CONTENTS
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12 “Default” risk recedes as IMF announces staff level agreement with Pakistan 14 Microfinance Banks on the verge of crisis? 21 In the aftermath of Eid, where does lumpy skin disease stand?
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24 Banks need the SBPs help to cut their losses 27 The remarkable life and tragic death of Airlift Ozair Ali 28 The folly of relief Uzair Younus
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28 Sovereign Debt Vulnerability Ammar H Khan 30 The Fault in our Firms Ahtasam Ahmad 32 Fuel strike, supply chain disruptions, and rising demand
Profit
33 Where are the buses?
Publishing Editor: Babar Nizami - Editor: Khurram Husain - Joint Editor: Yousaf Nizami Assistant Editors: Abdullah Niazi I Sabina Qazi - Sub-Editors: Mariam Zermina | Basit Munawar Editor Multimedia: Umar Aziz - Video Editors: Talha Farooqi I Fawad Shakeel Reporters: Ariba Shahid I Taimoor Hassan l Shahab Omer l Ghulam Abbass l Ahmad Ahmadani Shehzad Paracha l Aziz Buneri | Maliha Abidi | Daniyal Ahmad | Ahtasam Ahmad | Asad Kamran Chief of Staff: Maliha Abidi - Regional Heads of Marketing: Mudassir Alam (Khi) | Zufiqar Butt (Lhe) | Malik Israr (Isb) Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk
Editorial Lessons from the fall of Airlift AIrlift’s fall was inevitable. Once the darling of the Pakistani startup ecosystem, its downfall was a mixture of unfortunate circumstances and its own mistakes. When it first launched in 2019 as a mass transit fix-it, it was hailed (and rightly so) as solving a critical issue facing the Pakistani masses — a lack of good quality public transport. It was the pivot towards grocery delivery as a result of the Covid-19 pandemic that thrust them head first into a project that had no real justification. The most essential part of any startup is that it identifies a problem and tries to solve it through technology. Grocery delivery was a luxury service that has proven impossible to scale globally despite an intense blitzscaling push. Airlift’s downfall is tragic more than anything. One feels for all of the people that are out of jobs. If there is one thing that can be said about Airlift and most other startups, it is that the people that work in them are largely all talented, motivated, and dedicated workers that have very much bought into the startup culture. It is worth stressing that just because Airlift has shut down does not mean the entire startup ecosystem should be discredited. Far from it. The ecosystem has given birth to and galvanised the economy in many ways. There are startups out there genuinely trying to solve problems that we hope have a bright future ahead of them. But at this watershed moment, it is worth looking at Airlift as a cautionary tale as well. The first lesson that can be derived is that there should always be a viable solution to a viable problem at the centre of any startup. Yes, there is a likelihood that a startup might fail. And startups should also not shy away from pivoting to different business models as long as they are trying to tackle problems that exist and that they have unique answers to.
This also brings us to our next point — failure. A lot has been said in the wake of Airlift’s demise about how failure is a big part of startups and a risk that should be celebrated rather than sneered at. The point stands. Startups take great risks when they launch and most startups do end up failing. But it is in the middle of those many failures that life-changing products and services are born. But when we talk about celebrating failure it means two things — firstly that startups should not have a win-at-all-costs attitude. Particularly at the cost of transparency as we have seen in some cases. Secondly, the right lessons must be taken from these failures. And there are lessons aplenty from Airlift and from others in the startup ecosystem. Right now, with blitzscaling a go-too strategy for a lot of founders and CEOs, it must be kept in mind that scaling up with the intention of bullying margins into positive territory is an elusive hope. While it is always a sketchy hope to try and bulldoze a product or service by burning cash, it will be particularly difficult in the current climate. It has been said before and it will continue to be said — funding has dried up. As the federal reserve continues to raise interest rates, people that were formerly very happy to invest money in startups will now be thinking twice about it. This is also the first truly bearish market a lot of young founders are facing. This means they will have to prove their mettle. To do so, it will be imperative that they focus on showing stronger fundamentals and submit to greater scrutiny from investors and otherwise. There are currently some startups in the ecosystem that are displaying some of the mistakes that Airlift has made in the past. Investors must demand more transparency and our startups must focus on better fundamentals. After all, we all want this ecosystem to thrive. In the long-term, that is what will be good for everyone.
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Readers Say The product was not that good overall and the marketing was very bad too. Currently, @KraveMart is doing a very good job with marketing/offers. Though, they still need to work on their SKUs. Apropos: Airlift announces complete shutdown. Profit explains why @Noushad_Ranani, twitter Like everything else lot of start up in Pakistan is nothing but fudge numbers……raising $ 85 millions without any experienced battle hardened management team was a disaster in making….unfortunately all these funds raised last year are going to dogs. Apropos: Airlift announces complete shutdown. Profit explains why Chengez, Website A very valid point you have raised regarding experienced teams. I personally went through their hiring process earlier this year and believe it was something that as if I am applying for a position based on Mars. I was first interviewed by a call, then after 2 days I received an email from them in which they had given me a case study to solve, then after solving and submission, I was interviewed again this time it was online, then after 1 day I was once again given another case study to solve, after solving and submission, I was once again interviewed again online by the same person who had taken my first online interview and you wouldn’t believe it, i was once again given another case study to solve, this time i drew the line, i emailed them and told them to keep their job i don’t want it. Apropos: Airlift announces complete shutdown. Profit explains why Ahmed, Website Very bad news for the Pakistani market. They had set very high expectations for the tech industry. Apropos: Airlift announces complete shutdown. Profit explains why Murshid, Website Great article with numbers. Amazing read. Apropos: Airlift announces complete shutdown. Profit explains why Zaind Ahmed, Website
facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com.pk
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Quick commerce won’t work in markets with high unemployment rates, I can easily walk to buy my groceries lol save money and get occupied. Apropos: Airlift announces complete shutdown. Profit explains why Tatenda Tawonezvi, Website Article is right on the money when it was pointed out that the problem airlift ventured to
solve actually never existed. With grocery stores literally present on every single road, the scope was always limited for Airlift. And then on top of it, it lacked the experience at the leadership level. Still a big setback for the nascent start-ups ecosystem. Hopefully the episode will help everyone in the start-ups ecosystem learn the right lessons, one of which is that along with scalability one has to be mindful of profitability and sustainability. That means developing a strong business model with proper risk assessment to achieve twin objectives of profit and sustainability Apropos: Airlift announces complete shutdown. Profit explains why Zubair Ahsan Farooqi, Website Copy/paste idea without checking Pakistani market fundamentals. In Pakistan where people don’t have many business options ( kiryana shop ) is the most easy and economical with small amounts. Our market is flooded with these shops and they even provide home delivery free. Some big stores Metro, emporium, Imtiaz and many others are easily accessible and it's a picnic for small families. So practically the idea was not good for Pakistan. But somehow they managed to get huge funding and Airlift was the buzzword in Pakistan.I belong to the tech industry and I knew how much they burnt on hiring people. They just destroyed the local market salary slabs. Hired people with multiple x offers. Overall their strategy was just to hire the best talent at any cost, with such an unsustainable business model so much spending makes no sense. Overall bad management or lock of experience caused this damage. Very bad for the Pakistani startup market. Apropos: Airlift announces complete shutdown. Profit explains why Anonymous, Website Such stunts and gimmicks like free electricity, specially when budget and currency account deficits are out of control will bring the Pakistani economy to a complete collapse. Apropos: Govt slashes POL prices by up to Rs40.54 per litre Muhammad Nouman Qaiser, Facebook How can the debt burden improve worsening economic conditions? Is this the real solution? Or is it the only solution beyond which we have failed to look for the last 74 odd years? I think it's deliberate and could have avoided long time back.....if there's a will there's a way Apropos: “Default” risk recedes as IMF announces staff level agreement with Pakistan Furqan Azeem, Facebook
COMMENTS
IN BRIEF
Extreme weather conditions ravage Balochistan The people of Balochistan were already suffering from the devastation brought on by the first round of monsoon rains earlier this month. The second round of heavy rains caused further damage, drowning their houses and destroying bridges, roads, and other infrastructure.
Prices of POL products slashed ahead of by-elections The government has approved a decrease in the price of petrol and diesel by Rs18.50 and Rs40.54 per litre, respectively, due to falling prices in the global oil market. Petrol would cost Rs 230.24 per litre, diesel Rs 236 per litre, kerosene Rs 196.45, and light diesel oil (LDO) Rs 191.44/litre.
Supreme court casts doubt on Imran’s theory The Supreme Court noted that the former deputy speaker of the National Assembly failed to provide evidence that the former prime minister Imran Khan’s regime had been overthrown as a result of foreign interference in its decision to dismiss the no-trust resolution against him, emphasising that the action was “jurisdictional excess” taken without proper authorization. Initiation of article six against PTI senior leadership may be on the cards.
Critical Punjab by-elections
IMF deal done, disaster averted
With barely 24 hours to go before vital by-elections in 20 Punjab Assembly constituencies, the leaders of both main contesting parties, the governing PML-N and the opposition PTI, are putting out their last-ditch attempts to win over voters on the final day of campaigning.
After the International Monetary Fund (IMF) announced a staff-level agreement to prolong the bailout package and extend its amount to $7 billion, Pakistan dodged the looming default; yet, the international community is still exerting pressure to keep Islamabad on track.
Babar Azam exemplifying sportsmanship Virat Kohli of India, who has been in a protracted slump, is still one of the top players in the world of cricket, according to Pakistan captain Babar Azam. He should have all the support he needs to come back to his batting form.
