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CONTENTS

11 Twitter spats and the six day work week 14 How good is the bank in your hand?

24 24 Faysal Asset Management Limited - Redefining Investment 28 The curious case of Bitcoin and safe-havens

31 The Who, What, Where and Whys of OMOs 34 Unaccounted for Gas: Unaccountable System

Profit

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 Dear banks - It’s time to go ‘digital first’ The Times They Are a-Changin’ The talk of a digital Pakistan is not just talk. We do not say this because there has been some seismic shift in the country because of government policies that have encouraged the use of technology but because the people of Pakistan have adopted tech more with curiosity than with caution. Only a few years ago sceptics were abounc claiming that Pakistan had no future in the digital payments market because people were too used to cash only transactions. The numbers have since proven this theory wrong. With digitalization at its early stages, the 3G/4G penetration rate in the country stands at 35.21%, which means more than 74 million subscribers are connected - numbers that are supposed to continue to swell. Over the past few years, this permeability has meant that banking through phone applications has become more common too. Pakistan’s digital economy is growing fast and consumers might be catching up with the trend faster than designers and digital departments have the capacity to keep up with. According to the State Bank of Pakistan, FY 2020-21 witnessed 287 million mobile and internet transactions, with a value of PKR 10.5 trillion. Compared to the previous year, this was an increase of 106% and 124% in volume and value of transactions respectively. In this same time-period, the volume of e-commerce transactions also doubled. In Pakistan, 27 banks are currently offering internet and mobile banking services. The number of registered users increased almost 7% to 3.8 million in the quarter (Jan-Mar 2020) compared to 3.6 million in the previous quarter ended December 2019. The trend has only grown since then. This, of course, is nothing other than credit to the spirit of the Pakistani consumer. In a country where financial security and fraud are rampant, it is expected that people take time to accept financial technology and the digitisation of money. It is hard to let go of the comfort and security of cold, hard, cash when it is all you have known for a very long time. Despite this, the populus has been lining up for

financial services. It is very common now that if a Foodpanda rider delivering to your home does not have change for a Rs 5000 note, they will simply ask you to send them the money through Easypaisa - a process that takes only a few minutes. Similarly, if you do not have enough cash at a hardware store it is no longer uncommon that the storekeep will show you a bank account number taped to the counter where you can simply transfer the money. But how is our financial services industry repaying this faith? For starters, JazzCash and Easypaisay have both found very specific niches. Mobile wallets have somewhat eliminated barriers that traditional commercial banks put up for possible customers and have banked a large segment of the population. In more recent times, Sadapay and Nayapay (both of whom have been featured prominently in this week’s cover story) have Two of the country’s most prominent startups, Sadapay and Nayapay (which have also been featured in this week’s cover story), have been granted Electronic Monetary Institution licences and have found a steady base of customers. And then there are the banks. Some of them have dived headfirst into the realm of digital, focusing on their digital portfolio and creating products that are high quality and in high demand. Others, however, have not caught up. This is strange. As our cover story this week posit’s, for anyone opening a bank account now one of the biggest questions will be how good is the app? For any bank that wants a healthy slice of consumer deposits, they will be wise to focus on their digital products and market them aggressively. Laziness will not suffice here, especially from larger and more established banks. Times are changing - and the banks must keep up with them or suffer the consequences. In any case, the Pakistani consumer deserves better for their reliance on digital banking. And Pakistan will only benefit from this change.

IN BRIEF

$40 billion:

The country’s trade deficit jumped by an all-time high of 65 per cent year-on-year to $39.3 billion during the 10 months through April on the back of higherthan-expected

The US dollar appreciated by 94 paise on Friday against the rupee in the first session after Eidul Fitr holidays in the interbank market amid strong demand for the greenbacks. However, currency dealers said the dollar inflows increased by 15 to 20pc during Ramazan, a normal phenomenon in the holy month.

Rs 60 million:

Rs 1321 billion:

Salman Iqbal, owner of the ARY Group, has agreed to subscribe to up to 25 per cent shares of Summit Bank Ltd at a price of Rs2.51 per share as part of a consortium led by Nasser Abdulla Hussain Lootah, a businessman from the United Arab Emirates.

The Federal Board of Revenue (FBR) needs Rs1,321 billion in two months of the current fiscal year to meet the revised annual revenue target of Rs6,179 billion. As per the details, the tax department has collected net revenue of Rs4,858 billion during July, 2021-April, 2022 of the current Financial Year 2021-22, which has exceeded the target by Rs239 billion.

Rs 329 billion:

Stocks closed lower on Friday as investors reacted to the global equity selloff as well as the instability in the currency market. As a result, the benchmark settled at 44,840.81 points, down 408.6 points or 0.9 percent from April 28, the last day of trading before the Eid holidays.

The Pakistan Customs has seized banned Boostin injection worth approximately Rs60 million at Islamabad International Airport. Sources said that two passengers of Pakistan origin who have US and South African passport carrying the banned Boostin injection in a flight coming from Qatar to Islamabad.

The ministry of power has asked the finance division to provide Rs329 billion funds for purchasing fuel including furnace oil in order to efficiently reduce the load shedding. The power division required Rs108 billion till May 25, 2022, Rs136 billion till June 7 and another Rs85 billion till June 15, 2022, for purchasing furnace oil.

Twitter spats and the six day work week this week in Pakistan’s business and economics twitterverse

t’s always going to be a busy week when the recently erstwhile finance minister gets into a twitter spat with the incumbent and his successor. Of course, that was not the only thing on everyone’s minds as we returned to the six-day work week under Prime Minister Shehbaz Sharif after Eid. Ariba Shahid brings you all this and more in this week’s social media roundup.

Who would’ve thought Shukat Tarin would join Twitter and debate with the current finance minister? Wouldn’t it be cool to see them debate on live TV?

Leave it to a glorified accountant to tell you that there is no such thing as the real effective exchange rate. It is very much REAL.

SOCIAL MEDIA ROUNDUP

In a world where it’s easier to invest in real estate, the only way to bring in more investors to capital markets is to give a level playing field.

No comments

Lowkey thinking of featuring a chart crime in our weekly social media roundup. Pakistan is filled with them. This is this week’s chart crime.

It’s the same cycle. When you’re in opposition you pressure the government to keep prices stable. When you’re in government you can’t increase prices even though you have to because of all the political moves you’ve already made. Who pays? People like you and me. But for now, take that subsidized road trip before things go out of control.

Bulls create a bull market. That’s it. That’s the statement.

Speaking of former governor, Reza Baqir, we have to point out that his sass game is on point. Welcome to twitter Dr Baqir, looks like you’ll already fit in.

We’re not going to comment on Dr Reza Baqir’s performance here because we have more serious content pages for that. But this graphic design is like the brochure you get when you go to an amusement park. Too colorful.

SOCIAL MEDIA ROUNDUP

COVER STORY

By Abdullah Niazi

et us begin this with a question twenty years ago, when a young professional starting their first job or a small business owner went to open their first bank account, how would they know what bank to give their business to? The very basic factors they might have looked at back then is which banks would charge lower fees and interest rates, which bank has better-trained staff, and which bank might offer better security, discounts and services. Realistically speaking, in Pakistan, another concern might have been which bank was close to the person’s house or place of work — considering the hell that is in Pakistan the concept of “kaam sirf original branch sai ho ga.” However, Profit is proposing that the priorities of a person opening a bank account today are very different. In fact, for most people hoping to sign up for financial services today the first question they might ask of a bank or a fintech is - how easy and reliable is your mobile application? That is because as the ‘banked’ population of the country grows, the demographic of people that need financial services is also changing. This means that there are new priorities. For most people, quick and simple transactions on a reliable mobile phone application are key. Pakistan is a growing consumer of smartphone technology and mobile data internet connections. With digitalization at its early stages, the 3G/4G penetration rate in the country stands at 35.21%, which means more than 74 million subscribers are connected - numbers that are supposed to continue to swell. Over the past few years, this permeability has meant that banking through phone applications has become more common too. Pakistan’s digital economy is growing fast and consumers might be catching up with the trend faster than designers and digital departments have the capacity to keep up with. According to the State Bank of Pakistan, FY 2020-21 witnessed 287 million mobile and internet transactions, with a value of PKR 10.5 trillion. Compared to the previous year, this was an increase of 106% and 124% in volume and value of transactions respectively. In this same time-period, the volume of e-commerce transactions also doubled. This means that now more than ever customers need sophisticated digital services - and the banks would be wise to provide them because it will be these services that will drive deposits in the coming decades. Keeping this in mind, Profit has done a deep dive to scientifically try and analyse, rate, and rank the top mobile banking applications in Pakistan

as well as fintech players and telcos that are providing financial services.

