is when the policy holder dies, and a death benefit is distributed to the benefactors of the policy. If you’re not dying, chances are that investment

in an insurance policy is a largely economically inefficient decision. But how does one hedge against dying? It can be done through a term life policy, but insurance companies don’t really like marketing that product because it doesn’t generate the kind of sweet commissions that a bancassurance styled product can generate. Lately microfinance banks who are supposed to serve the most vulnerable segment of the population have also joined the fray and are aggressively selling badly structure life insurance policies to the most vulnerable and those with minimal financial literacy. Extracting heavy commissions from the most vulnera-

ble segments of society may be acceptable from a purely capitalist context, but certainly not if one has an iota of morality. A bancassurance product is essentially a savings product bundled with a term-life policy. Next time someone tries to sell you a bancassurance product, ask them if the investment team of the insurance company, or the senior management has also invested in the same product – high change that they haven’t. One can replicate potential returns of bancassurance products, and get life insurance through investing in a mutual fund, and buying a term-life insurance policy separately. If struc-

tured well, just the tax credit from investment in a mutual fund can generate sufficient cash to pay for the term-life insurance policy. If a low-risk mutual fund is chosen, which invests in government securities, there is a negligible chance of any capital erosion, while your returns would be higher, as your full amount would be invested, during the first three years rather than a partial amount. Next time someone tries to sell you an insurance product, be very aware, do your due diligence, do your research, understand the product, understand the math – it is your precious money, do not be duped by men in suits.

COMMENT

No-confidence how we got here, what are the

technicalities, and what will happen next By Abdullah Niazi

he past 90 days have proven to be a political minefield in Pakistan, with the heat being turned up on Prime Minister Imran Khan as he faces a very strong attempt to dislodge him from power through a vote of no-confidence. As the Prime Minister navigates the choppy waters, the electorate has also faced a barrage of information regarding how such a motion works. Profit explains the timeline and technicalities about where we are today, and what is to be expected in the upcoming weeks.

The build up

Feb 6th:

PPP Chairman Bilawal Bhutto Zardari along with his father former President Asif Ali Zardari meet with the top-brass of the Pakistan Muslim League Nawaz including Maryam Nawaz and Shehbaz Sharif. In the meeting, the two biggest opposition parties agreed to send Prime Minister Imran Khan packing. The easiest way to achieve this? A vote of no confidence in the National Assembly.

Feb 11th:

What does the constitution say? The opposition had to file two motions with the speaker. Since the national assembly was not in session right now, which means it was not meeting and was on a break, the opposition had to demand that a session be called. This can be done under Article 54 of the constitution, which holds that a session of the National Assembly can be requisitioned if at least 25 percent of the members sign it, following which the

speaker has a maximum of 14 days. Once the assembly has been called in this way, the opposition can then also file a no-confidence motion. This is done in accordance with Article 96 of the constitution. According to this, for a vote of no-confidence against the prime minister, at least 20 percent of the total MNAs, which means 68 members, have to sign a resolution for it to be voted on. A notice regarding this will then be circulated among the members. After the motion is moved, there will be no voting for at least three days and the voting will take place no longer than seven days after the motion is moved.

President of the Pakistan Democratic Movement Maulana Fazl ur Rehman announces the opposition alliance, including the PPP, have all agreed to move a no-confidence motion against the Prime Minister in the National Assembly. To win the vote, the opposition needs a simple majority, which means they need 172 out of 342 members of the lower house to vote for them. At this point, the joint opposition (PPP, PML-N, and MMA) have 155 seats in the legislature, and the PTI also has 155. From here on the game is afoot to sway the PTI’s electoral allies and legislators willing to defect.

EXPLAIN-IT-LIKE-I’M-FIVE

February to March:

The next one month is spent in a political melee. Legislators loyal to estranged PTI leaders Jehangir Tareen and Aleem Khan discuss the terms on which they will support the opposition in their efforts to oust the Prime Minister - with the primary demand being the removal of Usman Buzdar as Chief Minister of Punjab. Imran Khan once again stands by Buzdar. The PML-Q, important allies of the PTI both at the center and in Punjab, also threw their hat in the ring, demanding Chaudhry Pervez Elahi be made Chief Minister instead of Buzdar. The Chauhdhrys of Gujrat suddenly have more weight than their numbers show, and both the government and the opposition engage in an attempt to woo them to their respective sides.

The assembly is called

March 8th:

A delegation of senior opposition lawmakers submitted the no-trust motion against Prime Minister Imran Khan with the National Assembly Secretariat. The assembly will be called under article 54 of the constitution, and the no-confidence motion will take place under Article 95 and 96 of the Constitution. The speaker now has to call a session of the lower house within two weeks, which means by the 22nd of March.

