IBP Journal Nov 2017

Special Edition
Volume 84 | Issue # 1 October 2016 - March 2017
RISKS AND COMPLEXITIES

Inherent in Foreign Trade
CHANGE MANAGEMENT
INTERVENTION IN A LOCAL BANK:
An Outsiders Review through the
Glass Ceiling
CYBER HEIST
A Lesson
From The
Desk Of CE Husain Lawai
Chief Executive-IBP
he Institute of Bankers Pakistan is the only accrediting Manager Certification, Islamic Banking Certification, Customer
and awarding body committed to providing Services, SME Banking Certifications, Foreign Exchange
professional education and technical training services Certifications etc.
for the banking industry in the country.
IBP has partnered with various internationally recognized
Since its inception over sixty-five years ago, IBP has been organizations which include IFC (International Finance
setting standards and continuously expanding and evolving Cooperation World Bank), BCI (Business Continuity
to cater to the diverse needs and challenges posed by the Institute UK), Chartered Bankers Institute UK, Bangor
banking and financial sector. IBP has been closely involved University UK and Omega Performance - Singapore to
in broadening its scope of activities pertaining to international conduct internationally accredited programs & trainings in
training programs, foreign collaborations, customized Pakistan. The Institute is also partnering with local universities
trainings, free seminars, etc. in Pakistan to provide banking specific qualifications.
IBPs banking qualification program, ISQ (IBP Superior After the successful running of Certified General Bankers
Qualification) is the only recognized professional banking Program, The IBP School Program (TIS) successfully initiated
qualification in Pakistan and is accredited by Chartered Banker the Certified General Banker for Microfinance Sector. This
Institute (UK). It also leads towards Chartered Banker MBA program allows fresh graduates to receive training on various
(CBMBA) from Bangor University Business School (UK). facets of Microfinance business, providing opportunities to
fresh graduates hoping to pursue a career in banking.
A very successful and recent addition to IBPs training
services has been the launch of eILM (IBP Learning The 2nd Pakistan Banking Awards were launched in March
Management). This complete Learning Management System 2017, following the overwhelming response and remarkable
was launched in November 2016 to facilitate bankers accessing success of the First Pakistan Banking Awards in 2016. These
a holistic interactive online learning package. annual awards are given to individual banks based on their
performance, broadly in the spheres of development, finance,
As Pakistans banking industry is exposed to numerous and customer services. The awards honor and promote the
business risks, competitive working environment, fast paced efforts of banks for developing new and innovative products
growth, technological advancement and frequent changes in and services, while giving them the incentive to enhance their
policies and procedures, hence, timely information, application performance for the coming year.
of changes and knowledge sharing is imperative. IBP offers a
wide range of training programs that cater to the financial IBP will continue its efforts to enhance and sustain levels of
services industry. These include Certified, Standardized and professionalism as it nurtures the needs of professionals and
Assessment-Based Training Programs like Branch Manager aspiring entrants in the banking industry.
Certification, Certified Bank Tellers, Branch Operations
Journal of The Institute of Bankers Pakistan 1

The Contributors contents
Muhammad Subtain Raza is a banker having
expertise in financial compliance with MBA, M.Sc COVER STORY
(Hons.), and Junior Associateship of Institute of
Bankers Pakistan. He writes for various national &
international financial magazines.
Dr. S. Sabir Ali Jaffery (Late), an MBA (Gold

Medal-IBA); M. Phil. (Gold Medal-KASBIT); and
PhD (Business Management), was a veteran banker
and regular contributor to the Journal.
Syed Zaheer Haider Zaidi is VP-Branch Manager at

a leading Pakistani bank. He regularly contributes to
finance and economic journals.
Banti Lal is M.A (Economics), FPFA, ACCA (Finalist).

12
IBP News Corner Global
Nazish Alim Qureshi is a risk-management specialist
at a leading bank. Her area of expertise is IT Security. Perspective
05 Obituary
16 RISKS AND
COMPLEXITIES
Syed Danish Ali is a Senior Consultant at SIR
consultants, the leading actuarial consultancy in the 06 Islamic Banking Inherent in Foreign Trade
Middle East and South Asia. He is also a graduate Opportunities and Challenges in
of University of London in Sociology and Career Domestic and Global Economy
ambassador of Institute and Faculty of Actuaries (IFoA Conference
UK). He has more than 75 publications across a range of
international platforms and is a regular contributor to
various research activities. Banking
07 China-Pakistan
Economic Corridor
Challenges & Opportunities 19 RISK
Nida Asad Is an MBA in Human Resource
From the Perspective of
Banks and other Financial
Management, and has worked as an Anti-Money
Laundering Analyst at a leading bank. 08 IBP Organizes Institutions
Get-Together
of Fellows
22 Commercial Banking
Problems and
Sohailuddin Alavi is an author and consultant. He has
authored books on decision making, ethics, organization 09 IBP Superiour Solutions
management and leadership and writes for a number of Qualification-ISQ
reputed professional magazines. He is also a partner at Convocation 2016
the Corporate Consulting Group and Senior Projects
Consultant at a development consortium of NGOs in
Afghanistan.
Cover Story
12 Role of Social Media

in the Realm of Financial Sector

Economy Personal & Published by
The Institute of Bankers Pakistan
Professional Moulvi Tamizuddin Khan Road
Karachi 74200, Pakistan
24 Understanding Development 92 (21) 111-000-IBP (427)
Monetary Policy 92 (21) 3568 3805
www.ibp.org.pk
37 CHANGE Editor-in-Chief
MANAGEMENT
INTERVENTION Sirajuddin Aziz
Technology
IN A LOCAL BANK:
An Outsiders Review Director Academics
Operations
27 Cyber Heist Through the Glass Ceiling
Faisal Hussain
A Lesson
Publications
Shahla Naqvi
33 The Inpact of Book Review 92 (21) 35277 529
Deep Learning [email protected]
on Investments
Exploring the Implications Advertising
One at a Time 42 THE END Muhammad Akram
OF ALCHEMY 92 (21) 35277511
Money, Banking [email protected]
and the Future of
the Global Design
Economy M. Jahangir Ishaq
Potential contributors are requested to contact

the Publications Manager on the email address
43 FINANCIAL above (or) write to IBP at its mailing address.
INCLUSION:
At The Bottom Of Copyright
The Pyramid
The Institute of
37 44 A CENTURY Bankers Pakistan
OF MONETARY
POLICY AT THE FED:
Ben Bernanke, Janet Yellen, All rights reserved. The material appearing in
Opinion and the Financial Crisis of this journal may not be reproduced in any
2008 form without prior permission of The Institute
of Bankers Pakistan (IBP).
35 INTERNAL FRAUD
Should Monitoring Remain General Disclaimer
Confined to Customers Only? IBP Journal is based on contributions from
individuals and information obtained from
local and international print and electronic
media. IBP has not verified this information
and no warranty, expressed or implied, is
made that such information is accurate,
complete or should be relied upon as such.
42
In no circumstances IBP and its team

members would be liable for any incidental
or consequential damage that may occur from
the use of information contained in IBP
publication(s).
4 Journal of The Institute of Bankers Pakistan

NEWS CORNER
OBITUARY
It is with deep regret that we announce the sad demise of Dr. Syed Sabir Ali Jaffery, on
16 September 2016. Dr. Jaffery was a veteran banker, with over 50 years of experience
in banking and teaching, including all key areas of banking operations in senior
positions, with international exposure in the capacity of Country General Manager.
He was a highly qualified, literate professional with a B. Com, LLB, MBA (Gold
Medal) from IBA, MPhil (Gold Medal) from KASBIT, and PhD from District of
Columbia, USA. He was a great human being who always found great pleasure in
sharing his knowledge and expertise with others. A Fellow of the Institute of Bankers
Pakistan (IBP), Dr. Jaffery had been a regular contributor to IBPs Quarterly Journal
over the past 10 years. He will be greatly missed by the banking fraternity.

NEWS CORNER
Highlighting the significance of research and training for capacity building of human
resources working in the financial sector, The Institute of Bankers Pakistan (IBP) in
association with IBA Center of Excellence in Islamic Finance (IBA CEIF) and support
of Chartered Institute of Islamic Finance Malaysia arranged a conference on Islamic
Banking Opportunities and Challenges in Domestic and Global Economy. The
event was held on Sept. 7th, 2016 at IBP Karachi office. Professor Datuk Dr. Syed
Othama Alhabshi and Dr. Ahmed Musa Wang Yongbao were invited as speakers,
currently serving as Deputy President Academic at INCEIF and Director at NWUPL
China respectively. Both the speakers discussed various opportunities that Pakistan has
in transforming its banking culture based on Islamic principles. Success stories of
Malaysia in creating research centers through academia and developing laws that
support the Islamic banking were shared. Furthermore, emphasis was made on
synchronizing heart & mind towards a common objective of Islamic way of doing
business. The awareness session ended up with determination to support central banks
vision 2020 in enabling & promoting Islamic Banking for financial inclusion.

NEWS CORNER
CHINA-PAKISTAN ECONOMIC CORRIDOR (CPEC)

CHALLENGES & OPPORTUNITIES
The Institute of Bankers Pakistan (IBP) arranged a seminar on China-Pakistan Economic Corridor (CPEC) Challenges and Opportunities
at the IBP Head Office on 16 December 2016. The purpose of the session was to highlight the impact of the Initiative of China Pakistan
Economic Corridor (CPEC) on the economy of Pakistan. CPEC is the Flagship Project of the visionary and overreaching initiative of
One Belt One Road. Syed Hasan Javed, Former Ambassador of Pakistan to China and Mr. David li Xiaoxin, Deputy CEO of Industrial
and Commercial Bank of China Limited (ICBC), were invited as guest speakers. They emphasized on the growth and development
potential of CPEC in Pakistan and the challenges of the project, both from the local and global perspective. Speaking further on the
occasion, Mr. Husain Lawai, CE IBP focused on three primary areas, namely the amount of foreign exchange to be either saved or earned;
the strategy for loan repayment and repatriation of profit from the equity investment in various CPEC projects; and whether there was
a strategy to develop support industry and trained manpower for the planned projects. The highly informative and interactive session was
greatly appreciated by the audience, mainly associated with the banking and finance sector.

NEWS CORNER
IBP organizes
get-together of
Fellow Members
On Friday, November 11, 2016 a get-together of the
Fellows was organized by The Institute of Bankers
Pakistan (IBP). The event was chaired by Governor
State Bank of Pakistan (SBP) Mr. Ashraf Mahmood
Wathra. Senior Bankers, Practitioners and Financial
Analysts attended the gathering wholeheartedly and
appreciated the efforts of IBP in organizing the event.

NEWS CORNER
ISQ
IBP SUPERIOR QUALIFICATION
November 28, 2016

CONVOCATION &
PRIZE DISTRIBUTION
CEREMONY
The Institute of Bankers Pakistan held its Convocation and Mr. Husain Lawai, CE IBP emphasized the efforts of IBP for
Prize distribution ceremony to award gold medals, prizes and improvements in the ISQ qualification. He highlighted the role
certificates to candidates for their outstanding performance in the of IBP in imparting trainings to produce skilled professionals at
IBP Superior Qualification (ISQ) exam for the years 2009-2015. every level in the banking sector. He said that the ISQ is the
The ceremony was held on November 28, 2016 at the IBP office. benchmark qualification for bankers in Pakistan. Mr. Lawai
commended the banks for planning training and development
The ceremony was attended by senior bankers and eminent strategies to ensure recruitment of qualified staff. The Honorable
members of the banking fraternity. Speaking on the occasion, CE presented certificates and cash awards to the position holders.
Mr. Irfan Siddiqui, Vice President and Chairman of IBP Academic
Board & Finance Committee, expressed his delight at being The ISQ is the only recognized professional banking qualification
present at the event and appreciated the efforts of the ISQ in Pakistan. It is a three level, self -study program: Junior
qualifying candidates. He praised IBP for its efforts to train and Associateship of IBP ( JAIBP), Associateship of IBP (AIBP) and
assess bankers to produce skilled human resource and promote Fellowship of IBP (FIBP). The JAIBP program of ISQ is accredited
healthy competition. by the Chartered Banker Institute, UK in 2011. Since then, 1022
candidates have qualified for the Associate Chartered Banker title.
The Governor of the State Bank and President of IBP, Prior to 2011, 159 candidates qualified through comprehensive
Mr. Ashraf Mahmood Wathra stressed on the importance of exam.
professional qualification for bankers in Pakistan. Highlighting
the importance of skilled human resource, he urged banks to focus IBP awards gold medals to candidates who score the highest
on training budgets and align their training policies accordingly. marks in each of the 3 stages of JAIBP. Special prizes are awarded
The Honorable Governor congratulated the successful to candidates secure high marks in different subjects. 19 gold
candidates, and proceeded to award gold medals to the position medals and 159 other cash prizes were awarded to successfully
holders. qualifying candidates at the convocation.
19
gold 159
cash prizes
medals

GOLD MEDALISTS
Saadia W. Durrani Haris B. Mahmood Sumbul Akhter Danish A. Bhatti Umair Ahmed
Stage - i 2009 Stage - ii 2009 Stage - iii 2009 Stage - i 2010 Stage - ii 2010
M. Naeem Amjad Iqbal Haris Hassan Abid Ali Asim R. Khawaja

