Consumer Banking BNK603 book HANDOUTS in pdf

<br /> <b><span style="font-size: large;">Consumer Banking BNK603  book HANDOUTS in pdf</span></b><br /> Handouts | Lectures | Contents | Books<br /> <div> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVhIxg1rAqqEV1ToT8o2zexyLcv7edrYhOaBpC_0sHSLTM9STg5_qyZnHKOszkISBJNXSRkxzNElH0vfDzyojUkfRf-gBHQcojNGVcw9Jt3u9LcDiQ7mGutlXOpfNQvxfP13mXfZhVGNg/s1600/download.jpg" imageanchor="1"><img border="0" height="479" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVhIxg1rAqqEV1ToT8o2zexyLcv7edrYhOaBpC_0sHSLTM9STg5_qyZnHKOszkISBJNXSRkxzNElH0vfDzyojUkfRf-gBHQcojNGVcw9Jt3u9LcDiQ7mGutlXOpfNQvxfP13mXfZhVGNg/s640/download.jpg" width="640" /></a><br /> <br /> <br /> <div class="row" style="background-color: white; box-sizing: border-box; color: #777777; font-family: "Open Sans", Arial, "Helvetice Neue", sans-serif; font-size: 14px; margin-left: -15px; margin-right: -15px;"> <div class="col-md-12" style="box-sizing: border-box; float: left; min-height: 1px; padding-left: 15px; padding-right: 15px; position: relative; width: 1167.48px;"> <div class="section-title" style="border-bottom-color: rgb(57, 87, 119); border-left-color: rgb(57, 87, 119); border-right-color: rgb(57, 87, 119); border-top: 4px solid rgb(57, 87, 119); box-sizing: border-box; margin-bottom: 40px;"> <h2 style="background-color: #3f6184; box-sizing: border-box; color: white; display: inline-block; font-size: 22px; font-weight: 300; line-height: 1.1; margin: 0px; padding: 12px 35px; text-transform: uppercase;"> LECTURES (VIDEO/AUDIO/DOWNLOAD)</h2> </div> </div> </div> <h3 style="background-color: white; box-sizing: border-box; color: #3f6184; font-family: "Open Sans", Arial, "Helvetice Neue", sans-serif; font-size: 24px; font-weight: 400; line-height: 1.1; margin: 30px 0px 12px; text-transform: uppercase;"> DOWNLOAD VIDEO LECTURES</h3> <div class="row" style="background-color: white; box-sizing: border-box; color: #777777; font-family: "Open Sans", Arial, "Helvetice Neue", sans-serif; font-size: 14px; margin-left: -15px; margin-right: -15px;"> <div class="col-md-12" style="box-sizing: border-box; float: left; min-height: 1px; padding-left: 15px; padding-right: 15px; position: relative; width: 1167.48px;"> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture01.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">1</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture02.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">2</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture03.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">3</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture04.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">4</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture05.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">5</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture06.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">6</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture07.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">7</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture08.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">8</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture09.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">9</span></h4> </a><a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture10.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">10</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture11.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">11</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture12.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">12</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture13.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">13</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture14.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">14</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture15.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">15</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture16.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">16</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture17.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">17</span></h4> </a><a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture18.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">18</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture19.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">19</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture20.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">20</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture21.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">21</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture22.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">22</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture23.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">23</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture24.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">24</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture25.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">25</span></h4> </a><a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture26.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">26</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture27.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">27</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture28.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">28</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture29.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">29</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture30.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">30</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture31.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">31</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture32.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">32</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture33.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">33</span></h4> </a><a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture34.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">34</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture35.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">35</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture36.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">36</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture37.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">37</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture38.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">38</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture39.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">39</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture40.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">40</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture41.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">41</span></h4> </a><a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture42.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">42</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture43.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">43</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture44.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">44</span></h4> </a> <a class="aButton" href="http://video.vu.edu.pk/media/VULMS/BNK603/MP4/BNK603_Lecture45.mp4" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">45</span></h4> </a></div> </div> <br /> <br /> <br /> <br /> <br /> <br /> <br /> <br /> <br /> <br /> <br /> <br /> Consumer Banking –BNK603 VU<br /> <br /> <br /> <br /> <h3 style="background-color: white; box-sizing: border-box; color: #3f6184; font-family: "Open Sans", Arial, "Helvetice Neue", sans-serif; font-size: 24px; font-weight: 400; line-height: 1.1; margin: 30px 0px 12px; text-transform: uppercase;"> WATCH VIDEO LECTURES</h3> <div class="row" style="background-color: white; box-sizing: border-box; color: #777777; font-family: "Open Sans", Arial, "Helvetice Neue", sans-serif; font-size: 14px; margin-left: -15px; margin-right: -15px;"> <div class="col-md-12" style="box-sizing: border-box; float: left; min-height: 1px; padding-left: 15px; padding-right: 15px; position: relative; width: 1167.48px;"> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=316" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">1</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=317" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">2</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=318" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">3</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=319" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">4</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=320" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">5</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=321" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">6</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=322" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">7</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=323" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">8</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=324" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">9</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=325" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">10</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=326" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">11</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=327" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">12</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=328" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">13</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=329" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">14</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=330" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">15</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=331" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">16</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=332" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">17</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=333" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">18</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=334" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">19</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=335" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">20</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=336" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">21</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=337" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">22</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=338" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">23</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=339" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">24</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=340" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">25</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=341" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">26</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=342" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">27</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=343" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">28</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=344" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">29</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=345" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">30</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=346" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">31</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=347" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">32</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=348" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">33</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=349" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">34</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=350" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">35</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=351" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">36</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=352" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">37</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=353" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">38</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=354" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">39</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=355" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">40</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=356" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">41</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=357" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">42</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=358" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">43</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=359" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">44</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_video_lecture.aspx?videoID=360" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;" target="_blank"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">45</span></h4> </a></div> </div> <h3 style="background-color: white; box-sizing: border-box; color: #3f6184; font-family: "Open Sans", Arial, "Helvetice Neue", sans-serif; font-size: 24px; font-weight: 400; line-height: 1.1; margin: 30px 0px 12px; text-transform: uppercase;"> DOWNLOAD AUDIO LECTURES</h3> <div class="row" style="background-color: white; box-sizing: border-box; color: #777777; font-family: "Open Sans", Arial, "Helvetice Neue", sans-serif; font-size: 14px; margin-left: -15px; margin-right: -15px;"> <div class="col-md-12" style="box-sizing: border-box; float: left; min-height: 1px; padding-left: 15px; padding-right: 15px; position: relative; width: 1167.48px;"> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">1</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">2</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">3</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">4</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">5</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">6</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">7</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">8</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">9</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">10</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">11</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">12</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">13</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">14</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">15</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">16</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">17</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">18</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">19</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">20</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">21</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">22</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">23</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">24</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">25</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">26</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">27</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">28</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">29</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">30</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">31</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">32</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">33</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">34</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">35</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">36</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">37</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">38</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">39</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">40</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">41</span></h4> </a><a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">42</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">43</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">44</span></h4> </a> <a class="aButton" href="http://www.genrica.com/virtual_university_course.aspx?course_code=BNK603" style="background: none 0px 0px repeat scroll rgb(253, 253, 253); border-radius: 4px; border: 1px solid rgb(194, 235, 255); box-sizing: border-box; color: #666666; display: inline-block; margin: 3px 2px; padding: 2px 11px; text-decoration-line: none; transition: all 150ms ease-in;"><h4 style="box-sizing: border-box; color: inherit; font-size: 18px; font-weight: 500; line-height: 1.1; margin-bottom: 10px; margin-top: 10px;"> Lecture <span class="badge" style="background-color: #777777; border-radius: 10px; box-sizing: border-box; color: white; display: inline-block; font-size: 12px; font-weight: 700; line-height: 1; min-width: 10px; padding: 3px 7px; text-align: center; vertical-align: baseline; white-space: nowrap;">45</span></h4> </a></div> </div> <br /> LESSON 01<br /> CONSUMER BANKING<br /> Objectives of Course<br /> 􀂙 To help Students gain some fundamental knowledge/information about this important<br /> component of Banking Business. As educated citizen of the country they are expected to develop a<br /> balanced perspective & establish the relevant context towards the contribution this banking<br /> practice could make in the growth/development of Economic and Social Sectors of our country<br /> 􀂙 To provide Students with an opportunity to undertake some additional/complimentary learning<br /> which could help them succeed in their work/professional lives, i.e. choosing any<br /> occupation/carrier in general or Banking/Finance in particular<br /> 􀂙 To assist Students in making better decisions in their capacity as Consumers themselves. With<br /> their educational background they represent a Key Societal Stakeholders Category and as such<br /> constitute a significant Prospective Customers Segment for the banks<br /> Five Forces of Competitive Position<br /> Let us take Porters Five Forces model as an example:<br /> 􀂙 Information can provide us with the details of buyers, suppliers, substitutes, competition, etc.<br /> 􀂙 Knowledge can show us how to build Porter's 5 forces mode with this information<br /> 􀂙 Understanding can explain to us why we utilized the model (objective is to determine industry<br /> attractiveness and/or use as a threat matrix)<br /> 􀂙 Wisdom enables us to discern the objective's value or relevance to us and our desired outcome<br /> 􀂙 Wisdom is about effectiveness while the rest are about efficiency<br /> Systems Framework<br /> Consumer Banking is a separate course but we are not going to learn about it “in Isolation”.<br /> Our endeavors will be to understand it by applying the process of learning cycle described earlier and take a “Systemic View” of the nature & characteristics of this subject, i.e. in the wider & a macro context.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 2<br /> What are Systems?<br /> 􀂾 System is a group of interacting, interrelated, and interdependent components that form a complex<br /> and unified whole<br /> 􀂾 Systems are everywhere—for example, the R&D department in your organization, the circulatory<br /> system in your body, the predator/prey relationships in nature, the ignition system in your car, and<br /> so on<br /> 􀂾 A system has a purpose<br /> 􀂾 The parts combine in a particular way for the system to carry out its purpose<br /> 􀂾 Systems serve specific purposes within larger systems<br /> 􀂾 Systems seek stability<br /> 􀂾 Systems have feedback<br /> The methods of systems thinking provide us with tools for better understanding difficult management<br /> problems. The methods have been used for around fifty years (Forrester 1961) and are now well<br /> established. However, these approaches require a shift in the way we think about the performance of an<br /> organization. In particular, they require that we move away from looking at isolated events and their causes<br /> (usually assumed to be some other events), and start to look at the organization as a system made up of<br /> interacting parts. We use the term system to mean an interdependent group of items forming a unified<br /> pattern. Since our interest here is in business processes, we will focus on systems of people and technology<br /> intended to design, market, produce, and distribute products or services. Almost everything that goes on in<br /> business is part of one or more systems. As noted above, when we face a management problem we tend to<br /> assume that some external event caused it. With a systems approach, we take an alternative viewpoint --<br /> namely that the internal structure of the system is often more important than external events in generating<br /> the problem.<br /> Systems Thinking is a process of discovery and diagnosis an inquiry into the governing process underlying<br /> the problems we face. It helps in building more choices not answers, into our thinking process. It creates a<br /> framework for productive dialogue.<br /> Business Model<br /> • Can you think beyond new Products and new Services to entirely new business concepts --- ones<br /> that meet deep customer needs in unconventional ways?<br /> • Can you think of unconventional ways of recharging an existing business concept? Can you go<br /> non-linear? To be an industry revolutionary, you must develop an instinctive capacity to think<br /> about Business Models in their entirety<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 3<br /> In order to better understand systemic behavior & dynamics (Linkages, Interdependencies,<br /> Interconnectedness of System’s components) of Consumer Banking Segment within a Commercial<br /> Banking set up, let’s develop a base in order to activate the learning process. One such base could be the<br /> concept of “Business Model”.<br /> Customer Interface<br /> Customer Interface has four elements:<br /> 1. Fulfillment and Support<br /> 2. Information and Insight<br /> 3. Relationship Dynamics<br /> 4. Pricing Structure<br /> 1. Fulfillment and Support<br /> This refers to the way the firm “goes to the market”, how it actually reaches customers ---which channels it<br /> uses, what kind of customer support it offers, and what level of service it provides.<br /> 2. Information and Insight<br /> This refers to all the knowledge that is collected from and utilized on behalf of the customers. The<br /> information contents of the customer interface. It also refers to the ability of a company to extract insights<br /> from the information. Insights that can help it do cool new things for customers. It also covers the<br /> information that is made available to customers’ pre-and post-purchase.<br /> 3. Relationship Dynamics<br /> This element refers to the nature of the interaction between the producer and the customer. It looks at if<br /> the interaction is face to face or indirect, is it continuous or sporadic, how easy is it for the customer to<br /> interact with the producer, what feelings do these interactions invoke on the part of the customer, is there<br /> any sense of “loyalty” created by the pattern of the interactions? The notion of relationship dynamics<br /> acknowledges the fact that there are emotional, as well as transactional, elements in the interactions of the<br /> producers and consumers, and that these can be the basis for a highly differentiated business concept.<br /> Value<br /> Network<br /> Strategic<br /> Resources<br /> Core<br /> Strategy<br /> Customer<br /> Interface<br /> Company<br /> Configuration Boundaries<br /> Customer<br /> Benefits<br /> Business Model<br /> • Fulfillment &<br /> Support<br /> • Information<br /> & Insight<br /> • Relationship<br /> Dynamics<br /> • Pricing<br /> Structure<br /> • Business<br /> Mission<br /> • Product &<br /> Market Scope<br /> • Basis of<br /> Differentiation<br /> • Core<br /> Competencies<br /> • Strategic<br /> Assets<br /> • Core<br /> Processes<br /> • Suppliers<br /> • Partners<br /> • Coalitions<br /> Efficient/Unique/Fit/Profit Boosters<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 4<br /> 4. Pricing Structure<br /> You have several choices in what you charge. You can charge customers for a product or for service. You<br /> can charge customers directly or indirectly through a third party. You can bundle components or price them<br /> separately. You can charge a flat rate or charge for time or distance. You can have set prices or marketbased<br /> prices. Each of these choices offers the chance for business concept innovation, depending on the<br /> traditions of your industry.<br /> Customer Benefits<br /> Intermediating between the Core Strategy and Customer Interface is another bridge component ---the<br /> particular bundle of Benefits that is actually being offered to the customer. Benefits refer to a customerderived<br /> definition of the basic needs and wants that are satisfied. Benefits are what link the Core Strategy to<br /> the needs of the customer. An important component of any business concept is the decision as to which<br /> benefits are or are not going to be included.<br /> Core Strategy<br /> Core strategy is the essence of ‘how’ the firm chooses to compete. The key elements of Core Strategy<br /> include:<br /> 1. Business Mission<br /> 2. Product/Market Scope<br /> 3. Basis of Differentiation<br /> Whatever your strategy, whether it is low prices or innovative products, it will work if it is sharply defined,<br /> clearly communicated, and well understood by employees, customers, partners, and investors. The key<br /> components:<br /> 􀂙 Build a strategy around a clear value proposition for the customer<br /> 􀂙 Develop strategy from the outside in, based on what your customers, partners, and investors have<br /> to say—and how they behave—not on gut feel or instinct<br /> 􀂙 Continually fine-tune your strategy based on changes in the marketplace—for example, a new<br /> technology, a social trend, a government regulation, or a competitor’s breakaway product<br /> 􀂙 Clearly communicate your strategy within the organization and to customers and other external<br /> stakeholders<br /> 􀂙 Keep focused. Grow your core business, and beware the unfamiliar<br /> 1. The Business Mission:<br /> This captures the overall objective of the strategy ---what the business model is designed to accomplish or<br /> deliver. The business mission encompasses things such as the “Value Proposition”, “Strategic Intent”,<br /> or “Purpose” and overall performance objectives. It implies a sense of direction and a set of criteria against<br /> which to measure progress.<br /> 2. Product/Market Scope<br /> This captures the essence of where the firm competes ---which customers, which geographies, and what<br /> product segments ---and where, by implication, it does not compete. A company’s definition of<br /> Product/Market Scope can be a source of business concept innovation when it is quite different from that<br /> of traditional competitors.<br /> 3. Basis for Differentiation<br /> This captures the essence of how the firm competes and, in particular, how it competes differently than its<br /> competitors. A famous PC Company has redefined what a computer should look like. For years, the PC was<br /> the ugliest thing in your home or office. It looked like a disemboweled robot with cords & cables spilling<br /> everywhere. And it came in only one color, deadly boring beige. Why? Because most of the companies<br /> making PCs had an industrial products heritage they were filled with engineers not artists. This new design<br /> sold 400,000 units in the first month after its launch, and introduced an entirely new dimension of<br /> Differentiation i.e. Aesthetics into the computer industry.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 5<br /> Strategic Resources<br /> Every competitive advantage worthy of the name rests on unique firm-specific resources. Dramatically<br /> changing the resource base for competition can be source of business concept innovation. The key<br /> components include:<br /> 1. Core Competencies<br /> 2. Strategic Assets<br /> 3. Core Processes<br /> 1. Core Competencies<br /> This is what the firm knows. It encompasses skills & unique capabilities that enable a company to provide a<br /> particular benefit to customers. Some examples are:<br /> 􀂙 At a Japanese electronic company that benefit is “pocket ability” and the core competence is<br /> “miniaturization”<br /> 􀂙 At a global courier company the benefit is “on-time delivery”, and the core competence, at a very<br /> high level, is “logistic management”<br /> 􀂙 Logistics are also central to an American retail stores giant to provide customers with the benefits<br /> of choice, availability, and value<br /> 􀂙 At one major IT company the customer benefit is seamless information flows, and one of the<br /> contributing core competencies is “systems integration”<br /> 2. Strategic Assets<br /> These are what the firm owns. They are things, rather than know-how. They include:<br /> 􀂙 Brands<br /> 􀂙 Patents<br /> 􀂙 Infrastructure<br /> 􀂙 Proprietary Standards<br /> 􀂙 Customer Data<br /> 􀂙 And anything else that is both rare and valuable<br /> 3. Core Processes<br /> This is what people in the firm actually do. Core Processes are methodologies and routines used in<br /> transforming inputs into outputs. Core Processes are activities, rather than “assets” or “skills”. They are<br /> used in translating competencies, assets, and other inputs into value for customers. A fundamental<br /> reinvention of a Core Process can be the basis of business concept innovation.<br /> Configuration<br /> Intermediating between a company’s Core Strategy and its Strategic Resources is a bridge component which<br /> could be called Configuration. It refers to the unique way in which Competencies, Assets, and Processes are<br /> combined & interrelated in support of a particular strategy. It refers to the linkages between<br /> Competencies, Assets, and Processes and how those linkages are managed. The notion of Configuration<br /> recognizes that great strategies (and great business models) rest on a unique blending of Competencies,<br /> Assets, and Processes.<br /> Value Network<br /> Value Network is the component that surrounds the firm, and which complements and amplifies the firm’s<br /> own resources. Today many of the resources that are critical to a firm’s success lie outside its direct control.<br /> The key components include:<br /> 46. Suppliers<br /> 47. Partners<br /> 48. Coalitions<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 6<br /> 1. Suppliers<br /> Suppliers typically reside “up the value chain” from the producers. Privileged access to or a deep<br /> relationship with Suppliers can be a central element of a novel business model. Part of what has made a<br /> major internet plumbing company the most nimble competitor in the communication business has been its<br /> use of outside Suppliers. More than 50 per cent of its product does not touch its factory or employees. It<br /> just gets magically assembled and shipped, and the customer doesn’t even know the company never<br /> touched it. Increasingly, such companies are using their Supplier network to dramatically reduce Working<br /> Capital and increase Flexibility.<br /> 2. Partners<br /> Partners typically supply critical ―compliments to a final product or “solution”. Their relationship with<br /> producers is more horizontal and less vertical than that of suppliers. An imaginative use of Partners can be<br /> the key to industry revolution. The success of Windows platform is in large part due to the support the<br /> producer has lavished on its software development partners. Making it easy for Independent Software<br /> Vendors (ISVs) to write for Windows increases the numbers of applications running on Windows and<br /> further strengthens its market position. As early as 1999, the Developer Network included over 10,000<br /> ISVs.<br /> 3. Coalitions<br /> Business concept innovation requires a company to join together with other, like-minded competitors in a<br /> Coalition. This is particularly likely to be the case where investment or technology hurdles are high or where<br /> there is a high risk of ending up on the losing side of a winner-take-all standard battle. Coalition members<br /> are more than Partners, they share directly in the risk and rewards of industry revolution. A consortium of<br /> France, Germany, British, and Spain aerospace companies, is one of the world’s most successful Coalitions.<br /> Company Boundaries<br /> Intermediating between a company’s Strategic Resources and its Value Network are the firm’s Boundaries.<br /> This bridge component refers to the decisions that have been made about what the firm does and what it<br /> contracts out to the Value Network. Again, an important aspect of any business model is the choice of what<br /> the firm will do for itself and what it will outsource to Suppliers, Partners, or Coalition Members. Changing<br /> these Boundaries is often an important contributor to business concept innovation.<br /> Expanding the Innovation Horizon:<br /> A Global CEO Study<br /> Leaders frequently define their businesses in terms of the products and services they take to market and<br /> naturally focus their innovative energy there. But with technological advances and globalization presenting<br /> so many new opportunities – and threats – CEOs are now giving business model innovation as prominent a<br /> place on their agendas as products/services/markets innovation and operational innovation. As one CEO<br /> suggested, “the three areas are essential, equally important and inseparable from each other.” Some CEOs<br /> who have not focused on business model innovation in the past now believe it is time. In one CEO’s<br /> words, “We are at the critical point where we should transform our business model itself.” While the fact<br /> that CEOs are now focusing almost 30 percent of their innovation efforts on their business models is<br /> surprising, our financial analysis uncovered an even more interesting point. Companies that have grown<br /> their operating margins faster than their competitors were putting twice as much emphasis on business<br /> model innovation as underperformers. Although business model innovation is clearly important to CEOs, it<br /> is part of a combination – which makes it critical to understand more about how CEOs have been<br /> managing each type of innovation.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 7<br /> So, what actions are CEOs taking to adapt their business models?<br /> Major strategic partnerships and organization structure changes topped the list of most significant business<br /> model innovations (see Figure 4).<br /> One CEO explained that the success of strategic partnerships depends heavily on a company specializing<br /> and then working toward mutually beneficial value creation. “We need to develop a business model based<br /> on strategic partnerships that creates value not just for our company, but also for the industry as a whole.<br /> We cannot do everything in this era of specialization.”<br /> Cost reduction and strategic flexibility were considered top benefits from business model innovation –<br /> reported by over half of all business model innovators (see Figure5).<br /> Business model innovation allows companies to specialize and move more quickly to seize emerging growth<br /> opportunities. Overall, CEOs’ rankings suggest that business model innovation is helping their<br /> organizations become more nimble and responsive, while at the same time lowering costs. One CEO<br /> explained: “Innovating with respect to business models and operations will not only create opportunities for<br /> cost savings, but will also lead to additional revenue generation opportunities.”<br /> When we looked at financial performance over a five-year period, we found striking differences across the<br /> three types of innovation. Business model innovation had a much stronger correlation with operating<br /> margin growth than the other two types of innovation (see Figure 6).<br /> Looking across the top actions business model innovators were taking, we found that companies innovating<br /> through strategic partnerships enjoyed the highest operating margin growth.<br /> As one CEO remarked, “reducing the cost base through cooperative models is important for any growth<br /> strategy.”<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 8<br /> Special Note: New Ways of Thinking about Learning;<br /> An extract from the book, “Presence, Human Purpose & the Field of the Future” co-authored by Peter Senge, Otto<br /> Scharmer, Joseph Jaworski, & Betty Flowers.<br /> QUOTE:<br /> When any of us acts in a state of fear or anxiety, our actions are likely to revert to what is most habitual; our<br /> most instinctual behaviors dominate, ultimately reducing us to the “fight-or- flight” programming of the<br /> reptilian brain stem. Collective actions are no different. Even as conditions in the world change<br /> dramatically, most businesses, governments, schools, and other large organizations continue to take the<br /> same kinds of institutional actions that they always have.<br /> This does not means that no learning occurs. But it is a limited type of learning; learning how best to react<br /> to circumstances we see ourselves as having had no hand in creating. Reactive learning is governed by<br /> “downloading” habitual ways of thinking, of continuing to see the world within the familiar categories we<br /> are comfortable with. We discount interpretations and options for actions that are different from those we<br /> know and trust. We act to defend our interests. In reactive learning, our actions are actually reenacted<br /> habits, and we invariably end up reinforcing pre-established Mental Models. Regardless of the outcome, we<br /> end up being “right”. At best, we get better at what we have always done. We remain secure in the cocoon<br /> of our own worldview, isolated from the larger world.<br /> But different types of learning are possible. More than five years ago, we (the authors) began interviewing<br /> leading scientists and business and social entrepreneurs.<br /> Those interviews --- which now total more than 150 --- created the impetus for this book. We often simply<br /> began by asking each person,<br /> “What question lies at the heart of your work?”<br /> In our conversations with scientists, we explored emerging ideas that have the potential to shift longestablished<br /> views of the separation of humanity and nature. In our interviews with entrepreneurs, we<br /> explored how new ideas and intuitive knowing are brought into reality. Together, the two groups<br /> illuminated a type of learning that could lead to the creation of a world not governed primarily by habit.<br /> All learning integrates thinking and doing. All learning is about how we interact in the world and the types<br /> of capacities that develop from interactions. What differ are the depth of awareness and the consequent<br /> source of action. If awareness never reaches beyond superficial events and current circumstances, actions<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 9<br /> will be reactions. If, on the other hand, we penetrate more deeply to see the larger whole that generate<br /> “what is” and our connection to this wholeness, the source and effectiveness of our actions can change<br /> dramatically.<br /> In talking with pioneering scientists, we found extraordinary insights into this capacity for deeper seeing and<br /> the effects such awareness can have on our understanding, our sense of self, and our sense of belonging in<br /> the world. In talking with entrepreneurs, we found extraordinary clarity regarding what it means to act in the<br /> service of what is emerging. But we also found that for the most part, neither of these groups talks with the<br /> other. We came to realize that both groups are really talking about the same process --- the process whereby<br /> we learn to “presence” an emerging whole, to become what George Bernard Shaw called “a force of<br /> nature.”