March 10th:

The government makes its intentions known to disqualify MNAs that plan on switching ranks and voting against the government. Interior Minister Sheikh Rasheed says the speaker has the right to disqualify members that change parties on a vote of no confidence. However, the opposition retorts by saying the disqualification can only happen after the votes have been cast and not on assumption.

March 16th:

In a surprise statement, PML-Q leader Chaudhry Parvez Elahi backed the joint opposition’s claims of having the support of more lawmakers than required to ensure the no-confidence motion against the prime minister succeeded. An ally of the ruling party, Mr Elahi also said there are “plenty of surprises in store” during an interview. Fears continue to rise among the ranks of the embattled PTI.

March 17th:

The fears continue to rise as it turns out that a large number of ruling-party MNAs are staying at the Sindh House in the capital. According to one of the dissident MNAs, there were around 24 PTI legislators that were staying at the facility controlled by the Sindh Government. The matter of disqualification for these MNAs heats up again and the government takes the matter to the Supreme Court.

March 18th:

The Prime Minister directs speaker Asad Qaiser to call a session of the National Assembly to summon the lower house session on March 21.

What are the powers of the speaker? According to Article 63-A of the constitution, a member can be removed from office if they vote against their parliamentary party on an issue of a no-confidence vote. According to Article 63-A of the Constitution, a parliamentarian can be disqualified on grounds of defection if he “votes or abstains from voting in the House contrary to any direction issued by the parliamentary party to which he belongs, in relation to election of the prime minister or chief minister; or a vote of confidence or a vote of no-confidence; or a money bill or a Constitution (amendment) bill”. However, the speaker does not hold the power to disqualify a member. The party head of a dissenting member writes to the ECP which then tells the speaker to notify the member. The MNA then has 30 days to appeal the decision, which can go up to the Supreme Court. The SC then hae 90 days to make a final decision. To try and disqualify the members before the vote, the government has currently approached the Supreme Court to make a ruling on Article 63, and decide whether or not such members can be preemptively disqualified rather than only after they have cast their vote.

What happens next

If the resolution does not pass, which seems unlikely at this point, then the opposition will have egg on their face. No other consequences. If it does pass, however, then heads will roll everywhere. Under the Constitution, the speaker had to summon a session of the Assembly within 14 days of the requisition. If the speaker allows the motion to be tabled on March 21, then the debate needs to take place after three days and before seven days. This would mean that the debate will have to take place by March 25. After three days of debate, the MPs would be allowed to vote on the motion which would mean the voting would take place on March 28. If the resolution of the vote of no confidence would be passed by a majority of the total membership of the National Assembly, the Prime Minister shall cease to hold office, the Prime Minister as per Article 95 of the Constitution would cease to hold the office and his cabinet would also be dissolved simultaneously. As per Article 58 of the Constitution, the Prime Minister cannot go for the dissolution of national assembly against whom a notice of a resolution for a vote of no-confidence has been given in the National Assembly but has not been voted upon or against whom such a resolution has been passed or who is continuing in office after his resignation or after the dissolution of the National Assembly. Since the vote succeeding depends on dissident MNAs, immediately after those MNAs would be removed from their seat and by-elections would be needed. At this point, a new Prime Minister would be elected by the house of representatives and Imran Khan would continue to serve until this happens. However, as per the opposition, the new Prime Minister would serve only for a few days as the goal would be to call for fresh polls. In fact, in the initial days the PPP even offered the slot to Shehbaz Sharif who said he was not interested. n

EXPLAIN-IT-LIKE-I’M-FIVE

How Asaan are the new

By Ariba Shahid, Taimoor Hassan

Asaan Digital Accounts?

hat comes first - a bank account or enough money to put in that bank account? This one problem seems to have confused decision makers at Pakistan’s central bank, the State Bank of Pakistan (SBP), which has almost always exhibited this tendency that we need more bank accounts than money in those accounts. Somehow, increasing only the number of bank accounts is going to help increase financial inclusion - particularly for women. But in this one instance, it does not. On the eve of Women’s day this year, the central bank unveiled a new type of account, the Asaan Digital Account (ADA) in an elegant ceremony. The ceremony, which was held at Karachi’s Pearl Continental Hotel, was attended by leaders from the banking industry, officials from the State Bank including Governor Reza Baqir and Deputy Governor Sima Kamil. At the event, the Asaan Digital Account was dubbed as a banking account

