Yaseen Anwar: Micro-credit and the financing of small businesses
Introductory remarks by Mr Yaseen Anwar, Governor of the State Bank of Pakistan, on the
occasion of the 18th Zahid Husain Memorial Lecture, Karachi, 22 December 2011.
* * *
Honorable Chief Guest, learned Guest Speaker, distinguished guests, ladies and
gentlemen!
1. It is my honor to offer these introductory remarks on the occasion of the Zahid
Husain Memorial Lecture. These lectures, as you know, are organized as our tribute to
Mr. Zahid Husain - the first Governor of the State Bank of Pakistan. Before introducing our
Chief Guest and Lecturer for the day, I would like to briefly dwell upon the personality that
was, and the splendid role played by, Mr. Zahid Husain. You may have heard on this topic
earlier but it is always heartening to recall stories of success, particularly those that tell of
victories achieved while overcoming daunting problems and of the hardships of passing
through difficult paths.
2. A close aide of Quad-e-Azam Muhammad Ali Jinnah, Mr. Zahid Husain was a man
who possessed abundant amounts of talent and repute. His illustrious career started from
British India and culminated in Pakistan, by serving the country at the highest levels of its
hierarchy. He taught at Aligarh Muslim University, he was Pakistan's first High Commissioner
to India, the first Chairman of Taxation Inquiry Committee, and the first Chairman of the
Planning Commission Board, thereby authoring the first Five-year Plan for Pakistan.
3. Another feather in his cap was his appointment as the first Governor of the State
Bank of Pakistan, which was formally declared open by Quaid-e-Azam Muhammad Ali
Jinnah on 1st July, 1948. As the skipper of the country's Central Bank, which was described
by Quaid-e-Azam as the symbol of the country's financial sovereignty, Mr. Zahid Husain aptly
displayed his potential as an economic administrator.
4. In addition, he anticipated the prevailing as well as future economic problems for
Pakistan and the importance of economists for their resolution. Accordingly, he made efforts
to equip the Bank with the adequate expertise so as to effectively manage the economic
development of the country. His efforts, in this regard, bore fruit and he was able to recruit a
stellar group of economists at State Bank of Pakistan.
5. It is a testament to Mr. Zahid Husain's ability to recognize and recruit talent that many
of these economists served the nation as key policymakers and also displayed their brilliance
at international financial institutions. One of these economists was Dr. Mahbub ul Haq whose
work and achievements are exemplary. Besides being an excellent economist, he has been
described as "the most articulate and persuasive spokesman" for the developing world. He is
famous for his pioneering work in Human Development Theory, for the invention of Human
Development Index, for the creation of Human Development Report, and for the
establishment of Human Development Centre in Pakistan. He served as Pakistan's Minister
of Finance, Planning and Commerce during 1982-88, besides serving as the Director of
Policy Planning at the World Bank and Special Advisor to the United Nations. The respect
that he commanded at the international level could be gauged when Mr. Kofi Annan, the then
Secretary General of the U.N., said of his demise that "Mahbub ul Haq's untimely death is a
loss to the world ...".
6. There are other professionals too who started out under the patronage of Mr. Zahid
Husain and reached respectable positions in international financial institutions such as
Dr. Pervez Hasan, etc. It is a matter of pride for me that the example set by the first Governor
of SBP has been followed by his successors. A number of SBP economists have served the
IMF and reached its highest echelons. One such economist was Dr. Muhammad Yaqub, who
spearheaded the Central Bank during one of the most challenging times in the country's
history and Mr. Muhammad Ashraf Janjua, who was a former Deputy Governor of the State
Bank of Pakistan. This is in addition to a considerable number of non-economist
professionals from the State Bank of Pakistan who have served their respective professions
on the national as well as on the international stage.
7. Those of us witnessing Pakistan's current progress may find it hard to imagine the
challenging times that the country bore shortly after its birth and through its infancy stages.
Without quoting specific examples here, it is suffice to say that those were really very testing
times. Although resources available to the nation then were quite low, the courage and
passions of our founding fathers pulled the country through. They devoted their body, soul
and personal resources, in entirety, during the journey from scratch to sky-scraper. Mr. Zahid
Husain was amongst those great personalities.
8. He never hesitated in accepting the challenging tasks and, in the same spirit, led the
Central Bank successfully in those testing periods of our country's history. The nation also
recognized his commendable efforts and has tried to repay her debt to him for the
meritorious services rendered for the country. Accordingly, on the occasion of the Silver
Jubilee of State Bank of Pakistan in 1973, it was decided to institute an annual series of
lectures and to name the series in commemoration of Mr. Zahid Husain.
