Question 2: Explain the accounting principle, accounting convention and accounting standards(IAS)?

<br /><div class="MsoListParagraphCxSpLast" style="line-height: 18px; margin: 0in 0in 10pt 0.25in;"><span style="color: windowtext; font-family: Wingdings; font-size: 12pt;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">  </span></span><b><span style="color: windowtext; font-family: 'New time roman', serif; font-size: 12pt;">Question 2:</span></b><span style="color: windowtext; font-family: 'New time roman', serif; font-size: 12pt;"> Explain the accounting principle, accounting convention and accounting standards(IAS)?<o:p></o:p></span></div><h1><b><span style="color: windowtext; font-family: 'New time roman', serif;">Accounting Concepts<o:p></o:p></span></b></h1><b><span style="font-family: 'New time roman', serif; font-size: 13pt;">Learning objectives:<o:p></o:p></span></b><br /><span style="font-family: 'New time roman', serif;">Explain important accounting principles.<o:p></o:p></span><br /><span style="font-family: 'New time roman', serif;">The term concepts includes those basic assumptions or conditions upon which accounting is based. The following are the important accounting concepts:<o:p></o:p></span><br /><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Business Entity Concept<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Going Concern Concept<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Money Measurement Concept<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Cost Concept<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Duel Aspect Concept<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Accounting Period Concept<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Matching Concept<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Realizations / Realization Concepts<o:p></o:p></span></div><span style="font-family: 'New time roman', serif;">The explanations of these concepts are as follows:<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Business Entity Concept</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">In accounting, business is treated as <span class="ilad">separate </span>entity from its owners. Accounts are prepared to give information about the business and not about those who own it. A distinction is made between business transactions and <span class="ilad">personal </span>transactions. Without such a distinction, the affairs of the business will be mixed up with the private affairs of the proprietor and the true picture of the firm will not be available. The 'Business' and 'owner' are taken as two separate entities. The accountant is interested to record transactions relating to business only. The private transactions of the owner will be recorded separately and will have no bearing on the business transactions. All the transactions of the business are recorded in the books of the business from the point of view of the <span class="ilad">business as </span>an entity and even the proprietor is treated as a creditor to the extent of his capital.<o:p></o:p></span><br /><span style="font-family: 'New time roman', serif;">The concept of separate entity is applicable to all of business organizations. For example, in case of a sole proprietorship business or partnership business, though the sole proprietor or partners are not considered as separate entities in the eyes of law, but for accounting purposes they will be considered as separate entities. In the case of joint stock Company, the business has as separate legal entity than the shareholders. The coming and going shareholders don not affect the entity of the business. Thus, the distinction between owner and the business unit has helped accounting in reporting profitability more objectively and fairly. It has also led to the development of '<span class="ilad">responsibility accounting</span>' which enables us to find out the profitability of even the different sub-units of the main business.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Going Concern Concept</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">According to<b> going concern concept</b> it is assumed that the business will exist for a long time to come. Transactions are recorded in the books keeping in view the going concern aspect of the business unit. A firm is said to be going concern when there is neither the intention nor necessary to wind up its affairs. In other words, it should continue to operate at its present scale<span class="ilad"> in the future</span>. On account of this concept the fixed assets are shown in the balance sheet at a diminishing balance method i.e., going concern value. There is no need to show assets at <span class="ilad">market </span>value because these have been purchased for use in future and earn revenues and for sale purpose. If the business is not to continue then market value will have significance. Since business is to continue, fixed assets will be shown at <span class="ilad">cost </span>less <span class="ilad">depreciation </span>basis. It is due to the concept that the fixed assets are depreciated on the basis of their expected life than on the basis of market value. The concept also necessitates distinction between expenditure that will render benefit over a long period and that whose benefit will be exhausted quickly, say within one year. The going concern concept also implies that existing liabilities will be paid at maturity.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Money Measurement Concept</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">Accounting to records only those transactions which can be expressed in terms of money. Transactions or events which cannot be expressed in money do not find place in the books of accounts though they may be very useful for the business. For example, if a business has got a team of dedicated and trusted employees, it is definitely an asset to the business, but since their monetary measurement is not possible, they are not shown in the books of business. It should be remembered that money enables various things of diverse nature to be added up together and dealt with. The use of a building and the use of clerical service can be aggregated only through money values and not otherwise.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Cost Concept</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">This concept is closely related to the going concern concept. According to this concept, an asset in ordinarily recorded in the books at the price at which it was acquired i.e., at its cost price. This cost serves the basis for the accounting of this asset during the subsequent period. The 'cost' should not be confused with 'value'. It must be remembered that as the real worth of the assets changes from time to time, it does not mean that the value of such an asset is wrongly recorded in the books. The book values of the assets as recorded do not reflect their <span class="ilad">real value</span>. They do not signify that values noted therein are the values for which they can be sold. Though the assets are recorded in the books at cost, in course of time, they are reduced in value on account of depreciation charges. The idea that the transactions should be recorded at cost rather than at a<span class="ilad">s subjective </span>or arbitrary value is known as cost concept. With the passage of time, the market value of fixed assets like land and buildings vary greatly from their cost. These changes in the value are generally ignored by the accountants and they continue to value them in the balance sheet at historical cost. The principle of valuing the fixed assets at cost and not at market value is the underlying principle in cost concept. According to them the current values alone will fairly represent the cost to the entity. The cost principle is based on the principle of objectivity. There is no room for personal assessment in showing the figures in accounting records. If subjectivity is flowed in records the same assets will be valued at different figures by different individual. Everybody will have his own views about various assets. The cost concept is helpful in making truthful records. The records become more reliable and comparable.</span><br /><a name='more'></a><span style="font-family: 'New time roman', serif;"><o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Dual Aspect Concept</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">This is the basic concept of accounting. Modern accounting system is based on <b>dual aspect concept</b>. Dual concept may be stated as "for every debit, there is a credit". Every transaction should have two sided effect to the extent of same amount. For example, if A starts a business with a capital of $10,000. There are two aspects of the transaction. On the one hand the business has assets of $10,000 while on the other hand the business has to pay to the proprietor a sum of $10,000 which is taken as proprietor's capital. This expression can be shown in the form of following equation:<br /> <o:p></o:p></span><br /><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; width: 100%px;"><tbody><tr><td style="padding: 0in; width: 268px;" width="41%"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">Capital (Equities)<o:p></o:p></span></div></td><td style="padding: 0in; width: 59px;" width="9%"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">=<o:p></o:p></span></div></td><td style="padding: 0in; width: 326px;" width="50%"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">Costs (Assets)<o:p></o:p></span></div></td></tr><tr><td style="padding: 0in; width: 268px;" width="41%"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">10,000<o:p></o:p></span></div></td><td style="padding: 0in; width: 59px;" width="9%"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">=<o:p></o:p></span></div></td><td style="padding: 0in; width: 326px;" width="50%"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">10,000<o:p></o:p></span></div></td></tr></tbody></table><span style="font-family: 'New time roman', serif;">The term 'assets' denotes the resources owned by a business while the term 'equities' denotes the claims of various parties against the assets. Equities are of two types. They are owner’s equity and outsider’s equity. Owner's equity (or capital) is the claim of the owner's against the assets of the business while outsider’s equity (liabilities) is the claim of outside parties against the assets of the business. Since all assets of the business are claimed by someone (either owners or outsiders), the total of assets will be equal to total of liabilities.