IFMP Quarterly

QUARTERLY

JUNE 2021

ARTICLE ON  MESSAGE FROM THE CEO THE FUTURE OF BANCAS- SURANCE SECTOR IN  INTRODUCTION TO THE INSTITUTE PAKISTAN

 IFMP ACTIVITIES

 INDUSTRY PROFESSIONALS’ INTERVIEW

 ARTICLE

 TERMS OF THE MONTH

 BUSINESS AND ECONOMIC NEWSFLASH

 URDU GLOSSARYTERMS OF THE MONTH

 FEEDBACKS

BUSINESS AND ECONOMIC NEWSFLASH

 MARKETS IN REVIEW

URDU GLOSSARY

Your Gateway to Careers in Financial Markets QUOTES AND JOKES

Institute of FinancialMARKETS Markets IN REVIEW of Pakistan

Address: Building 9-A, 2nd Floor, P.E.C.H.S Block No. 6, Shahrah-e-Faisal Karachi. Tel: +92 (21) 34540843-44

00 CONTENT

Message from the CEO Page: 1

Introduction to the Institute Page: 2

IFMP Activities Page: 3

Industry Professionals’ Interview Page: 4

Featured Article Page: 6

Article from IFMP Member Page: 18

Terms of the Quarter Page: 22

Business and Economic Newsflash (Local) Page: 23

Business and Economic Newsflash (International) Page: 34

Regulatory Updates Page: 47

Urdu Glossary Page: 52

Investment Quotes Page: 53

Feedbacks Page: 54

Markets in Review Page: 55

www.ifmp.org.pk 92 (21) 34540843-44 [email protected]

Message from the Chief Executive Officer 01

he last few years have seen a rapid growth in size, quality and sophistication of finan- T cial markets, because of changes in the policy and regulatory environment, the entrepreneurial initiatives of individuals and institutions, and the availability of trained manpower. The continuing growth of financial markets is further adding to the demand for well-trained professionals. Institute of Financial Markets of Pakistan is dedicated to the professional development of financial markets and research on financial markets as well as the well being of financial markets by educating the professionals about the norms and ethics being practiced in the markets. IFMP has had a pioneering role in meeting the demand for educated manpower. It is Pakistan's first specialized institution devoted to the education and updating of knowledge of manpower for financial markets. It will provide high-quality educational standards for all types of financial market participants; investors, brokers, mutual funds, investment banks and policy makers. The Institute's main activities are (1) Licensing the professionals working in the financial markets by certifications. The institute’s key responsibility is to educate the professionals working in different financial markets of Pakistan through examining their knowledge in their relevant field of work; (2) Studying the latest developments in the financial markets in order to discover whether there is such a thing as an ideal market economy; and (3) Contributing to the development of financial markets in Pakistan. By means of these three activities the Institute seeks to communicate its ideas to the audience both at home and overseas. The Institute's research is intended, first and foremost, to be neutral, professional and practical. Rooted in practice, it aims to contribute to the healthy development of Pakistani financial markets as well as to related policies by conducting neutral and professional studies of how these markets and the financial system are regulated and organized and how they perform. The economy is changing all the time. The Institute hopes that, by responding to these changes positively, it can contribute to the dynamic development of the country's financial markets as well as of the economy itself.

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Introduction to the Institute 02

The Institute of Financial Markets of Pakistan (IFMP), Pakistan’s first securities market institute, has been established as a permanent platform to develop quality human capital, meet the emerging professional knowledge needs of financial markets and create standards among market professionals. The Insti- tute has been envisioned to conduct various licensing examinations leading to certifications for different segments of the financial markets. IFMP develops a pool of trained and certified professionals, skilled not only to deal in conventional instruments but also to trade in new and complex financial market products.

◊ FEE STRUCTURE ◊ ◊ EXAMINATION SCHEDULE ◊

Candidate Registration Fee Rs.10,000 Sunday, July 25, 2021

Examination Registration Fee Rs.7,000 Sunday, September 26, 2021 Membership Fee (Annual) Rs.5,000

Sunday, November 28, 2021 Study Guide (Hard Copy) Rs.800

PROGRAMMES

LICENSING CERTIFICATIONS INSURANCE CERTIFICATIONS SPECIALIZED CERTIFICA-

Fundamentals of Capital Markets Certifica- General Takaful Agents Financial Derivative Traders Certification Certification tion Compliance Officers Certification Family Takaful Agents Pakistan’s Market Regulations Certification Clearing and Settlement Operations Certification Certification Stock Brokers Certification Risk Management Certification Life Insurance Agents Mutual Funds Distributors Certification Capital Budgeting and Corporate Finance Certification Commodity Brokers Certification Certification Non-Life Insurance Agents Financial Analysts Certification Certification Investment Banking and Analysis Certification Mutual Funds Basic Certification Bancassurance Certification Islamic Finance Certification Securities and Futures Advisors’ Certification Bancatakaful Certification Fixed Income Certification Programme (Basic and Core Modules) Authorized Surveying Offic- AML/CFT Certification ers Certification ◊ SECOND QUARTERLY 2021 IFMP

IFMP Activities 03

DATE PROGRAM TRAINER DURATION Stock Market Risks in the Financial Crisis/ 3rd April, 2021 Fahad Fahim 1 Hour Pandemic 6th to 10th April, Financial Modeling Mr. Shakoor 10 Hours 2021 10th April, 2021 IFRS 9 Mr. Hasan Marfani 2 Hours Mutual Fund Basic CertificationTraining for HBL 12th April 2021 Fahad Fahim 4 Hours Asset Management Prospects and Opportunities available in Financial Mr. Mobashar Sadik, CEO 6th May, 2021 1 Hour Markets of Pakistan IFMP Building the savings and pension culture for Mutu- 6th May, 2021 Tauseef Ahmed 1 Hour al Funds Non-Life Insurance Training & Examination for 27th May, 2021 Mr. Sharjeel Masood Khan 2 Hours Jubilee General and Habib Insurance Sumera Baloch - Addition- 29th May, 2021 AML/CFT Certification Training Batch 6 4 Hours al Director FMU, Govt. of Mr. Waseem Ahmed Khan, Director, Market Develop- ment, Policy and Regula- tions Department, SECP

Mr. Nayyar Hussain, Direc- tor Policy Regulation and Development Department, SECP

Workshop on Bancassurance & Bancatakaful in Mr. Ch. Anjum Rashid, Di- 31st May, 2021 2 Hours collaboration with SECP visional Head, Bancassur- ance Division, State Life Insurance Corp

Mr. Mohammad Ali Ah- med, Chief Strategy Officer and Executive Director, EFU Life Assurance Ltd.

Mr. Mobashar Sadik, CEO IFMP (Moderator) Understanding the requirements of fair dealing as 4th June, 2021 Faisal Dhedhi 1 Hour an equity sales person (Stock Brokers) Non-Life Insurance Training & Examination for June, 2021 Mr. Sharjeel Masood Khan 2 Hours United Insurance Muhammad Usman - As- An update on AML/ CFT Regulations - Meeting Ul- 24th June, 2021 sistant Director, AML De- 3 Hours timate Beneficial Ownership Requirements partment, SECP ◊ SECOND QUARTERLY 2021 IFMP

04 Interview of mr. bilal Farooq zardi

Tell us about your career journey? Mr. Bilal Farooq Zardi is the Secre- Many people have career goals to earn awards, tary General (SG) of Pakistan winning competitions, and get recognition within Stock Brokers Association (PSBA). their fields. Some awards and experiences are seen He holds a masters degree in In- as a standard of success and excellence in a line of ternational Relations and multiple work. My career journey is full of experiences that I certifications on working ethics have gained while serving in different industries in and disciplines. Pakistan. Throughout my career, I found that continuous learning is the most important element of He brings with him a range of professional, board-level success. and senior management industry experience that spans almost a decade. His areas of expertise are business de-

velopment, marketing, operations, corporate laws, secre- What coaching tips will you give to tarial practices, audit and finance, and legal matters of other Secretary Generals to stay vigi- the company. He has worked in a number of senior roles lant and skillful being the face of the and has brought with him valuable skills and experience associations? of senior management. Being the face of the Association, his area of responsibilities also includes overseeing the To stay vigilant we should be learning from the past, and paying attention as to what matters most. operations and representing the Association in all the And to stay skillful, we should remain engaged matters before the concerned authorities. with Industry Experts as we can serve more effec- In addition, he has served in various committees, formed tively with an experience that cannot be gained for the development of Pakistan’s capital market. He has alone. Being the face of the Organization, we played an instrumental role in forming of this federal should always have a positive attitude and the re- based organization to represent its members on all- quired skills, it not only helps in meeting the chal- Pakistan basis. He has also expertise in policymak- lenges but also helps in determining how to im- ing, managing the teams, compliance function, and en- prove performance and grow the organization to suring timely deliveries. He is involved in liaising with pro- meet its objectives and to reach its goals. vincial and government authorities in various matters per- What was the moment that shaped taining to the Stock Market. your career? The moment that shaped my career was when I started to realize what I could actually do for the Organization with my past work experience.

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05 interview

What is the importance of relationship management for a General Secretary? Relationship management is all about interpersonal communication skills. For a Secretary General, relationship management is most important and his communication skill plays an important role to remain engaged with all of the members and industry entities to work seamlessly as a team with them to meet the common objective of development of the industry.

What role associations play in resolving the issues of an industry? The Association aims to protect the rights of its members while representing their interests with legislation, regulators, and other relevant organizations. It also keeps their members informed on industry trends and provide unique opportunities to its members to resolve and address industry-wide issues. It also provides an effective platform wherein a joint and coordinated effort is made to meet the challenges.

How would you describe the importance of decision making skills? The ability to make a decision and stick to it is the cornerstone of good leadership skills. Decision-making is an ongoing process in every organization especially being Chief/Head of the Organization. Having good and positive thinking skills allows one to ascertain the issues and come up with a solution that is beneficial to the industry you are serving. Moreover, the decision-maker has to maintain fairness while making decisions. It has to be unbiased and appropriate to the situation. Without these decision-making skills, one’s leadership should be called into question.

What message would you like to give to the existing investors and potential investors in terms of investing in the stock market? Be vigilant with your funds and who you invest with.

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06 Featured article: The Future of Bancassurance Sector in Pakistan

Introduction: Bancassurance is an agreement between a bank and an insurance company that allows the insurance company to sell its products to the bank's customer base. This partnership agreement can be profitable for both companies. Banks make extra money by selling insurance products and insurance companies expand their customer base without increasing their sales force or paying agents and commissions. The main characteristics of the Bank-Insurance Model are the following

 It is a partnership between a bank and an insurance company, in which the insurance company is authorized to sell its products to the bank's customers.  The insurance company benefits from increased sales through a larger customer base and the ability to sell without paying brokerage fees and by expanding its sales force.  The bank benefits from increased customer satisfaction and additional revenues from the sale of insurance products.

History of Bancassurance Bancassurance business model originated in France and in continental Europe. Endowment insurance policies are popular in France. This was in response to changes like direct access to corporate funding market and deregulation of credit market in 1986. Some banks integrated insurance sales into their processes while other banks focused on limited number of insurance products to sell them as a value added product. France, Belgium and Netherlands have well-entrenched bancassurance schemes because customers in these nations visit banks frequently. In those nations, where securities markets dominate over the banking system, the growth of bancassurance has rather been subdued. A restrictive regulatory regime across the globe has al- ◊ SECOND QUARTERLY 2021 IFMP

07 Featured article: The Future of Bancassurance Sector in Pakistan so led to tardy growth of bancassurance. Spain and Italy are those nations where banking has attempted to fill the gap to increase penetration of insurance mainly due to the presence of an extensive branching network. Germany and Japan have a system where separate roles are assigned to bank branches and agency networks to sell insurance. European countries dominate the $1.2 billion global bancassurance market. Favorable regulatory and tax environment has contributed to this development. The Maybank in Malaysia established its dedicated insurance arm in 1992. The bank’s brand name and branch network were leveraged to break the monopoly in the life insurance market. Later on, Mayban General Insur- ance was established later in partnership with Fortis to distribute non-life insurance products. April 2001 saw the deregulation of bancassurance in Japan. Banks were allowed to sell credit life insurance. Later on, banks were permitted to sell personal accident insurance, individual life annuity, pension schemes. In most countries, though bancassurance has been introduced, it has only remained an alternate distribution channel. In 2001, the share of China, Indonesia and the Philippines in bancassurance was relatively small while that in Hong Kong, Thailand, Singapore and Malaysia was higher. Thus, if we look at how bancassurance has evolved as a distribution model over time, the motivations are clear – how can banks earn more revenue without additional investment of capital and how they can sustain their business in an era where interest rates are declining and margins are under pressure. The answer is – bancassurance is one of the ways to sustain the business. In US, the Glass Steagall act of 1933 had created a firewall between banking and insurance sectors. Later on, bancassurance was introduced in US in 1999. The brand equity of banks, training and empowerment of bank employees, a wider branch network the complementary nature of banking and insurance products, adopting an approach to offer “solutions to customers” – all these factors contributed to the growth of bancassurance in US. Bancassurance Sector in Pakistan In Pakistan, bancassurance was able to increase the ticket size per customer; this is what gave bancassurance an edge over the traditional agency model. Banks found bancassurance as a means of deploying excess staff rendered redundant after the massive invasion of technology in banking systems and the introduction of core banking solutions. Further, the cost of distributing insurance policies through banks was far lower than that in the agency model. Bancassurance is an ingenious way of using the outreach of banks to sell insurance products. In this method a bank and an insurance company mutually agree to use a bank’s distributive channels or branches to sell insurance products in collaboration with an insurance company. This agreement is mutually beneficial; for the bank, this provides another avenue for generating profits, whereas, the insurance company benefits from the bank’s