What we were looking for (and why)

o make sure that we rated banking applications as fairly as possible, it was imperative that we come up with a standard list of questions and tests that could be applied to each application and then rated. For this reason, we decided to skip how easy it is to register for one of these apps since we are discussing three different kinds bank apps, EMIs, and mobile wallets. The goal here was not to measure what bank you should open your account with or what EMI you should sign up with, but simply to have analytical data on which of these banking apps does what and how well they perform those tasks. Currently, banking through an app is most effective because it makes payments so easy. That is why, on the advice of multiple UX experts, we decided to focus on questions regarding the ease with which these apps transfer funds and pay bills. For each application, we created first a checklist of functions that the app has to see what it can and cannot do. After that, we tested these functions for three things: ease of access, speed, and reliability. That is why our other measures for this test are response time and user friendliness.

A note on methodology (feel free to skip)

n the ranking below, Profit has analysed a total of eleven different applications used for financial services. Of these, seven are applications that belong to some of the largest commercial banks in Pakistan. These included, Habib Bank Limited (HBL), Allied Bank, United Bank Limited (UBL), Bank Alfalah, Standard Chartered Bank (SCB), Meezan Bank, and Faysal Bank. We have also included in our rating system the two Pakistani fintechs that have EMI licences — Sadapay and Nayapay — as well the two largest telco ‘banks’ JazzCash and Easypaisa. The purpose of this ranking is to assess the accessibility, functionality, and technical integrity of the financial technology products available in Pakistan. Because there are three different kinds of apps in this ranking (bank apps, EMIs, and mobile wallets) the ranking does not include how easy it is to download and register for each app. Instead, Profit spoke to two UX designers that have worked on at least three of these applications to try and devise a test to assess each app. To do this, we first devised a simple checklist for services that these apps might provide. This checklist includes services like

bank management options, funds transfers, mobile top-up, QR codes payments, bill payments, biometric verification, and a customer support mechanism. In addition to this checklist, Profit’s team used each one of the applications and tried out a predetermined set of functions. These included transferring money, paying bills, mobile credit, accessing bank statements, and assessing the response time of the app. Multiple people tried these functions and gave them a rating out of five (5) after which the ratings were averaged. The marks were assigned on the basis of ease of usage, simplicity, and feasibility. In the interest of ensuring fairness, all of the apps were tried at least twice on different days to negate any issues such as a particular app undergoing maintenance work. The best scores were taken into consideration. Similarly, all of the apps were used in the same location with the same internet connection one at a time to try and provide each app a completely fair chance to perform. On advice of the UX designers, to ensure that the efficiency of the apps were tested, each app was explored for a total of 15 minutes to find all of the functions on our checklist. After the tests were performed and the apps ranked, they were divided into three categories - Recommended, Functional, and Not Recommended. Each app’s ranking and small bits of commentary on its salient features as well as possible areas of improvement have been provided along with commentary by UX designers.

The Rankings Tier 1: Recommended

These are the banking and financial technology applications that Profit found to be the most user friendly, which had the highest overall ratings on our scale, and which ticked the most boxes on our checklist. These applications come highly recommended.

Meezan Bank: The premise of this story began with a meme on twitter - a picture of Atlas carrying the globe with the globe labelled ‘Pakistan’s online banking system’ and Atlas labelled Meezan Bank App. Over the past couple of years, not only has Meezan’s app won awards, it has proven to be reliable based on a simple, no-nonsense, and free of clutter design that gives you the options to avail major services prominently and without any fuss. Perhaps one of its best features is how funds are transferred through the app, which combines adding beneficiaries to the process of sending money

making life for customers significantly easier. While it lacks features such as an in-app chat-bot and features such as drafting pay-orders - it trades these off by making sure that the most used services are top-notch.

Check list: y Balance inquiry - Check y Bank Statements - Partial Check - Bank

statements available up to a limit y Cards cancelation/activation/management

- Check y Access to car/house instalments and other

services - Check y Customer relationship management

(CRM) - Unavailable - Only link to call centre number y QR codes payments - Check - Prominently placed y Bill payments and mobile top-up - Check Easily accessible

Functions: q Response time: The Meezan App did not lag on any of the attempts to use it. From testimonials gathered from customers, the app is sometimes down for maintenance but very rarely hangs or slows down. Profit Rating - 4.5/5 q Bill payments and Mobile top-up: The mobile top up option is displayed along with the bills payment but prominently written. The functionality of this is good and customers can subscribe directly to packages rather than just loading credit into their phones. This means a Ufone customer can get a Super Card directly through the Meezan App rather than get credit and then subscribe to a package. Profit Rating 4/5 q Funds transfer: Out of all of the banking apps, Meezan had the simplest method of transferring funds. Users can simply go to the funds transfer option, select the bank into which they wish to deposit money, add the bank account number and make a direct payment. Most bank apps require that the payee be added separately on the app as a ‘beneficiary’ but the Meezan app simply makes whoever you are transferring money to a beneficiary automatically. This turns a five step process into a two step process. Profit Rating - 5/5 q Bank statements: Statements are available but only up to a six month limit. For anything more, the website or the bank branch needs to be contacted. There is also no option to download a statement in PDF format. However, accessing the statements is a smooth process and the display is easy to understand. Profit Rating - 3.5/5

Overall design rating: All bank apps seem to be stuck in the unfortunate rut of insisting they use their corporate colours for their app as well. Stuck with a dark colour like Purple, the Meezan app could have been much worse. However, the jet black background and neon lighting gives it a bit of a 90s arcade vibe which could be worked on. Other than aesthetic, in terms of design, layout and interface, the app offers easy access to the most in-demand services and makes a valiant effort to make banking through an app intuitive and simple. Profit Ranking - 4/5

Nayapay: First on our list of applications is not a bank but an Electronic Monetary Institute (EMI). While Nayapay was not the first EMI to launch in Pakistan, it was the first to get an EMI licence which is why while its interface and technology is possibly less advanced than that of its direct competitor Sadapay, it currently has more services available - but it would be wise to watch out because Sadapay has also recently been granted its licence and will be launching its own bill payments and mobile top up gateways. The app provides a very simple layout with balance displayed on top and all functions readily available. It has warm tones, a chat option available, tutorial videos embedded inside it, and a user-friendly ethos.