<o:p></o:p></span><br /><span style="font-family: 'New time roman', serif;"> Thus:<br /> <o:p></o:p></span><br /><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; width: 551px;"><tbody><tr><td style="padding: 0in; width: 166.5pt;" width="222"><div class="MsoNormal"><br /></div></td><td style="padding: 0in; width: 138pt;" width="184"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">Equities<o:p></o:p></span></div></td><td style="padding: 0in; width: 0.75in;" width="72"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">=<o:p></o:p></span></div></td><td style="padding: 0in; width: 177.75pt;" width="237"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">Assets<o:p></o:p></span></div></td><td style="padding: 0in; width: 112.5pt;" width="150"><div class="MsoNormal"><br /></div></td><td style="padding: 0in; width: 3.5in;" width="336"><div class="MsoNormal"><br /></div></td></tr><tr><td style="padding: 0in; width: 166.5pt;" width="222"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">OR<o:p></o:p></span></div></td><td style="padding: 0in; width: 138pt;" width="184"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">Liabilities<o:p></o:p></span></div></td><td style="padding: 0in; width: 0.75in;" width="72"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">+<o:p></o:p></span></div></td><td style="padding: 0in; width: 177.75pt;" width="237"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">Capital<o:p></o:p></span></div></td><td style="padding: 0in; width: 112.5pt;" width="150"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">=<o:p></o:p></span></div></td><td style="padding: 0in; width: 3.5in;" width="336"><span style="font-family: 'New time roman', serif;">Assets<o:p></o:p></span></td></tr></tbody></table><span style="font-family: 'New time roman', serif;">Suppose if the business borrows $5000 from a bank, dual aspect of this transaction will be<br /> <o:p></o:p></span><br /><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; width: 551px;"><tbody><tr><td style="padding: 0in; width: 168.75pt;" width="225"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">Capital + Liabilities<o:p></o:p></span></div></td><td style="padding: 0in; width: 40.5pt;" width="54"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">=<o:p></o:p></span></div></td><td style="padding: 0in; width: 201pt;" width="268"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">Assets<o:p></o:p></span></div></td></tr><tr><td style="padding: 0in; width: 168.75pt;" width="225"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">A  Loan<o:p></o:p></span></div></td><td style="padding: 0in; width: 40.5pt;" width="54"><div class="MsoNormal"><br /></div></td><td style="padding: 0in; width: 201pt;" width="268"><div class="MsoNormal"><br /></div></td></tr><tr><td style="padding: 0in; width: 168.75pt;" width="225"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">10,000<o:p></o:p></span></div></td><td style="padding: 0in; width: 40.5pt;" width="54"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">=<o:p></o:p></span></div></td><td style="padding: 0in; width: 201pt;" width="268"><div class="MsoNormal"><span style="font-family: 'New time roman', serif;">15,000<o:p></o:p></span></div></td></tr></tbody></table><span style="font-family: 'New time roman', serif;">Thus the accounting Equation states that at any point of time the assets of any entity must be equal (in monetary terms) to the total of owner's equity and outsider's liabilities. As a matter of fact the entire system of double entry accounting is based on this concept.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Accounting period concept</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">According to this concept, the life of the business is divided into appropriate segments for studying the results shown by the business after each segment. Since the life of the business is considered to be indefinite (according to going concern concept) the measurement of income and studying financial <span class="ilad">position </span>of the business according to the above concept, after a very long period would not be helpful in taking proper corrective steps at the appropriate time. It is, therefore, absolutely necessary that after each segment or time interval the businessman must stop and see, how things are going on. In accounting such a segment or time interval is called accounting period. It is usually of a year.<br /><br /> At the end of each accounting period and income statement/profit & loss Account and a Balance Sheet are prepared. The income statement discloses the profit or loss made by the business during the accounting period while Balance Sheet discloses the financial position of the business as on the last day of the accounting period. While preparing these statements a proper distinction has to be made between capital and revenue expenditure.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Matching concept</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">The aim of business is to earn profit. In order to ascertain the profit the costs (expenses) are matched to revenue. The difference between income from sales and costs of producing the goods will be the profit. When business is taken as a going concern then it becomes necessary to evaluate the performance periodically.<br />A correct statement of income requires a distinction between past, present and future expenditures. A distinction between capital and revenue expenditure is also necessary. The revenues and costs of same period are matched. In other words, income made by the business during a period can be measured only when the revenue earned during a period is compared with the expenditure incurred for earning that revenue. The question when the payment was received or made is irrelevant.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Realization Concept</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">This concept emphasizes that profit should be considered only when realized. The question is at what stage profit should be deemed to have accrued? Whether at the time of receiving the order or at the time of execution of the order or at the time of receiving the cash? For answering this question the accounting is in conformity with the law and Recognizes the principle of law i.e., the revenue is earned only when the goods are transferred. It means that profit is deemed to have accrued when property I goods passes to the buyer, viz., when sales are made.<o:p></o:p></span><br /><h1><b><span style="background-color: #e5e5e5; background-position: initial initial; background-repeat: initial initial; color: windowtext; font-family: Georgia, serif;"><br /></span></b><b><span style="color: windowtext; font-family: Georgia, serif;">Accounting Conventions<o:p></o:p></span></b></h1><b><span style="font-family: 'New time roman', serif; font-size: 13pt;">Learning Objectives:<o:p></o:p></span></b><br /><span style="font-family: 'New time roman', serif;">What are accounting conventions? Explain important accounting conventions.<o:p></o:p></span><br /><span style="font-family: 'New time roman', serif;">The term "conventions" includes those <span class="ilad">customs </span>or traditions which guide the accountants while preparing the accounting statements. The following are the important accounting conventions.<o:p></o:p></span><br /><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Convention of Disclosure<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Convention of Materiality<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Convention of Consistency<o:p></o:p></span></div><div style="margin-left: 0.5in; text-indent: -0.25in;"><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">         </span></span><span style="font-family: 'New time roman', serif;">Convention of Conservatism<o:p></o:p></span></div><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Convention of Disclosure</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">The disclosure of all significant information is one of the important accounting conventions. It implies that accounts should be prepared in such a way that all material information is clearly disclosed to the reader. The term disclosure does not imply that all information that anyone could desire is to be included in accounting statements. The term only implies that there is to a sufficient disclosure of information which is of material in <span class="ilad">trust</span> to proprietors, present and potential creditors and investors. The idea behind this convention is that anybody who wants to study the financial statements should not be misled. He should be able to make a free judgment. The disclosures can be in the way of foot notes. Within the body of financial statements, in the minutes of meeting of directors etc.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Convention of Materiality</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">It refers to the relative importance of an item or even. According to this convention only those events or items should be recorded which have a significant bearing and insignificant things should be ignored. This is because otherwise accounting will be unnecessarily over burden with minute details. There is no formula in making a distinction between material and immaterial events. It is a matter of judgment and it is left to the accountant for taking a decision. It should be noted that an item material for one concern may be immaterial for another. Similarly, an item material in one year may not be material in the next year.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Convention of Consistency</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;">:<o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">This convention means that accounting practices should remain Unchanged from one period to another. For example, if stock is valued at cost or <span class="ilad">market </span>price whichever less is; this principle should be followed year after year. Similarly, if <span class="ilad">depreciation </span>is charged on fixed <span class="ilad">assets </span>according to diminishing balance method, it should be done year after year. This is necessary for the purpose of comparison. However, consistency does not mean inflexibility. It does not forbid introduction of improved accounting techniques. If a change becomes necessary, the change and its effect should be stated clearly.<o:p></o:p></span><br /><h2 align="left"><b><span style="color: windowtext; font-family: 'New time roman', serif;">Convention of Conservatism:</span></b><b><span style="color: windowtext; font-family: 'New time roman', serif;"><o:p></o:p></span></b></h2><span style="font-family: 'New time roman', serif;">This convention means a caution approach or policy of "play safe". This convention ensures that uncertainties and risks inherent in business transactions should be given a proper consideration. If there is a possibility of loss, it should be taken into account at the earliest. On the other hand, a prospect of profit should be ignored up to the time it does not materialize. On account of this reason, the accountants follow the rule 'anticipate no profit but provide for all possible losses'. On account of this convention, the inventory is valued 'at cost or market price whichever is less.' The effect of the above is that in case market price has gone down then provides for the 'anticipated loss' but if the market price has gone up then ignore the 'anticipated profits.' Similarly a provision is made for possible bad and doubtful debt out of current year's profits. Critics point out that conservatism to an excess degree will result in the creation of secrets reserves. This will be quite contrary to the doctrine of disclosure.<o:p></o:p></span><br /><div class="MsoNormal"><br /></div>

Question 2: Explain the accounting principle, accounting convention and accounting standards(IAS)?

Ø    Question 2:  Explain the accounting principle, accounting convention and accounting standards(IAS)? Accounting Concepts Learning object...

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Ø Question: Explain the users of Financial Statement?