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“Default” risk recedes as IMF announces
staff level agreement with Pakistan Fund warns of lurking dangers as turbulence grips global financial markets
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By Khurram Husain
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much-awaited staff level agreement was announced by the IMF on July 13, but the statement carried dour warnings of significant challenges ahead. Most importantly, Pakistan’s projected external financing needs for FY 2022-23 were $35 billion as per the IMF Staff Report issued in February of this year. The next step now is approval from the Executive Board, which has yet to be scheduled. “The board meeting can follow….any time between three, six weeks, within that period could be slightly earlier, could be slightly later, could fall within that, but that’s roughly the ballpark between the staff level agreement and then the final agreement, which comes from our board,” the Fund’s spokesperson, Gerry Rice, said in a briefing to the press on Friday. According to data from finance ministry sources, FY 2022-23 will see loan repayments of $21 billion and a projected current account deficit of $12 billion. Coupled with building reserves of up to $5 billion, the external financing needs could be around $38 billion. In his pre-budget press conference, Finance Minister Miftah Ismail said “we need $41 billion over the next 12 months” to cover the CAD and amortisation payments as well as build reserve cover to three months of imports by end of FY 2022-23. But this figure could include payments in the month of June 2022 as well, and may not reflect external financing needs for FY 2022-23. The statement just released says only that Pakistan faces “higher financing needs in FY23”, implying that this figure is likely to be revised upward by the time the Memorandum on Economic and Financial Policies (MEFP) is released following board approval. Some confusion surrounded the numbers reported by the IMF on the primary balance target for end FY 2022-23. The Fund statement said the programme targets “an underlying primary surplus of 0.4 percent of GDP” by the end of FY 2022-23. Astute observers noted, however, that the government’s own budget documents gave a figure of 0.2% of GDP for the size of the primary balance by end FY 2022-23. Speaking to Profit, Ismail said there is a simple explanation for this. “The Fund is talking about the underlying fiscal balance,” he said. “This is subject to adjustors for one-off payments that need to be made during the fiscal year. This year we will have around Rs 180 billion to pay to the IPPs, which are one-off payments and subject to these adjustors. Hence, the actual primary balance, after accounting for the adjustors, will be 0.2%
of GDP.” The Staff Report from the Sixth Review completed in February 2022 reports the underlying primary balance as 0.8% of GDP for FY 2021-22, and the primary balance as 0.3% of GDP. For FY 2021-22, payments related to IPPs arrears clearance and Covid spending were excluded due to their one-off nature. “The amount subject to adjustors was Rs630 billion in FY22,” said Ismail. The announcement released early morning on July 14 points to significant risks ahead. This was the first working day after the Eid holidays and financial markets saw significant turmoil. Risk premiums on Pakistani bonds skyrocketed, the exchange rate dipped and yields demanded by banks in the first T-bill auction since last week’s 125 basis point hike in the policy rate also climbed relentlessly. London-based bond traders and analysts tell Profit the spike in risk premium on bonds is not Pakistan specific but is happening across emerging markets, especially high yield ones, on the back of further interest rate hikes by the US Federal Reserve as the latest data showed inflation crossing 9% in the United States. Markets expected further rate hikes by the Fed, fueled by a 100 basis point hike by the Bank of Canada on July 13. Rate hikes in advanced industrial economies suck capital out of riskier emerging markets as investors fly into the relatively safer higher yields on offer in those jurisdictions. On Thursday, these premiums were inching down as confidence slowly seeped back following the Fund’s announcement. Bloomberg reported the Sukkuk maturing in December 2022 rose to 90.4 to a dollar after dipping to 89.5 a day earlier, while the April 2031 maturity also strengthened by 0.2 cents. But by Friday they had begun climbing again. Wednesday, July 13, also saw the exchange rate drop to PKR 211 to a dollar in both the interbank and open markets, dipping by PKR 2.20 and PKR 2.50 in each respectively. On Thursday both opened at PKR 210.3 and PKR 209.5 respectively. But by Friday both
closed at or above PKR 211. Yields demanded by banks also spiked on Wednesday in the first Treasury Bill (T-bill) auction to be held since the policy rate hike of last week. Profit carried the story earlier. As the Fund programme moves towards resumption, the schedule of disbursements has been revised to reflect the possible extension till June 2023 as well as a possible enhancement of disbursements by $1 billion. The Fund statement points towards both domestic as well as global pressures for why Pakistan is in need of a bailout. “A difficult external environment combined with procyclical domestic policies fueled domestic demand to unsustainable levels,” it says. The prolonged period of negative real interest rates, that had to be unwound in a rush via a 775 basis point hike in the policy rate since November 2021, provided a strong impetus to growth but also gave rise to pressures on the external account that depleted the foreign exchange reserves and placed great pressure on the exchange rate. “The resultant economic overheating led to large fiscal and external deficits in FY22, contributed to rising inflation, and eroded reserve buffers,” adds the statement. Going forward the government is expected to return a primary surplus of 0.4% of GDP in its fiscal balance by the end of FY 2022-23, which will require strong revenue performance as well as tight expenditure control. Stemming the continued growth in the circular debt, expected to see a flow of PKR 850 billion in FY 2021-22 according to the Fund statement, is another priority singled out for mention. It also calls for “proactive monetary policy” which responds strictly to inflation and “greater exchange rate flexibility”. The staff report from February 2022 pointed specifically to interventions in the foreign exchange market. “The volume and frequency of FX intervention and other administrative measures have been increased to manage the FX market as current expansionary macroeconomic policies led to heightened depreciation pressure on PKR in 2021,” said the report. Once the programme resumes following board approval, the practice of import restrictions via bans and cash margin requirements as well as administrative processing delays will need to end. The State Bank will need to acknowledge the higher yields demanded by banks in T-bill auctions as a market reality rather than an avaricious practice to be stamped out. Power and gas tariffs will need to rise sharply to curtail the continuing flow of circular debt. In short, more interest rate rises, further currency devaluation and higher utility bills await the business community as programme implementation gets underway in earnest. n
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COVER STORY
By Ahtasam Ahmad
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akistan’s fledgling microfinance sector that never quite took flight is currently sitting on a ticking time bomb that could go off at any moment. Already a dwindling sector in the country, it has been further pushed against the ropes by the blows of inflation, interest rate hikes, and the heat of a global economic downturn. Currently, the threat ready to implode at any point are loans at the risk of default — a situation originally triggered by the pandemic. While both the State Bank of Pakistan (SBP) and the government have tried to provide relief and bail out the sector, the situation remains bleak. In this article we explore how the major players are coping with the aftershocks of the pandemic and whether the sector is heading towards recovery or if difficult times have just begun?
Industry overview
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he main investors in the country’s microfinance banks (MFBs) are commercial banks, Telcos, nonprofit entities/rural support programmes and specialised microfinance institutes. The NGO-backed MFBs include the likes of NRSP Microfinance Bank Ltd, a subsidiary of the National Rural Support Programme, the Kashf Foundation as well as the Aga Khan Foundation’s philanthropy wing. The investments are an extension of the vision of these organisations; a vision based on poverty alleviation through financial inclusion. The telcos adventure in the sector started after the SBP authorised the issuance of branchless banking licences in 2008. Telenor was the first one to do this when it joined hands with Tameer microfinance bank to
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launch easypaisa in 2009. Jazz followed them closley by launching Jazzcash in 2012. The telcos soon bought the majority stakes in these banks and rebranded them. Tameer became Telenor Microfinance Bank, Waseela was converted to Mobilink Microfinance Bank Limited (MMBL) while Rozgar microfinance bank was renamed as U Microfinance Bank Ltd, more commonly known as Ubank, after acquisition by the PTCL. Commercial banks are also key players in the sector. The likes of HBL Microfinance Bank Ltd and Khushali Microfinance Bank Ltd (30% ownership of UBL) are examples of investment of conventional banks into the sector. In 2020, however, this sector was jolted by the Covid-19 pandemic. Lockdowns halted business activity. Microfinance institutions provide small loans to a target audience that is not the most affluent in society. These are loans that could be provided to someone to open a shop for their trade such as to a barber or a carpenter. Unfortunately, these were exactly the people most impacted by the lockdowns with their small businesses being closed for months on end. This meant the microfinance sector was caught in a fix as the majority of its borrowers were not in a position to pay their loan instalments immediately.
of COVID-affected borrowers through BPRD Circular No.14 of 2020. As per the scheme, the payment of loan principal could be deferred for up to 12 months if the borrower continues to service the interest amount. The scheme also provided a restructuring option through which the outstanding principal and interest could be converted into a new loan altogether with revised terms and conditions. The programme remained valid up to 31 March 2021. Though the relief was for the whole financial sector, the microfinance entities were the primary beneficiaries. “Out of 1.883 million applications received, banks, DFIs and MFBs have approved 1.825 million applications (96.92%) up to April 02, 2021,” As per SBP’s website. “Since the launch of the scheme, individual borrowers, especially customers of microfinance banks, have been the major beneficiaries of the scheme. The restructured and deferred loans include 1.717 million approved applications of customers of microfinance banks involving an amount of Rs 121 billion, which approximately constitutes 50 percent of total net-loan portfolio of MFBs,” The website further stated. For instance, Khushhali bank, the largest microfinance lender in the country deferred/ rescheduled a loan portfolio of PKR 35.1 billion under the scheme, and HBL Microfinance availed the scheme for loans worth PKR 12.7 billion. However, once the scheme expired in mmediately, regulators also realised 2021, the sector started facing a fallout in the that a crisis was brewing. The people form of deterioration of portfolio quality. In that had taken these small loans were simple terms, this refers to that portion of the not expecting the pandemic and neither total lending that is deemed to be recoverable. were the microfinance institutions. To try and “The industry started to see a declining stave off the rot that was setting in because trend in asset quality where overall Portfolio of the unprecedented circumstance, the SBP at Risk (PAR) 30 days crossed 6% during the decided to ease the pressure through the Debt year 2021. It is further anticipated that due to Relief Scheme for deferment or rescheduling ever-increasing economic pressure, the non-performing loans may see a rising trend which is a key challenge for the microfinance sector for the year 2022,” said a statement in the Khushali President & CEO Review: Annual Report 2021, a report to the bank’s shareholders. Yet, it must be noted that this wasn’t something the sector didn’t anticipate in the first place. Back in October 2020, the microfinance industry did a collective assessment of the liquidity crisis and reached a conclusion that one-fifth of the portfolio restructured under the SBP scheme is likely to default. “Based on our assumption and calculations of 80% recovery from Source: Industry Working restructured portfolio and consequently
How the sector responded to the pandemic
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The small loan ticket size coupled with an increased cost of operations due to accessing the widespread remote areas weakens the microfinance business model. Yet, if the existing players are able to shift to a digital first approach, it could provide a spark for the turnaround of the industry Muhammad Havaris Arshad, a Senior Auditor of the Microfinance Sector
20% flow into NPLs, the industry is vulnerable to a risk of 41% erosion of its capital base,” states the internal industry working paper. Still, most MFBs did not provide for the amount to the extent the industry analysis recommended. For instance, HBL Microfinance Bank provided only 10 percent for the restructured/rescheduled portfolio. The rationale provided was that the bank had historically performed better than the industry average in portfolio quality, thus, 20% provisioning was not representative of the bank’s portfolio situation. Furthermore, a significant amount pertaining to restructured/rescheduled loans was pending for recovery as at 31 december 2021. The aforementioned pending collections were 50 percent for HBL Microfinance and 96% for Ubank. However, for Khushali bank it was around only 17 but the figure is from a significantly larger base (approximately 29% of industry’s total rescheduling).