BANKING

And what will the accounts manage to do for Pakistan’s financial inclusion numbers

that would break barriers for women’s entry into the formal financial system. This is not the first time a new type of account with a focus on financial inclusion. The State Bank has in the past introduced the Asaan Account for the unbanked and the Asaan Mobile Account for the same purpose. The Asaan Digital Account is one in the series of State Bank’s initiatives to ease the process of account opening for the unbanked, especially women. The Asaan Digital Account was launched on Women’s Day. The central bank’s press statement on the launch said that it will break barriers for women's financial inclusion. However, the Governor SBP, Reza Baqir said that the accounts are not just for women and will help boost financial inclusion across genders. The SBP spokesperson, Abid Qamar, in a comment to Profit, said that the central bank may explore the segmentation of Asaan Digital Account based on gender and other possible dimensions. Despite the fact that the account is designed for everyone, it does not ease the

process of account opening for women which is the purpose behind the name ‘asaan’ and would be less impactful for female financial inclusion. How? Let’s look at the features of the ADA and the account opening process.

The Asaan Digital Account

vivid memory for nearly all account holders in Pakistan is making trips to the bank to set up an account, jumping through hoops to show proof of income, verify your address, etc. The easier route is obviously just walking into a branch where you know someone, or know someone that knows someone at the bank to make things easier. Five years ago, if someone told you that you can open up a full-service bank account from anywhere at any time using your smartphone you would call them crazy. You’d send them off to a mental ward if they told you that all you need is a CNIC and no other documentation.

It is expected that it will not only result in increased convenience for the customers to fulfill their financial needs but will also help in achieving SBP’s objective of financial inclusion that will ultimately promote documentation of the economy Abid Qamar, chief spokesperson for the SBP

With the advent of digital banking, some of the banking functions can be done through a website or an app instead. The recently launched ADA can be opened through a website or a banking app which makes it “faster, cheaper, efficient, and convenient”. These accounts are different from Asaan Mobile accounts that are not full-service accounts. Instead they are bank accounts operated over feature phones. Banks can offer current, savings or any other remunerative category of accounts. They are all card-based and the issuance of a checkbook depends on the customer and whether he or she requires or requests one. Account holders will get SMS alerts, internet banking facilities, mobile banking, etc just like regular bank accounts. Banks, however, are allowed to offer more services and facilities in order to attract more customers and stand out from competition. You cannot open a FX account using Asaan Digital Account. Despite these being fully serviced accounts, because you do not provide extensive details about the source of income, there is a limit to what you can do. Your debit and credit transactions cannot exceed Rs 500,000 each. That means, at max you can withdraw Rs 500,000 in a month. However, you are not allowed to save or keep more than Rs 500,000 in this form of account.

in Urdu and English.” Moreover, contrary to what your bank manager says, you can use either of the following to set up your account: CNIC, SNIC, NICOP, Alien Registration Card, Passport, and Pension book. Minors can use photocopies of Form-B, Birth Certificates, or even student IDs in addition to ID documents of a guardian. The banks then use your information and verify it through NADRA’s verisys. If someone goes in for their biometric, the account is opened immediately, however, if you don’t it takes at most three days for verification from NADRA. All you need is Rs 100 as an initial deposit to open the accounts. As per the SBP, there are no minimum balance requirements on these accounts. Moreover, a common point of contention amongst the unbanked or the lower income segments are the costs associated with financial inclusion such as banking service fees. The SBP, however, has pushed banks to keep the fees at a minimum. The SBP guidelines state, “Banks will only charge a reasonable and market competitive fee on providing banking services to Asaan account holders; however the charges/fee should be kept at minimum level keeping in view the instructions of SBP regarding service charges and responsible pricing issued from time to time.”

What do you need?

Is this safe for Pakistan?

he account opening form has been simplified so that the process does not seem daunting to consumers. You need to provide your name, father/ spouse’s name as per your CNIC, date of birth, place of birth, mother’s maiden name, CNIC number, mobile number, address, occupation, source of income, purpose of account, specimen signature, expected turnover, next of kin, etc. It is important to note that you do not need to provide proof of the source of income, just a declaration is enough. In case someone walks into a bank to open an Asan Digital Account, they will be pleased to know that the form is a short one. In fact, as per SBP directions, “AOF should not exceed one page and the same should be available

akistan has two unmet targets out of 34 action points as per the Financial Action Task Force (FATF). As a result, Pakistan remains on the grey list until it addresses the remaining deficiencies in its financial system. The Global watch dog keeps a strict eye on Pakistan and its financial sector. So it’s unlikely that the SBP would come up with any loophole. “The account opening process of Asaan Digital Account has been made swift and simplified while ensuring compliance with the regulatory requirements (including KYC) requirements and international standards. It may also be appreciated that the AML/