<br /><div class="MsoListParagraph" style="line-height: 115%; margin-bottom: 10.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l1 level1 lfo6;"><!--[if !supportLists]--><span style="color: windowtext; font-family: Wingdings; font-size: 14.0pt; line-height: 115%; mso-bidi-font-family: Wingdings; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;"></span></span><!--[endif]--><b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-size: 11.0pt;">Question:</span></b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-size: 11.0pt;"> Explain the users of Financial Statement?<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div align="center" class="MsoNormal" style="text-align: center;"><b><span style="font-family: "Cambria","serif"; font-size: 24.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-size: 11.0pt; mso-hansi-theme-font: major-latin;">Financial Accounting<o:p></o:p></span></b></div><span style="font-family: "New time roman","serif";">Accounting can be defined as an information system that provides information about the results of a business' performance and its economic position.<span style="background: white;">The<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">systematic</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">recording</span><span style="background: white;">, reporting, and<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">analysis</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">of<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">financial</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">transactions</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">of a<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">business</span><span style="background: white;">. The<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">person</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">in<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">charge</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">of<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">accounting</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">is known as an<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">accountant</span><span style="background: white;">, and this individual is typically required to follow a set of<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">rules and regulations</span><span style="background: white;">, such as the<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">Generally Accepted Accounting Principles</span><span style="background: white;">. Accounting<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">allows</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">a<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">company</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">to analyze the<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">financial performance</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">of the business, and look at<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">statistics</span><span class="apple-converted-space"><span style="background: white;"> </span></span><span style="background: white;">such as<span class="apple-converted-space"> </span></span><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">net profit</span><span style="background: white;">.</span><o:p></o:p></span><br /> <div class="MsoNormal"><span style="font-family: "New time roman","serif";">Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." There are different kinds of users of financial statements. The users of financial statements may be inside or outside the business. </span><span style="font-family: "New time roman","serif"; mso-bidi-font-family: "Times New Roman";"><o:p></o:p></span></div><table align="left" border="0" cellpadding="0" class="MsoNormalTable"> <tbody><tr> <td style="padding: .75pt .75pt .75pt .75pt;"></td> </tr></tbody></table><div class="MsoNormal"><span style="font-family: "New time roman","serif";">The users of financial statements use financial statements for a large variety of business purposes and their ability to understand and analyze financial statements helps them to succeed in the business world.<br /><!--[if !supportLineBreakNewLine]--><br /><!--[endif]--></span><span style="font-family: "New time roman","serif"; mso-bidi-font-family: "Times New Roman";"><o:p></o:p></span></div><div align="center" class="MsoNormal" style="text-align: center;"><b><span style="font-family: "Cambria","serif"; font-size: 18.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-bidi-font-size: 11.0pt; mso-hansi-theme-font: major-latin;">Classification of Users of Financial Statements<o:p></o:p></span></b></div><div class="MsoNormal"><span style="font-family: "New time roman","serif";">The users may be classified into <b>internal</b> and <b>external</b> users. Internal users refer to managers who use accounting information in making decisions related to the company's operations. External users, on the other hand, are not involved in the operations of the company but hold some financial interest. They may be classified further into users with <b>direct</b> financial interest – the owners, investors, lenders and creditors, and users with <b>indirect</b> financial interest – government, employees, customers and the others. The various users of financial statements are classified and detailed as follows: </span><b><span style="font-family: "New time roman","serif"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-size: 11.0pt;"><o:p></o:p></span></b></div><div class="MsoNormal"><b><span style="font-family: "New time roman","serif"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-size: 11.0pt;">1. Internal Users </span></b><span style="font-family: "New time roman","serif";"><br />The internal users of financial statements are individuals who have direct bearing with the organization. They may include:</span><b><span style="font-family: "New time roman","serif"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-size: 11.0pt;"><o:p></o:p></span></b></div><div class="MsoListParagraph"><!--[if !supportLists]--><span style="color: windowtext; font-family: Wingdings; font-size: 12.0pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">Management: </span></b><span style="background: white; color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">for analyzing the organization's performance and position and taking appropriate measures to improve the company results.</span><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">In small businesses, management may include the owners. In huge organizations, however, management is usually made up of hired professionals who are entrusted with overall responsibility of operating the business or a part of the business. They act as agents of the owners. The<i> managers</i>, whether owner or hired, regularly face economic decisions – How much supplies will we purchase? Do we have the cash? How much did we make last year? Did we meet our targets? All those, and many other decisions, require analysis of accounting information.<o:p></o:p></span></div><div class="MsoListParagraph"><!--[if !supportLists]--><span style="color: windowtext; font-family: Wingdings; font-size: 12.0pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">Owners or investors:</span></b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;"> <span style="background: white;">for analyzing the viability and profitability of their investment and determining any future course of action.</span> Stockholders of corporations need financial information to help them make decisions on what to do with their shares of stock (investments) – hold, sell, or buy more shares. Potential investors need information to assess the company's potential for success and profitability. In the same way, small business owners need financial information to determine if the business is profitable and whether to continue or drop it.<o:p></o:p></span></div><div class="MsoListParagraph"><!--[if !supportLists]--><span style="color: windowtext; font-family: Wingdings; font-size: 12.0pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">Employees:</span></b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;"> The financial reports or the financial statements are of immense use to the employees of the company for making collective bargaining agreements. Such statements are used for discussing matters of promotion, rankings and salary hike. Employees are interested in the company’s profitability and stability. They are after the ability of the company to pay salaries and provide employee benefits. They may also be interested in the company’s financial position and performance to assess the possibility of company expansion and career opportunities.<o:p></o:p></span></div><div class="MsoNormal"><span style="font-family: "New time roman","serif"; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><br /></span><b><span style="font-family: "New time roman","serif"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">2. External Users</span></b><span style="font-family: "New time roman","serif"; font-size: 14.0pt; line-height: 115%; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><br /></span><span style="background: white; font-family: "New time roman","serif"; font-size: 12.0pt; line-height: 115%; mso-bidi-font-weight: bold;">External users</span><span class="apple-converted-space"><span style="background: white; font-family: "New time roman","serif"; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; font-family: "New time roman","serif"; font-size: 12.0pt; line-height: 115%;">of accounting information include the following:</span><span style="font-family: "New time roman","serif"; font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div><div class="MsoListParagraph"><!--[if !supportLists]--><span style="color: windowtext; font-family: Wingdings; font-size: 12.0pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span class="bold"><b><span style="background: white; color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt; mso-bidi-font-family: Arial;">Creditor:</span></b></span><span class="apple-converted-space"><span style="background: white; color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt; mso-bidi-font-family: Arial;"> </span></span><span style="background: white; color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">for determining the credit worthiness of the organization. Terms of credit are set according to the assessment of their customers' financial health. Creditors include suppliers as well as lenders of finance such as banks.</span><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;"> The vendors who extend credit to a business require financial statements to assess the creditworthiness of the business.<o:p></o:p></span></div><div class="MsoListParagraph"><!--[if !supportLists]--><span style="color: windowtext; font-family: Wingdings; font-size: 12.0pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">Government:</span></b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;"> The financial statements of different companies are also used by the government to analyze whether the tax paid by them is accurate and is in line with their financial strength. – Governing bodies of the state, especially the tax authorities, are interested in an entity's financial information for taxation and regulatory purposes. Taxes are computed based on the results of operations and other tax bases. In general, the state would like to know how much the taxpayer is making to determine the tax due thereon.<o:p></o:p></span></div><div class="MsoListParagraph"><!--[if !supportLists]--><span style="color: windowtext; font-family: Wingdings; font-size: 12.0pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">Regulatory Authorities:</span></b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;"> for ensuring that the company's disclosure of accounting information is in accordance with the rules and regulations set in order to protect the interests of the stakeholders who rely on such information in forming their decisions.<o:p></o:p></span></div><div class="MsoListParagraph"><!--[if !supportLists]--><span style="color: windowtext; font-family: Wingdings; font-size: 12.0pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;">General Mass and Media:</span></b><span style="color: windowtext; font-family: "New time roman","serif"; font-size: 12.0pt;"> The common people as well as media also make part of the users of financial statements.<b> </b>Anyone outside the company such as researches, students, analysts and others are interested in the financial statements of the company for varied reasons.<o:p></o:p></span></div><div class="MsoListParagraphCxSpLast" style="line-height: 115%; margin-bottom: 10.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l3 level1 lfo5;"><br /></div>

Ø Question: Explain the users of Financial Statement?

Ø Question: Explain the users of Financial Statement? Financial Accounting Accounting can be defined as an information system that provides...