Future concerns — NPLs and the liquidity
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efore we analyse the current liquidity situation of the sector, it is important to understand a few terms. There are two types of liquidity, the regulatory requirements and the simple cash liquidity (this is the amount you require for continuing business operations). The regulatory liquidity refers to the Capital Adequacy Ratio (CAR) which banks have to maintain. Currently, a minimum CAR
of 15% is to be maintained by the MFBs. The calculation of CAR is based on the capital held by banks divided by the aggregate of the bank’s risk weighted assets. As a rule of thumb, to improve CAR you have to decrease risk and increase capital. Also, a term to remember is Subordinated debt. This is a debt that in case of winding up of the company has the last charge on the
capital in the form of subordinated debt. Without this injection, the ratio would have fallen below the threshold to around 12.5%. In the case of NRSP, the CAR threshold was breached in 2021 and the figure was between 11% to 12% as per sources. To avoid the wrath of the regulator, the bank assured an equity injection of PKR 1 billion from its parent
Disclosure in NRSP’s 2021 Financial Statements assets of a company (amongst all debt). Due to this characteristic, the debt is classified as capital when calculating CAR. Now that we have a better understanding of the terms, let us take a look at the situation in the sector. The table below shows the CAR for some of the largest players in the market. The figures have generally been low over the past three years and when compared to the last five to seven years, the CAR has shrunk significantly for most players.
Capital Adequacy Ratio of MFBs
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o further highlight the situation let us take a look at two instances. In 2020, the CAR for HBL Microfinance was 15.1%, just above the statutory requirement. To enable this, HBL, the parent company of the bank, injected PKR 2 billion
company. Another player in the sector, Telenor bank, continues to face a deteriorating liquidity as it piles up losses while its sponsors, Alipay and Telenor, inject equity to keep it afloat. The combined additional equity invested in the bank for 2020 and 2021 is around PKR 19 billion with the latter year seeing an inflow of PKR 11.6 billion. (Read more about it in Profit’s article: Losses continue for Telenor Microfinance Bank) As far as conventional borrowing is concerned, almost all the major MFBs saw a massive increase with the exception of MMBL. HBL MFB’s borrowing went from zero in 2019 to PKR 2.8 billion in 2021. Khushhali bank’s borrowings increased 977% between 2021 and 2020. While for NRSP and Ubank, the borrowings almost doubled and tripled respectively over the last year. At the risk of diverging from the topic at hand, it is worth looking at the anomaly that is Ubank. This MFB is almost operating like a commercial bank. It has invested more in securities than it has lended (unusual for the sector) and it has massive borrowings, almost five to nine times the borrowing of other MFBs in the sector. The bank has miserably failed to recover the rescheduled portfolio as mentioned earlier and has high provisioning for delinquencies.
Source: Annual Reports & PACRA
COVER STORY
The bank has never claimed to be the largest microfinance bank in the country nor are we competing on growing our loan book through unsustainable measures. Rather, our focus is to expand without compromising the quality of our lending portfolio Sardar Abubakr, the Chief Finance & Digital Officer of MMBL
Yet, it was able to increase Profit-After-Tax for the year ended 2021 by 23%. If one takes a deep look at the financials, they will figure out that total comprehensive income has fallen for the bank as a result of unrealised losses on investment, ironically. Furthermore, the effective tax rate for the bank was around 16%, lowest in the past five years. That is quite weird given the fact that the effective rate for the bank has usually been above 20%. But wait, here is a buzzkill, not every MFB is in crisis. A prominent exception is MMBL. The bank is operating with zero borrowing; neither conventional nor subordinate. Further, it has a very comfortable position when it comes to advances to deposit ratio and on top of it the cost of funds is very low given the zero cost Jazzcash deposits. A recent analysis of MMBL’s performance by PACRA states, “The Bank’s net advances clocked in at PKR 37,123mln as at End-Dec’21 (End-Dec’20: PKR 24,510mln), depicting a growth of 51 percent. The Bank’s non-performing loans increased significantly to PKR 1,247mln (End-Dec’20: PKR 68mln).” “The infection ratio stood at 3.2 percent as at End-Dec’21 (End-Dec’20: 0.3 percent). However, the Bank’s exposure to market risk is low due to factors such as (i) nil investments in money market funds (ii) nil borrowings and (iii) a significant portion of zero cost BB deposits in the funding base. The Bank’s advances to deposit ratio (ADR) clocked in at 64 percent at
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End-Dec’21 (End-Dec’20: 52 percent) indicating significant growth in the loan book,” the report further added. As per the analysis, MMBL’s growth strategy is based on caution, but what enables them to achieve this is the fact that majority of their deposits (around 70%) are from Jazz cash accounts which technically costs them nothing. This is a luxury that none of the other operators in the sector have. “The bank has never claimed to be the largest microfinance bank in the country nor are we competing on growing our loan book through unsustainable measures. Rather, our focus is to expand without compromising the quality of our lending
sued circular letter no 1 dated December 01, 2021, whereby criteria for classification of assets and provisioning requirements for MFBs were relaxed by providing 30 days extension for Deferred and Restructured Portfolio upto 31 March 2022. The cherry on top is the fact that the SBP is pushing for the implementation of IFRS-9 (by Jan 2024 for MFBs) which will further increase the provisioning for the microfinance sector, a serious blow to their liquidity. (Read more about it in Profit’s article: IFRS-9 likely to revamp loan provisioning)
Source: Ubank financial statements portfolio,” explained Sardar Abubakr, the Chief Finance & Digital officer of MMBL while talking to Profit. Yet, for the overall sector, the outlook is bleak. What further aggravates the situation is the fact that the provisioning is still not reported to its fullest extent. With the intent to ease the liquidity pressure on MFBs, SBP is-
Bail out time
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iven the socio-economic importance of this sector, the government and the regulator seems keen to bail them out. For instance, the government-backed lending schemes and a shift to low risk, collateralised lending can ease out the pressure on the sector. The Kamyab Pakistan Programme was one example where the government disbursed the interest-free loans with the help of commercial and microfinance banks. These loans are technically secured by the SBP, and thus reduce the liquidity risk of the sector. Ubank recently received an interest-free Term Finance Facility of PKR 5 billion under the aforementioned scheme. NRSP bank also benefited from the scheme last year. Moreover, the sector is focusing Source: SBP towards housing finance assisted by an
increased financing limit by the SBP (through the AC&MFD Circular No. 02 of 2020) as well as the Government Mark-up Subsidy Scheme (GMSS). According to the HBL MFB’s 2021 annual report, “HBL MFB is the largest provider of Housing Finance in the Microfinance Banking Sector. HBL MFB is also one of the largest contributories from the microfinance industry in the Government Mark-up Subsidy Scheme (GMSS); as at December 31, 2021 outstanding portfolio amounted to Rs.1,149 million.” Going back to the Khushali Bank President & CEO Review: Annual Report 2021, it said: “The Bank plans to focus on strengthening business performance supported by enhanced credit and risk management, to improve asset quality and grow our lending share in Housing and SME finance along with mobilisation of the retail segment to generate low-ticket deposits with the introduction of new product lines.” All these steps reduce the risk of lending for the sector, and if you recall the rule of thumb, ultimately assists the liquidity. Further, to mitigate the pressure of loan defaults the SBP through AC&MFD Circular No. 02 of 2022 extended the provisioning criteria for Microenterprise loans and Housing loans, which effectively aids the liquidity of the banks. One tweet was telling. It identified a Fund of National Investment Trust which allowed upto 70% investments in the Microfinance sector categorising it as “Medium Risk”. This essentially allows another avenue for the
Source: NRSP annual financial statement 2021 sector to secure much-needed funding. However, only the pandemic is not to blame for the condition of the industry. The flawed business model plays a massive role in threatening the operations of pure commercial play in the sector. “The small loan ticket size coupled with
an increased cost of operations due to accessing widespread remote areas weakens the microfinance business model. Yet, if the existing players are able to shift to a digital first approach, it could provide a spark for the turnaround of the industry,” Muhammad Havaris Arshad, a Senior Auditor of the Microfinance Sector, told Profit. As per, COVID-19 and the Future of Microfinance: Evidence and Insights from Pakistan, an article published in Oxford Review of Economic Policy in May 2020, “Effectively coping with a volatile and unpredictable income is made easier by ready access to financial services, but the small transactions begotten by low incomes combined with fixed administrative costs make it exceedingly difficult for the market to provide those services. That has historically been the rock on which attempts to bring low-income households into the formal financial services market have crashed.” “While it’s clear that MFIs are facing a liquidity crunch, and absent bailouts may quickly face insolvency, it is unclear what happens next. Even if bailouts are forthcoming, capital markets may be much more wary of investing in MFIs now that there is experience of how quickly normal operating procedure can turn into insolvency,” the article further added. With how things stand currently, microfinance banks continue to find themselves in a conundrum. Efforts from the regulator to provide relief have done very little, and if serious restructuring efforts are not made or some other solution is not found, it will end with a bang. n
COVER STORY
Dairy and meat farmers alike continue to be worried as the viral disease spreads more quickly By Shahab Omer
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t the Thokar Niaz entrance to Lahore only a stone’s throw away from the toll plaza, Muhammad Saleem* was stopped at a make-shift check-post. The officers manning it were neither police nor paramilitary. They belonged to the Punjab Livestock Department. Every year for the past two decades, Saleem and his family have been rearing livestock and bringing it to larger cities like Lahore and Faisalabad to sell them as sacrificial animals for Eid. “There’s always something or the other. The livestock department makes sure to make our lives difficult each year. But it was different on this occasion. We were told that small bribes were not cutting it anymore and cows were being turned back and not allowed in the city,” he explains. The reason? Lumpy Skin Disease - better known as LSD. The disease had rapidly been spreading through Sindh and KP and had entered Punjab as well. With the inflow of livestock into urban centres on the occasion