Stage - iii 2010 Stage - i 2011 Stage - ii 2011 Stage - iii 2011 Stage - i 2013
Neha H. Memon Benazir Brohi S. Rizwan H. Abidi Adnan Rizvi S. Humaira Akhter
Stage - i 2013 Stage - ii 2013 Stage - iii 2013 Stage - i 2014 Stage - ii 2014
Sobia Pirwani Amynah Hemani M. Adil Rameez Ali

Stage - iii 2014 Stage - i 2015 Stage - ii 2015 Stage - iii 2015

ISQ
IBP SUPERIOR QUALIFICATION
CONVOCATION &
PRIZE DISTRIBUTION
CEREMONY

COVER STORY
By Subtain Raza
With the progression of technology and developments in

telecommunications, new media is reshaping in the market in
which financial service provider companies are operating. This
is an irreversible process of change and industry convergence
that started in the nineties during the internet boom and
whose outcome is yet to be explored.

hat is Social Media? Facebook page are women. 5 million proving to be a compelling supplement or
images are uploaded to Instagram every alternative to various forms of traditional
Social media includes web - day. The Google +1 button is used 5 advertising. This approach to advertising
based technologies that enable mutual billion times every day. Over 75% of all better enables financial institutions of any
interfaces among people to create, disseminate Internet users use social media. size to compete in the same space, offering
and exchange information in virtual value to community banks and credit
circles, communities and networks. Social Social Media & Financial Sector unions that may not have the same
media is distinct from traditional media resources as some of their national
(i.e. newspapers, television and radio) as it Social media is particularly a powerful competitors. A report by Accenture and
is comparatively inexpensive and accessible channel of communication and therefore the Partnership Fund indicated that
enabling anyone to access and publish is of significant value to firms. Social global investment in FinTech ventures has
information easily. Prominently for corporate media allows firms to contact their tripled from around $1 billion in 2008 to
disclosure, many social media forums customers and vice versa, both pre- and nearly $3 billion in 2013. Many of these
provide an open arena where people are post-sale. There are now more ways than companies are using social media to
free to exchange ideas on companies, ever to receive promotions, deals and revolutionize the traditional business
brands and products. It also provides an points from financial services companies. models that the financial sector has relied
environment where firms can converse Financial institutions are using the social upon for decades.
with stakeholders (including investors web to facilitate payments, provide deals
and customers) to promote their brand and gain customers trust. Social media Social media is transforming banking
and improve their image. has become a standard channel of relationships in significant ways, from
communications for customers. Digital improving customer service to allowing
Social media shares the characteristic of devices are growing on an exponential users to send money to others via online
being digital and can be defined as level. Globally, 46% of consumers have platforms. New financial technology
websites and applications that enable access to social media with digital devices companies are using social media data to
users to create and share content or to make informed purchases. The top help people get access to credit or even
participate in social networking (Oxford three social networks used by business to simply open a bank account. Social
Dictionaries 2013). The following is a business marketers include LinkedIn media can even impact your ability to get
non-exhaustive list: (62%), Twitter (50%), and Facebook a loan. Integration is happening so
(30%). Social media facilitates two-way quickly, it is possible to argue that social
Blogs communications and enables banks and media platforms may be the banks of the
Microblogs (Twitter) credit unions to talk with not simply to future.
Social and professional networks customers and members.
(Facebook, LinkedIn, Google+) By providing the ability to share
Forums Some Reports on Social Media & valuable information with the community,
Image and video-sharing platforms Financial Sector social media offers the means to
(YouTube, Instagram, Vine, Pinterest). demonstrate that the institution
Financial Social Media reports that 44% understands consumer needs and
Some Facts about Social media of mass affluent consumers that use social positions the bank or credit union as a
media interact with financial institutions leader in nancial services. To be recog-
It is amazing to note that 350 million plus specifically. Possessing fun and friendly nized as a reputable banking resource,
users suffer from Facebook addiction qualities, social media affords a distinct financial marketers should share relevant
syndrome. If Twitter was a opportunity to sensationalize banking content in the form of personal finance
country; it would have been the solutions with creative campaigns and tips, industry updates, investment advice
12th largest in the world. Linked positioning. A study performed by and more. Such insight also illustrates the
In signs up 2 new members every LinkedIn found that 63% of mass affluent supportive nature of the institution,
second. The average visitor consumers were motivated to take action increasing consumer confidence in the
spends 15 minutes a day on after learning about financial products banks or credit unions dedication to
YouTube. Three million and services on social media so there is consumers financial well-being.
new blogs come legitimate value in talking banking on
online every month. social media. Neustar reported that social High levels of penetration, use and
97% of the fans on media drives the most impressions, clicks
engagement have meant that financial
Pinterests and conversions at a low cost compared to
institutions are starting to recognize the
other online paid channels. It is no
opportunities social media can bring to
surprise AdWeek indicates that social
their businesses. They are looking to gain a
media advertising is expected to compose
competitive advantage over other
19.5% of total marketing budgets by
institutions while also trying to mitigate
2017. Social media affords the control,
the threats posed by social media, such as
flexibility and precision required to
when people share highly sensitive
obtain quality results
information publicly.
within any budget,

AREAS OF FINANCIAL SECTOR DenizBank has revolutionized the media. A useful summary of the scale of
TRANSFORMATION BY SOCIAL banking model by offering banking this innovation in China is provided here
MEDIA services through Facebook: customers can by Bloomberg; an individual can pay their
connect to their Facebook account and rent using Alipay from Alibaba, bank
There are five key areas where social media access their bank account to initiate wire using WeChats WeBank and buy mutual
is changing financial services around the transfers and manage daily expenses by funds from Baidu. More than 100 million
world: monitoring their credit cards. Another of the 815 million active users of Tencents
example is Barclaycards Ring MasterCard, QQ messaging service have already
1. Customer Service which was developed through crowd integrated their bank cards with the QQ
sourcing on social media to design and Wallet. Lenders are now using social
A growing number of customers expect pick the most popular features for the new media to credit rate applicants, and banks
real-time responses from their service product. are asking people to use social media for
providers. Thus, more and more banks and references, meaning more people are
insurance companies are adding social 4. Reducing Costs and Improving receiving loans who would not have been
media (usually Twitter and Facebook pages) Efficiencies given a second look previously. China has
as a permanent channel for retail customer even given Tencent and Alibaba credit
interaction, fully integrated into Customer In addition to using information bureau licenses.
Relationship Management (CRM) systems. Facebook to reduce the
costs of customer service, Social Media in Pakistan
2. Marketing banks are using it as an
alternative to online Pakistan is also part of this international
Social media marketing can no longer be banking in an efficientsocial media network and it has become a
disassociated from a companys overall way to process new avenue or means not only used by
marketing strategy, forcing them to adopt applications. In companies and individuals to promote
not only a data-driven approach but also a October 2013, businesses in the country, but also to
test-and-learn mindset that can handle an ICICI bank, generate opinions regarding social and
ever - changing social environment. an Indian political issues. Social media has been
According to Accenture, the solid marketing multina- gaining vast popularity among
strategy should be result oriented, formu- tional the masses in Pakistan
late better segmentation, focused, real - bank- IT IS AMAZING mainly due to Facebook,
350
time marketing, reduce ing TO NOTE THAT Twitter, Skype, Instagram
acquisition costs and etc. The introduction
have a quicker time to of mobile broadband
market. All features are coupled with the influx
there in social media of affordable smartphones
marketing. had a catalytic effect on
Many online retail MILLION the use of social media in

Pakistan. People turn
P2P lenders such as PLUS USERS SUFFER towards social media to
Lending Club and voice their opinions,
Prosper, and small FROM FACEBOOK experiences, suggestions and
business lenders such as ADDICTION SYNDROME feedback on any topic or
Kabbage and OnDeck constituent of the society.
have grown exponential-
ly by using online and social media as their and financial The pattern of social media use
core marketing channels. More traditional services company, launched Pockets, a in Pakistan appears to be no different than
companies are also investing in social mobile app that allows users to login the United States or the United Kingdom.
media integration. American Express, for to their bank using their Facebook The most popular social media website in
example, links a clients Amex card with credentials. The app allows users to send Pakistan is Facebook, which has over 17.2
his or her social media profiles on money to friends, pay utility bills, recharge million users in the country out of a global
platforms such as Facebook and mobile phones, and buy movie tickets. The total of more than 1 billion. Twitter and
FourSquare, and then delivers deals based fact that banks are using Facebook LinkedIn have 1.9 million and 1.2 million
on activity such as likes and check-ins. The credentials to verify identity marks an users respectively in Pakistan. Google Plus
credit card company has won awards for important turning point for banking and Pinterest appear to have far fewer
this social innovation. institutions. users in Pakistan, at approximately 64,000
and 115,000 respectively.
3. New Product/Service Development 5. New Business Models
Fifty percent of people using Facebook
Social media is not just being used to Chinese social media platforms are in Pakistan are aged 18-24 years and 25
deliver new products and services; it is leading the way in the exciting area of percent from age 25-34 and overall 70
also being used to design them. In Turkey, creating new business models using social percent Facebook users are male and 30

percent are females. An amazing fact is sector has lagged behind some other the products and services themselves.
that the number of Facebook users has sectors in their comprehensive adoption New business models are changing the
increased by 1 million from June - of social media and technology. Low entire industry. Large, complex and
December 2012. Of all the online browsing internet penetration, lack of local content highly regulated entities are being forced
and surfing, 27 percent of internet users and language barriers are some of the to learn how to innovate and roll out new
in Pakistan are Facebook users. Social general problems that also affect the social ideas in agile ways to test and iterate
media is also more popular in Pakistan media adoption in Pakistan. quickly.
because of the accessibility of smartphones
at reasonable prices. More and more Many of the new players in the Finally, imagine a future where all
people are using social media on their financial services sector are still trying to deposits, payments, remittance and
phones rather than desktops. Among the find long-term profitable business models investment can be handled within social
most popular social platforms, Facebook that will stand the test of time. Generally, networks in easy and intuitive ways. The
leads the way with more than 3 billion adoption has been slow and most friction that exists across the industry
connections per day. traditional banks today have only today would be dramatically reduced.
implemented limited programs, which Social media is changing the way the
Challenges are often run in isolation from the core financial services industry operates; the
business and not as an integrated solution. future is bright for increased financial
In addition, regulative complexity and a The opportunities social media provides inclusion, lower costs and better customer
traditional cultural mindset has meant do not concern only customer service and service.
that until recently, the financial services marketing, but more fundamentally affect
316 million monthly users There are 1.5 million groups on LinkedIn
500 million tweets sent per day 27% of users access LinkedIn through
77% of active users are outside the U.S their mobile device
88% of active users are on mobile devices. Over 3 million company pages
6 distinct communications networks 50% of LinkedIn users have Bachelor or
65% of users expect a response in Graduate degrees
less than two hours 45% of B2B marketers have gained a
customer through LinkedIn
LinkedIn is adding, on average, two
members per second
Only 20% of LinkedIn users are under
the age of 30
1.39 billion active monthly users as of More than 16 billion photos already exist
December 31, 2014 on the platform
Every minute, 510 comments are posted, An average user has close to 40 photos
293,000 statuses are updated, and 136,000 MTV is the most followed brand, with
photos are uploaded over 1.2 million followers
Photos drive engagement on Facebook 1,000 comments per second are posted
pages More than 5 million photos are uploaded
45% of account holders become very every day
paranoid if they cannot access Facebook.
23% of users check their accounts at
least 5 times per day
Drives more referrals than any other
social platform

GLOBAL PERSPECTIVE
RISKS AND
COMPLEXITIES
Inherent in Foreign Trade
By Dr. S. Sabir A. Jaffery
Before getting on to the risks and complexities inherent in

foreign trade, it is essentially desirable, at least for the
young bankers, first to assimilate what precisely foreign
trade is and also the modes and methods of international
debt settlement.
What is International Trade? (c) People may act as middlemen

between importers and exporters in
International Trade is the name different countries. Thus, without
given to the process of buying and themselves being de facto buyer or
selling between buyers, sellers, and seller, they initiate foreign trade.
merchants in different countries.
In a nutshell, it is a process of (d) Traders may undertake cross-border
CROSS-BORDER buying and merchanting. This is the process
selling of goods and services. This whereby a trader in country A buys
may take place in a number of goods in country B and ships them
ways as under: directly to country C, without first
getting them in country A. `
(a) People may need to buy raw materials,
goods, and services from countries MODES AND METHODS OF
other than their own because these INTERNATIONAL DEBT
are available there in better quality SETTLEMENT
and / or on better terms than in the
domestic market. Thus, they become Modes of Settlement-Terms of Payment
importers.
Modes of settlement, also called terms
(b) Many people may have greater of payment reflect the arrangement
demand for their goods and services according to which the seller requires
in overseas markets, resulting in a guarantee of payment before he
higher profits. This prompts them to loses control of goods, while the buyer
export. simultaneously desires to dispense with