<br /> The Field of the Future<br /> The key to the deeper levels of learning is that the larger living wholes of which we are an active part are not<br /> inherently static. Like all living systems, they both conserve features essential to their existence and seek to<br /> evolve. When we become more aware of the dynamic whole, we also become more aware of what is<br /> emerging.<br /> Jonas Salk, the inventor of polio vaccine, spoke of tapping into the continually unfolding “dynamism” of<br /> the universe, and experiencing its evolution as “an active process that . . . I can guide by the choices I<br /> make”. He felt that this ability had enabled him to reject common wisdom and develop a vaccine that<br /> eventually saved millions of lives. Many of the entrepreneurs we interviewed had successfully created<br /> multiple businesses and organizations. Consistently, each felt that the entrepreneurial ability was an<br /> expression of the capacity to sense an emerging reality and to act in harmony with it. As W. Brian Arthur,<br /> noted economist, put it, “Every profound innovation is based on an inward- bound journey, on going to a<br /> deeper place where knowing comes to the surface”.<br /> This inward-bound journey lies at the heart of all creativity, whether in the arts, in business, or in science.<br /> Many scientists and inventors, like artists and entrepreneurs, live in a paradoxical state of great confidence --<br /> - knowing that their choices and actions really matter --- and profound humility --- feeling guided by forces<br /> beyond their making. Their work is to “release the hand from the marble that holds it prisoner,” as<br /> Michelangelo put it. They know that their actions are vital to this accomplishment, but they also know that<br /> the hand “wants to be released.”<br /> Can living institutions learn to tap into a larger field to guide them toward what is healthy for the whole?<br /> What understanding and capacities will this require of people individually and collectively?<br /> Presence<br /> We have come to believe that the core capacity needed for accessing the field of the future is Presence. We<br /> first thought of presence as being fully conscious and aware in the present moment. Then we began to<br /> appreciate presence as deep listening, of being open beyond one’s preconceptions and historical ways of<br /> making sense. We came to see the importance of letting go of old identities and the need to control and, as<br /> Salk said, making choices to serve the evolution of life. Ultimately, we came to see all these aspects of<br /> presence as leading to a state of “letting come,” of consciously participating in a larger field of change.<br /> When this happens, the field shifts, and the forces shaping a situation can shift from re-creating the past to<br /> manifesting or realizing an emerging future.<br /> Through our interviews, we have discovered similarities to shifts in awareness that have recognized in<br /> spiritual traditions around the world for thousands of years. This process involves an essential quieting of<br /> the mind, where the normal flow of thoughts ceases and the normal boundaries between self and world<br /> dissolve. In the mystic traditions of Islam, such as Sufism, this shift is known simply as “opening the heart”.<br /> Each religion describes this shift a little differently, but all recognize it as being central to personal<br /> cultivation or maturation.<br /> In the end, we concluded that understanding presence and the possibilities of larger fields for change can<br /> come only from many perspectives --- from the emerging science of living systems, from the creative arts,<br /> from profound organizational change experiences --- and from directly understanding the generative<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 10<br /> capacities of Nature. Virtually all indigenous or native cultures have regarded Nature or Universe or<br /> Mother Earth as the ultimate teacher. At few times in history has there been a greater need to<br /> rediscover this teacher.<br /> Contemporary theories of change seemed, paradoxically, neither narrow enough nor broad enough. The<br /> changes in which we will be called upon to participate in the future will be both deeply personal and<br /> inherently systemic. The deeper dimensions of transformational change represent a largely unexplored<br /> territory both in current management research and in our understanding of Leadership in general. As Otto<br /> puts it, “This blind spot concerns not the what and how --- not what leaders do and how they do it --- but<br /> the who, who we are and the inner place or source from which we operate, both individually and<br /> collectively.”<br /> Source/Reference:<br /> 1) Leading the Revolution, by Gary Hamel<br /> 2) IBM Global CEO Survey 2006<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 11<br /> LESSON 02<br /> PROFIT BOOSTERS<br /> The key components of profit boosters are:<br /> 􀂙 Increasing Returns<br /> 􀂙 Competitor Lock-out<br /> 􀂙 Strategic Economies<br /> 􀂙 Strategic Flexibility<br /> Increasing Returns<br /> This term simply refers to a competitive situation where rich tend to get richer, and the poor, poorer. It<br /> denotes a flywheel effect that tends to perpetuate early success. Those who are ahead will get further ahead,<br /> and those who are behind will fall further behind. In industries with Increasing Returns, if you win early,<br /> you’re likely to get big. Economies of Scale are largely static and increasing returns are dynamics.<br /> 1. Network Effects<br /> Some Business Models benefit from a strange kind of value multiplier known as “Network Effect”.<br /> In some cases, the value of a network increases as the square of the growth of “nodes”, or members in the<br /> network.<br /> 2. Positive Feedback Effects<br /> It refers specifically to the way one uses market feedback to turn an initial lead into an unbridgeable chasm<br /> for competitors. A firm with a large users' base, and a way of rapidly extracting feedback from those users,<br /> may be able to improve its products & services faster than its competitors. As a result, its offerings become<br /> better yet, and it captures even more customers. Another virtuous circle ensues.<br /> Increasing<br /> Returns<br /> Competitor<br /> Lock-Out<br /> Strategic<br /> Economies<br /> Strategic<br /> Flexibility<br /> • Network<br /> Effects<br /> • Positive<br /> Feedback<br /> Effects<br /> • Learning<br /> Effects<br /> • Preemptio<br /> n<br /> • Choke<br /> Points<br /> • Customer<br /> Lock-In<br /> • Scale<br /> • Focus<br /> • Scope<br /> • Portfolio<br /> Breadth<br /> • Operating<br /> Agility<br /> • Lower<br /> Breakeven<br /> Profit Boosters<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 12<br /> 3. Learning Effects<br /> More & more industries are becoming knowledge-intensive. A company that gets an early start in<br /> accumulating knowledge, and then continues to learn faster than its rivals, can build an almost<br /> insurmountable lead. Knowledge accumulation is often highly correlated with experience. The notion is<br /> simple; the application of knowledge begets new knowledge. This is particularly true in cases where the<br /> critical knowledge is both complex & tacit.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 13<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 14<br /> Competitors Lock-Out<br /> When you find a window of opportunity, the goal is to crawl through it and lock it behind you. You want all<br /> the windfall and you don’t want to have to fight for it. That’s why really slick Business Model locks<br /> competitors out through:<br /> 1. Preemption<br /> 2. Choke Points<br /> 3. Customer Lock-In<br /> 1. Preemption<br /> Where there is a great potential for increasing, merely being first may be enough to put competitors out of<br /> contention. In industries that are R&D-intensive or that have high fixed costs, there is often no second<br /> place ---you are either first or you’re nowhere. First-mover advantages are never absolute, but they are often<br /> pivotal in industries with a rapid pace of technological development and relatively short product lifecycle.<br /> 2. Choke Points<br /> Its Choke Point when in the new millennium you are trying to gain control of the cable TV Infrastructure<br /> that will allow broadband webcasting. Whoever owns the Choke Point collects the toll. If you are unwilling<br /> to pay up, you are locked-out. Window may be history’s most effective Choke Point. (How & Why? Hint:<br /> IP & HTML are in public domain.) Choke Points come in many shapes & sizes; A Technical Standard,<br /> Control of some costly infrastructure, Preferential access to a government buyer, A Patent, or a Prime<br /> Location.<br /> 3. Customer Lock-In<br /> Competitor lock-out often means Customer Lock-In. But even when you can’t Lock-out all your<br /> competitors, you can Lock-In some of your customers ---through long-term supply contracts, proprietary<br /> product designs that keep them for upgrades and add-ons, or control over a local monopoly. There are<br /> many ways you can tie up your customers, but you have to be careful. A customer that feels locked in is a<br /> particularly angry beast. You got to use velvet ropes.<br /> Strategic Economies<br /> Unlike operational efficiencies, Strategic Economies don’t drive from Operational Excellence, but from the<br /> business concept itself. Strategic Economies come in three varieties:<br /> 1. Scale<br /> 2. Focus<br /> 3. Scope<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 15<br /> 1. Scale<br /> Scale can derive efficiencies in many ways through:<br /> 􀂙 Better Plant Utilization<br /> 􀂙 Greater Purchasing Power<br /> 􀂙 The Muscle to enforce industry wide price discipline Industries revolutionaries often consolidate<br /> fragmented industries. Any that gets caught behind the consolidation curve and misses the chance<br /> to build Scale Advantage will be left with a notable disadvantage<br /> 2. Focus<br /> A company with a high degree of Focus & Specialization may reap economies compared with competitors<br /> with a more diffused Business Mission and a less coherent mix of products & services.<br /> Focus is not about efficiency in a cost sense; it’s about in a don’t-get-distracted, get-all-the-wood-behindone-<br /> arrow sense.<br /> 3. Scope<br /> The idea here is almost opposite of focus. A company that can leverage resources and management talents<br /> across a broad array of opportunities may have an efficiency advantage over firms that cannot. Scope<br /> Economies come from sharing things across business units & countries; Brands, Facilities, Best Practices,<br /> Scare Talent, IT Infrastructure, and so on. Scope Economies come in a variety of flavors; Channel Power &<br /> access to distribution channels, Economies in buying ad space & running high-tech distribution centers.<br /> Strategic Flexibility<br /> In a fast changing world, with unpredictable demand cycles, Strategic Flexibility can generate/sustain higher<br /> profits by helping a company stay perfectly tuned to the market and avoid getting trapped in dead-end<br /> Business Models. Strategic Flexibility comes from:<br /> 1. Portfolio Breadth<br /> 2. Operating Agility<br /> 3. Low Break-Even Point<br /> 1. Portfolio Breadth:<br /> Focus is great, but if the world moves against you, you may lack other options. Linking the fortunes of your<br /> company to the fortunes of a single market can be a high-risk gamble. A company with a broad offering<br /> may prove more resilient in the face of rapidly shifting customer priorities than a more narrowly focused<br /> competitor. A portfolio can consist of Countries, Products, Businesses, Competencies, or Customer Types.<br /> The essential point is that it helps to hedge a company’s exposure to the vagaries of one particular market<br /> niche.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 16<br /> 2. Operating Agility<br /> A company that is able to quickly refocus its efforts is better placed to respond to changes in demand and<br /> can thereby even out profit swings.<br /> Given the fact that a very successful American Computer Company owns few fixed assets, it is able to<br /> quickly reconfigure its selling approach & product line to suit changing market conditions.<br /> The emerging world of on demand:<br /> • As the financial services industry heads toward an on demand operating environment, monolithic,<br /> vertically integrated institutions face stark new challenges<br /> • In today’s hyper-responsive marketplace, survival favors the agile; speed can be a critical<br /> differentiator; and the organizational status quo is often a liability<br /> • An on demand business is an enterprise whose business processes –integrated end-to-end across<br /> the company and with key partners, suppliers and customers –can respond with flexibility and<br /> speed to virtually any customer demand, market opportunity or external threat.<br /> 3. Lower Break Even<br /> A business concept that carries a high breakeven point is inherently less flexible than one with a lower<br /> breakeven point. Capital intensity, a big debt load, high fixed cost ---such factors tend to reduce the<br /> financial flexibility of a Business Model. In doing so, they also reduce Strategic Flexibility, in that they make<br /> it more difficult to pay off one thing so that you can go on and do another thing.<br /> Bank Business and Operating Model Dynamics<br /> The business model represents the value proposition to the customer; it is made up of the products and<br /> services for which the customer will pay and success will be defined by the degree to which customer needs<br /> are met. While the business model can be configured in a number of different ways, customer segment,<br /> product and geography are typical for many banks.<br /> The operating model is made up of the functions required to support, control and manage the delivery of<br /> the products and services that make up the customer value proposition. Typically, these functions are not<br /> directly paid for by the customer, but might be integral to the product or services offered – business<br /> support functions. Alternatively, they are functions that are required to support, control and manage value<br /> creation for the bank itself – corporate functions. While they can be grouped in a number of ways, we<br /> consider five core operating model functions: governance, risk and control; financial management; delivery<br /> (channel, operations and technology), legal and physical structure; and people and reward. (See diagram<br /> below).<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 17<br /> Bank Model<br /> Bank Business Model<br /> It represents the Value Proposition to the customer; it is made up of the Products & Services for which<br /> the customer will pay and success will be defined by the degree to which customer needs are met.<br /> While the Business Model can be configured in a number of different ways, the typical are:<br /> 􀂙 Customer Segment<br /> 􀂙 Product Category<br /> 􀂙 Geographical Differentiation<br /> Value Proposition<br /> A business or marketing statement that summarizes why a consumer should buy a product or use a service.<br /> This statement should convince a potential consumer that one particular product or service will add more<br /> value or better solve a problem than other similar offerings. The ideal value proposition is concise and<br /> appeals to the customer's strongest decision-making drivers. Companies pay a high price when customers<br /> lose sight of the company's value proposition.<br /> Survivability - degree to which the Business & Operating Model align<br /> to customer needs, competitive threats & regulatory intent<br /> Customer Value Proposition Governance, Risk, &Control<br /> Financial & Performance<br /> Management<br /> Legal & Physical Structure<br /> People & Reward<br /> Bank Business Model Bank Operating Model<br /> Delivery Channel, Operations, & Technology<br /> The way Bank creates value<br /> for its Customers ---<br /> Generates Revenue<br /> The way Bank creates value<br /> for itself --- Generates<br /> Margin<br /> Efficiency -<br /> degree to which<br /> the Business &<br /> Operating<br /> Model align<br /> strategy &<br /> policy<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 18<br /> In the context of these seven dimensions let’s take the example of a Bank:<br /> Financial<br /> This dimension concerns Returns/Profit paid on deposits or other investments products, Mark-Up charged<br /> on Loans and other credit facilities, Fees/Commission recovered for various Non-Financial Services<br /> provided to the customer. Here the concept is not only that Rates/Fees/Commission are competitive and<br /> favorable to the customer but they should have been advised/communicated to the customer in a timely,<br /> unambiguous, and transparent manner with no fine print or hidden elements. It is an observed<br /> phenomenon that a number of customers don’t mind paying premium price for some products/services if<br /> they perceive having received higher value due to the overall value package.<br /> Procedural<br /> This refers to the various processes/steps involved while entering into/maintaining a relationship with the<br /> bank. How simple and convenient it is for a customer to deal with the bank while undertaking any<br /> transaction. To what extent bank systems are customer friendly and the bank is not a “prisoner” of its own<br /> systems.<br /> Deliverable<br /> Although banking is a service business with no tangible products but certain items still needs actual delivery<br /> while maintaining quality standards. Examples are Cash/Currency Notes, Check Book, Credit/ATM Card,<br /> Statements of Account, Promotional Items, and Gift Packs on various occasions.<br /> Informational<br /> This dimension deals with the Reliability, Timeliness, Accuracy, Authenticity, Currency, and Relevancy of<br /> various information provided to the customer. These attributes will establish the level of confidence and<br /> trust which the customer should have with its banker and will be key in the decision making process of the<br /> customer in purchasing the products/services offered by the bank. Above all, there should be the highest<br /> level of transparency in every aspect of customer information and communication processes.<br /> Environmental<br /> This concern with the Physical Setting, Aesthetics, Cleanliness, Hygienic Conditions of the Branch, ATM<br /> Booth, Kiosks, or any other place where customer physically experiences an interaction with his/her<br /> banker. A place with proper lighting arrangement, Air-Conditioning/Heating System, Signage, Comfortable<br /> Environmental Sensory Interpersonal<br /> Financial<br /> Procedural Deliverable Informational<br /> Seven Dimensions of the Customer Value Package<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 19<br /> Waiting Area, Queuing arrangement, Public Address/Sound System are some examples of what makes a<br /> positive impression on a customer.<br /> Sensory<br /> This dimension deals with the human sensory attributes of Touch, Sight, Sound, and Smell. Any “Touch<br /> Point” where a customer has a pleasant sensory experience in the above mentioned attributes will add to the<br /> good image of the bank and could contribute towards its value building efforts.<br /> Interpersonal<br /> Attitude & Behavior of the staff members especially towards the customers is crucial in providing a higher<br /> Value Proposition. A cooperative, friendly, energetic, responsive, and empathetic staff will be a key<br /> differentiator between a bank and its competitors. Nowadays it is common for all organizations especially<br /> those having extensive customer interface to pursue the policy of “Hire for Attitude, Train for Skills.”<br /> Bank Operating Model<br /> It is made of the Functions required to Support, Control, and Manage the Delivery of the Products &<br /> Services that make up the Customer Value Proposition.<br /> Typically, these functions are not directly paid for by the customer, but might be integral to the Products or<br /> Services offered --- Business Support Functions. Alternatively, they are functions that are required to<br /> Support, Control, and Manage value creation for the Bank itself --- Corporate Functions.<br /> Business Support Functions or Corporate Functions in the Operating Model usually consist of the<br /> following Core Functions:<br /> 􀂙 Governance, Risk, and Control<br /> 􀂙 Financial & Performance Management<br /> 􀂙 Delivery (Channel, Operations, and Technology)<br /> 􀂙 Legal & Physical Structure<br /> 􀂙 People & Reward<br /> Governance, Risk and Control<br /> Addressing the overall levers of Control and Management, governance, risk, and control are central to the<br /> decision-making required to derive Value Creation. The key components include how the Board and Non-<br /> Executive Directors (NEDs) are measured, are the Executives robustly supported and challenged, controls<br /> & policies embedded within the business, are these controls & policies adhered to when they clash with the<br /> Business Model.<br /> Financial and Performance Management<br /> This Function has line of sight on the overall profitability of the Bank and it needs to align costs<br /> appropriately to the Business Model. As a consequence of recent global financial crisis, expected lower<br /> returns & higher capital ratios will result in financial management having greater involvement in product<br /> design and franchise targeting. The key issues include:<br /> 􀂙 Simplification of Capital & Funding Structure<br /> 􀂙 Responding to new patterns of Supervision<br /> 􀂙 Aligning internal performance reporting and emerging external techniques for analyzing & valuing<br /> Bank performance<br /> Delivery (Channel, Operations, Technology)<br /> This function typically spans both Business & Operating Model in that it also encompasses the core<br /> business support functions. The key issues include:<br /> 􀂙 Platform resilience & redundancy<br /> 􀂙 Strategic Sourcing<br /> 􀂙 Managing supply chain security & scale through shared services<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 20<br /> Legal and Physical Structure<br /> The Structure of the Bank is under increasing review. Recent bank failures have highlighted the complex<br /> legal entities that have developed at a number of institutions, often without any alignment to Business and<br /> Operating Model efficiency. As Banks consider the best ways to ensure funding, regulatory alignment & tax<br /> efficiency, the legal and physical structure of the Bank requires realignment & simplification.<br /> People and Reward<br /> Reward across the Business Model needs to be reconsidered; both to ensure it is genuinely aligned to longterm<br /> sustainable value and allows the functions that determine the sustainable profit of the business to<br /> stand on equal footing to those that generate its immediate revenue. The key issues include:<br /> 􀂙 Incorporating Risk into performance measures<br /> 􀂙 Design of deferred compensation<br /> 􀂙 Remuneration governance<br /> As banks look to the future, transitional change will probably be insufficient – structural and<br /> transformational change must be considered. Regardless of changes to the business strategy, the way that<br /> strategy is delivered will certainly change.<br /> Transformational changes to the business and operating model are rarely undertaken, but the current<br /> environment provides a ‘perfect storm’ of the driving forces behind such wholesale reconstruction:<br /> dramatic adverse changes in financial performance, significant regulatory intervention and substantial<br /> changes to leadership teams.<br /> Short-term survival is clearly critical, but, as balance sheet stability is restored, banks need to consider<br /> appropriate business and operating models that will ensure their long-term survival. The urgent need to<br /> address short-term financial considerations can lead to longer-term mistakes when assessing which assets<br /> are core and which are non-core.<br /> Instead, these longer-term decisions on which assets are vital to the new strategy need to be derived from<br /> basic thinking around the customer value proposition and the ongoing ability of the bank to derive value<br /> from that model having regard for the appropriate levels of risk versus reward.<br /> Banks will need to consider the appropriate mix of products and services they can deliver and manage,<br /> where they sit on the mono-line – universal bank continuum, the balance between distribution and<br /> manufacture, the ability to scale and the effectiveness of embedded control.<br /> The future will probably bring changes to whichever part of the value chain banks choose to operate in,<br /> particularly for the universal banking model, where most will recognize they lack the scale and reach to<br /> serve fully their franchise with owned product and infrastructure.<br /> The nimble, who have a fully developed, needs-based customer value proposition will understand that<br /> packaging an appropriate set of products and services together, some of which might be white labeled from<br /> others, adds more value than providing a limited range of fully owned products and services.<br /> Banks need to understand clearly all the different aspects of their business and operating model because<br /> they are intertwined – decisions to change one part of the model will have significant consequences for the<br /> other aspects. This interconnectivity makes structural change highly complex and the process of change can,<br /> in itself, be a cause of operating model failure. With this in mind, banks must be wary of poorly thought<br /> through or knee-jerk reactions.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 21<br /> LESSON 03<br /> BANK BUSINESS & OPERATING MODEL (BOM): AN EXTENDED CONTEXT<br /> Where Are We Now…<br /> The financial services sector has been blessed by a benign business and regulatory environment over the last<br /> decade, which masked a number of unsustainable business models within the industry. But a more<br /> awkward truth for many is that the financial crisis and wider global recession have challenged the<br /> core operating models responsible for delivering the business strategy.<br /> As banks look to the future, transitional change is probably insufficient – structural and<br /> transformational change must be considered. This is not simply a case of conducting a review of the<br /> business model and reassessing the value proposition of the bank, but understanding how the future<br /> business model will be delivered. Regardless of changes to the business strategy, the way the strategy is<br /> delivered will certainly change.<br /> This type of change is hugely complex. There are many aspects of the business and operating<br /> model to consider and these are encumbered by legacy practices, processes and systems that<br /> frequently represent the cultural core of the organization. Transformational changes to the business<br /> and operating model are rarely undertaken, but the current environment provides a ‘perfect storm’ of the<br /> driving forces behind such wholesale reconstruction: dramatic adverse changes in financial performance,<br /> significant regulatory intervention and substantial changes to the leadership team.<br /> Change in Financial Performance<br /> The period 2001–2007 was one of uninterrupted growth in financial services, underpinned by increasing<br /> gross domestic product (GDP) growth, expansion of global trade, ample wholesale funding and low<br /> inflation. Unprecedented volatility and a sharp downward trend in financial performance from 2007<br /> onwards has prompted an urgent need to restructure balance sheets, reduce costs and improve risk<br /> management, but it has also highlighted the reality of operating performance over the last decade. The initial<br /> findings of PricewaterhouseCoopers research shows that improved operating efficiency – when measured<br /> by cost/income – has been driven by strong income growth rather than significant improvement on the<br /> cost side. Strong levels of GDP growth underpinned the expansion in income, but so too did higher levels<br /> of balance sheet leverage through increased use of wholesale funding. With liquidity risks now better<br /> understood, it is increasingly clear that apparent improvements in operating efficiency over the last decade<br /> were at least in part achieved through increased exposure to liquidity risk. Hence, banks must consider<br /> the structures of their BOM not simply in terms of Efficiency, but the degree to which they can<br /> survive.<br /> Regulatory Intervention<br /> Regulators have discovered that their rules have proved ineffective in both predicting and<br /> preventing the crisis. They have been forced to intervene where an entity is failing or at risk of failing and,<br /> naturally, they have demanded fundamental changes to the organization in return for coming to its rescue.<br /> Most of the big global banks, which have been judged too big to fail, have resorted to support from the<br /> lender of last resort – the government. The larger the intervention, the bigger the changes demanded.<br /> Changes to Leadership<br /> A new team at the top, whether appointed through succession, acquisition or forced change, will want to<br /> establish their own vision for the organization. This new vision then cascades down through the<br /> organization in the form of changes to the business and operating models.<br /> These drivers, particularly when they converge, are a trigger for substantial change. Banks, however, must<br /> consider the structure of their business and operating models, not simply in terms of efficiency, but the<br /> degree to which they can survive.<br /> Banks need to understand clearly all the different aspects of their business and operating model,<br /> because they are intertwined – decisions to change one aspect of the model will have significant<br /> consequences for the other aspects. For example, changes in liquidity regulation and strategy could<br /> require changes to the legal entity structure. Changes in risk appetite could define targeted customer<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 22<br /> segments and the use of low-cost geographies could impact on product and service performance. This<br /> interconnectivity makes structural change highly complex and the process of change can, in itself,<br /> be a cause of operating model failure. With this in mind, banks must be wary of poorly thought through<br /> or knee-jerk reactions. Hence, survivals more than just a short-term problem.<br /> As discussed in the earlier section on strategy, knee-jerk reactions to the current situation can undermine<br /> both the customer and bank proposition. The new financial environment is creating both challenges and<br /> opportunities, but hasty decision-making, either in the form of disposals or acquisitions, can destroy value.<br /> Significant examples of both of these situations have been seen in the past 12 months. Short-term survival<br /> is clearly critical, but, as balance sheet stability is restored, banks need to consider appropriate business and<br /> operating models that will ensure their long-term survival. Replicating the existing model with a few bits cut<br /> away or bolted on will not prove sufficient.<br /> Core verses Non-Core<br /> A number of banks are considering which of their assets are core and which are non-core as part of<br /> a strategy and business model review. But the urgent need to address short-term financial considerations<br /> can lead to longer-term mistakes. Assets considered for disposal are usually identified by the ease with<br /> which they can be carved out, their distance from the centre of the organization and their immediate market<br /> value. The very nature of this decision-making process means the underlying business and operating model<br /> will probably remain unchallenged.<br /> Longer-term core versus non-core decisions need to be derived from basic thinking around the customer<br /> value proposition and the ongoing ability of the bank to derive value from that model. Banks will need to<br /> consider the appropriate mix of products and services they can deliver and manage, where they sit<br /> on the mono-line – universal bank continuum, the balance between distribution and manufacture,<br /> the ability to scale and the effectiveness of embedded control.<br /> Understanding the Customer<br /> Banks need to go back to thinking about customer needs and the way these needs are met. Customer<br /> segmentation models are traditionally broken down by geography, turnover or income, and<br /> industry group or demographic, but this type of segmentation originated from a credit-based<br /> relationship.<br /> As the cost of capital and liquidity increases, a fundamental repricing of balance sheet capital usage will<br /> occur. Sophisticated banks, however, will think beyond repricing and look at the underlying<br /> segmentation of their customers to seek out areas of profitability that are less dependent on capital<br /> consumption. There is a long-term trend in the industry away from net interest income (NII) to non-NII<br /> revenue sources (non-NII revenue rising from about 25% of total revenue in 1980 to 45% in 2000). This<br /> trend is likely to continue and current segmentation and relationship models should be challenged. In a<br /> recent PricewaterhouseCoopers survey3 of corporate treasurers the primary way these key bank customers<br /> measured the value they created for their own institutions was through managing the bank relationship, and<br /> the predominant way they measured the value of that relationship was cost. This suggests that this part of<br /> the business model should have been questioned prior to the current financial crisis.<br /> Manufacturing – Do You Need to Own it?<br /> Banks must also consider the mechanisms through which they deliver the customer value proposition.<br /> Internet banking models have proved that the once-strong link between the size of the branch estate and<br /> market share can be challenged. White-labeling and product-aggregation models have proved that franchise<br /> ownership is not dependent on owned products and operations, while originate-and-distribute models have<br /> demonstrated that a bank need not be constrained by its own balance sheet when servicing customers’<br /> funding requirements.<br /> The future will probably bring changes to whichever part of the value chain banks choose to operate in,<br /> particularly for the universal banking model, where most will recognize they lack the scale and reach to<br /> serve fully their franchise with owned product and infrastructure. The nimble, who have a fully developed,<br /> needs-based customer value proposition will understand that packaging an appropriate set of products and<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 23<br /> services together, some of which may be white labeled from others, adds more value than providing a<br /> limited range of fully owned products and services.<br /> These emerging models will require a different set of skills in terms of managing the delivery<br /> components of the operating model – security of the supply chain will become increasingly central<br /> to operations, while risk management and people and reward programs will need to reflect this skill set<br /> change.<br /> Achieving Scale<br /> Margins in financial services will be increasingly tested. There has been a step change in the available<br /> revenue pool and while pricing and costs are being adjusted, a 300lb man that loses 30lbs is still overweight,<br /> however many notches on his belt he claims to have tightened. Banks will need to look for transformational<br /> cost reduction and this will be found through scale in all aspects of the business. Previously discrete areas<br /> will be deconstructed and synergies sought through shared services in low-cost locations. Coverage models<br /> will need aligning internally and to the customer, while historical branch and subsidiary structures will<br /> require reviewing in terms of regulatory alignment, funding requirements, tax efficiency and contract<br /> efficiency. Every aspect of a bank’s business and operating model will need to be scaled or, if it is<br /> not, have specific and clearly understood reasons why.<br /> Embedding Control<br /> An essential element of the operating model is the efficiency with which it generates value for the bank. The<br /> current financial crisis has highlighted the degree to which banks’ operating models failed to fully control<br /> their businesses as they developed. For example, the way business growth plans were developed and driven<br /> while disconnected from risk appetite models; how control staff was ignored by the business and boards<br /> lacked the confidence, or insight, to challenge the executive. In future, banks will need greater focus on the<br /> sustainability of their business models and that requires clear governance and embedded control.<br /> Overall, considerations around customer value proposition, end-to-end ownership, scale and control, raise<br /> questions about the future of the universal banking model and the degree to which those institutions using<br /> that model can remain focused, scaled and controlled enough to optimize shareholder value.<br /> Risk Management<br /> Risk Management function has acquired a heightened importance. Valuation techniques using historical<br /> data, has proved inadequate. Substantial Improvements through multiple approaches will be required.<br /> Alongside Measurement, the remaining areas of Risk Management framework, e.g. Identification,<br /> Monitoring, and Mitigation will also be given more attention. There will be a need for renewed & greater<br /> emphasize on Liquidity & Operational Risk while making business decisions. Regulatory requirements &<br /> Regulators intervention will assume greater significance forcing Banks management to undertake major<br /> adjustments in their approach.<br /> Complexities of Transformational Programs<br /> The strategy section of this paper identifies the problem of institutions becoming stuck in ‘panic’ mode and<br /> discusses the directionless inertia that it can create. This inertia can be compounded by the scope and<br /> complexity of the change that is required. As organizations set out their plans for the future, both in terms<br /> of positioning (business model) and delivery (operating model), they need to understand the complexities of<br /> achieving their goals. We consider five complexities when undertaking transformational programs:<br /> 􀂙 Business model complexity: Understanding the scope of the value proposition and the way it is<br /> delivered<br /> 􀂙 Process complexity: Deconstructing business processes to achieve cross-process scale<br /> 􀂙 Organizational complexity: Realignment of the organization to new business and operating<br /> models<br /> 􀂙 Contractual complexity: Security and optimization of the bank’s supply chain<br /> 􀂙 Cultural complexity: Challenging the way things are done and replacing the reference points that<br /> provide day-to-day certainty<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 24<br /> The leadership at banks faces a considerable task in setting out their vision for the future. The first step is to<br /> define the strategic principles of the business and operating model and to understand their impact. The<br /> second step is to ensure alignment and common understanding of the principles across the leadership team,<br /> and the third is to communicate.<br /> Over the past 18 months (since mid 2007) financial services have changed fundamentally and permanently.<br /> Before the crisis, systemic risk was a subject for abstract theoretical discussions and seen as something for<br /> others to worry about. Derivatives, securitization, risk management and the Basel banking regulations were<br /> thought to have made the world a safer place, not a more dangerous one. Then everything changed.