Opinion 
 

Opinion

Two to Tango

Deepening of the relationship between banks and business community may be achieved through transparency, with respect to provision of information in general and the cost in particular.

By Zafar Masud | May 2023

Going through unusual times, Pakistan’s businesses and banking community necessitates a more inclusive approach to surmount the prevailing challenges and concerns. Posing unprecedented opportunities for both businesses and banking sectors to do some introspection and repositioning for a more sustainable, yet mutually beneficial relationship, both need to rise to the occasion to work together more closely than ever before. In so doing, they must look at the rapidly changing working protocols coupled with the predominating mindset shift in these sectors as well as at the policy level.

To begin with, one needs to examine the key factors that make banking more effective and efficient for the business community. In all probability, an active and real-time engagement between the banking institutions and the business community is the most important area that should receive serious attention. Customer engagement – knowing the specific needs of the target clientele, and tailoring solutions for those needs has always been one of the foremost priorities of financial institutions, or any front-end business for that matter. However, the uptake of digital solutions in the banking industry necessitates a re-evaluation of customer outreach and marketing to retain and recapture growth. Therefore, customer engagement strategies need an all-inclusive revision and reconsideration with more integrated systems/technology-based solutions catering to the two ends.

From my viewpoint, this state of flux, brought about by the democratization of technology, the advent of data-driven insights and application based on artificial intelligence laced with broad-based digital marketing, should be taken as a silver lining in the dark clouds. It is an opportunity for both banks and businesses to fill the engagement gaps of the past through employing new solutions, and it is a reminder of the importance of being proactive and responsive to the rapidly occurring changes in the business landscape. To this end, data analytics is the answer.

Communication is the next invaluable component of this equation. More than ever, there is a need to listen to and to provide solutions that will bring value, which is pertinent, timely, and intuitive, by using customers’ channels of choice, be it digital or otherwise. Most importantly, engagement with clients should be focused on their needs (e.g. financial stability, wellness, etc.), as opposed to the financial institution’s desire geared towards product sales.

Further deepening of the relationship between banks and business community may be achieved through transparency, with respect to provision of information in general and the cost in particular. Transparency is vital in facilitating accountability, in projecting a customer-centric approach, and in enabling clients to make informed decisions about their needs and who can best serve them.

Transparency and close communication, however, must swing both ways as business clients must be open and communicative with their banking partners as well. You may be familiar with the old adage, which I have modified slightly: the three professionals in your life from whom you should not hide anything now include your lawyer, your doctor, and your banker.

Insofar as the structural changes that I would like to see within the banking sector over time, there are a few core aspects at the policy level that I would like to address in this context.

Firstly, the share of private sector credit will increase with reduced reliance on financing the dominant borrower (i.e., the Government of Pakistan). While credit to the private sector in Pakistan has increased in absolute terms, it has declined as a percentage of GDP (17% in 2022, down from 29% in 2008). The reasons for this are multifaceted, but the biggest impediment is government borrowing which swelled over 400% during the last decade. Another reason, on the demand side, remains Pakistan’s large informal sector. More disclosure and documentation by the businesses would lead to bridging this gap effectively.


Secondly, banking in Pakistan, in a very basic sense, is a game of access to cheaper deposits. Therefore, it’s critical that the institutions having larger deposit holdings shall be able to divert these deposits to more productive and specialized areas. The constitution of the banking industry needs a review. Currently, it is totally lopsided and concentration of assets and liabilities rests with a handful of large banks who literally, by default, drives the agenda of the entire sector. This warrants a paradigm shift whereby broad-based funding could be diverted to more desired and unconventional sectors, like agriculture, infrastructure, etc., through out-of-the-box thinking and programmes, in collaboration with the central bank and the government.

A change in mindset is desperately needed in our society – that making money is not a bad thing as long as it’s done fairly and legitimately, with the intent of economic inclusivity.

Thirdly, a shift from collateral/asset based lending to cash flows may also be pertinent. Under this model, a company borrows money against anticipated revenues/ cash flows expected to be actualized in the future, despite their asset-thin status, which is particularly relevant in the case of start-ups.

Finally, for the banking industry to facilitate the prerequisites of business community (or any other client with a specific set of requirements) is to increase specialization in the portfolio. In other words, it could be referred to as Specialized Banking, which is the streamlining of financial institutions’ service offerings to cater to a client pool with a particular set of requirements in a more efficient way than what could be offered by a universal bank. Last but not least, one more way that can make banking more effective for the business community is through building necessary expertise at the industry level by liaising closely with industry specialists, consultants, and business clients. Positioning plays a key role in this as financial institutions with the necessary expertise must emphasize this in their communications, such that they may differentiate themselves from competitors.

Let me conclude with the statement that a change in mindset is desperately needed in our society – that making money is not a bad thing as long as it’s done fairly and legitimately, with the intent of economic inclusivity.

Briefly put, as a society we need to be more mature and realistic in our stance towards businesses and businessmen. We need to respect them and their efforts in contributing towards the economy and need to support and look at them with positive lens. On the other hand, of course, businesses and businessmen have to act responsibly as well, while operating at the highest levels of integrity, transparency and inclusiveness.

At the end of the day, “It Takes Two Hands to Clap” and I would go to the extent of saying that it takes to clap louder, and with impact, when there’s enthusiasm and excitement behind it. Let’s work together to amp up that positive energy and vibes between the banks and the business community. This has become all the more important and critical in these unprecedented times that our country is passing through.

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