capabilities and offer enhanced experience to the customer, we must be aware that technology has its unintended consequences. these unintended consequences will primarily be related to consumer protection, data privacy and money laundering which are easier to camouflage using sophisticated technology. i must also mention that banks are facing aggravated challenges relating to cyber security. during the last decade or so, hackers and cyber terrorist have gained much superior capabilities of espionage and afflicting damage and are now targeting the financial industry. the theft of electronic identity through hacking could wipe off bank accounts of customers causing not only financial but reputational losses especially to larger banks and their regulators. the proactive detection and response to these cyber threats requires not only specialized security infrastructure within the organization but also enhanced mutual cooperation and information sharing among the banks. ladies and gentlemen ; since i have discussed various challenges that the banking industry is facing and certain worrying developments that are threatening its performance, let me briefly share with you what we at the page 9 of 15 state bank of pakistan ( sbp ) have done so far and plan to do in the future to transform our banking sector. in pakistan, the banking sector constitutes around 74 percent of the country ’ s financial sector with an asset base equivalent to almost 55 percent of the country ’ s gdp. as such, the stability and buoyancy of the banking system is of critical importance. over the years, continuous improvements in prudential regulations in line with international best practices and capital strengthening measures have significantly improved the resilience of the banking system of pakistan. the capital adequacy of the banking system at 15. 6 percent is well above the local and international benchmarks. like elsewhere in the world, sbp has set strengthening the financial stability regime as one of its key priorities under its vision 2020. sbp is also working on adopting risk based supervision ( rbs ) in order to advance its current supervisory regime and improve its supervisory efficiency. we are also looking towards a sustainable financially inclusive system which can spur socio - economic development in the country. recognizing the gaps leading to financial exclusion, we have already developed national financial inclusion strategy ( nfis ) 2020 which lays down sound foundations for promoting financial inclusion and identifies the gaps leading to persistent financial exclusion. our strategic approach to tackle financial exclusion is focused at creating a proportionate policy and regulatory framework that addresses sector - specific risks and strategies regarding infrastructure development and policy interventions - both on the supply and demand side for development finance sector like microfinance, smes

ishrat husain : strategy for development of microfinance in pakistan remarks delivered by dr ishrat husain, governor of the state bank of pakistan, as chief guest at the launching ceremony of the financial sector strengthening program of the swiss agency for development and cooperation, islamabad, 26 february 2003. * * * i would like to commend the swiss government and the swiss agency for development and cooperation ( sdc ) for launching the financial sector strengthening program ( fssp ). i believe that the lack of adequate human and institutional capacity, shortage of local expertise and weak coordination among the various stakeholders are indeed the factors inhibiting the growth of microfinance sector in pakistan. the initiative taken by sdc to overcome these constraints is therefore both timely and appropriate. but i do expect that once the fssp has successfully demonstrated the business model for capacity building it will be adapted and internalized by our own network without any further recourse to external donors. the transfer of technology and its adaptation to our own circumstances is the most effective way to utilize external resources. at the outset let me place microfinance in the overall context of the efforts the state bank is making to expand the outreach of financial services and help the goal of poverty alleviation in the country. the sbp is, in addition to microfinance, encouraging the provision of credit to small and medium entrepreneurs through a newly set up sme bank, to small farmers through a newly restructured zarai taraqqati bank ltd and cooperative banks, to women entrepreneurs, individuals and small firms through the first women ’ s bank. these institutions will work as the protype in developing the methodology and expertise in these areas and then this protype will be replicated through the mainstream financial institutions in the country. this is the only durable basis through which the poor can benefit from financial sector of the country. pakistan has adopted a sectoral approach to microfinance in pakistan and assimilated learnings from the experience of other developing countries which have been active in this area for decades. microfinance is still in its infancy and has a long way to go. some momentum has been built up during the last three years as bulk of the disbursements has taken place since june, 1999. although there has been a big spurt in these three years the numbers of the beneficiaries and the volume of credit disbursed is still quite low in relation to the needs and demand of