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of Eid, the fear was that Eid would turn into a super-spreader event and also put into circulation bad meat and infect the milk-supply of a lot of peri-urban dairy farmers that live on the edge of the city. “We were told to be vigilant this time. So I bought vaccines. I vaccinated nearly all of my livestock but could not get it for all of the cows because a 100 ml vial costs as much as Rs 44,000 and we are already operating on thin margins and the whims of buyers,” says Saleem. But when they finally got to the checkpost, the livestock department officials simply cast a quick glance at the cars that Saleem’s animals were being brought in, they checked a few ears, flashed a phone torchlight on the hides of a few of the cows, and let them go after signing and stamping a few papers. Saleem realised quickly that the officials were tired and not staffed well enough to do this job diligently. “We all know how bad the heat has been. These men doing the inspections were sweaty, cranky, and exhausted. They didn’t have the time and energy to get on every vehicle and inspect each animal. So I called
my brother and told him when he brings the next batch of animals, there was no need to go through the expense of vaccinating them. Besides, if we did get caught there were solutions. You can get a NADRA registered Covid-vaccination card here for Rs 15,000 for people. It isn’t like getting these documents for animals is any harder.” That, in short, is the reality of how LSD was handled on the occasion of Eid ul Adha. The livestock department under checked animals to deflate numbers and create a false sense of calm. They also told people the meat and milk from these animals was safe to consume even though this is not the recommended practice. The results in the immediate aftermath of Eid are already chock-full of disasters. For the past few years, leather imports had been down because of Covid related lockdowns. This year, with cases low around Eid and no lockdown, the industry was expecting imports worth $1 billion. However the presence of LSD means they will not clear over $950 million in exports and may even end up lower than that. A lot of the hides they are getting are infected and that
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means they are completely unusable. The more than five million dairy and meat farmers in the country are also being hit hard by LSD. Initially, LSD had been striking dairy farms in rural areas but with the advent of Eid more cases have started emerging in small-scale dairy farmers operating on the outskirts of cities like Lahore. That is because a large amount of the milk supply of Urban centres particularly from ‘gawalas’ that provide fresh milk comes from small dairy farm setups in peri-urban locations. The true impact of Eid on the spread of LSD will make itself known over the coming few weeks. Because of the lack of oversight and the livestock department’s complicity in trying to tamp down the fear, there is no way of determining exactly what this effect is but it could prove disastrous.
What is LSD?
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viral disease, LSD has killed millions of cows and left the livestock industry in Africa, Europe, Israel, India and Afghanistan reeling before it finally reached Pakistan. By now, it has infected and killed thousands of animals in Pakistan as well. The vector-borne, transboundary disease found among cattle and water buffaloes, spreads primarily through biting insects such as mosquitoes and ticks, was first discovered among livestock in Zambia, in 1929. It causes the cattle to suffer from “high temperature, much discomfort and loss of milk production. Veterinarians seem split on whether it is alright to consume the meat and milk of cows affected by this disease. What is a reality for farmers is that milk production is significantly lowered in cows that have the disease, their hides become unsellable if they are slaughtered for meat. For consumers, it is not possible to know whether the milk or meat they are about to consume came from a diseased animal - a right that they have regarding what they are putting in their bodies.
Where did the virus come from?
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r. Asif Rafique, Director Communications, Livestock and Dairy Development Department, Punjab, informed Profit that the virus was transmitted from Indian animals in Pakistan. “In fact, in the Cholistan area, cattle sometimes cross the border from India. It seems to us that from there an animal entered Pakistan’s territory which was infected and then as the infected cattle roamed the area, the virus spread from the rest of the cattle,” he claimed. Asif also believes that infected cattle from the Afghanistan border and the Iran border could have a chance to enter Pakistan’s
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territory. Cows wandering in from neighbouring countries is not an unusual occurrence. Animals, of course, do not have a sense of borders or immigration. But LSD has not been reported in Pakistan before but has been an issue in India nearly five years ago when it first started to be reported. Often, when a cow from across the border wanders into Pakistan, some farmer thanks his luck and takes the infected animal with him and includes it in his herd from where the rest of his animals catch the disease. Dr. Asim Khalid, a senior veterinarian from Punjab, informed Profit that the disease was first diagnosed in Africa in 1929, after which the disease spread to India, Sri Lanka, Indonesia and then to Pakistan. “Initially, cattle breeders and veterinarians did not know that the Lumpy Skin virus had arrived in Pakistan. Due to this lack of knowledge, the virus spread widely. There is no chance of transmitting the Lumpy virus to humans because there are no receptors for the disease in humans. In order for any disease to be transmitted, it is essential that the organism has receptors for the disease. Lumpy skin disease receptors are not present in humans so they are not transmitted to humans. It cannot be even transmitted through consumption of meat and milk. Beef and milk do not have a bad effect on human health. So you can use its meat as well as milk, cooked at a higher temperature,” he said.
Situation in Pakistan
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ccording to various media reports, the first case of LSD virus was reported in Sindh while the Director Communications of PL&DD also confirms this. However, some sources in the Livestock and Fisheries Department of Sindh informed Profit that the virus had spread rapidly in Sindh but most of the cattle were affected in Karachi. “The number of registered animals infected with LSD in Sindh has risen to 53,393 while 571 cattle have died. The number of cattle reported in Karachi has crossed 20,907. Cattle in Tando Muhammad Khan, Umerkot, Sanghar, Matiari, Shaheed Benazirabad, Ghotki, Sukkur, Jacobabad, Kashmore, etc. have also been infected with Lumpi skin virus. At present, the total number of infected animals in the province is more than 5,363, while 47,459 cattle have recovered after successful treatment. In all, more than 2.7 million cattle across the province have been vaccinated against the Lumpy Skin virus,” they said. Sardar Rafique, an official with the Pakistan Dairy Farmers Association, told Profit that the virus had started spreading in Karachi and adjoining areas in February. “At the same time, we demanded that the government stop the movement of animals from the affected
areas and keep the newly purchased animals separate from other animals for at least 15 days. But we don’t have enough space to quarantine animals. Then, when the monsoon started in June, its spread intensified as the rains were followed by an influx of dirt, mosquitoes and flies,” he explained. However, Naveed Gujjar, another cattle farmer from Karachi, informed Profit that there are 5,000 cattle farms in Karachi’s Buffalo Colony with millions of cattle. “Currently, four to five percent of the cows on each farm are infected with the virus, which has so far affected about 50,000 to 60,000 cows in Karachi alone. According to my observations, the disease does not spread from cow to buffalo but spreads very quickly from one cow to another. We have 40 cows and 70 buffaloes on our farm and if I only talk about cows, they give more milk than all my buffaloes. But when a cow becomes infected with the virus, it sometimes stops milking altogether and also stops eating and drinking due to rising body temperature. Even such beef is of no use,” he said.
Measures taken
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irector General Livestock and Dairy Development KPK, Dr. Alam Zeb informed that spraying was being done in the cattle markets and vaccination was also being provided to the infected animals. “Check posts have been set up at the entry and exit points of the province. The government has provided 273,000 doses of vaccination while the number of cattle in the province is more than 9 million,” he informed. The situation in Punjab also deteriorated near the time of Eid with the livestock department seeming overwhelmed. When Profit contacted the field staff of the Livestock Department in various cities of Punjab, it was found that the situation in South Punjab was out of control. However, Dr. Sajjad Hussain Sangi, Director, Veterinary Research Institute of Livestock and Dairy Development Punjab, told Profit that his department received the report of Lumpy Skin Disease (LSD) on March 3 and a strategy was formulated the next day to control it. “On March 4, an awareness campaign on biosecurity measures, animal movement, sampling procedures, vaccinations and public health was launched in the light of the recommendations of the Office of the Animal Husbandry Commissioner of the Government of Pakistan. All Divisional Directors Livestock and District Laboratories of Punjab have been placed on high alert and an emergency cell was also set up. As per the recommendations of the World Organization for Animal Health (OIE) and the Office of the Animal Husbandry Commissioner, the laboratories at the Veterinary Research Institute, Lahore, for the prepara-
tion of Capripox vaccine were inspected and their capacity was immediately enhanced. So, vaccine production began in the Cantt area of Lahore and the vaccination process began on March 15. So far, we have vaccinated 1.5 million animals and once the vaccine is manufactured in Lahore, it is supplied throughout Punjab. Moreover, our local team collects samples and vaccinates wherever an animal is reported to be sick. Similarly, through social media campaigns, we are informing people that the meat and milk of animals suffering from this disease are safe. We have set up check posts all over Punjab to keep the animals safe for Eid. At these checkpoints, the animals are first checked and then allowed to enter the city. Similarly, vaccine cards has been made mandatory for sale of animals in Punjab markets. There are currently 300 cell points in Punjab where our teams have set up campuses and at these points the animals are sprayed and the vaccination process is completed. Now livestock farmers can also report limp skin disease or other ailments absolutely free through Livestock Punjab’s special mobile application,” he concluded.