The documents
tendered by the
beneficiary of a credit
at the advising/nominated
bank must invariably conform
to the credit. If they meet this
requirement, they are compliant
the money only after safe and timely of exporters country operating in the Advance Payment
arrival of goods, or receipt of documents importers country can serve as a useful
of title to goods, conforming with the indication of creditworthiness and Under this arrangement, the seller gets
quality and quantity ordered for. integrity of the importer. In addition, full contract value in advance and the
insurance cover may be obtained against buyer is at all risks. This method is used
There are the following four different the risk of non-payment by the importer. when either the goods are in high
modes of international debt settlement: Various types of export credit guarantee demand, and/or in short supply, or the
and trade indemnity facilities are offered supplier enjoys monopolistic position.
Open Account these days by a number of major insurance
Advance Payment companies. Trade between various units of an
Documentary Collection organization, particularly within a family
Documentary Credit Country Risk: The exchange control organization, or between agents and
measures of the importers country may principal may also take place on advance
Open Account prevent the payment being made by payment basis.
the importer. Political, sovereign, and
It means the exporter will dispatch goods financial hazards may be responsible for Documentary Collection
to the importer and also directly send him this state of affairs.
all the relative documents, enabling the The relevant Uniform Rules for Collection
importer to take delivery of goods. The Major banks provide political (URC) as revised from time to time,
importer agrees to pay at a later date as per and economic reports on the situations known as ICC Publication, shall apply to
arrangement. prevailing in the countries with which all collections and be shall be binding on
their customers have trade relations. all parties thereto, unless otherwise
The arrangement offers least security to Embassies of exporters countries operating expressly agreed and provided that they
the exporter and greatest security to the on foreign lands are also supposed are not inconsistent with any national,
importer. Despite exporters apprehensions, to furnish useful information in this state, or local law and/or regulation.
Open Account Terms are not uncommon. regard. This kind of information helps
the exporters in making decisions as to Collection Defined Collection means
Managing Major Risks to Importers the modes of settlement. Insurance handling by banks of documents as listed
cover is also an alternative available to under URC 522 according to the instruc-
These under Open Account Terms may be exporters. tions received in order to:
classified as follows:
Transit Risk: There is always a possibility (a) obtain payment and/or acceptance; or
Buyer or Credit Risk: It refers to the of loss or damage to goods while on their
importers failure to make payment of way to the ultimate destination. Insurance (b) deliver documents against payment
goods as per arrangement because either cover and appropriate incoterms are the and/or acceptance; or
of incapability or unwillingness. answers to this risk.
(c) deliver documents on other terms
Up-to-date status report on the Exchange Risk: The exchange risk is and conditions.
buyer, or reports on potential buyers by imperative, irrespective of the terms of
organizations such as Export Promotion trade, if the consignment is invoiced in Collection may be clean or documentary.
Bureau, or Commercial Attach/Counselor foreign currency. Clean collection means collection of

financial documents not accompanied (d) Arranging with the importers to have be at their guard when confronted with
by commercial documents. Documentary their acceptance guaranteed especially discrepant documents.
collection means collection of financial where amounts involved are large.
documents accompanied by commercial This is called Acceptance Pour Aval, Handling of Discrepant Documents
documents, or collection of commercial which means the importers bank will Discrepant documents may be handled in
documents not accompanied by financial accept the bill of exchange and hence one of the following ways to avert all
documents. guarantee payment. chances of risk in negotiating such
documents:
Risks Inherent in Collection Documentary Credit
In documentary collections, banks act (a) The exporter may be asked to rectify
merely as agents and do not guarantee A documentary credit is a conditional the irregularity and resubmit the
payment to the exporter. Hence, the exporter guarantee given by a bank to a named documents.
may face all or any of the following risks: beneficiary, thereby guaranteeing that
payment will be made to him (to the (b) Instructions may be sought from the
(a) The buyer for any reasons may default beneficiary) provided that the terms of issuing bank whether to accept the
by non-payment of the sight bill or credit are fulfilled. These terms will state documents despite the irregularity.
non-acceptance of the usance bill. that the beneficiary shall submit the
required documents to the named bank (c) The documents may be accepted on
(b) The buyer may default by within the stipulated period. collection basis. In this situation, the
non-payment of his acceptance at issuing bank and the confirming
maturity. Risk of Discrepant Documents bank, if any, are absolved of their
Documentary Credit is the safest mode of obligations.
(c) The remittance may be delayed or international debt settlement. However,
blocked by the government of the there is the risk of discrepant documents (d) The exporter may be asked to furnish
importing country for economic having been negotiated at the cost of the indemnity from his banker on receipt
and/or political reasons. negotiating bank. of which payment may be released
under reserve.
Minimizing the Risks: Compliant / Discrepant Documents
Adopting all or any of the following The documents tendered by the beneficiary (e) For its own valued customer, the
measures may reduce the risks listed above: of a credit at the advising/ nominated bank may like to negotiate the
bank must invariably conform to the discrepant documents and pay under
(a) Obtaining status report on the buyer. credit. If they meet this requirement, they reserve.
are compliant. There is no risk at all in
(b) Evaluating the economic and political negotiating compliant documents. Thus, Under options (iv) and (v) above, if the
stability/standing of the importing interest of all the parties to the credit is importer declines to accept discrepant
country. fully secured. documents, the exporter-beneficiary shall
refund the amount received by him along
(c) Taking out insurance cover under If there is any irregularity in the with the interest accrued up to the date of
ECG and/or other insurance schemes documents, whether major or minor, the refund.
covering exporters risks. documents are discrepant. Banks have to

BANKING
hat is Risk?
It is the potential of gaining

and losing something of value. Values can
be gained or lost when taking risk result-
ing from a given action, activity or
inaction, foreseen or unforeseen. Here the
value is used as a diversified term which
may include market reputation, physical
health, social status, emotional wellbeing,
financial wealth etc.
Risk can also be defined as coming

across uncertainty and intentionally.
Uncertainty is a potential, unpredictable,
immeasurable and uncontrollable outcome;
risk is a consequence of action taken in
spite of uncertainty. In other words, Risk
is, when the outcome of an activity is not
according to the expectation. Human
endeavors carry risk at all levels, but some
are much riskier than others.
In the financial world, risk may also be

defined as the possibility that an actual
return on an investment will be lower than
the expected return. There are, however,
various other shades of risk in the financial
world, depending on the specific transaction
and discipline. As per ISO 31000 [2009]
ISO Guide 73:2002, Risk is the 'effect of
uncertainty on objectives'.
By Syed Zaheer Haider Zaidi
Douglas Hubbard contributed to the
interesting debate of uncertainty and risk
as:
Uncertainty: The lack of complete

certainty, that is, the existence of more
than one possibility. The "true"
outcome/state/result/value is not known.
Measurement of Uncertainty: A set of

probabilities assigned to a set of possibilities.
Example: "There is a 60% chance this
market will double in five years".
From the Perspective
Risk: A state of uncertainty where some
of Banks and other of the possibilities involve a loss, catastrophe
or other undesirable outcome.
Financial Institutions Measurement of Risk: A set of possibili-
ties each with quantified probabilities and
quantified losses. For example: "There is a
Allan Greenspan, Chairman Federal 40% chance that the proposed oil well will
Reserve of the USA, from 1987 2006, dry, which means the amount spent on
said: The vast majority of banks did exploratory drilling is lost and is a loss to
the exploring concern. Thus it can be said
not fail because of the risks they that one may have uncertainty without
knew but because of the risks they risk, but not risk without uncertainty.
did not know. We can be uncertain about the winner of a

contest, but unless we have some personal on the Bank Risk. This is how risks, at While this bush fire was getting air,
stake in it, we have no risk. times, change forms. those responsible for introducing and
implementing Islamic banking as an
With the Development of Markets, In 1973, after the collapse of Bretton alternative, were also finding ways to
IT and IT challenges, Globalization, Woods system of managed exchange rates, manage risks in their domain.
Competition, Sophistication together many banks booked large foreign currency
with Complex Funding Requirements, related losses. Case of Germany's bank, As a matter of fact, Islamic banks and
Deterioration in Asset Quality etc. the Bankhaus Herstatt added an international institutes providing Islamic Financial
banks and financial institutions started dimension to [financial] disaster, as banks Services IIFS are more exposed to risks.
facing many types of risks. outside Germany booked heavy losses on As apart from normal risks [to the
their unsettled trades with Herstatt. conventional banks], they are exposed to
In contrast, when things were relatively some unique risks like Rate of Return
simpler, it was thought that the only There were many other cases of bank Risk [RRR], Displaced Commercial Risk
considerable risk banks and financial failure, globally, on different pretext. This [DCR], Shariah Non-compliance Risk
institutions face is Credit Risk. Thus compelled influential quarters like G10 and Equity Investment Risk.
everybody, involved in the lending aspect countries to pool their efforts to come up
of banking operations, concentrated on with a fortified defense against a host of risks. Based on the experience of the events
how to manage the Credit Risk. At this occurred and still occurring around us,
point, other risks were not seriously Here, for the first time, the need of Risk globally, it is felt that the need to widen
acknowledged. Based Supervision was acknowledged and the scope of the study of risk is having a lot
it was thought to set international to do with the infidelity of the market
As a matter of fact, now banks
and financial institutions are on the cross
road and facing variety of risks coming
from all directions. At times they face a
combination of two or more risks. For
As we know that energy
example, Operational Risk which is: the
risk of loss from inadequate or failed
can neither be created
internal processes, people and systems
or from external events. Here, to manage
nor destroyed; rather,
one type of risk [Operational Risk], banks
have to address different concerns like
it transforms from one
internal processes, people and systems
and external events, to avoid actualiza-
form to another. It can
tion of any risk emanating from these
sources.
be said that risk, too,
As we know that energy can neither
has this behavior.
be created nor destroyed; rather, it
transforms from one form to another. It
can be said that risk, too, has this behavior. standards in this regard. Such efforts were operators, managers and other stakeholders.
For example, in Islamic Banking scenario, actualized in 1988, when Basel I was Tragically, with the passage of time
banks may face some unique risks. Rate adopted in over 100 countries. It was globally integrity of many individuals
of Return Risk [RRR] is one of such indeed a good beginning but still fell short and groups of people has shown a [steep]
risks, which arises due to an increase in as Basel I took into account only Credit downward trend.
benchmark rates. This risk, in turn, may Risk. Despite this shortcoming, Basel I
cause the Displaced Commercial Risk was a giant leap towards Risk Management, In support of this, one can cite numerous
[DCR] to crop up, where the Islamic in banks and financial institutions. incidents, worldwide, of Inside Trading,
bank may come under intense market existence of Cartels, manipulation
pressure to pay a return that exceeds the Perhaps, it was then the supervisors and in the LIBOR/foreign exchange and
rate that has been earned on its assets the market participants started seeing other commodities markets, role of brokers in
financed by investment account holders risks like Market Risk, Investment Risk, dubious deals and never satisfying
[IAHs]. risks related to the smaller size of the appetite of financial and other gains at
securities and its users, Operational Risk, corporate, political and personal levels.
To tackle this, banks may pay [market Currency Risk, Exchange Risk, Commodity All these things contributed greatly in
based] returns to the IAH by foregoing Risk, Country Risk, Availability of Credit diversifying the subject of Risk, resulting
their [Mudarib] share in profits, meaning Line risk, Shariah Non-Compliance risk in a series of disastrous events in banks
risk of lower profits. If banks do not [only for the Islamic Banks] and many and financial institutions globally. Some
do this then the IAHs might withdraw more. Luckily, most of the supervisors and of the examples are Baring Plc [1995],
their deposits, causing Reputation Risk, regulatory authorities throughout the Standard Chartered Bank [1992], Allied
Liquidity Risk and in extreme case, Run world are now taking this matter seriously. Irish Bank [2002], First National Bank of

Regulatory authorities, throughout
the world, are undertaking very tight
monitoring of the operations of financial
institutions. By making it a must for board
to approve and monitor the objectives,
strategies, overall business plans of the
institution and to oversee that the affairs
are carried out prudently within the
framework of the law / regulations and
high business ethics. Likewise, it is
binding on the executive management to
play its due role while carrying out day
to day operations, well within the
Keystone [2001], J.P. Morgan Chase, Soc profit, but they must know the level of policies set by the [own] board of
Gen, Busan Savings Bank South Korea, B. their Risk Tolerance [which looks at directors. For this, executive management
O. A, J.P. Morgan Securities, to name acceptable / unacceptable deviations and board members have to have deeper
a few. On account of Unauthorized from what is expected.] and operate understanding of their key business risks
Tradings, Stocks Scandal, Embezzlement accordingly. They may plan their and how to manage the same, which in
and Loan Fraud, Unidirectional acts of business cycle in a way, to enhance their turn, ensure the highest return for their
a trader in European Equity Index futures Risk Tolerance, to make cushion for shareholders. Otherwise, there is a
in 2007/2008, Internal Fraud [Bad additional risk taking, to increase possibility of erosion of capital or even
Loaning], Deviation of own tariff like profitability. loss of capital. Well researched guidelines
Overdraft fee rules, Improper Business/ BASEL I and Basel II are there for
Market Practices etc. due to which banks There should not be a mismatch the guidance of the financial market
booked colossal losses. between Risk taking Appetite and Risk operators. At home, State Bank of
Tolerance. Actually, Risk taking Appetite Pakistan is playing its due and active
Ignoring the fraudulent motives of key is at the front end whereas Risk Tolerance supervisory role to ensure financial
managers of banks, one wonders what are is at the back end. If high flood enters discipline in the country.
the reasons or basis that some banks are from the front end and the back end [i.e.
more exposed to risks and some others are Risk Tolerance] is not fortified then the Side by side, for IIFS there
located low on the Risk Ladder? flood would be gushing through, destroying is an international standard setting
everything on the way. organization IFBC [Islamic Financial
Perhaps, it is due to the fact that the Service Board, based in Malaysia] that
attitude towards risk taking varies from Both Risk taking Appetite and Risk promotes and enhances the soundness
institution to institution. Some are highly Tolerance are not fixed, they expand and and stability of the Islamic financial
prudent whereas some opt to be on the shrink according to the books of the services industry. For this purpose, it
lower side of prudence. Some go all out financial institutions, but the BoDs questions well researched global prudential
for booking impressive numbers. In this approach towards risk is overwhelmingly standards and guiding principles for the
pursuit, at times, they get out of the circle important to decide the levels of these industry like Guiding principles of Risk
of prudence and indulge in not so healthy two. Management for Institutions [other than
transactions. insurance institutions] Offering only
Islam has covered the topic of risk Islamic Financial Services December
We can say that among the [financial] management rather comprehensively. The 2005.
market operators, varying moods of risk same is implemented practically in all
attitude like Risk averse, Risk neutral and Islamic believes, worships and day to day While the Basel Committee on
Risk seeking, are found. dealings [muamlat]. Banking Supervision (BCBS) has
published documents setting out sound
Basically, the attitude of the BoDs and Ikrah [ Force, Coercion, Compulsion practices and principles pertaining to
the Management of an institution etc], Salat ul Khoaf [Prayers offered under credit, market, liquidity and operational
towards risk taking ascertains the Risk fear] and to make a non-viable business risks of financial institutions, G. P serves
taking Appetite. Fanning of Risk taking deal under extreme undue influence / to complement the BCBSs guidelines in
Appetite without prudence is like opting threat are few examples of risk manage- order to cater the specificities of IIFS.
for financial disaster. To the contrary ment allowed by the Shariah.
controlled and well managed appetite Risk Management, in financial scenario,
means keeping the risk at a safe distance. In this regard, it is very important to is indeed a mammoth undertaking which
This is why, very rightly, the regulatory note that the essential feature of the activities cannot be handled simply by one country
authorities want the BoD / Senior of Institutions offering Islamic Financial or by an organization but it needs joint
Management to play their due roles in Services [IIFS] is the requirement to global efforts. This will ensure avoidance
formulation and execution of the policies comply with Shariah rules and principles of negative impact on the savings of the
in this direction. Of course they are especially the prohibitions of generating masses, the earnings and the capital of the
responsible to carry out business to earn profits without bearing any risks. financial institutions, globally.

