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ROLE OF BANKS AND DFI IN THE CONCENTRATION OF WEALTH AND SOCIAL INEQUITIES

Credit is human right, just like food,
Mohammad Yunus, Founder, Grameen Bank. An interview on BBC, Jan 28,1998.
Bhutto nationalized banks on the plea that they had been the main vehicle for concentration of wealth, a view given currency by the fact that almost all the big families of pre-1971 era backed up their business by their own banks. Bank credit was not only monopolized, it was heavily subsidized at three percent till 1959 when it was raised to four percent.

Even the govt banks and financial institutions were under the shadow of these families. For exemple, National Bank of Pakistan was headed by M A Rangoonwala. Wahid Adamjee was Chairman, PICIC. Ahmad Dawood was founder member of National Investment Trust and Vice Chairman of PICIC.

According to Lawrence White, top seven of 13 banks nationalized in 1974 accounted for 60% of bank deposits but if foreign and govt banks were excluded then their share came to 90% of the total. Four of the top seven banks were owned by 22 families. These were Habib Bank (Habib), United Bank (Saigols), Australasia Bank (Colony) and Premier Bank (Arag).

Z A Bhutto made a serious effort to level off the credit facilities over as big a segment of population as possible by creating Credit Consultative Committee which apportioned credit to business and industry, directing it inot areas where would be shy because of commercial reasons, and by opening of new bank branches in the rural areas.

However his efforts were handicapped by the absence of a regulatory framework over the bankers who had been rendered free from the clutches os the Seth but had new masters to serve, the financial bureaucrats and PPP henchmen. In the post-nationalizaton era, bankers were hand-picked by the powers that be, to head the banks, on the basis of their supinelessness rather than merit. They served themselves and their masters well. OVer the years, nationalized commercial banks became the fishing ponds for civil and military bureaucrats, corrupt politicians and their courtier businessmen. Only Pakistan's economy was victim.

The alarm bells

As early as 1959, Credit Inquiry Commission set up by the State Bank urged the govt to address the problem of " concentration of banking facilities in a limited number of important business and financial centres, neglect of less developed areas of country like East Pakistan and concentration of bank credits in the hands of small number of borrowers with large size of sums against their needs". The report was shelved in some bureaucratic drawer of the State Bank of Pakistan to gather dust and business went on as usual.

Ten years later when the participants of a seminar on Field Marshal Ayub Khan's Decade of Development pointed out that " much water has flown down the Indus and Padma Rivers" and no step has been taken to correct the monopolistic situation, Khalid Wahid, President, PFCCI responded arrogantly by saying " the fact that we have highly developed banking system does not mean that we should submit it the stress of small loans". He suggested that for small borrowers specialized agencies should be created.

Thus, all the warnings fell of deaf ears and out of the golden decade sprung the phantom of Pakistan Peoples Party which declared massive nationalization as the linchpin of its manifesto.

We have already to the article by Dr Nawab Haider Naqvi, the head of Pakistan Institute of Development Economics (PIDE) in which he forcefully argued against nationalization of banks, on the grounds that it would turn out to be " administrative nightmare" and instead pleaded for remedy of the situation by strict central bank regulations. It was argued by him that fiscal, monetary and other policies directed the flow of bank credit into few hands and therefore these policies or their lack, and not the banks were to be blamed for concentration of wealth.

However banks were nationalized and ruthlessly plundered. The plunder started as a trickle durig Z A Bhutto era, quickened as a brook under Zia ul Haq but became a waterfall of corruption under which both Benazir and Nawaz Sharif took turns to shower.

It is 23 years since the fateful new-year day when Bhutto announced the nationalization of banks to meet the socio-economic objectives of an egalitarian society. Did it change in any way the lending pattern or the financial landscape, as far as the common man's credit requirements were concerned.

Who gets the BANK LOANS

How they make MONEY

Table of Contents

Robber Barons of Pakistan