CFT requirements are risk based and they have been appropriately applied keeping in view the transaction limits applicable to Asaan Digital Accounts,” explains Abid Qamar, Chief Spokesman, State Bank of Pakistan. Qamar adds that the accounts are a way to serve the unserved and underserved segments of society. “It is expected that it will not only result in increased convenience for the customers to fulfill their financial needs but will also help in achieving SBP’s objective of financial inclusion that will ultimately promote documentation of the economy,” Qamar adds. During operation of the accounts, if any high risk factor is identified by the bank in its own assessment or as per international standards according to FATF Recommendations etc, the SBP allows the bank to consider taking necessary action in accordance with law including filing Suspicious Transaction Reports (STRs) with FMU. Moreover, to ensure greater compliance, one CNIC holder can open only one Asaan account in a bank. It doesn’t matter if they open a single account or a joint account. These accounts, despite being fully serviced, cannot be used for outward cross border transactions. The banks are also supposed to monitor the accounts to see whether they are used in accordance with the account purpose and the profile of the customer.

Why does financial inclusion for women matter?

he many readers of this magazine may not understand what it’s like to be refused a bank account or sent back asking for more information. An average reader of Profit, by virtue of literacy, can probably be considered more privileged than the rest of the population. However, the vast population of Pakistan is much bigger than that and their reality is important to take into account as well. The SBP has a genuine worry that the overall banked female population is only 18% of women in the country. At a conference last

Dissenting note - why the ADA won’t aid in financial inclusion for women ne objective view on the Asaan Digital Account is that it is nothing new. “ADA has been branded to look like it is for women when, frankly, digital accounts before this were not gender discriminative either. The problems lie not in the type of accounts but what is needed to get there,” says a top banker. The early adopters of ADA scheme include Bank Alfalah, Standard Chartered, UBL. But to spearhead the scheme, the three banking partners which have been chosen have zero rural base which likely form the bulk of the women population that are unbanked. Women in villages will not go to a Standard Chartered branch in a city to open an Asaan Digital Account. Neither would they be able to open such accounts on a smartphone or a laptop. If that was the case, EasyPaisa and JazzCash wouldn’t have branchless banking agents. They are there because people need assisted banking services. The SBP, instead, should have partnered with microfinance banks and microfinance institutions who have their actual footprint in villages. Until or unless you bring it to that level of availability and women are not incentivised, financial inclusion for women will not increase. From a woman’s point of view, what can be a woman’s source of income in a village? She will rear cattle, she will sell vegetables. Or she will sew clothes. To do that, the first thing you have to do is to give easy access to credit to that woman. If you are expecting it to be money deposited first, that is not going to happen. Our society is not structured that way. Women need to be able to earn first so they need access to credit which is abysmally low. Profit has earlier argued the same point in a cover story that financial inclusion is overrated. Having only a bank account changes nothing for someone who does not have money to put into that account.

The attraction for the female masses to come to a bank account is that they get access to credit first. Asaan Digital Account is better for publicity but practically, it does not solve any problem. It is not addressing the problem statement. The problem is that nobody handed out money to females in Pakistan to do business. Why would such a woman open an Asaan Digital Account with Standard Chartered Bank, of all the banks? All these banks, SCB, Alfalah and UBL, are considered elitist banks and not for the commoners. Banks for commoners are Habib Bank and National Bank. To spearhead this effort, this account should have been published with the National Bank that we are making it your duty now as the SBP that you have to enable women in villages for access to credit. And for rural females’ access to credit, the choice of account should be Asaan Digital Account. The distinguishing feature so far of Asaan Account has been a higher limit of Rs5 million and basic KYC through the ID card. As far as the limit is concerned, financially excluded women earn very less than that. The limit itself shows that the account is elitist and has little concern for financial inclusion. According to the SBP directives, opening of these accounts can happen in a digital setting, which is what ‘asaan’ means. A female, or anyone else for that matter, can open ADA using a smartphone or a laptop. How many women do you think would have smartphones? How many of the women in Pakistan would have a smartphone in villages? Or laptops? And would they be able to carry out transactions from their phone app, if they do have a smartphone? Or would they be able to withdraw money from an ATM on their own? If you compare apples to apples, you’d find that for a woman in a village, it is more attractive to go to an EasyPaisa agent who is present in large numbers, to go there and open an account, deposit money and withdraw as well. Dialing *786# to open an EasyPaisa or JazzCash account on a phone is also much easier than opening an Asaan Digital Account