<br /> In a previous paper perspective was offered on the global financial crisis in order to examine how the<br /> foundations of financial service institutions have been shaken to their core. The speed and intensity, with<br /> which financial markets changed, combined with the scale and complexity of banking models exposed the<br /> structural weaknesses of major players. Some global institutions have disappeared, while only a few are able<br /> to survive on their own and gain market share. Typical reactions to the crisis have been short-term in<br /> nature, in many cases driven by the need for survival. Short-term actions alone will not suffice and<br /> fundamental questions need to be asked and issues tackled. A few leading institutions are beginning to<br /> address those fundamental issues and prepare themselves to prosper in the new world while most have not<br /> begun the process.<br /> The Key Questions<br /> How will institutions address risk management, capital and liquidity requirements? The need to take risks,<br /> hold capital against those risks and manage mismatches in positions through effective liquidity management<br /> is fundamental to banking. The fundamentals have not changed. Many of the assumptions that were used to<br /> model these fundamentals in the past have changed for good. Businesses that were once seen as profitable<br /> are now uneconomic; businesses once seen as safe are now seen as reckless. Institutions will need to be able<br /> to make robust decisions based on sound understanding of true profitability after having reflected the<br /> return required for the risk and the capital used.<br /> How will Banks Make Money in the Future?<br /> Banking is of vital importance to the global economy; therefore a successful, profitable and competitive<br /> financial system is essential. Banks must determine which customers they will serve, in which markets and<br /> with what products. There is, however, no guarantee that size will be the key to success, or that existing<br /> banks will be able to preserve their franchise. Shareholders have already penalized those banks that built up<br /> poor credit portfolios; they will soon start to reward those banks that can generate profitable revenues<br /> without taking undue risk.<br /> What will the regulatory environment be like and how will individual institutions need to respond? Highprofile<br /> regulatory action has already been taken. This process will continue and institutions will need to<br /> demonstrate a greater degree of compliance with the new regulatory requirements.<br /> Many of the institutions that have failed had comprehensive governance structures. Were these structures<br /> fundamentally flawed? Banks must ask whether those charged with governance have the right skills,<br /> individually and collectively, to be able to challenge constructively and must ensure oversight functions have<br /> access to all the information needed to effectively analyze the risks the business faces.<br /> Finally, how well will business models survive and will they be efficient? The changed market environment<br /> has exposed weaknesses in business models, but while no bank has the luxury of starting from a clean sheet<br /> of paper, maintaining the status quo is also out of the question. Most major banks are a complex web of<br /> geography and culture, as well as products/services. This has resulted from years of organic growth,<br /> mergers and acquisitions, as well as the organization’s response to product innovation, regulatory responses,<br /> tax changes, globalization and regionalization initiatives.<br /> The efficiency of an organization’s business model will be judged by the alignment it has to the strategy and<br /> the way in which it facilitates the most productive use of unique capabilities.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 25<br /> It is of critical importance to address all of these key priorities, in the right order, and to ensure the<br /> responses are aligned. This is what will differentiate the leading institutions from the second-tier players in<br /> the future, and ensure survival in the new world.<br /> Purpose of this Extended Context and Re-Emphasis on Bank Business & Operating Model is to<br /> remind you to regularly visit and re-visit the concept in order to better understand the dynamics of<br /> Consumer Banking (CB) Business.<br /> Banks vs. Banking<br /> 􀂙 Bank is a Form, Banking is a Function (Former is a Noun, later is a Verb)<br /> 􀂙 Banks may get deconstructed, reshaped, become redundant, or disappear altogether<br /> 􀂙 Many Non-Bank entities will start providing Banking Services<br /> 􀂙 On the contrary, Banking as a Function will Survive & Thrive because people’s needs for financial<br /> services & products facilitated by the Banking Function will not disappear<br /> 􀂙 Future R&D and Innovation in Financial Services Industry will be geared more towards Banking as<br /> a Function rather than on Banks as an entity<br /> 􀂙 While Banking in general has been dramatically impacted by the financial crisis, many areas of<br /> Retail Banking remain inherently highly profitable<br /> 􀂙 This fact has not gone unnoticed to Non-Financial Companies with strong brands and resources<br /> 􀂙 A number of them will enter the Banking Market/Industry looking to take market Share from<br /> traditional Banks<br /> 􀂙 In Pakistan due to Regulatory requirements/constraints this may not seem straightforward<br /> 􀂙 However, we, in Pakistan, can’t afford to ignore global trends and remain marginalized in the<br /> international community<br /> 􀂙 This may soon lead to Regulators/Authorities reviewing and relaxing concerned rules<br /> Non-Financial Companies threat to Banks: Why/How?<br /> 􀂙 Retail Banks management time & energy diverted towards issues of survival, restructuring, &<br /> reducing cost base limiting their response to such threats<br /> 􀂙 Many are capital constrained & have significant, costly & time-consuming legacy issues to<br /> overcome if they are to undertake major transformation<br /> 􀂙 Enhanced regulation resulting in lower revenues from penalty fees plus scarcity of capital leading to<br /> limiting their response<br /> 􀂙 According to a Jan ‘09 survey in UK, Banks reputation is at an all-time low. Some 30% of<br /> consumers are highly unsatisfied with their services<br /> Source/Reference:<br /> 1. The Future of Banking<br /> 2. PWC Briefing/Report (July 2009)<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 26<br /> LESSON 04<br /> CONSUMER, CONSUMER RIGHTS & PROTECTION<br /> Who is a Consumer?<br /> Consumption is basic to human survival and it must be shared, strengthening, socially responsible and<br /> sustainable. Therefore, we all are consumers, whether of goods or of services, whether purchased or<br /> otherwise, and whether provided by the market or the public sector.<br /> Consumer is somebody who uses a product or service. A consumer may not be the purchaser of a product<br /> or service and should be distinguished from a customer, who is the person or organization that purchased<br /> the product or service.<br /> A Consumer:<br /> 􀂉 One that consumes, especially one that acquires goods or services for direct use or ownership<br /> rather than for resale or use in production and manufacturing<br /> 􀂉 One that utilizes economic goods; specifically : an individual who purchases goods for personal use<br /> as distinguished from commercial use<br /> Consumer or Citizen<br /> State recognizes people as citizens, whereas markets treat people as consumers and value them as<br /> customers. Even markets are located within the States. And people’s status as citizens is more overarching<br /> than their status as consumers. Thus people’s rights as consumers are interlinked with their rights as<br /> citizens; both need to be pro-actively promoted and protected from predatory factors in the market and the<br /> State. In particular, poorer citizen-consumers, who do not have the “dollars” to make the market respond to<br /> the “one dollar, one vote” principle, do have the right to make the state – and hence the market respond on<br /> the “one person one vote” principle. This standpoint also links up the consumer movement with other<br /> human rights movement. In the age of globalization, this realization has become more important than ever<br /> before. The former President of Consumers International, Rhoda Karpatkin, said that "Consumer activism<br /> is exercising citizenship".<br /> Consumption is basic to human survival and it must be shared, strengthening, socially responsible and<br /> sustainable. Therefore, we are all consumers, whether of goods or of services, whether purchased or<br /> otherwise, and whether provided by the market or the public sector.<br /> While buying in the marketplace is one important form of consumption, it is not necessary to be a customer<br /> to qualify as a consumer. However, the concept has been associated with market so closely that it has<br /> assumed a very restrictive meaning. In a country crippled with poverty, where we pay heavily but indirectly<br /> for goods and services from our State (including infrastructure development, defense, good governance, and<br /> so on), we are citizen-consumers. While the market has at least some level of self-corrective mechanisms to<br /> meet the demands of customers, the State in Pakistan does not have the most basic democratic channels to<br /> meet the demands of its citizens. Therefore, it is crucial to broaden our understanding about consumers in<br /> order to be inclusive of poor citizens and their rights as consumers whom markets can ignore but the State<br /> and the consumer movement cannot.<br /> What are Consumer Rights?<br /> Based on the United Nations Guidelines for Consumer Protection, 1985 (to which Pakistan is a signatory),<br /> the global umbrella body Consumers International articulated a set of eight, internationally accepted<br /> consumer rights that need to be actively protected and promoted.<br /> The Right to Basic Needs means the right to basic goods and services which guarantee survival. It<br /> includes adequate food, clothing, shelter, health care, education and sanitation.<br /> The Right to Safety means the right to be protected against products, production processes and services<br /> which are hazardous to health or life. It includes concern for consumer long-term interests as well as their<br /> immediate requirements.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 27<br /> The Right to Be Informed means the right to be given the facts needed to make an informed choice or<br /> decision. Consumers must be provided with adequate information enabling them to act wisely and<br /> responsibly. They must also be protected from misleading or inaccurate publicity material, whether included<br /> in advertising, labeling, and packaging or by any other means.<br /> The Right to Choose means the right to have access to a variety of products and services at competitive<br /> prices and, in the case of monopolies, to have an assurance of satisfactory quality and service at a fair price.<br /> The Right to Be Heard means the right to advocate consumers’ interests with a view to their receiving full<br /> and sympathetic consideration in the formulation and execution of economic and other policies. It includes<br /> the right of representation in government and other policy-making bodies as well as in the development of<br /> products and services before they are produced or set up.<br /> The Right of Redress means the right to a fair settlement of just claims. It includes the right to receive<br /> compensation for misrepresentation of shoddy goods or unsatisfactory services and the availability of<br /> acceptable forms of legal aid or redress for small claims where necessary.<br /> The Right to Consumer Education means the right to acquire to knowledge and skills to be an informed<br /> consumer throughout life. The right to consumer education incorporates the right to the knowledge and<br /> skills needed for taking action to influence factors affecting decisions.<br /> The Right to a Healthy Environment means the right to a physical environment that will enhance quality<br /> of life. It includes protection against environmental dangers over which the individual has no control. It<br /> acknowledges the need to protect and improve the environment for present and future generations.<br /> What are Consumer Responsibilities?<br /> Consumers International also articulated five basic responsibilities of all consumers.<br /> 􀂙 Critical Awareness – the responsibility to be more alert and questioning about the price and<br /> quality of goods and services we consume<br /> 􀂙 Action – the responsibility to assert ourselves by acting to ensure that we get a fair deal. As long as<br /> we remain passive consumers, we will continue to be exploited and manipulated<br /> 􀂙 Social Concern – the responsibility to consider the impacts of our consumption patterns and<br /> lifestyles on other citizens, especially the poor, disadvantaged or powerless consumers, whether<br /> they be in the local, national or international community<br /> 􀂙 Environmental Awareness – the responsibility to realize the environmental costs and<br /> consequences of our consumption patterns and lifestyles. We should recognize our individual and<br /> collective social responsibility conserve natural resources and to preserve earth for present and<br /> future generations<br /> 􀂙 Solidarity – the responsibility to come together and organize consumers in order to enhance the<br /> strength and influence required to promote and protect our interests<br /> Why Consumer Protection?<br /> Citizens need protection of their consumer rights in three ways:<br /> • in the market place against problem goods and services; against bad trade practices; exploitative<br /> prices and unethical marketing;<br /> • from governments as supplier of basic goods and services for poor and vulnerable consumers; as<br /> formulators of public polices so that they are just, equitable and protective; and as provider of good<br /> governance;<br /> • from the State to provide reliable consumer protection structures which ensure safety against<br /> weaknesses of the market and its failures and which ensure good government.<br /> The importance for consumer protection has assumed renewed importance today. Globalization and its<br /> various instruments have posed new challenges for consumer protection especially in poor countries.<br /> The greatest challenge for consumer movement today is to raise cogent and effective voice for bringing<br /> fairness in free market economy at local, national and global levels.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 28<br /> (Note: These are the Opinions/Views/Comments as expressed by The Network for Consumer<br /> Protection, Pakistan, a not-for-profit, public interest and independent non-government<br /> organization working since 1992.)<br /> Sectoral Challenges Facing Citizen-Consumers in Pakistan<br /> It is well recognized that there is a general lack of awareness among consumers about their legal and civic<br /> rights, due to a number of complex and inter-related factors, including a historically unresponsive state, a<br /> regularly exploitative private sector and the failure of democratic institutions in addressing consumers dayto-<br /> day and policy related problems.<br /> The state has in many cases not protected their right to a healthy life, as guaranteed by Article 9 of the<br /> Constitution or various United Nations declarations, including for Consumer Protection, 1985. Likewise,<br /> the private sector has proved unresponsive to complaints or to the health concerns of consumers,<br /> particularly disadvantaged consumers, making full use of the lack of literacy and awareness in the country.<br /> This is further complicated by a weak regulatory structure in the country, plagued by poor implementation<br /> of social laws even when they are drafted. In addition, most of the civic sector also does not advocate for<br /> consumer rights.<br /> As a consequence, there is little to no demand from citizen-consumers for protection of their rights, and<br /> they have had little stake in the systems and mechanisms introduced by the state, choosing by and large not<br /> to occupy the opportunities legally offered. For example, at one level there are barely adequate statutes to<br /> facilitate redress of consumers’ complaints about products and services (particularly related to government<br /> provision of basic services such as water and health) in a transparent, just and timely manner. At another<br /> level, the historically weak response to the statutes that exist have left consumers cynical, and they mostly<br /> do not appropriately lodge and follow up their complaints, accepting losses and suffering violation of their<br /> rights. As above, this affects already disadvantaged consumers the most.<br /> A growing concern for consumers, particularly in the context of a liberalizing economy, is the information<br /> inequity in the market. The overwhelming bulk of consumers simply do not have access to independent<br /> information about: products and services, government’s performance on protection of their rights, how<br /> their rights are being violated by public and private sectors, and what they themselves are already legally<br /> empowered to do to protect their rights.<br /> Policy Challenges Facing Consumers in Pakistan:<br /> These sectoral concerns highlight the generic, policy challenges faced by consumers particularly that affect<br /> their health.<br /> The role of corporations, especially their lack of responsiveness and ethical behavior coupled with the<br /> inability of the state to check their functioning in Pakistan, is problematic. The fundamental issue is one of<br /> the accountability of most corporations that are primarily in place to make profits, even at the cost of<br /> consumer health. The ways in which corporations are exercising their role is now more complex than ever,<br /> not only through directly unethical and in some cases illegal marketing but also through indirectly<br /> promoting a consumer culture that values purchases more than health.<br /> This culture is instilled in consumers from school onwards, and the role of the media itself commercialized<br /> in this regard also goes largely unchecked. The corporatization of the mind has begun in earnest in Pakistan<br /> and consumers, particularly lower middle class consumers, are increasingly under threat. While calls for<br /> corporate social responsibility abound, these have resulted in little more than “greenwash” in the country;<br /> there are no independent organizations holding corporations accountable.<br /> However, while the problem of corporations is at one level fundamentally problematic, this is a global<br /> phenomenon which many international campaigns are targeting in different arenas. The problem is made<br /> more intense in Pakistan due to the poor state of regulation. The double whammy facing consumers in<br /> Pakistan, as above, comprises absence of appropriately motivated legislation and regulation, and poor<br /> implementation of laws where they do exist. The state of implementation of social laws has been much<br /> commented upon, and while numerous policy initiatives have been announced, none has made much<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 29<br /> difference to the fact that such regulation remains weak while at the same time there are little to no<br /> problems in implementing defense, foreign policy, or macro-finance laws. For consumer health, this<br /> situation is complicated even more because of the intensive role of the State in the provision of social<br /> services, such as drinking water, above, and justice.<br /> This last is the final determinant of consumer welfare, since the justice system is intended to provide an<br /> independent recourse to consumers. When court procedures are lengthy and costly, and justice is neither<br /> accessible nor expected, as in most cases across the country, consumers are left to their own, weak, devices.<br /> In sum, the State problems amount to an issue of social justice.<br /> This issue of social justice is one of democracy, in particular the absence of democratic norms in the<br /> country. From a direct consumer perspective, social justice is neither ensured nor evident in the policy<br /> processes of the country. Meaningful citizen participation in policy processes is negligible, policy processes<br /> (including implementation) are opaque, and policy makers largely unaccountable. In effect, consumers have<br /> little to no forums for raising an effective voice in matters determining their lives. They have, thus, no<br /> demand as above.<br /> The matter of democracy is directly related to consumer rights. While Pakistan is a signatory to the UN<br /> Guidelines for Consumer Protection, 1985, it has yet to submit any report on its compliance with the<br /> Guidelines, or to be held accountable. A basic tenet of the Guidelines is that consumer rights are just that:<br /> rights, not privileges. And, therefore, the State has a basic obligation to ensure that those rights beginning<br /> with the right to satisfaction of basic needs, and moving through the right to redress. A consumer, most<br /> importantly, is not just a customer in the marketplace, but a citizen who uses goods and services not directly<br /> paid for in the marketplace.<br /> While the Guidelines, and subsequent development of a framework by the umbrella body Consumers<br /> International, require the State to ensure these rights, they also recognize that it is unrealistic to expect the<br /> State to intervene in every case. Even a strong judicial system can act better as a deterrent that actual<br /> litigation in every matter, which would cause its own problem. In the final analysis, as understood by<br /> advocates of functional democracy, it is the demand raised by citizens themselves; in this case as consumers,<br /> that determines the efficacy of systems of protection. And for this, consumers need to be critically<br /> informed. Doubtless low literacy levels hamper mass awareness to an extent, but this barrier is neither<br /> insurmountable (given developments in electronic media) nor a deterrent to the awareness of the literate<br /> sections of the population. However, consumers in Pakistan remain unaware both of their rights, and of the<br /> increasingly insidious ways in which those rights are being violated.<br /> These issues reflect a changed landscape since The Network last strategize its future in 1999: the previous<br /> government, the events of 9/11 and their aftermath, a vastly enhanced recognition of NGOs, a further<br /> multiplication of NGOs and donor funds, three new civil society organizations also advocating for<br /> consumer rights, growing levels of “policy advocacy”, and recognition of the role of NGOs “on the table”<br /> with government but repression of a “hard” advocacy role. The Network has been a part of these trends,<br /> and derives its re-strategization from its examination of the context.<br /> Consumer Financial Protection Agency (CFPA) of USA (Proposed)<br /> The Consumer Financial Protection Agency, or CFPA, is a newly proposed (in Aug 2009) independent<br /> federal agency that would, if established, have single, primary authority to protect consumers with respect to<br /> financial products and services, other than investment products. It would have supervisory, examination<br /> and enforcement authority for protecting consumers with respect to credit, savings, payment and other<br /> financial products and services.<br /> The current consumer financial protection is based on disclosure regime and is policed through supervisory<br /> feedback, enforcement actions, and occasionally prohibitions on terms, products, and practices that are<br /> deemed inherently unfair and deceptive. On the federal level, consumer protection in financial services is<br /> divided among a number of agencies. Some of these agencies have the ability to promulgate regulations,<br /> some also exercise supervisory authority over financial institutions, and some may only enforce existing<br /> regulations. Sometimes authority is over a class of institutions, and sometimes it is over a particular type of<br /> product. There are four main structural criticisms of the current regulatory structure: that consumer<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 30<br /> protection is a so-called “orphan” mission; that consumer protection conflicts with, and is subordinated to,<br /> safety-and-soundness concerns; that no agency has developed an expertise in consumer protection in<br /> financial services, and; that regulatory arbitrage of the current system fuels a regulatory race-to-the-bottom.<br /> Consolidation of consumer financial services protection authority could: place all financial services<br /> companies, regardless of the form of their charter, under a single regulator, thus ending its orphan status;<br /> separate consumer protection from safety-and-soundness regulation, thus ending subordination; encourage<br /> the development of a deep bench of regulatory expertise and knowledge, and; end the opportunity for<br /> regulatory arbitrage and any potential race to the bottom.<br /> There are several potential concerns about a CFPA: conflicts with prudential regulators; ambiguity with<br /> respect to Consumer Reinvestment Act authority, and; potential overregulation resulting in higher costs of<br /> financial products, less product availability, and discouragement of innovation. Still, there are compelling<br /> reasons to believe that the present regulatory architecture cannot produce the optimal consumer protection<br /> regime and will continue to fail in its task, resulting in unfair treatment of consumers and a potentially<br /> significant source of systemic risk. To this extent, consideration of a CFPA should strive to distinguish<br /> between the basic thrust of the legislation—a consolidation of the regulatory authority of—and the<br /> proposed new substantive powers granted to the agency.<br /> CFPA Mandate is to ensure that consumers of financial products:<br /> 􀂙 Have the information they need to make wise financial decisions<br /> 􀂙 Are protected from abuse, discrimination, and unfair and deceptive practices<br /> 􀂙 Have access to financial services<br /> 􀂙 Ensure the financial services market operates fairly and efficiently<br /> Significance of the CFPA<br /> 􀂙 Given the scope and ambition of this proposal, this is a game changer for the financial services<br /> industry<br /> 􀂙 The proposal says: consumer protection is a high priority for the federal government, and it will<br /> work in coordination with other agencies and the states to ensure that financial products that are<br /> fair, transparent, and suitable for the consumer<br /> 􀂙 Success will depend upon dedicated staff, resources, and enormous coordination throughout the<br /> federal government and the states<br /> The Need for CFPA<br /> 􀂙 The old rules to protect consumers don’t work<br /> 􀂙 Financial products are too complex<br /> 􀂙 The terms and conditions, even the disclosures, are far from clear and transparent<br /> 􀂙 The incentives of the provider and the consumer’s needs may be misaligned<br /> 􀂙 Consumer often doesn’t have the experience or knowledge to know where to go to get the<br /> information needed to navigate the array of product options<br /> CFPA Authority Will<br /> 􀂙 Require that all product disclosures and communications be reasonable, balanced, and clear and<br /> conspicuous - and this would be based on significant consumer research and analysis<br /> 􀂙 Define standards for “plain vanilla” products, such as mortgages, bank accounts, and credit cards.<br /> These products would have straight forward pricing<br /> 􀂙 Have authority to place tailored restrictions on product terms and provider practices<br /> 􀂙 Enforce fair lending laws and to ensure underserved communities and consumers have access to<br /> prudent financial services<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 31<br /> Some of the products CFPA will focus on:<br /> Mortgages<br /> • Consumers face an array of mortgage options that come with wide variations in rates, terms,<br /> penalties, and conditions<br /> • In year’s past, mortgages were originated by banks. But as of late, the majority of mortgages are<br /> sold by mortgage brokers<br /> • These companies have existed largely outside of the banking regulatory system with respect to<br /> consumer protections<br /> • Compounding the issue for the consumer is the fact that mortgage brokers have incentives -the<br /> yield spread premium -to sell the consumer a product that isn’t necessarily the most suitable or<br /> lowest cost for them<br /> • To successfully navigate this maze, consumers not only need to figure out the product options that<br /> suits their need, but also who is selling the product, what motivates that seller, and whether there<br /> are rules to ensure the seller is offering a product that is fair and non deceptive<br /> Bank Accounts<br /> • Even basic bank accounts are commonly fraught with unexpected costs, in the form of surcharges<br /> at ATMs, under balance fees, and the big one, overdraft charges, which cost are on average about<br /> $35 per check<br /> • As overdrafts currently work, an accountholder is automatically over drafted, with the payment<br /> completed and the account debited for the overdraft charge<br /> • These kinds of charges which can rack up to hundreds of dollars in the course of a month can tip a<br /> family that’s just making it into serious financial hardship<br /> Source/Reference:<br /> 1. The Network for Consumer Protection, Pakistan, Web Page<br /> 2. CFPA, Official Website<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 32<br /> LESSON 05<br /> KEY ISSUES IN CB --- CONSUMER’S PERSPECTIVE<br /> When we talk about Consumer Banking, it means that we talk about facilitating the common and ordinary<br /> people of the society by providing them an opportunity to acquire the necessities and accessories of life that<br /> are needed by them to maintain/sustain an affordable, pleasurable, easy, and comfortable life.<br /> Consumer Banking: Definition<br /> Services provided by commercial banks to individuals (as opposed to business customers) that include<br /> Current Accounts, Deposit and Savings Accounts, as well as Credit Cards, Auto Loans, House Loans<br /> (Mortgages), Personal Loans and Investments. It is also called “Retail Banking” and may be used<br /> interchangeably.<br /> Consumer Banking is the provision of products and services to meet the financial needs of individuals in<br /> order to generate products that will boost the bank’s deposit base as well as quality risk asset portfolio.<br /> The Consumer Banking environment today is changing fast. The changing customer demographics<br /> demands to create a differentiated application based on: scalable technology, improved service and banking<br /> convenience. Higher penetration of technology and increase in global literacy levels has set up the<br /> expectations of the customer higher than never before. Increasing use of modern technology has further<br /> enhanced reach and accessibility.<br /> The market today gives us a challenge to provide multiple and innovative contemporary services to the<br /> customer through a consolidated window as so to ensure that the bank’s customer gets “Uniformity and<br /> Consistency” of service delivery across time and at every touch point across all channels. The pace of<br /> innovation is accelerating and security threat has become prime for all electronic transactions. High cost<br /> structure rendering mass-market servicing is prohibitively expensive.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 33<br /> Changing Trends<br /> Present day bankers are now more looking at reduction in their operating costs by adopting scalable and<br /> secure technology thereby reducing the response time to their customers so as to improve their client base<br /> and economies of scale.<br /> The solution lies to market demands and challenges lies in innovation of new offering with minimum<br /> dependence on branches, a multi-channel bank and to eliminate the disadvantage of an inadequate branch<br /> network. Generation of leads to cross sell and creating additional revenues with utmost customer<br /> satisfaction has become focal point worldwide for the success of a Bank.<br /> Consumer Financing<br /> Consumer financing is a type of service that is designed to provide the individuals with necessary finance<br /> for personal purchases ranging from buying a car, shopping purchases, to buying a house. The concept of<br /> consumer financing is based on the need for an institutional arrangement that provides consumers with<br /> financing support to enhance their consumption and, as a result, improve their standards of living.<br /> Advantages of Consumer Banking<br /> Consumer banking has inherent advantages outweighing certain disadvantages. Advantages are analyzed<br /> from the resource angle and asset angle.<br /> The Resource/Liability Side:<br /> 􀂙 Retail deposits are stable and constitute core deposits<br /> 􀂙 They are generally insensitive to profit/return with less bargaining for higher rate<br /> 􀂙 They constitute low cost funds for the banks<br /> 􀂙 Effective customer relationship management with the retail customers build a strong customer base<br /> 􀂙 Retail banking increases the subsidiary business of the banks<br /> The Assets Side:<br /> 􀂙 Retail banking results in better yield and improved bottom line for a bank<br /> 􀂙 Retail segment is a good avenue for funds deployment<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 34<br /> 􀂙 Consumer loans are presumed to be of lower risk and NPA perception<br /> 􀂙 Helps economic revival of the nation through increased production activity<br /> 􀂙 Improves lifestyle and fulfils aspirations of the people through affordable credit<br /> 􀂙 Innovative product development<br /> 􀂙 Retail banking involves minimum marketing efforts in a demand driven economy<br /> 􀂙 Diversified portfolio due to huge customer base enables bank to reduce their dependence on few<br /> or single borrower<br /> 􀂙 Banks can earn good profits by providing non-fund based or fee based services without deploying<br /> their funds<br /> Disadvantages of Consumer Banking<br /> 􀂙 Designing own and new financial products is very costly and time consuming for the bank<br /> 􀂙 Customers now-a-days prefer net banking to branch banking. The banks that are slow in<br /> introducing technology-based products, are finding it difficult to retain the customers who wish to<br /> opt for net banking<br /> 􀂙 Customers are attracted towards other financial products like mutual funds and NSS<br /> 􀂙 Though banks are investing heavily in technology, they are not able to exploit the same to the full<br /> extent<br /> 􀂙 A major disadvantage is monitoring and follow up of huge volume of loan accounts inducing banks<br /> to spend heavily in human resource department<br /> 􀂙 Long term loans like housing loan due to its long repayment term in the absence of proper followup,<br /> can become NPAs<br /> 􀂙 The volume of amount borrowed by a single customer is very low as compared to wholesale<br /> banking. This does not allow banks to exploit the advantage of earning huge profits from single<br /> customer as in case of wholesale banking<br /> Challenges to Retail Banking in Pakistan<br /> 􀂙 The issue of money laundering is very important in retail banking. This compels all the banks to<br /> scrutinize diligently all the documents which they accept while entering into a relationship<br /> 􀂙 Outsourcing has become significant in recent past because various core activities such as hardware<br /> and software maintenance, entire ATM set up and operation (including cash, refilling) etc., are<br /> being handled by outside vendors<br /> 􀂙 Banks are expected to take utmost care to retain the ongoing trust of the public<br /> 􀂙 Customer service should be at the end all in retail banking. Someone has rightly said, “It takes<br /> months to find a good customer but only seconds to lose one.” Thus, strategy of Knowing Your<br /> Customer (KYC) is important<br /> 􀂙 The dependency on technology has brought IT departments’ additional responsibilities and<br /> challenges in managing, maintaining and optimizing the performance of retail banking networks<br /> 􀂙 It is equally important that banks should maintain security to the advance level to keep the faith of<br /> the customer<br /> 􀂙 The efficiency of operations would provide the competitive edge for the success in retail banking in<br /> coming years<br /> 􀂙 The customer retention is of paramount important for the profitability of retail banking business &<br /> increase in the market share<br /> 􀂙 One of the crucial impediments for the growth of this sector is the shortage of manpower talent of<br /> this specific nature, a modern banking professional, for a modern banking sector<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 35<br /> Customer Service<br /> Customer service is perhaps the most important dimension of retail banking. While most banks offer the<br /> same range of service with similar technology/expertise, the level of customer service matters the most in<br /> bringing in more business. Perhaps more than the efficiency of service, the approach and attitude towards<br /> customers will make the difference.<br /> Front line staffs have to be educated in this regard. A scheme of entrusting a group of important customers<br /> to the care of each employee/officer with a person to person knowledge and intimacy can be implemented<br /> all sundry advices/notices such as Dr. /Cr. advices. TDR maturity advices, etc. whether signed by<br /> employees or officers should be identifiable by the name of those signing, and inviting customers to contact<br /> them for further assistance in the matter.<br /> A customer centered organization has to be built up, whose ultimate goal is to "own" a customer. Focused<br /> merchandizing through effective market segmentation is the need of the hour. A first step can be the<br /> organization of the various retail branches to enter for different market segments like up-market individuals,<br /> traders, common customers, etc. For the SIB (Small Industry and Business) sector banks, the focus should<br /> be on identifying efficient units and allocations of loans to these units. These banks should try Merchant<br /> Banking services on a small scale. With agricultural output growing at a fast rate and mechanization setting<br /> in, banks should try to cater to the credit needs of the people involved in this profession. A wide network is<br /> absolutely imperative for this sector.<br /> Separate branches/divisions should be opened for traders and similar government businesses. Special<br /> facilities for cash tendered in bulk and immediate issue of drafts, by extending facilities like "guarantee<br /> bond" system, will go a long way in mitigating problems faced by traders who are the major customers for<br /> drafts issue. Provision for cash counting machines in these branches will reduce the monotony of cashiers<br /> and unnecessary delays, thus resulting in better productivity and ultimately in improved customer service.<br /> Operational Excellence in Banking<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 36<br /> The personal segment is however the most important one. With the urban segment moving away because<br /> of disintermediation and competition from foreign banks, retail banks should focus on the rural/semi-urban<br /> areas that hold the maximum potential. In the urban areas, private banking to affluent customers can be<br /> introduced, through which advisory and execution services could be provided for a fee. Foreign currency<br /> denominated accounts can also be introduced for them.<br /> Technology<br /> In the current scenario, the importance of technology cannot be understated for retail banks which entail<br /> large volumes, large queues and paperwork. But most of the banks are burdened with a large staff strength<br /> which cannot be done away with. Besides, in the rural and semi-urban areas, customers will not be at home<br /> in an automated, impersonal environment.<br /> The objective would be to ensure faster and easier customer service and more usable information, instantly,<br /> economically and easily to all those who need it -customers as well as employees. Proper management<br /> information systems can also be implemented to aid in superior decision making.