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The State Bank of Pakistan (SBP)

<div dir="ltr" style="text-align: left;" trbidi="on"><div class="separator" style="clear: both; text-align: center;"><span style="margin-left: 1em; margin-right: 1em;"></span></div><br /><a href="http://getassignment.blogspot.com/" target="_blank"><img border="0" height="293" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUBQ-G1wNtPJZLUmBac71Ef0oNkpRNZz0JplNVhDONQEyBWgIcJnnXTZDQQK_a3gjvdgAEVPyNV8Dv705rneAaRtL42yOsMNkLImHwYCY43uyAORotaHySWGObuydhDqaskUMJ-sDXKoA/s1600/promo-graphics5.jpg" width="640" /></a><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">The</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">State Bank of Pakistan</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">(SBP) is the</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="color: windowtext; font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">central bank</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">of</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="color: windowtext; font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">Pakistan</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">. While its constitution, as originally lay down in the State Bank of Pakistan Order 1948, remained basically unchanged until January 1, 1974, when the bank was nationalized, the scope of its functions was considerably enlarged. The</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="color: windowtext; font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">State Bank of Pakistan Act 1956</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">, with subsequent amendments, forms the basis of its operations today. The headquarters are located in the financial capital of Pakistan,</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="color: windowtext; font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">Karachi</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">with its second headquarters in the capital,</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;"> </span><span style="color: windowtext; font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">Islamabad</span><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 12.9pt;">.</span><br /><br /><div style="background: white; border-bottom: solid windowtext 1.0pt; border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-element: para-border-div; padding: 0in 0in 2.0pt 0in;"><div class="MsoNormal" style="background-position: initial initial; background-repeat: initial initial; border: none; margin-bottom: 0.1in; padding: 0in;"><span style="font-family: Arial, sans-serif; font-size: 13pt;"><br clear="all" /></span><span style="font-family: Arial, sans-serif; font-size: 22.5pt;">History<o:p></o:p></span></div></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 10.5pt; line-height: 115%;">Before </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">independence</span><span style="font-size: 10.5pt; line-height: 115%;"> on 14 August 1947, during British colonial regime the </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">Reserve Bank of India</span><span style="font-size: 10.5pt; line-height: 115%;"> was the central bank for both India and Pakistan. On 30 December 1948 the British Government's commission distributed the Reserve Bank of India's reserves between </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">Pakistan</span><span style="font-size: 10.5pt; line-height: 115%;"> and </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">India</span><span style="font-size: 10.5pt; line-height: 115%;"> -30 percent (750 M </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">gold</span><span style="font-size: 10.5pt; line-height: 115%;">) for Pakistan and 70 percent for India.</span></span></div><span style="font-family: Arial, Helvetica, sans-serif;"><o:p></o:p></span><br /><a name='more'></a><br /><br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 10.5pt; line-height: 115%;">The losses incurred in the transition to independence were taken from Pakistan's share (a total of 230 million). In May, 1948 </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: initial;">Muhammad Ali Jinnah</span><span style="font-size: 10.5pt; line-height: 115%;"> (Founder of Pakistan) took steps to establish the State Bank of Pakistan immediately. These were implemented in June 1948, and the State Bank of Pakistan commenced operation on July 1, 1948<o:p></o:p></span></span></div><div class="MsoNormal"><span style="font-size: 10.5pt; line-height: 115%;"><span style="font-family: Arial, Helvetica, sans-serif;">Muhammad Ali Jinnah, the founder of Pakistan, making a speech at the opening of the State Bank of Pakistan.<o:p></o:p></span></span></div><div class="MsoNoSpacing"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 10.5pt;">Under the </span><span style="color: windowtext; font-size: 10.5pt; text-decoration: none; text-underline: none;">State Bank of Pakistan Order 1948</span><span style="font-size: 10.5pt;">, the state bank of Pakistan was charged with the duty to "regulate the issue </span><span style="font-size: 10.5pt;">of </span><span style="color: windowtext; font-size: 10.5pt; text-decoration: none; text-underline: none;">bank notes</span><span style="font-size: 10.5pt;"> and keeping of reserves with a view to securing monetary stability </span><span style="font-size: 10.5pt;">in </span><span style="color: windowtext; font-size: 10.5pt; text-decoration: none; text-underline: none;">Pakistan</span><span style="font-size: 10.5pt;"> and generally to operate the currency and credit system of the country to its advantage".<o:p></o:p></span></span></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 10.5pt; line-height: 115%;">A large section of the state bank's duties were widened when the </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">State Bank of Pakistan Act 1956</span><span style="font-size: 10.5pt; line-height: 115%;"> was introduced. It required the state bank to "regulate the monetary and credit system of Pakistan and to foster its growth in the best national interest with a view to securing monetary stability and fuller utilization of the country’s productive resources". In February 1994, the State Bank was given full </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">autonomy</span><span style="font-size: 10.5pt; line-height: 115%;">, during the financial sector reforms.<o:p></o:p></span></span></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 10.5pt; line-height: 115%;">On January 21, 1997, this autonomy was further strengthened when the government issued three Amendment Ordinances (which were approved by the </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">Parliament</span><span style="font-size: 10.5pt; line-height: 115%;"> in May 1997). Those included were the State Bank of Pakistan Act, 1956, Banking Companies Ordinance, 1962 and Banks Nationalizations Act, 1974. These changes gave full and exclusive authority to the State Bank to regulate the banking sector, to conduct an independent </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">monetary policy</span><span style="font-size: 10.5pt; line-height: 115%;"> and to set limit on government borrowings from the State Bank of Pakistan. The amendments to the </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">Banks Nationalization Act</span><span style="font-size: 10.5pt; line-height: 115%;"> brought the end of the </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">Pakistan Banking Council</span><span style="font-size: 10.5pt; line-height: 115%;"> (an institution established to look after the affairs of NCBs) and allowed the jobs of the council to be appointed to the Chief Executives, Boards of the Nationalized Commercial Banks (NCBs) and Development Finance Institutions (DFIs). The State Bank having a role in their appointment and removal. The amendments also increased the autonomy and accountability of the chief executives, the Boards of Directors of banks and DFIs.<o:p></o:p></span></span></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 10.5pt; line-height: 115%;">The State Bank of Pakistan also performs both the traditional and </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">developmental</span><span style="font-size: 10.5pt; line-height: 115%;"> functions to achieve </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">macroeconomic</span><span style="font-size: 10.5pt; line-height: 115%;"> goals. The traditional functions, may be classified into two groups: 1) The primary functions including issue of notes, regulation and supervision of the financial system, bankers’ bank, lender of the last resort, banker to Government, and conduct of monetary policy. 2) The secondary functions including the agency functions like management of public debt, management of foreign exchange, etc., and other functions like advising the government on policy matters and maintaining close relationships with international financial institutions.<o:p></o:p></span></span></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 10.5pt; line-height: 115%;">The non-traditional or promotional functions, performed by the </span><span style="color: windowtext; font-size: 10.5pt; line-height: 115%; text-decoration: none; text-underline: none;">State Bank</span><span style="font-size: 10.5pt; line-height: 115%;"> include development of financial framework, institutionalization of savings and investment, provision of training facilities to bankers, and provision of credit to priority sectors. The State Bank also has been playing an active part in the process of </span><span style="font-size: 10.5pt; line-height: 115%;">islamisation</span></span><span style="font-size: 10.5pt; line-height: 115%;"><span style="font-family: Arial, Helvetica, sans-serif;"> of the banking system.</span><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></span></div><div style="border-bottom: solid windowtext 1.0pt; border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-element: para-border-div; padding: 0in 0in 1.0pt 0in;"><div class="MsoNormal" style="border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-padding-alt: 0in 0in 1.0pt 0in; padding: 0in;"><strong><span style="font-family: Georgia, serif; font-size: 22.5pt; line-height: 115%;">Organizational Structure</span></strong><span style="font-size: 22.5pt; line-height: 115%;"><o:p></o:p></span></div><div class="MsoNormal" style="border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-padding-alt: 0in 0in 1.0pt 0in; padding: 0in;"><span style="font-family: Arial, sans-serif; font-size: 13pt; line-height: 115%;"> <b>Governor</b></span><b><span style="font-size: 22.5pt; line-height: 115%;"><o:p></o:p></span></b></div></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 6.0pt; margin-left: 0in; margin-right: 0in; margin-top: 4.8pt;"><span style="font-family: "Arial","sans-serif"; font-size: 9.0pt; mso-fareast-font-family: "Times New Roman";">The principal officer of the SBP is the</span><span style="font-family: "Arial","sans-serif"; font-size: 9.0pt; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: "Times New Roman";"> </span><b><span style="color: windowtext; font-family: "Arial","sans-serif"; font-size: 9.0pt; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">Governor</span></b><span style="font-family: "Arial","sans-serif"; font-size: 9.0pt; mso-fareast-font-family: "Times New Roman";">. The current Governor of State Bank of Pakistan is Mr. Yaseen Anwar.<o:p></o:p></span></div><div style="background: white; border-bottom: solid #AAAAAA 1.0pt; border: none; mso-border-bottom-alt: solid #AAAAAA .75pt; mso-element: para-border-div; padding: 0in 0in 2.0pt 0in;"><div class="MsoNormal" style="background-position: initial initial; background-repeat: initial initial; border: none; margin-bottom: 0.1in; padding: 0in;"><!