BANKING
By Dr. Sabir Ali Jaffery
Q.1 A Pakistani importer buys goods Pakistani Exporter Invoice in dollars

for $15,000/- when the exchange rate is He will receive $15,000/- Hence, no loss,
$1=Rs.106/- By the time the date of Invoice in Pak Rupees no gain
payment arrives, the rate of exchange He will get Rs.1,590,000/- No gain, no
becomes $1=Rs.106.35. What would loss. Q.2 Distinguish between the Balance of
have been the consequences for both the Trade and Balance of Payments. How do
Pakistani importer and US exporter, if the Invoice in dollars. they affect a countrys exchange rate?
invoice had been drawn in Pak Rupees? He will get Rs.1,595,000/- (@ $1=106.35).
Will the position change, if the invoice Thus, a gain of Rs. 5,000/-
Ans. The Balance of Trade is the
were drawn in US dollars?
US Importer difference between a countrys payments
for its imports and its receipts of the
Based upon the above data, find out the
Invoice in Pak Rs. proceeds of exports over a period of time,
position of each, if USA trader was the
He will have to pay Pak Rs. 1,590,000/- usually the financial year. Balance of
importer and Pakistani was the exporter.
which will cost him $14,950.63 @ Payments is a summarized statement of all
$1=106.35 instead of $15,000/-.Thus, he items of payments and receipts, covering
Ans. There may be eight different will save $49.37 both the visible and invisible items and
situations as under: capital transfers between a country and all
Invoice in US dollars other countries over a period of time.
Pakistani Importer He will pay $15,000/- Hence, no loss, no
gain. The exchange rate of a country is
Invoice in Pak Rs. 1,590,000/- primarily based on the demand and
($15,000 @ $1=106) US Exporter supply of its currency in the international
No gain, no loss market. If the demand for home currency
Invoice in rupees increases, say, due to increased exports, its
Invoice in $15,000/- He will receive $14,950.63 For value in terms of foreign currencies will
He will have to pay Rs.1,595,250/-@ Rs.1,590,000/- converted @ $1=Rs.106.35. also increase. Conversely, if the demand
$1=106.35 instead of Rs.1,590,000/- Thus, a loss of $ 49.37 to him. for foreign currencies increases, say, owing

to increased imports, value of home demand payment with interest from the after taking into account operational
currency in terms thereof will depreciate. issuing bank, which, in turn, would have requirements of that bank. Credits
recourse to the applicant. to these accounts are treated inward
To meet the additional demand for remittances, and are allowed freely, while
foreign currencies, more home currency The instructions to make the advance debits are outward remittances, and are
will have to be pumped into the foreign are written in red ink to make them distinct. subject to Exchange Control Regulations
exchange market. This additional supply This is why it is called Red Clause Credit. in Pakistan.
of home currency will also adversely affect
the value of home currency. Green Clause Credit: This type of credit is The foreign currency balances of
used in Australia wool trade under which, nostro accounts of banks operating in
To sum up, the principle of demand besides pre-shipment advance to exporter, Pakistan are held at the disposal of the
and supply determines the price (value) of the bank may also be asked to arrange for State Bank of Pakistan.
one currency in terms of another in the clearance and storage facilities.
similar manner as it does in case of goods Vostro Account: A foreign
and commodities. Q. 4 Explain the role of nostro and correspondent banks rupee account with
a bank operating in Pakistan, from the
vostro accounts in international
point of view of the latter, is vostro
Q. 3 What is Red Clause Credit and settlements.
account, which means your account with
Green Clause Credit? Discuss salient
us. Foreign branches of Pakistani banks
features of each. Ans. Nostro Account: A Pakistani banks also have such accounts with their head
U.S. Dollar Account with its American offices in Pakistan. If funds are remitted
Ans. Red Clause Credit: A red correspondent is the formers nostro from Pakistan, vostro account is used if
clause credit generally authorizes the account with the latter, meaning our payment is denominated in Pak rupees.
designated negotiating bank to make clean account with you. In other words, from These are also termed Non-Resident
advances, not exceeding the L.C. value, to the point of view of a Pakistani bank, a Rupee Accounts of Foreign Bank Branch-
the beneficiary before presentation of nostro account is our banks account in the es and Correspondents.
documents; the bank being under no books of an overseas bank, denominated
obligation to monitor the use of such in foreign currency. Normally, nostro Credits to such accounts are outward
advances. The bank would get repayment accounts do not earn interest. remittances, equivalent to sale of foreign
with interest from the proceeds of the currency. These can only be made in
export bill when presented by the beneficiary. Nostro accounts are also called respect of approved transactions. Debits,
Foreign Currency Accounts of on the other hand, constitute inward
In case of failure on the part of the Authorized Dealers. State Banks prior remittances and are equivalent to
beneficiary of a red clause credit to submit approval is needed to open such accounts. purchase of foreign currency, which can
export documents on time and in order, The SBP prescribes from time to time be made without restriction. No prior
the lending bank would have the right to limits for nostro accounts of a bank approval is needed to open these accounts.

ECONOMY
UNDERSTANDING
By Banti Lal
The article aims to present an insight on the countrys monetary policy, approaching
step by step towards the strategic objective, history, effectiveness of monetary policy,
making of monetary policy process, fundamental tools, light on the monetary policy
outlook in the current scenario and its efficacy in economic growth.
MONEY SUPPLY economy and general trust in the currency.

The monetary authority has the ability to
RICE STABILITY The money supply or money stock is the alter money supply and thus influence the
total amount of monetary assets, for interest rate to achieve policy goals.
Price stability means general price level in example, currency and other liquid
an economy does not change, hence in instruments available at a specific time. Monetary policy rests on relationship
other words, prices neither go up or There are several ways to define "money," between interests rate (price at which
down; there is no significant degree of but standard measures usually include money can be borrowed) and total supply
inflation or deflation. Monetary policy is currency in circulation and demand of money uses variety of tools to control
implemented to control rate of change in deposits. Public and private sector one or both of these to influence economic
general price level, concerning interest analysts have long monitored changes in growth, inflation, exchange rates and
rates and the supply of money in an money supply because of its effects on the unemployment.
economy can be used to keep prices price level, inflation, the exchange rate
stable. and the business cycle. STRATEGIC OBJECTIVE
The price level where the supply of MONETARY POLICY The prime objective of Monetary Policy is
money equals demand for it is the to focus on price stability, to help economy
equilibrium price, which tends to be Monetary policy may be defined as a reach or maintain monetary equilibrium.
stable unless some outside factor changes process through which supply of money is An economy is at monetary equilibrium
demand or supply. In other words, prices being controlled by government, central when quantity of money demanded
will be stable when people have no more bank, or monetary authority controls equals the quantity of money supplied.
money or no less money than they need to targeting inflation and interest rate with Monetary Policy maintains value of
make the purchases. an objective to ensure stability of coinage; print notes and prevent coins

from leaving circulation. The importance Another issue is to make a clear POLICY TOOLS
of price stability is an overruling objective distinction between exchange rate
of monetary policy requires effective management & monetary management. These tools keep market interest rate and
management and anchoring of inflation Currently, general perception is that, inflation at specified target value by
expectations, central bank controls the State Bank is bound to keep the balancing banking system's supply of
inflation relative to output growth and exchange rate at some predefined level money against demands of the aggregate
financial and exchange rate stability. and away from this level is then market.
considered as an inefficiency of the SBP.
HISTORY The primary tool of monetary policy is
MAKING OF MONETARY POLICY open market operations, entails managing
The Monetary Policy inception came quantity of money in circulation through
from the late 19th century, where it was The interest rate decided through buying and selling of various financial
used to maintain the gold standard. monetary policy reflects outlook of instruments, such as treasury bills, company
Monetary policy is laid down in State international factors like oil prices, as well bonds, or foreign currencies.
Bank of Pakistan (SBP) Act of 1956. as domestic factors i.e. food prices and
revision of power tariffs highly sensitive All these purchases or sales result in
Monetary policy is coupled with elements in consumer price index (CPI) more or less base currency entering or
interest rate and availability of credit; are used to measure prices of 481 leaving market circulation. Usually the
instruments of monetary policy include commodities to achieve target of inflation short - term goal of open market
short-term interest rates and bank and growth set annually by the Government operations is to achieve a specific
reserves. Bank of England in 1694 to formulate countrys monetary policy short-term interest rate target.
acquired responsibility to print notes and consistent with announced targets.
back them with gold, the idea of monetary Quantitative Tools
policy as independent of executive action Earlier, the SBP was the sole architect
began to be established. of monetary policies but now responsibility Open Market Operations
of making of monetary policy has been Bank Rate
EFFECTIVENESS OF MONETARY shifted from SBP to Monetary Policy Cash Reserve Requirement
POLICY Committee (MPC) via amending the Liquidity Ratio
SBP Act 1956 in November 2015, MPC Special Deposit
Fiscal Year 2008 was an exceptionally has been constituted with the primary
difficult year; the domestic macroeconomic responsibility to decide about the Quantitative Tools
and political vulnerabilities coupled with monetary policy of the State Bank of
a very challenging global environment Pakistan. Credit Rationing
caused slippages in macroeconomic Credit Ceiling
targets by a wide margin. The MPC consists of ten members: the Moral Persuasion
Governor (Chairman), three members Direct Action
Following are the key areas which need of the Board, nominated by the SBP Advertisement
attention in effective monetary Board, three senior executives of the
management: Bank, nominated by the Governor, and With respect to maintain monetary
three External Members (economists) stability depicted below are three (03)
Policy making process effectiveness appointed by the Federal Government on main approaches of monetary policy:
requires quarterly meetings of the SBP recommendation of the SBP Board. The
and the Government. External Members are appointed for a Money supply mainly involves
term of three years. buying/selling of government bonds in
For effective analysis of developments public market, when the central bank
and policy making timely and quality In Monetary Policy decisions, the following disburses or collects payment for these
information is extremely important factors are taken into account: bonds it alters the amount of money in
due to weaknesses in the data collection the economy while simultaneously
and reporting mechanism constrains an Short-term interest rates affecting the price (yield) of short-term
in-depth analysis of current economic Long-term interest rates Government bonds. The change in the
situation and evolving trends and Velocity of money through the amount of money in the economy in
hinders the ability of SBP to develop a economy turn affects interbank interest rates.
forward looking policy stance. Exchange rates
Interest rate (CPI) Money demand is sensitive to price i.e.
Unlike many developed and developing Credit quality interest rates charged to borrowers, in
countries, there is no prescribed limit Bonds and equities order to manage money demand major
on government borrowing from SBP Government vs. private sector tool to conduct monetary policy
defined in the SBP Act or Fiscal spending and savings (raising or lowering interest rate) for
Responsibility and Debt Limitation International capital ows interbank offered rate. If nominal
(FRDL) Act 2005. Financial derivatives interest rate is very near to zero but
cannot be lowered further, such a