Checklist: y Balance inquiry - Check y Bank Statements - Check - But only money

in Nayapay account. Unable to link bank accounts as of now to the app directly. y Cards cancelation/activation/management - Check y Access to car/house instalments and other services - None applicable y Customer relationship management (CRM) - Check - Trained customer support staff available on chat at all times. y QR codes payments - Check y Bill payments and mobile top-up - Check Easily accessible

Functions: q Response time: The newer EMI Apps have the advantage that their design and technology is better than traditional bank apps - mostly because it is their app that they are most trying to sell. The app did not lag at all in any of the tries and users

have expressed no complaints to us. Profit Rating - 5/5 q Bill payments and Mobile top-up: Easily available. Design wise it is easy to use and once a beneficiary has been added separately, which is necessary, packages are also directly available. However, customers complained and Profit also experienced that on a couple of occasions pressing the logos to upload packages triggered no response. Profit Rating - 4/5 q Funds Transfer: Pretty simple process and all beneficiaries available including Jazz Cash and Easy Paisa. However, adding beneficiaries separately is necessary and time consuming. Does not seem to offer in-app biometric verifications and relies on OTPs. Profit Rating - 3.5/5 q Bank Statements: Since Nayapay is an EMI and not a bank, there are no real bank ‘statements.’ Balance inquiry is available on the home screen and clicking it opens transaction history. It is a pretty simple design, and they could pick up on a thing or two here from Sadapay. However, it is convenient and well done. Profit Rating 4/5

Overall design rating: The app follows a pretty standard pattern in the way that we will later see Jazz Cash and Easypaisa also do. Balance is displayed on top and all major functions are available on the homescreen. No secondary menus are required. Profit Rating - 4.5/5

United Bank Limited (UBL): Checklist: y Balance inquiry - Check y Bank Statements - Check - Downloadable

up to one-year y Cards cancelation/activation/management

- Check y Access to car/house instalments and other

services - Available y Customer relationship management

(CRM) - None available y QR codes payments - Check y Bill payments and mobile top-up - Check

- Easily accessible. Separate tabs for both, and bill payment can even be done through a search option on the main screen.

Functions: q Response time: Surprisingly for a banking

COVER STORY

app, UBL showed no signs of weakness in the response time department. Their bad days are far and few in between according to their customers and we faced no difficulties or lag operating their interface. Profit Rating - 4.5/5 q Bills payments Mobile top-up: It was from UBL that we discovered that the mobile top-up option is in fact their most used function on the app, which is perhaps why it is so prominently displayed on their home screen ahead even of the fund transfer option. However, those over at the HBL design lab could do some work on the display which displays simple options to add a new beneficiary, but lacks buttons to subscribe directly to packages. It also requires a few extra steps in terms of adding a payee. Profit Rating - 4/5 q Funds Transfer: This is one department in which the app takes a hit. At the point of adding a new beneficiary, which it tries to do Meezan style, the ‘favourites’ button and the ‘add beneficiary’ buttons are too close together and too similar which caused confusion among the app’s users. Other than this interface issue the function itself is reliable. Profit Rating - 3.5/5 q Bank Statements: Not only are the options to look at past transactions easily and prominently displayed along with the account balance, users can also download statements for the past year through the app. A very handy feature indeed. 4.5/5

ments to the front rather than mobile top-up). Profit Rating - 4.5/5

Overall Design Rating:

q Response Time: The apps are surprisingly reliable but do at moments either lag or slow down. The problem was not extensive but it definitely needs to be fixed. Easypaisay fared better in terms of response time in our tests. Profit Rating - 3.5/5 q Bills payment and Mobile top-up: Very easy and accessible. q Funds Transfer: Both of these apps make life easier for customers by labelling their options differently. In Easypaisa it is

UBL’s design is pretty standard. Once you login using biometric authentication a screen is displayed with account balance and major functions that can be directly accessed. Perhaps the most important plus point in the UBL app’s design column is that it is easily customizable - you can change the display scheme, personalise it, and even change the tiles of the different functions (for example bring bill pay-

Jazz Cash and Easypaisa: We’re clumping these two together because both of them are mobile wallets and have very similar designs. Both have simple interfaces where the balance is displayed on top and major functions like bill payments, fund transfers, and mobile top-up are prominently displayed. The only real difference in interface and functionality is the colour scheme.

Checklist: y Balance inquiry - Check for both y Bank Statements - Not applicable y Cards cancelation/activation/management

- Not applicable y Access to car/house instalments and other

services - Not applicable y Customer relationship management

(CRM) - Check for both (option to call a helpline) y QR codes payments - Check y Bill payments and mobile top-up - Check Easily accessible.

Functions:

Balance Bank Cards Access to Customer Inquiry Statements management other Relationship services Manager

Meezan Nayapay UBL JazzCash & Easypaisa Alfalah Sadapay Allied Bank Faysak Bank HBL Standard Chartered

Check Check Check Check Check Check Check Check Check Check

Check Check Check NA Check Check Check Check Check Check

Check None Check None Check None Check Check Check Check

None Check None Check Check Check None None None None

QR Codes payments

Check Check Check Check Check Check Check Check Check Check

titled ‘Money Transfer’ and in Jazz Cash it is simplified further to ‘Send Money.’ The process is simple - money can be sent directly to CNICs, bank accounts, or phone numbers. There is no need for any OTPs, but both apps require that you input the ‘pin’ that lets you log-in to the app for every transaction. There is no concept of beneficiaries. Profit Rating - 4/5 q Bonus function: Request money option exists. This only works directly between JazzCash to JazzCash but essentially a person can ask for a payment. For example, if I owe the reader money, the reader can send me a request on my JazzCash account. The pop-up notification will ask me to click yes and input my pin and the payment will immediately be mad. Profit Rating - 5/5

Overall Design Rating: The apps are simple and they are best that way. Design inspiration may have been taken from them for apps such as the Meezan and UBL apps and up until now the general trend has been that the easier the design the better the experience. Both of them are very intuitive to use and most importantly offer both Urdu and English language options. The two mobile wallets have differences in terms of credit limits and short term loans that they offer but very little in terms of the application experience itself.

Tier 2: Functional These were applications that while admirable efforts, had some kinks that needed to be ironed out. Most of them suffered either on a design or tech end, with the right thought behind where to place functions keeping in mind customer requirements, but need more time and investment. They are very much functional apps that will give you very little trouble but the user experience is not as smooth as in the apps discussed above.

Bill payments and Mobile Top-ups

Check Check Check Check Check (Difficult) None Check (Difficult) Check (Difficult) Check Check (Difficult)

TEXTILES

Bank Alfalah: Alfalah’s ‘Alfa’ app has come a long way in the past year. Initially riddled with issues, the most recent revamp of the app has introduced a fresh interface that is more interactive and easy to understand - indicating that the bank is willing to listen to customer feedback, which is always an encouraging sign. Alfa is also the only banking app that has a working customer care chat option like the ones available in Nayapay and Sadapay which sets it apart from the other traditional banking apps.

Checklist: y Balance inquiry - Check y Bank Statements - Check - Available only

up to 6 months y Cards cancelation/activation/management

- Check y Access to car/house instalments and other

services - Check y Customer relationship management

(CRM) - Check y QR codes payments - Check y Bill payments and mobile top-up - Check -

Easily accessible.

Functions: q Response time: The app does have a tendency to log. Biometric verification is available but the app takes its sweet time to load (7 second on average to get to the login page and another 6 seconds to login after inputting the thumbprint) and continues this mildly sluggish behaviour when performing functions. Profit Rating - 3/5 q Bills payment and Mobile top-up: Prominently displayed on the home screen but only allows users to load balance into the mobile network. Does not have an option to directly subscribe to packages. Profit Rating - 3.5/5 q Funds transfer: Generally a smooth process but made difficult by the need to add a new beneficiary each time which requires a two-step verification by codes sent to both email and mobile. Inconvenient and testing for the user. Profit Rating - 3/5 q Bank Statements: Readily and easily available. Can be downloaded as well in statement form for up to six months. However, do not provide names of the places where transactions were performed - listed only as “interbank transfer” etc. Profit Rating - 3.5/5

Overall Design Rating: There has been thought put into the design of the Alfa app. The layout is careful, the most im-

portant functions are prominently displayed, it is easy to understand and there are no issues like secret menus and constant maintenance downtime. This is an encouraging sign, and while the app might not need reimaginingin, a few tweaks in the over-zealous security system and more effort into code of the app will go far in helping it graduate from a tier 2 app to a first tier app. Profit Rating - 4/5

Sadapay: Sadapay deserves to be in the first tier of apps and in all likelihood will soon be there. The only reason it has been relegated to this tier is that it is currently missing some key functions - bill payments and mobile top-up. That is because Sadapay only got its official licence as an EMI last month. The only other licenced EMI is Nayapay, and they also did not have these options until after they got their licence from the central bank. As soon as Sadapay gets those functions, it will probably top our list based on its design, which by our estimation is the best design out there. For now, however, it stays in the second tier of rankings.