--[if gte vml 1]><v:shapetype id="_x0000_t75" coordsize="21600,21600" o:spt="75" o:preferrelative="t" path="m@4@5l@4@11@9@11@9@5xe" filled="f" stroked="f"> <v:stroke joinstyle="miter"/> <v:formulas> <v:f eqn="if lineDrawn pixelLineWidth 0"/> <v:f eqn="sum @0 1 0"/> <v:f eqn="sum 0 0 @1"/> <v:f eqn="prod @2 1 2"/> <v:f eqn="prod @3 21600 pixelWidth"/> <v:f eqn="prod @3 21600 pixelHeight"/> <v:f eqn="sum @0 0 1"/> <v:f eqn="prod @6 1 2"/> <v:f eqn="prod @7 21600 pixelWidth"/> <v:f eqn="sum @8 21600 0"/> <v:f eqn="prod @7 21600 pixelHeight"/> <v:f eqn="sum @10 21600 0"/> </v:formulas> <v:path o:extrusionok="f" gradientshapeok="t" o:connecttype="rect"/> <o:lock v:ext="edit" aspectratio="t"/></v:shapetype><v:shape id="Picture_x0020_1" o:spid="_x0000_s1026" type="#_x0000_t75" style='position:absolute;margin-left:115.45pt;margin-top:11.3pt;width:415.7pt; height:312.15pt;z-index:251658240;visibility:visible'> <v:imagedata src="file:///C:\DOCUME~1\SAJIDA~1\LOCALS~1\Temp\msohtmlclip1\01\clip_image001.jpg" o:title="9-761fa70465 123"/> <w:wrap type="square"/></v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span style="font-family: Arial, sans-serif; font-size: 13pt;">Central Board of Directors</span><span style="font-family: Arial, sans-serif; font-size: 13pt;"><o:p></o:p></span></div></div><div class="separator" style="clear: both; text-align: center;"><span style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><a href="http://getassignment.blogspot.com/" target="_blank"><img border="0" height="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1Dt5sV4WNX_vxQlKAhagT5ddtgjoMOsKwxjDpz-hjqsAvc9N1y54yExoMZOW6QGtOoRaFHBmf8aIo75S9xRvc48lYv1wCzZOLpTkBiVWtkszWDBWFzEZrKyoDPtNiTcZx0atdQCbJnro/s1600/9-761fa70465+123.jpg" width="640" /></a></span></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 6.0pt; margin-left: 0in; margin-right: 0in; margin-top: 4.8pt;"><span style="font-family: Arial, sans-serif; font-size: 9pt;">The Central Board consists of nine members: the Governor (who is Chairman), the Secretary, Finance Division, Government of Pakistan – and seven Directors, including one Director from each Province, to be nominated by the Federal Government ensuring representation to agriculture, banking and industrial sectors. The Directors are appointed for terms of up to three years.<o:p></o:p></span></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 1.2pt; margin-left: 38.4pt; mso-list: l3 level1 lfo2; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, sans-serif; font-size: 9pt;">1.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">    </span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Arial, sans-serif; font-size: 9pt;">Chairman: Yaseen Anwar ( Governor SBP)<o:p></o:p></span></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 1.2pt; margin-left: 38.4pt; mso-list: l3 level1 lfo2; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, sans-serif; font-size: 9pt;">2.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">    </span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Arial, sans-serif; font-size: 9pt;">Dr. Waqar Masood Khan (Secretary Finance)<o:p></o:p></span></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 1.2pt; margin-left: 38.4pt; mso-list: l3 level1 lfo2; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, sans-serif; font-size: 9pt;">3.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">    </span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Arial, sans-serif; font-size: 9pt;">Zaffar A. Khan<o:p></o:p></span></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 1.2pt; margin-left: 38.4pt; mso-list: l3 level1 lfo2; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, sans-serif; font-size: 9pt;">4.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">    </span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Arial, sans-serif; font-size: 9pt;">Mirza Qamar Beg<o:p></o:p></span></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 1.2pt; margin-left: 38.4pt; mso-list: l3 level1 lfo2; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, sans-serif; font-size: 9pt;">5.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">    </span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Arial, sans-serif; font-size: 9pt;">Asad Umar<o:p></o:p></span></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 1.2pt; margin-left: 38.4pt; mso-list: l3 level1 lfo2; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, sans-serif; font-size: 9pt;">6.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">    </span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Arial, sans-serif; font-size: 9pt;">Waqar A. Malik<o:p></o:p></span></div><div class="MsoNormal" style="background: white; line-height: 12.9pt; margin-bottom: 1.2pt; margin-left: 38.4pt; mso-list: l3 level1 lfo2; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, sans-serif; font-size: 9pt;">7.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">    </span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Arial, sans-serif; font-size: 9pt;">Sahar Z. Babar - Corporate Secretary SBP(Secretary to the Central Board)<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><br /><br /></div><div style="background: white; border-bottom: solid windowtext 1.0pt; border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-element: para-border-div; padding: 0in 0in 1.0pt 0in;"><div class="MsoNormal" style="background-position: initial initial; background-repeat: initial initial; border: none; margin-bottom: 0.1in; padding: 0in;"><b><span style="font-family: Arial, sans-serif; font-size: 22pt;">Share Capital<o:p></o:p></span></b></div></div><div style="background: white; border-bottom: solid windowtext 1.0pt; border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-element: para-border-div; padding: 0in 0in 2.0pt 0in;"><div class="MsoNormal" style="background-position: initial initial; background-repeat: initial initial; border: none; line-height: 14.25pt; margin-bottom: 0.1in; padding: 0in;"><br /></div><div class="MsoNormal" style="background-position: initial initial; background-repeat: initial initial; border: none; line-height: 14.25pt; margin-bottom: 0.1in; padding: 0in;"><b><span style="font-size: 14pt;"><span style="font-family: Arial, Helvetica, sans-serif;">Types of Share Capital<o:p></o:p></span></span></b></div></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: 47.25pt; mso-list: l0 level1 lfo1; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Authorized capital:</span></u></b><span style="color: #333333; font-size: 10.5pt;"> It is the maximum amount of capital which a company can collect or raise by selling its shares to the general public. Authorized capital is known as nominal capital or registered capital. For example: A company wants to sell 100 shares of Rs. 10/- each, so the total amount collected by the company is Rs. 1000/- i.e. 100 shares x 10 each = 1000<br /><br />The capital with which a company is registered is known as its authorized capital.<o:p></o:p></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: 47.25pt; mso-list: l0 level1 lfo1; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Issued capital</span></u></b><b><span style="color: #333333; font-size: 10.5pt;">:</span></b><span style="color: #333333; font-size: 10.5pt;"> It is that part of the authorized capital which is actually issued to the general public. For example: A company has issued 80 shares of Rs. 10/- each so the issued capital is Rs. 800/-<o:p></o:p></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: 47.25pt; mso-list: l0 level1 lfo1; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Unissued capital</span></u></b><b><span style="color: #333333; font-size: 10.5pt;">:</span></b><span style="color: #333333; font-size: 10.5pt;"> It is that part of the authorized capital which is not being issued to the general public. That is, company has not issued 20 shares of Rs. 10/- each, so the unissued capital is Rs. 200/-.<o:p></o:p></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: 47.25pt; mso-list: l0 level1 lfo1; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Subscribed capital</span></u></b><b><span style="color: #333333; font-size: 10.5pt;">:</span></b><span style="color: #333333; font-size: 10.5pt;"> It is that part of the issued capital which is actually subscribed by the general public. That is company has issued 80 shares out of which 70 shares are being bought by the general public, so the subscribed capital is Rs. 700/-. That is 70 shares of Rs. 10/- each.<o:p></o:p></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: .5in; mso-list: l14 level1 lfo17; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Unsubscribed capital</span></u></b><b><span style="color: #333333; font-size: 10.5pt;">:</span></b><span style="color: #333333; font-size: 10.5pt;"> It is that part of the issued capital which is not subscribed by the general public. That is, if the company has issued 80 shares out of which 70 are bought by the general public and 10 are not being bought by them, so the unsubscribed capital is 10 x Rs. 10 = Rs. 100. That is 10 shares of Rs. 10 each.<o:p></o:p></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: .5in; mso-list: l5 level1 lfo16; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Called up capital</span></u></b><b><span style="color: #333333; font-size: 10.5pt;">:</span></b><span style="color: #333333; font-size: 10.5pt;"> It is that part of the subscribed capital which is actually called up by the company. For instance, if a company has asked its shareholders to pay Rs. 5/- per share so on 70 shares, they have to pay 70 shares x Rs. 5 each = Rs. 350/-. This is the called up capital.<o:p></o:p></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: .5in; mso-list: l16 level1 lfo15; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Uncalled up capital:</span></u></b><span style="color: #333333; font-size: 10.5pt;"> It is that part of the subscribed capital which is not being called up by the company. It may be called up as and when the company needs funds. That is out of Rs. 10/- per share, Rs. 5/- per share is being called up by the company and Rs. 2 is being uncalled up and Rs. 3 is kept as reserve that is yet to be called.<o:p></o:p></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: .5in; mso-list: l10 level1 lfo14; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Reserve capital</span></u></b><b><span style="color: #333333; font-size: 10.5pt;">:</span></b><span style="color: #333333; font-size: 10.5pt;"> Reserve capital is that part of the uncalled capital which is reserved to be called up only at the time of winding up or liquidation of the company. It cannot be called </span><span style="font-size: 10.5pt;">during the </span><span style="font-size: 10.5pt;"><span style="color: windowtext; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">life</span></span><span style="font-size: 10.5pt;"> time of a company. It is to be used only for meeting extra- ordinary situation<span style="color: #333333;"> such as liquidation of the company. The purpose of reserve capital is to meet the interests of the creditors at the time of winding up of the company.<o:p></o:p></span></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 12.0pt; margin-left: .5in; mso-list: l1 level1 lfo12; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Paid up capital</span></u></b><b><span style="color: #333333; font-size: 10.5pt;">:</span></b><span style="color: #333333; font-size: 10.5pt;"> It is that part of the called up capital which is actually paid up by the shareholders. For example, out of 70 shares which were subscribed for 60 shareholders have paid up their call money, that is 60 x Rs. 5 = Rs. 300/- is called as the paid up capital of the company.<o:p></o:p></span></span></div><div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-left: .5in; mso-list: l15 level1 lfo13; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333; font-size: 10pt;">v<span style="font-size: 7pt; line-height: normal;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="color: #333333; font-size: 10.5pt;">Unpaid up capital</span></u></b><b><span style="color: #333333; font-size: 10.5pt;">:</span></b><span style="color: #333333; font-size: 10.5pt;"> It is that part of the called up capital which is not being paid by the shareholders. For example: out of 70 shareholders, 60 shareholders have paid up their call money and 10 shareholders have not paid their call money, so 10 x Rs. 5 = Rs. 50/- is called as unpaid up capital.<br /><br />Unpaid up capital is also known as <b>Calls in Arrears.</b><o:p></o:p></span></span></div><div class="MsoNormal"><span style="color: #333333; font-size: 10.5pt; line-height: 115%;"><span style="font-family: Arial, Helvetica, sans-serif;"><br />These were the meaning, features and types of share capital.