9. Since then, we have organized 17 lectures in the series and invited eminent
economists and financial experts from around the globe as Guest Speakers. The latest one
took place in the year 2010 wherein Mr. Kent Mathews, Sir Julian Hodge Professor of
Banking and Finance, Cardiff Business School, United Kingdom shared his thoughts with the
audience on "Banking Efficiency in Emerging Market Economies". These lectures provided
an excellent opportunity for the participants to share ideas on issues of topical importance.
10. Before moving forward, I would like to express my sincere gratitude to Justice
(Retired) Nasir Aslam Zahid - the son of Mr. Zahid Husain - for his attendance. He scarcely
needs an introduction. He is one of the most prominent personalities of the country - not only
due to his status and accomplishments in the judiciary but also for his postretirement service
to the nation. He served all of the judiciary's vital organs - he was the Chief Justice of Sindh
High Court, then a judge of the Federal Shariah Court, before finally serving the Supreme
Court of Pakistan. He enjoys an untarnished reputation within and outside the judicial circle.
Even after retirement, he has continued serving the nation with his involvement in human
rights issues and education. He is currently the Dean, Faculty of Legal Studies and the Head
of the Hamdard School of Law at the Hamdard University, Karachi. I am thankful that he has
very kindly accepted our invitation and spared the time to grace the occasion with his
presence today.
11. Now, before introducing our speaker for the day, allow me to humbly add a few
words about the role played by State Bank of Pakistan with regard to today's subject -
"Micro-Credit and Financing of Small Business". First, our own research department has
been engaged in documenting, through national surveys, the workings of the product, labor
and credit markets of the informal sector - with a particular focus on the manufacturing
sector. The results of these surveys have started to trickle down. Secondly, you may
remember that the 5th Pakistan Microfinance Country Forum was recently held in Karachi on
2nd December, 2011. Some details concerning the issue were given in my Inaugural
Address at that Forum. Since there has been hardly any change in factual position since
then, I would like to avoid repetition as much as possible and limit myself to a few words
about the developmental role of State Bank of Pakistan.
12. As you are aware, Central Banks of developing countries are supposed to perform
both traditional as well as developmental functions, in order to achieve macroeconomic
goals; and SBP is no exception. The nontraditional or promotional functions, performed by
the State Bank, include the development of financial frameworks, the institutionalization of
savings and investment, the provision of training facilities to bankers, and the provision of
credit to priority sectors. In this regard, SBP has always endeavored to meet the genuine
credit needs of different sectors of the economy, thereby serving as a catalyst to the process
of economic development. As I have mentioned earlier in my speeches, efforts to bring
Microfinance into the mainstream formal financial system started in 2000 & 2001 in the
aftermath of the promulgation of the Microfinance Ordinance and, since then, we have
witnessed the establishment of new microfinance banks, the transformations of large
microfinance institutions, the diversification of funding sources, the development of inclusive
financial services, the emergence of alternative delivery channels, and the piloting of
"Microfinance - Credit Information Bureau" (MCIB). Against this backdrop, a Small & Medium
Enterprise (SME) Finance Department was established in State Bank of Pakistan in July
2008 to focus on providing an enabling regulatory framework for SMEs, assessing their credit
needs, capacity development of Banks and DFIs and for building awareness through
seminars and conferences, along with the promotion of financial services for export-led
industrial growth.
13. Regarding the regulatory approach of SBP, I would like to quote short excerpts here
from my speech at the Pakistan Microfinance Country Forum: "In developing regulations for
microfinance, the State Bank has pursued a bottom-up approach, along with use of strong
analytical and problem solving skills and industry consultation. Since the inception of
microfinance banking in Pakistan, our goal has been to determine the proportionality of a
regulation before it is put in place. Hence, the regulatory approach has remained gradual and
in line with the evolution of the sector..." "In the new Microfinance Strategic framework
2011-15, SBP has laid out a detailed strategy to promote sustainable growth of the sector.
The strategy's effectiveness and success hinges on growth dynamism fundamentally coming
from microfinance operators themselves. The role of SBP is to develop the banking
infrastructure, to encourage the use of successful global practices, and to provide the
regulatory and supervisory mechanism that enable MFBs to develop viable business
models".
