"Inflation is our biggest problem due to which rates of interest are high. Interest rate will come down when we control inflation". This was stated here on Wednesday by the Chief Manager of Banking Services Corporation, State Bank of Pakistan, Muhammad Munir Ahmed, while addressing a seminar on Development Finance organised by the Economics Department of Lahore College for Women University in collaboration with State Bank of Pakistan.
LCWU Vice-Chancellor Bushra Mateen was also present on the occasion. Dean of Social Sciences Professor Riffat Saqlain spoke on the issues and challenges of Development Finance. Munir said that major causes behind inflation were government's high borrowing, bad law and order situation, and terrorism. Highlighting the issues in development finance, he said that a large part of the population is out of banking fold, which includes small farmers, vendors, makers, small enterprise and micro borrowers. "We should make efforts for their induction in the mainstream of economic development because the future of Pakistan lies in this," he said.
He said that these weaker sections of the society are thousands in number and they are mostly illiterate, working on traditional pattern, largely don't maintain books of accounts, and have low trust in banks. Banks, on their part, have the tendency for financing big projects, and lack pro-poor environment, he added.
About the initiatives, which the State Bank of Pakistan has taken for development finance, he said that SBP has formed Development Finance Group in SBP and developed finance units in its offices. He also said that four focal groups--on Agriculture, Micro-finance, SME and Islamic banking--were made, and they hold quarterly meetings with the stakeholders. There were Awareness Programs, Melas , Workshops, and surveys were conducted by the SBP. He said that there were internship programs for creating awareness among university students.
Munir also said that the SBP maintains close liaison with the educational institutions for induction of Development Finance as part of their curriculums.
Dean of Social Sciences, Professor Riffat Saqlain said that "our focus should be on poverty alleviation, job creation, sustainable development, better income distribution, better economic culture and strong political leadership". She said that effective banking system requires major restructuring and capacity building which includes emphasis on development of human resources, and the use of information technology to improve the business process. She said that monetary stability needs controlling inflation, regulating national supply of money, elimination of interest rate distortions, and reducing the current account deficit through control over exchange rates and promotion of exports.
About challenges, she said that corporate governance is the biggest challenge and there is need to strengthen corporate governance through a well functioning banking system, use of checks and balances, enforced through a tier structure.
First tier is of a management team drawn from professionals of proven competence. The second tier is effective Board of Directors of strong calibre and vision. The third tier is of external auditors. The fourth tier is the regulator, or SBP, and it is the end of the hierarchy.
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