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08 Featured article: The Future of Bancassurance Sector in Pakistan established distribution channels. Life insurance products are offered by the life insurance companies and the business is totally dominated by the private sector. This business segment has seen a tremendous growth since last few years, but it still accounts for less percentage of the total premiums generated by the life insurance industry. Channel will continue to grow and gain prominence. Private sector will contribute major part of new business, State Life will also make an entry and Technology will be the key i.e., point of Sale systems will be common. Insurers can no longer afford to rely solely on traditional business models and delivery channels. Instead, insurers must be aligned to the broad diversity of consumer needs and preferences, while also being flexible to adapt as these needs and preferences change over time. Such a market will see the emergence of a diversity of business models from multi-channel strategies to specialised players focused on single channels such as direct marketing, financial advisers or bancassurance. While the possibilities for alternative distribution channels are extensive, one area that is already showing great promise for our markets is bancassurance channel. Currently Pakistan’s Gross Insurance Premium is ap- proximately 1% of the Country’s GDP as compared to the regional percentage of 2.2% and global percentage of 6.6%. Where a lot needs to be done in order to increase this percentage; there is a huge opportunity to exploit this sector. One area which is very important in order to grow this sector is to do educate and train the professionals who are working in this sector on different functions especially the sales professionals. A well delivered training with appropriate content can reduce the severity of issues like:  Mis-selling  Low Product value  Delays in Claim management  Less Customer satisfaction  Lack of Customer awareness Securities and Exchange Commission of Pakistan (SECP) is determined to provide level playing field to all the stakeholders by taking steps such as introducing new Corporate Insurance Agents Regulations, 2020 which will also help to address the above issues. Bancassurance has emerged as a popular distribution channel globally, which has contributed significantly to the growth of insurance industry. Following is history of regulatory framework applicable on bancassurance in Pakistan:-  Bancassurance Guidelines 2010  Bancassurance Regulations, 2015  Unit Linked Product and Fund Rules, 2015  Corporate Insurance Agents Regulations, 2020 Corporate Insurance Agents Regulations notified on 3rd December, 2020. Corporate Insurance Agent Regula- tions 2020 repealed the Bancassurance Regulations 2015 and Directive for Corporate Insurance Agents and ◊ SECOND QUARTERLY 2021 IFMP

09 Featured article: The Future of Bancassurance Sector in Pakistan

Technology Based Distribution Channels, 2017. These Regulations are applicable on all new insurance business written on or after July 1, 2021 under agency agreements with corporate insurance agents. As per these regulations a “Corporate insurance agent” means all persons, excluding individuals, who have entered into agency agreement with any life or non-life insurer registered under the Ordinance and facilitate insurance products distribution for the insurer with which they have entered into an agency agreement. The key steps taken/focussed areas in these regulations are:  Improvement in pre-sale requirements  Improvement in post-sale requirements  Alignment of Long Term Interests of Stakeholders i.e. Insurers, Corporate Agents and Policyholders  Enhancing the protection of policyholders’ interests  Curbing Mis-selling  Revision in commission rates  Setting of default fund for investment allocation  Automatic claw-back  Digital issuance of insurance policies  Improvement in Training and Certification Requirements Implications of these regulations are:  Necessary amendments in the existing agreements with corporate insurance agents  Revision in the product structure  Revision in the corporate insurance agents’ remuneration structure  Revision in products’ name, policy documents and marketing materials  Changes in the Call back confirmation mechanism  Changes in the sales and market conduct/ practices Currently there are 49 insurance companies operating in the country among which 35 are non-life, 7 are life and 5 are in takaful business. In 2020, a total of PKR 12 Billion premium was collected through new bancassurance business from 20+ banks and more than 10,000 branches. In 2020, 56% of the Individual Life business of bancassurance was from private sector and 80% share of the total business is with the top 5 banks of the country. Insurer wise Adamjee Life, Jubilee Life and Askari Life were the leading companies in terms of bancassurance business in 2020. Bancassurance sector has evolved during the last 10 years as per the below standards:  Dedicated products for bancassurance business and operational teams to run it.  Focus on launch of high value products for customers.  Regular trainings and refreshers for the bancassurance staff.  Banks focus is not only on generating business but also on persistency, policy cancellations and mis-selling.  Focus on customer protection component has improved.  Awareness through marketing campaigns has started and is increasing.

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10 Featured article: The Future of Bancassurance Sector in Pakistan

 Mis-selling have significantly reduced by efforts of the regulators  Customized products are being designed for the priority segment of the customers The efforts have impacted in the following ways:  Bancassurance has contributed towards the growth of insurance industry.  Persistency has increased and is at approx. 80% for the Bancassurance sector.  Claim payments of billions have been made with the help of better claim management and which has helped in improving the component of customer satisfaction.  Policy cancellations number has gone down  Mis-selling complaints have significantly gone down to just 0.5% The assessments of the impacts on the stakeholders are: Impact on Customers:  Improvement in product value  Improvement in customer understanding and awareness  Need based products  Reduced mis-selling and higher customer satisfaction Impact on Insurers:  Increase in new business strain (both for conventional and takaful)  Increase in cost of doing business  Re-assessment of Bancassurance Business model for future Impact on Banks:  Reduction in income  Increased regulatory compliance  Increase in cost of doing business  Negative impact on viability of bancassurance business for small and medium banks Bancassurance Models The different types of models are: 1. Pure distributor (most popular model) – The bank sells the products of an individual insurer exclusively. The products are sold on a stand-alone basis or sold along with bank’s products. This referral model involves banks providing insurance companies access to their customer database for business lead; banks get income from insurance firms. Insurance organization is responsible for transactions with customers. This arrangement is less risky and suitable for all types of banks including regional rural banks and co-operative banks. 2. Strategic alliance – The bank has a greater involvement in product development, service terms and conditions. The bank staffs is trained and up-skilled to sell insurance products to clients. Bank acts as a corporate agent for insurance company in return for a fee/commission. 3. Joint venture – The bank and the insurance company form a new corporation in which they both hold ◊ SECOND QUARTERLY 2021 IFMP

11 Featured article: The Future of Bancassurance Sector in Pakistan

shares. The shareholding may or may not be equal. This is a complex model. Selling insurance is only one aspect. Banks can have an insurance subsidiary with or without foreign participation and in the process these banks can have a sizeable share of insurance market. Banks benefit from economies of scope due to their infrastructure and sound financials. 4. Financial service group – An insurance company may acquire a bank or a bank may purchase an insurance company. A larger conglomerate may create multiple financial services companies and may utilize the syn- ergies associated with operating such multiple businesses. Future of Bancassurance A favorable tax regime in Europe has resulted in Europe leading the bancassurance market across the globe. Luxembourg, Russia and Slovenia serve as potential markets for bancassurance in Europe. France, Germany, UK, Spain and Italy are leading bancassurance markets across the globe. In Portugal, 85% of insurance premiums are received through the bancassurance channel. In Romania, it is 30%. Between 2011 - 2017. Latin America witnessed a 12% growth in sales while Asia Pacific witnessed a growth of 9.2%. Earlier, bancassurance was dominated by life insurance and long-term savings products. In recent years, there has been a shift towards the distribution of non-life insurance products through banks. Banks in Asia Pacific and Latin America have been using bancassurance channel to sell life insurance products. Life insurance products gave higher profits than non-life products. In case of non-life, the performance of banks has been sub optimal. One area where non-life insurance policies were successfully sold by banks was insurance along with home loan – when a customer availed a home loan from a bank, there was a condition that the customer had to buy home insurance cover.

The global bancassurance market reached a value of US$ 1191 Billion in 2020. Looking forward, IMARC Group expects the market to reach a value of US$ 1696 Billion by 2026, exhibiting a CAGR of 5.98% during 2021- 2026. Keeping in mind the uncertainties of COVID-19, we are continuously tracking and evaluating the direct as well as the indirect influence of the pandemic on different end-use industries. Sales forecast of bancassurance till 2023 are shown in the figure below ◊ SECOND QUARTERLY 2021 IFMP

12 Featured article: The Future of Bancassurance Sector in Pakistan

Challenges Bancassurance requires both banks and insurance companies to work together; however, it is not an easy task to integrate the business operations of two sectors. In bancassurance, insurance companies lack direct control over the selling of their products. It can be harder to manage marketing strategies. For example, it can be difficult for insurance companies to target the right customers. For banks, their employees need to learn about insurance products, which requires a larger workload and training. In the case of multiple bancassurance agreements, bank advisors may have conflict incentives. They may recommend one product over another out of self-interest. It is also difficult to define who should take legal responsibility in case of customer disputes. To solve the problems, banks and insurance companies need to align their objectives. Moreover, insurance companies can provide sales training for bank employees. This helps to achieve mutual goals and reduce mis- communication.

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13 Featured article: The Future of Bancassurance Sector in Pakistan

Going Digital Digitalization is significantly impacting the bancassurance business model, and banks are slowly moving their bancassurance business online.

The internet reduces the gap between the product developer and customers. In this sense, banks can lose their network advantages in the bancassurance agreement. Moreover, insurance companies can collect customer behaviors online to tailor products more personally suitable to customers.

Digitalization challenges both banks and insurance companies to refine their bancassurance agreement. They need to respond to the change together and transform the way they serve their clients. Special Considerations The Bankassurance global market is growing. Asia-Pacific is the most significant region in the world. Europe is a major contributor to the growing global Bancassurance market due to increasing investment from European banks. The United States is anticipated to exhibit a higher compound annual growth rate (CAGR) from 2018 to 2025 because of superior product bank portfolios and increasing use of the internet in the region. Latin Ameri- ca and Africa are also expected to show significant growth in the upcoming years. The Advantages and Disadvantages of Bancassurance Bancassurance offers many benefits to customers, one of which is convenience. The bank is a one-stop-shop for all financial needs. For the banks and insurance companies, bancassurance increases revenue diversification for the bank and brings greater volume and profit for both players. These factors are contributing to the growth of bancassurance across the world. The restraining factors of the global bancassurance market are the risks associated with the reputation of banks and the stringent rules and regulations enforced in some regions. Bancassurance remains prohibited in some countries. However, the global trend is toward the liberalization of banking laws and the opening up of domestic markets to foreign firms. Global Bancassurance Market Drivers Aging population across the globe has a greater need for health and life insurance and retirement product plans. The demographic shift has had a positive impact on bancassurance industry. Increasing economic growth in developing economies, rising internet penetration, increase in middle class population, technological advances impacting marketing of financial services, consolidation in sector – all these are driving the growth of bancassurance. In Pakistan, bancassurance business models are shaped by the need for financial inclusion. Regional factors like financial deregulation, tax benefits, growth of banking, social security expenditures and other state inter- ventions are also driving the need for bancassurance channels for distributing insurance. Banks see this as an opportunity to leverage their existing customer base to enhance product portfolios. Banks’ interest margins

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14 Featured article: The Future of Bancassurance Sector in Pakistan

were shrinking – this was the motivation for banks to pursue bancassurance. Bancassurance is a combination of direct selling and agency model. Digital Bancassurance Business Strategies In a McKinsey survey of 118 banks around the world, it was discovered that digital bancassurance channels accounted for 19% non life sales and 2% of life sales. Digitization will lead to saving of 15-20% in life insurance. It can lead to greater convenience, better speed and safety while delivering services. Customized insurance packages are now available for e-commerce firms to cover risks like data theft, online frauds and hacking of websites. Aggregation and segmentation of customer information is essential. A single customer view to give a comprehensive picture of customer information (financial needs of customers) is needed to customize the offers. Banks can track customer demographics and analysis of transactions in detail. Insurers can collect data on mortality and morbidity, weather and natural disasters like earthquakes, tsunami and floods to facilitate better claim management. Banks can aid greater technical sophistication and can deploy digital customer engagement strategies to sell insurance. Cross-selling, upselling and direct marketing are techniques to increase growth of bancassurance sales. A simplified underwriting process acts as an enabler. Digitization and growth of bancassurance are closely related. Use of data for arriving at analytics solutions is essential so that customers can be given timely offers. Continuous feedback from functions like analytics, campaign design and management should be used to prioritize and adjust initiatives. Automated underwriting and sales, targeted customer messaging, digital marketing strategies and improved customer experiences will decrease barriers to sales in digital channels and improve customer experience and conversion along the sales funnel. This will augment the effectiveness of bancassurance channel. Advanced data storage, visualization and analytical tools, data generated by bank’s back end engine and bundling of wealth management options with insurance will generate greater customer value. Bancassurance digital strategies leading to following outcomes  Product designs that are targeted at specific customer segments,  Regulatory compliances are integrated into a multi-channel process of customer delivery,  Generation of a customer data-set that can be used to draw useful insights,  Development of an open standards platform that has applications that can be accessed by both banks and insurers, and  Proactive engagement with customers through physical and digital channels. Data availability on a bank’s front end system can simplify processes. Banks and insurers should connect the data. Quotation, saving and retrieval are essential for cross-channel interaction so that data need not be entered repetitively. ◊ SECOND QUARTERLY 2021 IFMP

