NBFCs and Revival of Pakistan Economy

Sayyid Mansoob

HasanFCMA

Owner/PrincipalMANSOOB & CO.

Cost & Management AccountantsManagement Consultants

SINCE 1995

REDWOOD

The Tallest Tree Specie

in the World

These trees can easily reach

heights of 300 feet

(91 meters).

Highest tree measured to a

length of 379.7 feet

A typical Redwood Tree

lives for 500 to 700

years, although some have

been documented at

more than 2,000 years old.

In the beginning it is insignificant

This is the Seed of a Redwood Tree

Which grows over 300 feet tall

Brief History of Google Inc.

• 1995 – Thought process

• 1996 – Work on a search engine BlackRub

• 1997 – Google.com is registered

• 1998 August – Google is incorporated with US$ 100,000/-

• 1998 – Newsletter launched

• 1998 December – First employee is appointed

• 1999 June – US$ 25 million capital raised

• 2004 August – Successful IPO of Google

The IPO of Google Inc.

19,605,052 shares of

Class A common stock

Of value US$ 0.01 (one Cent)

Offered at US$ 85.00

The sale raised US$ 1.67 billion

giving Google a market capitalization of US$ 23 billion

and made the founders billionaires

Google Inc.Now

2013 US$

Total Assets 110.92 billion

Total Revenues 55.52 billion

Net Income 12.92 billion

EPS – Basic 20.5

EPS – Diluted 19.7

JK Rowling

• Failed marriage

• A struggling single mother

• Diagnosed with clinical depression and contemplated suicide

• Was living on state benefits when completed the first novel of Harry Potter

The Idea of Harry Potter

• 1990 – Conceived at a railway station while waiting

• 1995 – First manuscript presented to 12 publishes

• All rejected• 1997 – Initial print run of the

first book 1,000 copies• 1997 – Won first Award

“Neslte Smarties Book Prize”• 2008 fourth book – sold

372,775 copies sold in one day in UK, and 3 million copies in 48 hours in the USA

• Final installment sold 11 million copies in just 24 hours in the USA

Books

• 7 Books

• Translated in 73 languages

• Around 450 million copies sold by July 2013

Films

• 8 Films

• Worth US$ 21 Billion to Warner Brothers

Brand Value

• US$ 15 Billion

Some Giant (Global) Corporations

Two things that made them giants

Intellectual

Property

Rights

Venture Capital

In the USA

11% of private sector jobs come from venture capital backed companies

and

venture capital backed revenue accounts for 21% of GDP

Source: National Venture Capital Association USA

2009-10 2010-11 2011-12 2012-13

Currency to US$ 83.8017 85.5017 89.2359 96.7272

Imports 31,209 35,872 40,461 40,226

Exports 19,673 25,356 24,696 24,795

Trade balance (11,536) (10,516) (15,765) (15,431)

Remittances 8,906 11,201 13,187 13,922

BOP-Current account (3,946) 214 (4,658) (2,496)

Business Structures 2013

Companies registered with SECP 64,067

Listed companies (KSE) 580

Partnerships ?

Proprietorships ?

Corporate NGOs 400+

Other NGOs 125,000

Chambers 59

Business associations 114

KSE Listings

Companies 580

Scrip 647

Quoted on Dec 9, 2014 No’s %age

Below par 222 34%Between 10-20 100 15%Between 20-50 101 16%

Between 50-100 91 14%Between 100-500 101 16%

Above 500 32 5%647 100%

Challenges to Pakistan Economy

• Peace and security

• Law and order

• Capital flight (both Black & White)

• Economic growth (activities)

• Public flotation/Industrialization

• Lack of small and medium financing institutions

• Job creation

• Devaluation of currency

• Ever rising imports

• Trade and current account deficit

• Undocumented economy

• Availability of reliable data

• SME is about 90% of Pakistan Economy

• Employs 80% of non-agricultural labor

• 40% share in GDP

• About 99% of approximately 3 million SMEs are classified as Microenterprises by IFC

Source: SMEDA Website, Business Recorder: SME in Focus

Micro Enterprise Sector

• Employs on an average 4-5 persons with a ratio of 70:30 skilled and unskilled

• Average annual purchases Rs. 386,000/-• On an average, gave rise to Rs.833,000/-

per annum as value-addition• The most labor-intensive businesses

compared to small, medium and large enterprises

• Value-addition of Rs. 2.19 for every rupee spent on raw-material purchases compared to other businesses (Rs. 1.52, Rs. 1.80 and Rs. 1.82 for small, medium and large enterprises, respectively)

Source: HEC Pakistan Research Repository

Major Sources of Funds for

SMEs

• Private equity

• Private loans

• Public equity through listing at the stock exchanges

• Commercial banks

• Microfinance banks

• NBFCs & Modarabas

Some major challenges faced by

SMEs

• Lack of financing (SME exposure 9.3% of total advances)

• Intellectual property rights

• Complicated and complex implementation of Commercial Laws

• Lack of access to market

Hurdles in funding to

SMEs

• Destruction of NBFC sector by Universal Banking allowed to commercial banks by State Bank of Pakistan

• Harsh requirements of SECP to incorporate NBFCs

• Listing requirements of KSE set at a minimum of PKR 200 million

• Hesitation and slow lending by commercial banks

• Collateral based financing

• Venture capital financing unavailable

• Promotion of NBFCs especially Venture Capital and Modarabas

• Establishment of Stock Exchange for Small Companies like American Stock Exchange of USA and AIM of London Stock Exchange

• Simplification and speeding up of registration process of Intellectual Property Rights

• Strengthening of Commercial Laws

• Establishment of specialized Commercial Courts to speed up settlement of commercial cases in every district