14. We shall soon have the pleasure of hearing our distinguished speaker, Professor
Banerjee's, thoughts on this subject. I am sure his lecture today will introduce us with
something special on the topic, not only because of his extensive research on the subject but
also because of candidness of his approach. Perhaps, not many of us will have witnessed this
openness and honesty of thoughts earlier - the kind that is evident from the last sentence of
the concluding chapter of his most recent book titled "Poor Economics". Let me quote that very
sentence for you: "At least we can stop pretending that there is some solution at hand and
instead join hands with millions of well-intentioned people across the world - elected officials
and bureaucrats, teachers and NGO workers, academics and entrepreneurs - in the quest for
the many ideas, big and small, that will eventually take us to that world where no one has to
live on 99 cents per day".
15. Now let's turn to our guest speaker himself. Ladies and gentlemen, we are honoured
to have with us, Dr. Abhijit Vinayak Banerjee, the Ford Foundation International Professor of
Economics at the Massachusetts Institute of Technology, USA. His teaching and research
have won him accolades the world over and he stands as a giant in his profession. Just to
introduce him to our guests here, Dr. Banerjee has attended the University of Calcutta,
Jawaharlal Nehru University and Harvard University, successfully earning his Ph.D from the
latter.
16. During 1988 to 1992, he taught as an Assistant Professor of Economics at Princeton
University. He moved to Harvard University in 1992 as Assistant Professor of Economics,
before joining the M.I.T. in 1993 as Pentti J.K. Kouri Career Development Associate
Professor of Economics. He became Associate Professor of Economics in 1994 and then
Professor of Economics in 1996. He is the co-founder of Abdul Latif Jameel Poverty Action
Lab (J-PAL) at M.I.T, which runs field experiments aimed at measuring different ways to save
the world. In 2009, J-PAL won the BBVA Foundation "Frontier of Knowledge" Award in the
development cooperation category.
17. Professor Banerjee's general research areas include economic development,
information theory, theory of income distribution, and macroeconomics.
18. As you know, an economist's caliber - particularly an academic one's - is primarily
judged by the quality of his publications; and to date Dr Banerjee has published no less than
60 papers in the world's leading economic journals. The important lesson from this volume of
research is that it has focused on real world issues with real world solutions. His latest
research is based on studying economic interventions on the basis of "randomized controlled
trials." The idea is simple enough - to compare groups of people with and without policy
intervention over a period of time; akin to the trials of new drugs.
19. In addition to his scholarly work, he has authored three books, including his recent
one called "Poor Economics", which has received the attention of scholars across the globe.
And this is not the all; he is an ex-president of the Bureau for the Research in the Economic
Analysis of Development, a Research Associate of the NBER, a CEPR research fellow, an
International Research Fellow of the Kiel Institute, a fellow of the American Academy of Arts
and Sciences and the Econometric Society and has been a Guggenheim Fellow and an
Alfred P. Sloan Fellow. He has also been a recipient of the Infosys Prize 2009 in Social
Sciences and Economics.
20. Dr. Banerjee and his colleagues at J-PAL have worked with a global network of
researchers to conduct experiments in the poorest places of the world and have derived
conclusions that are believed to have challenged economists' and policy makers' thoughts
about impoverished areas. Their findings have concluded beyond broad generalizations to
show that the poor do not always act in ways that conform to the views and programs of
wellmeaning relief agencies, revealing a portrait of poverty as complex as the movements of
financial markets.
21. Professor Banerjee will be delivering his lecture today on the topic of "Micro-Credit
and Financing of Small Business". Needless to emphasize that it is an important topic,
particularly when seen in the backdrop of the challenges faced by the poor in gaining access
to formal financial services. Although much has been done in this regard, the stage of
absolute resolution has yet to be reached.
22. Here, we should not forget to mention the names of Dr. Akhtar Hameed Khan in
Pakistan and Professor Muhammad Yunus in Bangladesh for their pioneering work in the
subject area - providing a substantial source of assistance to the poor community - and their
efforts for the alleviation of poverty and increases in the standard of living.
23. I would like to avail this opportunity to thank Dr. Banerjee on behalf of this forum for
taking out the time from his extremely busy schedule and taking the trouble to fly from USA
to join us here in Pakistan.
24. Before I conclude my remarks, I would also like to thank you all for joining us here
and for participating in today's knowledge-sharing event. I am sure that Professor Banerjee's
lecture today will be of immense utility for the audience, since it will enlighten us with the
latest thoughts, developments and trends regarding the subject.
25. It gives me immense pleasure to introduce and invite Professor Banerjee.