State Bank of Pakistan cuts
rate to 40-year low as growth target missed
situation is called liquidity trap can the economic activity. Contractionary In its monetary policy statement, the
occur during deflation or when monetary policy seeks to reduce size of the central bank said that the country would
inflation is very low. money supply controlled by either a not achieve its GDP growth target
central bank or a finance ministry. of 5.5% in the period ending June 30,
Banking risk involves managing risk 2016; however, it would exceed its
within the banking system. Banks must Monetary policy targets to keep corresponding outcome of 4.2% in last
keep banking reserves to handle actual inflation within a desired range with year. The SBP expects inflation will likely
cash needs, but they can lend an periodic adjustments to interest rate attain a higher upland in next financial
amount equal to several times their maintained for a specific duration using year, as rising global oil prices, imposition
actual reserves. The money lent out open market operations usually reviewed of new taxation measures and increase in
by banks increases the money supply, on a monthly or quarterly basis by a policy electricity and gas tariffs would put
and too much money (whether lent committee. The inflation targeting upward pressure on inflation.
or printed) will lead to inflation. approach to monetary policy approach was
Central banks manage systemic risks pioneered in New Zealand. Interest rate is However, it has been observed, the real
by maintaining a balance between changed in response to various market economic benefit of historic low interest
expansionary economic activity indicators attempting to forecast economic rate could not be harvested until
through bank lending and control of trends, simple method Taylor rule adjusts the government took measures for a
inflation through reserve requirements. the interest rate in response to changes in sustainable industrial growth. Despite
the inflation rate and the output gap. a low interest rate, borrowings of
MONETARY POLICY OUTLOOK manufacturing sector were low and
The inflation in 2016 is low, although exports were declining, the cost of doing
Neoclassical and Keynesian economics Consumer Price Index (CPI) so called business that included power and gas
significantly differ on the effects and inflation sustained its rising trend for tariffs in Pakistan was much higher
effectiveness of monetary policy on seventh consecutive months and rose compared to Bangladesh, India, Vietnam
influencing the real economy; there is no to 4.2% in April 2016 from 1.3% in and other emerging economies. Under
clear consensus on how monetary policy September 2015, despite continuous current circumstances, it appears that the
affects real economic variables (aggregate increase on a yearly basis, would remain house building and property sector would
output or income, employment). Both low as compared to annual average target be real beneficiary of low interest rate.
economic schools of thoughts accept that of 6 %. As per SBP, expansion in industrial
monetary policy affects monetary variables activities and services sector would It is imperative that the central bank of
(price levels, interest rates). In economics, salvage some of GDP growth due to the every country summarizes assessment of the
an expansionary monetary policy is one losses arose in cotton and rice crops. health of economy in its monetary policy
that seeks to increase the size of the money Furthermore, uncertainty might arise if statement. An independent and effective
supply aimed at lowering the interest rates there was an adverse change in oil prices or monetary policy is essential for effective
to achieve economic growth by increasing workers remittances. economic management in the country.

TECHNOLOGY
CYBER HEIST A Lesson
By Nazish Alim Qureshi
While widespread and ever-increasing automation at financial institutions has brought tremendous
production and operational efficiencies in the industry, it has simultaneously given rise to cyber threats
and attacks on transactions conducted through online branches, branchless banking and the internet;
payment systems for intra/interbank settlement and credit information of consumers etc. are also at
risk. Meanwhile, a large-scale hacking attack may involve stealing a company or an individuals
intellectual property; seizing and unauthorized usage of online bank accounts (leading to monetary
loss); creating and distributing malware on the Internet of things (networks, computers, laptops,
smartphones, tablets, smart TVs etc.) and illegally accessing and then disclosing confidential business
information to the detriment of the firms reputation.

inancial institutions, a major
constituent of the national critical
infrastructure, are the key target for
cyber criminals and malicious insiders
because they are the richest source of
intellectual property and offer direct
access to monetary assets. The multi-
channel and distributed environment of
financial firms offers a fertile ground for
cyber crimes. However, the threat is not
only from outsiders, as in many cases,
insiders (with deep knowledge of security
protocols) are also involved.
Globally, numerous institutions have

faced multiple types of cyber heists and FINANCIAL
attacks over the last 15 years; these
include AT&T, British Airways, INSTITUTIONS
Citigroup, Facebook, Gmail, JPMorgan
Chase, HP, Saudi Aramco, Sony, etc.
resulting in a loss of monetary assets, theft
of confidential and intellectual information,
and disclosure of nonpublic information
etc. In an extreme case, Irans nuclear
program was allegedly sabotaged through
a devastating malware attack.
Weak systems or controls or procedures LESSON LEARNED
Because of the sensitivity of the damage
and the consequential secrecy maintained by Exploited vulnerabilities This major cyber heist incident should be
victims, many factors remain unknown and treated as an eye-opener and attention
can only be guessed and based on reported Compromised credentials should be paid to the institutions
or alleged claims in the public domain. automated business environment. Due to
WHAT THE HEIST REVEALED the rising global threat of cyber heists,
In the wake of one of the largest cyber breaches and disclosure of confidential
heists in history, hackers and cyber This heist has revealed cyber criminals and information, all stakeholders, including
criminals were able to direct the Federal fraudsters can successfully: financial firms, government authorities,
Reserve Bank of New York to transfer and customers, must collaborate and stay
about US$ 1 billion from the account Compromise a financial institution's vigilant and risk aware against combating
of the Bangladesh central bank in 2016. In payment initiation system and emerging cyber threats, attacks and associated
the end, around US$ 81 million were environment by bypassing information risks in constantly evolving threat and
transferred from the Bangladesh central security controls attack landscape (see Table 1).
banks account with the New York Fed to
accounts in the Philippines through Obtain and use valid credentials with Cyber defense mechanisms across
SWIFT. the authority to create, verify and institutions must be optimized and made
authorize interbank messages proactive. These should be supplemented
SWIFT, or the Society for Worldwide by the following provisions:
Interbank Financial Telecommunication, Employ sophisticated understanding of
is a Belgium-based cooperative that is funds transfer operations and Active and mandated IT Security
owned by 3,000 banks and bills itself as operational controls or Cyber Security governance with
"the world's leading provider of secure consistent mindset and oversight
financial messaging services." It is now Use highly customized and persistent
used by 11,000 banks globally, every day malware to disable security event Skilled and experienced IT/Cyber
and processes around 25 million logging and reporting as well as other Security professionals (with globally
communications that collectively account methods to conceal and delay the recognized certification(s) preferable like
for billions of dollars' worth of transfers. detection of fraudulent transactions CISSP, CISM, CRISC, CEH, GIAC etc.)
As per multiple security analysts and Transfer stolen funds across Effective policies and procedures
experts, this breach happened through borders to illicit beneficiary accounts
one or more threats such as: quickly or in real time, to prevent Defense in Depth or layered approach
institutions/authorities from recovering IT/Cyber Security Framework
Malware Insider help the funds. (see Figure 1)

$29M
RCBC Bank
$2
1M
(Philippines)
1M
$3
FEBRUARY 2016
Philrem Services
(S Ord M
ce s
4 81
uc er
)
ed
$
$951M
35 Orders
1 O 20
rd M
$
30 Orders
er
(F
Blocked
ail
Bl iss
ed
)
oc pe
(M
ke lle
d d)
Shalika Foundation
Bangladesh Bank Federal Reserve Bank
(Bangladesh) of New York (USA)
Pan Asia Bank

(Sri Lanka)
The hackers misspelled Foundation in their request to transfer the funds, spelling the word as Fundation
This spelling error gained suspicion from Deutsche Bank, a routing bank which put a halt to the transaction
in question after seeking clarifications from Bangladesh Bank
Accountable roles and responsibilities CIS is a non-profit organization

whose mission is to "enhance the cyber
Strengthening controls and counter As per CIS security readiness and response of public
measures statement, and private sector entities, with a
commitment to excellence through
Industry best practices and standards Organizations collaboration.
(COBIT, NIST, ISO, CIS, ITIL, PCI that apply just
DSS, OCTAVE, SABSA, FISMA etc.) The CIS Critical Security Controls
the first five CIS provide a highly practical and useful
Regular training and periodic risk Controls can framework for every organization to use
assessment for both implementation and assessment
reduce their risk (see Figure 1). Because the controls
The above mandatory requirements of cyber attack are developed by the community and
assuring in the best interest, risk posture based on actual threat data, they
reduction and protection of institutional by around 85 are an authoritative, industry-friendly
intangible assets, IT assets, enterprise, percent. Imple- and vendor-neutral approach to risk
banking and infrastructure systems along assessment and auditing of security.
with our own personally identifiable menting all 20
information both in our professional and CIS Controls Lastly, all collaborative and collective
personal lives. efforts against evolving cyber security
increases the challenges must be made in the best
As per CIS statement, Organizations risk reduction interest and protection of the national
that apply just the first five CIS Controls critical infrastructures like Banking &
can reduce their risk of cyber attack by to around 94 Finance, Defense, Telecommunications,
around 85 percent. Implementing all 20 percent Power grid, Dams & Irrigation, Oil & Gas
CIS Controls increases the risk reduction and Healthcare etc.
to around 94 percent.

30
CYBER THREATS LANDSCAPE
TABLE 1 (SOURCE: PROPRIETARY)
MOTIVATIONS/ ATTACK PATHS ACTIONS

THREATS ACTORS TARGETS (TECHNIQUES (REMEDIATION/
Journal of The Institute of Bankers Pakistan

GOALS
& TOOLS) MITIGATION)
CREDENTIAL THEFT HACKERS PERSONAL IDENTIFIABLE GOVERNMENT EMAILS THE CENTER FOR
INTELLECTUAL HACTIVISTS INFORMATION (FEDERAL, STATE, INTERNET BROWSERS INTERNET SECURITY
INFORMATION THEFT AMATEUR HACKERS INTELLECTUAL PROPERTY AND LOCAL) E.G. SOCIAL NETWORKING (CIS). 20 CRITICAL CYBER
INFORMATION INSIDERS (VISITORS, (COPYRIGHT, TRADE - E-BANKING SITES / MEDIA SECURITY CONTROLS FOR
MANIPULATION CONSULTANTS, SERVICE SECRETS, LICENSE ETC.) - E-GOVERNMENT CHAT / IM EFFECTIVE CYBER DEFENSE
VULNERABILITIES PROVIDERS ETC.) MILITARY OR POLITICAL - E-COMMERCE CREDENTIAL SHARING
SYSTEMS & NETWORKS CURRENT EMPLOYEES DOMINANCE INDUSTRY E.G. CRACKING
HACKING FORMER EMPLOYEES MONETARY/ECONOMIC - AEROSPACE & DEFENSE FILE SHARING
PHISHING/SPEAR FOREIGN NATIONS GAIN - BANKING & FINANCE DOWNLOADS
PHISHING AGENCIES CYBER WARFARE - HEALTH CARE SNIFFING
SOCIAL ENGINEERING COMPETITORS ADVERSARY/RIVALRY - PHARMACEUTICALS EXPLOIT
ADVANCED PERSISTENT TERRORISTS SABOTAGE - INSURANCE INFECTED MEDIA (USBS,
THREATS (APTS) STUDENTS DEFAME - MANUFACTURING CDS, DVDS, STORAGE)
CRIME/FRAUD (E.G. INDIVIDUALS TERRORISM - OIL & GAS MALWARE
CREDIT CARD FRAUD, HARASSMENT - POWER GRID COMMAND & CONTROL
MONEY LOSS, TRANSFER) ABUSING - DAMS & IRRIGATION HACKING TOOLS ETC.
DEFACING EGO, PERSONAL ENMITY - ROADS & HIGHWAYS
CYBER ATTACKS ESPIONAGE - TRANSPORTATION
(DOS/DDOS) - RETAIL
TRANSNATIONAL - TELECOMMUNICATIONS
TERRORISM/HARASSMENT - ENTERTAINMENT
- UTILITIES
UNIVERSITIES/COLLEGES
COMPETITORS
INDIVIDUALS
UNAWARE/UNTRAINED
EMPLOYEES AND END
USERS
CHILDREN
Figure 1 (Source: The Center for Internet Security (CIS) Critical Security Controls (CSCs) for Effective Cyber Defense)
In order to tackle the evolving cyber security challenges in combating internal and external cyber threats and attacks against institutions
automated business environment, the following: Critical Cyber Security Controls for Effective Cyber Defense have been introduced
by The Center for Internet Security (CIS) as an actionable, preemptive, conducive and enabling approach.
Inventory of Authorized and Inventory of Authorized and

Unauthorized Devices
Actively manage (inventory, track, and correct)
CSC CSC Unauthorized Software
Actively manage (inventory, track, and correct) all
all hardware devices on the network so that only 1 2 software on the network so that only authorized
authorized devices are given access and unauthorized software is installed and can be executed and that
and unmanaged devices are found and prevented unauthorized and unmanaged software is found
from gaining access. and prevented from installation or execution.
Secure Configurations for Hardware and Continuous Vulnerability

Software on Mobile Devices, Laptops, CSC CSC Assessment and Remediation
Continuously acquire, assess, and take action on
Workstations and Servers
Establish, implement, and actively manage (track, 3 4 new information in order to identify vulnerabilities,
report on, correct) the security configuration of laptops, remediate and minimize the window of opportunity
servers and workstations using a rigorous configuration for attackers.
management and change control process in order to
prevent attackers from exploiting vulnerable services
and settings.
Controlled Use of Administrative Privileges Maintenance, Monitoring

The processes and tools used to track/control/prevent/
correct the use, assignment, and configuration of
CSC CSC and Analysis of Audit Logs
Collect, manage and analyze audit logs of
administrative privileges on computers, networks
and applications.
5 6 events that could help detect, understand
or recover from an attack.
Email and Web Browser Protections Malware Defenses

Minimize the attack surface and the opportunities
for attackers to manipulate human behavior though
CSC CSC Control the installation, spread and execution of
malicious code at multiple points in the enterprise
their interaction with web browsers and email systems. 7 8 while optimizing the use of automation to enable
rapid updating of defense, data gathering, and
corrective action.
Limitation and Control of Network Ports, Data Recovery Capability