Dairy farmers and cattle breeders feel the heat
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hen the Lumpy virus spread in Karachi, there were many campaigns on social media in which pictures of infected animals were also posted and later, Karachi cattle breeders and butchers kept complaining that their business had declined. Aun Sahi, a cattle breeder in Okara, told Profit that by the time Eid-ul-Adha approaches, the risk of Congo virus and ticks in sacrificial animals increases because of the high transport of animals but this time the breeders and traders are facing a severe disease like Lumpy virus. “Breeding a goat by a breeder costs around RS 30,000 a year, this includes medicines, fodder and care.Similarly, a breeder spends about RS 60,000 a year on preparing a cow or buffalo calf for sacrifice. It is not that there is a shortage of sacrificial animals in the market this time, but their number is higher than before, but due to this insidious virus, the animals may be less in the market than last year and their prices may go up,” he said. Zahid Qureshi, a meat merchant in Karachi, said his business was badly affected by the outbreak. “On the one hand, pictures of sick cows started going viral on social media and on the other hand, the consumption of beef in Karachi has come down. There are two legal slaughterhouses in Karachi where about 9,000 large animals are slaughtered on a
daily basis, including buffaloes, while the city consumes 20,000 animals. Now that the virus has started spreading, the Sindh government has banned cattle markets across the province, including Karachi, which has affected the purchase of animals,” he said. However, an official of the Karachi Livestock Department, on condition of anonymity, claimed that the District Municipal Corporation, Malir, used to issue health certificates to animals on Karachi’s Super Highway, charging a fee of Rs 200 to Rs 500 per animal. “It would have been better if there had been a livestock team at the site and only healthy cattle could have been allowed to enter Karachi if the cow was found to be infected. The ban on markets has spread panic and put businesses at risk,” he said. Allah Rakha Azeem, a merchant who brought cattle from Ferozwala in Punjab to Lahore, told Profit that he had 460 animals, of which he could only bring 380 to the city. “All these animals were not mine but I bought them from different villages to sell for Eid-ul-Adha. I did not know that three of them were infected. Apparently they looked healthy but after two days They started showing signs of disease. However, I was lucky that not all my animals were present in one place. When I reached Lahore to bring them to the Lahore cattle market, I was stopped at Thokar Niaz Beg and some of my animals were checked at a livestock department’s checkpoint and two vehicles containing infected and healthy animals were sent to a livestock hospital for quarantine. Unfortunately, those animals will not be sold on the occasion of Eid al-Adha, even if they recover. Now, if you look, I have lost about ten million rupees. The price of a cow in the market at present is more than one lakh rupees. There is a lack of vaccination and awareness in the villages. Livestock officials make claims but do not go door-todoor to vaccinate the animals. Despite being free, livestock field staff take RS 500-1,000 from cattle owners for per vaccination,” he complained. A similar complaint was made by a dairy farmer who was worried because his cows did not have antibodies even after vaccination. “We have imported cows on our farm and they are very expensive and when the Lumpy virus was reported, we started looking for a vaccine for our cows. Since the disease did not exist in Pakistan before, vaccination was not available here. We had to order this vaccine from Dubai which was a pack of 100 vaccinations and it cost us around RS 125,000. Normally people don’t check their animals for antibodies after vaccination, but we did and we found out that our animals don’t have antibodies. Then we bought a vaccine from Pakistan which we got for about RS
75,000 and this vaccination is still available in Pakistan at RS 60,000 to RS 65,000. The problem is that the virus spread to Kasur andl intensified in Lahore because of Eid. The virus infected sacrificial animals as well as dairy cows and buffaloes. The Livestock Department needed to take strong action but has failed to do so.” On the other hand, the director of communications of the Livestock Department says that the vaccination is absolutely free and so far, more than 1.5 million animals have been given.“The kind of drastic measures taken in Punjab, we hope that we will be able to control its spread,” he maintained. In addition to this, leather exporters had been raising a hue and cry over this since before Eid. Speaking to Profit, Muhammad Khurram, a leather trader from Karachi, said that this time the number of skins were less than last year and their price higher. “Because of the lumpy virus, the animal’s skin is no longer fit for industrial use. Therefore, a major factor in the loss of skins will be the lumpy virus. Secondly, due to the shortage of skins this year, their price will also be higher. Last year we bought raw cow and buffalo hide for RS 500 and the cost of salting it was RS 150 and the labour of the labourer was also RS 150, so this skin used to cost us RS 800. But this time the price of salt will not be less than RS 170 and the wage of the labourer will not be less than RS 200 per skin due to which its price will go up,” he informed.
What will this mean?
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t is pertinent to mention here that according to the National Food Security and Research, the population of cattle during the year 2021-22 was 53.4 million, which was two million more than the previous year. Similarly, the population of buffalo was 43.7 million with an increase of 1.3 million. The population of sheep has not increased significantly in the last three years and their number was 31.9 million during the last financial year. The population of goats was also 82.5 million with an increase of 2 million. Similarly, in terms of milk production, last year the quantity of milk obtained from cows and buffaloes was 65,745 tonnes whereas a total of 19,384 skins were obtained from cows, buffaloes and camels in the country during 2021-2022 and a total of 62,250 skins of goats, sheep and other animals were received. Pakistan is an agriculture based economy and a large chunk of it is based on livestock farming and dairy farming. LSD affects both of these industries as well as related industries like leather export. Without any checks and balances on the spread of this disease, it may mean great strife for the huge amount of people involved in these businesses. n
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Banks need the SBP’s help to cut their losses Banks want the SBP to come in as a superhero and save them. Some banks need the SBP more than others
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By Ariba Shahid
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here’s been a lot of to and fro happening between banks and the State Bank of Pakistan (SBP) over reclassification of loss-making bonds. Loss-making bonds are those whose present value in the secondary market is lower than the book value on the banks’ balance sheet. The question is, why do banks want to do this? Well, some banks are having trouble meeting their Capital Adequacy Ratio (CAR) and loss-making bonds are eating into their equity. Sources claim that the lobbying for this is done through the umbrella of the Pakistan Banks Association (PBA). The PBA is said to have asked the SBP to allow a one-time reclassification at the original cost of the bonds in order to help banks out with meeting their CAR. “The reason banks have gone to SBP through the PBA is that their CAR is either short or will be by the time they publish June financials. Based on their financials, some banks need this more than others such as Bank of Punjab, JS Bank, and Askari Bank,” a high-ranking source in the banking industry told Profit. While it was expected that the SBP and banks would come to an agreement regarding this by the end of FY 2021-22, it is still in the works. Informed sources say that once implemented, it will be applicable retrospectively from June 30, 2022.
How are banks making a loss on a sovereign-backed asset?
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asically, banks bought fixed-rate bonds when the policy rate was lower. However, following a rise in the policy rate, not only does the return on the bond seem meager, but also won’t fetch a great price in the secondary market. As the theory goes, the price of a fixed-rate bond moves inversely to its yield – when the yield goes up, the price of a fixed-rate bond goes down. Currently, not only have the bonds fallen in value, but the difference between the bond’s yield and the rate at which it is being financed, the carry, is also negative. Banks are funding bonds that yield between 9-12% at the Open Market Operations (OMO) rate of 13.75% to 13.85%. Banks want these loss-making bonds reclassified to Held to Maturity (HTM) at cost. Right now they belong to the Available for Sale (AFS) portfolio. AFS portfolio instruments are revalued daily at a benchmark published by the Financial Markets Association of Pakistan called PKRV. It is named after the Refinitiv
Eikon page on which this benchmark has been published since the practice began. Banks do not revalue HTM securities. They are not incurring any losses in this category for now. This is why banks want to move AFS at the cost at which they acquired the asset to HTM
What does this mean for the books?
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very time the AFS trades at a discount to the book value, banks lose out on Tier 2 Capital. This is important because Tier 2 capital ratio helps determine how much risk-taking activity the bank can undertake, such as giving out loans or fresh investments in securities. Without the reclassification, banks will have their hands tied with regards to lending and investments. The reclassification will make it easier for them to meet their CAR and also help keep tier 2 capital ratio up, say treasurers at banks. CAR is calculated by dividing the Eligible Regulatory Capital by the total Risk Weighted Assets (RWA) as the denominator. This indicates the robustness of the bank’s overall capitalisation and balance sheet strength. Currently, banks/Development Finance Institutions (DFI) are required to maintain a minimum CAR of 10% on an ongoing basis on both a standalone and consolidated basis. The negative carry between the bond yield and the rate at which it is being carried is part of the net interest income portion of bank income statements. This is bringing down profits while also appearing as a revaluation loss in the capital portion of the balance sheet. In simple words, loss-making bonds are eating into both the balance sheet and income statement.
What options do banks have?
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anks have the option to sell bonds at a loss to book value. That, however, materialises the loss and banks will have to realise it. Logically, banks are averse to this idea as it impacts their earnings. This will bring down their profits and their capital. However, if banks do not sell the bonds, the loss is temporary as the value of the security approaches maturity. Banks might be able to reverse their losses eventually as they near maturity if they don’t reclassify. This can happen if interest rates start falling once again. Banks will have to decide this based on the tenor of bonds they have invested in. Reclassification is another option banks might have. If the talks go well with the SBP, this won’t be the first time banks have been allowed reclassification. The SBP allowed the reclassification of securities from AFS to HTM when Basel II was adopted in 2006. Then, the SBP instructed banks that they could not use
BANKING
the HTM securities to obtain repo financing and had to fund them from their own capital deposits. Repo financing is basically an OMO. It is important to note that the reclassification allowed at that time was because of a change in banking norms through the adoption of Basel II. This time around banks are asking for help to reclassify bonds because they made a bad business decision. This implies there will be implications. As per informed sources, it is likely that the SBP may restrict banks from paying dividends to their shareholders for a specific number of years in case a bank chooses to reclassify. This restriction on dividends is however to preserve capital, as preserving capital through reclassification and draining through dividends would be counterproductive. In other words, if you’re complaining about loss-making bonds eating through your capital, you shouldn’t be out there paying dividends, which is eating into your retained earnings. Moreover, there are bound to be repercussions to bad business decisions. This cap on dividends may impact the performance of these stocks on the Pakistan Stock Exchange (PSX). Investors usually hold onto banking stocks for the very purpose of receiving dividends.