15 Featured article: The Future of Bancassurance Sector in Pakistan

Banks can harness contextual information and offer relevant insurance products to customers. Personalization can lead to differentiated pricing due to accurate assessment of risks. Web/mobile messages after customer card transactions and money transfers can be used to sensitize customer to purchase travel insurance. Event triggers (change of address, birth of child) and interaction data (information browsed or sought from a call center) can be gainfully utilized. Call centers must engage affluent customers who expect personal human interactions. The offerings must be seamlessly translatable across channels – example initiating a quote online and finishing it at the branch. Single point of access to all client policies for service support must be possible through integrated app for sub- mitting and tracking claims. Employees of bank and insurance companies should work as a team and promote greater transparency. What can Banks and Insurers do now?  Design or enhance the customer journey by focusing on the broader financial objectives of target customer segments, e.g. wealth management, retirement planning, family financial planning,  Integrate regulatory requirements seamlessly into an omni-channel customer process to facilitate the advisory role of branch staff,  Set up a holistic and broad based customer data set to allow deployment of analytics solutions, and  Achieve a digital open standards platform with the bank and insurer applications that can be easily accessed by customers. Conclusion A well-equipped financial structure is important for the economic growth of a nation. Banks can have multiple tie-ups with insurers. Every bank can choose multiple insurers within the zones. Bancassurance presents additional source of revenue for banks while for insurers it is a smart way to reach a new set of customers. Global bancassurance market grew by almost 6% between 2011 and 2017. The market reached around US $ 1166 billion in 2018 (it was US $ 1103 billion in 2017). The growth in 2018 and 2019 has been slower. It is expected to reach US $ 1665 billion by 2024. It is expected that the bancassurance channel would witness a com- pounded annual growth rate of 6.1% during 2019-2024. Insurers can increase their market penetration by distributing their products through the huge branch network of banks. The Asia-Pacific region will occupy more market share in the next few years, especially in China. The growth in Southeast Asia regions sounds promising too. Banks in Asia must embrace digitization as bancassurance in this region still accounts for a small share of a bank’s total customer base. Consolidation in financial services has increased the significance of bancassurance deals. Banks can market the full range of insurance products in life and non-life sectors and spread awareness of these products and services among their customers. Insurers have relied on the agency channel for far too long and there was a need

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16 Featured article: The Future of Bancassurance Sector in Pakistan

to explore additional channels for distribution. A bank’s distribution strength is what sustains bancassurance. Costs are lowered because of shared marketing and administrations, shared sales strategies, training, underwriting and information reporting, and perhaps most importantly, shared technology. Bancassurance has been about volume and not value. This situation has to change. Every insurance catastro- phe is the result of over emphasis on market share. Insurance business needs to concentrate more on value than volume. Banks always have the benefit of a large customer base that insurers can bank upon however the integration between banks and insurers must continue beyond the phase when a sales transaction is completed. The process for staking claims must be clarified to consumers and the claims administration process must be smooth as well. New technological innovations coupled with challenges of digital era will exert pressure on bancassurance channel in the future. The future success of bancassurance relies on personal interaction with customers besides personalization of offers, superior customer experience and Omni-channel engagement. Digitally enabled application program interfaces can enable synergize the effects of FinTech and Insurtech making it easy to transfer data. A digital insurance folder can simplify the process of administration of insurance policies. An agent firm’s bancassurance platform can be integrated with a bank’s online offerings. Web platforms to hold all insurance policies in one place will be another development. There are application program interfaces that can scan a customer’s bank account and look for insurance contracts. Banks need to give license to scan the customer data. The flipside of this aspect is intrusion into customer’s personal data that can lead to privacy violations. Bancassurance will benefit from a needs-based selling approach or else tightening of regulatory norms will be needed to protect customers from misinformation and mis-selling. It is high time banks adopted a hybrid approach towards customer engagement. Earlier awareness about insurance was through television, radio, print media and banner advertisements. In- surance agents were entrusted the responsibility of creating awareness about new insurance products and services. Today it is impossible to ignore the social media for marketing insurance products. Marketing of services has now become more about creating experiences that will delight the customer and breed customer loyalty. Insurance can now be purchased online. In the digital world, banking data has to merge with data that insurers have and the data that is available externally to ensure the success and sustainability of bancassurance channel. Insurance organizations are appointing certified insurance facilitators for banks; special insurance coun- ters are being set up at banks; bank employees are incentivized to offer insurance as part of wealth management options.

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17 Featured article: The Future of Bancassurance Sector in Pakistan

Today, customers expect consolidation and delivery of all financial services at single window in the form of a financial super market. Digital bancassurance revolution will deliver greater value to customers, banks and shareholders besides the insurance company. Consumers seek individualized insurance covers that are delivered in a seamless manner. Banks can increase sales volume and revenue while customers get a better experience and meaningful protection at fair prices. To attract millennial customers, banks and insurance companies must use digital techniques to reach out to customers. Millennials expect quick results and greater value for money. Banks can ensure that millennial customers are served by millennial bank employees as this will lead to greater customer connect. However, bank employees must be well- trained in insurance. These employees must match the sales pitch with thorough knowledge about different insurance products. Customer queries must be resolved instantaneously. Customer journey must be mapped seamlessly across various digital channels. Rather than solely focusing only on digital means, during every quarter banks can celebrate “Customer Day” in their premises inviting customers to share their views and opinions about the services. This can also be an excellent platform to market bancassurance products. To make the bancassurance channel more effective, banks must avoid mis-selling at any cost and invest efforts and resources in training bank employees to sell relevant and personalized solutions to their clients to inspire their trust and confidence. They must work with insurance organization to promote better underwriting efficiency and clarify to customers about the intricacies involved in the claims administration process. Winning the trust of customers has become absolutely essential today despite all the roadblocks associated with the same. In the long run, bancassurance will greatly benefit from a customer-first approach mindset and a strategic orientation. The future of bancassurance sector in Pakistan going forward (Summary):  Market saturation will play an important role  Small and medium banks will have to re-assess their bancassurance business models  Large banks will keep it as an important line of business (keeping in check the cost involved and regulatory compliances)  Insurers will have a higher regulatory oversight and will focus on rationalization of the business model, will seek support from other distribution channels.  With improvements in insurance industry as a whole, bancassurance will also benefit  Digitalization of the systems will help in growth of the business

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Article from IFMP member: Mutual Funds 18 By Nawazish Zaidi

Well the term explain itself in a very wide way but still in Pakistan there’s lot to come to establish this industry on basic, actual fundamental ground to fill the purpose. As we all know, COVID-19 and its economic and social disruptions have given new urgency to the challenges facing mutual funds. Such as slower growth and shrinking fees. These trends have all accelerated, and mutual fund managers need to move even faster to maintain and improve their positions. Clearly, asset managers can’t depend on AUM (assets under management) growth and the fees it generates to sustain their business. The ongoing decline in total expense ratios (TERs) for both active and passive funds means fund managers could find it hard, or impossible, to find any profit margin improvement. To continue to attract a workforce with the kinds of skills their firms need to continue to grow in the digital economy, mutual fund managers will have to consider how they are recruiting and training employees, align- ing corporate and employees’ values, addressing sustainability and corporate responsibility, and their overall investment thesis in the market. Tighter margins, more consolidation and a changing workplace is getting a thing now; There could be some tough years ahead, especially if your funds aren’t particularly differentiated but client needs are going away, and there will be winners. Your success could depend on how you position your firm, use of technology and by re-defining your work place and by creating more values. Now it’s time for entire stakeholders of this industry is to provide consistent direction to your employees, investors and regulators. As AMCs/stakeholders now it’s time to move towards with funds having less complex investment strategies get squeezed, look for ways to stand out with more differentiated products. Some of the most promising areas likely include more exchange-traded fudns with smart beta by using combinations of outsourcing, insourcing and co-sourcing. COVID-19 is magnifying and accelerating the challenges facing the sector. We are still seeing a fee crunch and slower AUM growth, but the compression is happening over a shorter timeline and with more severe results. Mutual funds that make it to the other side of this market need to be future-fit: Using an adaptable tech infrastructure that is suited for what comes next Supported by a remote workforce with the right mix of talent to meet their goals

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19 Article from IFMP member: Mutual Funds By Nawazish Zaidi

Providing real value to investors while also maintaining sustainability promises. In order to evaluate the mutual funds performance, the size of funds comes as an important and dominant factor. It also helps to explain the currency value of the investment in the mutual funds. Overall returns of a fund are directly related with the size of the fund. With the increase in the fund size, the fund manager can take the benefit of investing in diver- sified places like money market and capital market instruments. A mix relationship exists between size of funds and equity and bond market funds performance. Capital Markets Facilitate Economic Development The capital markets are a network of specialized financial institutions, series of mechanism, processes and infrastructure that in various ways facilitate the bringing together of suppliers and users of medium to long- term capital. Capital markets connect the monetary sector with the real sector, which is the sector of the economy concerned with the production of goods and services. Considering this role in the economy, the capital markets play an important role in economic development as they facilitate growth in the real sector by giving producers of goods and services, and entities tasked with infrastructure development. access to long-term financing. Creating a Bridge Between Suppliers of Capital and Users The contact between agents with a monetary deficit and the ones with monetary surplus can take place directly through direct financing, but also through a financial intermediary in form of indirect financing, which is a situation whereby specific operators facilitate the connection between the real economy and the financial market. In this case, the financial intermediaries could be banks, investment funds, pension funds, insurance companies, or other non-bank financial institutions. Promoting Saving and Investments: The capital markets increase the proportion of long-term savings (pensions, life covers, etc.) that is channeled to long-term investment. Capital markets enable the contractual savings industry (pension and provident funds, insurance companies, medical aid schemes, collective investment schemes, etc.) to mobilize long-term savings from small individual household and channel them into long-term investments. It fulfills the transfer function of current purchasing power, in monetary form, from surplus sectors to deficit sectors, in exchange for reimbursing a greater purchasing power in future. In this way, the capital markets enable corporations to raise funds to finance their investment in real assets. The implication will be an increase in productivity within the economy leading to more employment, increase in aggregate consumption and hence growth and development. It also helps in diffusing stress on the banking system by matching long-term investments with long-term capital. It encourages broader ownership of productive assets by small savers. It enables them to benefit from economic growth and wealth distribution, and provides avenues for investment opportunities that encourage a thrift culture critical in increasing domestic ◊ SECOND QUARTERLY 2021 IFMP

Article from IFMP member: Mutual Funds 20 By Nawazish Zaidi

savings and investments that translate to economic growth. Efficient Allocation of Scarce Financial Resources The capital markets facilitate the efficient allocation of scarce financial resources by offering a large variety of financial instruments with different risk and return characteristics. This competitive pricing of securities and large range of financial instruments allows investors to better allocate their funds according to their respective risk and return appetites, thereby supporting economic growth Private Public Partnerships, “PPPs Capital markets promote PPPs, thereby encouraging participation of private sector in productive investments. The need to shift economic development from public to private sector to enhance economic productivity has become inevitable as resources continue to diminish. It assists the public sector to close the resource gap, and complement its effort in financing essential socio-economic development, through raising long-term project- based capital. It also attracts foreign portfolio investors who are critical in supplementing the domestic savings levels and who facilitate inflows of foreign financial resources into the domestic economy, thereby supporting economic growth Let me start with some disconnections which are prevailing since long time and hence only few have been addressed but in spot, and the root cause for prosperous growth of this industry in financial markets of Pakistan. Only few will be highlighted with the intent to taken up by authorities for betterment of Asset Management companies in Pakistan.  Career path It has been observed that fresh blood aren’t taking this path as career as do many prefer banking more fa- vourite due to proper clear road map along with fringe benefits associated with- seems some incompatible growth challenges  Subjective implementation under each financial degree/course There should be some drastic focus over course structuring in this field so there could be a better force in future for industry to fill it’s core purpose  Public awareness Role of governance body/associated bodies and even AMCs isn’t that appropriate to capture audience and to educate them to meet their financial objectives  Organizational re-structuring Objective of AMCs / Banks distribution setup shouldn’t be only to meet their only budgets it should be beyond i.e. proper assessment of individuals financial needs, advisory services and helping individuals to meet their long term objective – As most of time it has been observed that this channel is being used for short term funds placement which doesn’t serve the purpose. ◊ SECOND QUARTERLY 2021 IFMP

Article from IFMP member: Mutual Funds 21 By Nawazish Zaidi

 The minority impact (Skilled Human resources) Only few associated professionals are working with different AMCs and most often they use to switch in between AMCs with same/or slightly fresh AUMs with no incremental clients  Low cost – Pros & Cons Low cost on one hand is quite attractive feature for people to join in but on other hand this create hurdle for associated professionals to retain them for long term and is cause for professional to grow as per com- petitors pace which is the cause of low retention.