<br /> Communication technology is especially needed for money transfer between the same city and also between<br /> cities. There are inordinate delays in our country because of geographical and other factors. Modern<br /> technology can make it possible to clear any check anywhere in Pakistan within three days. Installation of<br /> FAX facilities at all the big branches will facilitate speedy transfer of payment advices. Computerization will<br /> be of great help in improving back-office operations. At present, 60% of rural branches have PCs. These<br /> can be used for quick retrieval and report generation. This will also drastically reduce the time, bank staffs<br /> spend in filling and filing returns. Housekeeping operations can also be speeded up.<br /> Price Bundling<br /> Price bundling is a selling arrangement where several different products are explicitly marketed together to a<br /> price that is dependent on the offer. As banks are multi-product firms this strategy is more applicable to<br /> retail banking. Price bundling offers several economic and strategic benefits to a bank. It offers economies<br /> of, utilization of the existing capacities and reaching wider population of customers. Bank can get the<br /> benefits of information and transacting. In the process of extending variety of services, banks are acquiring<br /> enormous amount of customer information. If this information is systematically stored, banks can<br /> efficiently utilize this information in order to explore new segments and to cross-sell new services to these<br /> segments. Cross-selling opportunities and larger customer base can also be the motive for merger against<br /> usually stated advantage of cost savings. Price bundling can be used in order to lengthen the relationship<br /> with a customer. It will reduce the need of resources to be put on acquiring new customers and saves time<br /> of the bank. Among the strategic benefits, price bundling may cause less aggressive competition; it<br /> differentiates its products compared to rivals in the same market where the products are sold individually or<br /> in other kinds of bundles.<br /> Retail banking offers many services and it gives an opportunity to the bank to combine different services in<br /> different kinds of bundles. In many cases demand for one service affects the demand for another service,<br /> for example current or savings account and payment services are highly related, and here price bundling is a<br /> better alternative than individual selling. Banks have to analyze the customer segment and bundle products<br /> before applying the pricing strategies.<br /> The first step in price bundling decision is to select the customer segment. The bundle is targeted to choose<br /> a strategic objective. If there are two products (A and B) that are considered to be bundled together, the<br /> comprehensive strategic objectives for the different customer segments are:<br /> 􀂃 Cross-selling to customers that only buy one of the products<br /> 􀂃 Retaining customers that already buy both of the products<br /> 􀂃 Acquiring new customers when they buy neither product for the time being<br /> Innovation<br /> The scope for innovation in financial services is unlimited. Although banks have introduced a variety of<br /> deposit and loan products, the basic features of all these products are almost one and the same. Among the<br /> delivery channels, ATMs have emerged as ubiquitous money centers. Almost all banks have established<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 37<br /> their ATMs. For most of the banks the overhead costs on these ATMs are far higher than the revenue<br /> generated by them. ATM operation costs are largely fixed in nature - the cost of the machine, its<br /> maintenance, replenishment of currency, and the satellite (network) connection. There should be a<br /> minimum number of transactions to cover these costs. Banks have to innovate wide range of services in<br /> addition to cash withdrawals. ATMs should allow customers to buy postal and revenue stamps, payment of<br /> bills, event tickets, sports tickets, etc. Banks can offer ATM screens for slide show advertising also.<br /> However, the advantage of the ATM has always been speed and convenience, probably on introduction of<br /> these new services customer has to spend more time at a point. ATMs can guide the customer also. For<br /> example, if a customer's account balance has reached to bare minimum the ATM can give a helpful<br /> suggestion that "we notice your balance is low, can we help with a loan?" ATMs can be either within the<br /> premises of a branch or at a remote place. On premises ATMs are highly immune to competition, but<br /> branches can reduce the staff, on installation of ATM. The scope for wider services through off-premises<br /> ATMs is very high; it provides great opportunity for fee revenue. The cost of maintenance of off-premises<br /> ATMs is higher in terms of replenishment, cash couriers, armed security etc. In the US, approximately 23<br /> percent of ATMs are offering sale of postage stamps. It is the right time for banks to question themselves<br /> whether ATM is a service channel, sales channel, or branding opportunity.<br /> The future of retail banking lies more in mobile banking. Mobile telephone market is penetrating, and<br /> mobile phones are ideal to utilize Internet banking services without customer accesses to PC.<br /> Smart card revolution will further change the face of retail banking. Smart cards can store information; carry<br /> out local processing on the data stored and can perform complex calculations.<br /> Source/Reference:<br /> www.oppapers.com/search.php<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 38<br /> LESSON 06<br /> EMERGING ISSUES IN RETAIL BANKING<br /> 1. Knowing Customer (Commercial/Business Perspective)<br /> 􀂙 ‘Know your Customer’(KYC) has also become an important Regulatory Requirement<br /> 􀂙 In order that the product lines are targeted at the right customers-present and prospective-it is<br /> imperative that an integrated view of customers is available to the banks<br /> 􀂙 The benefits flowing out of cross-selling and up-selling require vital inputs<br /> 􀂙 What needs to be done is setting up of a robust data warehouse where from meaningful data on<br /> customers, their preferences, there spending patterns, etc. can be mined<br /> 􀂙 Cleansing of existing data is the first step in this direction<br /> 2. Technology Issues<br /> 􀂙 Retail banking calls for huge investments in technology<br /> 􀂙 Whether it is setting up of a Customer Relationship Management System or Establishing Loan<br /> Process Automation or providing anytime, anywhere convenience to the vast number of customers<br /> or establishing channel/product/customer profitability, technology plays a pivotal role<br /> 􀂙 The Issues involved include adoption of the right technology at the right time and at the same time<br /> ensuring volumes and margins to sustain the investments<br /> 􀂙 It is pertinent to remember that a large international bank, known for its deployment of technology,<br /> took quite a while to make profits in credit cards<br /> 􀂙 However, without adequate technology support it would be almost impossible to administer the<br /> growing retail portfolio without allowing its health to deteriorate<br /> 􀂙 Further, the key to reduction in transaction costs simultaneously with increase in ability to handle<br /> huge volumes of business lies only in technology adoption<br /> 􀂙 Lack of connectivity, stand alone models, concept of branch customer as against bank customer,<br /> lack of convergence amongst available channels, absence of customer profiling, lack of proper<br /> decision support systems, etc., are a few deficiencies that are being encountered<br /> 􀂙 The initiatives in this regard should include creating flexible computing architecture amenable to<br /> changes and having scalability, a futuristic approach, networking across channels, development of a<br /> strong Customer Information Systems (CIS) and adopting Customer Relationship Management<br /> (CRM) models for getting a 360 degree view of the customer<br /> 3. Organizational Alignment<br /> 􀂙 It is of utmost importance that the culture and practices of an institution support its stated goals<br /> 􀂙 Having decided to take a plunge into retail banking, banks need to have a well defined business<br /> strategy based on the competitive position of the bank and its potential<br /> 􀂙 Creation of a proper organization structure and business/operating models which would facilitate<br /> easy work flow are the needs of the hour<br /> 􀂙 The need for building the organizational capacity to achieve the desired results cannot be<br /> overstated<br /> 􀂙 This would mean a strong commitment at all levels, intensive training of the rank and file, putting<br /> in place a proper incentive scheme, etc.<br /> 􀂙 As a part of organizational alignment, there is also the need for setting up of an effective Corporate<br /> Marketing Division. Most of the banks have only publicity departments and not marketing setup<br /> 􀂙 A full fledged marketing department or division would help in evolving a brand strategy, address<br /> the issue of alienation from the upwardly mobile, high net worth customer group and improve the<br /> recall value of the institution and its products by arresting the trend of getting receded from public<br /> memory<br /> 􀂙 The much needed tie-ups with manufacturers/distributors/builders will also be facilitated smoothly<br /> 􀂙 It is time to break the myth that banks are not customer friendly. The attention is to be diverted to<br /> vast databases of customers lying with them still unexploited for marketing<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 39<br /> 4. Product Innovation<br /> 􀂙 Product innovation continues to be yet another major challenge<br /> 􀂙 What is of crucial importance is the need to understand the difference between novelty and<br /> innovation? Peter Drucker in his path breaking book: “Management Challenges for the 21st<br /> Century” has in fact sounded a word of caution: “innovation that is not in tune with the strategic<br /> realities will not work; confusing novelty with innovation should be avoided, test of innovation is<br /> that it creates value; novelty creates only amusement”<br /> 􀂙 Banks need to innovate products suiting the needs and requirements of different types of<br /> customers. Revisiting the features of the existing products to continue to keep them on demand<br /> should not also be lost sight of<br /> 5. Pricing of Product<br /> 􀂙 The next challenge is to have appropriate pricing policies in place<br /> 􀂙 The industry today is witnessing a price war, with each bank wanting to have a larger slice of the<br /> cake, without much of a scientific study into the cost of funds involved, margins, etc.<br /> 􀂙 Most of the banks that use rating models for determining the health of the retail portfolio do not<br /> use them for pricing the products. The much needed transparency in pricing is also missing, with<br /> many hidden charges and to camouflage the price<br /> 􀂙 The situation cannot remain this way for long. This will be one issue that will be gaining<br /> importance in the near future<br /> 6. Process Changes<br /> 􀂙 Business Process Re-engineering is yet another key requirement for banks to handle the growing<br /> retail portfolio<br /> 􀂙 Simplified processes and aligning them around delivery of customer service impinging on reducing<br /> customer touch-points are of essence<br /> 􀂙 A realization has to be drawn that automating the inefficiencies will not help anyone and continuing<br /> the old processes with new technology would only make the organization more inefficient<br /> 􀂙 Work flow and document management will be integral part of process changes<br /> 􀂙 The documentation issues have to remain simple both in terms of documents to be submitted by<br /> the customer at the time of loan application and those to be executed upon sanction<br /> 7. Human Resources<br /> 􀂙 While technology and product innovation are vital, the soft issues concerning the human capital of<br /> the banks are more vital<br /> 􀂙 The corporate initiatives need to focus on bringing around a frontline revolution. Though the<br /> changes envisaged are seen at the frontline, the initiatives have to really come from the ‘back end’<br /> 􀂙 The top management of banks must be seen as practicing what it preaches<br /> 􀂙 The initiatives should aim at improved delivery time and methods of approach.<br /> 􀂙 There is an imperative need to create a perception that the banks are market-oriented<br /> 􀂙 This would mean a lot of proactive steps at various levels, devising appropriate tools for<br /> performance measurement bringing about a transformation ' ‘can’t do' to 'can do’ mind-set change<br /> from restrictive practices to flexible work place:<br /> 􀂾 By having universal tellers,<br /> 􀂾 bringing in managerial controlling work place,<br /> 􀂾 provision of intensive training on products and processes,<br /> 􀂾 emphasizing coaching, etiquettes, good manners and best behavioral models, formulating<br /> objective appraisals,<br /> 􀂾 putting in place good and acceptable reward and punishment system,<br /> 􀂾 facilitating the placement of young /youthful staff in front-line,<br /> 􀂾 defining a new role for front-line staff by projecting them as sellers of products rather<br /> than clerks at work,<br /> 􀂾 changing the image of the banks from a transaction provider to a solution provider<br /> 8. Rural Orientation<br /> 􀂙 As of now, action that is taking place on the retail front is by and large confined to major cities<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 40<br /> 􀂙 There is still a vast market available in rural Pakistan, which remains to be tapped<br /> 􀂙 MNCs, as manufacturers and distributors, have already taken the lead in showing the way by<br /> coming out with exquisite products, packaging and promotions, keeping the rural customer in mind<br /> 􀂙 Some FMCGs made available through an efficient network add testimony to the determination of<br /> the MNCs to penetrate the rural market. In this scenario, banks cannot lack behind<br /> 􀂙 In particular banks having a strong rural presence, need to address the needs of rural customers in a<br /> big way. These and only these will propel retail growth that is envisaged as a key strategy for<br /> portfolio expansion by most of the banks<br /> 9. Financial Exclusion<br /> 􀂙 The scope of enhancement of Banking Business in Pakistan is considerable as the level of Financial<br /> Exclusion is exceptionally high despite the growth in Banking<br /> 􀂙 Penetration ratio of financial services is low judged by any measures as less than 20% of the<br /> population has access to financial services and number of borrowers are under 5 million (3% of<br /> population)<br /> 􀂙 More graphically, there are only 171 deposit accounts per 1,000 people and 30 loan accounts<br /> per 1,000 people<br /> 􀂙 Likewise, only 30% of adults have bank accounts<br /> 􀂙 Credit/GDP ratio at 27% is low judged by country and sector financing requirements or judged by<br /> levels prevailing in Emerging Markets<br /> 􀂙 Consumer financing penetration ratio is 3.9%<br /> Distinguishing Features of a typical Consumer Banking (CB) Segment of a Bank in Pakistan<br /> 􀂙 CB is a Scale Sensitive, Mass Market, & Volume business<br /> 􀂙 Standardized Processes & Procedures<br /> 􀂙 Substantial upfront outlay for Designing, Developing, Marketing, Distributing, & Delivering<br /> various products<br /> 􀂙 Adherence to SBP Risk Management Guidelines<br /> 􀂙 Separate organizational setup for post-sale issues like Collection, Recovery, Litigation etc.<br /> 􀂙 Multiple Delivery Channels/Call Centers/Recorded Phone Lines<br /> 􀂙 Enhancing customer experience through effective/efficient management of “Customer Touch<br /> Points”<br /> 􀂙 Dedicated Sales & Service teams(Usually contractual)<br /> 􀂙 Hiring of external agencies for verifying & documenting details of customer profile and income<br /> source/estimation<br /> 􀂙 Professional Property Valuators<br /> 􀂙 Customer Segmentations under Life-Cycle parameters<br /> 􀂙 Adherence to Transfer Pricing regime for determining true profitability of products/services<br /> 􀂙 Innovative personal saving /investment products through Alliances with Insurance Companies &<br /> other financial service providers<br /> 􀂙 Service Level Agreements (SLA) with bank own support functions like Operations, IT, HR etc<br /> 􀂙 Brand Affiliation/Channel Partnering<br /> New Segmentation Approaches to Drive Product Innovation<br /> Innovation in Segmentation Strategy<br /> Although banks have practiced customer segmentation for the past decade or so, there is room for further<br /> refinement of their strategies. Having moved from a product-centric to a customer-centric approach, banks<br /> continue to employ broad brushstrokes to segment their customer base. In doing so, the risk attributing<br /> common characteristics to a large number of customers who may have been grouped together on the basis<br /> of a single parameter, such as relationship value. More importantly, their product and service offerings are<br /> likely to be tailored to the perceived needs of these segments. At the same time, banking customers<br /> continue to demand more. They are no longer content to be viewed as faceless constituents of a large<br /> group; rather, they expect their banks to recognize their individual needs and offer custom-made solutions<br /> to help them achieve their financial goals. Against this backdrop, banks must become more innovative in<br /> the way they view their customers as well as the manner in which they serve them.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 41<br /> Beyond Relationship-Value Segmentation<br /> For a start, banks can look at refining customer segmentation by taking a multi-dimensional approach that<br /> goes beyond relationship-value. While segmentation on the basis of relationship value is important in order<br /> to recognize and reward customer loyalty, it falls short of enabling banks to identify and attract new<br /> business opportunities. It is also possible that customers with vastly different relationship-values may be<br /> connected in other ways, and therefore, could be part of the same segment from an entirely different<br /> standpoint. Hence, banks need an in-depth, well-rounded perspective of their customers before they can<br /> categorize them. This perspective must consider various factors besides relationship value including but not<br /> limited to, demography, geography, ethnicity, gender and profession. As a matter of fact, banks are well<br /> placed to do so, since most, if not all of this information would already be available within their database.<br /> Analysis of comprehensive customer data can reveal homogeneous patterns that can be used to create new<br /> and more meaningful customer segments which can be targeted for tailor-made products and services.<br /> New Approaches to Segmentation<br /> Customer segmentation on the basis of homogeneity of behavior, aspiration, value, culture or habit can<br /> bring to light specific opportunities which may not be visible when only relationship value is taken into<br /> consideration. It is intuitive that those who share a common geography, language, profession or social status<br /> will also have, to a certain extent, similar values or behavior. Therein lies vast, untapped opportunity – if<br /> banks can offer products and services that support such homogeneity, they are likely to reap big benefits by<br /> way of new business and cross-sales. This view is best illustrated with some examples:<br /> 􀂙 A couple of prominent U.S. banks have gone after the 37 million-strong Hispanic population,<br /> considered an unprofitable customer segment by most of their peers. This group has very specific<br /> requirements – the facility to deposit pay-checks, make money transfers and maintain a zero<br /> balance in their account being the most important. The banks have accordingly introduced<br /> innovative products tailored to these needs. One bank offers more options to move money: as cash<br /> to cash or as cash to accounts or cards, being some of them. They also allow their customers to<br /> cash pay-checks. The other bank has pioneered a special zero minimum balance account just for<br /> Hispanic clients<br /> 􀂙 Geographic segmentation is another important possibility. A physical location can be a great<br /> determinant of customer needs – for instance, while all agricultural regions have large demand for<br /> farm loans or short-term trade financing, their demand patterns differ based on the crop and<br /> harvesting cycle. Another example is that of customers on the West and East Coast of the U.S.,<br /> who hold different financial aspirations which cannot be met with the same suite of products.<br /> Although regional and rural banks cater to geographic diversity to a certain extent, national banks<br /> can follow suit by creating location-based sub-segments and targeting them. With different<br /> offerings Segmentation by social strata is gaining currency riding on the concept of financial<br /> inclusion. The world over, banks are innovating their product and channel strategy to reach out to<br /> the unranked population. Going forward, they must attempt to discover subtle patterns within<br /> these segments, so that they can target smaller sections with customized offers<br /> 􀂙 Different generations display distinct behavioral patterns. Aging baby boomers may seek personal<br /> guidance while planning their retirement savings; not so the tech-savvy and self-reliant Generation<br /> X. The “digital native” Gen Y is technologically ahead of them all, and is at ease transacting over<br /> the Internet, mobile phone or even social networking platforms<br /> 􀂙 Segmentation-driven innovation need not be confined to products alone. Several Canadian banks<br /> have set up multi-lingual branches, where employees speak up to eight languages, to cater to the<br /> vast expatriate community in that country. ATMs in rural India offer screens in vernacular<br /> languages to encourage usage among the resident population<br /> 􀂙 Banks can also benefit by segmenting their customer base along unconventional dimensions. An<br /> Australian bank offered a utility bill payment service in the form of a specialized loan to those<br /> customers who had difficulty keeping up with their monthly payments. By doing so, they earned<br /> interest from their customers and commission from the service providers. New methods of<br /> segmentation have also been considered within niche areas such as wealth management, with subsegments<br /> being formed on the basis of source of wealth, customer sophistication, life stage and<br /> geography<br /> 􀂙 Another approach advocates the formation of customer groups depending on their banking<br /> behavior – which is either investment or borrowing/transaction oriented. Typically investors<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 42<br /> comprise older, more affluent clients who maintain high balances and are primarily concerned with<br /> growing their wealth for the future. Since this group is not focused on deposit products, it is not<br /> very sensitive to interest rates<br /> 􀂙 On the other hand, lower-balance transactions are young and just starting to accumulate wealth<br /> through employer plans, IRAs or similar avenues. Mostly, their needs are immediate – and hence,<br /> they lay greater emphasis on checking, saving and loan products and the interest rates associated<br /> with each<br /> 􀂙 Not surprisingly, their channel preferences also differ. High-balance customers want experienced<br /> branch staffers to whom they can turn in case of need. Their low-balance counterparts are happy<br /> using self-assisted channels such as PC/Internet banking, ATMs and call centers<br /> 􀂙 Clearly, banks need very different strategies to tackle each of these groups. At the same time, they<br /> must recognize the interplay of multiple factors within each segment – for instance, some members<br /> of the Hispanic segment may have similar social, linguistic and economic characteristics. Another<br /> example of this is evident in the case of the high-balance investors discussed earlier, who, apart<br /> from having common financial goals, may also be at a similar life-stage. Thus, going forward,<br /> banks’ segmentation strategy must create finer “sub- segments” which are homogenous along<br /> different dimensions. This will lead them from customer-centricity to the more desirable state of<br /> customer-specificity or “segment of one”. For instance, of the three broad customer segments,<br /> namely corporate, small business and retail, the latter can be grouped by generation, which in turn<br /> may be segmented according to geography, income, behavior and so on. The corporate and small<br /> business client base can be similarly broken down<br /> Innovating to Create Relevant Products and Services<br /> That being said, a sophisticated segmentation strategy will achieve little unless it is backed up by innovative<br /> products and services relevant to the needs of different groups. Hence, banks need to map their “offerings”<br /> defined by a combination of product, price, channel, timing and human resources to various customer<br /> segments. For instance, they can bundle a set of investment products for their Gen X customers and train a<br /> team of relationship managers to deliver them. Another example is the creation of small savings products to<br /> cater to the new savings consciousness emerging in the aftermath of the global crisis. Banks must also give<br /> due weightage to pricing to ensure that small- ticket vanilla products are not perceived as being expensive<br /> by the target segments. Timing is equally important – Gen Y customers have simpler, frequent needs and<br /> expect instant fulfillment, whereas mature clients are likely to have significant requirements at different lifestages,<br /> such as marriage, parenthood or retirement. A well-rounded segmentation approach must take all<br /> this and more into consideration.<br /> Aligning the Organization with a Robust Segmentation Strategy<br /> While all of this is good wisdom, it is only part of the story. The goal of true segmentation is not merely to<br /> offer innovative products and services, but to ensure that the customer experience is raised to a different<br /> level. Hence, the entire banking organization, including its policies, processes and people must be aligned<br /> with the segmentation strategy. KYC norms are a good example of how policies can be “turned on their<br /> heads” to support segmentation – rather than following these norms purely as a compliance practice, banks<br /> can use the information to strengthen their understanding of various customer segments.<br /> It goes without saying that banks will need resources as well as infrastructure to effect these changes. A<br /> sound technology platform is a necessary enabler at every stage – from segmentation to product innovation<br /> to customer experience delivery. To start with, banks need a 360 degree unified view of their customers<br /> across the organization – only integrated core systems have the capability to consistently deliver this<br /> information, no matter how large the scale. Technology is required to analyze huge volumes of customer<br /> data, discover patterns within them and engender the progression of broad-based segmentation to a<br /> “segment of one”. Again, quick roll-out of new products and services is only possible with the support of<br /> modern core banking systems. The same systems enable banks to optimize their channels and processes,<br /> making them more efficient but not less personalized, all of which contribute to the delivery of good<br /> customer experience. For instance, technology can be used to trigger an investment recommendation<br /> whenever a customer's account receives sizeable inflows as well as alert the concerned relationship manager<br /> so that he may follow it up.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 43<br /> Summary<br /> Banking customers' demands have kept pace with the rising complexity of their needs. They expect banks to<br /> address their individual requirements with relevant products and services. This implies that banking<br /> institutions must acquire a deeper understanding of their customers at a one-to-one level, and deploy that<br /> insight into product and service innovation. Customer segmentation is central to this objective.<br /> Current segmentation practices are mostly uni-dimensional and based on a single parameter such as<br /> relationship value. Although the relevance of relationship value as a measure of customer loyalty is beyond<br /> doubt, it cannot be the sole criterion for segmentation. Going forward, banks must refine their<br /> segmentation strategy by taking into account a combination of demographic, social, economic, geographic<br /> and linguistic factors. Other innovative approaches to segmentation include grouping customers on the<br /> basis of financial behavior, customer sophistication or life-stage.<br /> As broad customer segments are broken down into finer sub-groups, segmentation strategy shifts from<br /> customer-centricity towards customer- specificity. New business opportunities can be created by offering<br /> tailor-made products to each customer sub-segment. However, none of this is possible without the support<br /> of a strong technology backbone at every stage – whether it is the creation of new customer segments, rollout<br /> of innovative offers or the alignment of processes and channels to provide a great banking experience<br /> across all segments.<br /> Source/Reference:<br /> 1. www.oppapers.com/search.php<br /> 2. Finacle Product Strategy, Infosys Technologies Limited<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 44<br /> LESSON 07<br /> STRUCTURE OF BANK CREDIT RISK --- AN OVERVIEW<br /> Bank Structure: A Successful Approach<br /> Managers spend hours agonizing over how to structure their organizations (by product, geography,<br /> customer, and so on). Winners show that what really counts is whether structure reduces bureaucracy and<br /> simplifies work.<br /> • Simplify. Make your organization easy to work in and work with<br /> • Promote cooperation and the exchange of information across the whole company<br /> • Put your best people closest to the action<br /> • Establish systems for the seamless sharing of knowledge<br /> Client Pyramid<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 45<br /> Targeting ‘Sweet Spot’:<br /> • In putting this strategy into effect, a Bank serves mid market consumer and commercial clients –<br /> whom it calls the bank’s ‘sweet spot’ client segments<br /> • The Consumer mid-market segment includes mass affluent customers− retail clients with healthy<br /> finances as well as most of higher-end private banking clients<br /> • Commercial mid-market clients include many medium-to-large companies and financial institutions<br /> Serving the Whole Client Pyramid:<br /> • Client base can be represented through the ‘Client Pyramid’ shown in the accompanying illustration<br /> • The strategy identifies sweet spot as being mainly located around the middle of this pyramid<br /> • However, this does not reduce the importance of the top and bottom end of the pyramid<br /> • For example, serving top private banking clients helps to develop innovative investment products<br /> that can later be offered to mid market consumer clients as well<br /> • Similarly, serving large multinational corporations enables to strengthen industry knowledge and<br /> product innovation, both of which will eventually benefit mid market commercial clients<br /> • Both the mass retail segment and the small business segment deliver the scale Bank needs and act<br /> as a feeder channel for future mid-market clients<br /> Strategy, another Perspective:<br /> • Your strategy should be sharply defined, clearly communicated, and well understood by employees,<br /> customers, partners, and investors<br /> • Build a strategy around a clear value proposition for the customer<br /> • Develop strategy from the outside in, based on what your customers, partners, and investors have<br /> to say—and how they behave—not on gut feel or instinct<br /> • Continually fine-tune your strategy based on changes in the marketplace— for example, a new<br /> technology, a social trend, a government regulation, or a competitor’s breakaway product<br /> • Clearly communicate your strategy within the organization and to customers and other external<br /> stakeholders<br /> • Keep focused. Grow your core business, and beware the unfamiliar<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 46<br /> In the Single -Loop learning we apply habitual way of thinking and doing, i.e. re-enacting the past or what is<br /> called “Downloading”. But in Double-Loop learning we reflect and ask the “why not” questions which<br /> could lead to a paradigm shift.<br /> Double loop theory is based upon a "theory of action" perspective outlined by Argyris & Schon (1974).<br /> This perspective examines reality from the point of view of human beings as actors. Changes in values,<br /> behavior, leadership, and helping others, are all part of, and informed by, the actors' theory of action. An<br /> important aspect of the theory is the distinction between an individual's espoused theory and their "theoryin-<br /> use" (what they actually do); bringing these two into congruence is a primary concern of double loop<br /> learning. Typically, interaction with others is necessary to identify the conflict.<br /> There are four basic steps in the action theory learning process: (1) discovery of espoused and theory-in-use,<br /> (2) invention of new meanings, (3) production of new actions, and (4) generalization of results. Double loop<br /> learning involves applying each of these steps to itself. In double loop learning, assumptions underlying<br /> current views are questioned and hypotheses about behavior tested publicly. The end result of double loop<br /> learning should be increased effectiveness in decision-making and better acceptance of failures and<br /> mistakes.<br /> In recent years, Argyris has focused on a methodology for implementing action theory on a broad scale<br /> called "action science" and the role of learning at the organizational level.<br /> Key Regulatory Requirements:<br /> • Know-Your-Customer (KYC) System<br /> • Anti-Money Laundering (AML) Policy<br /> • Audit & Compliance Setup<br /> SBP PRUDENTIAL REGULATION XI --- KNOW YOUR CUSTOMER (KYC)<br /> • In view of heightened global efforts to prevent the possible use of the banking sector for money<br /> laundering, terrorist financing, transfer of illegal/ill-gotten monies and as a conduit for white collar<br /> crime etc., the importance of ‘Know Your Customer (KYC)’/”customer due diligence” has<br /> increased<br /> • To reinforce the checks and controls already developed by banks as also to ensure due diligence is<br /> done while starting relationship with a new customer and maintaining and continuing relationship<br /> with existing customers<br /> GUIDELINES<br /> All reasonable efforts shall be made to determine true identity of every prospective customer. The following<br /> minimum set of documents must be obtained from various types of customers/ account holder(s).<br /> Nature of<br /> Account<br /> Documents/Papers to be Obtained<br /> Individuals i. Attested photocopy of national identity card or passport of the individual.<br /> ii. In case the NIC does not contain a photograph, the bank should also obtain,<br /> in addition to NIC, any other document such as driver’s license etc that<br /> contains a photograph.<br /> iii. In case of a salaried person, attested copy of his service card, or any other<br /> acceptable evidence of service, including, but not limited to a certificate from<br /> the employer.<br /> iv. In case of illiterate person, a passport size photograph of the new account<br /> holder besides taking his right and left thumb impression on the specimen<br /> signature card.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 47<br /> The Banks shall obtain “Introduction” on the new account to assess the prospective customer’s/account<br /> holder’s integrity, respectability and the nature of business etc. Any laxity in this regard may result in serious<br /> consequences for the banker.<br /> The following guidelines are to be followed in this regard:<br /> i. Where the introducer is an existing account holder of the same branch, his introduction should be<br /> accepted, after due verification of signature by the official of the branch. In case the introducer is<br /> an account holder of another branch of the same bank, the account<br /> ii. should only be opened after proper verification of the signature from the concerned branch<br /> iii. Where the introducer happens to be an account holder of another bank, the introduction should be<br /> accepted after complete verification of the signature and other particulars of the introducer from<br /> that bank<br /> iv. The introduction by the employees of the bank may also be acceptable. However, he or she will<br /> have to establish that sufficient information has been collected on the new account holder for<br /> making the introduction and that they believe that “Introduction” from a person other than the<br /> bank’s employee is not necessary<br /> (The introduction of a person other than by the branch employee is being stressed to ensure<br /> maximum authenticity on the status of the would-be accountholder/customer, beside minimizing<br /> the chances of undesirable accounts which may be opened on the introduction of the bank<br /> employees in their pursuit to achieve targets of opening maximum number of accounts and treating<br /> the “Introduction” a mere formality in the process).<br /> • The Bank/branch shall obtain satisfactory evidence duly verified/authenticated by the branch<br /> manager and shall be placed on record in respect of:<br /> i. the true identity of the beneficial owners of all accounts opened by a person, entity etc,<br /> ii. the real party in interest or controlling person/entity of the account(s) in case of<br /> nominee or minors account<br /> • The Banks are also advised that KYC/customer due diligence is not a one time exercise to be<br /> conducted at the time of entering into a formal relationship with customer/account holder.