Protocols, and Services
Manage (track/control/correct) the ongoing
CSC CSC The processes and tools used to properly
back up critical information with a proven
operational use of ports, protocols and services 9 10 methodology for timely recovery of it.
on networked devices in order to minimize
windows of vulnerability available to attackers.
CIS CRITICAL
SECURITY
CONTROLS

Secure Configurations for Network Devices Boundary Defense
such as Firewalls, Routers and Switches
Establish, implement, and actively manage (track,
CSC CSC Detect/prevent/correct the flow of information
transferring networks of different trust levels
report on, correct) the security configuration of 11 12 with a focus on security-damaging data.
network infrastructure devices using a rigorous
configuration management and change control
process in order to prevent attackers from
exploiting vulnerable services and settings.
Data Protection Controlled Access

The processes and tools used to prevent data
exfiltration, mitigate the effects of exfiltrated
CSC CSC Based on the Need to Know
The processes and tools used to track/control/
data and ensure the privacy and integrity of
sensitive information.
13 14 prevent/correct secure access to critical assets
(e.g. information, resources, systems) according
to the formal determination of which persons,
computers and applications have a need and
right to access these critical assets based on
an approved classification.
Wireless Access Control Account Monitoring and Control

The processes and tools used to track/control/
prevent/correct the security use of wireless
CSC CSC Actively manage the life cycle of system and
application accounts their creation, use, dormancy,
local area networks (LANS), access points and
wireless client systems.
15 16 deletion in order to minimize opportunities for
attackers to leverage them.
Security Skills Assessment and Application Software Security

Appropriate Training to Fill Gaps
For all functional roles in the organization (prioritizing
CSC CSC Manage the security life cycle of all in-house
developed and acquired software in order to
those mission-critical to the business and its security), 17 18 prevent, detect, and correct security weaknesses.
identify the specific knowledge, skills and abilities
needed to support defense of the enterprise; develop
and execute an integrated plan to assess, identify gaps
and remediate through policy, organizational planning,
training and awareness programs.
Incident Response and Management Penetration Tests and Red Team Exercises
Protect the organizations information as well as its
reputation, by developing and implementing an
CSC CSC Test the overall strength of an organizations
defenses (the technology, the processes and the
incident response infrastructure (e.g. plans, defined
roles, training, communications, management
19 20 people) by simulating the objectives and actions
of an attacker.
oversight) for quickly discovering an attack and
then effectively containing the damage, eradicating
the attackers presence and restoring the integrity
of the network and systems.
CIS CRITICAL
SECURITY
CONTROLS

TECHNOLOGY
The Impact of
on Investments
Exploring the Implications One at a Time
By Syed Danish Ali
Up till recently, the artificial intelligence portion of data science was looked upon
cautiously due to its history of booms and dooms. In the latest stream of events,
major improvements have been shown in this field and now deep learning, the
new leading front for Artificial Intelligence, presents a promising prospect for
overcoming problems of big data.
eep learning is a method of where it can be utilized. Deep learning has traditional data analysis before 2005
machine learning that undertakes various architectures such as deep neural focused on just the tip of the iceberg, the
calculations in a layered fashion networks, deep belief networks, deep big data revolution sprang up and now
starting from high level abstractions Boltzmann machines etc. which are able deep learning offers us a better glimpse
(vision, language and other Artificial to handle and decode complex structures into the unconscious segment of data that
Intelligence related tasks) to more and that have multiple non-linear features. we know exists, but are constrained in
more specific features. The machine is able realizing its true potential. Deep learning
to progressively learn as it digests more Deep learning offers us considerable helps us in both exploring the data and
and more data and its ability to transform insight into the relatively unknown identifying connections in descriptive
abstract concepts into concrete realities unstructured data, which is 80% of the analysis. These connections also help us in
has opened up a diverse plethora of areas data that we generate as per IBM. While forecasting what the result will likely be,

given the particular combination as the previous reports made so it doesnt general as well as specifically for a
machine learns from the data. become repetitive. Natural Language particular meltdown. These can form the
Generation is applied with a surgeons modeling methodology for the deep
Deep learning, in collaboration with precision and expertise in forming such a learning machine to analyze the cosmic
other machine learning tools, has made dynamic semantic engine. scale of data available on any and every
headways in possible applications. All platform that it can garner. Such
major giants like Google, IBM, Baidu are evaluation can perhaps help us to see
aggressively expanding in this direction, patterns that we could have missed
but start-ups are providing the most vivid otherwise as well as to allow us to
applications so far. Kensho is a start-up Deep learning is a understand more accurately the sequential
that aims to use software to perform tasks method of machine movements and mechanisms involved in a
in minutes that would take analysts weeks learning that undertakes particular financial contagion and crisis.
or months. Just like searching via Google, calculations in a layered There is no guarantee that this will work.
the analysts can write their questions in fashion starting from high But perhaps it can shed some light inside
Kenshos search engine. The cloud based the quantum black box of financial crises.
software, as per Forbes reporter, Steven level abstractions (vision, This seems to be the need of the hour with
Bertoni, can find targeted answers to language and other recurring financial hemorrhages such as
more than 65 million combinations in Artificial Intelligence EU crisis on Greek Debt as well as the
the flick of a second by scanning over related tasks) to more recent massive and escalating falls in
90,000 actions which are as myriad as and more specific Chinese stock exchanges reminding us of
political events, new laws, economic the bitter past we faced in Wall Street
reports, approval of drugs etc. and their features Crisis of 2008-09.
impact on nearly any financial instrument
in the world. Another start-up, Ufora is Given all these developments, there are
set to automate a large part of quantitative still a myriad of issues that need
finance work undertaken by quants, clarification with not just deep learning in
especially on the stochastic modeling specific but also with big data generally.
front. Even some hedge funds like Automation of such unprecedented scale
Renaissance Technologies are proactively and intensity raises the possibility of mass
working on machine learning and deep redundancies in labor force across the
learning algorithms to better see patterns economy. Are we comfortable with giving
in the financial data to exploit up our controls to such applications
opportunities (which stocks are overrated without knowing the full implications of
or underrated, market is going strong on such a move? Not every innovation brings
fundamentals or approaching the bubble positive results or sustains in the long run.
stage and so on) to guide their investment Technology is progressing rapidly at an
strategies. This is indeed a leap forward as report unstoppable pace but can we manage
writing consumes a lot of human time and the social consequences and make it
On the other hand, Firms like Narrative effort and also machines making such sustainable in the long term? Human
Science and Automated Insights working reports were unheard of before. Deep efforts are seemingly being diverted from
on text analytics are utilizing deep learning allows us not just to explore and other fields into IT which consequently
learning to create lively and interactive understand the data better, but also to can imply a concentration of power in one
narrative reports out of data and numbers. perform forecasts better. For the predictive overlord field to the potential detriment
This essentially means report written by a analytics part, the start-up MetaMind is of others. Are we ready for this? From a
machine that reads like it is almost written working to help financial firms assess consumer point of view how ethical is it
by a human author. To elaborate this chances of selling of stocks by going that marketing personnel know you so
feature, Narrative Sciences Quill platform through corporate financial disclosures. It well that they make rational optimization
undertakes statistical analysis of applying identifies from previous experiences when very difficult on the part of the consumer?
time series, regression etc. and then the a particular combination of actions lead to
semantic engine evaluates the important a particular result to assess chances of the These are all good questions and should
data signal from the unimportant noise as same result happening in the future. be adequately and mutually tackled and
per the needs of the particular audience in addressed by all the stakeholders involved,
question like different reasoning, if it Extrapolating this trend into the future such as the data scientists, government,
is related to a quant or a trader of might soon find their way into Mergers & professions and consumers so as to be able
investments. The patterns are spotted and Acquisitions (M & A) and will be able to to reach a mutual policy that can better
made sense out of in a holistic manner. come up with probability of some key alleviate such concerns. The core aim of
Particular fuzzy attention is given to event happening and the consequences of the policy should be to sustain technology
anomalies and elements of results that are it when involved in a high stake M & A. for the benefit of our societies, to value
deviant from the main normal body of the Economists, financial experts and social creation, to reduce scarcity and reduce
results to ascertain their impact and scientists have elaborated immensely on fragility of our systems as well as to generate
proper interpretation. It remembers key issues that lead to financial crises in more resources for our prosperity.

OPINION
INTERNAL FRAUD
By Nida Asad
Should Monitoring Remain Confined to Customers Only?
Internal fraud is a developing problem around the globe. In 2014, 751 confirmed cases of employee
fraud were recorded by Cifas Members to the internal fraud database. Despite the fact that internal fraud
is being considered as a bigger threat for banks and should remain the primary focus of attention;
management continues to worry about external fraud and customer due diligence. Unfortunately, 60%
of bank fraud cases are a result of employee disloyalty.
o sustain amidst a competitive In an effort to identify the reasons why Compulsion (pushed into oence)
business environment, employers staff participate in devious activities, Seduction (pulled into oence)
have opted to empower their staff Personnel Department must review the
and assign important duties down the circumstances that provoke illegal behavior. From developing researches, it can be
chain of command. Delegation and Generally, the most serious threat of deduced that fraudsters feel they have been
empowerment has indeed refined the internal fraud has been centered on pushed into crime due to financial
business operations and level of customer relatively senior workforce appointed on challenges they have been facing. Also,
satisfaction. However, empowerment managerial positions. However, the junior they are compelled through greed,
harvests the potential of deceit and pave staff now have an access to sensitive data debts, gambling, addictions or family
way for fraudsters to misuse their authority. which they can easily manipulate for their expectations. The explanation of indulging
Internal fraud can be defined as malpractice personal gains. in offence in such situations is simple;
or deceit that occurs within an organization, Desperation leads to creative crimes.
when an employee intentionally makes To recognize the risk and infer how to
false representation, willingly fails to mitigate them, it is imperative to postulate On the flipside, often fraudsters claim that
disclose necessary information, exploits a the psyche of a fraudster. Two of the they were almost seduced to commit
position of trust for personal benefit or prominent situations that lead a person to violations because of system loopholes and
causes loss to co-workers or organization. commit fraud are: poor management control. Since it was such

an easy catch, they kept repeating the offence. enable the authorities to check if an transactions or bank account reconcile-
applicant has past record of internal fraud. ments that are not dated and fail to
There has been a substantial surge explain the status of outstanding
in identity theft during recent years. Some Financial institutions must invest in transactions clearly denotes presence of
law enforcement agencies are convinced specialist software that should be utilized fraudulent employees in the bank.
that terrorists and classified criminals are to monitor staff transactions, generate
largely targeting financial service industry. alerts in an event of suspicious handling of Another indication of internal fraud is
Classified criminals are perhaps on an account or sensitive data pertaining to that fraudulent staff may try to access
agenda of picking out staff, which is customers or employers. accounts that do not pertain to their
authorized to access sensitive data of scope of work. Repeated or excessive
customers as well as have a reach to bank Fraud management strategy incorporates access to high-balance accounts and
reserves. In many instances, offence the notion of whistleblowing. It is unnecessary logins to customer accounts
incorporated an employee retrieving clients noteworthy that staff can perform as an after office hours should trigger an
personal and confidential information organizations line of defence against inside alert for the review of audit department,
to cause physical or financial damage. fraud. Banks should promote the idea of preferably via specialized monitoring
Unfortunately, with or without personal raising legitimate concerns and complaints, program that would facilitate no personal
motives, banks personnel choose to help if they happen to observe some suspicious bias.
these classified criminals, thereby causing a activity or witness any illegal act. Through
rise in events of organized internal frauds. proper whistleblowing policy, employers It has also been observed on several
may get a chance to subside threat of fraud instances that fraudsters attempt to
From inefficient hiring based on before it can cause any impact simply by acquire full control of customers'
fraudulent applications to lack of technology getting timely information against fraudsters. accounts in various ways. For example
to monitor suspicious deeds of employees, However, whistleblowing policy itself may marking victim's account as ' hold mail '
an employer may overlook genuine risks provide an opportunity for staff to or changing account statement mailing
linked with banking operations. A single wrongfully defame an individual. In frequency to a longer span.
reported incident of staff fraud undoubtedly order to avoid such instances, confidentiality
causes reputational damage, financial losses instead of anonymity is to be encouraged. Unfortunately, Internal fraud is not
and regulatory complications for victimized confined to misdoing of employees; rather
financial institution. Financial institutions must aspire to it also constitutes the devious behavior of
build a rigid anti-fraud culture that stands employers. Employers fraud may surface
So how can financial institutions on integrity, truthfulness, caution and in shape of 'under the table' payment,
safeguard themselves against organized receptivity. When seeking to create a avoiding workers compensation or
internal fraud? To battle with the internal zero-tolerance for fraud culture internally, wrongfully framing a disliked employee
fraud successfully, banks need to examine it is essential to formulate clear and guided under whistleblowing policy or filing a false
the probable reasons why an individual policies that are religiously followed by HR claim. The motive of employer in such cases
commits fraud along with fraudulent staff and others. However, policies alone may fail is simply to gain either financial benefit or
members. In general, researchers have to prevent internal frauds unless employers perhaps to satisfy ego, but sadly at the cost
concluded that inside fraudsters are do not set examples and do not condone of somebody's channel of earning.
essentially; risk takers, self-deceptive, low-level deceits. The fraudsters should
distrustful, low on self-esteem and often be named and shamed openly in an Such cases of fraud may as well cause
emotionally unstable. As narrated by appropriate forum as a warning for others. damage to the goodwill of any financial
Association of Certified Fraud Examiners institution. The fraud of employers should
(2014 Report to the Nations), the size of Unmasking the Offence also be reported to government agencies
financial loss correlates to the fraudsters Internal fraud develops like cancer within for accountability.
level of authority. The higher the rank of any organization. It is initially difficult to
insider, the greater the amount of loss detect and the consequences it bears are Aftermath of a Fraud Incident
incurred. In terms of managing risk and much damaging for financial well-being of Fraud not only impacts the concerned bank
fraud within a bank, it is essential that the an affected entity. It is thus favorable to fetch and customers rather it impacts the society
board and senior management must for early indications of a potential fraud. at large. The most disturbing consequence
effectively communicate to employees at is perhaps the emotional distress fraud
all levels through clearly devised policy Fraudsters may try to exploit their access victims will have to live with. Often victims
and example that there is zero tolerance to general ledgers. They may open are unable to recover from financial loss
approach. fictitious accounts and use them to and bankruptcy. The psychological trauma
channelize illegal funds. Manipulation might even claim innocent lives after losing
The balanced implementation of of suspense accounts and accounts sense of security, self-esteem and dignity.
precautionary measure is extremely payable may go unnoticed for years due
necessary. Investigative procedures should to lack of auditors' efficiency. Hence, When frauds are uncovered, especially in
not be biased on basis of ranking within it is recommended that the auditing financial institutions, the problem of publics
institution. Other than being excessively standards should be strengthened, damaged trust lingers. The morale shatters as
alert during recruitment formalities, particularly for journal entries and employees will carry poor reputation along
financial institutions must also invest in reconciliations. Accounting irregularities their whole career path even when they have
creating a combined database that may such as sketchy description of not been the culprit themselves.