Few actions must take place to get things in more appropriate way;

 Brand Development (Mutual Fund)  Implementation of PULL Strategy  LTIS  Trade/Exposure  Promotion through NSC  Promotion of SIP

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Terms of the quarter 22

Associate result, directly or indirectly, in the acceptance or making, respec- Futures Market Act 2016 defines “associate” in relation to— tively, of offers to sell, purchase or exchange futures contracts a) an individual, means— Jumbo certificates  that individual’s spouse, son, adopted son, step-son, daughter, "jumbo certificates" mean one or more consolidated certificates of adopted daughter, step-daughter, father, step-father, mother, the securities of one kind or class issued by an issuer which are reg- step-mother, brother, step-brother, sister or step-sister; istered in the name of a central depository  any company of which that individual is a director; Sub-Account "sub-account" means a sub-account maintained, as part of the ac-  any company in which that individual, or any of the persons count of a participant, in accordance with the regulations by a cen- mentioned in paragraph (i), has control of twenty per cent or tral depository in the name of a sub-account holder so as to record more of the voting power in that company, whether such con- the title of the sub-account holder to any book-entry securities en- trol is exercised individually or jointly; and tered in such subaccount  any employee of that individual; or b) a company, means another company in which the first men- claim” or “debt “claim” or “debt” means right to payment, whether or not such tioned company has control of not less than twenty per cent of the right is reduced to judgment, liquidated, unliquidated, fixed, contin- voting power in that company, and a reference in this Act to an as- gent, matured, disputed, undisputed, legal, secured or unsecured sociated person or associated company shall be construed accord- and includes principal amount and any mark-up, profit, return and ingly other charges Derivative Contract “Derivative contract” means any of the following,— Property

 forward contract; “property” means property of all description, whether movable or immovable, tangible or intangible, existing or future, claims for  an option contract; money, cash, and includes instruments that evidence title in prop-  a swap contract; erty;  any other class of contract as prescribed by the Commission Security interest Futures Market “security interest” means a charge, mortgage, lien, hypothecation, “futures market” means any market, or place at which, or any ser- pledge, assignment or any other encumbrance over a property; vice or facility, whether electronic or otherwise, by means of which, offers, promises or invitations to sell, purchase or exchange futures contracts are regularly made on a centralised basis, being offers or invitations that are intended or may reasonably be expected, to

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Business and Economic Newsflash (local) 23 Pakistan's policy rate to remain at 7% for next two months: SBP The policy rate will remain the same — 7% — for the next two months, the State Bank of Pakistan announced in a statement on Friday. The development came after the Monetary Policy Committee (MPC) held a meeting today, the statement said. "Since its last meeting in March, the MPC was encouraged by the further upward revision in the FY21 growth forecast to 3.94%. "The MPC noted that this confirms the strength of the broad-based economic rebound underway since the start of the fiscal year, on the back of targeted fiscal measures and aggressive monetary stimulus," it said. This positive momentum is expected to persist, translating into higher growth next year, the statement added. Inflation rose to 11.1% year-on-year in April, propped up by the lingering impact of this February’s electricity tariff increase as well as a pick-up in month-on-month food prices, partly driven by the usual seasonality around Ramzan, the MPC noted. The committee also forecast that the year-on-year inflation rate is "likely to remain elevated in the coming months due to the recent electricity tariff hike". It said that the tariff hike would push the "average for FY21 close to the upper end of the announced range of 7-9%". Reasoning for no change in policy rate Explaining its reasoning for not changing the policy rate, the MPC said the current stance "remains appropriate to ensure the recovery becomes firmly entrenched and self-sustaining". "This is especially so given the renewed heightened uncertainty created by the on-going third wave of COVID in Pakistan and the fiscal consolidation expected this fiscal year. As a result, the MPC noted that it was important for monetary policy to remain supportive," read the presss release. The MPC also said that in the future, if no unforeseen circumstances come, then the monetary policy will "remain accommodative in the near term". It added that "any adjustments in the policy rate" will be "measured and gradual to achieve mildly positive real interest rates over time". "If demand side pressures emerge as the recovery becomes more durable and the economy returns to full capacity, the MPC noted that it would be prudent for monetary policy to begin to normalise through a gradual reduction in the degree of accommodation," said the press release. The MPC said that the move would help ensure that inflation remains in check and "does not become entrenched at a high level and financial conditions remain orderly" which would result in "sustainable growth". Real sector The MPC said that the latest National Income Accounts data shows that the "economy has rebounded strongly from last year’s severe COVID-shock, led by services and industry". The committee estimated that the industrial sector has grown 3.6% during FY21 and was "driven by construc-

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Business and Economic Newsflash (local) 24 tion and large-scale manufacturing, especially the food, cement, textile and automobile sectors". The MPC also estimated that the agriculture sector has grown 2.8%, as the production of wheat, rice and maize reached "record highs". It also credited the increase to sugarcane which rose to the second-highest ever level. "Buoyed by the strong performance in commodity-producing sectors, services are estimated to have rebounded from last year’s contraction to register growth of 4.4%, led by wholesale and retail trade," said the press release. The MPC said that the "current economic recovery" was due to the "proactive and well-calibrated policies" im- plemented by government and State Bank of Pakistan since the Covid-shock. External sector While speaking about the current economic growth, the committee noted unlike previous upturns, the "current economic recovery has been achieved without compromising external stability". "At $0.8 billion, the current account has remained in surplus through the first ten months of FY21 for the first time in 17 years. In recent months, imports have picked up with the economic recovery, rising international commodity prices, as well as one-off shipments of wheat and sugar to quell temporary domestic shortages. However, this is being largely offset by record remittances, which rose to all-time highs in April on both a monthly ($2.8 billion) and cumulative basis ($24.2 billion)," said the MPC. The MPC also said that apart from these developments the country's exports have grown by almost 14% on a year on year basis. It also said that in March, "Pakistan successfully completed the combined 2nd-5th reviews of the IMF programme and returned to international capital markets by raising $2.5 billion through an over- subscribed Eurobond, issued at yields below the initial price guidance". The MPC said all these developments has ensured that rupee remains "broadly stable since the last MPC meeting around its pre-COVID level". Pakistan's GDP expected to hit 4.8% next fiscal year: Asad Umar The country's gross domestic product (GDP) growth is expected to move up to 4.8% in the financial year 2021- 22, Federal Minister for Planning and Development Asad Umar said Friday. Umar, going over the government's progress in the current fiscal year during a press conference in Islamabad, said in the nine months of the current fiscal year, IT exports showed growth of 46%. Umar said the country had "witnessed a strong growth" during the fiscal year, and it is expected that the remittances would shoot up from $21.7 billion to $29.1 billion till the year end — an increase of 34% in a year. The federal minister said if we combine the 3.94% GDP growth and the increase in remittances, it will take the gross national product (GNP) growth to 6.5% — the "highest" GNP growth in the last 16 years. Umar said remittances played an important role in helping the country's economy grow, and it is important that we should give overseas Pakistanis the right to vote.

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Business and Economic Newsflash (local) 25 Next year's predictions Shedding light on why the government is expecting a 4.8% GDP growth in FY22, he said that the government has invested in the agricultural sector which will greatly benefit the economy. He said last year and this year cotton fields were badly affected, however, the government has now bought good quality seeds, stressed on the use of pesticides, and the demand for cotton has increased in the international market since. "And so, after consultations with all the provinces, we have concluded that Pakistan can produce 10.5 million bales — 4 million from Sindh, 6 million from Punjab, and the rest from other provinces." Umar said that the livestock industry had also been adversely impacted by coronavirus, but in the next fiscal year, it will move towards normalisation, and growth in this sector, too, will be visible. The federal minister said electricity consumption was expected to grow by 6%, and after the government had announced a package for the industries, their power consumption had gone up 15% during the current fiscal — and in the next year, it is predicted to rise further. Growth is also expected in gas, coal, construction, and among several other sectors. "Exports are predicted to go up. This year it stood at $25.2 billion, and in the next year, it will move up to $26.8 billion." Govt eyeing historic exports next year The federal minister said this year's $25.2 billion worth of exports were the country's highest figures in the last 10 years. "It is unfortunate that the backbone of the economy, exports faced several setbacks during the previous year." Umar said next year's target for exports, $26.8 billion, would be the highest in the country's history. The remittances might not grow like this year, but they are expected to move up from $29.1 billion to $31.3 billion — an expected increase of $2 billion. Umar said the government was aiming at taking up the exports and expanding the IT sector, he said, adding: "The IT exports increased by 46%. 250 billion rupees increase in PSDP The Public Sector Development Programme (PSDP) stood at Rs650 billion this year, and the government has increased it to Rs900 billion for the next fiscal year — a "huge" increase of Rs250 billion. The federal minister said growth during the current fiscal year indicates that in the next fiscal year, the growth will be more than expected. Giving an overview of the development spending for the next fiscal year, Umar said these envisage road infrastructure projects including Hyderabad-Sukkur motorway. PSDP spending

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Business and Economic Newsflash (local) 26 Giving an overview of the development spending for the next fiscal year, Umar said these envisage road infrastructure projects including the Hyderabad-Sukkur motorway. The packages announced for Karachi, and select districts of Sindh and Balochistan, and Gilgit-Baltistan will be financed from the PSDP, the federal minister said. Similarly, funds will be provided from the development plan for the construction of dams. Rs28 billion will be allocated for health, Rs37 billion for the Higher Education Commission, and Rs5 billion have also been set aside for the skills education programme. The planning minister said the current account deficit for the next fiscal year has been estimated at 0.07%. Dollar hits four-months high to reach Rs158.53 The dollar hit exactly four-month high to rupee on Wednesday as the local currency depreciated by another 34 paisas(-0.21 percent) against the greenback in the inter-bank on Wednesday. According to the State Bank of Pakistan, the US dollar opened atRs158.19 and closed at Rs158.53. Last time, the dollar was seen at Rs158.52 on February 23, 2021. Within the open market, the US dollar was traded at Rs158.50/159. Pakistani rupee shed Rs1.64 against the US dollar during the last three days. However, the local unit has gained Rs10.51 against the greenback in the current fiscal year 2020-21 while appreciation has been Rs1.36 in 2021. PSX announces launch of 90-day DFC, sets new futures eligibility criteria In a major move forward, Pakistan Stock Exchange (PSX) has introduced a new futures eligibility criteria and communicated the launch of the 90-day maturity Deliverable Futures Contracts (DFC) with effect from DFC Au- gust 2021 which shall start from July 26, 2021. As per the new criteria, there shall be no segregation of A,B categorization, stocks shall be selected based on such quantitative factors that measure real liquidity. Exchange Traded Funds (ETF) shall also be eligible if certain conditions are met. However, such companies that have obtained stay order from court against any inquiry/investigation initiated by the Commission shall not be eligible. All eligible companies and ETFs shall be eligible for trade on Deliverable Futures and Cash Settled Futures Markets. The new criteria along with eligible futures list is notified by PSX through notice no. PSX/N-740 dated June 17, 2021 On the launch of 90-day DFC regime and new futures eligibility criteria, Mr. Farrukh H. Khan, the MD PSX, said, “Launch of the international standard 90 day DFC is a positive development for the Stock Exchange and for all stakeholders of the capital market. 90 day DFC shall open each month such that the market shall have three different maturites (current month expiry, next month expiry and last month expiry) at the start of each contract month. ◊ SECOND QUARTERLY 2021 IFMP

Business and Economic Newsflash (local) 27 In addition to this, it will also eliminate the need for a mandatory one week roll-over period as investors can roll-over their existing positions any time before expiry, depending upon the liquidity, hence, alleviating the roll-over week pressure to some extent. The new selection parameters are dynamic and can adopt to any market situation. More companies are now eligible to trade on the futures counter. Based on the recent notified list, 84 companies and 1 ETF are futures eligible”. He further stated, “We appreciate the cooperation extended to us by the SECP in this regard whereby it approved the 90-day DFC regime and new futures eligibility criteria. This is expected to increase volumes and liquidity, and hence improve the depth of the market”. Pakistan Stock Exchange is continuously striving to introduce better and enhanced products for its stakeholders and market participants. PSX aspires to increase its product offerings and introduce more innovative products in the future. With the launch of the 90 day DFC and the new futures eligibility criteria, PSX Future Contract offerings are now in line with international market offerings. This move is part of the efforts of PSX to enhance liquidity in the Futures market, with more options available for investors in terms of securities and contracts of multiple expiries. Collateral free loans to businesses soon

Governor State Bank of Pakistan Dr. Reza Baqir has said that the SBP is going to initiate a scheme for Financing to Cottage Industry up to Rs 10 million without the collateral. He said that the government will give guarantee to the banks against losses and will invite Expression of Inter- est from banks for inclusion in this scheme. The Governor SBP said that the end user rate for the small businesses and cottage industry in this scheme would be 9 percent which otherwise get loans at 24 percent. According to LCCI spokesman here Monday, Baqir Reza was talking to LCCI President Mian Tariq Misbah and Vice President Tahir Manzoor Chaudhry at State Bank of Pakistan. The meeting was also attended by Deputy Governor State Bank Sima Kamil, Director Policy Exchange Depart- ment Arshad Bhatti and other senior officials of State Bank. Baqir Reza said that to facilitate the growth of IT sector, particularly the startups, foreign exchange laws have been relaxed and made more business friendly. The foreign funding in IT sector will be greatly facilitated by relaxation in laws. Banks have been fully delegat- ed to handle the payment issues of IT companies. He said that the IT companies can now get web and digital services from abroad for up to US$ 200,000 without ◊ SECOND QUARTERLY 2021 IFMP

Business and Economic Newsflash (local) 28 the approval of State Bank. Previously this limit was US$ 10,000. The Governor State Bank of Pakistan said that SBP has initiated various schemes like Principal Restructuring, TERF and Refinance scheme for payment of salaries to support the businesses during adverse Covid times. He said that more than 90 percent beneficiaries of the scheme for restructuring of principal amount were the small borrowers. More than Rs 600 billion loans were restructured. MSCI proposes downgrading PSX to frontier markets index

Global securities index publisher Morgan Stanley Capital International (MSCI) on Friday proposed to downgrade the Pakistan Stock Exchange (PSX) to its Frontier Markets (FM) Index in November 2021 from the Emerging Markets (EM) Index at present. The MSCI said that it will begin consultation on a proposal for Pakistan’s reclassification from Emerging Mar- kets to Frontier Markets, as it announced the results of the MSCI 2021 Market Classification Review. The MSCI announced the launch of a consultation on a proposal for the potential downgrade of the MSCI Paki- stan Index from Emerging Markets to Frontier Markets status in one step coinciding with the November 2021 Semi-Annual Index Review, read a statement. “Although the Pakistani equity market meets the requirements for Market Accessibility under the classification framework for Emerging Markets, it no longer meets the standards for size and liquidity,” said the MSCI. “More specifically, index continuity rules, as described in section 2.4 of the MSCI Global Investable Market In- dexes Methodology, have been applied since the November 2018 Semi-Annual Index Review to artificially maintain the required three constituents in the MSCI Pakistan Index. “Additionally, since the November 2019 Semi-Annual Index Review, there have been no securities in the MSCI Pakistan equity universe that meet Emerging Markets Size and Liquidity criteria within the MSCI Market Clas- sification Framework,” it added. The MSCI has sought feedback from market participants on this reclassification proposal until August 31, 2021, and will announce the results of the consultation on or before September 7, 2021. Market analysts have viewed the development differently. According to Topline Securities, the potential downgrade in classification could be beneficial for Pakistan. “We believe the reclassification to Frontier Markets from Emerging Markets may turn out to be beneficial for Pakistan in terms of increasing visibility amongst foreign participants,” stated a report released shortly after MSCI’s announcement. The report estimated potential investment from passive FM funds to the tune of $150 to 200 million where $125 to 150 million are likely to be in the main constituents. It said despite Pakistan being classified as Emerg- ing Market, some of the active Frontier Market funds were still investing in the country.