<br /> KYC/Customer due diligence is an on-going process for prudent banking practices, therefore<br /> the banks are encouraged to: -<br /> i. Set up a compliance unit with a full time Head<br /> ii. Put in place a system to monitor the accounts and transactions on a regular basis<br /> iii. Update customer information and records, if any, at reasonable intervals<br /> iv. Install an effective MIS to monitor the activity of the customers’ accounts<br /> v. Chalk out plan of imparting suitable training to the staff of bank periodically<br /> vi. Maintain proper records of customer identifications and clearly indicate, in writing, if<br /> any exception is made in fulfilling the due diligence procedure<br /> vii. Monitor and check unusually large cash transactions, especially those which are out of<br /> character/ inconsistent with the history, pattern etc of the individual account(s)<br /> • The banks shall develop guidelines for customer due diligence, including a description of the<br /> types of customers that are likely to pose a higher than average risk to a bank<br /> • In preparing such policies, factors such as customers’ background, country of origin, public or<br /> high profile position, nature of business etc should be considered<br /> • Each Bank shall formulate and keep in place, in writing, a comprehensive Know- Your-<br /> Customer policy duly approved by their Board of Directors and in case of branches of foreign<br /> banks, approved by their head office, and cascade the same down the line to each and every<br /> branch/office/ concerned officers for strict compliance<br /> • State Bank of Pakistan, during the course of inspection, would particularly check the efficacy of<br /> the KYC system put in place by the banks and its compliance by all the branches and the staff<br /> • Appropriate action shall be taken against the bank and the concerned staff members for noncompliance<br /> and negligence in this area under the provisions of Banking Companies Ordinance<br /> 1962<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 48<br /> A Typical KYC System/Framework (An Example)<br /> Documentary Requirements<br /> 1.1 Identification of Client<br /> 1.2Verification of Client’s Name (NADRA’s Verification)<br /> 1.3Verification of Client’s Address (registered and if applicable operational)<br /> 1.4Identification of Ultimate Beneficial Owners with a Controlling Interest of 20% or more (neutral<br /> risk client)<br /> 1.5Identification of Ultimate Beneficial Owners with a Controlling Interest of 10% or more (increased<br /> risk client)<br /> 1.6Verification of Controlling UBOs<br /> 1.7Evidence that Legal Rep is Authorized to Act on Behalf of and Bind the Client in the manner<br /> proposed<br /> 1.8Identification and Verification of the Legal Rep’s Identity<br /> 1.9Identification of Company Director(s)<br /> 1.10Verification of 1 (or 2) Company Director(s)<br /> 1.11Evidence of Sanctions Check<br /> 1.12Evidence of PEP (Politically Exposed Person) Search<br /> 1.13Evidence of Bad Press Search<br /> 1.14Evidence of publicly traded and/or regulated status (directly or indirectly)<br /> 1.15Verification of Business Activity<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 49<br /> LESSON 08<br /> STRUCTURE OF BANK CREDIT RISK --- AN OVERVIEW (CONTD…)<br /> AML: Some Thoughts<br /> • Money laundering, in general, is the name given to the process by which the origin of illicit funds is<br /> disguised<br /> • The need to indulge in money laundering is primarily to cover up the means by which such funds<br /> have been acquired with the aim of legitimizing them<br /> • According to the United Nations, the term Money Laundering is defined as “Any act or attempted<br /> act to disguise the source of money or assets derived from criminal activity<br /> • It is the process whereby “dirty money”, produced through criminal activity, is transformed into<br /> clean money”<br /> According to Section # 3 of Ant- Money Laundering Ordinance 2007, Government of Pakistan, and<br /> Offence of money laundering:<br /> A person shall be guilty of offence of money laundering, if the person:<br /> a) acquires, converts, possesses or transfers property, knowing or having reason to believe that such<br /> property is proceeds of crime; or<br /> b) Renders assistance to another person for the acquisition, conversion, possession or transfer of, or<br /> for concealing or disguising the true nature, origin, location, disposition, movement or ownership<br /> of property, knowing or having reason to believe that such property is proceeds of crime<br /> According to Section # 4 of the Ordinance:<br /> Punishment for money laundering:<br /> Whoever commits the offence of money laundering shall be punishable with rigorous imprisonment for a<br /> term which shall not be less than one year but may extend to ten years and shall also be liable to fine which<br /> may extend to one million rupees and shall also be liable to forfeiture of property involved in the money<br /> laundering.<br /> Client Acceptance and Anti-Money Laundering Policy (CAAML):<br /> • Standard for Risk Assessment and Client Acceptance<br /> • Standard for Client Identification and Verification<br /> • Standard for Money Laundering Detection<br /> • Standard for Rejection of Clients/Ending Relationships<br /> • Standard for AML Awareness and Training<br /> • Procedures for Identification and Verification<br /> • Procedures for Transaction Filtering<br /> • Lists of Legal Persons and Groups<br /> • Procedures for Handling Suspicious or<br /> • Unusual Activity Details<br /> • Procedures for Waivers<br /> An Example from a Bank Manual on AML Policy:<br /> It is a Policy of the Bank that,<br /> • Statutory and regulatory obligations to prevent ML and TF are to be met in full<br /> • Systems and controls will be implemented in order to minimize the risk of the Bank's services being<br /> abused for the purposes of ML and TF<br /> • A money laundering risk assessment of the Bank’s services and customer base including<br /> correspondent banks and MSBs (Money Service Businesses) will be undertaken and appropriate<br /> policies, procedures and due diligence controls will be applied proportionate to that risk<br /> • Any customer relationship where the customer's conduct gives the Bank reasonable cause to<br /> believe or suspect involvement with illegal activities will be reported to Regulators or relevant<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 50<br /> authorities. Thereafter action will be undertaken in conjunction with the relevant authorities and in<br /> accordance with local practice to avoid any risk of the Bank committing a ‘tip-off’ offence.<br /> Wherever possible, the relationship will be terminated<br /> • In countries where local regulators call for a money laundering compliance reports, respective<br /> country MLRO would be responsible for preparation and submission of these reports. CCO would<br /> submit a quarterly compliance report to Audit Committee and an annually to the Board, as required<br /> under the Compliance Policy<br /> Internal Controls and Communication<br /> It is a Policy of the Bank:<br /> • To institute controls which comply fully with all applicable anti-money laundering laws and<br /> regulations<br /> • To conduct risk assessment and develop risk profiles of the Bank’s products, services and<br /> customers and to apply appropriate policies and procedures to manage such risks. Undertaking<br /> enhanced due diligence for ‘High Risk’ products, services and customers<br /> • To communicate Bank’s policies to management and staff and provide them with written<br /> procedures and control requirements to ensure ongoing compliance with AML laws and regulatory<br /> requirements<br /> Recognition and Reporting of Suspicion<br /> It is a Policy of the Bank:<br /> • To establish and follow procedures that requires employees to refer promptly any suspicious<br /> activity to GCG or respective country MLRO who will review the transaction to determine whether<br /> a report should be filed with the Regulators<br /> • To be alert to unusual or suspicious transactions or other activities that appear not to make good<br /> business or investment sense, or activities that appear to be inconsistent with the counterparty or<br /> customer’s expected activity, including activities that may be indicative of criminal conduct,<br /> terrorism or corruption<br /> • To act competently and honestly when assessing information and circumstances that might give<br /> reasonable grounds to suspect ML or TF<br /> • To provide GCG or respective country MLRO (at request) access to all customers, correspondents<br /> or counterparties information within the Bank<br /> • To co-operate fully with law enforcement authorities in investigations concerning possible ML or<br /> TF within the confines of applicable laws, and in consultation with GCG or respective country<br /> MLRO<br /> • Not to alert or provide any information to any person suspected of illegal activity regarding<br /> suspicion or inquiry on his or her account or transactional activities or any indication of being<br /> reported to Regulators<br /> Awareness Raising and Training<br /> It is a Policy of the Bank:<br /> • To make all management and staff aware of what is expected of them to prevent money laundering<br /> or terrorist financing and to advise them of the consequences for them and for the Bank if they fall<br /> short of that expectation<br /> • To provide initial and annual update training for all appropriate personnel, including all personnel<br /> who set up and manage customer account opening or transactions, correspondent relationships,<br /> and/or are involved in trade finance activity<br /> • That management and staff will be required to sign a memorandum confirming they have read and<br /> understood the Bank’s AML/KYC policies and procedures<br /> Record Keeping<br /> It is a Policy of the Bank:<br /> • To retain identification and transaction documentation for the minimum period required by<br /> applicable Laws and Regulations<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 51<br /> • To retain records of all reports made by staff to GCG or respective country MLRO and all<br /> suspicious activity reports made by MLRO to Regulators for an indefinite period unless advised by<br /> the Regulator otherwise<br /> • To be in a position to retrieve, in a timely fashion, records that are required by law enforcement<br /> agencies as part of their investigations<br /> • To keep records of dates when anti-money laundering training was given, the nature of the training<br /> and the names of staff who received such training<br /> Bank’s Policy on Politically Exposed Persons (PEPs) Policy Rationale<br /> PEPs and related individuals can pose unique reputation and other risks, in particular:<br /> • Some corrupt PEPs around the globe have used traditional banking products and services as safe<br /> havens for misuse of funds, illegal activities and associated practices, including money laundering;<br /> • PEPs enjoy prominence and are therefore under continuous public spotlight. Their financial affairs<br /> are highly magnified and could easily trigger adverse publicity and franchise risks for the Bank;<br /> • There is a growing attention worldwide to the misuse of public funds and increased reaction against<br /> corruption at high government levels;<br /> • There is increasing responsibility and liability for banks and bank personnel to undertake due<br /> diligence for establishing source of wealth and investigate fund flows of PEPs<br /> Definition<br /> PEPs are individuals who are or have been entrusted with prominent public functions, for example Heads<br /> of State or of Government, senior politicians, senior government, judicial or military officials. Senior<br /> executives of state owned corporations, important political party officials, business relationships with family<br /> members or close associates of PEPs involve reputation risks similar to those with PEPs themselves. The<br /> definition is not intended to cover middle ranking or more junior individuals in the foregoing categories.<br /> Reputational Risk:<br /> • Reputation is a key business asset, however intangible. Risks that negatively affect the reputation<br /> and standing of banks have increased considerably in the last decade<br /> • One of the key risks to the bank’s reputation is the risk of the bank becoming involved in, or<br /> becoming a vehicle for, criminal activities, such as money laundering, terrorism, fraud and<br /> corruption<br /> • Many products and services offered by the Bank are attractive to those who would use the financial<br /> services industry and financial systems for criminal purposes<br /> • One important way of mitigating these risks is ensuring that the bank conducts business with<br /> acceptable clients and has adequate policies and procedures to deter criminal activities<br /> • The Client Acceptance and Anti-Money Laundering (CAAML) policy ensures required attention is<br /> paid to a client, in order to establish whether or not the bank wants to do business with the client<br /> and that the bank's clients are of good reputation<br /> • It should be noted that client acceptance includes aspects not covered in the stated policy,<br /> particularly sustainability<br /> Money Laundering and Terrorist Financing:<br /> • Generally speaking, “Money Laundering” is the introduction of illegally gained assets into the legal<br /> financial system with the aim of concealing or disguising their true origin<br /> • The source of illegally obtained funds is obscured through a succession of transfers and<br /> transactions in order that those same funds can eventually be made to reappear as legitimate<br /> income. Terrorist financing is the financial support, in any form, of terrorism or those who<br /> encourage, plan or engage in it<br /> • The common trait between money laundering and terrorist financing is concealment<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 52<br /> What is ‘Compliance’?<br /> Audit & Compliance function’s role is:<br /> To independently oversee the core processes, and their related policies and procedures, that seek to ensure<br /> that the bank is conforming to industry-specific laws and regulations in letter and spirit, thereby maintaining<br /> the bank’s reputation.<br /> SBP PRUDENTIAL REGULATION NO. XXIX – RESPONSIBILITIES OF BOARD OF<br /> DIRECTORS<br /> • The State Bank attaches a great importance to effective corporate governance, clear lines of<br /> responsibility, elaborate mechanism of accountability, and existence of proper checks and balances<br /> in each bank/financial institution<br /> • The corporate governance means the way in which business and affairs of each institution is<br /> directed and managed by their ‘Board of Directors’ and the ‘Management’<br /> • To promote safe and sound banking practices, it is imperative that the ‘Board of Directors’ assumes<br /> its role independent of the influence of the Management<br /> • Members of the Board should know their responsibilities and powers in clear terms<br /> • Further, it should be ensured that the Board of Directors focus on policy making and general<br /> direction, oversight and supervision of the affairs and business of the bank/DFI and does not play<br /> any role in the day-to-day operations, as that is the role of the ‘Management<br /> The Compliance Officers will primarily be responsible for Bank’s / DFI’s effective compliance<br /> relating to:<br /> a) SBP Prudential Regulations<br /> b) Relevant provisions of existing laws and regulations<br /> c) Guidelines for KYC<br /> d) Anti money laundering laws and regulations<br /> e) Timely submission of accurate data / returns to regulator and other agencies<br /> f) Monitor and report suspicious transactions to President / Chief Executive Officer of the bank /<br /> DFI and other related agencies<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 53<br /> LESSON 09<br /> CONSUMER FINANCING IN PAKISTAN AN OVERVIEW<br /> SBP Financial Stability Report 2007- 08:<br /> • Consumer finance is an established financial product across the globe, particularly in mature economies,<br /> where it constitutes a significant portion of banks’ lending portfolios<br /> • In the Pakistani banking sector, however, the evolution of the consumer financing portfolio is a more<br /> recent phenomenon, as banks have traditionally focused on lending to the corporate sector and public<br /> sector entities<br /> • While two prominent foreign banks took the lead in introducing credit cards in the banking sector in<br /> the mid ‘90s, their outreach was limited to the top tier of salaried customers and businessmen<br /> • Emulating the experience of various foreign banks who had a head start in this area, domestic private<br /> banks have exhibited remarkable adeptness in adopting new procedures for credit risk assessment,<br /> setting up the requisite policy and collections units, and upgrading the scope of their IT based systems<br /> • In doing so, they successfully introduced several innovative products for the individual consumer<br /> segment<br /> • On the demand side, the consumer, who previously did not have access to bank credit without<br /> sufficient liquid collateral, responded well to these initiatives?<br /> Factors responsible for the widespread popularity of consumer finance in recent years:<br /> • The financial liberalization process over the last decade or so, has led to the creation of a banking<br /> system which is largely owned and operated by the private sector, and is free to allocate resources in<br /> response to the demands of a market based mechanism,<br /> • Secondly, the influx of liquidity in the banking sector since FY02 motivated banks to diversify and<br /> expand their earnings base by venturing into previously untapped areas,<br /> • Thirdly, the easy monetary policy stance of the central bank from FY02 to FY05 provided eligible<br /> customers with financing options at historically low rates to meet their consumption demand. In this<br /> backdrop, consumer finance has emerged as one of the most promising asset products for banks<br /> • Providing access to purchasing power to the middle class consumer has been the most significant<br /> achievement of this product class<br /> • Not only have people been able to raise their standard of living by purchasing various consumption<br /> goods which were previously treated as luxuries in reach of only a few, demand for these goods has also<br /> led the manufacturing sector to expand its capacity, such that both backward and forward linkages have<br /> contributed to the expansion in economic activities<br /> • Hence, in promoting their consumer financing products, banks have played their due role in promoting<br /> economic development in the country<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 54<br /> Warning Signals:<br /> Abuse in Credit Cards Usage<br /> A FOOD FOR THOUGHT<br /> The Nature of Modern Finance<br /> Is modern finance more like electricity or junk food?<br /> This is, of course, the big question of the day.<br /> If most of finance as currently organized is a form of electricity, then we obviously cannot run our<br /> globalized economy without it. We may worry about adverse consequences and potential network<br /> disruptions from operating this technology, but this is the cost of living in the modern world.<br /> On the other hand, there is growing evidence that the vast majority of what happens in and around modern<br /> financial markets is much more like junk food – little nutritional value, bad for your health, and a hard<br /> habit to kick.<br /> The issue is not finance per se, i.e., the process of intermediation between savings and investment. This we<br /> obviously need to some degree.<br /> But do we need a financial sector that now accounts 7 or 8 percent of GDP?<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 55<br /> CONSUMER FINANCE IN PAKISTAN:<br /> Some Myths and Facts<br /> • Access to, and growth in, consumer finance carries both social and economic significance for the<br /> society<br /> • In the absence of such products from the formal banking sector, people used to borrow from money<br /> lenders in the informal sector at exorbitantly high interest rates<br /> • Banks have now facilitated them in acquiring the necessities of life by providing credit against their<br /> future incomes and cash flows, at rates far lower than those demanded by players in the informal sector<br /> • Since the consumer finance function in itself is quite labor intensive, demand for this product has led<br /> the banking sector to employ a significant segment of the active workforce both on full time and part<br /> time basis<br /> • Banks themselves have also benefited from the diversification of their credit portfolio, as well as capital<br /> savings under the Basel II regime, and consumer finance has brought higher returns and stability in<br /> earnings<br /> The phenomenal growth in consumer finance has also raised a debate regarding its downside risks and<br /> implications.<br /> It is generally perceived that this particular asset product has:<br /> i. Given rise to consumerism in Pakistan, this has contributed to the low level of national savings;<br /> ii. Fueled inflation; and<br /> iii. Led to the rise in speculative activities in asset markets<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 56<br /> An analysis of actual facts and figures, however, dispels these notions<br /> • Consumer Finance has certainly met the individual consumer’s needs for personal expenditures, but in<br /> doing so, it has also generated demand for consumer durables and other goods and services which have<br /> in turn translated into a chain of economic activities<br /> • For the consumer, monthly payments for servicing the loan are a form of forced savings<br /> • Rather than promoting consumerism, this product has contributed in enhancing the standard of living<br /> of the middle class, which is the back bone of any economy<br /> • Moreover, trends in savings of the household sector also do not support the perception of<br /> consumerism, as the average saving rate of the household sector is higher in the post 2000 period as<br /> compared with the ’90s<br /> • An analysis of inflation dynamics does not support the claim that consumer finance is the reason for<br /> the build up of inflationary pressures in the economy<br /> • Core inflation, which is more sensitive to the level of credit and associated increase in demand, has<br /> shown quite contained growth over the last few years (Figure 5.5)<br /> • The recent rise in overall inflation is attributable to factors such as international price shocks, and<br /> anomalies in administrative and fiscal policies<br /> Personal loan is the only product which is not tied to a specific purpose, and thus could potentially be<br /> utilized for speculative transactions in asset markets.<br /> However, its potential for spurring speculative activities is limited because of the fact that:<br /> (a) given its unsecured nature, this loan is priced competitively and is not an attractive funding option for<br /> speculators;<br /> (b) its main target market is mainly the fixed income / salaried segment of individual customers who are<br /> generally risk averse and are not known to indulge in speculative activities;<br /> (c) such loans are relatively smaller in amount (average loan size Rs. 20,000) than other categories of<br /> consumer finance, whereas speculative transactions in asset markets generally require larger sums of<br /> money;<br /> (d) the level and annual growth of this particular portfolio is quite small in comparison with other possible<br /> contributory factors such as the liquidity generated by increased foreign remittances and reverse capital<br /> flight, as well as the easy interest rate regime that prevailed up until a few years back, where disbursed<br /> loans for even small corporate entities and businesses could potentially have been miss-utilized<br /> • Essentially, consumer finance, if utilized judiciously and within prudent limits, is a handy tool for<br /> propelling economic growth, ensuring smooth consumption patterns and improving credit risk<br /> diversification<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 57<br /> • That said, indiscriminate growth in this asset class in an unstable macroeconomic environment,<br /> without a corresponding strengthening of risk management systems, could potentially create<br /> systemic vulnerabilities (Recall Bank Business & Operating Model)<br /> Because the financial system is so integrated — financial institutions borrow and lend large sums with each<br /> other every day in normal times—problems in a few banks can create a systemic risk for the financial<br /> system as a whole.<br /> Paul O’Neill, a former Treasury secretary under President Bush, summarized this risk with a nice analogy:<br /> “If you have ten bottles of water and one is poisoned, but you don’t know which, no one drinks water”.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 58<br /> LESSON 10<br /> COSTING /PRICING OF CB PRODUCTS<br /> Major Issues and Challenges:<br /> Bank’s efforts to expand their consumer finance portfolio are mainly faced with challenges emanating from<br /> the less than favorable macroeconomic environment. Emerging deterioration in economic fundamentals i.e.<br /> rising inflation rate, a certain degree of slowdown in economic activities, etc. has constrained the<br /> consumer’s debt servicing capacity (Figure 5.6).<br /> • This weakness is further intensified by rising interest rates as a consequence of monetary tightening<br /> by the central bank which, besides dissuading new customers, have also made the existing debt<br /> servicing more costly, given that most of the loans under this asset class are made on a variable or<br /> floating rate basis<br /> • An indication of the manifestation of the macroeconomic environment on consumer finance has<br /> already started to reflect in the deceleration in its growth rate, and a relative increase in<br /> nonperforming loans<br /> • The infection ratio has gradually risen to 5.5 percent of the total outstanding credit in H1 CY08,<br /> though it is still lower than that for the corporate sector at 7.6 and the overall infection ratio of the<br /> credit portfolio at 7.7<br /> • The performance of the different components however varies in this regard (Figure 5.7)<br /> • Mortgage loans, with the lowest infection ratio, have shown relative improvement in disbursements<br /> over the last few quarters, while the biggest impact of the macroeconomic environment has been<br /> observed on the Credit Card, Personal and Auto loans’ portfolio<br /> • Bank wise data shows that consumer loans are more concentrated in around 10 banks<br /> • Notwithstanding, since consumer credit is spread over a large number of borrowers, such risks are<br /> widely dispersed<br /> • Results of a stress testing exercise (based on end June CY08 data) conducted on banks’ consumer<br /> finance portfolio show that even a rise of 10.0 percentage points in the infection ratio will only<br /> reduce the Capital Adequacy Ratio (CAR) of banks by 90 bps<br /> • This is because the share of consumer finance in the overall credit extended by banks is still rather<br /> low at 12.0 percent<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 59<br /> In recognition of the underlying risks, SBP continues to make concerted efforts to strengthen the regulatory<br /> regime, as well as the risk management capacities of banks. The introduction of Prudential Regulations<br /> specifically designed to address the risk factors in the consumer finance portfolio in CY03, and enhancing<br /> the scope of the Credit Information Bureau (CIB) which was first launched in 1992 are some important<br /> measures implemented to ensure prudent growth of the portfolio. The enhancement in scope of the e CIB<br /> database now gives a comprehensive coverage of all borrowers of the banking sector (and some non bank<br /> financial institutions) which has helped banks in ensuring that customers are not over leveraged, and that<br /> the loan to income ratios are managed more prudently. Furthermore, SBP’s regulations and guidelines on<br /> risk management and internal controls effectively delineate the desirable level of internal controls and risk<br /> management capacities which the banks have started to implement for their consumer finance operations.<br /> Banks are building upon the existing capacities and rapidly improving their risk management expertise in<br /> response to regulatory requirements. Their progress along the learning curve suggests that they are now<br /> better placed to handle the challenges related to the operations of the consumer finance business.<br /> Future Outlook<br /> Given that the total consumer financing portfolio currently forms around 12.0 percent of the total loans<br /> and advances of the banking sector in comparison with substantially larger portfolios in peer countries, and<br /> its conducive role in promoting economic development, concerns about the potential risks of this product<br /> need to be viewed in perspective. This is particularly so because the household sector in Pakistan, from<br /> where the demand for consumer finance is generated, is financially sound and under leveraged by<br /> international standards.<br /> Notwithstanding, given the pace of growth of this particular asset class and its increasing popularity,<br /> financial institutions need to carefully plan the expansion of their respective portfolios by minimizing the<br /> impact of the potential risks with adequate systems and resource support, in order to be able to sustain and<br /> positively avail the benefits of its growth.<br /> Notwithstanding these developments, a few initiatives are still crucially needed for maintaining the<br /> stability of the consumer finance portfolio in coming years:<br /> • With the growing exposure against consumer finance, banks would need to implement specific<br /> credit scoring models. These can be based on the information derived from credit history<br /> databases, such as the turnaround time of monthly repayments, level of income and type of debt,<br /> length of credit relationship, in addition to other key pieces of information on social and<br /> demographic factors which help in establishing borrower profiles. The model will help banks in<br /> objectively identifying the credit worthiness of a borrower and the likely credit behavior. However,<br /> for building an effective credit scoring model, the existing databases on the consumer’s credit<br /> history would need significant enhancements;<br /> • The prevailing regime for enforcement of security liquidation and collection of debts needs to be<br /> rationalized in terms of effectiveness and fairness to both banks as well as consumers;<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 60<br /> • Considering the low level of financial literacy of the average consumer, mainly due to the low level<br /> of awareness and the prevailing literacy rate in the country, banks would need to review the<br /> transparency of the pricing mechanism, and offer a choice between fixed and floating rates to the<br /> customers, while informing them of the pros and cons associated with each option. Such initiatives<br /> will also help in improving the ethical standards of banks’ dealing with their customers<br /> Financial Position of the Household Sector:<br /> The household sector is the single largest provider of funding (in terms of personal deposits) to the banking<br /> system. In aggregate terms, it holds 46.0 percent of banking system deposits, while it borrows only 12.0<br /> percent of the total loan portfolio. National Income Accounts also reinforces this assessment, as the share<br /> of personal savings in total national savings is over 80 percent.<br /> While all these figures clearly indicate the household sector’s significant contribution to the financial sector,<br /> a detailed analysis in the context of financial stability is heavily constrained by the lack of appropriate data.<br /> The net wealth, or financial position, of the household sector is therefore estimated on the basis of selected<br /> indicators including trends in personal deposits of the banking system, individual investments in the stock<br /> market, and growth in personal investments in National savings Schemes (NSS). Changes in the consumer<br /> loan portfolio of the banking sector are used as the only available indicator of outstanding debt.<br /> Personal Deposits<br /> Personal deposits of the banking sector registered a YoY increase of 19.9 percent during CY07, compared<br /> to 18.2 percent in CY06, to reach Rs 1.6 trillion. Strong growth in personal deposits in recent years is also<br /> visible from its increasing share in the overall deposits of the banking system. Specifically, the share of<br /> personal deposits in total deposits increased to 45.0 percent by end June CY08, in comparison with 42.3<br /> percent at end June CY07, and 40.3 percent as of end June CY03 (Figure 1). This is an encouraging<br /> development as the overall deposits of the banking system in recent years have also recorded an average<br /> growth of over 18.0 percent during CY03-07. The steady growth in personal deposits is largely attributed to:<br /> (i) record inflows of remittances; and (ii) a sharp increase in per capita income in the wake of strong<br /> economic growth in recent years.<br /> Investments in Equity Market<br /> Another indicator of financial health of the household sector is the individual customer’s investments in the<br /> stock market. According to statistics from the Central Depository Company (CDC), the number of<br /> individual account holders investing in the stock market has reached 41,700 accounts by end CY07,<br /> compared to 10,000 at end CY03. The total value of these individual accounts has also grown significantly<br /> to reach Rs. 331.7 billion inCY07 against Rs 39.9 billion in CY03 (Figure 2). However, the pace of growth in<br /> new individual accounts at CDC has slowed down markedly in CY07, at 6.3 percent in comparison with<br /> 13.2 percent in CY06, 121.1 percent in CY05 and 57.0 percent during CY04. Interestingly, despite the lower<br /> growth in the number of accounts during CY07, the volume of accounts grew by 51.3 percent against 28.6<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 61<br /> percent in CY06; showing increased transactional activities in both new and existing accounts, due to both<br /> higher stock prices and increased volume of transactions.<br /> Investments in NSS<br /> The Central Directorate of National Savings (CDNS) offers various types of saving schemes for individuals<br /> and institutional investors. While all the schemes are open to individual investors, statistics on the<br /> proportion of individual investments are not available from CDNS. In order to estimate the growth of<br /> personal investments in these instruments, investments in those savings schemes which are offered to<br /> individuals investors only are taken into account. These schemes are: Bahbood Saving Certificates (BSC),<br /> Pensioner's Benefit Account (PBA) and Prize Bonds. The outstanding amount in these schemes reached Rs<br /> 498.0 billion by end June 08, which constitutes 45.9 percent of the outstanding amount in all NSS,<br /> instruments i.e. Rs 1,084.0 billion. In aggregate, these schemes increased by Rs 64.3 billion during FY08,<br /> which was slightly lower than the increase of Rs 67.7 billion in FY07 (Figure 3). In terms of growth rates,<br /> the outstanding amount grew by 14.8 percent during FY08, compared to 18.5 percent in FY07. This slight<br /> decline during FY08 is primarily attributed to the fact that the substantial growth in these schemes when<br /> they were relatively new is now at more sustainable levels. Also, individuals also invest in other schemes, as<br /> BSC and PBA are in particular available for senior citizens/widows/pensioners only. Recent upward<br /> revisions of the rate of return on these schemes are likely to attract more investments into these<br /> instruments.<br /> Following to be discussed in detail in the next lessons<br /> Regulatory Framework for Consumer Financing:<br /> 1) Prudential Regulations for Consumer Financing<br /> 2) Guidelines for Standardization of ATM Operations<br /> 3) Guidelines for Dealing with Customer Complaints<br /> 4) Credit Information Bureau<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 62<br /> 5) Redress Mechanisms for Consumer Complaints<br /> i. Internal Complaint Units/Sections of Banks<br /> ii. Banking Ombudsman<br /> iii. Consumer Protection Department<br /> iv. Banking Courts for Recovery of Loans<br /> 6) The Financial Institutions (Recovery of Finances) Ordinance, 2001<br /> 7) The Payment Systems and Electronic Fund Transfers Act, 2007<br /> 8) The Competition Ordinance, 2007<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 63<br /> LESSON 11<br /> COSTING / PRICING OF CB PRODUCTS (CONTD…)<br /> SBP PRUDENTIAL REGULATIONS FOR CONSUMER FINANCING APPLICABLE TO ALL<br /> BANKS/DFI’S<br /> MINIMUM REQUIREMENTS FOR CONSUMER FINANCING:<br /> • General requirements laid down here should be followed by while undertaking consumer financing<br /> • These minimum requirements should not in any way be construed to restrict the role of the<br /> management to further strengthen the risk management processes through establishing<br /> comprehensive credit risk management systems appropriate to their type, scope, sophistication and<br /> scale of operations<br /> • The Boards of Directors are required to establish policies, procedures and practices to define risks,<br /> stipulate responsibilities, specify security requirements, design internal controls and then ensure<br /> strict compliance with them<br /> Banking Characteristics Risk Class Risk Category<br /> Environment Environmental Risks<br /> Legislative<br /> Economic<br /> Competitive<br /> Regulatory<br /> Human Resource Management Risks<br /> Defalcation<br /> Organizational<br /> Ability<br /> Compensation<br /> Financial Services Delivery Risks<br /> Operational<br /> Technological<br /> New Products<br /> Strategic<br /> Balance Sheet Financials Risks<br /> Credit<br /> Liquidity<br /> Market<br /> Leverage<br /> • Risk is defined as the volatility of a corporation’s market value. The definition that has been<br /> selected is as broad as possible. What is of interest is all decisions that may impact on a change in<br /> market value<br /> • This is consistent with the view that risk management is about optimizing the risk-reward tradeoff–<br /> not about minimizing the absolute level of risk<br /> • SBP guidelines define financial risk in a banking organization as the possibility that the outcome of<br /> an action or event could bring up adverse impacts<br /> • Such outcomes could either result in a direct loss of earnings / capital or may result in imposition<br /> of constraints on bank’s ability to meet its business objectives<br /> • Such constraints pose a risk as these could hinder a bank's ability to conduct its ongoing business<br /> or to take benefit of opportunities to enhance its business<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 64<br /> PRE-OPERATIONS:<br /> Before embarking upon or undertaking consumer financing, the banks / DFIs shall implement / follow the<br /> guidelines given below:<br /> 1) The banks / DFIs already involved in the consumer financing will ensure compliance with these<br /> guidelines within six months of the date of issuance of Prudential Regulations for Consumer<br /> Financing<br /> 2) Banks / DFIs shall establish separate Risk Management capacity for the purpose of consumer<br /> financing, which will be suitably staffed by personnel having sufficient expertise and experience in<br /> the field of consumer finance / business<br /> 3) They shall prepare comprehensive consumer credit policy duly approved by their BOD (in case of<br /> foreign banks, by Country Head and Executive / Management Committee), which shall interlay<br /> cover loan administration, including documentation, disbursement and appropriate monitoring<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 65<br /> mechanism. The policy shall explicitly specify the functions, responsibilities and various staff<br /> positions’ powers / authority relating to approval / sanction of consumer financing facility<br /> 4) For every type of consumer finance activity, the bank / DFI shall develop a specific program. The<br /> program shall include the objective / quantitative parameters for the eligibility of the borrower and<br /> determining the maximum permissible limit per borrower<br /> 􀂾 They shall put in place an efficient computer based MIS for the purpose of consumer finance,<br /> which should be able to effectively cater to the needs of consumer financing portfolio and<br /> should be flexible enough to generate necessary information reports used by the management<br /> for effective monitoring of the their exposure in the area. The MIS is expected to generate the<br /> following periodical reports:<br /> • Delinquency reports (for 30, 60, and 90, 180 & 360 days and above) on monthly basis<br /> • Reports interrelating delinquencies with various types of customers or various attributes of<br /> the customers to enable the management to take important policy decisions and make<br /> appropriate modifications in the lending program<br /> • Quarterly product wise P/L account duly adjusted with the provisions on account of<br /> classified accounts. These P/L statements should be placed before the BOD in the<br /> immediate next Board Meeting. The branches of foreign banks in order to comply with<br /> this condition shall place the reports before a committee comprising of CEO / Country<br /> Manager, CFO and Head of Consumer Business<br /> 5) The banks / DFIs shall develop comprehensive recovery procedures for the delinquent consumer<br /> loans. The recovery procedures may vary from product to product. However, distinct and objective<br /> triggers should be prescribed for taking pre-planned enforcement / recovery measures<br /> 6) The banks / DFIs desirous of undertaking consumer finance will become a member of at least one<br /> Consumer Credit Information Bureau. Moreover, the banks / DFIs may share information / data<br /> among themselves or subscribe to other databases as they deem fit and appropriate<br /> 7) The financial institutions starting consumer financing are encouraged to impart sufficient training<br /> on an ongoing basis to their staff to raise their capability regarding various aspects of consumer<br /> finance<br /> 8) The banks / DFIs shall prepare standardized set of borrowing and recourse documents (duly<br /> cleared by their legal counsels) for each type of consumer financing<br /> OPERATIONS:<br /> 1. Consumer financing, like other credit facilities, must be subject to the Bank’s / DFI’s risk<br /> management process setup for this particular business. The process may include, identifying source<br /> of repayment and assessing customers’ ability to repay, his / her past dealings with the bank / DFI,<br /> the net worth and information obtained from a Consumer Credit Information Bureau<br /> 2. At the time of granting facility under various modes of consumer financing, banks / DFIs shall<br /> obtain a written declaration from the borrower divulging details of various facilities already<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 66<br /> obtained from other financial institutions. They should allow fresh finance / limit only after<br /> ensuring that the total exposure in relation to the repayment capacity of the customer does not<br /> exceed the reasonable limits as laid down in their approved policies. The declaration will also help<br /> them to avoid exposure against a person having multiple facilities from different financial<br /> institutions on the strength of an individual source of repayment<br /> 3. Before allowing any facility, the banks / DFIs shall preferably obtain credit report from the<br /> Consumer Credit Information Bureau of which they are a member. The report will be given due<br /> weightage while making credit decision<br /> 4. Internal audit and control function of the bank / DFI, apart from other things, should be designed<br /> and strengthened so that it can efficiently undertake an objective review of the consumer finance<br /> portfolio from time to time to assess various risks and possible weaknesses. The internal audit<br /> should also assess the adequacy of the internal controls and ensure that the required policies and<br /> standards are developed and practiced. Internal audit should also comment on the steps taken by<br /> the management to rectify the weaknesses pointed out by them in their previous reports for<br /> reducing the level of risk<br /> 5. The banks / DFIs shall ensure that their accounting and computer systems are well equipped to<br /> avoid charging of mark-up on mark-up. For this purpose, it should be ensured that the mark-up<br /> charged on the outstanding amount is kept separate from the principal<br /> 6. The banks / DFIs shall ensure that any repayment made by the borrower is accounted for before<br /> applying mark-up on the outstanding amount<br /> DISCLOSURE / ETHICS:<br /> The banks / DFIs must clearly disclose, all the important terms, conditions, fees, charges and penalties,<br /> which interalia include Annualized Percentage Rate, pre-payment penalties and the conditions under which<br /> they apply. For ease of reference and guidance of their customers, banks / DFIs are encouraged to publish<br /> brochures regarding frequently asked questions.