Checklist: y Balance inquiry - Check y Bank Statements - Check - But only money

in Sadaa Pay account. Appears almost like a call log menu. Very easy to understand and keep track of. y Cards cancelation/activation/management - Check y Access to car/house instalments and other services - None applicable y Customer relationship management (CRM) - Check - Trained customer support staff available on chat at all times. y QR codes payments - Unavailable y Bill payments and mobile top-up - Unavailable

Functions: q Response Time: The app is fast. It both looks and feels futuristic and the interface is very sleek. There is a very particular kind of character and personality (quirky yet laid back) that they have managed to infuse in their interface. In our tests and in customer testimonials, there was no lag and no issues came up in usage.

COVER STORY

q Bills payments and Mobile top-up: This is not available. Profit Rating 0/5 q Funds transfer: Very smooth process. In-app biometric verification exists so there is no need for the hassle of OTPs and pin-codes. Transactions are fast and the buttons are designed to make sure the customer is helped along the way. Video tutorials and the customer support option are both reliable. q Bank Statements: Records of spending are available easily. They are logged on the homescreen almost like call logs with clearly marked names of the places where the money went. Profit Rating - 5/5

Overall Design Rating: Most of the other good apps have a simple horizontal layout. The balance is displayed on top and buttons for major functions like bill payments and fund transfers are displayed on this homescreen. Sadapay does away with this and chooses to follow a vertical pattern. The home screen only shows balance and two buttons that say “load money” and “send money.” For any other options you have to swipe right and left. Scrolling down shows you your history of payments. It will be interesting to see how Sadapay changes this (if it does) once they get the bill payments and mobile top-up features functional. Profit Rating - 5/5

Allied Bank: This is a pretty standard banking application, very much along the lines of Alfalah’s Alfa. It provides a clean and simple interface but lacks at times in the reliability department.

Check list: y Balance inquiry - Check y Bank Statements - Partial Check - Bank

statements available up to a limit y Cards cancelation/activation/management

- Check y Access to car/house instalments and other

services - Check y Customer relationship management

(CRM) - Unavailable - Only link to call centre number y QR codes payments - Check - Prominently placed y Bill payments and mobile top-up - Check Easily accessible

Functions:

q Response Time: The app is a little sluggish, which is where it lacks in quality most of all. In our multiple uses of the app, it crashed or had to be rebooted twice,

indicating that there are bugs in the code which need to be fixed for a smoother process. Profit Rating - 3/5 q Bills payment and Mobile Top-up: Quite standard. Prominently placed, however, requiring that beneficiaries be added which means there is an extra step in the process. Profit Rating - 3/5 q Funds Transfer: Adding beneficiaries requires multiple security checks and OTPs, which becomes an issue. It is easier to do if the payee is added as a ‘favourite’ already but making a quick payment to someone new in a fix will be a hassle. Profit Rating - 3/5 q Bank Statements: Available for up to six months but not downloadable in PDF or JPEG formats. Profit Rating - 3/5

Overall Design Rating: Allied Bank provides a very standard design for their application. It is a no-nonsense interface that does not attempt anything ambitious nor does it have unnecessary features plastered everywhere. The design could do with some changes, such as the ‘add favourite’ option being a small button in the funds transfer process rather than the first function available on the

homescreen. Profit Rating - 3.5/5

Tier 3: Not Recommended

These are the applications that were a pain to use. They demanded constant verifications, were stuck in endless loops, had strange design flaws that can easily be fixed, were down a lot, and had a lot of complaints from customers.

Faysal Bank: The Faysal Bank app has the annoying habit of demanding an SMS OTP every time a person signs in, even when it is through biometric verification. This is only the tip of the iceberg. Once logged in, the app only displays account balance and the only way to get to any functions is a small button in the top left corner that is supposed to be a drop down menu.

Checklist: y Balance Inquiry - Check y Bank Statements - Check

y Cards cancelation/activation/management

- Check y Access to car/house instalments and other services - Check y Customer relationship management (CRM) - Unavailable - Only link to call centre number y QR codes payments - Check - Difficult to find y Bill payments and mobile top-up - Check - Very difficult to access. Hidden deep within the funds transfer option.

Functions: q Response Time: The app is slow in logging in and performing functions. All of our tries at different times were met with the same response. Profit Rating - 2/5 q Bill Payments and Mobile Top-up: The option for both these things exists but is not displayed in the app as a function. Instead, a user would have to go into the transfer funds option, find the different options for sending money, paying bills, or sending phone credit. This would be followed by adding a beneficiary and then finally getting the job done. Profit Rating - 1.5/5 q Funds Transfer: Has much the same problem as the bill payments. It is far too cluttered but at least easier to get to since the function is called funds transfer. Profit Rating - 2.5/5 q Bank Statements: Reasonably accessible. Profit Rating - 3/5

Overall Design Rating: Faysal Bank makes some strange decisions in terms of design. Their application chooses a sidewards drop down menu instead of displaying its functions on the homepage which is completely bare. It also requires an OTP multiple times in a single session of mobile banking. This makes the experience and interface both less than ideal. Profit Rating - 2.5/5.

Habib Bank Limited: HBL has had a bad reputation with their mobile application and for good reason. It is not because their app is atrociously designed like others. It is in fact on the sleeker side compared to others like Allied Bank or Bank Alfalah. However, their constant issue has been their application crashing. While HBL has tried to revamp their app recently, their efforts have not managed to reduce the frequency with which transactions fail on the app and with which it crashes.

Checklist: y Balance Inquiry - Check y Bank Statements - Check y Cards cancelation/activation/management

- Check y Access to car/house instalments and other

services - Check y Customer relationship management

(CRM) - Unavailable - Only link to call centre number y QR codes payments - Check y Bill payments and mobile top-up - Check - Difficult to access. Hidden within the funds transfer option.

Functions: q R esponse Time: This is the major issue. During Eid, the app worked only sporadically when tried by us. Afterwards, on Friday, the app was unresponsive because it goes down for maintenance the first working day of every month. When the app is working, it is not lightening fast but it isn’t clunky either. However, breakdowns are a serious concern for users. Profit Rating - 2.5/5 q Bill payments and mobile top-up: Both of these options exist but even in the new design they have been incorporated within the payments function instead of having independent buttons of their own, which such important functions need. Profit Rating - 2.5/5 q Funds Transfer: When the app is working, this is not too bad. It does not require more than one OTP, beneficiary addition is a simple process, and is quite standard. When it is working that is. Profit Rating - 3.5/5 q Bank Statements - Readily available. Profit Rating - 3/5

Overall Design Rating: The bank application itself is designed well enough. It has a classic balance on top and function below its layout. The colours and theme are actually quite attractive, and while some functions are a little deeply buried most of them are easy to understand and find. However, HBL needs to do serious PR as well as technical work to fix the reputation that their app has gained at this point. Profit Rating - 3.5/5

Standard Chartered Bank: Standard Chartered perhaps has the clunkiest,

oldest looking, and slowest app of all of the bank apps that we tested. Not only does it feel like it came out of the Windows XP era, it’s design is confusing and difficult to operate compared to other apps.

Checklist: y Balance Inquiry - Check y Bank Statements - Check y Cards cancelation/activation/management

- Check y Access to car/house instalments and other

services - Check y Customer relationship management

(CRM) - Unavailable - Only link to call centre number y QR codes payments - Check y Bill payments and mobile top-up - Check - Difficult to access. Exists within a very strangely titled ‘Move’ option to indicate movement of money.