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Business and Economic Newsflash (local) 29 The report added that foreigners have been key participants at the Pakistan Stock Exchange (PSX), but have shied away due to Pakistan’s minimal weight in the Emerging Markets Index. However, it warned that Frontier Markets have lagged behind the bigger markets in recent times as liquidity has dried up due to Covid-19 and consistent underperformance. Arif Habib Limited, in its report, stated that the simulated index for MSCI Pak FM would have a total 23 companies including 4 standard and 19 small cap as compared to 16 percent of companies in MSCI Pak EM (3 mid cap and 13 small cap). The MSCI Pak FM standard cap will include LUCK (35.5% weight), MCB (23.1%), HBL (22.2%) and OGDC (19.1%). Whereas, the MSCI Pak FM would have a weight of 2.3% in MSCI Frontier Market Index and 5.8% in the MSCI Frontier Market 100 Index. The small cap of simulated MSCI Pak FM will include PPL, MARI, ENGRO, UBL, FFC, POL, PSO, HUBC, INDU, EF- ERT, TRG, BAHL, ABOT, NBP, SYS, MTL, SEARL, BAFL, and PKGS. The Arif Habib report said that Pakistan’s weight was around 9.2% when it exited the frontier markets space in November 2017, which has come down to 5.8% due to a decline in the country’s market capitalisation on the back of significant depreciation in the Pakistani Rupee. “While the weight of other markets has displayed an improvement as their currencies did not lose as much ground against the US dollar,” added the report. “Lastly, we estimate outflows from funds tracking the EM Index to arrive at $111 million, effective from the day of exit. Expected outflows from LUCK, HBL and MCB are $45 million, $29 million and $25million respectively, while outflows from small cap scrips are expected at $12-15 million.” It added that most of the FM funds are active funds, saying that inflows from these funds would offset the outflows from EM funds. “We estimate a net inflow of $100 million,” it said. “Moreover, barring Vietnam, the fundamentals of the KSE-100 index are relatively stronger than those of the peer markets (with a higher weight) with valuations at very enticing levels. Overall dynamics of the KSE-100 index are comparatively stronger than the peer markets with a higher weight such as Kazakhstan, Kenya, Bangladesh etc,” said the report. Digitalization results in 186% growth in incorporation of new companies: SECP

ISLAMABAD, May 5: Process Simplification, facilitation to public and digitalization of incorporation processes has led to extraordinary growth of 186% in incorporation of new companies in April 2021. The SECP, in April has registered a total 2,185 new companies, 186% higher as compared to the same month last year, raising the total number of registered companies to 141,805. In April, around 99% companies were registered online, 29% of applicants completed the incorporation process the same day while 220 foreign users were also registered from overseas. Aamir Khan, the Chairman SECP attributed the trend of growth to digitalization and automation, introduction of simplified combined process for name reservation and incorporation, very low level of

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Business and Economic Newsflash (local) 30 fees, and assistance provided for incorporation by the newly established Business Centre. The April incorporation included 67% private limited companies, 29 % single member companies and the remaining 4% were public unlisted companies, not for profit associations, trade organizations, foreign companies and limited lia- bility partnerships (LLPs). The IT sector, for the first time, took lead with the registration of 194 new companies in a month. The IT sector was followed by the trading sector with registration of 180 new companies, construction with 117, import & export with 115, and consultancy services with 110. Foreign investment has been reported in 47 new companies. These companies have foreign investors from USA, China, Saudi Arabia, Germa- ny, UAE, Greece, Turkey, Norway, Canada, Netherlands, Syria, UK, Hong Kong and Australia. The highest num- bers of companies, i.e. 736 were registered in Islamabad, followed by 667, 378 and 151 companies registered in Lahore, Karachi and Peshawar, respectively. The CROs in Multan, Faisalabad, Gilgit-Baltistan, Quetta and Sukkur registered 131, 48, 48, 23 and 3 companies respectively. SECP Approves Framework for Direct Listing of Companies at PSX

ISLAMABAD, May 28: In continuation of its efforts for creating an enabling ecosystem to improve capital formation in the country, the Securities and Exchange Commission of Pakistan (SECP), in coordination with Paki- stan Stock Exchange (PSX), has approved framework for Direct Listing of companies at PSX. Direct listing, unlike conventional offerings, is a process whereby a company can get listed on the stock exchange by selling existing shares to accredited investors, existing shareholders and specific category of investors, without mandatory appointment of intermediaries. The framework, finalized after thorough public and stakeholder consultation, will be part of the regulatory framework of PSX i.e. PSX Rule Book. This new initiative will further simplify listing of companies on the stock exchange. Any public limited company having a minimum paid up capital of Rs200 million and audited accounts for two preceding years, can apply for listing at the exchange through this method. The companies shall be required to ensure post listing compliance, as applicable for listed companies. SECP is continually striving to develop a vibrant, fair and efficient regulatory framework in Pakistan, designed to foster growth of capital markets, promote healthy competition and ensure investor protection. Monthly PBS Review for June-2021

Inflation in Brief

1. CPI inflation General, increased by 9.7% on year-on-year basis in June 2021 as compared to an increase of 10.9% in the previous month and 8.6% in June 2020. On month-on-month basis, it decreased by 0.2% in June 2021 as compared to an increase of 0.1% in the previous month and an increase of 0.8% in June 2020.

2. CPI inflation Urban, increased by 9.7% on year-on-year basis in June 2021 as compared to an increase of 10.8% in the previous month and 7.6% in June 2020. On month-on-month basis, it decreased by 0.4% in June 2021 as compared to an increase of 0.2% in the previous month and an increase of 0.7% in June 2020.

3. CPI inflation Rural, increased by 9.7% on year-on-year basis in June 2021 as compared to an increase of 10.9% in the previous month and 10.0% in June 2020. On month-on-month basis, it decreased by 0.1% in June 2021 as compared to a decrease of 0.03% in the previous month and an increase of 1.0% in June 2020. ◊ SECOND QUARTERLY 2021 IFMP

Business and Economic Newsflash (local) 31 4. SPI inflation on YoY increased by 17.6% in June 2021 as compared to an increase of 19.7% a month earlier and an increase of 11.5% in June 2020. On MoM basis, it decreased by 0.4% in June 2021 as compared to an increase of 0.8% a month earlier and an increase of 1.4% in June 2020.

5. WPI inflation on YoY basis increased by 20.9% in June 2021 as compared to an increase of 19.4% a month earlier and an increase of 0.9% in June 2020. WPI inflation on MoM basis increased by 0.9% in June 2021 as compared to an increase of 0.3% a month earlier and a decrease of 0.3% in corresponding month i.e. June 2020.

6. Figures 1 and 2 show graphically the yearly data of Table 1.a for Urban and Rural CPI while Table 1.1 shows “Period Average” and “YoY” percent changes in indices of three years.

Table 1.a General Inflation (%) (Base 2015-16)

CPI General Food Non-Food SPI** WPI PERIOD National Urban Rural Urban Rural Urban Rural

Mo Mo Mo Mo YoY MoM YoY M YoY MoM YoY M YoY MoM YoY M YoY MoM YoY M YoY MoM

July-20 9.3 2.5 7.8 2.2 11.6 3.0 15.1 3.0 17.8 4.0 3.9 1.7 6.5 2.2 13.7 3.0 3.2 5.4

Aug-20 8.2 0.6 7.1 0.8 9.9 0.4 11.3 -0.3 13.5 -0.9 4.8 1.5 6.8 1.5 11.7 0.9 3.3 1.3

Sep-20 9.0 1.5 7.7 1.3 11.1 2.0 12.4 3.0 15.8 3.8 5.0 0.2 7.2 0.3 12.0 2.1 4.3 1.0

Oct-20 8.9 1.7 7.3 1.3 11.3 2.4 13.9 2.8 17.7 4.3 3.6 0.3 5.8 0.5 12.3 3.0 5.1 2.9

Nov-20 8.3 0.8 7.0 0.6 10.5 1.1 13.0 1.6 16.1 2.0 3.4 0.1 5.5 0.2 9.9 1.1 5.0 -0.9

Dec-20 8.0 -0.7 7.0 -0.3 9.5 -1.2 12.6 -2.1 13.4 -3.4 3.8 0.7 6.1 1.0 9.1 -2.7 5.7 0.3

Jan-21 5.7 -0.2 5.0 -0.2 6.6 -0.3 7.3 -2.1 7.2 -2.2 3.7 1.1 6.1 1.5 7.7 -0.8 6.4 2.5

Feb-21 8.7 1.8 8.6 2.3 8.8 1.1 10.3 1.3 9.1 0.2 7.6 2.8 8.6 2.0 11.9 3.1 9.5 2.2

Mar- 9.1 0.4 8.7 0.3 9.5 0.5 11.5 1.7 11.1 1.5 7.1 -0.6 8.1 -0.4 18.7 5.7 14.6 3.7

Apr-21 11.1 1.0 11.0 1.3 11.3 0.6 15.7 2.7 14.1 0.9 8.2 0.5 8.9 0.3 21.3 0.4 16.6 -0.4

May- - 21 10.9 0.1 10.8 0.2 10.9 0.03 15.3 1.1 12.8 0.2 8.3 -0.3 9.2 -0.3 19.7 0.8 19.4 0.3

Jun-21 9.7 -0.2 9.7 -0.4 9.7 -0.06 11.0 -1.9 9.8 -0.8 8.9 0.6 9.7 0.6 17.6 -0.4 20.9 0.9 ** SPI for quintile 1. Digits 0.0* are due to rounding off.

7. Core inflation (NFNE)

Measured by non-food non-energy Urban increased by 6.7% on (YoY) basis in June, 2021 as compared to an increase of 6.8% in the previous month and 6.5% in June, 2020. On (MoM) basis, it increased by 0.3% in June, 2021 as compared to increase of 0.2% in previous month, and an increase of 0.4% in corresponding month of last year i.e. June, 2020.

8. Measured by non-food non-energy Rural increased by 7.3% on (YoY) basis in June, 2021 as compared to an increase of 7.6% in the previous month and 8.8% in June, 2020. On (MoM) basis, it increased by 0.4% in June, 2021 as compared to an increase of 0.3% in previous month, and an increase of 0.7% in correspond- ◊ SECOND QUARTERLY 2021 IFMP

Business and Economic Newsflash (local) 32 ing month of last year i.e. June, 2020.

Core inflation (Trimmed)

9. Measured by 20% weighted trimmed mean Urban increased by 9.4% on (YoY) basis in June, 2021 as compared to 10.0% in the previous month and 7.4% in June, 2020. On (MoM) basis, it increased by 0.4% in June, 2021 as compared to an increase of 0.2% in the previous month and an increase of 0.4% in corresponding month of last year i.e. June, 2020.

10. Measured by 20% weighted trimmed mean Rural increased by 9.8% on (YoY) basis in June, 2021 as compared to 10.3% in the previous month and by 9.9% in June, 2020. On (MoM) basis, it increased by 0.6% in June, 2021 as compared to an increase of 0.4% in the previous month and an increase of 0.9% in corresponding month of last year i.e. June, 2020. Budget for the fiscal year 2021-2022 Highlights

Finance Minister Shaukat Tarin on Friday presented the Rs8.48 trillion federal budget for fiscal year 2021-22 (FY22) in the National Assembly, revealing that the government has allocated Rs2,135 billion under the Pub- lic Sector Development Programme (PSDP) – an increase of 37 per cent from last year's development allocations. Key announcements during budget speech

 Rs900 billion allocated for federal PSDP

 Minimum wage has been increased to Rs20,000

 Pensions and federal government employees' salaries will see a 10pc increase

 Rs12 billion allocated for agriculture sector

 Rs66 billion to be provided to the Higher Education Commission for education programmes, and Rs44 billion under the development fund

 Rs118 billion for power distribution

 Rs61 billion for Viability Gap Fund

 Rs14 billion for Climate Change mitigation projects

 $1.1 billion for vaccines procurement

 Rs100 billion for Covid-19 Emergency Fund

 Rs12 billion special grant for Sindh Total expenditure

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Business and Economic Newsflash (local) 33 Tarin said the total expenditure budgeted for next year stood at Rs8,487 billion — almost 19pc higher than the last year's budget size of Rs7,136 billion. Current expenditure

Current expenditure budgeted for FY22 stands at Rs7,523 billion, up from last year's Rs6,345 billion.

Of this, Rs1,370 billion will be spent on Defence Services, up 6.2pc from last year, while Rs3,060 billion will be spent on interest payments.

Expenditure on Defence Services makes up around 16pc of total expenditure budgeted for FY22, down from 18pc last year. Fiscal deficit

Fiscal deficit for FY22 has been budgeted at Rs3,420 billion, which is around 6.3pc of the GDP, down from 7pc last year.

PSDP

Total allocations for the Public Sector Development Programme (PSDP) have been budgeted at Rs2,135 billion for FY22, up 37pc from Rs1,324 billion last year.

Under this, federal PSDP makes up Rs900 billion, up 27.7pc from last year's allocation, while provincial PSDP makes up Rs1,235 billion, registering a rise of 45pc from last year's budget.

GDP growth target

The finance minister announced that for FY22, the government had set the GDP growth target at 4.8pc.

Inflation

For the upcoming fiscal year, the government targets to keep inflation at 8.2pc, which is significantly higher than the 6.5pc targeted for FY21.

FBR tax target

The government has set the tax collection target for the Federal Board of Revenue (FBR) at Rs5,829 billion for FY22, which is 17.4pc higher than last year's Rs4,963 billion.