Not all losses are the same. Which banks will be hit the most?
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ased on the quarterly accounts published on March 31, 2022, MCB bank will be hit with the biggest revaluation deficit equivalent to PKR 14 billion, followed by HBL, BOP, ABL, and NBP. JS bank, however, has the smallest revaluation deficit. This is for the third quarter of FY 2021-22. The current revaluation losses cannot be estimated with accuracy as we do not have access to the bank’s current portfolio. Visibility
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on that will be possible when banks publish their final accounts. Another way to look at this is by ranking the deficit as a proportion of the investment portfolio at banks. The investment portfolio is basically the sum of the HFT and AFS. The biggest impact is on BOP, followed by AKBL, MCB, ABL, and Soneri. Standard Chartered Bank is the least impacted based on this metric. However, it is important to note that while larger banks like MCB and HBL are incurring larger losses, they also have significant equity. What this means is, that while the losses are bleeding out, it is unlikely that the CAR or the Leverage Ratio (LR) for these banks will be impacted significantly or materially. Smaller banks such as BOP and AKBL, having losses equivalent to the larger banks are having a tough time considering their CAR and LR are hovering near the threshold. The LR is required to be 3%. The method of calculating it has been relaxed through an update in Basel III communicated through a change in FAQs. As of March 2021, BOP (3.1%) and JS (3.02%), were borderline while Soneri (2.43%) was in breach. What this means is that not all losses are the same. A PKR 1 billion revaluation loss at a smaller bank is much different than a PKR 1 billion revaluation loss at a big bank. This is because
smaller banks do not have buffers to absorb the reduction in equity, especially at a time they are hovering near the threshold. This also means that even though JS’s revaluation loss as a standalone figure is smaller than the rest, it is still in a tough spot because of its LR.
What does this mean for the banking sector?
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his shows the banking sector in an unflattering light. The numbers show that nearly all banks are bad at risk management. The only difference is that some can afford to be bad at it; while others cannot. The decision to allow banks to reclassify loss-making bonds, however, is seen critically by analysts and sources in the banking sector. “The SBP is allowing banks to make losses on bonds and then letting banks brush their losses under the carpet. As a result, banks will never fully learn to fix their risk management,” opines a source. “Banks are supposed to have robust risk management in place, especially in cases where they simply earn off the safest form of investment - government lending,” he adds. A source at the SBP, on the condition of anonymity, explains they are sympathetic to banks having trouble reaching their CAR. Despite that, this decision bails out banks from their regular day-to-day business decisions that went wrong. “This removes the repercussions of bad-decision making.” “The SBP saving the banks every time they face a loss just sets a wrong precedent, especially at a time when the banks are taking the SBP and Ministry of Finance for a ride on yields. You’re just showing banks they have more power.” n
BANKING
OPINION
Ozair Ali
The remarkable life and tragic death of Airlift
few years Airlift was a bet on a number of things: (i) on the existence of substantial demand for the quick commerce model, not just in Pakistan, but also in other countries; (ii) on a young founding team being able to execute; and (iii) on capital markets providing the financing necessary for rapid growth. It was also only three years old before its capital ran out. The first and second points are hard to prove or disprove, but presumably some investors in the Series B round were convinced of at least the possibility that they were true. After all, venture capital is a series of high-risk bets, often with risks in full view of investors, but with the possibility that, he final cause of death was a boring one: the company if the idea works, it could make up for ten other failures in the just ran out of money. Allegedly, some investors got investors’ portfolio . The chance that Airlift did not work out was cold feet, either reneging or dilly dallying on their capalways going to be greater than its chances of success. Unfortuital commitments, and that was that. It’s uneventful nately, it’s also not going to be the last startup to shut its doors. because that’s how most companies meet their end. It’s the (macro)economy, stupid The post-mortems have already started: Airlift For all the shortcomings in Airlift’s business model, it’s was an unsustainable business model that sold products at less than the macroeconomy that killed it. In fact, I would argue that even their purchase price, goes one view. Investors were duped by creative if Airlift had firmly established product-market fit, it would metrics, is another one. This was the inevitable end for a company have struggled to raise financing in this environment. For all the that flew too close to the sun, having become the darling of the tech academic discussion and what about-ing around blitzscaling and ecosystem. the company’s unit margins, the number one predictor of startup Picking favorites in a startup portfolio is like picking favorites survival in Pakistan will be the amount of global capital willing amongst your kids: even if you have one, it’s best not to say that out to invest in Pakistan. The global macroeconomy is the eight-hunloud. Let’s not do that again. At the same time, let’s also dwell on dred-pound gorilla in the Pakistani startup ecosystem and it’s Airlift’s remarkable story for a while. now gatecrashing the party. At its high point, Airlift raised $85 million at a valuation of at Global capital markets are particularly relevant for the least $200 million (according to my guesstimate). What’s remarkable stage that Airlift was at. No Pakistan-focused investment fund is that this made it almost one-third as valuable as HBL’s market cap has the money to lead $85 million rounds. All successful startups of roughly $650 million. In slightly over two years, Airlift was worth will get to that stage, if they want to get to a billion-dollar val– at least on paper – almost as much as Bank Alfalah. That invited uation, but only regional or global funds have that kind of cash both disbelief and greater scrutiny – as it should – leading to a flurry available. Those funds will question whether they want to gain of reports on whether Airlift made money on a per unit basis, its exexposure to Pakistan’s macroeconomy. The only way for startups pansion plans into South Africa, and more broadly, on the principles to skirt that question is to go regional or even global at that stage. and applicability of blitzscaling in Pakistan. It’s no wonder that Airlift launched in South Africa when it did, Most startups are high-risk and unsustainable for their first even if it may have seemed premature to observers. Pakistan is, unfortunately, one of the first countries on the chopping block for when investors want to shed unnecessary risk. Pakistan’s GDP per capita in 2021 was $1,538, compared to $2,503 for Bangladesh and $3,694 The writer is Former: for Vietnam. In 2001, Pakistan’s GDP per capita was higher than that of both those countries. Emerging markets VC The rupee has depreciated precipitously, and the country has chronic fiscal and external account with Alter Global. Now: problems, perpetuated by a lack of diversification in its export base. Entrepreneur PS: I also write Fortunately, as I’ve argued earlier, the startup ecosystem is well-positioned, on average, to short speculative fiction weather the changes in global capital markets. But ultimately, Airlift was a riskier model than most, and had not raised financing recently. It’s not surprising that it was the first victim in the Pakistani ecosystem of the changing global capital market, and I fear it may not be the last. The startup ecosystem will remain at the mercy of global investor sentiments unless Pakistan’s overall economic growth rate picks up and the country’s external and fiscal accounts stabilize. n
Airlift’s highs were dizzying and its lows were tragic. But what are the lessons we can learn from it?
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COMMENT
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OPINION
Uzair Younus
The folly of relief
ease the burden of the masses by lowering prices forces policy actions that distorts markets, even if said distortion creates a crisis where the country may default. An example of this type of action is the disastrous decision by Imran Khan to cut and freeze energy prices, such that it put the IMF othing reflects the crisis of economic policymaking program off track and created the conditions where a Sri Lanka type in Pakistan than the repeated pronouncements of crisis was a growing possibility. But Khan is not alone in this: the inproviding “relief” to the masses by successive prime terventions in agriculture markets, for example, have been going on for ministers. A few days ago, Prime Minister Shehbaz decades, creating a situation where the circular debt in the commodity Sharif became the latest leader to make this argusector is over a trillion rupees; an agriculture sector analyst told me ment, announcing in an address to the nation that his government months ago that the government borrows money just to pay off the was going to cut the price of petrol and diesel in a bid to ease the interest owed on commodity debt! pain – which is very real – being felt by ordinary citizens. But this These interventions not only distort markets but also reduce the approach to governance, where governments talk about and are incentive for private sector capital to invest in and innovate key secexpected to ease pain by reducing prices of things, is a significant tors. Because the government intervenes and sets prices, the industry reason why economic policymaking remains broken in Pakistan. adjusts, relying on a model that has become the norm across Pakistan’s Many readers will recollect the annual discourse around economy: rent-seeking. As a result, various sectors from automobile budget time when the media talks about whether the budget will manufacturing to wheat production have fallen behind the world, ulease pain or break the backs of citizens and businesses. Governtimately making Pakistan’s economy less dynamic and uncompetitive, ment politicians tout the budget as being “people-friendly” while and its citizens poorer. opposition leaders criticize it as burdening the awaam with more What if policymakers were instead focused on what their jobs taxes and higher prices. Business lobbies that are facing higher tax are about: creating an enabling environment for sustainable growth, rates take out advertisements talking about an imminent crisis in where capital is efficiently allocated to sectors that show promise, and industry that will lead to record job losses, while those benefiting where the government does not fix prices in a bid to provide relief. from more subsidies come on television to thank the prime minister, Such an approach would mean that governments would spend less promising to generate well-paying jobs in lieu of the friendly politime debating what the price of tobacco, petrol, sugar, and wheat cies announced. should be in the market, or whether import or export permits need to A similar series of conversations take place when energy be given to specific sectors. Instead, time and effort would be occupied prices are adjusted, especially the price of petrol and diesel. In terms in debating and implementing policies that promote investment and of key food products, wheat and sugar price increases lead to howls, modernization in key sectors, leading to the creation of well-paying and rightfully so, as they hurt millions of ordinary citizens that rely jobs and increased productivity in the economy. on these products for cheap calories. In addition, such an approach would lead to policymakers But at its core, this idea of the government having a responsifocusing on empowering regulators, where scarce taxpayers’ resources bility to ease pain by manipulating prices leads leaders to make the are not channeled towards subsidies captured by rent-seekers, but types of policy choices that are directly responsible for Pakistan’s towards building institutions that can promote fair competition in the economic decline. A prime minister motivated by, and expected to, market (example: the Competition Commission of Pakistan). For far too long, Pakistan’s leaders have engaged in a now-extinct form of governance, where the ruler is expected to dole out gold coins to the masses such that they do not go hungry. This is no way to run a modern economy and prime ministers should not be giving addresses to the nation to announce cuts to petrol prices – in fact, this The writer is Director of author believes that no prime minister should have the authority to set prices in the market, except for in the Pakistan Initiative cases of national emergency. at the Atlantic Council, a Without this shift in approach, Pakistan’s economy will remain hostage to a medieval form of Washington D.C.-based economic policymaking while the rest of the world adopts more modern methods focused on generating think tank, and host of the growth, increasing productivity, and creating an enabling environment for enterprising citizens. So long podcast Pakistonomy. He as we Pakistani leaders remain focused on providing relief, the economy will never emerge out of the rut tweets @uzairyounus. it finds itself in.