Functions: q R esponse Time: The app is very slow. It takes between 15-20 seconds on average to log-in through a biometric verification. Once logged in, using the functions is also a slower process than all other bank apps that were tested. Profit Rating - 1.5/5 q Bills payments and Mobile Top-up: This is a very confusing design choice. A function called ‘Move’ has been created instead of an option for bills or fund transfers. Within this ‘Move’ button further drop down menus can be selected to either pay bills, load balance in your phone, or send money to someone. This overly complicates the problem. Profit Rating - 1.5/5 q Funds transfer - Easier than paying bills but still has the annoying habit of being inside this ‘Move’ function which makes very little sense. Profit Rating - 2/5 q Bank Statements - Again, this function is also clunky but available. It is easier to use than the other functions, and can go back to a year, but is still slow to load and no PDF downloads available. Profit Rating 2.5/5

Overall Design Rating: The Standard Chartered Bank app is probably the clunkiest one both in terms of design and functionality of the apps we have tested as part of this rating. It is unclear and unfriendly to new users and is relying on an interface and an aesthetic that would have been out of fashion in 2009. Profit Rating - 2/5 n Rating input and reporting by Ariba Shahid

COVER STORY

FAYSAL ASSET MANAGEMENT LIMITED

Redefining Investment 24

Faysal Funds wants to ride the tech wave and stay Shariah-Compliant along the way By Ariba Shahid and Abdullah Niazi

aysal Asset Management Limited has had a good few years. Back in 2018, it was a relatively small operation with a Rs 7.3 billion fund size that they were responsible for managing. Incorporated in 2003, the company had spent the first 14 years of its existence 30% owned by Faysal Bank Limited. Throughout that time Faysal Asset Management Limited floated by and remained one of the lesser visited asset management companies. In 2018, Faysal Bank Limited decided to acquire the company in its entirety so it would be able to revamp it. Since the acquisition, the total size of the fund being managed by the company has grown by more than ten times to Rs 76 billion. Their market size has increased from 1.3% to 7.1% and the fund has moved into investments in 28 products. The size and pace of the company’s growth has been impressive. And perhaps what has got more eyeballs focusing on Faysal Funds is that the company is moving into the venture capital business, more specifically offering local investors the opportunity to put capital into the growing tech startup revolution taking place in Pakistan. Normally, there are only a few traditional avenues to invest in Pakistan, especially for small investors. You could put the money in the bank and collect interest, or you could try to traverse the murky waters of the Pakistan Stock Exchange (PSX). The third option is to go to an asset management company to invest in mutual funds. You see, most startups are not even close to being listed on the stock exchange and rely on series round funding. However, individual and angel investors need to come with large amounts to get any attention. Asset management companies offer mutual funds, where a number of small and large investors pool their money into a fund which is then invested in said sector. While Faysal Asset Management Limited has been on a high ever since its 2018 acquisition, the CEO of the company, Khaldoon bin Latif, has now given the nod of approval for the company to start entering the VC space in an attempt to get local investors to put money into the largely foreign VC backed startup scene - particularly in the tech sector.

The question is, will local investors bite?

Why go to a fund?

o define it very plainly, a mutual fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. Essentially, you do not invest in an asset management company, you simply give them your money and they pool that money with other like-minded individual and organisational investors, and then use that pool of money to invest for you. It also gives the opportunity to single, small to medium sized investors to put their money in high stake businesses in the form of a pool and participate in that part of the economy. Mutual funds do not just cater to individual investors however. They also provide advice to large capital investors on where to park their money, they provide management of excess assets for companies, and also provide a place for companies to put their pension funds. In this way, these funds have a lot of money tied up in their investments both from large and small fish. There are, of course, plenty of mutual funds and asset management companies in Pakistan. In fact, there are much larger and more prestigious asset management companies here. However, Faysal Funds has two things going for it - the first is that they are trying to strike out and become a vehicle for their investors to put money into Pakistan’s tech scene. The second is that their growth trajectory since being bought out by Faysal Bank Limited has been rapidly climbing. In December 2021, Faysal Funds achieved a new milestone of managing over Rs 70 billion in funds. By December 31st 2021, the final amount of the assets being managed stood at Rs 76 billion. And while that is an impressive sized fund, what has been even more interesting is the pace at which they have gotten there. Back in January 2021, the size of the funds being managed by the company was Rs 50 billion. In a course of six months this jumped to Rs 60 billion by June. The next Rs 10 billion increase came by November 2021, taking only another five months. By the end of the year the fund stood at Rs 76 billion, The top management at Faysal Bank Limited has been quick to label Khaldoon bin Latif, the CEO of Faysal Funds, as their

ace card. “Khaldoon bin Latif is a true hero. He has led from the front and it has been his matchless leadership, along with support of board-members such as Salman A Usmani (Head, Treasury & ECM at Faysal Bank Limited) that he has managed to do this. Well done,” said the CEO and President of Faysal Bank Limited, Yousaf Hussain in a LinkedIn post. For Latif personally, who is a veteran of both local and international industries. At the time that Latif entered the picture, Faysal Funds had not been doing as well as it should have been. A lot of this was because the company’s relationship with Faysal Bank Limited was uncoordinated. The bank realised, however, that there was a lot of potential in mutual funds and decided to fix the problem by taking over the company and buying out the rest of the shares, and turning it into a wholly owned subsidiary.

Quick realisations

hings changed after the buyout. Latif was very brazen about it, saying that the scenario is very different when a financial institution truly stands behind an asset management company. It can perform and in turn unleash a lot of potential. There were some very detailed discussions with the board at that time, and the understanding was that this was a fantastic opportunity to set the right strategy and actually have a real shot at implementing it. And there was and is a lot of potential in Pakistan’s mutual funds industry. Very basically, if you invest in mutual funds you can earn through dividend payments. Essentially when you invest in a fund that earns its income in the form of dividend and interest on the securities, you receive that income with a deduction. The deduction is the fund charging you for their services. Another way you can earn is through capital gains. This is possible when the net assets value goes up when the market value increases. As a result you get a capital gain. As an investor you could choose to go low risk, medium risk, or high risk. In this way, mutual funds work for a wide range of investors. “In my view Pakistan’s mutual fund industry is just starting to explode. Currently it stands at just over 2% of GDP and 5% of total banking deposits with only around 300,000 investors. These numbers compared to any other economy of our size are insignificant, indicating a huge untapped local potential

in Pakistan,” says Latif. “Now with product innovation, focused technological adoption and integration with digital platforms, the asset management companies are opening up new channels for investors’ greater accessibility, convenience and serviceability. This trend I believe will start a new phase of development and expansion for the overall industry having such objectives as financial inclusion and increase in the number of investors at its core.” As an Investment manager, Faysal Funds offers a variety of products. There are three equity investment schemes, three asset allocation schemes, five income schemes, one sovereign income scheme, four money market schemes, one capital protected scheme, three fund of fund schemes, two voluntary pension schemes, and 10 CPPI plans. In addition to the schemes and plans, the company is also in the business of advisory, providing investment strategies and managing portfolios. A huge part of getting these options and diversification was aligning the goal of the company with the goals of the parent company. This was the other major realisation - that both the parent company and the subsidiary had to be on the same page. The problem is that funds have existed in the past and they will continue to exist in the future. That has not been enough to mobilise investors to put in their money. That is why for Faysal Funds, the question is about making sure that local venture capital money also goes into the startups. Small investors, however, cannot invest as these are high-risk ventures and only qualified HNI’s with certain net-worth are allowed to invest under Private Funds Regulations.