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Business and Economic Newsflash (international) 34 Federal Reserve Officials Project Rate Increases in 2023 The Federal Reserve left rates near zero, but it said it would tiptoe closer to reducing its mass bond purchases, among other optimistic tweaks. Federal Reserve officials signaled on Wednesday that they expected to raise interest rates from rock bottom sooner than they had previously forecast and that they were taking baby steps toward reducing their vast bond purchases — tweaks that, together, demonstrated their increasing confidence that the economy would rebound robustly from the pandemic. Fed policymakers expect to make two interest rate increases by the end of 2023, the central bank’s updat- ed summary of economic projections showed Wednesday. Previously, more than half of officials had anticipated that rates would stay near zero, where they have been since March 2020, into at least 2024. Officials now see rates rising to 0.6 percent by the end of 2023, up from 0.1 percent. The Fed chair, Jerome H. Powell, played down the significance of those tentative rate forecasts during a postmeeting news conference, emphasizing that borrowing costs would remain low for a long time. But he also spoke optimistically about the economic outlook and said the central bank was beginning to discuss when and how it should slow its other key monetary policy — huge purchases of government-backed debt that it carries out to stoke demand. The central bank’s increasingly buoyant take on the economy partly reflects that vaccines have become wide- spread in the United States, diminishing the risk that another wave of coronavirus infections will drive the economy back to a standstill. As businesses are able to reopen, the labor market is healing, prices are rebound- ing from a pandemic-era slump and overall growth is surging. “Progress on vaccinations has reduced the spread of Covid-19 in the United States,” the Fed said in its statement, which contained several upbeat revisions. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.” Mr. Powell sounded more positive about the outlook than he had just a few months ago, though he retained a note of caution. “We’re going to be in a very strong labor market pretty quickly here,” he said, while adding that the Fed was in no rush to raise interest rates and that “whenever liftoff comes, policy will remain highly accommodative.” He warned later that the economy was “not out of the woods at this point and it would be premature to declare victory.” Policymakers on Wednesday left interest rates near zero, where they have been since March 2020. They also promised to continue buying about $120 billion per month in Treasury securities and other government- backed bonds. Low rates and bond purchases work together to allow money to flow easily through the economy, fueling stronger demand that can help speed up growth and job market healing. But it was the shift in tone that captured investors’ attention.

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Business and Economic Newsflash (international) 35 The stock market, which had been relatively flat through the morning, dropped after the central bank released its projections. The S&P 500 closed the day down 0.5 percent. Bond markets also shifted, with the yield on the 10-year Treasury note rising sharply to 1.56 percent, as traders priced in the chance that the Fed could raise interest rates slightly more quickly than previously expected. “They basically took out the downsides from the virus,” Michelle Meyer, head of U.S. economics at Bank of America, said of the Fed’s statement. Economic data have offered a series of surprises since the Fed met in late April, and since it last released economic projections in March. Employers have been hiring more slowly than they were this spring, as job openings abound but it takes workers time to fill them. Inflation data have come in faster than officials had expected, with prices for used cars rising and airplane fares snapping back, and consumer and market expectations for future inflation have climbed.

But the Fed continued to call those price increases largely “transitory” in its new statement, and Mr. Powell re- iterated that he and his colleagues expected price gains to moderate over time as bottlenecks were resolved, bringing consumer demand back into balance with what producers could supply. “Our expectation is that these high inflation readings that we’re seeing now will start to abate,” Mr. Powell said, adding that if prices moved up in a way that was inconsistent with the Fed’s goal, central bankers would be prepared to react by reducing monetary policy support. “There’s a lot of uncertainty,” Mr. Powell acknowledged. If inflation or expectations jump “materially above what we would see as consistent with our goals, and persistently so, we wouldn’t hesitate to use our tools to address that.” Officials have repeatedly pledged to continue to support the economy until the pandemic shock is well behind the United States. Specifically, they have said that they want to achieve “substantial” progress toward their two economic goals — maximum employment and stable inflation — before slowing their bond purchases. The bar for raising interest rates is even higher. Officials have said they want to see the job market back at full strength and inflation on track to average 2 percent over time before they will lift interest rates from rock bottom. Mr. Powell suggested on Wednesday that while the economy had not yet cleared the “substantial” progress hurdle, it was getting closer. “While reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue,” Mr. Powell said. He said that the committee was now preparing to talk about a plan for tapering off its bond buying, adding “we will provide advance notice before announcing any decision to make changes to our purchases.” Rate increases, he said, remain far in the future — though perhaps not quite as distant as before, if the forecasts are right. Based on central bankers’ fresh projections released Wednesday, the median Fed official expected to achieve

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Business and Economic Newsflash (international) 36 the central bank’s goals and lift rates by late 2023. The Fed’s interest rate projections showed that more than half of its 18 officials expected rate increases by the end of that year. More, but not quite half, expected an increase or two in 2022.

That markup came as Fed officials offered headier economic forecasts. They now see growth coming in stronger in 2021, and expect inflation to average 3.4 percent in the final three months of the year. They expect that headline inflation gauge to retreat quickly, however, falling to 2.1 percent next year and 2.2 percent in 2023. Washington is paying close attention to the Fed’s views on inflation as President Biden tries to rally congres- sional support for his $4 trillion economic agenda. A senior White House official seized on the Fed’s revised economic forecasts, saying that they showed Mr. Biden’s policies so far were working to heal the economy and supported the idea that inflation would be short-lived. Persistently higher inflation could make it more difficult for Democrats to make a case for additional spending on priorities like infrastructure, even though the suggested outlays would trickle out over time. Republicans have blasted the spike in prices as a sign of economic mismanagement, while the White House maintains that higher prices are likely to fade. “The current burst of inflation we’ve seen reflects the difficulties of reopening an economy that’s been shut ◊ SECOND QUARTERLY 2021 IFMP

Business and Economic Newsflash (international) 37 down,” Janet Yellen, the Treasury secretary, said in response to lawmaker questions during testimony before the Senate Finance Committee earlier on Wednesday. Some Republican politicians have questioned whether emergency monetary policy settings remain necessary as the economy reopens and growth rebounds. But the Fed has been clear that while it may be starting to lay the early groundwork, it is in no rush to with- draw its support quickly. That patience owes in part to its new policy strategy. The economy experienced years of plodding growth after the 2007-09 recession, and inflation drifted lower, threatening a downward spiral. In light of that, the Fed adopted a new approach to monetary policy last summer that shoots for periods of slightly higher inflation while aiming for full employment as a “broad-based and inclusive” goal.

Given its new framework, the Fed is willing to tolerate periods of inflation above 2 percent. That is relevant now, given that its preferred inflation gauge came in at 3.6 percent in April compared with the previous year and is likely to jump even higher in May. The more up-to-date Consumer Price Index was up 5 percent in the year through last month, partly as the figures were compared with very low readings last year. If inflation were to take off in a lasting way — contrary to the Fed’s expectations — and the central bank were forced to lift interest rates to slow the economy and tame price pressures, that could be bad news. Rapid rate adjustments have a track record of causing recessions, which throw vulnerable workers out of jobs. But the Fed tries to balance risks when setting policy, and so far, it has seen the risk of pulling back support early as the one to avoid. Millions of jobs are still missing since the start of the pandemic, and monetary policy could help to keep the economy recovering briskly so that displaced employees have a better chance of finding new work.

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Business and Economic Newsflash (international) 38 “There’s still a long way to go,” David Beckworth, a senior research fellow at the Mercatus Center at George Mason University, said of the path ahead for the Fed. “This is the next phase, and it’s a lighter-touch phase, but it’s not the beginning of a tightening cycle.” MARKET REPORT: Oil hits a fresh high as Opec fails to sign a new production deal amid squab- bles between Saudi Arabia and the UAE

Oil prices climbed to a new three-year high last night after the Opec+ cartel plunged into crisis. Brent crude rose above $77 a barrel for the first time since late 2018 after the 23-member group of countries abandoned a crucial meeting aimed at striking a new production deal. Opec+ states were supposed to have used the meeting to raise the amount of oil they produce. But no deal was sealed after several days of tense talks failed to resolve an increasingly bitter spat between Saudi Arabia and the UAE. Although the group planned to start producing more oil now that the global economy is reopening – sending demand through the roof – the agreement would also have kept certain upper limits in place until the end of 2022 to avoid flooding the market. The UAE was not happy with this and said it was its ‘sovereign right’ to negotiate a better deal for itself so that it could pump out more of the black stuff. Both sides refused to budge and the organisation did not even manage to agree a date for its next meeting. The limbo that Opec+ is in threatens to send oil prices even higher in the short term, which could accelerate inflation across the globe – as production will not increase in August. The breakdown between two of OPEC’s largest players comes just as much of the world is returning to a prepandemic ‘normal’ and there are genuine fears there will be not be enough oil to meet rising demand. The rise in prices sent London’s oil majors higher with BP shares up 0.9 per cent, or 2.85p, to 324.25p and Shell up 1.3 per cent, or 19.2p, to 1450.4p. BP and Shell’s rises helped the FTSE 100 start the week on the front foot. The index rose 0.6 per cent, or 41.64 points, to 7164.91, while the FTSE 250 hit a record high as it climbed 1.2 per cent, or 275.41 points, to 23,022.4. Both were also aided by reopening stocks – companies that will be back in high demand once Covid re- strictions drop later this month. Upper Crust-owner SSP rose 5 per cent, or 14.2p, to 298.2p ahead of the return to commuting, while Cineworld rose 4.3 per cent, or 3.64p, to 87.48p and shareholders in British Airways-owner IAG, hopeful that some travel constraints will relax as well, climbed 4.9 per cent, or 8.86p, to 188.98p. Elsewhere, the frenzied dealmaking that has swept the London market showed no sign of abating. Spire

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Business and Economic Newsflash (international) 39

Healthcare has accepted a sweetened takeover offer from Ramsay Healthcare. The private hospital operator has urged investors to back the £1.4billion deal, which works out at 250p per share and is an increase from a 240p approach Ramsay made in May. But Spire’s shares closed below the new offer price, falling 2.8 per cent, or 7p, to 240.5p. University halls investor GCP Student Living, on the other hand, climbed 14.3 per cent, or 24.2p, to 193.4p after confirming on Friday that it had received a bid from by a consortium led by its biggest shareholder, and the world’s largest private equity firm, Blackstone. There were also rumours circulating on the City grapevine that buyers are circling bespoke bedroom ward- robes and kitchen maker John Lewis of Hungerford. The company denied that there was any reason for the movement and said there had been no material development since it released its first-half figures in March. But its shares shot up 50 per cent, or 0.5p, to 1.5p, making it the highest riser on the AIM All-Share index. Ladbrokes-owner Entain’s efforts to buy the wagering business of Tabcorp were thwarted. The firm, formerly known as GVC Holdings, had teamed up with private equity giant Apollo and Australian firm Betmakers to put forward a £1.9billion offer. But Tabcorp said it would spin the division off instead. Entain’s backers were unperturbed by the snub, with shares in the Footsie group rising 3.2 per cent, or 58p, to 1855.5p. Visa to buy Swedish fintech start-up Tink for nearly £2bn: Payments giant snaps up open banking platform after being forced to abandon similar deal

Visa has announced plans to buy Swedish fintech Tink for $2.2billion just months after abandoning a similar deal. Tink, founded in 2012, develops technology that allows third-party applications to connect to customers from different financial institutions. It is a system known as open banking, which was introduced in Britain in 2015. UK regulated banks are required to let customers share their financial data, including spending habits and regular payments, with other banks or savings apps. The fintech is partnered with 3,400 banks and financial institutions, reaching millions of customers across Eu- rope. Regulators have been trying to encourage more open banking platforms like Tink to increase competition and choice across Europe. Visa said the deal would encourage open banking, which has faced criticism from established banks which be- moan the added bureaucracy.

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Business and Economic Newsflash (international) 40 'Visa is committed to doing all we can to foster innovation and empower consumers in support of Europe's open banking goals,' said Al Kelly, chief executive and chairman of Visa. The $2.2billion price tag is a 165 per cent premium on Tink's valuation last December, when it closed a fund- raising round with investment from the likes of PayPal and BNP Paribas. European venture fund Dawn Capital is also an investor in Tink and in another open banking platform iZettle. 'With Tink and iZettle, Sweden has now produced two of Europe's largest ever fintech M&A exits, reflecting the world-class innovation, commercial excellence and entrepreneurial talent we have found across the Nordic market,' John Bell, general partner at Dawn Capital said. 'As the only investor in both companies, we are delighted to have supported their successful journeys to new homes within corporations with global reach, validating the relevance of the B2B tech coming out of Europe. 'We wish Tink continuing success in the next chapter of its journey.' The deal comes after an antitrust lawsuit scuppered Visa's $5.3billion takeover of open banking giant Plaid earlier this year. Last November the US Department of Justice filed a lawsuit saying Visa is a 'monopolist in online debt transactions' and the acquisition would 'eliminate a nascent competitive threat that would likely result in substantial savings and innovative online debt services for merchants and consumers'. The open banking regulations in Europe mean it is unlikely Tink will face the same issue, although it is still subject to regulatory approvals. Tink will retain its brand and current management team and its headquarters will remain in Stockholm. 'We have built something incredible and at the same time we have only scratched the surface. 'Joining Visa, we will be able to move faster and reach further than ever before. 'Visa is the perfect partner for the next stage of Tink's journey, and we are incredibly excited about what this will bring to our employees, customers and for the future of financial services,' said Daniel Kjelle n, chief executive and co-founder of Tink. European Business Leaders Want a Stronger Hand With China, Not Decoupling

BRUSSELS—A powerful European business lobby group called on European Union politicians to push back harder against China’s state capitalism but not to lock out Chinese businesses, as advocated by some leaders who are following the U.S.’s lead on limiting commercial ties to China. Members of the European Round Table for Industry, or ERT, a trade group of almost 60 chief executives and chairpersons of major Europe-based multinationals, on Monday called on EU leaders to push for better business terms with China and not to turn away, despite some leaders’ growing misgivings about Beijing and amid improving ties with Washington.