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COMMENT
OPINION
Ammar H. Khan
Sovereign Debt Vulnerability
default risk. The yield on its debt ranges from 16% to 22% depending on the maturity of its Eurobonds. Although this does not directly affect the interest to be paid as the same is fixed at the time of issuance, this does affect the ability of Pakistan to raise more funds through international capital markets. As there is a flight to quality, as is the case during stressed times, emerging market sovereign debt will continue to see its default risk increase. The same he last 12 years saw US dollar-based benchmark has been increasing for the last few weeks as can be seen through interest rates close to near zero as monetary expanexpansion in credit default swap spreads, and higher yields across sion reduced the cost of capital, fueling an equity, all emerging market sovereigns. credit, and venture capital boom as there was a In the specific case of Pakistan, a higher interest rate would virtually unlimited supply of capital for chasing a mean higher cost of debt servicing on all sovereign commercial loans finite number of investable opportunities. As rates which are not at a fixed rate. Similarly, a significant sum of project stayed close to zero, the need for higher yields pushed capital to based loans are also pegged to the London Interbank Offered Rate be deployed in riskier propositions, one of them being emerging (LIBOR), which would see their overall cost of debt servicing inmarket sovereign debt. crease. As the majority of projects undertaken under the CPEC had a As the US Federal Reserve takes away the punch bowl and component of foreign currency loan, they will see their cost increasprovides forward guidance regarding a contractionary monetary ing. In the case of energy, a large number of power projects have loans policy to ensure inflationary expectations remain anchored, interdenominated in US dollars, which will see their costs increase as well. est rates are expected to increase further. A sovereign debt crisis across the emerging markets is on the As interest rates increase, the benchmark rates move uphorizon. The credit markets for emerging market debt are going wards, thereby also pushing up the cost of borrowing. The cost of to freeze, making it difficult, or more expensive, to refinance, or servicing debt for many corporates, households, sovereigns, and raise more debt. As the global macroeconomic scenario unfolds, other obligors also increases. As the cost of servicing debt increasit is imperative that Pakistan has a well calibrated external debt es, while the ability to generate corresponding foreign currency management strategy. remains compromised, many emerging market sovereigns may see Any new external debt assumed by the sovereign should their interest payments increasing as a proportion of their overall only be there to support a specific foreign currency component of a budget. This would essentially mean that scarce resources that project. Efforts must be made to avoid utilisation of external debt could be utilised to fund education, health, and nutrition among to service operational expenses, or something that can be managed other fundamental human rights would now be used to make through local currency. Similarly, efforts must be made to conserve payments to debt holders. foreign currency given a potential liquidity crisis expected in the To make things worse, the US dollar continues to strengthen near term globally given a flight to quality. Rationalising the import against other major and emerging market currencies due to the bill through direct and indirect interventions can save some foreign increase in rates, and the phenomenon of flight to quality. As the currency which can shore up overall foreign currency reserves. overall global macroeconomic environment deteriorates, investors Although Pakistan approached the IMF at a fairly late stage of a are ditching riskier investments for the safety of the US dollar. balance of payments crisis, we are still not out of the woods yet. This increases the demand for the dollar, and hence its price. A The ability to refinance all debt expected to mature over the next 12 stronger dollar results in depreciation of the Pakistani rupee and to 18 months would be challenging as credit markets tighten. other currencies, further increasing the size of debt in terms of Although external debt as a percentage of GDP has stayed local currency. in a stable range over the last few years, the inability to generate Pakistan is one of the more vulnerable sovereigns exposed to more foreign currency through exports or through Foreign Direct Investment has made foreign debt servicing a major problem. It is imperative that an external debt management strategy is in place, which doesn’t just assess sustainability of sovereign debt, but also The writer is an any project based debt, because the same will also have to be serviced through foreign currency available with independent the sovereign. Any sovereign debt assumed should ideally be self-liquidating, wherein it can be serviced through macroeconomist and foreign currency inflows of the project, or through enhanced export generating capacity of the sovereign. energy analyst. The sovereign debt crisis is only to get worse globally. We can either plan for a stressed macroeconomic environment with strained liquidity, or we can continue living on a prayer and bailouts by multilaterals, or other friendly sovereigns.
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COMMENT
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OPINION
Ahtasam Ahmad The Fault in our Firms Do audit practices add to the vows of a Chartered Accountancy Trainee?
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career in Chartered Accountancy is glamorised in our society to an extent that it has become a borderline obsession of the “Rishta Wali Aunties”. Yet, what is ignored the most in this whole debate is the fact that it is toilsome to qualify as a Chartered Accountant (CA). There is a misconception that the only obstacle between one being an aspiring CA and a qualified one is clearing the exams but what differentiates them from each other is also the same thing that makes the whole process excruciating; “contractual labour”. This is a task that trainees are made to do during their qualification. I would like to make it clear in the very beginning of this article that it is the training that makes a CA stand out amongst those with other finance qualifications. However, it should not be ignored how and in what environment this training is provided. The focus of this scribe is the audit practices, where most CA trainees end up, and the anecdotes being provided will be from the Big four firms that most aspirants want to be inducted into. The first thing as a trainee that hits you straight in the face is the realisation of how underpaid you are going to be and that too, for a long time to come. The minimum stipend as per the Institute of Chartered Accountants of Pakistan (ICAP) is shown in the graphic below.
contract CA students sign is one of training, they are not eligible to be paid a salary. They are instead, compensated through a stipend which doesn’t fall in the ambit of the aforementioned law. Basically what this boils down to is that institutions win and trainees lose. What is even more interesting is the job description of trainees. It is to basically do whatever the firm wants you to do. This is more common in smaller practices where trainees are oftentimes asked to run errands for seniors. However, even the big practices have the tendency to use their trainee staff as “unskilled labour”. When one is prepping for an interview at a big firm, they might as well bring their physical fitness certificates because believe me, you would need it for the job. The CA training is not just numbers flying around and catching fraud in fancy offices with corporates running for their lives when they see the auditors. Please don’t take inspiration from TV shows (case in point, Suits), you’ll be thoroughly disappointed. The job also includes counting “Lays ke dabbay” at random Pepsi warehouses, running around the city with coordinates of telecom tower sites just to physically tag them, and even worse, stepping into a cold storage to count ice cream. (Sounds fun, but I promise it won’t be when you’re doing it for the 100th time). One may argue that this happens in the corporate sector at the infant stages of a professional’s career, but this is a reality for most CA trainees in the first month of their training all the way to their fourth year. Furthermore, in the name of “Exposure”, trainees end up doing the same laborious tasks year after year and naturally this weakens their motivation. The Bye-Laws of ICAP oblige CA firms to rotate trainee staff between different departments yet in practice it is a rare occurrence.
Source: ICAP website When it is compared to the minimum wage, which is currently PKR 25,000, the stipend looks even worse. And so one might ask, how this is permitted by law. The answer is quite simple; the
The writer is a business journalist at Profit and has worked with reputed audit practices in the past
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Source: ICAP What adds to the pain of CA trainees is the ridiculous number of hours they are made to work – at times around 70 to 80 hours a week. To get some perspective, most of them are juggling between studying for their qualification and providing labour for their firms. It must be both noted and appreciated that this rigorous training sets you up just right for a career in finance. Those associated with the profession are some of the highest paid amongst the workforce of the country. Yet, the ills of the industry need to be called out as they highlight our society’s tendency to accept unfair treatment just because, “Yahan per aisey hi hota hai”. n
COMMENT
Fuel strike, supply chain disruptions, and rising demand When it rains it pours, on top of a supply chain disruption, pumps want to go on strike while people demand more fuel
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By Ariba Shahid
akistan Petroleum Dealer Association (PPDA) announced a nationwide strike on July 18, 2022, to demand the government increase the distributors’ commission. The association wants this commission increased from 3.5% to 6% as promised earlier by the government. Banners have been hung across various petrol pumps with details of the strike and the association’s demands. PPDA cites rising minimum wage, rising electricity prices, and longer load-shedding hours leading to higher generator costs as the prime reasons for demanding more commission. The decision to go on strike was made public the same day as Prime Minister Shehbaz Sharif’s announcement of the government’s decision to bring petrol prices down by PKR 18.50 per litre, and diesel prices down by PKR 40.5 per litre effective July 15. The PM said that any further decline in international oil prices will also be passed on to the public. Earlier before the announcement, Finance Minister Miftah Ismail in an earlier presser explained to the media that the IMF had no objections to the government’s move. This implies that the dealers see an opening in getting the government to agree to their demands after seeing prices recede in international markets and domestically. There are various components that help determine the price of fuel in the country. Dealership margins are the margins a dealer (a pump owner in this case) gets. These used to be in the form of percentages but have now been fixed per litre. Back in November, the dealers went on a strike asking for revised margins. Petrol pumps would earn PKR 3.91 per litre on petrol and PKR 3.30 per litre on diesel. Profit made by petrol pumps per litre was 2.75% which the PPDA had demanded be increased to 6%. If this demand was met, the profit made by pumps on petrol would be PKR 8.75 per litre and PKR 8.5 on diesel. Instead, the government negotiated with the dealers and they would now charge PKR 4.90 per litre of petrol. Essentially, an
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enhancement of 99 paisa in the existing margin of petrol and 83 paisa in the existing margin of high-speed diesel. In 2016, the Economic Coordination Committee (ECC) decided that margins will be revised annually by the amount of average Consumer Price Index (CPI). The period for this average changed in 2019, but the rule remained the same. Despite that, over the past five years, the margin was only revised four times for petrol and three times for diesel. There have been threats of strikes every time. Before November 2022, a revision in margins took place in April 2021 which was after a delay of nine months for petrol. The government, over the past few months, has been delaying the revision stating that the PIDE study would be used as a gauge to revise margins. The study, however, is completed yet the government was still not keen to revise rates. In addition, if you link this to the fuel shortage of June 2020, the government’s relationship with fuel pumps isn’t that great to begin with. While inflation remains a concern and with fuel prices rising internationally, the government feels compelled to make fuel pump owners wait.