</span><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></span></div><div style="border-bottom: solid windowtext 1.0pt; border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-element: para-border-div; padding: 0in 0in 1.0pt 0in;"><div class="MsoNormal" style="border: none; margin-bottom: 0.0001pt; padding: 0in;"><b><span style="font-family: Arial, sans-serif; font-size: 22pt;">State Bank of Pakistan</span></b><b><span style="font-family: Arial, sans-serif; font-size: 9pt;"> </span></b><b><span style="font-family: Arial, sans-serif; font-size: 22pt;">AND</span></b><b><span style="font-family: "Times New Roman","serif"; font-size: 22.0pt;"> Scheduled Banks<o:p></o:p></span></b></div></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="font-family: "Times New Roman","serif"; font-size: 10.5pt;">Standards and Classifications<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Effective from December 2001, the category of deposit holders and advances<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Classified by borrower for domestic constituents has been reclassified as<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Government, Non-Financial Public Sector Enterprises (NFPSE</span><span style="font-family: "MS Mincho"; font-size: 10.5pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial;">‟</span><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">s), Non-Bank<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Financial Companies (NBFC</span><span style="font-family: "MS Mincho"; font-size: 10.5pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial;">‟</span><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">s), Private Sector (Business), Trust Funds & Non-<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Profit Institutions (NPI</span><span style="font-family: "MS Mincho"; font-size: 10.5pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial;">‟</span><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">s), Personal, and Others.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Major changes are carried out in the classification of banking sector attributes. The<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Classification of economic groups under private sector has been enhanced in the light<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Of International Standard Industrial Classification (ISIC)-Rev.3.1 of the United<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Nations Statistics Division.<o:p></o:p></span></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Composition of Banking Groups<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">All the scheduled banks operating in Pakistan are classified into three main groups<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">For presentation of statistical data namely public sector banks, domestic private banks<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">and foreign banks. Public sector banks are further divided into public sector<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Commercial banks and specialized banks.<o:p></o:p></span></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Scheduled Banks<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">In terms of Section 37(2) of the State Bank of Pakistan Act-1956, banks operating in<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Pakistan with capital and reserve of an aggregate value not less than Rs 1 billion (Rs<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">1.5 billion By December 31, 2004, Rs 2 billion by December 31, 2005, Rs 3 billion<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">by December 31, 2006, Rs 4 billion by December 31, 2007, Rs 5 billion by<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">December 31, 2008, Rs 6 billion by December 31, 2009 & Rs 7 billion by<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">December 31, 2010) and conducting their affairs in a manner not detrimental to the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Interest of their depositors have been declared as scheduled banks<b> <o:p></o:p></b></span></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Public Sector Banks<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">The banks incorporated in Pakistan and their shares & capital controlled by the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Government units are referred to Public sector banks (Appendix II).<o:p></o:p></span></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-style: italic; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><i><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Public Sector Commercial Banks<o:p></o:p></span></u></i></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">These are the scheduled banks mainly involved in the activities of deposits<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Mobilization through a branch network and extending credit. They deal in short term<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">collateralized lending such as trade financing, overdraft and provide a range of<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Financial services to the clients. With the liberalization of banking rules and laws,<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">commercial banks are now allowed to undertake related activities i.e. underwriting,<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">portfolio investment, securities market operations, specialized financing, and<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">related services.<o:p></o:p></span></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-style: italic; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><i><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Specialized Banks<o:p></o:p></span></u></i></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Specialized banks are established to provide credit facilities, assistance and<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Advice to clients in a designated sector or in a designated line of credit; for example<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">agriculture sector, industrial sector, housing sector, SME sector. These institutions<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">perform lending function, but may not engage in routine commercial banking<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">activities. These are established, organized, and chartered under special legislative<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">acts instead of being chartered as a bank under the banking law.<o:p></o:p></span></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Domestic Private Banks<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">The banks incorporated in Pakistan and controlled by the private sector are termed<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">as domestic private banks.<o:p></o:p></span></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Foreign Banks<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.0pt;">Bank branches not having head offices in Pakistan are called foreign banks</span><span style="font-family: "Arial","sans-serif"; font-size: 15.0pt;">.<o:p></o:p></span></div><div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 10.5pt; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><!--[endif]--><span dir="LTR"></span><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Islamic Banking<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">For the promotion of Islamic Banking in Pakistan, SBP issued policies/guidelines<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">As per BPD circular No.1 of January 2003. Wherein a three-pronged strategy was<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">adopted as under:<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">a) Establishment of full-fledged Islamic Bank(s) in the private sector.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">b) Setting up subsidiaries for Islamic banking by existing commercial banks.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">c) Allowing Stand-alone branches for Islamic banking in the existing commercial<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">banks.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">All Islamic banks, subsidiaries, and stand-alone branches offer Sharia compliant<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">products and services only.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">“Sharia compliant products and services” means banking product and services offered by banks to their clients which are duly approved by their Sharia advisers/<o:p></o:p></span></div><div class="MsoNormal"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%;">Sharia Supervisory Committee<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 18.0pt;">DOMESTIC AND FOREIGN BANKS AND DFIs<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 18.0pt;">BEING REGULATED BY STATE BANK OF PAKISTAN<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><br /></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">I. NATIONALISED SCHEDULED BANKS<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">1. First Women Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">2. Habib Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">3. National Bank of Pakistan<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">II. DE-NATIONALIZED SCHEDULED BANKS<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">4. Allied Bank of Pakistan Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">5. Muslim Commercial Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">6. United Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">III. SPECIALIZED SCHEDULED BANKS<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">7. Federal Bank for Co-operatives#<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">8. Industrial Development Bank of Pakistan<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">9. Punjab Provincial Co-operative Bank Ltd.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">10. Zarai Taraqiati Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">IV. PRIVATE SCHEDULED BANKS<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">11. Askari Commercial Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">12. Bank Al Falah Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">13. Bolan Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">14. Bank Al- Habib Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">15. Faysal Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">16. KASB Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">17. Meezan Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">18. Metropolitan Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">19. Prime Commercial Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">20. PICIC Commercial Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">21. Saudi-Pak Commercial Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">22. Soneri Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">23. Union Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">V. PROVINCIAL BANKS (NOW SCHEDULED BANKS)<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">24. The Bank of Khyber<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">25. The Bank of Punjab<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">VI FOREIGN BANKS*<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">26. ABN Amro Bank N.V<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">27. Al-.Baraka Islamic Bank B.S.C. (E.C.)<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">28. American Express Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">29. Bank of Tokyo Mitsubishi Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">30. Bank of Ceylon<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">31. Credit Agricola Indosuez (The Global French Bank)<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">32. Citibank N.A<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">33. Deutsche Bank A.G.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">34. Doha Bank<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">35. Habib Bank A.G Zurich<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">36. Hong Kong & Shanghai Banking Corporation Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">37. International Finance Investment & Commerce Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">38. Mashreq Bank P.S.C.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">39. Oman International Bank S.O.A.G.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">40. Rupali Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">41. Standard Chartered Bank<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">* These are the branches of foreign banks.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;"> Under Liquidation.