These are unusual times where a more inclusive approach is needed between businesses and the banking community. These times surely pose unprecedented opportunities for both to do some introspection and repositioning for a more sustainable and mutually beneficial relationship. Working together more closely than ever before, looking at changing working protocols, and more so mindset, amongst themselves and at the same time at the policy level within the Government, is the way forward.
To begin with, let’s see what it takes in making Banking more effective for the Business Community. Perhaps, the most significant constituency relates to, “Engagement between Banks and Businesses”.
Knowing the specific needs of the target clientele, and tailoring solutions for those needs has always been one of the foremost priorities of financial institutions, or any front-end business for that matter. However, the uptake of digital solutions in the banking industry has necessitated a re-evaluation of customer outreach and marketing to retain or recapture growth, customer engagement strategies are now in need of revision across the board with more integrated systems/ technology-based solutions at the two ends.
In my view this state of flux, brought about by the democratization of technology, the advent of data driven insights, artificial intelligence, and broad based digital marketing, should be taken as a blessing in disguise. It is an opportunity for Banks and businesses to fill the engagement-gaps of the past via new solutions, and it is a reminder of the importance of being proactive & responsive to changes in the landscape. To this end, data analytics is the answer.
This is the next invaluable component of this equation. Now, more than ever, there is a need to listen, and to provide solutions that will bring value that is pertinent, timely, and intuitive, by using customers’ channels of choice, be they digital or otherwise. And most importantly in this respect, empathy and authenticity are paramount. Engagement with clients should be focused on their needs (financial stability/wellness) as opposed to the financial institution’s desire for product sales.
Further deepening of the relationship between banks and the business community may be achieved via transparency, with respect to cost in particular, and the provision of information in general. Transparency is vital in facilitating accountability, in projecting a customer-centric approach, and in enabling clients to make informed decisions about their needs and who can best serve them.
Transparency and close communication, however, must swing both ways; business clients must be open and communicative with their banking partners as well. You may be familiar with the old adage, which I have modified slightly: the three professionals in your life from whom you should not hide anything now include your lawyer, your doctor, and your banker.
Insofar as the structural changes that I would like to see within the Banking sector over time, there are a few core aspects, at the policy level, that I would like to address in this context.
Firstly, the share of private sector credit shall increase with reduced reliance on financing the dominant borrower (i.e., the Government of Pakistan). While credit to the private sector in Pakistan has increased in absolute terms, it has declined as a percentage of GDP (17% in 2022, down from 29% in 2008). The reasons for this are multifaceted; the biggest impediment being government borrowing which swelled over 400% during this last decade. Another reason, on the demand side, remains Pakistan’s large informal sector. More disclosure and documentation by the businesses would lead to bridging this gap effectively.
Secondly, Banking in Pakistan, in a very basic sense, is a game of access to cheaper deposits, whoever has that is the winner. Therefore, it’s critical that the institutions having larger deposit holdings shall be able to divert these deposits to more productive, specialized areas. The constitution of the banking industry needs a review. Currently, it’s totally lopsided and concentration of assets and liabilities rests with a handful of large banks who literally, by default, drive the agenda of the entire sector. This warrants a paradigm shift whereby broad-based funding could be diverted to more desired and unconventional sectors, like agriculture, infrastructure, etc., through out of the box thinking and programs, in collaboration with the central bank and the governments.
Thirdly, a shift from collateral/ asset based lending to cash flows may also be pertinent in this context. Under this model, a company borrows money against anticipated revenues/ cashflows expected to be actualized in the future, despite their asset-thin status, which is particularly relevant in the case of start-ups.
Finally, for the banking industry to facilitate the prerequisites of business community (or any other client with a specific set of requirements) is to increase specialization in the portfolio – in other words, Specialized Banking: the streamlining of financial institutions’ service offerings to cater to a client pool with a particular set of requirements in a more efficient way than what could be offered by a universal bank. And finally, one more way that Banking can be made more effective for the Business Community is through building necessary expertise at the industry level, by liaising closely with industry specialists, consultants, and business clients. Positioning plays a key role in this; financial institutions with the necessary expertise must emphasize this in their communications, such that they may differentiate themselves from competitors.
Let me conclude with the statement that a change in mindset is desperately needed in our society – that making money is not a bad thing. In fact, if anything, it’s a good thing as long as it’s done fairly and legitimately, with the intent of economic inclusivity.
If we look at the Muslim history, something very revealing comes up. In his book “Early Islam and the Birth of Capitalism”, the famous author of biographies and history, Benedikt Koehler, claims: “Muhammad ibn Abdullah, Islam’s founder, was proud of his descent from Arabia’s most respected tribe, the Quraysh, who owed their standing to success in business rather than in battle. Muhammad even at the peak of his career was pleased when he heard praise for his own financial accomplishments; he smiled when his deputy Abu Sufyan ibn Harb complimented him, “you have become the wealthiest of the Quraysh!” Abu Sufyan’s fawning accolade was not empty flattery, far from it, because Muhammad by then earned annual rents exceeding ten thousand ounces of gold (in today’s terms, commensurate with several million dollars). Muhammad was the richest Arab of his time.”
My ultimate message is that, as a society, we need to be more mature and realistic in our stance towards businesses and businessmen. We need to respect them and their efforts in contributing towards the economy. We need to support them and look at them with a positive lens rather than sighting them with negativity and with the stance that there’s something seriously wrong with making money, per se. On the other hand, of course, businesses and businessmen have to act responsibly as well, while operating at the highest levels of integrity, transparency and inclusiveness.
At the end of the day, “It Takes Two Hands to Clap” and I would go to the extent of saying that it takes to clap louder, and with impact, when there’s enthusiasm and excitement behind it. Let’s work together to breed that positive energy and vibes between the banks and the business community. This has become all the more important and critical in these unprecedented times that our country is passing through.