via a smartphone. Another distinguishing feature of the Asaan Digital Account, and which is rightly a concern for female financial inclusion for the masses, is that they are asked for proof of income to open an account. Documentation like this is a problem for women who are not salaried and work odd jobs for instance as a house maid, or somebody who harvests crops in a village. They can not provide proof of income. SBP considers such documentation as a barrier to financial inclusion for women and financial inclusion overall. Theoretically, if this barrier is removed, women, particularly, should be able to open more accounts. But while the SBP has announced that no proof of income will be required for the Asaan Digital Account, Profit’s survey of partner banks that are offering these accounts show that the reality is otherwise. Pakistan’s biggest bank HBL requires proof of income for opening an Asaan Digital Account. If a female does not have her own proof of income, she needs someone else in the family to submit proof of income to open the account. A representative from HBL said that proof of income is required for all sorts of accounts that are opened at HBL, making the claim of less documentation in case of ADA fall flat. Another bank, Bank Alfalah, also requires submission of proof of income to open the Asaan Digital Account at the bank. This was ascertained by a representative of Bank Alfalah as well. Only UBL and SCB representatives said that submitting proof of income was not necessary at their bank. In all of this, a question arises that if the obstacles to financial inclusion for women, or for anyone else for that matter (documentation is a problem for unbanked regardless of the gender), what good can the Asaan Digital Account bring? Nothing substantial, really. All the functions are already being carried out by other types of accounts at banks. Banks could have simply been asked to make their accounts digital, which seems to be a big selling point for Asaan Digital Account. n

year with microfinance institutions, the SBP governor reportedly deplored the financial inclusion for women statistic. According to SBP estimates, only 7.0% of women in Pakistan had a bank account with a formal financial institution or mobile money service provider like JazzCash or EasyPaisa. By June this year, the

SBP had asked the banks to take this percentage to 30-33%. Under it’s National Financial Inclusion Strategy (NFIS), the SBP wants to increase the number of female bank accounts to 20 million. Only one-third of total adults in Pakistan borrow money and according to numbers from

the SBP, only 2.4% of total population has access to credit. If 2.4% is the percentage of the population with access to credit, it would be further low for women. These statistics are nothing short of being horrible and a cause for alarm. According to experts, the explanation

By Taimoor Hassan

BANKING

behind low numbers for female bank accounts is that women do not have funds to begin with to put in their accounts. For such women, there is no value of a bank account unless they have access to credit first to start a business and generate income from that to put into the bank account. The hierarchy and structure of the society, outside cities, which forms the bulk of the female population, women do not have funds to put into a bank account to begin with. Income support programmes like BISP and other exclusive female centric programmes only give women Rs1,500-2,000 per month. Such income is low for subsistence to begin with, let alone operate a bank account which has costs associated with it. The SBP seems to have thought of, in a bid to increase the percentage from 18% to 33%, playing a role for women and launched the Asaan Digital Account Scheme. Let’s use a more social scenario to explain this. With around half the population consisting of women yet largely being unbanked, it is important to explore why. Why do you think women are given gold jewelry when they are married, even if they do not ever wear it? Of Course it is a custom but there is more to it than meets the eye. If we ignore the societal pressure on parents for giving dowry to their daughters for a moment, we realize that when a mother hands over a gold set to her daughter for marriage she is often found saying, “This is your security.” Again, privileged folk may not understand, but security here is a keyword. In a world where women needed to show proof of income through a letterhead, official document, or payslip of their husband or father; and sometimes had to get two male references to open a

bank account, they found themselves reliant on men. The very fact that they had money saved for themselves could no longer be kept a secret or private. So when a woman is given jewelry, she is in procession physically. In case she ever finds herself in a financial situation or a domestic abuse situation, she can pack up her jewelry, leave her home and immediately sell it. It is the closest thing to a savings deposit in a negative real interest rate environment for a woman. This is just one example, from countless on why financial inclusion is important. These accounts were launched on women’s day and so we used a female centric example. “Currently, account opening data for Asaan Digital Accounts is not available in the public domain. However, SBP may consider publishing the same along with other key banking statistics, in the future. In future, while making this data available in the public domain, SBP may explore its segmentation based on the gender and other possible dimensions,” notes Qamar.

Financial inclusion shedding light on the underdog

inancial inclusion lies at the heart of independence for an individual. Therefore, making it easy for someone to open up a bank account makes the next steps easier too. As per the SBP, The Asaan Account is targeted at common people and is open to all low income unbanked/under-banked masses who face difficulties in account opening due to normal account opening requirements or

