NBFIs (NATURE)

Non Banking Financial Institutions working in Pakistan can be grouped into following categories
on the basis of their functions,
A. Saving or Depository institutions
B. Investment institutions
C. Development finance institutions
D. Risk coverage institutions
E. Advisory or consultancy institutions
A) SAVING OR DEPOSITORY INSTITUTIONS
These financial institutions accept deposits and channel the money into lending activities.
These institutions have significant role to play in economic development. They accumulate small
saving into huge funds. Unlike commercial bank they have simple operational procedure and
specialized staff. Interest at a relatively higher rate as compared to commercial banks is being
paid on deposit, especially at long term repayments. In Pakistan Government has not licensed
any institution to accept deposits besides commercial banks.
Directorate of National Savings and Pakistan Post Office are government owned
institutions offering different saving schemes to encourage saving and accumulate funds. Some
products/ services/ saving schemes offered by them are Prize Bonds, Regular Income Certificate,
Special Saving Certificate, Defense Saving Certificate, Old age / Pensioners benefit Scheme.
Besides DNS and PPO, people in Pakistan are used to form saving unions as depository
institutions. Although there is no legal framework for operating saving unions, still there is
strong tradition and practice for them. It can be termed as financial institution, although it is
unregistered and illegal. Most common example of such is saving unions formed by people of
same community or class. In these saving unions members contribute amount regularly which is
given to any one of member on a draw. In Pakistan these unions are called “Committee”.
B) INVESTING OR FINANCING INSTITUTIONS
In Pakistan investment decision is very difficult for a lay man. Lack of knowledge and
experience often result in loss of investment. Deficiency of education and awareness leads
investors to unregistered illegal investment organizations, which cheats and loot them. Therefore,
Government of Pakistan has established some NBFIs to guide and facilitate investors especially
smaller ones. Private sector has also been allowed to establish Investment Bank. Investment
institutions obtain funds from general public for investment in stocks or real estate etc. benefit or
revenue from investments transferred to investors.
Some popular institutions working as investing or financing institution in public sector
and private sector in Pakistan are NIT, ICP, Investment Banks, Micro Finance banks.
 The National Investment Unit Trust (NIUT) is the Pakistan’s largest and oldest Mutual
Fund. Its main objective is to increase stakeholders’ value by providing best possible
returns for Individuals as well as Institutional Investors. The amount received from
investors, NIT invests through different funds in different places.
 The Investment Corporation of Pakistan underwrites public issues of shares and
participates in equity of projects, it opens and maintains investor’s accounts with a view
to broaden share ownership and widen the base of capital market through purchase and
sale of shares of listed companies for the account holders.
 Primary function of investment banks is assisting the capital intermediation i.e. the
movement of financial resources from the investors to those who need to make use of
 them. Although named as bank but they are not commercial banks, these are specialized
banks working as investing institution. An investment bank also performs a variety of
services including aiding in the sale of securities, facilitating mergers and other corporate
re-organization, acting as brokers to both individual and institutional clients and trading
for its own account. Their main business is holding securities of other banks purely for
investment purpose.
 Micro Finance Banks aims at provision of financial services to low-income
clients, including consumers and the self employed. In thus way they can have
permanent access to quality financial services and income producing activities.
Some of micro finance banks working in Pakistan are Khushhali bank. Telenor
micro finance bank, Kashaf foundation ltd etc.
C) DEVELOPMENT FINANCIAL INSTITUTIONS (DFIs)
Third category of NBFIs is development financial institution. DFI’s are financial
institutions, which provide finance to the private and Government sector for investments that
promote development. They focus on developing countries and regions, where access to private
funding is limited. They are usually owned or backed by the governments of one or more
developed /rich countries.