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Business and Economic Newsflash (international) 41

Many governments and EU officials have over recent months tilted more toward Washington in opposing Bei- jing’s increasingly assertive stance on the world stage. The business leaders fear calls for decoupling from Chi- na, similar to ones in the U.S. “We have to make this work,” ERT member Jacob Wallenberg said of commercial relations between China and the West. Mr. Wallenberg, who is chairman of Swedish holding company Investor AB and deputy chairman of telecommunications giant Ericsson AB, said China has begun opening its banking, insurance and other sectors under EU and U.S. pressure, and such pressure could improve the West’s business position with China. “Is it perfect? No—far from it,” Mr. Wallenberg said. But he said improvements are “a consequence of continuous pushing, and I think we have reason to continue to push.”

Bitcoin Price Climbs After Mexican Billionaire Urges People to Buy

Bitcoin’s price rose after billionaire Ricardo Salinas Pliego said his bank was working toward becoming the first Mexican lender to accept the cryptocurrency.

The price of bitcoin climbed to $34,805.19 Monday, up 8% from where it stood at 5 p.m. ET Friday, according to CoinDesk. The digital currency has lost almost half its value since it hit an all-time high of over $63,381.20 in mid April, during a wave of speculation spurred on by celebrity advocates including Tesla Inc. Chief Executive Elon Musk. Mr. Salinas Pliego tweeted over the weekend that he recommends the use of bitcoin. “Me and my bank are working to be the first bank in Mexico to accept #Bitcoin,” he added. Some hours later, he tweeted again in Spanish to say the digital currency was a good way for investors to diversify their holdings. “I think that any investor should start learning about cryptocurrencies and their future. At @BancoAzteca we are working to bring them to our clients,” the post said. Representatives for Banco Azteca SA didn’t respond to a request for further details or comment.

Covid Isn’t Done Changing the Life Insurance Industry Just Yet

The pandemic, and our reemergence from it, are reshaping the economy, government and business in lasting ways. Read more analysis of how Covid has changed the world forever from the Journal’s Heard on the Street team. Even once the pandemic has definitively ended, the effects of Covid-19 on the life and health insurance industry could linger on for years.

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Business and Economic Newsflash (international) 42

To start, how life insurance is bought and sold may never be the same for many customers. The pandemic sped up adoption of what is sometimes known as “fluidless,” or accelerated, underwriting. This involves things like heavier use of digital records and less frequently sending a medical examiner into a customer’s home. Many insurers last year increased the size of policies they were willing to underwrite using data-based and predic- tive methods, according to Manoj Upreti, life insurance-and-annuity senior analyst at Aite Group.

That coincided with another change, an uptick in sales of smaller policies appealing to younger people. Appli- cation activity for U.S. life insurance was up nearly 8% year-over-year in 2020 among people under age 44, according to MIB Group’s Life Index. Overall, the number of U.S. life policies sold last year grew even as new premiums fell, according to industry research firm Limra. That is an indicator of growth in the market for relatively affordable, smaller policies.

Bringing a larger number of younger people into life insurers’ pools could reverse a trend toward concentra- tion of risk, says Chris Behling, Swiss Re ’s chief underwriter for life-and-health in the Americas. “The more lives we can spread risk out over, the better we can price it,” he says. Deutsche Bank launches indexes to track 21 emerging market currencies

German lender Deutsche Bank said on Tuesday it launched a new set of foreign exchange (FX) indexes to track 21 emerging market (EM) currencies, indicating a growing relevance and importance of developing markets in the global economy.

The set of four new non-tradable FX indexes would track EMs that have over the past couple of decades seen increased global investment inflows, growing proportion of government debt issuance, and a significant jump in transaction volumes in FX.

"The new indices track both spot and carry performance of 21 emerging market currencies, serving as a comprehensive set of barometers for EM investors tracking FX," Deutsche Bank EM strategist Oliver Harvey said in a statement. Global Islamic finance forecast to grow as main markets recover: S&P

DUBAI: The $2.2 trillion global Islamic finance industry is expected to grow 10%-12% over 2021-2022 due to increased Islamic bond issuance and a modest economic recovery in the main Islamic finance markets, S&P Global Ratings said.

The industry continued to grow last year despite the COVID-19 pandemic, although at a lower pace than in

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Business and Economic Newsflash (international) 43

2019, with global Islamic assets expanding by 10.6% in 2020 against growth of 17.3% the previous year.

Islamic finance, which bans interest payments and pure monetary speculation, has been on the rise for many years across markets in Africa, the Middle East and Southeast Asia, but it remains a fragmented industry with uneven implementation of its rules.

"Over the next 12 months, we could see progress on a unified global legal and regulatory framework for Islam- ic finance we believe that such a framework could help resolve the lack of standardisation and harmonisation that the Islamic finance industry has faced for decades," S&P said on Monday.

The industry is expected to receive some support in the coming two years in Saudi Arabia, where mortgages and corporate lending are expected to rise as the country pushes ahead with plans to diversify the economy.

Investments in Qatar for the 2022 soccer World Cup and the Expo event in Dubai later this year are also expected to support growth.

The ratings agency forecast global issuance of Islamic bonds, or sukuk, to reach $140-155 billion this year, up from roughly $140 billion in 2020, thanks to abundant liquidity and sustained financing needs among corpo- rates and governments.

S&P also highlighted that the full impact of the coronavirus crisis has yet to materialise and more requests for sukuk restructurings and maturity extensions, as well as higher default rates, are expected this year.

"We see pressure on real estate developers, given the drop in real estate prices in the GCC (Gulf Cooperation Council) and building risks in the commercial real estate sector," S&P said.

"Similarly, companies related to aviation, tourism, travel, and hospitality - sectors that have been severely hit by COVID-19 - will take several quarters to recover to prepandemic levels." Gong ceremony held: PSX welcomes BIP as market maker

KARACHI: Pakistan Stock Exchange (PSX) Monday held a gong ceremony to welcome BankIslami Pakistan Lim- ited (BankIslami) as 'market maker' for Shariah-compliant debt securities listed on PSX. The PSX management welcomed the BankIslami team and started the proceedings by striking the gong to mark the beginning of the trading day and the onboarding of BankIslami as market maker. Present at the occasion were Farrukh H Khan, MD and CEO PSX; Ahmed Chinoy, Board Member PSX; Syed Amir Ali, President and CEO BankIslami; and senior management of both the organizations.

BankIslami successfully fulfilled all the requirements of market maker and was notified by PSX on June 15, ◊ SECOND QUARTERLY 2021 IFMP

Business and Economic Newsflash (international) 44

2021 as Designated Market Maker for Pakistan Energy Sukuk I and II. With this notification and the completion of regulatory formalities, BankIslami has become the first Islamic bank in Pakistan approved by SECP as li- censed Consultant to the Issue (CTI) to act as Investment Agent and Advisor for Shariah compliant debt securities, both listed and privately placed. BankIslami celebrated these milestones with the local bourse and the market through this magnanimous gathering.

Welcoming BankIslami as market maker on PSX, Farrukh Khan, the MD PSX, said a large and liquid debt capital market is very important for the economic development of Pakistan. In line with the Capital Market Develop- ment Plan, the SECP and PSX recently introduced regulatory changes allowing banks to become market makers. He said the addition of BankIslami Pakistan Limited, one of the top-tier Islamic banks in Pakistan, as market maker for Shariah-compliant debt securities on PSX is a significant step forward in the on-going collaboration between banks and the capital markets to bring liquidity and depth to Pakistan's debt capital market.

Talking about the new responsibility of BankIslami as market maker of debt securities on PSX, Syed Amir Ali, President and CEO BIPL, said "As a market maker for the designated securities (PESC I &PESC II), we will help to add depth in the market for Islamic Fixed Income Securities by offering both bid and ask quotes to create liquidity for these securities. BankIslami applauds PSX's initiative to allow multiple market makers for a single security because it would not only add transparency to the market but would also tighten the spreads which is very conducive for market participants and investors. As an Islamic Bank, blank sale and short selling are prohibited; therefore, the Bank, while adhering to Shariah principles, has to maintain an inventory of the underlying Shariah compliant securities."

To increase the supply of competitively priced Shariah compliant securities, BankIslami, as an Advisor and In- vestment Agent, is facilitating Pakistan's national flag carrier - PIA to raise Rs 20 billion through GoP Guaran- teed, SLR eligible, Privately Placed Listed, Shariah compliant sukuk to be issued through PSX Book building process and is named as "PIA Sukuk-I". For this landmark public sector, SLR eligible Sukuk issuance, National Bank of Pakistan (NBP) and BIPL Securities Limited are our partners as Joint Book Runners. We would like to take this opportunity to thank the Ministry of Finance, SBP, SECP and specially PSX for providing their guidance, support and approvals to make this transaction a joint success."

Last year, BankIslami successfully concluded the IPO and listing of BankIslamiEhadSukuk which happened to be Pakistan's first listed Additional Tier-1 ModarbaSukuk. Bank IslamiEhadSukuk not only helped the bank in strengthening its Tier 1 capital but also gave the investors an access to Shariah compliant listed instrument. The confidence shown by the investors in BankIslami particularly in the challenging times due to Covid-19 was

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Business and Economic Newsflash (international) 45 overwhelming. Currently, the Sukuk is being traded on its face value and has an investor base of 185, out of which 30 are institutional investors and rest are individuals. Global pharma shares sink as Biden backs COVID-19 vaccine IP waiver

Shares of COVID-19 vaccine makers plunged after US President Joe Biden backed a proposed waiver for intellectual property rights even as the pharmaceutical industry, analysts and experts doubted its impact, saying the real problem is a lack of raw materials and know-how.

Pfizer, Moderna, Novavax and US shares of BioNTech were down between 4% and 10% on Thursday. The slide in stocks was understandable, but likely an over-reaction, Zhiqiang Shu, senior biotechnology analyst at Beren- berg in New York, said.

"The production of mRNA vaccines is not just about intellectual property. A lot of other things are in play, such as manufacturing know-how and capacity. Other companies or countries are unlikely to produce mRNA shots quickly," he said.

The Biden administration move drew applause from patent activists and the World Health Organization as it could increase availability of vaccines to poorer nations including India, which is under the grip of a deadly second wave of infection.

However, implementing such a move could be a lengthy process as all 164 WTO member countries are required to arrive at a consent. .

The pharmaceutical industry, which has long defended patents as the key to research and development of new treatments, criticized the move, with its biggest lobby group warning that it would undermine pandemic response and compromise safety.

Several pharmaceutical analysts said IP waivers may on the surface help a world facing a pandemic, but manufacturing the vaccines was a barrier.

Jefferies analyst Michael Yee said while the proposal was not a good "headline" for biotech and could affect earnings, in reality, the bottleneck is neither access nor patents (or price) but simply that there aren't enough vials, raw materials.

It would probably take a year after an IP deal was struck for anyone to make a vaccine, Scott Gottlieb, former head of the US Food and Drug Administration and Pfizer board member said in a CNBC interview.

Moderna CEO Stephan Bancel too doubted if the IP waiver would help as its technology has been open since ◊ SECOND QUARTERLY 2021 IFMP

Business and Economic Newsflash (international) 46

October to anyone for use during the pandemic.

"You cannot go hire people who know how to make the mRNA. Those people don't exist," he told investors.

Pharma shares lost ground elsewhere too, with Germany's Curevac, which has sought approval for its COVID- 19 vaccine, tumbling as much as 15%.

Chinese vaccine makers slumped with CanSino Biologics Inc , a single-dose COVID-19 vaccine maker, down 16%. Its Hong Kong shares dived as much as 22%. Shares in London-listed AstraZeneca were largely un- changed.

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47 Regulatory updates SECP concludes action against B4U Group and its Sponsors ISLAMABAD, June 26: The Securities and Exchange Commission of Pakistan (SECP) has concluded adjudica- tion proceedings against B4U Group and its sponsors for raising illegal deposits from the public and operating pyramid schemes, in violation of the Companies Act, 2017. The B4U Group comprises of 18 companies incorpo- rated under the Act, as well as 05 unincorporated business setups. All the 18 companies were registered during the last two years. The main sponsor of B4U Group is Mr. Saif-ur-Rehman, along with his immediate family members. SECP, after completing the due process of law, has disqualified the sponsors of B4U Group from becoming a director of any company for a period of 5 years and has also imposed a penalty of Rs.100 million on each of its sponsors. Further, the sponsors shall not be allowed to incorporate any new company under the Act. In addition, SECP has granted sanction for winding up of all 18 companies of B4U Group and imposed a penalty of Rs. 200 million on each company. Aggregate penalties amounting to Rs 4 billion have been imposed on B4U Group. SECP is fully committed to safeguard the interest of general public against prohibited business practices such as illegal deposit raising, Ponzi and pyramid schemes etc. In addition to initiating enforcement actions, SECP has continuously been issuing necessary press releases, time and again, cautioning general public not to invest in any such illegal and dubious investment plans, while take strict enforcement action against companies and sponsors that violate their mandate. SECP specifies regulatory framework for Debt and Hybrid ETFs

ISLAMABAD, June 24: In line with its objectives of creating a competitive and conducive playing field and to diversify the range of Exchange Traded Funds (ETFs) available to investors, the Securities and Exchange Com- mission of Pakistan (SECP) has specified the framework for issuance of Debt and Hybrid ETFs through Circular No – dated -----. The circular also updates the existing framework for Equity ETFs. Just like equity ETFs, the debt ETFs are also passively managed and trade on a regular exchange. Debt ETFs allow ordinary investors to gain passive exposure to fixed income securities such as corporate bonds or Treasuries in an inexpensive way, while Hybrid ETFs allow investment in an index which has both debt and equity securities. Investment in debt ETFs is well suited for investors with a low risk profile, as it provides a strong defensive addition to their investment portfolios. The framework specifies the procedure for listing, trading, clearing and settlement of ETF units, besides the disclosure requirements for asset management companies and the obligations of market makers / authorized participants. Internationally, ETFs are among one of the fastest growing investment products which are being customized to cover specific arrays of sectors, stocks, commodities, bonds, futures and other asset classes. The ETFs provide investors with various benefits such as trading flexibility; diversification of overall portfolio and transparency in terms of publishing underlying holdings on a daily basis. It is envi-