The industry needs you to save

here has been a lot of talk about this being the right time for mutual funds to tap uncharted potential in Pakistan and to get more investors on board. And yes, people have shown an interest in investing. But it is important to know where they want to invest more than anything else. In order for people to invest in mutual funds, they should essentially have a mindset which allows them to save or defer consumption. The growth of the industry has been impacted by the low propensity to save locally. “The Industry has frankly grown quite aggressively over the last five years. But to be honest, before we look at industry growth, what we really have to see are our savings as a percentage of the GDP. So on the wider economy, savings haven’t grown, as has been in other emerging markets. So as a consequence, this industry hasn’t performed,” says Latif. As he explains it, macroeconomic policies haven’t

really incentivized savings owing to the consumption-led growth that has been chimed for countless years. “If you look at the macroeconomic policies, we have had a history where real returns have been negative. So we have always penalised savers and we have incentivized spending. This has been the case since the early 2000s. We have been in an economy which has tried to drive its growth through consumption related strategies and bulk of this consumption has been financed by external borrowings. So that has been a key cause of this disconnection, where we have been continuously borrowing internationally and driving domestic growth and the domestic savers have been penalised as a consequence.” However, it’s not all doom and gloom and he feels that the likelihood to save will increase now that there is more awareness towards the drawbacks of consumption-fueled growth. This is where Faysal Funds has wanted to and been trying to challenge norms. They have realised that there is a need to move beyond the traditional norms when it comes to investing. “Apart from asset management and investment advisory, we are also licensed by the SECP to carry out Real Estate Investment Trust (REIT), Private Equity (PE) and Venture Capital (VC) services,” says Latif. Under PFM licence, Faysal Funds aims to launch Private Equity Funds to cater to qualified investors’ need to provide funding / capital to high potential businesses with a long term horizon to undertake higher risk and generate higher return than public markets. The company is also in the process of building a specialist team for managing REIT business that holds huge potential in Pakistan with recent regulatory changes and Govt. focus on real estate sector development. The aim is to offer small retail investors an opportunity to participate and own high growth real estate assets to be able to finance their future property needs.

Why venture capital?

ne has to wonder why startups. But then again, why not startups? They have been making the big headlines after all. Every other day some new startup has raised some new massive amount of funding. As an ordinary person, you often wonder to yourself how you could potentially be part of it all. Faysal Funds wants to drive domestic investment into these startups so the bulk of it doesn’t come in from abroad. “There has been a massive investment in this space. More than $300 million to put a number on it last year alone. That is more than the last six years combined. The problem we saw was that all of this came from venture capitalists and foreign investors. The local in-

vestors have all been channelizing their investments on their own. We also saw this problem as an opportunity. Our desire was to create a vehicle that pools money and gives access to a structured product to the market, offering the same opportunity like the foreigners were.” This makes sense. Banks have to be careful considering the sudden moves in the startup space. Fintechs are popping up and hoping to challenge old school banks. If you’re an early investor in fintechs, they’re not really your competition. This leads to new synergies being created which is exactly what the fund is also trying to do. “Some of these fintechs are likely to disrupt banking the way it is done. So our parent company has come in and offered us a sizable seed capital for this venture capital fund, because one of our desires was to channelize our investment into the fintech space, so that if there is any disruption, we are part of it as opposed to being the ones disrupted. That was our desire.” The unique thing about this, however, is, that the fund will be Shariah-Compliant with its investment in startups. “Our parent company is becoming Shariah-Compliant. So our desire was to make sure that in this space, which is unlocking massive amounts of value that we have a Shariah-Compliance vision and laying the seeds now for these companies of the future.” “You see most of these startups are equity oriented. There is hardly any leverage. There is no venture debt available in Pakistan at the moment. So all of it is predominantly Shariah-Compliant except for some. There are models for startups such as, you’ve got consumer related loan models. For us, they are non-compliant. However, the Shariah-Compliant versions can also be created. We plan to encourage those kinds of opportunities, and push capital towards them. There is a lot of asset shortfall in Shariah compliant space. So we are also trying to feed into that demand for Shariah-Compliant assets. We want to create them and then eventually take them all the way to the secondary markets. We want to be present in the entire ecosystem from the start to the secondary market, to the post market. So we, as an institution, want to support them throughout their different stages.” “The Faysal Funds right now is both conventional and Shariah-Compliant, but since the company has become Shariah-Compliant in all eventuality, we don’t have a predefining timeline, but eventually we will also become a Shariah-Compliant institution. This is why we are making sure that throughout our investment strategy, we have a lot of weight in terms of Shariah-Compliance. The VC fund will be entirely Shariah-Compliant. However, we are still launching conventional products as well,

but we are launching Shariah-Compliant products far more than the conventional ones.”

Riding the tech wave

“I

f you look at S&P 500 from say early 2000 too, to 2020, you see a massive transformation, the composition of the top 10 companies were widely different from what you have now. It is mostly technology companies, the Googles, the Apples, and the Teslas. So we saw that there was a massive trend globally in terms of the technology. When COVID happened, we had understood that it’s going to accelerate the pace of development. We saw the markets were accelerating and we realised that it’s going to open a floodgate of opportunity for all technology exporting countries in the world.” To contextualise this, Latif had an ex-

ample. This year, he explained, tech as a sector gained up 895 points, followed by commercial banks with a positive 783 points. Systems limited was a winner this year with a positive contribution of 732 points making 82% of the contribution in the Tech sector. For the month of November, Technology exports have increased 38% for the fiscal year and have risen 13% month on month earning $221 million. “Valuations are also factoring in higher growth prospects as PEG for the listed Pakistani IT sector is at 0.9x vs average 0.45x in frontier markets. Higher PEG reflects resilient business models, growth & scale of operations for the domestic IT industry. The price discovery is also being driven by foreign portfolio investment which is gradually shifting away from traditional index heavy stocks to the technology sector (now accounts for 7% of the KSE100 in terms of market cap).”

“We have been in the forefront in the capital markets in terms of participating in technology firms, which were listed on the exchange. We have been very effective in terms of capturing these means and offering it to our investors. However, the opportunities are very limited. There were a few companies that were listed on the exchange. And our desire was to now expand the market to give greater depths. So we have now decided to enter into the venture capital space.” n All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of future results. Please read the Offering Document to understand the investment policies, taxation policies and risks involved. Additional reporting by Saad Tanvir

The curious case of Bitcoin and safe-havens Bitcoin is as mysterious as it is confusing. But how is its future tied with Pakistan? By Farooq Baloch

hen Russia invaded Ukraine, it was a moment for bitcoin to shine, at least for crypto enthusiasts, who have long called it a safe-hav-

en asset; it didn’t. The world’s largest cryptocurrency by market cap rose more than 20 per cent in the first week of the war to $44,800, but plunged shortly after, reversing almost all the gains of the previous week. Bitcoin’s promoters, also known as maximalists, always touted it to be a digital gold or a hedge against inflation, geopolitical risks and economic uncertainty. So, when Russia started the war, the biggest conflict in Europe since World War II, the digital asset had all the boxes checked for another rally: US inflation topped a 40-year high, a cost of living crisis gripped much of the world, and experts issued warnings about another recession. Save for the initial spike, none of these risks could trigger another rally, questioning bitcoin’s status as a safe-haven asset. Bitcoin was trading at $38,605 (2:15pm London time) on Saturday (April 30), 19 per cent below its January price ($47,739) on Coindesk. On the flip side, gold rose 8 percent to $2050 per ounce two weeks into the war and breached its all-time high of $1957 – living up to its reputation of being a safe haven in times of high uncertainty. After US treasury yields started rising in March, gold price – which is inversely proportional to the bond yields – fell below $1900 or pre-war level, but still traded 5 per cent above its January price. On the other hand, bitcoin’s reaction to the rising treasury yields, the most significant market moving signal, was all but a reflection of the trend in the bullion market. Bitcoin price rose above $47,000 level by March end, before falling back to its present level. Bitcoin’s price is “almost immune” to world events, said David Gerard, the author of The Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Etherium & Smart Contracts – a book about bitcoin’s history and the 2017 crypto bubble. The only exception, according to Gerard, was when