lesser means. These segments of society may include but are not limited to skilled/unskilled workforce, farmers, less educated/uneducated people, laborers/daily wagers, women/housewives, self employed individuals, pensioners, young adult population etc. They can now save through these accounts, run a small business, and manage their finances better. In turn this results in greater documentation for the economy, especially for those people that want a fully functional bank account but know they won't cross Rs 500,000. Moreover, having a bank account also makes an individual eligible for various schemes. The Pakistan Tehreek-e-Insaf government’s housing initiatives like Naya Pakistan Housing Scheme and Mera Pakistan Mera Ghar for low-income communities. The problem at the center again has been that the demographic targeted for this facility, there are not enough data points to assess their credit worthiness. And without proper credit assessment, the rate of default would be high. Since these accounts are meant to be for the unbanked, transactional data on the accounts would provide data points for assessing credit and possibly make the housing dream a reality for low-income people. Once billions of rupees worth of cash is digitized, banks’ deposits will also increase and then a better case could be made to push banks to offer better consumer products and services for low-income demographics. Banks would then tailor products, the willingness of banks would also be high and the low-income groups would be made to feel privileged by the very banks that once ignored them. n

BANKING

OPINION

S.M. Talib Rizvi

What made the startups click in Pakistan?

problems more effectively in comparison to existing offerings. Therefore, it is quite common for startups to be referred to as ‘disruptors’ of their respective industries. Startups have caused quite a stir in different industries in recent years with certain entities achieving unprecedented success in a short time frame. To understand how this is possible, we need to be aware of the dynamics of what makes a startup successful. First and foremost, timing is a crucial element of defining the success of a startup. Based on the existing market trends and customer needs, a particular startup may be able to achieve a substantial level of success. As an example, in the late 1990s most of the models on the internet were based on web portals which focused exclusively on pure traffic generation. It was at this time that Google came forth with a product that was based on a search – Jack Welch engine that would be capable of directing relevant consumers to websites and lead to more meaningful traffic generation. This model enabled customers to find relevant websites more easily he coronavirus pandemic has altered the landscape and ensured that websites would be getting visitors that would of the business world in a multitude of ways. likely generate sales. Over the course of the early 2000s, the value While some businesses have struggled to adapt of Google became evident to their competitors who tried to create to the emerging challenges, several opportunities their own search engines, Google has been able to maintain their have been created in different markets that compasuperiority and has become the most popular search engine in nies have capitalized on. Generally, there has been the world. Whilst there is no doubt that Google’s product was a rise in the number of startups across different industries that revolutionary, it was also important to launch the product at a aim to bring innovative solutions and products to better address time when its competitors had not realized the changing trends the existing deficiencies in the market. Startups can be defined as in the market. Hence, startups must ensure that their product is a newly formed venture that aims to disrupt the industry by offerlaunched at a time when they can capitalize on existing trends ing a creative product that addresses a marketplace need with a and needs to build significant momentum for the growth of the particular focus on doing this with rapid pace in order to achieve startup. Another key component is to conduct a thorough analysis substantial growth in a relatively short period of time. of the market and ensure that there is a significant need for a parA startup is usually defined by its ability to consistently ticular product or service that the startup aims to provide. innovate to disrupt the norms and the existing trends of an indusCertain startups are not able to succeed in the long term try through the creation of new solutions that are able to tackle because their opportunity to grow is quite limited due to the small size of market that they operate in. Hence, it is critical that a startup targets a market that has a significant number of customers and ultimately this would provide more opportunities to target specific segments whilst also ensuring that there are greater chances of the startup The writer is a senior growing successfully. Lastly, the presence of a strong business plan and its implementation will define whether the startup will be successful or not on multiple levels. A sound professional banker with business plan will usually focus on capitalizing existing market trends and provide a varied experience spanning definitive pathway of how the startup will grow. A plan that provides clarity on the steps over 25 years. He presently that the company will take to achieve its intended level of growth and ensures that there is a powerful commitment to the founders’ vision will increase the likelihood of the startup serves as the executive receiving considerable backing from investors which ultimately gives the startup a solid director for TAG financial basis to achieve their aspirations.

Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.

