ISLAMABAD, 5 May 2003 — The Pakistani financial sector is venturing into new fields, as cost of finance declines and considerable liquidity is available with banks.
New, foreign-based companies also plan launching new funds and capital market business in Pakistan. Take the latest launch of the trend-setting venture capital, for instance.
All the stakeholders — the financiers, the capital market regulators, the borrowers, and above all Finance Minister Shaukat Aziz are highly upbeat about venture capital as the new mode of business finance in Pakistan.
The mode, still new in this country, is led by just-launched TMT-PKIC Incubation Fund. It has financing by Pakistan Kuwait Investment Company (PKIC), and several others. It is a Rs.250 million fund, out of which Rs.63 millions have just been provided to five entrepreneurs.
Investors that have joined hands in forming the fund, besides PKIC and TMT Ventures, include Habib Bank Ltd., National Investment Trust, SME Bank and AKD Securities.
The fund has an 8-year life span. Its objective is to finance startup and early stage companies in high growth telecom, technology and media.
The launch takes place in an environment that Finance Minister Aziz describes as “robust,” on the back of a 30 percent growth of Pakistan’s financial sector. “This rate of growth is a precedent in a robust economy alone,” he said.
“This growth is the result of the financial sector reforms. It is very encouraging because such a scale of growth is only seen in robust economies ... it has been a dream of Pakistan — and mine as well — to see a venture capital business growing in this country. But, we still have to go a long way to develop venture capital business,” said Aziz.
He points out, “in US and developed Western countries venture capital had a 8:10:1 ratio, but it cannot be the criteria for Pakistan since we have no tolerance for failure.”
The need to go into new fields, adopt new modes and develop new and innovative financial products arose as a result of the continued sluggishness in credit takeoff by the private sector investors. Although the economy has begun to look up a bit, after years of stagnation and shrinkage, there still are not many takers for credit. It led to huge piles of liquidity that worried all profit-conscious banks, including foreign-based banks.
The situation, in turn, led to the present push for innovation.
Venture Capital (VC) is a product of such an environment, plus the fact that this mode is favored by imaginative and younger entrepreneurs who dare, are ready to undertake risk and have the capability to go for new products and services that are in tune with the present IT age. It will be used by creative entrepreneurs going into non-conventional fields, and have the skill for fund management.
What else added to the liquidity? Over months, the State Bank of Pakistan (SB), the central bank, has brought down its benchmark discount rate, at one time from 14 to 7.5 percent on Nov. 19, 2002.
There is going to be focus on consumer finance, mortgage and housing finance, leasing, as well as a strong emphasis on providing credit to small and medium enterprises (SMEs).
Security & Exchange Commission of Pakistan (SECP), the government regulator of the capital market, bourses and non-bank financial institutions, is upbeat, too, over the future prospects of Venture Capital. But, it recommends more incentives for this mode of financing.