everyone needed to sell at the same time, something that happened in March 2020 because of Covid-related collapse and June 2021 when China banned it. The crypto analyst said bitcoin markets certainly don’t respond to financial market signals, but only their internal dynamics – an argument supported with a study by two professors at The Wharton School, University of Pennsylvania. The British author said bitcoin is functionally a thinly-traded commodity in an unregulated market. He likens it to a rare commodity market with a few producers, a few consumers and a few players who all know each other with no regulator. “I have not even looked at its price recently,” said Ali Akber Khan, a resident of Newport. “I am hoping it will reach $100,000 or even $1 million.” The 40-year-old techy from Wales was inspired by his friends, also from the technology sector, some of whom got in early and are sitting on the gains of 1,000 per cent. They didn’t sell even when the price traded above $60,000, slightly below its all-time high, for almost a month in late 2021. Instead, these HODLers (where HODL means hold on for dear life) often bought the dips to accumulate more of the asset. Khan, who entered late, is sitting at a loss of 28 per cent, but he is not bothered about it. Khan and his friends represent a class of investors who believe in bitcoin to be a store of value for their hard-earned income that they could retire on with huge gains. However, critics like Gerard say the only place bitcoin has a reputation as a safe haven is as a phrase its promoters use. For example, PayPal co-founder Peter Thiels, while speaking at the Bitcoin 2022 conference in Miami earlier this month, predicted bitcoin’s price will increase by a factor 100, replace gold and pose a challenge to the entire value of the stock market. Thiel is not the first person to come up with such a prediction. Bitcoin maximalists have long been speculating that its price will hit $1 million, often driving its price up as was the case in the last couple of years. That said, if it were 2020, Thiel’s statement might have triggered another bitcoin rally; instead, bitcoin fell by $4,000 in a few days from $43,500 on the day Thiel made the statement. “Market cap is meaningless in both bitcoin and gold. It doesn’t tell a trader anything about the price or what it’s going to do. So it’s completely unlike the market cap of a stock,” said Gerard. The numbers traders care about are trading volume, depth of market and volatility, he said. “In practice, bitcoin is an uncorrelated asset right up to the moment you

“Market cap is meaningless in both bitcoin and gold. It doesn’t tell a trader anything about the price or what it’s going to do. So it’s completely unlike the market cap of a stock,” David Gerard, author

actually ‘need’ it to be one – at which point, it fails to be.” Giving an example, the British writer pointed to a report by Reuters. It said UAEbased crypto companies received several queries from Swizz brokers on behalf of their Russian clients, who wanted to sell billions of dollars of bitcoin to avoid sanctions after the war. These investors were seeking safe haven for their wealth anywhere but crypto. Some investors wanted to invest their fortunes in the UAE’s real estate market, others simply wanted to convert it to cash (fiat currency) and stash it somewhere safe. All these requests were of at least $2bn – $6bn in one case. None of those requests could materialize, said Gerard, because there weren’t enough actual dollars in the bitcoin trading system to do that. “Nobody can cash out $2bn in a lump. It can’t be done,” he added. Gerard, who also blogs about crypto and blockchain news, further said: “Bitcoin is failing to be a safe haven when the large holders actually need to be able to cash it in.” Critics like Gerard believe bitcoin was never a safe haven, but a highly speculative asset and a Ponzi scheme. However, bitcoin HODLers like Khan from Wales and his friends are still holding on to it, expecting huge returns to retire comfortably. “About a quarter of bitcoin’s circulating supply is with long-term holders,” said Muqaddas Butt, who runs Ilme Aalim, one of Pakistan’s largest YouTube channels on cryptocurrency with 260,000 subscribers. Quoting a famous survey of millennials where two-thirds of the respondents preferred bitcoin to gold as a safe-haven asset, Butt said the Boomers have accumulated a lot of wealth, which they will transfer to the next generations, including millennials. “If 70 per cent of those millennials prefer Bitcoin, I see its future to be brighter than gold,” said Butt, who is also a HODLer. The Pakistani YouTuber said bitcoin was bearish recently because the US macroeconomic

indicators affected it directly. Even the recent bump was driven primarily by news that the American President Joe Biden was going to sign an executive order, a positive signal to the market that digital currencies would be regulated, he said. Responding to a question about investors’ reaction to the war, Butt said, “It’s up to the investors how they want to diversify and whether they want to invest in gold or bitcoin.” The YouTuber acknowledged speculators had a bigger influence in crypto, but argued it was changing. The number of big companies and large funds that are investing in bitcoin with a long-term view are growing, he said. This will bring stability and if there are positive developments on the regulatory front, its price will rise, he added. Earlier in April, US Treasury Secretary Janet Yellen’s statement regarding a crypto regulation that should support responsible innovation was well received by the market. Later on, Chancelor Rishi Sunak tasked the Royal Mint to create an NFT as part of his government’s plan to make the UK a global hub for crypto investments. However, these positive developments weren’t enough to change sentiments in what remains a bearish crypto market. The Russo-Ukrainian war has entered its third month, warnings about a global recession only increased, and inflation remained red hot, but none of these could trigger a sustainable upward movement in bitcoin price, nor could the developments on the regulatory front. So, if bitcoin is a real store of value, what is holding it back? MicroStrategy CEO Michael Saylor, one of the world’s biggest bitcoin bulls, who holds $6bn worth of this asset, believes a tug-war between tech investors, macro traders and HODLers is the reason why Bitcoin price is under pressure. Saylor, who personally holds 17,000 bitcoins (not counting his firm’s holdings), told Business Insider in a recent interview that the HODLers’ camp, which he is a part of, are not trading it and buying as much as they can. The other camp, macro traders and tech investors, rushed to sell or short Bitcoin since the Fed signaled a series of aggressive rate hikes to contain inflation, he said. “If you are looking at bitcoin in the four-to-10-year timeframe, I think the fundamentals win out. In a matter of weeks and months, I think the traders win out,” Saylor told Business Insider, expecting bitcoin to decouple from risk assets over time as more people become aware about its fundamentals.n

CRYPTOCURRENCY

The Who, What, Where and Whys of OMOs What are Open Market Operations? By Ariba Shahid

pen Market Operations (OMOs) are a monetary policy tool used by central banks to implement the monetary policy. OMOs are the most frequently used instruments by the SBP to manage liquidity in the interbank money market, to ensure availability of sufficient funds for smooth settlement of interbank transactions, and to keep the overnight interbank repo rate near the policy rate which is the target rate. Repo (repurchase agreement) rate is the rate at which the SBP lends money to commer-

STOCK MARKET

cial banks in the event of any shortfall of funds to control inflation. OMOs are usually conducted as repo transactions. This is when a central bank wants to inject liquidity. In order to do this, central banks buy government securities from the interbank market with an agreement to sell the security at a specified price at a designated future date. Government securities are investment products offered by a government body. These are secure investments that come with a promise of full repayment of invested principal at maturity. Examples are treasury bills (T-Bills), which are short term; and Pakistan Investment Bonds (PIBs) which are of longer tenors.

How are OMOs conducted?

simple example of an OMO would be the SBP buying a 3M treasury bill worth Rs X from the interbank. At the time of purchase, the SBP tells the bank that they will sell it back to the bank at Rs Y after Z amount of days. The value of Y could be greater than, less than, or equivalent to Y. SBP conducts OMOs through ‘variable rate tenders’. As a result, banks disclose both the amount of money they want to transact, and the rate at which they want to enter into the transaction.

The tenor of OMOs is set and announced by the SBP each time an OMO is conducted. The tenor ranges between overnight to two weeks, but are mostly of one week. The longest OMO injection is of 63 days which has been done four times already. Previously the highest was 17days injected in 2011. Following the global financial crisis, at major central banks (primarily the developed world) short term OMOs have been superseded by quantitative easing (QE). Like OMOs, they are for a pre defined period of time. However, QE is associated with large volumes and may also include the purchase of riskier and longer term securities such as corporate bonds.

How do OMOs impact interest rates?