COMMENT

Having understood some of the determinants of what makes a startup successful, it is also important to realize why startups have increasingly become more prominent in the last decade and their advantages. Startups are particularly known for their agility and can adjust better to unexpected circumstances. Unlike large companies who usually suffer from a mindset of resisting change and therefore are unable to make appropriate decisions quickly, startups are quite flexible in their approach which allows them to adapt better in a variety of situations. Startups consistently focus on making small modifications to their business models and processes which allows them to overcome potential weaknesses whilst also ensuring that they are in a better position to take advantage of new opportunities. Additionally, startups are known for the presence of a strong team culture. Since a startup usually has a small number of employees, there is a closer bond between the employees, and they can better function together as a unit to achieve the objectives of the company. Startups also provide people with the opportunity to take ownership of challenging tasks and allow them to explore their potential. This ultimately becomes a crucial component of why top-level talent is eager to join startups as they are given the opportunity to take greater roles which allows them to develop professionally at a faster pace when compared to a typical company. These characteristics ensure that startups are becoming increasingly valued by different stakeholders all over the world and this is not limited to any particular industry. Over the last 5 years, startups have risen in industries such as technology, finance, e-commerce, education and healthcare. The rise of startups has contributed to the development of several economies and created value for a variety of stakeholders. With this context in mind, it is no surprise that governments across the world are trying to launch several initiatives that promote startups and ensure that the right environment is created to facilitate their success. Internationally, there are several successful stories of startups which have left their mark on their respective industries. In the early 2010s, edutech startups such as Udacity and Coursera were founded with the aim of making quality education accessible to people all over the world and especially providing courses that aim to develop the skills of professionals. Over the last 10 years, these platforms have grown substantially with institutions and corporations collaborating with these startups to provide a high standard of learning experience to concerned individuals. Looking at the healthcare sector, there have been several startups that have played a significant role in the last decade. Some may be surprised

to know that the Moderna COVID vaccine is produced by a startup that started just 11 years ago. Moderna Therapeutics has successfully contributed in developing several healthcare products and solutions that have helped to tackle various types of diseases. Their success is reflected in their market capitalization which is over $60 billion. Moreover, the number of Fintech startups have risen significantly as the world moves towards adopting digitalization in finance. As an example, there is a substantial market for making financial services accessible to a significant proportion of the population in different African countries. As a result, this market has served to be the perfect breeding ground for fintechs to develop and capture various segments of the market. In 2018, OPay was launched in Nigeria with a focus on making payments easier. Over the course of the last 3 years, they have successfully established a consumer base of over 150 million and in 2021 they raised the highest amount of capital ($400 million) amongst all Fintechs in Africa. These are just a few examples of how international startups have shaped different industries and a similar pattern is also visible in Pakistan. There are several factors as to why Pakistan has become a hub for startups. Primarily, there is a substantial need for development in various sectors in order to improve the living standard of the population. In other words, there are several problems in the developing Pakistani economy that need to be addressed and startups are motivated to bring new solutions to tackle these challenging issues.

In recent times, startups have become a hot topic of discussion for the Pakistani public. There are several startups that have raised eye-popping funding as investors recognize the potential of startups in the Pakistani market. According to an article published in Dawn, the total amount of funding raised by all startups in 2021 was over $360 million. In comparison, only $66.44million was raised in 2020. A wide variety of startups have had considerable success in their funding rounds. Airlift raised an astronomical $85 million in their Series B round and Bazaar was able to raise $36.5 million across two rounds. Additionally, Jabberwock Ventures which is the parent company of Cheetay Logistics and Swyft raised approximately $20 million. With such support from investors, startups have a solid foundation to achieve their vision and leave a meaningful imprint on the Pakistani market. These startups have achieved considerable success due to their adaptability and flexible approach to solving problems that have ensured that people easily turn towards them for their needs. The younger generation is tech-savvy and they are increasingly using services by startups that are more accessible to them in comparison to large corporations. Startups have had a positive impact on the economy and their long-term benefits ensure that they will continue to attract consumers from various segments. Russell Simmons who is the founder of Def Jam has summed up the essence of why startups continue to be successful when he says: "You just have to pay attention to what people need and what has not been done." n

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OPINION

Saad Fazil

What’s going wrong in q-commerce and what we can do about it Working in a hot market is – not – (always) a good thing.

uick Commerce (q-commerce) is “hot”. Having worked in the field as part of Munchies for quite a while now, I like to think I know a thing or two about it. While there is such a thing as being too close to comment, the purpose of this piece is to present my observations with

Most (all?) products are largely the same with almost zero differentiation in terms of what they offer. The only difference is how well they execute (good), and… how much money they throw at the problem (not good). End users are rarely loyal, and is it any wonder? Launch a new app, offer them a bigger discount, and they are gone. Products are barely (inherently) sticky if at all

tion and more importantly a lot of (VC) money. VC’s as well as entrepreneurs are chasing crazy valuations at the expense of creating even a half decent product. Chasing crazy valuations means one must grow 30% MoM or more. With a strong product-market-fit (PMF), that may be possible, but I can almost assure you that for the large part, there are few products in the market with a strong PMF. They may, down the road, but they don’t at the moment. If your GMV ARR (Annual Run Rate) is $5M today, and you are valued at $20M, your next valuation better be at least 2x, but likely more like 4x or more! This results in selling dollars for pennies. Even if there is a product in the market that is better, it does not mean it will win. While that is true in any market, this is especially true in Pakistan’s q-commerce space. Most (all?) products are largely the same with almost zero differentiation in terms of what they offer. The only difference is how well they execute (good), and… how much money they throw at the problem (not good). End users are rarely loyal, and is it any wonder? Launch a new app, offer them a bigger discount, and they are gone. Products are barely (inherently) sticky if at all. Sadly (and this is also very true for the B2B space), 30% or more of the orders are “fake”. To me a fake order is either one that was actually not placed by an end user at all, or one that was placed by a “wrong” customer. For example in a B2B marketplace the goal is to sell the product to retailers. However in order to meet crazy GMV growth rates, much of