PERSONAL & PROFESSIONAL DEVELOPMENT
CHANGE MANAGEMENT
INTERVENTION IN A LOCAL BANK:
An Outsiders Review Through the Glass Ceiling
By: Sohailuddin Alavi
In the context of ongoing globalization and the constant innovation of technology

resulting in a constantly evolving business environment, change must be endeavored
for transitioning individuals, teams and organizations to a desired future state. With the
business environment experiencing constant modifications, organizations must learn to
adapt to changes of all kind. The ability to manage and adapt to organizational change
is an essential attribute required in the workplace today.

ny attempt to bring about an Strategic Directions, Road Blocks
organizational change to face and the Change Management Change
the challenges lying ahead is, Framework. Management
however, quite a difficult Framework
proposition as change management Drivers for change are generally
programs may not always tend to produce external and internal. Externalities
desirable, perceptible and positive results. by and large include technology,
As the structure, culture and routines of re-regulations, interest margins, ROAD
organizations often reflect a persistent and constituents, and last but not the BLOCKS
difficult-to-remove "imprint" of past least, Capital with K. These factors

periods, which are resistant to radical cause shift in competition, products
change even as the current environment of and performance. Internalities
the organization changes rapidly. Yet, every include general awareness of and CHANGE
organization must consider change to commitment to improve and/or RATIONALITY
STRATEGIC
respond to its emergent environment. reverse deterioration in profits, DIRECTIONS
State Bank of Pakistan for instance has performance, employee advantage,

demonstrated measurable success in imple- customer advantage etc. Externalities
menting its change management program, and internalities together provide
though many organizations claim to have objective basis for building
achieved success but not to the same extent. Change-Rationality.
In the following analysis, an attempt has Rationality paradigm has three Drivers
been made to review the Change Management levels, namely: Performance level,
program undertaken at a local bank. The Intervening level and the Root level.
analysis has been done with reference to a Performance rationality recognizes the directions. Common road blocks include
framework, annexed as A and is based on need for improvement in revenue, lack of clarity of directions, people across
considered and informed opinions of the compliance and facilitation. Intervening the echelons do not share the same
banks employees and those of its customers rationality identifies the need for perspective, vague/weak planning,
obtained randomly. improvement in products, services, stakeholders take competing positions
efficiency and effectiveness. Finally, root vis--vis change, delayed or fragmented
Though the banks change management rationality unravels the required changes implementation etc.
program was much in line with the in the organizational governance and
industry practices but it was looked upon policies, planning, processes, people and Finally, all the steps described above
skeptically by many inside and outside of structure. need to be put together in a Change
the bank for various reasons. The general Management Framework. The framework
perception is that initially, the banks It is important to remember, however, firstly entails integrating multiple change
performance showed improvements in that interventions must begin at the root interventions across the organization into
terms of profit growth, size of deposit level followed by intervening level before one holistic plan. Secondly, it requires
pool, innovation and diversity in financial change in performance can be envisaged. defining key-performance indicators and
products. However, the management Any attempt to change performance time lines for each intervention and the
could not demonstrate any meaningful directly cannot be sustained. interdependences across the entire
improvement in the overall governance interventions. The framework will thus
per se, general level of customer service, This brings us to the next logical step in provide an efficient and effective basis for
employees performance and morale, the change management process i.e. coordination, control and monitoring of
technology interface and last but not the developing strategic directions for change. various interventions at the operational as
least physical environment that contributes This entails deciding what to change well as strategic levels.
significantly to staff efficiency at the across the organization. The organization
branches. All this serves as the basis to should make policy decisions vis--vis CHANGE
support the hypothesis that the strategic repositioning of the organization MANAGEMENT IN THE BANK
correlation between change management at the corporate and business levels, The bank is not just a commercial bank
interventions and the improvement strengthening of governance environment, per se; its operations are much more
indicators at the bank were not well increase or decrease in capital and change complex. Besides maintaining profitable
established. The analysis, however, in owners composition, restructuring of operations, the bank also performs other
remains generalized as the bank had not assets, change in peoples competence non-traditional banking functions.
developed strategic and operational KPIs level, improvement in processes either via However, since it was mistakenly
for the change interventions. business process re-engineering or benchmarked with typical international
improvement, access to technology and commercial banks hence while building
CONCEPTUAL PREMISE change of soft image. It is pertinent to rationality for the change only profit
The banks change management program concurrently identify and ideally work out growth was in focus. Consequently, the
has been assessed using the conceptual mitigation strategies for the most likely external challenges and internal problems
premise, namely: Drivers, Rationality, road blocks alongside deciding strategic facing the bank were distorted and on the

other hand strategies for the change were a Marketing was given top most priority IMPACT ANALYSIS
typical replication of the practices in during the change process. A team of In the following paragraphs, a brief yet an
benchmarked banks. marketing professionals was inducted objective impact assessment of the efficacy
at the apex level. Consumer driven of the banks change management program
The bank embarked upon its change products on both sides of the balance has been presented using a conceptual
management program almost at the same sheet were developed and launched to premise given above. Structured
time as other Pakistani banks were preparing increase deposits and sink deeper into discussions in an informal setting with
to change. De-regulation and privatization the lending market. various employees and customers and
of the financial sector and stepping-in of authors own first hand understanding of
numerous new local banks and few Massive investments were made in the ground realities provided much of the
multinational banks in the Pakistani technology hardware and software. basis for the impact analysis.
banking sector gave impetus to the process
of change. The Central Bank of Pakistan Considerable investment was made on The bank made considerable progress
(SBP) acted as the catalyst for change by improving the governance environment. vis--vis other players in the financial
providing new regulations on capital Risk management, compliance and audit sector during the years 2002 through
adequacy, consumer financing, prudential functions were adequately strengthened 2004. Banks financial profits and
regulations etc. and emphasized on quasi besides engaging the board members commercial deposit base showed consistent
guidelines relating to general business more intensively for due diligence of the growth during the said period. The bank
practices such as improving customer management. Consequently, various also introduced new financial loan
service, flat organization structure, need board committees were activated. products, particularly the consumer loan
for delegation of powers at the sharp end portfolio. It also rationalized its cost of
etc. Banks preparing to change decided to Senior management also gave much doing business primarily on account of
induct senior Pakistani bankers with importance to changing the soft image payroll by right sizing the organization.
international exposure along with of the bank in the market. On the governance front, the bank invested
international banking consultants at the in risk management, compliance and
apex management. Perhaps, the idea was Coincidently, the bank demonstrated audit functions. The bank also made
that these professionals were in a better increase in profits, deposit size, loan considerable investment in IT systems.
position to replicate foreign banking portfolio etc. However, it did not show On the HR side, the bank envisaged
systems and culture. The bank followed suit. any marked improvement in customer paradigmatic improvements through a
satisfaction (perception and tangible series of interventions such as revisiting
From the very beginning, the banks value), improvement in its branch performance reinforcement policies,
management viewed that the major environment (soft image), employees induction of sizeable number of
hurdle in the banks progress has been the performance and morale in general, management trainee officers and a
dilapidated capacities and frozen mindset technology interface, implementation of number of trained professionals at the
of old employees across the echelons. good governance environment in letter middle and senior level on contractual
Stereotype financial products, bureaucratic and spirit and last but not the least casting basis, decentralization of powers at the
work culture, and lack of technology a business- like culture. Furthermore, the regional level etc. The bank also earned
interface were other major challenges positive trends attained initially could not recognition of the best performing bank
identified by the management. be sustained for long. for many years continuously.
Consequently, the management considered
the following change interventions: A common perception vis--vis reforms
across the board has been unfortunately
At the onset, the management casted skeptical across the echelons and among
afresh Vision for the bank which
The Bank the customers. The skepticism could be for
focused on broad market based embarked upon many reasons. It is believed that the major
operations. limitation was that the new face of the
its change bank was envisioned ignoring its holistic
On the human resources side, the management scope of business i.e. only the conventional
bank inducted a good number of side of the bank was considered for
Pakistani commercial bankers with
program intervention, while other business
international exposure, management almost at the functions were ignored in totality.
experts, marketing and IT experts etc. Contrary to the general perception about
The bank also introduced qualified
same time as the value attached to the branch banking
fresh business graduates and identified other Pakistani network, it was also believed that the
fast track employees internally. The branches only had trivial significance in
bank aggressively spent on Training
banks were the overall value-chain. Hence, Head
and Development with a two- pronged preparing to Offices were given more attention while
agenda: improve the capacities of the branches received peripheral interventions
individuals and to bring about change
change only. Moreover, the employees, both at the
from bureaucratic to commercial senior and operational levels, also believed
work culture. that the interventions remained fragmented

and mostly in terms of business The management had been
development alone. Consequently, focused on short term indicators,
improvements could not be sustained for
long nor the improvements were attained
which automatically inhibited
their commitment to strengthening
From the very
holistically. More importantly, it was governance. A couple of frauds in beginning,
generally felt that the benefits of the branches of the bank are example
improvements were not equitably made of weak governance. In fact, it has the banks
available to the employees and customers been a big challenge to get the
across the board. guidelines and standards adhered to, management
A thorough analysis of the banks
in letter and spirit by the operational
management.
viewed that
change management paradigm reveals a the major
number of problem areas. Firstly, a Customer service at the branches had
cohesive organization - wide change plan been far behind the expected hurdle in
and strategies were never put into paper to standards. This is evident by delayed
provide logic and unified directions to average transaction turn-around-time, the banks
various segments of the bank. The individual
divisions within the bank incubated and
dilapidated physical environment of
most of the branches and unreliable
progress
embarked upon the reforms in their work attitude of the staff in general. has been the
respective domains with no inter divisional
coordination and, even more ironically, On paper, performance improvement dilapidated
without objective control mechanism. In has been one of the top priorities of
short, the incubation and implementation the bank. Consequently, training capacities
of reforms lacked organization-wide
rationality and framework. Also, the
budgets increased many times. Yet,
ironically training interventions failed
and frozen
employees, especially the old ones, were to improve the job performance. An mindset of
not taken on board nor were given outside consultant conducted a survey
adequate opportunities to participate in to assess the impact of training on old employees
the change process. Moreover, the performance. The variables included
management did not give importance to professionalism, empowerment, profit across the
team bonding between regular employees
and new comers nor did it establish an
focus, customer focus, productivity,
proficiency and development. Senior
echelons
effective and efficient communication managers across the country were
link with the employees on the change asked to respond to the survey. Sadly,
process - the employees generally lacked the response was disparagingly
knowledge of the reforms and their shocking - 99% of the respondents Inequity between the new and legacy
rationality in particular. Hence, except were of the view that the impact of the employees had led to the lack of
for a few employees, many did not training was trivial. cooperation and blame-game environ
participate in the change process; rather ment and lowered satisfaction and
regular employees were kept aloof while Work environment had been much self-esteem of the legacy employees.
the consultant management and lateral politicized. Management Union
inductees took the lead in the process in interactions, employee postings and Empowering field management was a
most of the situations; majority of promotion decisions were greatly good concept but these interventions
employees engaged in the process lacked influenced by internal interest groups never passed the storming stage. Status
passion for and ownership of the change and external political affiliations incongruence, personal interests, rivalries
agenda besides understanding of the rather than business rationale. etc. had been the major impediments.
ground realities. Consequently, the However, sadly the management did
interventions so designed lacked ground The banks culture had one of the not demonstrate commitment to and
realities and ownership by the larger strongest bureaucratic-models which facilitated the required bonding of the
community of employees. Resultantly, the could be experienced as soon as one field management.
bank continually faced functionality enters the Head Office premises.
problems despite the change management Interactions with the employees at the In a nutshell, disadvantages exceeded the
interventions. branches or head offices further advantages of the change interventions.
reinforced this reality. Ironically, Impact analysis suggests the following
Much of the investment in systems departments and individuals operate gaps in the change process:
failed to yield results as no performance in silos.
indicators were identified at the onset of No explicit rationality for the change
the intervention. For instance, to date Lateral inductions at the middle and was conceived at the corporate level,
majority of its branches are operating senior level and induction of which led to distortions and
off-line which means no improvement management trainee officers have disharmonized reforms agenda across
in the customer service. caused more problems than synergies. the divisions.

