of oversight of the board of directors of banks, mainly by ( a ) ensuring that only reputable and competent persons sit on these boards and ( b ) requiring that the members fulfill their responsibilities towards policy making for their respective banks. foreign direct investment in the banking sector was made more viable ; and since liberalization, large numbers of reputable foreign shareholders have invested in locally incorporated pakistani banks. at the same time several foreign banks have opted to operate in pakistan in branch mode as well. one of the most recent positive development is the entry of largest chinese bank icbc in pakistan that started operations earlier this year. since capital of a bank provides the buffer against unexpected losses, it is essential for any bank to have adequate capital to survive the ups and downs of a business cycle and to bear exogenous shocks successfully. the capitalization of the banks has been enhanced steadily over the years. the minimum paid up capital ( net of losses ) was set at rs. 1 billion in 2003, increased to rs2. 0 billion by 2005, rs6. 0 billion by 2009, and rs. 10 billion to be achieved by 2013. in addition to minimum capital requirement ( mcr ), sbp also adopted internationally accepted solvency standard of basel i in 1997 ; and the revised standard of basel ii has been enforced since 2008. under this regime, banks have to maintain a capital adequacy ratio of 10 %. the ratio is calculated keeping in view the risk profile of a bank ’ s assets, with an ultimate objective to ensure that banks carrying higher risk assets should be required to hold more capital. over the years the monitoring of banks and dfis has also improved. the on - site inspection and off - site surveillance has increased the level of supervision of sbp. electronic information gathering has made oversight timely and consequently more effective. the sbp also undertook massive capacity building during the late 1990s and early 2000s to upgrade the level of expertise of its officers. merit - based recruitment, competency - enhancing training, performance - linked promotion, and induction of skilled human resources are now regular feature of sbp ’ s corporate strategy. the imf and world bank in their banking sector assessment of 2004 state quote : “ far reaching reforms have resulted in a more efficient and competitive financial system. in particular, the pre - dominantly state - owned banking system has been transformed into one that is predominantly under the control of the private sector. the legislative framework and the state bank of pakistan ’ s supervisory capacity

of choice for those customers for transfer of funds. keeping in view its importance, the state bank took the lead and introduced branchless banking regulations in 2008. these were the first of its kind regulatory initiative and since then other jurisdictions have replicated them for development of the branchless banking. since 2008, branchless banking has expanded steadily with increased participation of stronger as well as new players. at present, the agent network under the umbrella of branchless banking exceeds 20, 000 that facilitate around 53 million transactions amounting to rs196 billion ( sep - 11 ). notwithstanding this progress, overall financial penetration in pakistan remains quite low. the number of borrowers of 3. 8 million constituted only 2. 3 % of the population on december 2010. recognizing the overwhelming size and intensity of financial exclusion in pakistan, sbp is pursuing the second generation reforms for the financial services industry and has placed high priority on developing and implementing an effective strategy for financial inclusion. enabling regulatory environment has been provided for lending to sme, agricultural and microfinance ; thus banks and financial institutions are encouraged and enabled to expand their scope of lending and customer outreach. licensing and prudential norms for micro finance institutions have been designed with particular emphasis on facilitating growth of these institutions and expanding their outreach to the poor and vulnerable segments of the population. in 2010 & 11 consecutively, pakistan has been ranked first in a sample of 55 countries in the category of “ overall regulatory framework and practices for microfinance ” by the economist intelligence unit ( eiu ) of the economist magazine. the customer base of mfbs ( microfinance banks ) has crossed 700, 000 whereas that of mfis has exceeded 1, 300, 000 in june 2011. at present 8 mfbs are operating in pakistan, with total assets of rs21. 4 billion. moreover, sbp is engaged in collaborative efforts with civil society institutions, especially involving large ngos and rsps in providing complementary services, such as social intermediation and capacity building. the regulatory regime adopted by sbp for the microfinance sector is that of a facilitator, guide and problem solver. we do not prescribe for micro finance banks the same onerous regulations that prevail for other financial institutions. we have a consultative group drawn from the representatives of stakeholders, who guide us in the development of our regulations and prudential norms. the access of small and medium entrepreneurs to credit has been a major constraint to expansion of their business and