They are most important type of financial institutions which provides funds to both
public and private sector for development projects for;
i) House and building construction
ii) Road and Bridges constructions
iii) Water and Power sector development
iv) Exploration of natural resources
v) Transport & communication. Etc
DFI may operate for profit or otherwise, with or without Government funding. Their
purpose is promotion of development in the industrial, agricultural, commercial or other
economic sectors or projects. DFI’s also provide capital or other credit facility, medium or long
term financial assistance. Since Pakistan is “mixed economy” DFIs are working in Government
as well as private sector.
 House Building Finance Company Limited (HBFCL) is Pakistan’s leading housing
finance institution. They have provided a range of housing finance facility and playing a pivotal
role in addressing the increasing housing shortage in the country. Industrial Development Bank
of Pakistan (IDBP) is one of Pakistan's oldest Development Financing Institution created with
the primary objective of extending term finance for investment in the manufacturing sector of the
economy. The Zarai Taraqiati Bank Limited (formerly known as Agricultural Development Bank
of Pakistan) is the largest public sector financial development institution in Pakistan which
provide loans to agriculture sector.
Since last few decades some companies formed as joint venture between Pakistan and
friendly countries are financing development projects in Pakistan. They have been licensed as
DFIs. State Bank of Pakistan is their regulatory and supervisory authority.
Licensed DFIs in Pakistan:
 Pak Brunei Investment Company Limited
 Pak China Investment Company Limited
 PAIR Investment Company
 Pak Kuwait Investment Company
 Pak Oman Investment Company
 Pak Libya Holding Company Limited
 Saudi Pak Industrial & Agricultural Investment Company. Limited
D) RISK COVERAGE INSTITUTIONS
Fourth group of NBFIs is risk coverage institutions. Element of risk always affects life,
property and psyche of individuals as well as organizations. Some NBFIs work as risk coverage
institutions to compensate losses to life, merchandise and property of individuals and business
organization. Role of risk coverage institution is multiple, they perform functions of all three
types institutions discussed above.
 They are saving or depository institutions as they receive premium from beneficiary.
 Risk coverage institutions are financing or investing institution as they invest in stocks
and real estates.
 Savings of risk coverage institutions are used like development finance institution, as
they have funds for a longer period of time. They invest in long term projects.
Insurance companies are types of such institutions; they provide risk coverage in
following areas;
 Life insurance is the insurance that pays out a sum of money either on the death of the
insured person or after a set period.
 Health is a type of insurance coverage that pays for medical and surgical expenses that
are incurred by the insured.
 Assets is the insurance that provides coverage on the damages or theft of assets
 Stock insurance is for the safety from loss in stock of the business
Examples of Insurance Cos;
 National Insurance Corporation
 Pakistan Reinsurance Company Ltd.
 Postal Life Insurance
 State Life Insurance Corporation Ltd.
E) ADVISORY OR CONSULTANCY INSTITUTIONS
This is 5th group of NBFIs which supports financial factor. These are not pure financial
institutions, but they have very important role to play in financial sector. They are supporters or
facilitators to the NBFIs. In Pakistan, Governments are always reluctant to come forwards for
advisory or consultancy. It had been left to the private sector to advance merchant and industrial
class, however SMEDA is an exception. Small and Medium Enterprise Development Authority
is the flagship organization of Pakistan which is providing the necessary services to help Small
and Medium Enterprises in the following areas,
 To overcome the weaknesses those are endogenous to their very nature.
 The creation of a conducive and enabling regulatory environment.
 Development of industrial clusters.
 The provision of Business Development Services to SMEs in all areas of business
management.
 To carry out comprehensive analyses of international trends, national policies and other
macroeconomic factors affecting SMEs in Pakistan.
 Gradual progress towards creation of a favorable business environment.
 It interacts with the SMEs working in various sectors such as Agriculture, Fisheries, Textiles,
Handloom Weaving, Transport, Leather, Marble & Granite, Carpets and Light Engineering.
Some other examples of Advisory or Consultancy institutions in Government Sector are
 Private Power Infrastructure Board
Alternative Energy Development Board