MOs are important because not only do they help implement the monetary policy, but also help central banks to manipulate the short term interest rate and the supply of base money in an economy. Base money is the total amount of money created by the central bank which includes total currency circulating in public, currency physically held in caults of commercial banks, and commercial banks’ reserves held in the central bank. Whenever there is an increased demand for base money, if the central bank wishes to maintain the short term interest rate it increases the supply of base money. It buys a financial asset such as a bond or a t-bill. In order to pay for these assets, new central bank money is generated in the seller’s account held by the central bank. This increases the total amount of base money in the economy. On the flipside, if the central bank sells these assets in the open market, the base money is reduced. Essentially, what this means is that the central bank has the ability and authority to bring money in and out of existence. This makes the central bank really powerful as they are the only organization in this structure that has the unlimited ability to produce money. If a financial institution or a group of them try to overpower the central bank, it will eventually gain back control and overpower their influence with an infinity supply of money. It is important to note that central bank money usually exists in the form of electronic records or electronic money, not in physical note form. Therefore, when OMOs are conducted, money is simply debited or credited in the accounts of commercial banks rather than new physical money being created. OMOs help central banks control the

total money supply by expanding when conducting an OMO injection, and contracting when mopping up liquidity. When the government purchases from the interbank, it is affecting the money supply. This reduces the availability of those t-bills or bonds, as a result, the price of the remaining bonds go up. When bond prices rise, the yields fall. This brings interest rates down in the overall economy. As a result, when the government issues new bonds, the yields are lower. This further brings down interest rates.

Why is the SBP conducting these large OMOs and are they supposed to?

t seems like the SBP is driving up bank profits or supporting the government to meet its borrowing needs. Of course the government needs money, especially considering the fuel subsidy. Liquidity injections are considered counterproductive only when given the inflationary outlook and monetary policy stance, they are contributing towards excessive monetary expansion. In the current scenario, the SBP is indirectly financing the government through these frequent OMOs. There was initially a ban on government borrowing from the SBP under the IMF programme till September 2022; however following the SBP Act, the government has now given up and agreed to permanently close the door to this option through legislation. “The bank shall not extend any direct credit to or guarantee any obligations of the government, or any government-owned entity or any other public entity”, states the clause. In case you’re wondering why can’t the government just borrow infinite amounts from the central bank itself – because it increases the money supply rapidly which drives up inflation. Borrowing has to be done against some collateral. As per the Act, the SBP shall not purchase securities issued by the government or any government-owned entity or any other public entity in the primary market. The Central Bank may purchase such securities in the secondary market. Following this, the government is now dependant on the private market to raise debt. This sometimes gives the banks more power than the government would hope for. Back in December 2021 when banks were asking for higher yields while lending to the government, in anticipation of a monetary policy rate hike; the SBP injected liquidity through

a 63 day OMO injection to calm down markets and to signal that the policy rate would remain unchanged for the next 63 days at the very least. There was no creation of monetary assets through these injections. There were rollovers. The Finance Minister of the time, Shaukat Tarin thought the banks were behaving unjustly. The move by the SBP, however, was debatable. Some saw it as a confidence boosting move, while others saw the SBP falling to the whims of the market; the equivalent of saying “please take our money and lend it back to us, but hey, hold back on the yields, will you?” Regardless of the motive, the move did work as secondary yields did go down and subsequent auctions were also tame in comparison.

What about the Rs 4 trillion?

ast week the State Bank of Pakistan (SBP) injected a record Rs 4.09 trillion liquidity into financial markets through Open Market Operations. Rs 3.56 trillion was injected into conventional banks at a rate of return of 12.3% for seven days, while Rs 526 billion was injected into Islamic banks at the rate of return of 12.33% for seven days. If we put this in numbers, this makes up approximately 20% of total deposits at domestic banks making this significant. Simply put the government is in a crunch. The government has been increasingly demanding domestic commercial financing, especially in the absence of foreign inflows. The larger the demand, the more power for banks. Banks, however, have been driving up yields considering the inflationary environment; despite a central bank that is showing caution at hiking policy rates. In order to meet its expenses, the government continues to borrow from commercial banks because it cannot borrow from the SBP directly. During the January 24 Monetary Policy Committee Press conference, Profit asked governor SBP, Dr Reza Baqir about the 63 day OMO injections and the concept of cheap money for the government. The governor responded saying that the the SBP in accordance with the SBP Act, while not being able to lend directly to the government, can step in and inject liquidity when needed. What this means is the SBP while not being able to lend to the government directly, can help it get credit at a better yield through OMO injections. This helps drive up profits for banks because they get a decent spread, and helps the government. The impact on inflation, however, remains a question. n

STOCK MARKET

Unaccounted for Gas: Unaccountable System

The economy is in a tough spot and every dollar saved counts. Unaccounted for gas is a frontier often normalised and marginalised, it would cost the economy an estimated $1.5 billion if measures aren’t taken By Asad Ullah Kamran

akistan has never had a natural gas surplus to the point where it opted to pursue an energy policy that favoured natural gas as the primary energy source for sectors critical to a stable economy. Experts have also been baffled over the years as to why the pricing of this valuable indigenous resource was not based on the principles of scarcity and optimal usage. Regardless at this point, it might as well be treated as water under the bridge and forward looking solutions must be devised. The energy content of a molecule of natural gas measured in mmbtu (metric million British thermal unit) will provide the same amount of energy. When a customer pays for natural gas, they are essentially paying for energy. A consumer would want the same energy content at the lowest feasible price via an efficient delivery system in an ideal scenario. A gas pipeline is utilised for efficient delivery of gas. Pakistan boasts one of the world’s largest natural gas pipeline networks; whether this was a wise infrastructure investment or not is debatable; what counts is that infrastructure exists and the existing efficiency is nowhere near comparable to international standards. Now here is the issue in the matter, although it is somewhat fiscally and logistically possible to completely get rid of transmission and distribution losses. It would then be common sense to assume that cost management is key here, especially for a country that’s tackling a fiscal deficit. The UFG (Unaccounted for gas) is mostly caused by decaying pipes, disintegrating cathodic protection, inadequate network architecture, a lack of improved metering that can assess the heating value of gas, and the inability to identify theft. Such leaks are caused by illegal suction pumps installed in homes and sometimes at CNG stations. It’s an issue that costs the taxpayers millions of dollars. It becomes more important considering the fact that reliance on imports of

gas to fulfil the energy requirements is growing as local resources start to deplete. The cherry on top of all this has been the Russia-Ukraine war that has sent commodity prices through the roof, specifically oil and gas. Looking at numbers published by the Oil and Gas Regulatory Authority, only for the month of April the loss to the national exchequer amounts to approximately $103 million. The first four months have chalked up a massive $445 million by our estimates. The total yearly cost would amount to anywhere between $1-1.5 billion, this amounts to 10.85% of the current budget deficit, given all things remain constant. Even this simplistic calculation should be enough to raise some eyebrows as to how these losses can be curbed. In Canada, Germany, Ukraine, and New Zealand, average UFG targets vary from 2.16% to 2.65%. The devil is in the detail if we consider that it not only affects the national treasure but has a multiplier effect. Gas circular debt is increasing at an alarming rate, posing a significant threat to an already precarious distribution gas industry. Initially, natural gas accounted for a large percentage of debt; however, RLNG has recently increased its proportion. The gas circular debt was predicted to be worth Rs600 billion as of June 2020. As of March 2021, OGDC and PPL’s receivables from the two gas utility providers were Rs513 billion. The Sui companies are in a very peculiar

spot, given the fact that theft accounts for a significant portion of UFG. Revenue targets of the companies are usually compromised, at the same time it would be unfair to entirely pin the blame on the Sui companies. Given the highly politicised economy, populist decisions that make very little commercial sense are often taken such as highly dense locations with historic records of gas theft. This is compounding the issue of circular debt for the entire country. Gas utilities will have cash flow challenges as their circular debt grows, limiting their ability to expand or improve the ageing transmission and distribution networks. The country’s gas distribution system consists of 13,452 kilometres of transmission pipes and 177,029 kilometres of distribution pipelines. It would be correct to assume that maintenance and keeping this huge network up and running especially with the given resources is a logistical feat and must be commended. However it must be noted it is old and adding to UFG issues and corrective actions must be taken. A drastic change is needed from all the key stakeholders, the government, the Sui companies, OGRA and us as citizens. Course correction is needed and needed fast, the country’s economy is buckling, but then again as all of us have heard or experienced that Pakistan is a very resilient country. It is however prudent that we don’t push our luck too far. n

ENERGY