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">VII. DEVELOPMENT FINANCIAL INSTITUTIONS<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">42. Pakistan Industrial Credit & Investment Corporation Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">43. Pak Kuwait Investment Company (Pvt) Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">44. Pak Libya Holding Company (Pvt) Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">45. Pak Oman Investment Company (Pvt) Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">46. Saudi Pak Industrial & Agricultural Investment Company (Pvt) Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">47. SME Bank Limited<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">VIII. MICRO FINANCE BANKS<o:p></o:p></span></u></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-bidi-font-weight: bold;">48. Khushhali Bank<o:p></o:p></span></div><div class="MsoNormal"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%;">49. The First Micro Finance Bank Ltd<o:p></o:p></span></div><div class="MsoNormal"><b><u><span style="font-family: "Arial","sans-serif"; font-size: 18.0pt; line-height: 115%;">Function of the Central Bank<o:p></o:p></span></u></b></div><div class="MsoNormal"><br /></div><div style="border-bottom: solid windowtext 1.0pt; border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-element: para-border-div; padding: 0in 0in 1.0pt 0in;"><div class="MsoNormal" style="border: none; margin-bottom: 0.0001pt; padding: 0in;"><b><span style="font-family: "Times New Roman","serif"; font-size: 22.0pt;">Islamisation of the Banking System<o:p></o:p></span></b></div></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">The State Bank has also been involved in the process of Islamisation of the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">economy in general and the banking system in particular. The State Bank had been<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">making efforts since its inception to evolve and introduce a financial system based<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">on the norms of the Shariah. While inaugurating the State Bank of Pakistan, the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Father of the Nation, Quaid-e-Azam Muhammad Ali Jinnah, and later on the first<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Governor of the Bank, late Zahid Hussain, gave a direction to make efforts to<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">build the economic and financial system of the country on the lines dictated by<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Islam. However, the work could not be started forthwith as the experts in Islamic<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">jurisprudence and the modern economics both were not available.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">A unit was created in the Research Department of the Bank in late 1950s that was<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">subsequently developed into a full-fledged Division, to undertake research work<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">on economic system of Islam. Considerable amount of research work was<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">undertaken in Islamic Economics Division (I.E.D) of the Bank during 1960s and<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">1970s. this particularly included the nature and connotation of ‘Riba’, the Shari’e<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Position of present day interest based financial system, various alternatives to<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">interest and the fiscal system of Islam. Similarly in 2001 an Islamic Banking<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Division was established in Banking Policy Department to deal with the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Regulatory and supervisory issues in Islamic Banking. To meet the challenges of<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">developing a dynamic, responsive and viable Islamic banking system, a new<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Islamic Banking Department has been established in the Bank in September, 2003<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">through the merger of Islamic Economic Division and Islamic Banking Division.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">4.1 Secretariat of Council of Islamic Ideology<o:p></o:p></span></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">The Islamic Economic Division of the Bank served as a secretariat to the Council<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">of Islamic Ideology (C.I.I.) in late 1970s when the President of Pakistan asked the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Council to prepare a blueprint for the establishment of an interest-free economic<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">system compatible with the Shariah. Various reports of the C.I.I. formed the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">genesis for changes in the banking system that were introduced in later years. The<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Banking Control Department of the Bank, under guidance of the Ministry of<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Finance and in collaboration with the Pakistan Banking Council, issued directives<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">to the banks for transformation of the conventional banking system into the noninterest<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">based system. The process started in 1979 and reached its culmination in<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">1985. As of 1st April, 1985, all banking companies were required to provide<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">finance to all entities, including individuals, only under the identified interest free<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">modes. As of 1st July, 1985, no banking company could accept any interest<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">bearing deposits. The Islamization programme, however, did not apply to foreign<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">31<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">branches of Pakistani commercial banks as well as foreign currency accounts/<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">foreign currency dominated loans kept in Pakistan.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">The financing procedure based on ‘mark-up’ adopted by banks in 1985 was,<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">however, declared un-Islamic by the Federal Shariat Court (FSC) in November<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">1991. The FSC declared that various provisions of the laws held repugnant to the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">injunctions of Islam would cease to have effect as of July 1, 1992. However, the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Government and one commercial bank filed an appeal in the Shariat Appellate<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Bench of Supreme Court due to which the FSC judgment remained suspended for<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">a long time. The Supreme Court’s Shariat Appellate Bench delivered its judgment<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">on December 23, 1999 with the directions that laws involving interest would cease<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">to have effect finally by June 30, 2001, which date was further extended to June<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">30, 2002. The supreme court of Pakistan directed that the present financial system<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">had to be subjected to radical changes to bring it into conformity with the Shariah.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">It also directed the Government to set up, within specified time frame, a<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">commission for transformation of the financial system and two task forces to plan<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">and implement the process of the transformation. The Court indicated some<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">measures, which needed to be taken, and the infrastructure and legal framework to<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">be provided in order to have an economy conforming to the injunctions of Islam.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">4.2 Commission for Transformation of Financial System<o:p></o:p></span></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">The Commission for Transformation of Financial System (CTFS) was constituted<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">by the Government in January 2000 in the State Bank of Pakistan under the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Chairmanship of Mr. I.A. Hanfi, a former Governor State Bank of Pakistan. A<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Task Force was set up in the Ministry of Finance to suggest the ways to eliminate<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">interest from Government financial transactions. Another Task Force was set up in<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">the Ministry of Law to suggest amendments in legal framework to implement the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Court’s Judgment. The CTFS constituted a committee for Development of<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Financial Instruments and Standardized Documents in the State Bank to prepare<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">model agreements and financial instruments for new system. The committee<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">submitted its report to the commission in May 2001. The CTFS submitted 2<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">reports one in October 2000 and other in August 2001, which identified a number<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">of prior actions needed to be taken to prepare the ground for transformation of the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">financial system.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">However, on a Review petition filed by the United Bank Limited, Shariat Bench<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">of the Supreme Court set aside the previous verdicts on Riba, i.e. judgment by the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Federal Shariat Court dated November 14, 1991 and the verdict by the SAB dated<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">December 23, 1999 in its short judgment dated June 24, 2002 and remanded the<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">case back to Federal Shariat Court for hearing afresh and decide the unresolved<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">32<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">issues discussed in both the above mentioned judgments. Consequently, the CTFS<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">was also dissolved in June 2002.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><b><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">4.3 Measures for Transformation of Financial System<o:p></o:p></span></b></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">The State Bank issued detailed criteria in December 2001 for establishment of<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">full-fledged Islamic commercial banks in the private sector. Al Meezan<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Investment Bank received the first Islamic commercial banking license from SBP<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">in January 2002 and the Meezan Bank Limited (MBL) started commercial<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">operations in March, 2002 as a model Islamic bank in Pakistan and has also<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">acquired the business of ‘Societe Generalé Bank’s branches operating in Pakistan.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">As of December 31, 2003 it has a network of 10 branches in different cities.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">In order to allow existing banks to open subsidiaries for Islamic banking, an<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">amendment in section 23 of Banking Companies Ordinance, 1962 was made on 6th<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">November, 2002.