<br /> For the purposes of this regulation, Annualized Percentage Rate means as follows:<br /> Mark-up paid for the period 360 100<br /> Outstanding Principal Amount No. of Days<br /> REGULATION R-1<br /> FACILITIES TO RELATED PERSONS:<br /> • The consumer finance facilities extended by banks / DFIs to their directors, major shareholders,<br /> employees and family members of these persons shall be at arms length basis and on normal terms<br /> and conditions applicable for other customers of the banks / DFIs<br /> • The banks / DFIs shall ensure that the appraisal standards are not compromised in such cases and<br /> market rates are used for these persons<br /> • The facilities extended to their employees as a part of their compensation package under<br /> Employees Service Rules shall not fall in this category<br /> Utilization of Clean Loans for Initial Public Offerings IPOs:<br /> While the State Bank’s intent is not to create any undue hindrance in the smooth flow of consumer<br /> financing to the borrowers, the banks /DFIs are, however, advised to institute necessary checks, so that<br /> clean loans are not used for subscription in Initial Public Offerings (IPOs). In this connection, SBP suggests<br /> the following two minimum requirements:<br /> (a) At the time of sanction of a clean consumer loan / credit line, they should obtain an undertaking<br /> from the client, that the drawings from the loan account will not be used for subscription in an<br /> IPO<br /> (b) They should introduce an internal system, whereby, no cheques, drafts and / or payment<br /> instructions will be made for an IPO subscription account from a clean personal loan / credit line<br /> account<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 67<br /> REGULATION R-2<br /> LIMIT ON EXPOSURE AGAINST TOTAL CONSUMER FINANCING:<br /> Banks / DFIs shall ensure that the aggregate exposure under all consumer financing facilities at the end of<br /> first year and second year of the start of their consumer financing does not exceed 2 times and 4 times of<br /> their equity respectively. For subsequent years, following limits are placed on the total consumer financing<br /> facilities:<br /> REGULATION R-3<br /> TOTAL FINANCING FACILITIES TO BE COMMENSURATE WITH THE INCOME:<br /> While extending financing facilities to their customers, the banks / DFIs should ensure that the total<br /> installment of the loans extended by them is commensurate with monthly income and repayment capacity<br /> of the borrower. This measure would be in addition to their usual evaluations of each proposal concerning<br /> credit worthiness of the borrowers, to ensure that their portfolio under consumer finance fulfills the<br /> prudential norms and instructions issued by the SBP and does not impair the soundness and safety of the<br /> bank / DFI itself.<br /> REGULATION R- 4<br /> GENERAL RESERVE AGAINST CONSUMER FINANCE:<br /> The banks / DFIs shall maintain a general reserve at least equivalent to 1.5% of the consumer portfolio<br /> which is fully secured and 5% of the consumer portfolio which is unsecured, to protect them from the risks<br /> associated with the economic cyclical nature of this business.<br /> The above reserve requirement will, however, be maintained for the performing portion only of consumer<br /> portfolio.<br /> REGULATION R-5<br /> BAR ON TRANSFER OF FACILITIES FROM ONE CATEGORY TO ANOTHER TO AVOID<br /> CLASSIFICATION:<br /> The banks / DFIs shall not transfer any loan or facility to be classified, from one category of consumer<br /> finance to another, to avoid classification.<br /> REGULATION R-6<br /> MARGIN REQUIREMENTS:<br /> Banks / DFIs are free to determine the margin requirements on consumer facilities provided by them to<br /> their clients taking into account the risk profile of the borrower(s) in order to secure their interests.<br /> However, this relaxation shall not apply in case of items, import of which is banned by the Government.<br /> • Banks / DFIs will continue to observe margin restrictions on shares / TFCs as per existing<br /> instructions under Prudential Regulations for Corporate / Commercial Banking (R-6). Further, the<br /> restrictions prescribed under paragraph 1.A of Regulation R-6 of the Prudential Regulations for<br /> Corporate / Commercial Banking will also be applicable in case of Consumer Financing<br /> • State Bank of Pakistan shall continue to exercise its powers for fixation / reinstatement of margin<br /> requirements on consumer facilities being provided by banks/DFIs for various purposes, as and<br /> when required<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 68<br /> LESSON 12<br /> BANK SCHEDULE OF CHARGES<br /> Guidelines for Standardization of ATM Operations<br /> ATM is among the most important e-banking delivery channels in Pakistan. It is becoming increasingly<br /> popular, as it facilitates accountholders to withdraw fast cash anytime, inquire balance, and transfer funds<br /> throughout the year. The SBP has issued separate guidelines for all the commercial banks and switch<br /> operators in order to curtail any inconvenience to the users of ATM services. The guidelines require the<br /> banks having ATMs to carry out cash balancing and reconciliation on every working day at the time fixed<br /> by their Head Office, other than the peak hours.<br /> According to the guidelines, a process of “automatic credit” is to be carried out on the basis of verified<br /> individual transactions in which a customer’s account has been debited without any cash disbursement.<br /> Moreover, the process of “automatic credit” is to be completed within the timeframe ranging from one to<br /> seven business days, depending on the manner of execution of transaction by a cardholder of a bank. In<br /> order to facilitate the customers and meet the objectives of the ATM, banks are also required to develop a<br /> detailed documented procedure for automatic credit and carry out training of relevant staff members. The<br /> guidelines necessitate Card Facilitation Centre (CFC) in every bank. CFC is a unit responsible for managing<br /> e-banking channels and maintaining database of cases (resolved/unresolved) of its own customers and<br /> balance in suspense account. In this regard, every branch ought to report to CFC the details of claims<br /> settled, outstanding claims and balance suspense account on daily basis, to enable quick response of<br /> queries.<br /> It is mandatory for all the banks to identify at least two key personnel of CFC, who would be responsible<br /> for responding to the queries of customers, and their contact details are to be made available on website of<br /> the bank. Furthermore, customer must be informed in writing about the amount credited to his/her<br /> account by the issuing bank. Besides, the customers are not to be charged for minimum balance when their<br /> account has been debited without cash disbursement and time for which the amount remains payable. For<br /> providing secondary evidence to satisfy the customer against cash claims, banks are required to install<br /> external camera in ATM cabins in a way that PIN may not be captured.<br /> Moreover, the guidelines obligate all banks to report details regarding the nature of transactions (automatic<br /> credit, claims processed or outstanding balance (suspense ATM cash), and total number and amount of<br /> actual transactions to the SBP’s Payment Systems Department (PSD). In addition, every bank is required to<br /> develop a numbering sequence for complaints and every complainant is to be issued a reference number.<br /> These guidelines are applicable only on cards used on ATM machines for local currency transactions, which<br /> are carried out in Pakistan.<br /> Guidelines for Dealing with Customer Complaints:<br /> Keeping in view the complaints received by the SBP regarding financial losses, damage to the businesses,<br /> and delayed response of banks, the SBP has issued guidelines for dealing with the customer complaints.<br /> SBP observed that due to absence of proper mechanism for resolution of public grievances, the banks are<br /> unable to respond to the customer complaints promptly and efficiently. Therefore, these minimum<br /> guidelines require every bank and financial institution to designate a senior officer to deal with all sorts of<br /> complaints, whether they are received directly by the bank or referred to by other institutions including the<br /> SBP. All banks are obligated to provide contact details of such designated officials or any change with this<br /> reference to the SBP.<br /> According to the guidelines, the person and the unit/section appointed for this purpose is responsible for<br /> acknowledging, addressing, handling and investigating all the complaints in a fair and prompt manner. The<br /> reply to the complaints ought to be clear and indicate the reasons of the decisions taken. The complaint unit<br /> is also required to identify complaints of recurring nature for taking immediate corrective measures in the<br /> related area. In addition, the unit has been guided to monitor and analyze the status and data of complaints<br /> for improving the system. Every bank or financial institution is also required by the guidelines to submit a<br /> regular report about the complaints to the management of the bank or financial institution for review.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 69<br /> The response time for the complaints has been fixed at 10 days under the guidelines. However, an interim<br /> reply can also be sent to the complainant explaining the reasons for delay, but the final reply is to be<br /> transmitted within 45 working days. Like other departments of the bank, the complaints department/unit is<br /> also required to be regularly audited by internal auditors to check the effectiveness and performance of the<br /> unit.<br /> For raising awareness among the customers about the grievance redress procedure and complaint unit, the<br /> banks and DFIs are required to prepare a leaflet indicating the procedure for lodging a complaint and its<br /> resolution, and post the same on the notice boards at each of their branch/office and on the website.<br /> Besides, a copy of the leaflet is to be supplied to customer upon request. Moreover, the bank staff is to be<br /> provided appropriate training to enhance their skills so that an employee who is not directly involved with<br /> the complaint unit may investigate a complaint, if required.<br /> The guidelines specify that the complaints forwarded by the SBP would be handled by the person who is<br /> the contact person for SBP in this regard. Whereas, the SBP would check the performance, effectiveness<br /> and function of the complaint section and strict actions would be taken against the bank or DFI and the<br /> concerned staff members for noncompliance with the procedures or mishandling of complaints.<br /> What is a Grievance?<br /> ‘Grievance’ may be defined as a formal statement of complaint generally against an authority, or an<br /> institution. Most often, organizations establish a body or designate an officer who deals with complaints of<br /> the clients. Such a body plays important role for identification, intervention and resolution of issues that<br /> have the potential of becoming a grievance. When the circumstances do not allow prior resolution of issues<br /> and a grievance takes place, the redress forum is responsible for initiating a grievance redress process. The<br /> aim is to protect the citizens’ right to raise a genuine issue, lodge a complaint for a grievance, and have the<br /> grievance redressed in a timely manner.<br /> On line Credit Information Bureau (e-CIB)<br /> While developed countries have a long tradition of maintaining a centralized database of credit history of all<br /> borrowers, in many developing countries it is a relatively new development, given the scope and size of their<br /> lending activities. State Bank considers the functioning of an effective credit information bureau integral in<br /> promoting financial discipline and an essential tool for credit risk management by financial institutions. In<br /> its endeavor to facilitate financial institutions in making prudent lending decisions, the Credit Information<br /> Bureau (CIB) was established in 1992. Due to the rather small and largely secured lending extended to<br /> individual customers at that time, the initial focus of the CIB database was on capturing the negative history of<br /> large and medium sized borrowers, with outstanding loans equal to and above Rs 500,000 only. Over the<br /> years, SBP has significantly enhanced the scope of CIB operations. In April 2003, SBP enhanced the<br /> coverage and effectiveness of CIB by introducing e CIB online facilities, becoming in the process, the first<br /> credit history database of the region to introduce online access to its member financial institutions. This<br /> development enabled financial institutions to upload their data on loans directly into the CIB database and<br /> readily generate customer reports for their credit assessment purposes.<br /> In response to the rapid growth in banks’ credit portfolio, e CIB’s reporting requirements and operational<br /> and IT platforms have been significantly upgraded. The scope of the CIB database was further enhanced<br /> during early 2004 when SBP launched a new project called the “e CIB data lowering limit” with the<br /> collaboration of Pakistan Banks Association (PBA) to achieve the following objectives:<br /> • Abolishing the minimum limit of Rs 0.5 million and above for credit reporting and to expand the<br /> database to cover all loans of member financial institutions<br /> • Changing the composition of the information to include more financial and non financial details<br /> of the borrowers<br /> • Improve the overall operational efficiency of e CIB by upgrading the communication<br /> infrastructure, hardware and software, etc<br /> The project aimed at transforming CIB into a state of the art credit information database with the ability<br /> to minimize the turnaround time of queries from financial institutions and providing a quick source of<br /> information. The project was successfully completed in June 2006 and brought significant improvements in<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 70<br /> the overall operational and technological infrastructure of the CIB. The key improved features of the new e-<br /> CIB system over the old CIB system are summarized below:<br /> • Existing credit reporting limits of Rs 0.5 million has been eliminated. Under the new reporting<br /> system, all outstanding fund and non fund based credit facilities, irrespective of the amount, are<br /> being reported to SBP<br /> • Besides Banks and DFIs, for whom membership in e CIB is mandatory, a large number of<br /> NBFCs are also members of this database<br /> • Product wise availability of loan information. Before implementation of the new system, such<br /> information was available in aggregate form only<br /> • Improved efficiency in terms of speed, reliability and security of CIB data<br /> • Deployment of high capacity servers, security firewalls, broader bandwidth, point to point data<br /> encryption<br /> • Multi user and multi tiered Rich Client Data using latest programming tools, provided to 100<br /> financial institutions. The software has been designed keeping in view the data collection<br /> requirements of all financial institutions and can be customized according to the needs of specific<br /> financial institutions. It can be deployed in both centralized and decentralized environments. The<br /> software is capable to efficiently collect, consolidate and report thousands of records from all<br /> branches of a large bank<br /> • Highly sophisticated and completely automated Back Office (BO) system for processing data. With<br /> the implementation of the BO system the task of data processing has been reduced from 15 days to<br /> 3 days only<br /> • Web based interactive data inquiry systems to provide online Credit Information Reports to<br /> financial institutions, and allow online amendment and updates<br /> • Replaced the previous dial up system with a scalable Virtual Private Network (VPN) that allows<br /> financial institutions to connect to the e CIB more quickly and efficiently<br /> • Comprehensive data validation rules implemented to ensure correct entry of records. A validation<br /> rule engine has also been developed for creating and implementing new data validation rules<br /> • A new separate reporting system has been introduced for consumer and commercial borrowers.<br /> The CIB will collect consumer and corporate credit data on two separate specified formats and<br /> provides separate credit information reports for the consumer and corporate borrowers<br /> • The credit report of the consumer also reflects the repayment history for the last twelve months<br /> • Record of last four credit inquiries from the financial institutions has also been made part of the<br /> respective borrower’s credit report<br /> Redress Mechanisms for Consumer Complaints:<br /> Banking Ombudsman<br /> The Federal Government established the Banking Ombudsman in 2005. The principal responsibility of the<br /> Ombudsman is to resolve the complaints through mediation and provide an amicable and acceptable<br /> solution where conciliation is not possible.<br /> Jurisdiction<br /> The Banking Ombudsman has been entrusted with the powers and responsibilities to entertain complaints<br /> lodged by the customer against the scheduled banks or by a scheduled bank against another bank, and<br /> provide the basis for an amicable and acceptable solution after giving hearings to the complainant and the<br /> concerned bank. Moreover, Banking Ombudsman has been given authority to make recommendations, to<br /> be communicated to the concerned bank for considering the issue, and in some cases to pass an order<br /> against the concerned bank. To improve the service standards and effectiveness, and remove the<br /> generalized systematic deficiencies, the Banking Ombudsman can recommend procedural improvements.<br /> SBP can inquire the banks involved in violation of laws and regulations on recommendation of the<br /> Ombudsman.<br /> The authority and powers of Banking Ombudsman have been specified for private and public sector banks.<br /> In relation to all banks, Banking Ombudsman has been given the authority to entertain the complaints<br /> regarding bank’s failure to act in accordance with the laws, regulations, policy directives and guidelines,<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 71<br /> which are time to time issued by SBP and inquire the delays or fraud in relation to the payment or collection<br /> of cheques, drafts or transfer of funds. Moreover, the Banking Ombudsman has also been allowed to<br /> consider the complaints regarding fraudulent or unauthorized withdrawal or debit entries in accounts,<br /> complaints from exporters or importers, complaints related to banking services and obligations including<br /> letters of credit, complaints from holders of foreign currency accounts, whether maintained by residents or<br /> non-residents, complaints relating to remittances to or from abroad and relating to payment of utility bills.<br /> A noteworthy characteristic of the Baking Ombudsman is that it has some special powers, which do not<br /> apply to the private banks. The responsibilities of entertaining the complaints pertaining to corruption,<br /> negligence of duties by bank officers in dealing with customer and excessive delay in taking decisions can be<br /> exercised only in respect of public sector banks.<br /> In addition, Banking Ombudsman has the authority to call for relevant information necessary for disposal<br /> of complaints, receiving evidence on affidavit and issuing commission for examination of witness, given<br /> that confidentiality would not be violated.<br /> Bar on Jurisdiction<br /> However, there are some matters which are outside the jurisdiction of Banking Ombudsman including the<br /> power to direct banks for giving loans and advances to a complainant. Similarly, the Banking Ombudsman<br /> has no authority to consider the complaints regarding the schedule of charges and any other policy matter<br /> of banks. Likewise, complaints pertaining to terms and conditions of service of the bank are not accepted<br /> by the Banking Ombudsman. Moreover, awarding the damages against banks is not within the jurisdiction<br /> of Banking Ombudsman. However, the authority for the compensation of loss suffered by aggrieved<br /> persons in pursuit of justice lies with him.<br /> Complaint Procedure<br /> The complaint handling process of Banking Ombudsman is centralized at the Karachi Secretariat. The<br /> complainant is required to file a complaint to the bank in writing stating the intention to refer the matter to<br /> the Banking Ombudsman if matter would not be resolved satisfactorily. The bank is required to resolve the<br /> complaint within 45 days, otherwise the complainant can file the case to Banking Ombudsman on the<br /> complaint form duly completed, signed and attested by an Oath Commissioner, attached to the letter of<br /> complaint. Moreover, the complainants are required to make sure that copies of all documents and relevant<br /> correspondence with the bank are also attached along with the form and letter of complaint.<br /> The Banking Ombudsman entertains those complaints, which are filed by a customer against scheduled<br /> bank or by a scheduled bank against any other bank. Further, the rejected complaints, which have not been<br /> barred by time or have not been destroyed by the bank, are also entertained by the Banking Ombudsman.<br /> In this regard, the complainant has to send all related correspondence along with the complaint form<br /> without giving 45 days notice to the concerned bank.<br /> When a complaint is lodged to the Banking Ombudsman, first all procedural requirements are confirmed<br /> and both parties may be required to provide additional information, if necessary. Informal complaints (i.e.<br /> walk in, e-mail, copies of letters or via telephone) are resolved by providing procedural guidance to<br /> complainant. In case of formal complaints, the banks are formally informed where necessary. Regarding<br /> informal complaints, the law allows to entertain only those complaints, which have been filed directly to<br /> Banking Ombudsman and made under oath.<br /> The Banking Ombudsman may also visit the concerned bank to examine their books, procedures and<br /> processes relating to complaints. The case is closed if found unjustified. However, if a case is found to be<br /> genuine, then it would be resolved through mediation. The situation where conciliation is not possible, the<br /> Banking Ombudsman passes an order asking the bank to rectify the situation or compensate the loss of<br /> aggrieved.<br /> The Banking Ombudsman solves the complaint within two months. However, some complaints may take<br /> longer to resolve if they are complex or information and copies of documents are not provided by the<br /> complainant. Therefore, a complainant is required to make sure that the complaint form has been filled in<br /> with clarity and copies of all the relevant documents are attached.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 72<br /> The Right to Appeal<br /> The law provides the right to appeal to parties, the complainant and the bank. A complainant, dissatisfied<br /> with the decision of Banking Ombudsman, has the right to appeal to the Governor SBP within 30 days<br /> from the date of order of the Ombudsman. Moreover, a complainant, dissatisfied with the decision of SBP,<br /> has also been given the right to go to a court of law. However, the Ombudsman’s decision would be final,<br /> operative and binding upon the bank, if no appeal is filed or SBP does not uphold the appeal.<br /> Several changes have been made in the Banking Companies Ordinance, 1962 through the Finance Act, 2007<br /> empowering the Banking Ombudsman to issue commission for the examination of witnesses. In<br /> consideration of the changes, Banking Ombudsman does not entertain those cases, which have already been<br /> decided or handled by the SBP.<br /> The time allowed to banks, to send the complaint to the Banking Ombudsman if not resolved, is reduced to<br /> 45 days from three months. Earlier, there was no time limit for disposal of an appeal filed with SBP against<br /> any order by the Banking Ombudsman, which has now been limited to 60 days. Unless an appeal is referred<br /> to the Governor SBP, the time limit for implementation of an order passed by the Banking Ombudsman<br /> has been increased to 40 days and submission of compliance report is compulsory, which was not required<br /> previously.<br /> Consumer Protection Department:<br /> • Keeping in view the growth in consumer banking and related consumer complaints, SBP has issued<br /> a circular on January 30, 2008 for the establishment of new department, namely Consumer<br /> Protection Department (CPD)<br /> • The Department would resolve consumer complaints dealing with banks<br /> • All banks and financial institutions would submit complaints and appeals against the orders passed<br /> by the Banking Ombudsman to the Consumer Protection Department<br /> Banking Courts for Recovery of Loans:<br /> • Under the Recovery of Finances Ordinance, 2001, the Federal Government has been entrusted<br /> with the authority to establish banking courts, appoint judges for each of such courts, and specify<br /> the territorial limits to exercise its jurisdiction<br /> • Federal Government has established 29 banking courts throughout Pakistan for quick recovery of<br /> bank loans from defaulters<br /> • The order of banking court would be final and no other court or authority would have power to<br /> revise, review or call, into question any proceeding, judgment, decree or order of banking court<br /> The Financial Institutions (Recovery of Finances) Ordinance, 2001:<br /> • The new recovery law provided a mechanism for expeditious recovery of stuck up loans, e.g., the<br /> law provided a comprehensive procedure for the foreclosure and sale of mortgaged property<br /> without the interventions of a court of law, and automatic transfer of all cases pending in any other<br /> courts to the banking courts for their early resolution<br /> • Under the new legislation, banks may recover debt through summary procedure, and sell<br /> mortgaged property without intervention of the court<br /> The Payment Systems and Electronic Fund Transfers Act, 2007<br /> With the rapid development in technology, like other spheres of human life business and trade are also no<br /> more limited to traditional modes of delivery of products and services, as well as, purchase and payments in<br /> cash. A person sitting at one place can buy any product from another place through internet and can pay<br /> through secured online electronic channels like credit cards. Many countries around the world have<br /> formulated laws, rules and documentation procedures for secure fund transfer through electronic means.<br /> The Government of Pakistan promulgated the Payment Systems and Electronic Fund Transfers Act, 2007<br /> in order to encourage documentation of economy, supervise and regulate such payments and fund transfers,<br /> provide standards for protection of the consumer and to determine respective rights and liabilities of the<br /> financial institutions and other services providers, and their consumers and participants. The Act is aimed at<br /> providing regulatory framework for the electronic fund transfer services. Under the Act, the SBP has the<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 73<br /> authority to designate a payment system as a designated a payment system and/or revoke designation of a<br /> designated payment system.<br /> Under the Act, the SBP is also empowered to issue rules, guide lines, circulars, by-laws or directions as it<br /> may consider appropriate. A bank, financial institution, clearing house, service provider or any person<br /> authorized by the SBP to transact business under the Act and providing funds transfer facility is required to<br /> retain complete record of electronic transactions in electronic form and ensure secure means of transfer<br /> consistent with international standards. Clause 8 and 9 of the Act describe the reasons for disqualification of<br /> staff of a designated payment system and its effects respectively. According to the Act, the operator of a<br /> designated payment system is obligated to establish adequate governance arrangements which are effective,<br /> accountable and transparent or which may be required by the SBP to ensure the continued integrity of such<br /> system.<br /> The SBP is empowered under the Act to nominate one or more clearing house to provide clearing or<br /> settlement services for a payment system and to formulate ‘settlement rules’ relating thereto. Besides, certain<br /> conditions have been imposed in the Act for the issuance of a designated payment instrument. The financial<br /> institutions and other institutions providing Electronic Funds Transfer (EFT) facilities are required to<br /> ensure that secure means are used for transfer of funds which are compliant with current international<br /> standards. In respect of each EFT initiated by a consumer, the financial institution holding such consumer’s<br /> account is required to provide documentary proof to the consumer of such transfer.<br /> The Act further requires the financial institution to provide periodic statement of account to each consumer<br /> in respect of each electronically accessible account. It also lays down the procedures to be followed in case<br /> of errors or omission in electronic fund transfer (EFT) and the respective liabilities of the financial<br /> institutions and consumers in such circumstances. Under the Act, a consumer may also complain to the<br /> SBP regarding EFT in case of not being satisfied with the outcome of a complaint made to financial<br /> institution without prejudice to any right to seek any other remedy under the law.<br /> The Competition Ordinance, 2007<br /> The Government of Pakistan, in a bid to strengthen the competition policy and law, constituted<br /> Competition Commission of Pakistan. The Commission is responsible for promotion of competition and<br /> fair trade practices. The legal mandate comes from the Competition Ordinance, 2007. All regulated sectors,<br /> including the banking sector, fall within the purview of the Ordinance.<br /> Section 4 and 10 of the Ordinance are particularly relevant in the context of banking sector, as they deal<br /> with prohibited agreements and deceptive market practices. Section 4 lays down that no undertaking or<br /> association of undertaking shall enter into any agreements or, in the case of an association of undertakings,<br /> shall make a decision in respect of the production, supply, distribution, acquisition or control of goods or<br /> the provision of services which have the object or effect of preventing, restricting or reducing competition<br /> within the relevant market unless exempted under the ordinance. Such agreements includes, but are not<br /> limited to fixing the purchase or selling price or imposing any other restrictive trading conditions with<br /> regard to the sale or distribution or any goods or the provision of any services.<br /> Such agreements also include those, which involve dividing or sharing of markets for goods or services,<br /> whether by territories, by volume of sales or purchases, by type of goods or services sold or by any other<br /> means; fixing or setting the quantity of production, distribution or sale with regard to any goods or the<br /> manner or means of providing any services; limiting technical development or investment with regard to the<br /> production, distribution or sale of any goods or the provision of any service; or collusive tendering or<br /> bidding for sale, purchase or procurement of any goods or services; applying dissimilar conditions to<br /> equivalent transactions with other trading parties, thereby placing them at a disadvantage; and make the<br /> conclusion of contractors subject to acceptance by the other parties of supplementary obligations which, by<br /> their nature or according to commercial usages, have no connection with the subject of such contract.<br /> Section 10 of the Competition Ordinance 2007 prohibits deceptive marketing practices (which are common<br /> in the banking sector). The law provides that no undertaking shall enter into deceptive marketing practices.<br /> The deceptive marketing practices shall be deemed to have been restored to or continued to or continued if<br /> an undertake restores to the distribution of false or misleading information that is capable of harming the<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 74<br /> business interests of another undertaking; the distribution of false or misleading information to consumers,<br /> including the distribution of information lacking a reasonable basis, related to the price, character, method<br /> or place of production, properties, suitability for use, or quality of goods; false or misleading comparison of<br /> goods in the process of advertising or packing; fraudulent use of another’s trademark, firm name, or<br /> product labeling or packing.<br /> The above review indicates that a number of mechanisms exist for dealing with public complaints and<br /> concerns that are associated with consumer financing. Still, the number of complaints is rising every year.<br /> While this trend can be measured in proportion to the increasing number of borrowers and overall<br /> consumer financing portfolio, lack of consumer education and weaknesses in the grievance redress<br /> mechanism are among the major reasons for rising customer dissatisfaction. The Banking Ombudsman is a<br /> case in point. The complex complaint procedure and limited powers of the Ombudsman do not provide an<br /> incentive to many aggrieved customers to approach this forum against banks. The regulatory framework<br /> needs to be reformed keeping in view the emerging issues and challenges in consumer financing.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 75<br /> LESSON 13<br /> CONSUMER FINANCING IN PAKISTAN ISSUES, CHALLENGES AND WAY FORWARD<br /> STUDY / REPORT<br /> Published by<br /> Consumer Rights Commission of Pakistan (CRCP)<br /> Website: www.crcp.org.pk<br /> Pakistan Consumer Banking Landscape<br /> Issues/Concerns from Consumers Perspective:<br /> 1. High Interest Rate Spread<br /> 2. Variable Interest Rate<br /> 3. Increasing Inflationary Impact<br /> 4. Deteriorating Quality of Services<br /> 5. Unsolicited Financing<br /> 6. Lack of Consumer Education<br /> 7. Poor Information Disclosure Practices<br /> 8. Loosing Competitiveness in International Trade<br /> 9. Intimidating Recovery Practices<br /> 10. Weaknesses in Regulatory Framework<br /> 1. High Interest Rate Spread:<br /> Low interest rate spread is an important indicator of the efficiency and competition in the financial systems<br /> and helps in economic growth through increased investments. In the national context, the most important<br /> issue in consumer financing from the standpoint of national economy as well as individual consumers is<br /> that Pakistan has one of the highest interest rate spread in the world.<br /> An analysis of the interest rate behavior in Pakistan reveals that the spread has vacillated between 5.95%<br /> and 9.58% during the period from 1990 to 2005. This indicates that average deposit rates have been very<br /> low, as compared to average lending rates. One could have expected a decrease in spread as a potential gain<br /> of competition among the increasing number of banks in the post-2001 period. However, little change has<br /> been observed in average spread, which points towards a cartel-like behavior of the banking sector.<br /> If we look at the nominal and real interest rates, it becomes evident that consumers have had suffered a<br /> great deal at the hands of banks. From 1990 to 2004, the nominal weighted average lending rate has always<br /> been higher than inflation rate. The real lending rates averaged between 1.98% and 9.69%, which means<br /> that the banks earned net profits on lending in all these years. In contrast, the average deposit rate was<br /> slightly higher than inflation rate in four years only (1999-2002). The real deposit rates were negative in 11<br /> years. It partly explains the impact of inflation on interest rate spread. The banks keep the lending rate high<br /> enough to ensure that the real lending rate is almost always positive.<br /> In recent years, the spread has exceeded 7% on the average. The high difference between lending and<br /> deposit rates indicates that the depositors are not getting due returns, as compared to huge profits being<br /> earned by the banks. Indeed, the lending rates have increased and deposit rates have decreased over the last<br /> few years.<br /> In February 2008, the weighted average lending rate was 11.23% whereas the weighted average deposit rate<br /> was 4.17% resulting in high interest rate spread to the tone of 7.04%. In terms of average interest rate<br /> spread of banks in South Asia, Pakistan has the highest spread. From 2003 to 2005, its average spread has<br /> remained between 6.33% and 7.79%. Whereas, during the same period, it ranged between 4.50% and 6.9%<br /> in India, 4.34% and 5.99% in Sri Lanka, and between 5.27% and 6.11% in Bangladesh (Table 4).