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48 Regulatory updates sioned that the introduction of debt and hybrid ETFs at the Pakistan’s stock exchange will bring Pakistani capital market at par with other regional and international jurisdictions and will go a long way in promoting capital formation and market development. SECP issues Guidelines for Green Bonds Issuance in Pakistan ISLAMABAD, June 18: The Securities and Exchange commission of Pakistan (SECP) has issued guidelines for issuance of green bonds in Pakistan. The Guidelines provide an easy and efficient procedure for issuance with concise offering document/prospectus. All issuers who are eligible to issue debt securities, including sukuk either by way of public offer or private placement are eligible to issue green bonds while ensuring compliance with applicable regulatory framework. The issuance of Green Bonds will help in initiating sustainable projects for combating climate change besides facilitate issuers of debt securities to diversify their source of financing. It will also provide an additional financing instrument to those investors who are conscious of financing/re- financing projects that contribute to the environment. To qualify as a green bond, the proceeds must finance or refinance green projects or activities that bring energy efficiency, protect environment, utilize renewable energy, prevent and control pollution, use natural resources, projects related to land management, pollution free transportation, wastewater and water treatment, etc. As per the green bond database (source: www.climate.net), Green Bonds worth US$ 1.2 trillion have been issued by different countries till date including US$ 297 billion in 2020 and US $ 130.9 billion in 2021(till April) showing an increasing trend. As per Inter- national Capital Market Association (ICMA)’s database, a total of 640 issues of Green Bonds have been made by 60 countries. Green bonds can be issued based on globally accepted standards/goals such as the International Capital Market Association (ICMA)’s Green Bond Principles, the UN’s Sustainable Development Goals (UN SDGs) etc. The SECP guidelines for green bonds are available at its official website: https://www.secp.gov.pk/document/ green-bondsguidelines/?wpdmdl=42537&refresh=60cc5ab00db441624005296

SECP – Harnessing Capital Market for Women Empowerment ISLAMABAD, May 19: The Securities and Exchange Commission of Pakistan (SECP), has released guidelines for the issuance of Gender Bonds to increase financial inclusion of women and encourage female entrepreneurship. The guidelines, issued in pursuant to Section 172 of the Securities Act, 2015, aim to facilitate companies and issuers of debt securities to diversify their source of financing and provide an additional financial instrument to a particular class of investors. As a step towards promotion of gender equality – the issuance of gender bonds will improve women access to leadership positions and gender-positive corporate policies. As per the gender bond guidelines, all issuers who are eligible to issue debt securities, including sukuk bonds, either by way of public offer or private placement are eligible to issue Gender Bonds, as long as ensuring compliance

◊ SECOND QUARTERLY 2021 IFMP

49 Regulatory updates with the applicable regulatory framework. The amount of funds raised from the issuance of gender bonds shall be utilized to finance projects related to women uplift and economic empowerment such as, access to finance/ credit; micro, small and medium-sized enterprise development; agriculture development; financial literacy and entrepreneurship training, disaster risk management; housing for low income segment of women etc. Like other debt instruments, such as green, social and sustainability bonds, a gender bond can have any type of financial structure as a general bond, a project bond or a securitization scheme. Gender bonds are a relatively recent development and still a nascent in the field of finance. Internationally Gender-labelled bonds have been issued by a variety of entities, ranging from large commercial banks, to NGOs, to multilateral development banks. Most gender bonds issued have relied on the Institute of Capital Market Association (ICMA)'s Social Bond Prin- ciples, the UN's Sustainable Development Goals (SDGs) or the UN Women's Empowerment Principles as reference standards. The gender bond guidelines are available at SECPs website at https://www.secp.gov.pk/laws/ guidelines/ SECP seeks comments on conversion of shareholding into book entry form ISLAMABAD, May 7: In order to minimize shareholding disputes and make the entire process of holding, moni- toring and transferring of shares much easier, costefficient and transparent, the SECP is considering a proposal requiring all the public listed, public unlisted, public interest and private limited companies to have their shares in book-entry form in compliance with Section 72 of the Companies Act, 2017. Shares held in book- entry form shall have the same rights and privileges as shares held in physical certificate form. Once notified, all companies, required to replace their physical shares with book-entry form, shall apply to a depository, li- censed by the SECP for conversion of physical shares and further issuance of shares in the book entry form. The depository shall prescribe procedures for such conversion and issuance of shares including documenta- tion required, process to be followed and applicable fee/ charges. Handling of shares in case of corporate actions i.e. issue of bonus/right shares and transfer or selling of shares would be much easier, if shares are con- verted into bookentry form. Book entry securities can be pledged to a bank to obtain financing against them. Furthermore, it would help to reduce the risks and costs associated with storing of physical share certificates, which are susceptible to be lost, stolen and /or damaged. All stakeholders are invited to provide their feedback/opinion at https://forum2.secp.gov.pk on the proposal of conversion of physical shares into book entry, before May 20, 2021. SECP launches combined digital registration with provincial agencies ISLAMABAD, April 29: As part of its transformational journey, the SECP has now introduced a single combined digital certificate evidencing registration with SECP and some provincial departments simultaneously. The SECP continues to strive for reducing physical interaction with the citizens, and is focused on providing services through use of modern technology at the door-step of the end-users. This initiative is expected to significantly reduce the overall “Starting a Business” time in Pakistan and would have a positive impact on the country's ranking on the Doing Business Index. There are less than 10 jurisdictions globally where federal and provincial registrations are integrated online on a real-time basis, and Pakistan has also now joined this league. The single combined certificate will be issued through SECP’s e-Services in real-time upon incorporation of a

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50 Regulatory updates company through a ‘single window, and will simultaneously register the company with provincial departments, including Punjab Employees Social Security Institution (PESSI), Sindh Employees Social Security Insti- tution (SESSI), Labour & Human Resource Departments and Excise & Taxation Departments of Punjab and Sindh. The digital combined certificate features QR code and a hyperlink for instant verification of registration status of the company. SECP has in the past also integrated its systems with FBR, EOBI and BOI. The launch of this combined electronic certificate by SECP is another landmark initiative towards automation of regulatory processes to foster a user-friendly business environment in the country, expected to further fuel the growth of new company registrations in Pakistan. The SECP’s vision is to relentlessly develop a digital ecosystem under the ‘Leading Efficiency through Automation Prowess’ (LEAP) program for end-to-end digitalization of all its internal processes as well as outside interface. The recent reforms introduced under LEAP include Digital Cer- tificate of Incorporation, launch of an online portal for banks to facilitate expeditious account opening, online issuance of Digitally Certified True Copies of statutory returns and mortgage register. SECP to Introduce Concept of Special Purpose Acquisition Company ISLAMABAD, April 28: In light of its vision to provide viable and sustainable eco-system for capital formation, the Securities and Exchange Commission of Pakistan (SECP) is exploring the concept of special purpose acquisition company (SPACs). To introduce the SPAC, the SECP has proposed amendments to the Public Offering Regulations, 2017 to solicit public comments. The draft amendments are available at https:// www.secp.gov.pk/laws/draftfor-discussion/draft-rules-regulations/ SPACs, a new concept for Pakistan’s capital market, is prevailing in many jurisdictions, including USA, Canada, Malaysia etc. Under the SPAC structure, a company comprises of group of persons/professionals raise funds from the general public and those funds are utilized for the purpose of merger or acquisition transaction within a permitted time frame. A SPAC’s life be- gins with its initial formation (in the form of a company), followed by its IPO, its search for a target, a shareholder approval for merger/acquisition and finally, the close of an acquisition or else return of the SPAC’s proceeds back to its investors. Under proposed regulatory framework, SPAC shall be a company or body corporate registered with the SECP, which shall be formed by a group of persons meeting the fit and proper criteria. Paid up-capital requirement for SPAC shall be PRK 1 Million and it shall raise at least Rs200 million through public offering. The Acquisition/merger has to be completed within permitted timeframe of two years. At least 90% of the funds raised shall be kept in escrow account managed by a custodian. The proceeds in the escrow account may be invested in permitted investments. Each merger or acquisition transaction shall be approved by the shareholders by way of special resolution. Upon merger, the merged entity shall be automatically listed and in case of acquisition the SPAC shall list the acquired entity. Shareholder/(s) disapproving the merger or acquisition are entitled for refund of their money out of Escrow account as per specified procedure. The afore- said mentioned amendments are expected to provide a more conducive regulatory environment for capital formation in the economy through primary market. SECP chair commits coherent industry policy to promote FinTech ISLAMABAD, April 27: The SECP Chairman Aamir Khan said that the Commission has instituted various reforms to develop a comprehensive and coherent industry policy to share regulatory thinking and promote a

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51 Regulatory updates conducive FinTech environment in Pakistan, and the regulatory sandbox initiative is part of this agenda. Khan was addressing a webinar on “Second Cohort of SECP’s Regulatory Sandbox”, organized by SECP to create awareness regarding the concept of Regulatory Sandbox and describe its benefits to industry and working mo- dalities. Aamir Khan said that the FinTech industry is growing significantly in Pakistan and can play a vital role in expending financial inclusion. However, he added, the innovations brought about by this growth, pose a challenges for regulators and financial supervisors, who are tasked with reducing the uncertainty. In order to address this challenge, Khan said, SECP has introduced the concept of Regulatory Sandbox, which provides a tailored regulatory environment to conduct limited-scale live tests of innovative products, services and business models under the regulator’s oversight. The SECP Chairman told participants that in the second cohort of Regulatory Sandbox, preference would be given to innovation in the areas of digital assets / security token offerings (STOs), non-bank financial companies, blockchain / distributed ledger solutions for capital markets, digital identity / AML / KYC, AI, machine learning and robotic processes automation-based solutions. SECP officials gave a comprehensive presentation on Sandbox’s mechanism, including details of eligibility criteria, application procedure, evaluation process and answer the participants queries. Successful candidates of the first cohort of Regulatory Sandbox shared their experience of working within the Sandbox environment. They appreciated the continued support and guidance from SECP during the testing period of the first cohort. At the conclusion of the well-attended webinar, SECP officials addressed various queries to the satisfaction of participants. Participants appreciated SECP’s efforts of public engagement and called for continuing such initiatives of public and stakeholder awareness.

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Urdu Glossary 52

محلوک کمپنی Holding Company

دو طرفہ معاہدہ Bilateral Agreement

معاشی تجزیہ کار Analyst Economic

ہم آہنگی Harmony

کاروبار چالنے کے اخراجات Operating Expenses

ادائیگی Disbursement

مد تی مالیاتی سرٹیفیکیٹ Term Finance Certificate

بیمہ دار Policyholder

میراث Legacy

شفافیت Transparency

تاخیر سے ادائیگی Deferred Payment

حاصل کرنے واال Acquirer

توثیق Endorsement

زرمبادلہ کی شرح Exchange rate

غیرمحتاط قرض کاری Imprudent Lending ◊ SECOND QUARTERLY 2021 IFMP

53 Investment quotes

“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”

(Warren Buffett)

“Successful investing is about managing risk, not avoiding it. ”

(Benjamin Graham)

“The big money is not in the buying and selling, but in the waiting. ”

(Charlie Munger)

“I’m not emotional about investments. Investing is something where you have to be purely rational and not let emotion affect your decision making – just the facts.”

(Bill Ackman )

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QuotesQuotes andand JokesJokes 100854 Feedbacks

Feedback on IFMP training

“Quite a valuable session which brings more clarity in identifying BO & UBO.

More sessions requested like this to increase or polish our knowledge. Thanks. ”

Javeria Waheed

(Assistant Manager, RS & Operation, ABL AMCL)

“On behalf of SME Leasing Limited, I would like to thank to Institute of financial Markets of Pakistan for arranging such a useful and effective Workshop on ‘An update on AML/CFT Regulations - Meeting Ultimate Beneficial Ownership Re- quirements'. Mr. Shahzad Afzal Khan Sb, in a very friendly way answered the queries and enhanced knowledge in respect of Ultimate Beneficial Ownership

Requirements. ”

Sohail Imran

(Compliance Officer, SME Leasing Limited)

“IFMP team deserves appreciation for conducting such fruitful workshops/ training sessions. The workshop was very fruitful. Several confusions re- moved. Overall excellent session. ”

Khanzada Mehmood Nasir

(Company Secretary/ Head of HR & Admin,

Askari Securities)

◊ MarchDecemberSECOND 2019 QUARTERLY2018 2021 IFMP IFMP Newsletter Newsletter Page 16 IFMPPage ◊ 16 ◊

Markets in Review 55

◊ Monthly Review ◊

Pakistan KIBOR Crude Oil Stock (6 Months) Exchange

(WTI)$ Bid % Offer % 100 Index

Beginning 61.45 Beginning 7.33 7.58 Beginning 44,428.10

Ending 73.47 Ending 7.20 7.45 Ending 47,356.2

Change 19.56% Change -1.77% Change 6.59%

Gold Silver

10 Grams 10 Grams

Beginning Rs. 84985.43 Beginning Rs. 1227.087

Ending Rs. 89966.01 Ending Rs. 1327.887

Change 5.86% Change 8.21%

Foreign Exchange Rates Interbank Market (buying) GBP (£) EURO (€) USD ($)

Beginning Rs. 209.88 Rs. 179.691 Rs. 151.72

Ending Rs. 217.85 Rs. 187.1470 Rs. 157.53

Change 3.797% 4.149% 3.829%

www.ifmp.org.pk 92 (21) 34540843-44 [email protected]

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