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">SBP issued BPD Circular No. 1 dated 1st January, 2003 outlining its policies for<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">promotion of Islamic banking, which includes criteria for:<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">_ Establishment of Islamic commercial banks in private sector<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">_ Setting up of Islamic banking subsidiaries by existing commercial Banks<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">_ Opening of stand-alone branches for Islamic banking by existing<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">commercial banks<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Accordingly five existing commercial banks (Muslim Commercial Bank, Bank<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Alfalah, Bank of Khyber, Habib Bank AG Zurich and Habib Bank Limited) were<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">allowed to open 9 Islamic Banking Branches (IBBs), out of which eight branches<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">of four banks have already started their operations.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">The State Bank has also taken a number of other measures to play its role for<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Islamization of the banking industry as mentioned below;<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">a. A Shariah Board has been formed in the Bank, which consists of two<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">renowned Shariah scholars, an accountant, a lawyer and a banker. The Shariah<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Board will guide the Bank in various Islamic banking issues.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">b. Islamic banks have been allowed to maintain statutory liquidity under section<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">29 of BCO, 1962 in the form of current account with SBP to the extent of 40%<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">of Statutory Liquidity Requirement for other banks (which is presently 15%<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">and works out to 6% of time and demand liabilities) till the issuance of Islamic<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">bonds by the Government or other similar non-interest bearing GOP<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">securities.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">33<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">c. Similarly they have also been allowed to maintain Special Cash Reserve<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">(SCR) on FE-25 deposits in current account with State Bank in local currency<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">to the extent of 40% of SCR for other banks in order to avoid interest<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">payments on SCR.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">d. An Islamic Export Refinance Scheme has been formulated by SBP to facilitate<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">the Islamic Banks/ IBBs in providing a Shariah compliant export financing to<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">the exporters.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">e. A committee has been constituted with Institute of Chartered Accountants<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Pakistan (ICAP) in which SBP is also represented, for development of<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">accounting standards for Islamic modes of financing. The committee is<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">reviewing the accounting standards prepared by Accounting & Auditing<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Organization for Islamic Financial Institutions (AAOIFI) with a view to adapt<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">them to our circumstances and if considered necessary to propose new<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">accounting standards. The committee has prepared the standard on Murabaha<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">and is now working on the Ijara and Musharika standards.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">f. State Bank of Pakistan has become a founding full member of Islamic<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Financial Services Board (IFSB) established in Malaysia on 3rd November,<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">2002. This Board will work for promotion and development of a prudent and<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">transparent Islamic financial services industry through introducing<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">international standards consistent with Shariah principles.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">g. Islamic Banking Department is also working in close coordination with other<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">international organizations like AAOIFI, Bahrain Monetary Authority (BMA)<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">and Bank Negara Malaysia (BNM) etc. to promote Islamic banking and learn<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">from their international experience.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">h. To develop a system for Shariah Compliance Audit of Islamic Banks/IBBs a<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">chartered accountant firm has been granted a contract which covers, Shariah<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">audit of Meezan Bank, preparation of a Shariah Compliance Inspection<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">Manual for future use of SBP and training of a few of SBP inspection staff.<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">i. Shariah compliant Islamic Ijara Sukuk for Government borrowings and as an<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">avenue of investment for SLR purposed by Islamic banks is being developed<o:p></o:p></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt;"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">in line with the experience of Ijara Sukuk issued by Bahrain Monetary Agency<o:p></o:p></span></div><div class="MsoNormal"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%;">and Bank Negara Malaysia.<o:p></o:p></span></div><div style="border-bottom: solid windowtext 1.0pt; border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-element: para-border-div; padding: 0in 0in 1.0pt 0in;"><div class="Default" style="border: none; mso-border-bottom-alt: solid windowtext .5pt; mso-padding-alt: 0in 0in 1.0pt 0in; padding: 0in;"><b><span style="font-family: "Calibri","sans-serif"; font-size: 22.0pt; mso-bidi-font-family: Calibri;">MONETARY POLICY DECISION <o:p></o:p></span></b></div></div><div class="MsoNormal"><b><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%;">8th October 2011 </span></b><span class="apple-style-span"><span style="background: #FAFAFA; color: #333333; font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%;">KARACHI: Pakistan's central bank on Saturday cut its key policy rate by 150 basis points to 12 percent for the subsequent two months, citing a decline in inflation and government borrowings, it said in a statement.</span></span><span class="apple-converted-space"><span style="background: #FAFAFA; color: #333333; font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%;"> </span></span><span style="color: #333333; font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%;"><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">This again exceeded expectations as analysts polled by Reuters earlier this week projected a cut in interest rates between 50 and 100 basis points.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">The central bank said it cut its policy rate by 150 basis points as it was "taking some comfort from declining inflation and high probability of meeting the FY12 inflation target together with a need to support private sector credit and investment growth."</span></span><span class="apple-converted-space"><span style="background: #FAFAFA;"> </span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">In September, annual consumer inflation was 10.46 percent, compared with 11.56 percent in August, and 13.77 percent in July, mainly due to a high base effect which is to last through December. Although inflation had risen month-on-month by over 1 percent.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">However, the central bank said there was a high probability that Pakistan would meet its target of average inflation at 12 percent for 2011/12 fiscal year.</span></span><span class="apple-converted-space"><span style="background: #FAFAFA;"> </span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">The decline in government borrowing from the central bank was also one of the reasons for the rate cut, the SBP said.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">According to provisional data, the outstanding stock of government borrowings was Rs.1,051 billion ($12 billion) on Sept. 30, lower than the agreed limit of Rs.1,155 billion ($13.22 billion) for the 2011/12 fiscal year.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">"This is higher than expected and it seems to be that since the government is the largest borrower, the State Bank decided to ease some fiscal pressures for them in terms of debt servicing costs," said Khalid Iqbal Siddiqui, director at Invest & Finance Securities Ltd.</span></span><span class="apple-converted-space"><span style="background: #FAFAFA;"> </span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">The government's domestic borrowing for fiscal year 2011/12 is Rs.6,230 billion ($71.3 billion).</span></span><span class="apple-converted-space"><span style="background: #FAFAFA;"> </span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">This was the first monetary policy announcement after Pakistan ended its $11 billion International Monetary Fund (IMF) loan program on Sept. 30. It is also the second rate cut in fiscal year 2011/12 (July-June).</span></span><span class="apple-converted-space"><span style="background: #FAFAFA;"> </span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">Only $8 billion was disbursed, as the program was halted due to the country's slow implementation of fiscal reforms.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">"This surprising cut shows central bank's focus on economic growth at a time when IMF support is no longer there," said Mohammed Sohail, chief executive at Top line Securities Ltd.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">Pakistan's economic growth was an anemic 2.4 percent in the 2010/11 fiscal year against a target of 4.5 percent.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">The fiscal deficit widened to 6.6 percent of gross domestic product for 2010/11, compared with the earlier estimates of 5.3 percent and it aims to contain the deficit at 4 percent in the year ending June 30.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">The rate cut would be welcomed by Pakistan's main stock index but would put pressure on the rupee, which hit a record low of 87.92 to the dollar last month, analysts said.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">"This may put pressure on the rupee while equity and bonds will rally," said Mohammed Sohail, chief executive at Top line Securities Ltd.</span></span><span class="apple-converted-space"><span style="background: #FAFAFA;"> </span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">Pakistan raised rates by 50 basis points in November 2010, and held them steady until it cut rates by 50 basis points to 13.5 percent on July 30, also exceeding analyst expectations.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">"This is the largest decrease (150 basis points) in policy rate since July 2003, when the monetary policy statement was first issued," said Syed Wasimuddin, chief spokesman of the central bank.</span></span><span class="apple-converted-space"><span style="background: #FAFAFA;"> </span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">The government also benefits directly from lower funding costs through treasury bills and Pakistan Investment Bonds.</span></span><br /><br /><span class="apple-style-span"><span style="background: #FAFAFA;">All this has led to some speculation that any rate cut may be partly driven by government demands, wanting to reduce borrowing costs especially as elections are approaching.</span></span></span><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%;"><o:p></o:p></span></div></div>

The State Bank of Pakistan (SBP)

The   State Bank of Pakistan   (SBP) is the   central bank   of   Pakistan . While its constitution, as originally lay down in the State Ban...

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