<br /> While the spread is higher in South Asian as compared to other regions, Pakistan stands out distinctively<br /> due to huge difference between lending rate and rate of return on deposits. The spread in Pakistan is much<br /> higher than average rates in many countries around the world. Chart 2 shows average interest rate spread in<br /> 13 countries, which ranges between minimum 1.71% (Japan) and maximum 4.5% (Italy). This is evident<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 76<br /> from these statistics that average interest rate spread in Pakistan exceeds the regional as well as international<br /> average rates.<br /> .<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 77<br /> High interest rate spread indicates that competitiveness in the banking sector in Pakistan is either absent or<br /> is very poor. A cartel-like behavior in banks appears to have taken place within the policy space provided by<br /> SBP. In April 2006, the present Governor of the SBP had said that banking spread was very high in the<br /> county and termed it an inefficiency of banks. In December 2006, she said that spreads were high because<br /> the sector was not facing competition and it was hurting the economy. However, she said that time was yet<br /> to come when SBP should exercise its powers.<br /> This issue is largely attributable to weak SBP regulation of interest rates despite that it has the powers to<br /> bring down the spread through monetary policy. While non-operating loans and high administrative costs<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 78<br /> could be considered as the major reasons in countries where spread is high. These reasons cannot be said<br /> true of Pakistan because banks are earning huge profits at the cost of savings of the depositors.<br /> 2. Variable Interest Rate:<br /> A variable interest rate moves up and down based on factors including changes in the rate paid on bank<br /> certificates of deposit or treasury bills. From a consumer’s standpoint, it makes a huge difference whether<br /> the bank is charging variable or fixed rate on credit. If a consumer enters into an agreement with the bank<br /> on the basis of fixed interest rate, the bank cannot change the overall payable interest during the entire<br /> tenure even if interest rates go up in the market. In contrast, when the interest rate is variable, the bank ties<br /> the rate with an index. The interest payable by the consumer varies as the index changes.<br /> In Pakistan, almost all consumer loans are on the basis of variable mark up rates. This policy is attributed to<br /> two reasons. First, variable rates are in the larger interest of banks due to high probabilities of increase in<br /> rates in the future. Second, a long term debt market has yet to be developed to provide term funding to the<br /> banks. However, banks also offer loans in which borrowers are given the choice of fixed or variable mark<br /> up. If the borrower chooses fixed mark up, the rate offered is generally higher than the variable mark up<br /> rate at the time of the contract. Therefore, borrowers most often choose variable mark up, without realizing<br /> their future financial liability, in the hope that the rates will fall in the future. This has seriously affected the<br /> loan servicing capacity of the borrowers with deleterious effects on their savings.<br /> Some countries have determined fixed or variable interest rate for each sector depending on specific needs.<br /> In the United States, for example, the interest rates on education loans were changed from variable rates to<br /> fixed rates in 2002. In addition, there are examples of discount periods for variable interest rates. Such<br /> practices need to be introduced and scaled up in Pakistan in order to serve the interests of small borrowers.<br /> 3. Increasing Inflationary Impact:<br /> • Easy bank credit by the household consumers has spurred the demand for many essential and<br /> luxury items<br /> • Ultimately, the increase in demand has not only escalated the prices of essential items, but has also<br /> stimulated hoarding and black-marketing thus multiplying the problems for poor consumers. (Unintended<br /> Consequences)<br /> • Similarly, the demand for road networks and fuel imports has increased due to growth in auto<br /> financing<br /> • These developments have an overall inflation impact, which is affecting the purchasing capacities of<br /> the poor<br /> 4. Deteriorating Quality of Services:<br /> As the consumer financing portfolio is increasing, quality of related banking services is becoming a serious<br /> issue. Processing delays, service inefficiencies, unauthorized debits and non-compliance with requirement of<br /> providing monthly bank statements are few examples of poor quality of banking services. Other issues such<br /> as non-transparent advertisements, violation of agreed terms and conditions, levy of unjustifiable charges,<br /> and arduous complaint redress mechanism, etc. also reflect upon the poor quality of consumer services.<br /> The press frequently reports such complaints, which speak of the issues in quality of banking services. For<br /> example, some banks are involved in charging late payments penalties despite payment on time. Similarly,<br /> many credit card users complain about service charges appearing on their credit statements, which make no<br /> sense to anybody. The number of complaints is increasing every year. For example, in the first eight months<br /> of the operation of Banking Ombudsman in 2005, about 40 per cent complaints filed with the Ombudsman<br /> were related to consumer products, and among these complaints, 30 per cent were related to credit cards<br /> alone.<br /> In 2006, Banking Ombudsman received 215 complaints out of which 18 were rejected, 71 were declined<br /> and 90 complaints were granted. There were 36 complaints related to internal banking fraud scam, still<br /> being investigated by the Banking Ombudsman. The complaints received at Banking Ombudsman were<br /> related to service rules, service inefficiency, and loan remission of mark-up waiver, frauds and consumer<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 79<br /> products. However, it is observed that percentage of complaints received regarding consumer products was<br /> 46%, much higher than other type of complaints received.<br /> The complaints related to consumer products included credit cards, small loans, auto loans, undertake mark<br /> up, processing delays and ATM’s complaints. Magnitude of credit card complaints was much more than all<br /> other complaints, nearly 40% of total complaints.<br /> 5. Unsolicited Financing:<br /> • Aggressive marketing campaigns launched by the banks are targeting the consumers and repeatedly<br /> encouraging them to purchase a loan or credit card<br /> • Misleading phone calls are made to the consumers with false promises<br /> • The supply driven approach is creating artificial consumerism on one hand, and is limiting the<br /> choices for consumers, on the other<br /> • For example, auto leasing makes a fit case of banking sector’s dominance over customers<br /> • A car lessee, for instance, is bound to insure the car from an insurance company of the bank’s<br /> choice<br /> 6. Lack of Consumer Education:<br /> • Most of the consumers do not have enough understanding of the very basic rules and terms and<br /> conditions<br /> • Documents prepared by banks are usually technical and the information which may affect financial<br /> rights of the consumers is never stated clearly and plainly in these documents<br /> • Need to focus on public awareness about the financial rights of the citizens, and the forums<br /> available to them for accessing justice, if these rights are violated (Example; Proposed CFPA in<br /> USA)<br /> 7. Poor Information Disclosure Practices:<br /> • Access to information related to consumer financing remains a critical issue<br /> • A strong culture of secrecy prevails in the banks, as they avoid providing even ordinary and<br /> insensitive data<br /> • Apart from reporting requirements laid down in the SBP regulations and contracts, there is no law<br /> in Pakistan, which entitles the consumers to access information from private banks as a legal right<br /> • The existing freedom of information laws are applicable to only public sector banks, and do not<br /> extend to private banks and DFIs<br /> 8. Loosing Competitiveness in International Trade:<br /> Banking sector has assumed greater importance due to liberalization of trade under the General Agreement<br /> on Trade in Services (GATS). Pakistan has opened up the financial sector and made a number of<br /> commitments under GATS without performing any Economic Needs Test (ENT). The impact of such<br /> decisions needs to be ascertained keeping in view the contribution of financial services in services trade.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 80<br /> The imports of financial services have remained substantially higher than exports. Estimates suggest that the<br /> imports in financial services were US$ 77 million in 2003-04 and 2004-05, and US$133 million in 2005- 06.<br /> In comparison, exports in financial services stood at US $21 million, US$ 39 million, and US$ 70 million<br /> during the same years.<br /> The challenge for Pakistan is to increase exports in financial services in a manner that has least impact on<br /> low income customers. Given the huge spread in interest rates, the local banks have no incentive to<br /> improve internal efficiencies to become competitive in the international market. Therefore, urgent steps<br /> including reduction in spread need to be taken to create competitive financial environment in Pakistan.<br /> 9. Intimidating Recovery Practices:<br /> Recovery of dues from borrowers is the responsibility of the ‘collection department’. However, when a<br /> borrower does not clear all his dues, the case is transferred to the loan recovery department. Legally, under<br /> Section 15 (sub-section 2) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, the banks<br /> are required to send three legal notices to the borrowers for payment of dues within the specified time<br /> periods. If the borrower fails to pay the dues even after third legal notice, only then the bank has the<br /> authority (under sub-section 4 of section 15) to sell the property of the mortgagor, without the intervention<br /> of any court, which was kept on mortgage as a security for the bank.<br /> Keeping aside the law, the banks have constituted recovery teams who use strong-arm tactics to harass the<br /> borrower and make threatening calls. Despite the fact that bank’s recovery teams have no legal authority to<br /> visit the borrower’s residence; sometimes, recovery teams reach the borrower’s house to intimidate and<br /> pressurize them for payment of dues. In some instances, they illegally coerce and misbehave the borrowers,<br /> and, in desire of earning more commission, cross the limits by abusing, brutally beating, showing guns,<br /> locking in the house and threatening to dreadful consequences.<br /> Second annual report (2006) of the Banking Ombudsman stated a rise in the unrestrained action by the debt<br /> collectors; cases have also come to light where innocent people have been accost and maltreated as well as<br /> cases where borrowers with up-to-date payment record have been needlessly harassed. The report<br /> mentioned that in most countries, debt collection is regulated by the law. In the US, to prohibit certain<br /> methods of debt collection and treat borrowers fairly, the “Fair Debt Collection Practices Act” was<br /> incorporated in the “Consumer Credit Protection Act” in 1977. According to Banking Ombudsman Report<br /> (2006), some banks in Pakistan have developed guidelines applicable to debt collection but these are not<br /> strictly followed by external recovery agencies engaged for the purpose. To protect consumers from abuse<br /> by debt collectors, it was recommended that Pakistan Banks Association be asked by SBP to draft suitable<br /> set of instruction for compliance by external debt collection agencies.<br /> 10. Weaknesses in Regulatory Framework:<br /> The frequent violation of financial rights of the consumers is attributed, mainly, to weaknesses in the<br /> regulatory framework governing the banking sector, and low level of consumer education about the relevant<br /> policies and rules. The existing regulations do not capture the full range of problems being faced by the<br /> users of consumer financing services. For example, the regulations do not restrict the banks to levy<br /> unjustified service charges such as high fee on depositing cash in one’s own account. Another case in point<br /> is the Credit Worthiness Reports maintained by the Credit Information Bureau (CIB). According to the<br /> rules, these reports are confidential documents for the borrowers, and amount to denial of the right to one’s<br /> own personal information.<br /> On the top of it, whatever regulations exist, they are yet to be fully implemented. As a matter of fact, the<br /> banks enjoy a great degree of freedom for formulating their own policies and procedures regarding credit<br /> cards, automated services, loans, interest rates, etc., which suit their interests best. These missing links, if not<br /> abridged adequately, would continue to harm the interest of the consumers on one hand, and affect the<br /> potential of banks to serve as a strong base of economy in the longer term, on the other hand.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 81<br /> LESSON 14<br /> CODE OF CONSUMER BANKING PRACTICE: THE ASSOCIATION OF BANKS IN<br /> SINGAPORE<br /> • This Code of Consumer Banking Practice represents the collective and concerted effort of banks in<br /> Singapore in reaching out to their customers<br /> • The Association of Banks in Singapore has spearheaded this voluntary initiative and has worked<br /> with member banks with retail customers to crystallize for the first time, and on an industry wide<br /> basis, the minimum standards of service and conduct, which you, the customer can expect in dealing with<br /> your bank<br /> • Like other organizations and corporations, banks in Singapore face some challenging times ahead<br /> • Foremost is the preservation and enhancement of the banks’ relationship with their customers<br /> • We believe that the four principles on which this Code is premised:<br /> 􀀹 Fairness<br /> 􀀹 Transparency<br /> 􀀹 Accountability<br /> 􀀹 Reliability<br /> • Will establish the bedrock for building a trusting and open relationship between you and your bank<br /> Objectives:<br /> The Code of Consumer Banking Practice for retail banking customers has been developed to:<br /> 1. Promote good banking practices by setting minimum standards in dealing with you;<br /> 2. Increase transparency so that you can have a better understanding of what you can reasonably<br /> expect of the services;<br /> 3. Promote a fair and cordial relationship between you and your bank;<br /> 4. Foster confidence in the banking system<br /> Key Commitments:<br /> Your bank’s relationship with you will be guided by four key principles:<br /> Fairness:<br /> Your bank commits that it will:<br /> • act fairly and reasonably in all its dealings with you;<br /> • ensure that all the products and services offered are in line with the Code;<br /> • establish a clear and common set of procedures to ensure that any disputes between you and your<br /> bank will be resolved fairly and quickly<br /> Transparency:<br /> Your bank commits that it will:<br /> • Provide you with relevant and useful information that will help you arrive at informed decisions<br /> about its products and services;<br /> • Provide clarification, highlighting major points that impact the products and services that you are<br /> interested in buying;<br /> • Inform you of the range of products and services offered through various delivery channels (e.g.<br /> over the Internet, telephone or in branches)<br /> Accountability:<br /> Your bank commits that it will:<br /> • Explain and help you understand the financial benefits of its products and services that you are<br /> interested in buying, how they work and the risks involved;<br /> • Ensure that the procedures laid down for the bank’s staff reflect the commitments set out in the<br /> Code;<br /> • Ensure that all products and services meet relevant laws and regulations of Singapore<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 82<br /> Reliability:<br /> Your bank commits that it will:<br /> • Have a secure and reliable banking system;<br /> • Ensure your records and transactions are kept confidential and accurate;<br /> • Maintain a reliable system of security controls for the bank’s self-service banking channels;<br /> • Ensure that the information provided is up-to-date<br /> Service Standards:<br /> Your bank will ensure that:<br /> • Its staff are trained to provide prompt and efficient service, so that your transactions will be<br /> handled promptly and your queuing time minimized;<br /> • ATMs and other self-service banking channels, if offered, will be available both day and night to<br /> serve you; however, please note that the machines maybe temporarily inaccessible when they<br /> undergo regular servicing and maintenance;<br /> • Information on its products and services will be updated and current. It will be made easily<br /> available at bank branches, through your bank’s website and other appropriate channels;<br /> • Its internet banking and e-banking services will comply at all times with the MAS guidelines issued<br /> on 12 Nov 2001 on “Responsibility for Internet Banking Security”;<br /> • You will be informed 30 days in advance before implementation of any changes to the Terms and<br /> Conditions, fees and charges and discontinuation of services/relocation of premises. Its officers<br /> will handle and respond to your feedback;<br /> • Your complaint will be acknowledged within 2 business days of receipt and will be investigated;<br /> • We will respond to you on the status of the investigation within 14 business days. (For complaints<br /> requiring investigation by a third party this may take more than 14 days.)<br /> Marketing and Promotions:<br /> a) Your bank will exercise care in the use of direct mail:<br /> i. where customers are less than 16 years of age;<br /> ii. when promoting loans, overdrafts and other credit facilities<br /> b) The bank will also ensure all advertising and promotional materials are not misleading and comply<br /> with all relevant and applicable legislation, codes and rules<br /> c) Plain language will be used to the extent that it is consistent with the need for legal certainty. Legal<br /> and technical language will be used only where necessary<br /> d) All printed advertising and promotional materials for banking services which include a reference to<br /> an interest rate, will include the Effective Interest Rate (EIR), other relevant fees and charges<br /> Complaints - Dispute Resolution Process:<br /> Your bank is committed to providing you with a high level of service. However there may be occasions<br /> when complaints and disputes arise. In this instance, the Code specifies a structured process for your<br /> complaint to be dealt with.<br /> Principles:<br /> 􀀹 Sincerity - your complaint is important feedback and the bank will treat it seriously<br /> 􀀹 Transparency - the procedures for handling complaints are documented and apply to all customers<br /> 􀀹 Effectiveness - the procedures will provide for a speedy resolution<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 83<br /> The Geography of Trust:<br /> The most successful leaders understand that trust is a function of relationships as well as integrity and<br /> expertise. And they know that relationship-based, “structural” trust changes depending on where people<br /> stand on the organizational map.<br /> Personal Trust:<br /> • Based on faith in a person’s integrity, is trust at its most fundamental and widely understood<br /> • It is the trust of confidences shared without thought of betrayal, ideas revealed without fear of<br /> appropriation, and tasks doled out to teammates with the assurance that they will try hard not to let<br /> you down<br /> • Personal trust develops in the workplace through shared experiences and knowledge of colleagues’<br /> characters. From such crucibles as impossibly tight deadlines or shop-floor emergencies, we quickly<br /> learn on whom we can rely<br /> High Personal Trust exists when we answer yes to the following questions:<br /> • Is this person honest and ethical?<br /> • Will she/he make good on her/his word?<br /> • Is she/he basically well intentioned?<br /> • Will he/she handle confidential information with care and discretion?<br /> • Will he/she be straightforward about what he/she doesn’t know?<br /> • Leaders may persevere in relationships based on personal trust no matter how exalted they become<br /> in their leadership roles<br /> • But such relationships are unlikely to remain static<br /> • They are also unlikely to provide the kinds of deep, often specialized knowledge leaders need<br /> • In circumstances where advisers’ competence matters as much as their character, expertise trust<br /> enters the picture<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 84<br /> Expertise Trust:<br /> • It is reliance on an adviser’s ability in a specific subject area<br /> • In our daily lives we show expertise trust every time we board a plane or schedule surgery<br /> • In organizations, leaders develop expertise trust by working closely with people who consistently<br /> demonstrate their mastery of particular subjects or processes<br /> • Or, lacking personal experience with qualified people, leaders seek out those with the strongest<br /> reputations<br /> • Unlike with personal trust, the parameters of expertise trust tend to be limited to a particular<br /> content area<br /> High Expertise Trust exists when we answer yes to the following questions:<br /> • Is this person expert in her field?<br /> • Is her knowledge up-to-date?<br /> • Does she present credible information to support her positions?<br /> • Is she able to apply her expertise to our specific situation?<br /> • Can she offer sage advice on risks, options, and trade-offs?<br /> Structural Trust:<br /> • It reflects how roles and ambition color insight and spin information<br /> • High structural trust provides leaders with a channel for pure insight and information<br /> • Advisers in positions of the highest structural trust generally reside outside organizations to prevent<br /> not only self-interest and self-serving agendas but also cultural assumptions from tinting their views<br /> • Of course, externality doesn’t automatically translate into objectivity: Not all outside advisers are in<br /> positions of high structural trust<br /> • But strong outside advisers provide leaders with a resource that their organizations cannot<br /> High Structural Trust exists when we answer yes to the following questions:<br /> • Given this person’s role and responsibilities, can he offer judgment untainted by his goals or<br /> interests?<br /> • Is he in a position to be fully loyal?<br /> • Is he unlikely to spin or filter information?<br /> • Is it reasonable to assume he will not move into a role that places structural constraints on our level<br /> of trust (for example, will we someday compete for the same position or for the same client)?<br /> Consulting and Professional-Service Firms:<br /> What they offer:<br /> Lawyers, accountants, management consultants, and other professional-service providers promise a very<br /> high level of expertise trust; otherwise, you wouldn’t be paying them. They also possess experience with<br /> many companies and consequently have a broad frame of reference.<br /> What to consider:<br /> Many firms generally offer reliable, replicable products and services. But their ability to offer structural trust<br /> is limited to the two to three ranges by their business models, which require them to leverage their senior<br /> people and continue to increase their work for you. For high structural trust, look for firms that don’t rely<br /> on these models.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 85<br /> LESSON 15<br /> GROWTH STRATEGY IN RETAIL BANKING STRUCTURED RELATIONSHIP<br /> APPROACH<br /> • After an early part of the decade focused on cost-cutting, retail banks have reaped most of the easy<br /> wins and adapted their organizations to a faster pace of change<br /> • Most banks now feel that while continuing to monitor costs closely to avoid any slippage, they now<br /> need to concentrate on growth<br /> • We interviewed twenty-three banks in mature banking markets, as well as four Chinese banks<br /> • The four Chinese institutions were predominantly focused on growing through client acquisition<br /> • For the twenty-three other banks, revenue growth was the focus: those institutions estimate that 72<br /> of their profit growth in the next three years will come from revenue growth, and only 28% from<br /> cost-cutting (see Figure 10)<br /> • In mature markets, excluding mergers, 80% of future revenue is expected to come from existing<br /> clients, and only 20% from new client acquisition<br /> • Banks can generate more value from existing customers by raising prices, expanding product lines,<br /> or increasing share of wallet.<br /> • In mature markets, therefore, most well-established banks recognize that growing share of wallet is<br /> their primary objective<br /> • As a result of this finding, spotlight falls on how banks<br /> • Can extract more value from existing customers by increasing share of wallet<br /> • After interviews with bank executives and industry experts<br /> • We concluded that a relationship approach is critical to meeting this goal<br /> • Our interviews focused on their institutions’ experience with the relationship approach<br /> • This helped us determine where banks stand in implementing such an approach, recognize the<br /> difficulties they encounter in implementing it profitably, and identify best practices and lessons<br /> learned from those experiences<br /> Beyond “Product Push”:<br /> • Conventional banking wisdom holds that a relationship strategy that goes beyond a traditional<br /> product-push approach can capture untapped client potential<br /> • Banks have successfully leveraged push approaches to increase sales effectiveness<br /> • As Figure 11 suggests, this push approach was successful in capturing market share of high-value<br /> and easy-to-please customers<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 86<br /> • These segments are currently either very or somewhat profitable to the banks, so there is no reason<br /> to change approaches with them<br /> • Some clients, however, are unreceptive to the product-based push approach commonly used by<br /> retail banks, because their needs are not fully identified in that way<br /> • They feel they receive low value, and finally end up making themselves unavailable to their banks’<br /> advisors<br /> • This group represents an “untapped gold” client segment<br /> • Despite computing advances, complex customer needs cannot be well predicted by automated<br /> systems<br /> • Understanding client needs requires a perspective no automated solution can offer<br /> • Client needs frequently originate with events that systems cannot predict (weddings, major<br /> purchase decisions, deaths of relatives, divorces)<br /> • Because sales forces are often compensated on the basis of number of products sold, and because<br /> advisors are too often unprepared to give advice that goes beyond a product’s generic benefits,<br /> advisors typically seek out easy-to-sell-to clients rather than clients with more complex needs<br /> • Ignored clients soon begin to distrust their bank, and do not maintain contact with their advisors<br /> • The traditional product-push approach is ineffective with this group, because they often regard<br /> such efforts as “pushy,” and it is inadequate in meeting their more complex needs<br /> A relationship-based approach for these high-potential clients—who may not yet qualify for private banking<br /> services— could create a virtuous circle through a win-win relationship in which the customer’s perception<br /> of increased value generates more share of wallet, which gives the bank a better view of the client’s needs,<br /> resulting in better advice, which increases still further the customer’s perception of value.<br /> • A survey indicated that 70% of clients would want to use a single institution if it were able to serve<br /> all their financial needs well<br /> • Another survey found that 64% feel that having companies collect information on their individual<br /> interests and lifestyle in order to better personalize services is a good thing<br /> • A relationship approach is one where the bank “invests in obtaining customer-specific information,<br /> often proprietary in nature, and evaluates the profitability of these investments through multiple<br /> interactions with the same customer over time and/or across products”<br /> • The objective of a relationship approach is to understand client needs and meet them, and to<br /> develop such strong trust that the client does not even consider moving to another provider<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 87<br /> • Creating such a relationship is an iterative and progressive process, is long-term, is personalized,<br /> and requires the client to share information with the advisor<br /> • A relationship approach only matters to clients who are either expert comparatists or loyal-to-abrand,<br /> and will recognize the value of the bank’s efforts<br /> • The alternative to a relationship model for capturing the untapped potential is to satisfy pricefocused<br /> customers by adopting the lowest price position<br /> • In banking, self-service is a good option for many people not wanting a relationship: their<br /> expectation is seamless transactions that can be carried out at low cost<br /> • Capturing those clients requires a well-thought-out multi-channel customer experience, and robust<br /> and cost-efficient systems to meet service-level expectations at minimum cost<br /> A Structured Approach:<br /> • Many banks are attempting to implement relationship strategies, but few are adopting structured<br /> approaches covering the full scope of retail banking<br /> • Of the twenty-seven banks we interviewed for this study, twenty-two had adopted or were adopting<br /> a relationship approach<br /> • After developing a framework with the essential components of such a strategy, we mapped the<br /> components in each bank’s approach, gained in the interviews, against our framework (see Figure<br /> 12)<br /> Five levels of maturity in the relationship approach emerged from our interviews:<br /> Stage 1: No relationship approach strategy<br /> Stage 2: The relationship approach is a promise, but the institutions are only partly aligned to deliver on it<br /> Stage 3: A structured, assisted approach is in place, but only for savings and investment products<br /> Stage 4: A structured, assisted approach encompasses all banking products and services, but further efforts<br /> are needed in one or two aspects of the operating model<br /> Stage 5: All components of a relationship approach are optimized<br /> Stage 1 banks<br /> Five of the banks we surveyed, representing approximately 20% of the sample, did not have any component<br /> of a relationship approach in place. Their perspective was different in that they were either targeting pricefocused<br /> or transaction-oriented clients, or did not feel the market situation required them to adopt such an<br /> approach yet. One bank said it did not believe in a relationship approach and thought its success factor of<br /> the future was self-service and reactivity.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 88<br /> Stage 2 banks<br /> Just over half of the banks we surveyed were in Stage 2, promising a relationship approach but only partly<br /> aligned to deliver it. These banks have developed a relationship approach as a reaction to the trend of<br /> weakening relationships with clients due to branch automation, deskilling of bank manager tasks, and quality<br /> issues arising from multiple channels. These banks recognized that they needed to take better care of their<br /> most important clients, and launched relationship programs, typically adapting the elements of<br /> segmentation, organization structure, some tools supporting the advisors, and marketing planning, but too<br /> often neglecting changing ways of working, performance management, and processes.<br /> Banks segmented their clients according to a mix of present and potential value and established levels of<br /> service, including frequency of client contact, depending on client segment. For those clients identified as<br /> high-potential, they have assigned specific advisors and reduced the number of clients per advisor to<br /> improve availability. In terms of tools, a few banks have given their advisors an extended view of their<br /> clients, developed automated ways to identify product opportunities, and created contextual scripts to help<br /> them present product benefits to clients. Marketing plans have been adapted by segment, and multi-channel<br /> customer solicitation has been developed to generate opportunities for advisor contact with clients.<br /> In the process, however, many banks have neglected key aspects necessary to move toward a more<br /> relationship-based approach, especially in the ways their advisors work and are managed. Available tools<br /> have failed to provide holistic advice or establish a diagnosis of each client’s situation and needs .As a<br /> consequence, retail advisors still often lack the ability to give substance to their client relationships and lack<br /> good reasons to call clients. Without this necessary advice-product architecture, advisors find it difficult to<br /> recognize client needs. And they are encouraged to stay product-and campaign-centered because their<br /> performance is still measured by number of products sold. Having only partly aligned the organization to a<br /> relationship approach, success remains out of reach.<br /> Stage 3 banks<br /> A smaller proportion of the banks we interviewed—approximately 20%—have developed a structured<br /> relationship management approach, but only for their savings and investment products. These banks believe<br /> that cross-selling savings and investment products to banking clients will generate significant profits. This is<br /> especially true in such countries as the Netherlands and Sweden, where day-to-day banking is a loss-leader,<br /> with profit made on savings and lending products.<br /> The European banks that have universal banking models have traditionally excelled in delivering savings<br /> products to their clients. As customers became more sophisticated and the number of products expanded, a<br /> need for better advice emerged that some banks chose to address with a structured advisory process,<br /> especially in Belgium, the Netherlands, and Sweden.<br /> Establishing a structured process for savings and investment products can deliver excellent results, as<br /> specialized institutions in wealth management have shown. Yet the downside of having a structured<br /> approach limited to savings and investment products (or other specific products) includes the inability to<br /> gain a complete understanding of a client’s overall needs and financial situation. It can also cause client<br /> frustration if it involves a very professional but unstructured process, and can translate into the client<br /> perceiving the bank as a partial solution provider. Our research indicates, therefore, that only a structured<br /> relationship covering the complete set of retail banking products and services can generate a strong increase<br /> in client satisfaction and a bank’s share of wallet.<br /> Stage 4 banks<br /> Only two banks, in our survey, one in North America and the other in Europe, representing less than 10%<br /> of the sample, have implemented a robust relationship approach. Our interviews revealed that executives at<br /> both banks believe they have not yet achieved Stage 5 status, and have further improvements in the<br /> pipeline. As noted previously, these banks have already benefited from a very positive impact on their share<br /> price, having increased both revenue growth and profitability by adopting a structured relationship<br /> approach.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 89<br /> LESSON 16<br /> GROWTH STRATEGY IN RETAIL BANKING STRUCTURED RELATIONSHIP<br /> APPROACH (CONTD…)<br /> • Interviews with executives in these top banks also identified several best practices involved in<br /> implementing and growing a relationship approach that increases revenue and improves the profit<br /> margin<br /> • These managers have repeatedly reaffirmed their commitment to a comprehensive relationship<br /> approach, and have implemented it over time; progressively aligning its key components (see Figure<br /> 13)<br /> 1. Client Understanding and Segmentation:<br /> Measuring client potential<br /> Potential includes all assets and debts. Most banks have developed measures of potential, but many banks<br /> are not yet comfortable that their measure is accurate enough. Methods used to assess potential include<br /> compiling data on average assets of inhabitants of neighborhoods, employing statistical methods based on<br /> similar client profiles, and offering sales force incentives to capture and update client potential. In Germany,<br /> more and more banks are using external providers to establish accurate figures of client potential. In France,<br /> one bank decided to provide a better base for analysis by paying its advisors a bonus based on their<br /> completing client data in the information system.<br /> Understanding client trigger points<br /> There are right and wrong moments to start a relationship with a client. And once the relationship is going,<br /> there are key points in this relationship when the advisor—and the bank in supporting him or her—has to<br /> take special care to avoid client disappointment and seize a development opportunity. One North American<br /> bank we surveyed has focused substantial energy on better meeting its clients’ needs by identifying “reasons<br /> for defection” and ensuring their advisors and the institution succeed in what that bank calls “the moments<br /> of truth.” It has established a customer service blueprint to capture the emotional responses of clients to<br /> rational experiences with the bank. Advisors are trained to identify those moments of truth and react<br /> appropriately.<br /> Building loyalty through trust<br /> Clients are looking for advisors they can trust, and banks should also be looking for their advisors to be<br /> trusted. A recent Forrester study demonstrated that customer loyalty was most correlated to trusting one’s<br /> advisors, and that trust resulted from clients feeling that their advisor was honest and open and an advocate<br /> of their interests. Good relationship advisors understand clients’ desire for these traits, and do everything<br /> they can to ensure they adopt them.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 90<br /> Advisor/client dialogue<br /> The prerequisite for an effective advisor/client dialogue lies in the advisor’s ability to frame a holistic view<br /> of the client’s situation. The client will soon be aware of whether the advisor has such a view, and will make<br /> critical relationship decisions based on this perception.<br /> Clients know themselves better than strangers or systems do, especially when it comes to assets they hold<br /> outside the bank. Once an advisor wins the client’s trust, it becomes much easier to ask the key questions<br /> about the client’s current situation and understand his or her needs. It is also the most effective way to<br /> establish a client’s true potential.<br /> Clients have expectations and preferences, which advisors should learn. There is no point in repeatedly<br /> telephoning someone who does not like to be called. However, that same client may be comfortable<br /> exchanging emails. The best advisors ask clients at the outset what their expectations and preferences are.<br /> 2. Product and Service Offerings<br /> A needs-advice-product architecture<br /> A critical component of a relationship approach is the matching of client needs with advice and finally with<br /> products. To help ensure they fully capture client needs, advisors often develop and administer<br /> questionnaires.