How do pumps make money?
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etrol pumps can be company-owned or dealer-owned. Dealer-owned petrol pumps are where an individual buys a “franchise” of a petrol pump, follows all legal procedures, and sells fuel on behalf of an Oil Marketing Company (OMC). They earn through the dealership margin. Petrol pumps earn based on how much fuel they sell. Some pumps also earn on the sale of lubricants and services such as tire puncture stations, car washes, service areas, stores, and so on. As per the Shell Pakistan website, “Your income will depend on the type and number of stations you run and their locations, but you can look forward to potential earnings of between PKR 2,500,000 and PKR 3,500,000 per annum from year one (for a single site), with the opportunity for additional earnings if you exceed targets and control your costs.”
While these figures are not guaranteed, if one chooses to open a fuel station, the company one signs with will provide the fuel and training. In return for investment and the time one puts in to run the fuel station, one will get their margin and possibly a bonus or remuneration for meeting sales targets. While fuel prices do add to the inflation of a country, it is important to note that inflation and the cost of doing business have also increased for pump owners.
Hindered supply regardless of the strike
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owever, regardless of the motive behind the strike, the petroleum supply is not too reliable. As per media reports, no oil tankers have been filled since July 10, 2022, and more than 6,000 oil tankers await filling at Keamari, Korangi, and Port Qasim. Following torrential rain in Karachi, rainwater is stagnant at oil installation areas in Karachi and oil terminals of 21 fuel importing companies. As a result, fuel supply has been disrupted everywhere bringing the country close to a fuel crisis. Moreover, following the decline in prices of fuel, bus and train fares have been reduced. Federal Minister for Railways and Aviation Khawaja Saad Rafique on Saturday announced a 10% cut in plane and train fares in a video message. Rafique said that the Ministry of Railways has decided to lower fares from 5% to 10% as a result of the recent drop in the cost of petroleum products. Fares have been reduced on the economy class of Pakistan Railways express train, and both classes of all domestic flights of Pakistan International Airline (PIA) for the next 30 days. Rafique said that after this the Civil Aviation Authority (CAA) would urge private airlines to reduce their fares. He is also hoping that local transporters will reduce their fares. What all this means is the demand for fuel is certainly going to rise. With the PPDA and supply disruption, one can only wonder what this will mean for Pakistan’s already fragile fuel-crisis-prone economy. n
ENERGY
Where are the buses? By Pofit
Everyday Muhammad Ahmad gets up from his home in the Liaqatabad Colony near Ferozpur Road. The 23-year-old lives in a three-bedroom apartment with his parents, two brothers, a sister, his uncle and aunt and their three children. “We have two bikes. One that my uncle owns and the other is my father’s, but my father uses a cycle instead and my elder brothers usually use the bike,” he says. Ahmad’s father works as a gardener in the nearby Model Town housing society, where his brothers also have jobs. Ahmad, on the other hand, has a small shop of his own that he opened with some friends near Gajju Matta. They make and repair motorcycle seats. “When we opened the shop, my uncle let me use his bike. The shop is new so the money we make is very tight right now and every penny counts. The bike is an old Yamaha. If I had a newer CD 70 it would give me better mileage but the Yamaha takes me 35-40 kilometres in a litre of petrol,” he tells us. When Ahmad opened his shop in late 2020, the price of petrol was half of what it is now. “Back then I used to travel from my house to the shop and it would be a 30-kilometre journey to and fro every day.” He goes to his shop six days a week. That means just for work he travels 750 kilometres a month. On a bike that travels 35 kilometres a litre, he buys around 22 litres of petrol a month. At the current price, this means it would cost him PKR 5060 a month just to travel for work. “The shop currently makes around PKR 20,000 for each of us every month. That is all the money I make, so PKR 5060 is a big amount for me.” Up until petrol was being sold at a subsidy, Ahmad continued going to work on his uncle’s bike. But when the incumbent government increased the price in three different phases, he finally decided to take a different route. “It was costing way too much. So now I have shifted to the Metro Bus. I go to the Ittefaq Station stop which is a 10-minute walk from my house. I get on board and in 20 minutes I make it to my destination where I walk another 20 minutes to get to my shop,” he says. By buying a card, Ahmad manges to travel to and fro from work each day for PKR 60. That amounts to a monthly PKR 1500. “I am now saving around PKR 3500 a month. That may seem meagre, but to me it means the difference between helping to buy groceries at home or not having any money in my pocket.”
MASS TRANSIT
Ahmad is one of the many people who have shifted from travelling on a bike to using the metro. Ever since the petrol price hikes, over 100,000 people, who were earlier commuting in their own cars on various intra-city routes have switched to the metro trains, the metro buses and the feeder bus services in Lahore, Multan and Rawalpindi. “While observing the passengers ratio, we have found an addition of around 75,000 passengers daily into our intra-city transport systems – Orange Line Metro Train (Ali Town-Dera Gujran), metrobus (Shahdara-Gajjumata) and the Speedo buses plying on feeder routes in Lahore. Similarly, around 20,000 passengers have also switched to the metrobus system in Rawalpindi,” says a senior official of the Punjab Masstransit Authority (PMA). Something people do not keep in mind is that mass transit projects are life changing for a lot of people that use them. In Pakistan, such projects are often described as ‘jangla bus’ services and ‘white elephants’ when in fact they do a lot of public good. In fact, the example of Ahmad we have given is of someone who still has it better. There are people out there who do not have access to motorcycles at all, and have to rely on local routes run by expensive rickshaws or spend hours a day hopping from one bus to the other and paying a new fare everytime. Projects such as the metrobus do not just provide a reliable means of transportation, they also allow hardworking people to travel with dignity and without having to face harsh climatic conditions and pollution. And it isn’t just the metro in Lahore. The Orange Line Metro Trains (OLMT) are estimated to handle 30,000 passengers every hour. With a planned operating time of 05:30 to 23:30, it would mean 200,000 com-
muters using the service every day, a figure expected to rise all the way up to at least 500,000 commuters within three-years of inception, meaning an estimated eventual hourly usage by nearly 50,000 people. For someone who has to travel up to 27 kilometres on foot, on a motorbike, or by hopping from one wagon to another, an airconditioned and subsidised facility like the OLMT is a gamechanger. People can travel farther for work, they can have the assurance of comfortable and cheap travel without worrying about fuel costs. Such projects operate at a subsidy precisely because they are an example of the government looking out for the people. With an estimated population of nearly 13 million people, Lahore’s roads see a staggering eight million daily motorised trips to work, shopping or recreation other than walking. And over the years, this trend has only increased. Rapid growth in population and increasing vehicle ownership have steadily worsened the traffic congestion in Lahore. In fact, as of February this year, data collected by the Motor Registration Authority showed that there are a total of about 6.2 million vehicles in Lahore. There are as many as 4.2 million motorcycles in Lahore. The motor vehicle population in all of Punjab is 19.6 million, meaning Lahore makes up 32% of the vehicles in Punjab. As fuel prices remain higher than they have ever been before, more people will require public transport. In Punjab, particularly in Lahore, a shadow of such services exist. The people of other cities deserve them too. It is high time for such projects to be considered a necessity; whether it is this government or some other entity, focus must be on meeting this vital requirement. And political opponents must stop labelling them wasteful white elephants.
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Jamaat-ud-Dawa shuts down jihad delivery operations citing downturn in capital
Jamaat-ud-Dawa (JuD) — one of Pakistan’s oldest jihad startups — has announced to shut its operation in the country citing “global recession and the recent downturn in capital”. The j-commerce startup had already curtailed its operations in several cities in recent years. “While the global recession and recent downturn in the capital have affected jihadist activity across the board, it has had a devastating impact on JuD and rendered its shut-down inevitable,” the company said in a statement, announcing that its operations will shut down permanently. The company termed the development an “extremely taxing decision” that impacts a large set of stakeholders and an emerging jihad ecosystem. In recent years, it said, JuD has proven to be one of the most resilient and agile startups coming out of emerging jihad markets and the company was able to navigate the FATF crisis, pivoting into j-commerce and building scale in a new domain. he company said that with the onset of the FATFled recession it “restructured” its business operations and in
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response to the situation adapted a political mainstreaming instructed by the investors. “With the above adaptations, JuD was able to achieve order-level profitability, maintain reasonable scale, and reduce financial burn,” the company said. Talking exclusively with The Dependent, the country’s leading j-commerce figure, Hafiz Saeed, the CEO of JuD, said the constant rebranding wasn’t a sustainable business model. “Of course, it meant that the business kept running. But even with the same personnel in leadership positions, changing the company’s name every few years, after having spent time and energy building the brand, naturally takes its toll on the sustainability of the operations,” Saeed said. However, the JuD CEO insisted that despite there being multiple factors behind the shutdown the primary reason remained the downtown in the capital. “The actual capital that is, Rawalpindi, because the investors, and the investors of our investors, have all taken a hit in recent years.”
SATIRE