little bias as I possibly can. While I realise some of this might be attributed to “sour grapes” - I will let the reader be the judge of that. In the interest of remaining unbiased, I won’t be naming any competitors, even though the references may make it very obvious who these unnamed companies are. But that said, I am really not digging at any specific player, and to a large extent generalizing the problem -- I am sure all of this is not true for all players. In fact, while my experience is with q-commetce in Pakistan and hence I am primarily addressing the Pakistani audience, I can imagine all of this is also increasingly true for the rest of the world. To begin with, working in a hot market is – not – (always) a good thing. The largest drawback is that there is a lot of competi-

The writer is the CEO and co-founder of Munchies, a q-commerce startup. Prior to Munchies, Saad was co-founder at VentureDive and led products at Careem through 2017. He is an MIT alum.

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the volume ends up upstream (to distributors!) or in the case of B2C, to retailers. Most companies I know of are aware of this but let this dirty business go on because if they aggressively stop this, their growth will fall tremendously. Moreover, in the case of B2C, orders to retailers end up increasing the Average Order Value (AOV) substantially – and voila, you have another impressive metric for investors. Then there is a matter of massaging numbers. I can come up with at least 10 different ways of calculating unit economics and CAC. Generally there is a tendency of lowering all costs of course (in real but also in decks!), but if one can’t, then the focus is on finding creative ways of lowering unit economics even if at the expense of increasing CAC. For example if you give a welcome discount to a first-time user, another but smaller discount on their second order, and so on – where would you account for this – in unit economics or CAC? Some of these answers are not that obvious. The same is true for retention. I can easily count 5 different ways of calculating “monthly retention”. It is very important that investors ask the right questions and know what different sorts of retention numbers may look like, and compare apples to apples. Show me any numbers and decks, and I can easily decipher anything and read between the lines. I can easily tell if numbers are being fudged or not. I am shocked that investors can’t (or don’t want to) tell that in

their due diligence! It absolutely makes no sense especially in Pakistan to run after less than 30 minutes delivery, or less than 10 minutes. That is an absolute waste of – wait for it – time, and money. Nobody can claim they can deliver in 10 minutes and their competition can’t – anyone can deliver in 10 minutes (or 5?) if enough money is thrown at the “problem” – which sadly is not the problem at all; a vast majority of end users will be happy to experience a better (and reliable) product as opposed to getting their stuff delivered in 15 minutes vs 40 minutes for example. But since 10 minutes (and soon, 5?) is the fad, VC’s fall for it, and entrepreneurs follow (or vice versa). When one is trying to disrupt or innovate in a space there is going to be “noise”. If there are five players today, there will be less than three in five years, but more likely 1 or 2, even if it’s not a winner-takes-all market. The noise is healthy and unavoidable. While I have pointed out many (obvious?) problems, my intention is not to let anyone down. In fact, if you (VC or entrepreneur) are looking for any help or concerned about any of the above, I’d be happy to chat. My only hope is as follows: • There is focus on building a superior product, not just another copy cat. • Find a strong PMF – then let the growth come to you. Do not chase after it heedlessly. • It can be difficult not to fudge numbers or

let the “fake” orders continue, but I hope there is a collective effort to strongly shun this practice. • A lot of this is driven by “peer” pressure (read VC pressure and expectations), so anything VC’s can do to course correct this will go a long way. • Focus on product and tech -- you will be in a very bad place if you can’t solve growth with a better (for example, more automated) platform. No amount of focus on operations will help you grow the way you need (or want) to grow. Last but not least -- as the world goes into a recession, which it surely will -- money will dry up first in the emerging markets and for startups whose unit economics are very questionable. So if you are in the q-commerce space, you better differentiate now than tomorrow. While chasing crazy numbers may help you reach the vanity metric of great valuation, the rat race will not last long. It does not matter whether you are in seed, Series A, or a later stage. All this will come to bite you. I understand this can be difficult in an environment where you already have a high valuation (it is true for all startups in the space who have raised a VC round) and your investors expect you to of course increase it and not do a down-round. And in some cases, your money moat will serve you well, but more likely than not, it won’t be enough. Work on building a strong product moat, not money moat. n

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