FRAMEWORK FOR CHANGE
MANAGEMENT PROGRAM
DRIVERS RATIONALITY STRATEGIES ROAD BLOCKS
a. Externalities a. Performance level a. Repositioning & Strategic a. Lack of clarity of directions

[Change in opportunities, [Revenue, Facilitation, Planning
competition, needs and Compliance] b. People across the echelons do
expectations, regulations, b. Change in people competence not share the same perspective
environment etc.] b. Intervening level level
[Products & Services, c. Vague / weak planning
b. Internalities Efficiency & Effectiveness etc.] c. Business Process Re-engineering
[Commitment to improve and/ d. Stakeholders take competing
or reverse deterioration in c. Root level d. Technology positions vis--vis change
profits, performance, employee [Governance, Planning,
advantage, customer Policies, Processes, People, e. Improve / change soft image e. Delayed or inappropriate
advantage etc.] Structure] implementation
No strategic framework for the Holistic approach. contracts and the real challenges and
change management was developed, opportunities on ground.
which weakened the implementation, Results focus long term and short
coordination and control of the term both. Integration of directions and
reforms. Change interventions were speed across multiple change
designed and initiated in silos and Managements total commitment and interventions.
without an effective implementation unconditional support.
strategy and controls. 360o monitoring and evaluation of all
Essentially strategic outlook change interventions in terms of
Employees were not prepared, both in complimented by operational outcome, output, time lines, budgets
terms of their attitude and capacities, knowledge. and individual (team) accountability
to complement the other interventions followed by corrective actions and
for a successful change. Teamwork outside the boundaries of reinforcements.
hierarchies: Participation of people
Managements participation was across the organization through all Last but not the least, transparency,
confined to initiating the change stages of change cycle, in letter and legitimacy and rationality in all
interventions photo session. It, spirit. change interventions.
however, failed to demonstrate
commitment to the process and Systematic thinking: Problem
facilitate the change along the way. diagnosis followed by home grown
innovative interventions.
LESSONS LEARNED
It is generally believed that an effective Interventions should essentially
change management program should conform to the given context: the
conform to certain pre - conditions such as: legitimate social & psychological

BOOK REVIEW
THE END OF ALCHEMY

Money, Banking and the Future of the Global Economy
he past twenty years saw postwar economic policymaking and the addresses these questions, and much
unprecedented growth and stability dilemmas we now face. . . . It is rare to more. For those endeavoring to
followed by the worst financial crisis the encounter a book on economics quite as understand the greatest financial crisis of
industrialised world has ever witnessed. In intellectually exhilarating as The End of our time and the future of finance, this
the space of little more than a year what Alchemy a dazzling performance indeed. highly provocative book is a must-read.
had been seen as the age of wisdom was ( John Plender - Financial Times) (Alan Greenspan)
viewed as the age of foolishness. Almost
overnight, belief turned into incredulity. Offers both a deeply examined critique Drawing on years of scholarly study
of economics as usual, and practical, of banking history and his real world
Most accounts of the recent crisis focus controversial ideas on policy. It's a experience in fighting financial panic,
on the symptoms and not the underlying rare achievement. (Clive Crook - Mervyn King has set out a new framework
causes of what went wrong. But those Bloomberg View) for monetary and financial reform.
events, vivid though they remain in our Seemingly simple in concept, it challenges
memories, comprised only the latest in a I have read umpteen books about the prevailing banking and market practice.
long series of financial crises since our financial crisis of 20072008 and its The End of Alchemy demands debate
present system of commerce became the lessons. This is the cleverest one, and a well-reasoned response. (Paul
cornerstone of modern capitalism. brimming over with new ideas. While A. Volcker)
Alchemy explains why, ultimately, this was other lords of finance publish memoirs,
and remains a crisis not of banking - even King has produced a brilliant analysis not Mervyn King may well have written
if we need to reform the banking system - only of what went wrong in the global the most important book to come out
nor of policy-making - even if mistakes financial system but also of what went of the crisis. Agree or disagree, King's
were made - but of ideas. wrong in economics itself. (Niall Fergu- visionary ideas deserve the attention of
son) everyone from economics students to
In this refreshing and vitally important heads of state. (Lawrence H. Summers)
book, former governor of the Bank A sophisticated and highly approacha-
of England Mervyn King - an actor in ble study of how modern finance has lost ABOUT THE AUTHOR
this drama-proposes revolutionary new its way. Few individuals are more qualified
concepts to answer the central question: than Lord Mervyn King to imagine the Mervyn King was Governor of the Bank
are money and banking a form of banking of the future. His book should be of England from 2003-2013, and is
Alchemy or are they the Achilles heel of a required reading. (Henry Kissinger) currently Professor of Economics and
modern capitalist economy? Law at New York University and School
Mervyn King asks, Why has almost Professor of Economics at the London
EDITORIAL REVIEWS every industrialized country found it School of Economics. Lord King was
difficult to overcome the stagnation that made a life peer in 2013, and appointed by
If [The End of Alchemy] gets the followed the financial crisis in the Queen a Knight of the Garter in 2014.
attention it deserves, it might just save the 20072008, and why did money and
world. (Michael Lewis - Bloomberg View) banking, the alchemists of a market (This book is available in IBP Library)
An outstandingly lucid account of economy, turn into its Achilles heel? He

BOOK REVIEW
FINANCIAL INCLUSION:
At The Bottom Of The Pyramid
s incredible as it may seem in this It should be compulsory reading for every inclusion is. " Jojo Malolos, former CEO of
hyper-connected, technologically central bank, ministry of finance, and Smart Hub (Smart MC joint venture)
advanced era, half the planets population government official who is serious
exist as Financial nomadsthose who about empowering people. Every senior "The end of poverty is coming our way,,
nourish and shelter themselves without executive of any bank worth its salt should and this brilliant book explains how and
using traditional banking services. While study this. There is something in it for why." Professor Jeffrey Sachs, Director of the
the wealthy live at the top of a metaphorical everybody. " Brian Richardson, CEO Earth Institute at Columbia University
pyramid, taking financial security and of Wizzit
banking services for granted, there are ABOUT THE AUTHOR
billions of people who struggle at the "Navigating the complex layers of the
pyramids base in an exhausting state of financial inclusion space is not an easy An expert in financial service innovation,
financial exclusion and insecurity. Times task, but Karl Mehta and Carol Realini CAROL REALINI is a serial entrepreneur
are changing rapidly, but despite global manage to paint a clear, detailed landscape and globally - recognized technology
uncertainty, technology has the capacity of the issues and challenges at hand with pioneer. Attending the World Economic
to reach and equip people in all walks of effortless prose that keeps us captivated Forum, she led global discussions on
life. Advances in communications have and informed from start to end." alternative banking. Recognized as a top
reconfigured the ease with which we Rodger Voorhies, Director of Financial woman in Silicon Valley, she sits on
interact with our money-and these Services for the Poor, Bill & Melinda Gates boards and advises financial services
advances can provide innovative financial Foundation and mobile companies. For more
services to the unbanked and underserved information, please visit carolrealini.com
around the world. Financial inclusion for "Not only was it an easy and enjoyable KARL MEHTA is a serial entrepreneur
all is indeed within our reach, and with read--it was authoritative and credible, and venture capitalist in Silicon Valley. He
this conviction, authors Karl Mehta and written by those who are obvious experts was founder & CEO of PlaySpan
Carol Realini propose a vision for a better in their field. The personal and real-life (acquired by Visa), a global alternative
world and a blueprint to get there. experiences supporting the concepts payment network. Karl served as the
developed around innovation makes the White House Presidential Innovation. He
EDITORIAL REVIEWS content accessible to anyone--even to is an active investor in Edtech and Fintech
those who are new to the concept of and founder-CEO of EdCast Inc.
"The book reads like a fast-paced novel. I financial inclusion. This is a book full
could not put it down and I can't wait for of real knowledge and will help readers
the sequel to find out what happens next. appreciate what authentic financial

BOOK REVIEW
A CENTURY OF MONETARY
POLICY AT THE FED:
Ben Bernanke, Janet Yellen, and the Financial Crisis of 2008
n this narrative history, David E. of his career participating, at a high level, Lindsey was intimately involved in
Lindsey gives the reader a ringside seat in the preparation and analysis of shaping Federal Reserve policy for three
to a century of policies at the US Federal monetary policy and its administration at decades. In this book he brings that
Reserve. Alternating between broad the Federal Reserve. This experience, perspective to an evaluation of the
historical strokes and deep dives into the together with his natural thoughtfulness controversial policies that have ensued
significance of monetary issues and and extensive reading in monetary since the Great Recession. His
developments, Lindsey offers a fascinating history, has produced a book that is off the penetrating critique is likely to be
look into monetary policymaking from beaten track and relevant to fuller especially influential given his status as a
the Fed's inception in 1913 to today. understanding of current issues. Fed insider. Anil K. Kashyap,
Lindsey's three decades of service on the Stephen H. Axilrod, former Staff Director Edward Eagle Brown Professor of
Federal Reserve Board staff allow him to for Monetary and Financial Policy and Economics and Finance, University of
combine the heft of scholarship with an former Federal Open Market Committee Chicago Booth School of Business,
insider's perspective on how the recent Secretary, Board of Governors, Federal USA
chairmen's and current chairwoman's Reserve System, USA
personalities and singular visions have ABOUT THE AUTHOR
shaped policy choices with far-reaching Lindsey had a ringside seat as a senior
consequences. He critiques the official in the Federal Reserve Board, David E. Lindsey was a 29-year veteran of
performances of Chairman Ben Bernanke and has since remained a keen observer the Federal Reserve Board's senior staff
and Vice Chair Janet Yellen during the of monetary policy-making. From this when he retired in 2003. He became
prelude, outbreak, and aftermath of the vantage point, he has developed Associate Economist of the policymaking
financial crisis of 2008, situating them in numerous acute and trenchant Federal Open Market Committee in 1984
the context of the Fed's century-long commentaries on this process, e.g., the and Deputy Director of the Division of
history. He also quantitatively explores an effectiveness of later rounds of Monetary Affairs in 1987. Lindsey
alternative to the conventional quantitative easing and the role of received his PhD from the University of
New-Keynesian theory of inflation, academic monetary theorists. Far from Chicago in 1970, writing his thesis under
replacing so-called "rational expectations" a whitewash of Fed activities in recent Nobel Laureate Milton Friedman
with the Fed's inflation objective. This years, the book is often quite combative.
unique volume is a piece of living history Overall it is perceptive, well written, (This book is available in IBP Library)
that has much to offer economists and and entertaining. Well worth reading.
monetary policy and finance professionals. Charles A. E. Goodhart, Professor,
Financial Markets Group,London
EDITORIAL REVIEWS School of Economics, UK; former
Member, Monetary Policy Committee,
Lindsey is an experienced and thoughtful Bank of England
monetary economist who has spent much

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Special Edition

Volume 84 | Issue # 1 October 2016 - March 2017

RISKS AND COMPLEXITIES

Journal of The Institute of Bankers Pakistan 1

Dr. S. Sabir Ali Jaffery (Late), an MBA (Gold

Syed Zaheer Haider Zaidi is VP-Branch Manager at

Banti Lal is M.A (Economics), FPFA, ACCA (Finalist).

12 Role of Social Media

Journal of The Institute of Bankers Pakistan 3

Potential contributors are requested to contact

In no circumstances IBP and its team

4 Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan 5

6 Journal of The Institute of Bankers Pakistan

CHINA-PAKISTAN ECONOMIC CORRIDOR (CPEC)

Journal of The Institute of Bankers Pakistan 7

8 Journal of The Institute of Bankers Pakistan

November 28, 2016

Journal of The Institute of Bankers Pakistan 9

M. Naeem Amjad Iqbal Haris Hassan Abid Ali Asim R. Khawaja

Sobia Pirwani Amynah Hemani M. Adil Rameez Ali

10 Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan 11

With the progression of technology and developments in

12 Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan 13

Many online retail MILLION the use of social media in

14 Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan 15

Before getting on to the risks and complexities inherent in

What is International Trade? (c) People may act as middlemen

16 Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan 17

18 Journal of The Institute of Bankers Pakistan

It is the potential of gaining

Risk can also be defined as coming

In the financial world, risk may also be

Uncertainty: The lack of complete

Measurement of Uncertainty: A set of

Journal of The Institute of Bankers Pakistan 19

20 Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan 21

By Dr. Sabir Ali Jaffery

Q.1 A Pakistani importer buys goods Pakistani Exporter Invoice in dollars

22 Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan 23

MONEY SUPPLY economy and general trust in the currency.

24 Journal of The Institute of Bankers Pakistan

Journal of The Institute of Bankers Pakistan 25

rate to 40-year low as growth target missed

26 Journal of The Institute of Bankers Pakistan

CYBER HEIST A Lesson

By Nazish Alim Qureshi

Journal of The Institute of Bankers Pakistan 27

Globally, numerous institutions have

28 Journal of The Institute of Bankers Pakistan

Pan Asia Bank

Accountable roles and responsibilities CIS is a non-profit organization

Journal of The Institute of Bankers Pakistan 29

MOTIVATIONS/ ATTACK PATHS ACTIONS