<br /> At one European financial institution, advisors are trained to identify and work into predefined scenarios<br /> based on combinations of client needs, and to suggest solutions that bundle products to meet those needs.<br /> Another European bank has created packaged products to fit points in the client life cycle, so advisors can<br /> readily match their clients’ needs. Some banks have experimented with a central support center to assist<br /> advisors in customizing their proposals.<br /> 3. Organization Structure:<br /> Sales force specialization and branch sizing<br /> A single bank employee cannot operate effectively in two different modes, applying a relationship approach<br /> to some clients and a push-based approach to others. Too many differences in terms of time allocated<br /> yearly to a client, performance management, tools to be used, and so on, can make it a no-win situation.<br /> In a Benelux financial institution, for example, two categories of customer are recognized, each with a<br /> specific approach and type of advisor. Mass consumers are offered an event-driven push approach. Affluent<br /> customers are offered a financial advice approach managed by a financial advisor. Relationship managers<br /> usually handle from 100 to 300 clients, and this bank has merged some branches so each has over 100<br /> affluent customers. This ensures that the presence of a financial advisor is profitable.<br /> 4. Ways of Working:<br /> The people factor<br /> Ensuring that people change their ways of working and managing, and fully adhere to the relationship<br /> approach, is essential. Our interviews suggest that change involved in implementing a relationship approach<br /> faces some resistance at all levels, from central teams, to branch management, to the advisors themselves.<br /> Central teams sometimes resist changing their management style from measuring performance based on<br /> campaigns and product sales objectives. Advisors might not believe the institution will provide an approach<br /> to help them better understand their clients, could worry about the amount of time and effort required to<br /> learn the new way, and are often very cautious about the impact on their compensation. Approaching the<br /> move to a relationship approach as a major change program is the most effective way to overcome this<br /> potential resistance.<br /> At a large European financial institution, for example, the most critical success factor identified was “the<br /> attitude of the branch manager.” During the change process, 25% of the branch management work force<br /> was progressively replaced to enable the necessary change in culture.<br /> Other methods used by banks include identifying specific employee concerns and addressing them, rolling<br /> out a comprehensive communication plan to alleviate fears and align employees, identifying change agents<br /> at all levels that are willing to endorse the change, lead by example, and conduct pilots to obtain positive<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 91<br /> results. Pilot programs can both motivate others and help gain a better grasp on potential implementation<br /> issues, which can be mitigated when the program is rolled out later across the branch system.<br /> Developing an entrepreneurial culture at the branch level can also generate positive results. Encouraging<br /> and rewarding employees for teamwork and for going the extra mile to satisfy their clients’ needs is a<br /> proven way to change mindsets. Top banks use these incentives to motivate their branch managers, and<br /> make sure they recognize high-performing branches that accept change and adopt a client-focused<br /> relationship approach.<br /> A rigorous, iterative, standardized process<br /> The structured process should be geared toward a recurring effort to match client needs and build a positive<br /> customer experience. From the client perspective, as illustrated earlier in Figure 13, it can be a four-step<br /> process: (1) understand; (2) propose; (3) act; (4) review. This process begins with a dialogue between the<br /> client and the advisor to ensure the client’s overall situation, needs, and preferences are understood. Second,<br /> the advisor develops a proposal and discusses it with the client to ensure the proposed solution addresses<br /> those needs. Third, the client lets the bank act on the agreed solution. Then, after some time, comes the<br /> review to ensure the solution is serving the client’s evolving needs.<br /> A few banks interviewed in Europe are currently rolling out such advice-oriented processes. Their purpose<br /> is to ensure clients receive high-quality service and advice while the banks’ commercial efficiency improves.<br /> Such guidance and support brought to the advisor is key to maximizing the bank’s profitability.<br /> Internal recruiting and competence management<br /> These new ways of working need to be learned. Most banks recruit their relationship managers from the<br /> existing sales force based on their ability to listen, react, and have a broad perspective on customers’<br /> financial needs. Even then, strong training efforts are a must. Both of the top-performing banks in our<br /> survey relied on excellent training programs to ensure their personnel developed a complete understanding<br /> of the portfolio of products and services and the structured advisory process.<br /> Some Additional Thoughts on Customer-Led Growth:<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 92<br /> How to pinpoint your problem<br /> Where are your most profitable customers and how can you deepen your relationship with them? Where are<br /> your problem customers? The chart shows the level of customer advocacy as measured by Net Promoter<br /> Score on the horizontal axis, and the level of customer profitability on the vertical.<br /> Let’s consider the key boxes:<br /> ● Beginning in the upper right, this group of customers is a company’s natural design target, its core,<br /> the segment that should be the prime focus of the Three D’s described in this brief. You want to<br /> keep them, find more like them and explore what additional products or services they need. They<br /> are your prime source of new innovation, so listen to them<br /> ● In the upper left box are the “false profits,” customers who are “buying but mad”— they are<br /> profitable right now but in fact are sticking around only because they have no good alternative.<br /> You must address this group urgently, either by moving them to the right set of products or by<br /> fixing delivery issues. They are turning the market against you<br /> ● In the lower left are the “unhappy and unprofitable”—the buyers who are not a natural fit with the<br /> company and who are not happy anyway. Helping them migrate to other providers makes sense<br /> ● We have found companies routinely surprised by which customers are high-profit promoters, how<br /> much potential for cross-sell exists among low-profit promoters and how many detractors lurk in<br /> their portfolio<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 93<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 94<br /> LESSON 17<br /> GROWTH STRATEGY IN RETAIL BANKING STRUCTURED RELATIONSHIP<br /> APPROACH (CONTD….)<br /> 5. IT and tools:<br /> Adapting tools to a relationship approach<br /> To provide effective advice, advisors need a complete, integrated view of the client’s situation, a good<br /> measure of client potential, and an accurate record of the client’s past interactions with the bank, including<br /> through other channels.<br /> Advisors also need tools supporting the structured process to guide dialogue, enable rapid advicegeneration,<br /> and develop customized solutions. Questionnaires can help guide dialogue. For rapid advice,<br /> tools replicating the need-advice-product architecture are very helpful. To customize solutions, advisors<br /> should be able to group products and be guided through the pricing process so they can adjust the price<br /> based on the value perceived by the client, within acceptable boundaries of profitability for the bank.<br /> Managers also need monitoring tools to help them know where to direct their efforts and whom to coach.<br /> The best tools provide an aggregated and detailed view of how advisors follow the structured process as<br /> well as the benefits obtained.<br /> An adaptive IT architecture<br /> In a client-needs-driven relationship, flexibility and a holistic view are essential. Flexibility is necessary to<br /> enable customization of product bundling and pricing, and to allow for accessing products across all<br /> product lines based on identified client needs.<br /> A holistic customer experience is a key concept. It refers to customers having access to online channels,<br /> which empowers them to get advice and act on their own. This requires an adaptive architecture for<br /> synchronized data exchange. Advisors also need a readily accessible view of all the client’s interactions with<br /> the bank (including self-service). In this way the advisor can ensure the client does not become frustrated<br /> with the bank’s service, and instead gives the client the feeling that the advisor has a firm grip on his or her<br /> banking matters.<br /> Developing customer insight and “institutional memory” is also critical. This includes records of processes<br /> executed for the client, and a record of client preferences and past interactions through all channels. The<br /> prerequisite is an advice-offering database architecture that enables advisors to react to client needs quickly<br /> and effectively, and to conduct analyses that produce better targeted offerings.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 95<br /> A Multi-Channel Customer Experience: (See Figure 14)<br /> A relationship is about the bank viewing the customer as an individual (and the customer perceiving it that<br /> way) with a specific situation and needs, and how to meet those needs with a broad spectrum of offers—<br /> not by pushing products in campaigns or boxing them into a segment category, even a small one. The bank<br /> can be represented by a human advisor or a technology interface. In Nordic countries we found the concept<br /> of a relationship through technology interfaces more advanced than elsewhere.<br /> A multi-channel focus can help considerably by:<br /> 1. Lowering the cost of providing a relationship approach, albeit through technological means, to<br /> satisfy lower segments of revenues<br /> 2. Providing a multi-channel relationship that enhances the customer experience to satisfy higher<br /> standards of more affluent client segments that either prefer self-service to people-based service or<br /> are very active users of all channels<br /> As a Nordic banker we interviewed put it, “This personalized approach can be achieved through people, or<br /> systems, or a combination.” His bank has decided to drive up its share of wallet by lowering the cost of<br /> personal service. Its goal is to provide relationship-based approaches to less-affluent segments, and offer its<br /> affluent clients a multi-channel relationship that includes self-service, not one restricted to the branch<br /> advisor. This approach recognizes that self-service is as much a part of the relationship approach for<br /> affluent clients as it is for the less-affluent segments.<br /> The bank’s key objective is that every customer be treated on an individual basis. All activities toward a<br /> customer, in whatever segment, are generated on an event basis, so people in the branch have a stack of<br /> activities toward customers every day, with individual assignments of bank employees for each customer.<br /> Events are logged in all channels. Records, or institutional memory, are the key; systems can help organize it<br /> and leverage it through analysis for human-machine interaction, or provide the information in an organized<br /> way for an advisor to be more effective.<br /> However, this same leading Nordic bank recognizes its human advisors are still the critical success factor.<br /> Despite its efforts with technology, it insists that clients with a contact person are distinctly more satisfied<br /> and more loyal; hence clients have a named contact person they can reach out to when they want and most<br /> of the time they do so by email or chat.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 96<br /> 6. Performance management:<br /> Alignment with a relationship approach:<br /> ● The relationship approach’s objective is to match each client’s needs with the bank’s products, and<br /> thereby increase the bank’s revenue stream<br /> ● Unlike a product-push approach, where employees’ performance is measured by the number of<br /> products they sell, a relationship approach takes a broader view<br /> ● It encompasses all revenue generated for the bank and also a view over time of the revenue/profit<br /> contributed by the client accounts<br /> ● A large part of the relationship approach’s success is based on advisors’ efforts to be close to their<br /> clients<br /> ● Advisors' efforts are, therefore, broken down by steps in the process and tracked, including number<br /> of first-step meetings with clients, number of proposals submitted, number of proposals accepted,<br /> timeliness of review meetings, and so on<br /> ● A good example is the performance measurement approach of the European bank in our sample<br /> that we judged to represent best practice<br /> ● It tracks its advisors’ efforts against short-term and long-term profitability metrics<br /> ● All employees in the branch are assigned personal objectives in terms of number of specific<br /> interactions, depending on their role<br /> ● Profitability performance is measured by a mix of financial results, customer satisfaction, quality of<br /> credit portfolio, and volume of long-term savings and lending products<br /> Benefits tracking through internal benchmarking<br /> • The best benefits-measurement programs track benefits at the branch level and fine-tune them<br /> through internal benchmarking<br /> • Such programs focus on measurable results<br /> • A good way to stimulate change is to compare these results between branches to highlight best<br /> practice, recognize top performers, and motivate laggards to catch up<br /> Key learning points on the relationship approach:<br /> • Measuring client potential accurately to focus the relationship effort and ensure its profitability<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 97<br /> • Recognizing the client’s trigger points in his or her relationship to the bank in light of the multichannel<br /> customer experience, so the advisor can provide informed support at those critical times<br /> • Building customer loyalty through trust that the advisor is the client’s advocate and that the bank<br /> offers clear pricing and excellent service<br /> • A relationship is a two-way dialogue: listening to what customers have to say about themselves,<br /> their objectives, their preferences, and their needs, and taking it truly into account when proposing<br /> a solution<br /> Developing a specialized sales force for the relationship approach through internal recruiting, appropriate<br /> training, ongoing competence management, and a long-term effort to ensure people change and adhere to<br /> the new approach:<br /> • Aligning performance measurement and incentives with the relationship approach<br /> • Establishing a rigorous, iterative, standardized relationship process—one supported with tools that<br /> develop a holistic view of clients, while providing guidance in the diagnostic and solution phases of<br /> the relationship (through an architecture encompassing situation, needs, and products)<br /> • Establishing an IT architecture reflecting the business architecture of a closed-loop relationship<br /> approach<br /> Growth Agenda in Financial Services Industry<br /> Are Surveys relevant to our study?<br /> • Some findings from another survey (Conducted prior to Mid-2007 Financial Crisis) by a<br /> leading International Consulting/Accounting Firm<br /> • Executives from 201 institutions in Asia, Europe & North America participated in the survey<br /> • Opportunities & Challenges<br /> • Six Imperatives<br /> Growth stands high on the financial services agenda. After a period of conserving and building their<br /> resources and boosting returns to shareholders, financial services institutions around the world are shifting<br /> up a gear. From insurance to banking and asset management, companies are eyeing opportunities inside and<br /> outside their existing sectors, overseas as well as at home. No fewer than 65% of the 201 financial services<br /> executives surveyed for this briefing agreed that managing for growth had become a higher priority over the<br /> last 12 months.<br /> Economic growth is expected to drive much of this expansion. Interest rates are still low by historical<br /> standards and the world economy is growing at a reasonable pace. Demography is providing a following<br /> wind, at least in terms of retail savings. As baby boomers in developed countries near retirement, demand<br /> for wealth management and investment advice is expected to surge. At the same time rising standards of<br /> living are leading to faster rates of growth in both savings and consumer lending in developing countries<br /> too.<br /> It will not all be plain sailing, however: a third of survey respondents believe that the growth targets they<br /> have been set are optimistic as opposed to realistic or conservative. Challenges to the agenda for growth<br /> vary from region to region, sector to sector. But three stand out:<br /> • Asked to identify the principal impediments to the growth strategies that their organizations will<br /> face this year, the survey respondents put competition top. Despite respondents’ expectations that<br /> organic growth will be the primary driver of expansion at their organization, new business models<br /> And products are required to break the mould in many saturated, mature markets. In emerging markets,<br /> although growth is relatively easy to come by, the smartest organizations will work both to carve out a place<br /> in the market and then to erect barriers to entry around it so that, as competition intensifies, the benefits of<br /> fast-growing economies continue to flow.<br /> • Risk, both economic and political, casts a shadow over growth prospects in several markets.<br /> The sliding dollar, rising interest rates and the possibility of a sharp reduction in China’s rate of<br /> growth all have the capacity to undermine the macroeconomic balance. The possible impact of a<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 98<br /> slowdown in consumer spending in the US and the UK is also a worry. West European economies<br /> will continue to disappoint<br /> • Mounting regulation, and the fear of failing to comply fully, could distract management,<br /> complicate acquisitions and stifle entrepreneurialism. For institutions operating in multiple<br /> territories, putting in place local and regional governance structures to meet the wishes of various<br /> regulators can add additional costs and soak up senior management time. A majority of<br /> respondents also agree that a sharper accent on compliance, governance and risk management is<br /> dampening the appetite for risk at their organizations. Creating an entrepreneurial culture is seen as<br /> one of the key challenges of moving from a focus on value to one on growth<br /> Faced with these challenges, institutions are not about to spend massively on strategies for growth. In line<br /> with their emphasis on organic growth, sales, marketing and customer-service capabilities are regarded as<br /> the most critical enablers by survey respondents. Whether developing new products or building on existing<br /> ones, whether seeking out new customers or selling more to existing ones, growth will largely depend on an<br /> organization’s people. From improving the skills of customer-facing staff to nurturing risk appetite, the<br /> quality of management and of employees will be critical in determining success.<br /> A tight focus on costs and efficiencies will also be essential. It is striking that performance improvement<br /> comes high in the hierarchy of drivers for growth identified by respondents to the survey, and that twothirds<br /> rate cost efficiencies as either critical or very important in driving growth over the next 12 months.<br /> ‘Successful firms will not abandon cost control as a way of creating value’. ‘But the income side of the<br /> equation will definitely become more important during the coming months as companies get closer to their<br /> customers and look for ways of growing in innovative ways.’<br /> No fewer than 65% of the 201 financial services executives surveyed for this briefing agreed that managing<br /> for growth had become a higher priority over the past 12 months, and the majority is expecting revenue<br /> growth this year of more than 10%.<br /> The reasons for this shift in emphasis from cutting costs towards growth are not hard to find. Though<br /> rising, interest rates are still low by historical standards and the outlook for the world economy remains<br /> relatively bright. By and large, provisions for bad debt are down and interest income remains strong. The<br /> increasing use of derivatives is spreading risk and making capital more mobile. Asked to identify the most<br /> significant drivers of growth at their institution this year, more respondents pick economic growth than any<br /> other option.<br /> Demographic forces – particularly the graying of the baby boomer generation – will also fashion significant<br /> opportunities for growth in wealth and investment management over the coming years. In the US alone, an<br /> estimated US$10trn or so in funds could flow into the investment management industry as baby boomers<br /> approach retirement (although in the longer term, of course, they will run down these savings to provide<br /> retirement income). This is equivalent to about half the amount currently managed by the top five<br /> investment managers in the US.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 99<br /> LESSON 18<br /> GROWTH AGENDA IN FINANCIAL INDUSTRY<br /> Not only is the number of people nearing retirement starting to swell, but governments are also starting to<br /> push the responsibility for providing pensions back to individuals. As a result, the amount of money going<br /> into savings schemes in the private sector is likely to grow significantly.<br /> The growing cost of healthcare is likely to have a similar effect. The more the state steps back from<br /> providing universal healthcare, the more individuals will be forced to take out insurance, in both developed<br /> and developing markets. In the US, for example, financial institutions in all sectors are exploring the<br /> potential impact of the expansion of Health Savings Accounts, investment vehicles which are designed to<br /> help individuals save for future qualified medical and retiree health expenses on a tax-free basis.<br /> To take another example, China’s central government now covers only 10% of the operating costs of urban<br /> hospitals there. The rest comes from patients drawing on savings to pay their bills and from rising levels of<br /> health insurance, opening up a fast-growing new area for insurers. The pay-off could be twofold: as<br /> insurance replaces bank savings as a means of covering the costs of healthcare, then a proportion of these<br /> savings can be directed into other forms of more sophisticated investment or into higher spending on<br /> consumer goods and the like.<br /> The premium end of retail banking, where margins are greatest, will also benefit from more active wealth<br /> management on the part of individuals. As baby boomers help to swell the number of people in this<br /> category, so the business will grow. CIBC, the largest issuer of credit cards in Canada, has built a successful<br /> business around its ‘Imperial Service’ brand which is aimed at the country’s growing population of mass<br /> affluent, for example.<br /> European banks are also in good shape and ready to grow if the right conditions materialize. With their<br /> revenues rising faster than their costs, many have posted double-digit increases in operating income for<br /> 2004. As a result, says Standard & Poor’s, a rating agency, the average cost of generating revenues for<br /> Europe’s 50 largest banks is close to a 10-year low. This bodes well for future profits if the economies in<br /> which they operate continue to expand and if the lurking threat of windfall taxes on hefty profits comes to<br /> nothing.<br /> The pressure on banks to expand will intensify, especially for second-tier institutions in the US and Europe.<br /> But the potential for explosive growth is most obvious in emerging markets.<br /> Asia grabs most of the headlines: China is where survey respondents expect to see most growth this year,<br /> though the pace of expansion may be tempered by restrictions on the ground. Regulators there take the<br /> view that there are already enough national banks in the market and international banks are restricted at the<br /> moment to buying only minority stakes. So, high hopes of growth may prove illusory, at least for the time<br /> being. Other growth markets, such as India, are also attracting keen interest, though similar constraints<br /> apply there too.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 100<br /> One area that is set to keep expanding in both markets is wealth management. As the middle class swells,<br /> Justin one expects to see more acquisitions of companies in this sector in India, South Korea and China.<br /> Lending to consumers in these markets is also expected to pick up significantly.<br /> As developing economies grow, demand for ordinary non-life insurance also tends to grow<br /> disproportionately faster. This is because insurance awareness and the rapid acquisition of new assets drives<br /> demand to protect both cash flow and lifestyle from unexpected events.<br /> China’s non-life market grew at an average rate of 16% over the past five years against a backdrop of GDP<br /> growth of around half that level.<br /> Other regions beyond Asia are also alluring. Take Mexico, a market that has been rocked by more than one<br /> crisis over the past couple of decades. After years in the doldrums, the banking market there has suddenly<br /> begun to grow again as the necessary ingredients – economic expansion, financial stability and a stronger<br /> regulatory framework – have fallen into place. The result was a 15% rise in corporate lending in 2004 and a<br /> 30% increase in the number of mortgages created. An analyst with Moody’s Investors Service, reckons that<br /> growth is starting from such a low base that lending could continue to expand at a similar rate for several<br /> years before credit worries began to surface.<br /> Asia figures<br /> are key for<br /> our purposes<br /> Six imperatives for the growth-orientated institution:<br /> For their strategies to succeed, financial services firms cannot sit back and wait for the pie to grow. Leading<br /> institutions can improve their chances of sustainable growth through the following courses of action:<br /> 1. Invest time in careful planning and communication of strategies.<br /> The fact that a substantial minority of survey respondents said their targets for growth is optimistic suggests<br /> that executives at many institutions are not fully convinced of the strategies they are expected to execute.<br /> Proper quantification of risks and financial outcomes, and the use of a range of analytical techniques, are<br /> essential in formulating strategy. In emerging markets in particular, this means selecting the right geography<br /> or segment to achieve and sustain profitable growth. Proper planning does not mean slow execution,<br /> however: successful institutions are capable of testing new ideas and adjusting to market feedback at speed.<br /> 2. Be realistic about where and how you want to grow.<br /> Growth can be defined in a number of ways: respondents to our survey mainly target revenue, followed by<br /> operating income and assets under management. Managers must consider the impact that rapid growth can<br /> have on the quality of customer service, on performance levels and on profits. Reputational issues also need<br /> to be considered, particularly as institutions expand into markets where business practices may differ from<br /> those at home.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 101<br /> 3. Get close to the customer.<br /> Survey respondents place great emphasis on the performance and quality of front-office functions, not just<br /> in applying local knowledge to service customers but also in leveraging their insights into customer needs<br /> and behaviors in order to improve their products and services. They also recognize the value that high<br /> satisfaction levels among existing customers can bring as a source of referrals and of opportunities to<br /> extend sales. Closeness to the customer also implies the flexibility to change offerings to suit local market<br /> conditions: what works in, say, the Netherlands may or may not work in India. Sometimes it also means<br /> learning from successful business models employed by other highly responsive industries.<br /> 4. Use technology appropriately.<br /> If people are critical to growth, technology is close behind. Electronic distribution channels can be a<br /> significant enabler of cost-effective growth, as ING has proved in Europe and elsewhere with its one-sizefits-<br /> all IT model; they can also help international firms vault barriers to entry in new markets. Technology is<br /> critical to the effective management of customer relationships and to the measurement of companies’<br /> performance. Whether, integrating legacy systems or simply updating their own applications and<br /> infrastructure, controlling the cost of IT can also make a material contribution to the bottom line. But the<br /> value of technology will vary between markets and customer segments: CRM in some emerging markets is<br /> more likely to depend more on personal relationships than data analysis, for example.<br /> 5. Innovate in areas of strength.<br /> When asked to assess their own capabilities with regard to an array of growth enablers, survey respondents<br /> ranked innovation bottom of the pile. Yet whether they are dealing with new products or old, virgin<br /> markets or existing ones, institutions must be prepared to innovate, not just to grow but also to create and<br /> raise barriers to entry. Many global companies have achieved growth in markets such as China, for example,<br /> but have neither innovated nor distinguished themselves significantly from their local competitors. The key<br /> is leveraging those skills and technologies in which the organization is best-in-class in order to build a<br /> differentiated platform for growth. In mature markets, too, an enterprise-wide culture of innovation is<br /> essential to unlock pockets of growth – witness the huge success that Canada’s CIBC has enjoyed by<br /> offering Aeroplan frequent flyer miles on its credit cards.<br /> 6. Invest in, develop and reward the right talent.<br /> When asked to identify the biggest challenges associated with the shift from focusing on value to focusing<br /> on growth, survey respondents plump first for finding the right people and, second, for creating a more<br /> entrepreneurial culture. Growth strategies will require greater numbers of talented people with a global<br /> mindset, a relentless focus on the customer and innovative skills, as well as flat decision making structures<br /> that are capable of incentivising staff and enabling innovation.<br /> Enablers of Growth:<br /> The survey shows that firms are ruling out nothing when it comes to identifying where the growth is most<br /> likely to come from. Over a third of respondents to our survey expected new geographical markets to be<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 102<br /> their primary sources of growth, and more than half (53% and 60% respectively) thought that attracting<br /> new customers and launching new products would be the main engines of expansion. But whether<br /> branching out into new areas or consolidating positions of strength, the firms that will successfully deliver<br /> on their growth targets will share a number of attributes.<br /> Be Prepared<br /> The first is proper planning. The survey evidenced poor planning of growth strategies at a number of<br /> institutions. A sizeable minority of respondents, the overwhelming majority of them at smaller institutions,<br /> admitted to using no formal model for measuring the risks and possible outcomes of various strategies for<br /> growth. Curiously, too, a surprising number of those questioned said they did not quantify the likely<br /> financial outcomes of growth strategies.<br /> At leading institutions, by contrast, the accent is on striking the right balance between risk and reward. In<br /> Canada, CIBC has taken steps to tilt its business more towards its retail operations, which now account for<br /> 72% of its economic capital. Having been stung by the fallout from Enron, among others, it is keen not to<br /> expose itself in future to the possibility of large losses from wholesale lending. For this reason, CIBC is in<br /> no hurry to expand either geographically or into new sectors. Any expansion in investment banking, for<br /> instance, would have to reinforce specific business lines.<br /> In the investment management sector, the expected influx of money and assets into the private sector is<br /> likely to create a greater degree of specialism and more alliances within the industry. Firms that lack<br /> expertise in, say, real estate investment may team up with one that does, and investment managers will<br /> become more willing to outsource those functions that are neither crucial to their business nor add any<br /> value to the proposition they make to customers.<br /> In the insurance sector, too, following a raft of new regulations as well as changes to the way insurance<br /> companies report, most insurers are also taking a more systematic approach to risk and the allocation of<br /> capital than they did, say, five years ago. Insurers are gradually beginning to integrate techniques such as<br /> enterprise-wide risk management into their businesses. This is expected to promote a better understanding<br /> of the trade-off between risk and reward and therefore of the speed with which they can grow. The more<br /> sophisticated such models become and the more that regulators allow their use in allocating capital, the<br /> faster insurers are likely to be able to grow.<br /> Customers Come First<br /> Assuming that a realistic growth strategy is in place, what are the enablers that will help organizations to act<br /> on it? Perhaps the biggest challenge for financial services organizations, particularly those in mature<br /> markets, is delivering a good enough level of service to satisfy customers, be they wholesale or retail. Even<br /> in developed markets in Europe, customers are still getting poor service. Until the standard improves across<br /> a range of channels, from call centers to physical branches, many firms will continue to see customers desert<br /> them for competitors.<br /> Survey respondents are under no illusion that their capability to service customers, as well as sales and<br /> marketing skills, will be among the most important ingredients in delivering growth in the future. Asked to<br /> identify which enablers of growth will be most important over the next 12 months, these capabilities rank<br /> top. Human resources, whose most important facets include the quality of customer-facing staff, comes<br /> next, while brand, reputation and customer satisfaction, rank third.<br /> Retail banks in North America are stepping up their efforts to segment their customers. Being able to<br /> identify customers with a higher net worth and doing a better job to keep them and expand the amount of<br /> business done with them is critical. Many retail banks are also thinking harder about ways to integrate their<br /> systems to enable them to respond more quickly to marketing opportunities and to be on target when they<br /> do so. Speed to market and speed in reacting to feedback from the market are both vital – something that<br /> retailers in other industries, such as fashion and music, have long known.<br /> What works in one country will not necessarily work in another, of course. Simply transferring customer<br /> facing techniques that have been tried in the West to emerging markets is rarely straightforward.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 103<br /> The distribution of non-life insurance products in China through direct sales over the telephone and the<br /> Internet is one example. China’s consumers are certainly price-conscious enough and the market is poorly<br /> segmented when it comes to price. Yet the limited awareness of such an approach among consumers,<br /> weaknesses in payment systems and limited credit-card use, which restrict efficient premium collection, and<br /> regulatory hurdles have so far prevented firms from exploiting the market. In time, however, it is likely to<br /> take off, at which point the limited number of companies around the world who have perfected this<br /> technique in other markets (such as Directline in the UK) will be able to establish a position and secure<br /> sustainable growth provided they can adapt their business models to local culture and consumer<br /> preferences.<br /> Employees Come Close Behind<br /> People remain critical in underpinning successful growth strategies. Asked to identify the biggest challenges<br /> associated with the shift from focusing on value to focusing on growth, people to deliver growth and,<br /> second, for changing the culture of their organization to one that was more entrepreneurial.<br /> Forward-thinking firms are beginning to think differently about people – asking not how they can prune<br /> more costs but whether they should be investing more in their people, and particularly their client-facing<br /> staff, in order to get a better return.<br /> No One said it was Easy<br /> Of the growth enablers that respondents were asked to rank in order of importance, only negotiating and<br /> integrating acquisitions came lower than innovation. And asked to assess their own capabilities with regard<br /> to each enabler, respondents ranked innovation bottom of the pile.<br /> It may be that respondents are simply conceiving innovation in narrow terms. Innovation is not only about<br /> new products and services but also about new ways of marketing, of organizing, of distributing, and so on.<br /> From Barclaycard’s use of CRM systems to ING Direct’s virtual business model, the institutions that<br /> achieve the highest growth are the ones that are prepared to think and act differently. The fact that even<br /> established companies, such as ING and CIBC – through its alliance with Aeroplan, Canada’s leading<br /> frequent-flyer program – have had such an impact in developed markets by doing something quite different<br /> and supporting their activities with clever marketing shows the potential of innovation. At the same time,<br /> new business models and the application of leading-edge capabilities will always need to be adapted to local<br /> environments – to the state of market readiness and to the availability of appropriately skilled people.<br /> To build and sustain a growing business in financial services, institutions need a combination of vision and<br /> pragmatism. They must have the courage to expand but clearly define the perimeters of sustainable growth.<br /> They must grasp opportunities but have a sophisticated appreciation of the risks involved in establishing a<br /> new venture. They must encourage entrepreneurialism but focus on areas of existing excellence. And they<br /> must be able to identify areas of high potential but also choose a market niche, a means of distribution or<br /> some other differentiator which insulates them from the competition.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 104<br /> LESSON 19<br /> CAPTURING CONSUMER FINANCE OPPORTUNITIES IN EMERGING MARKETS<br /> NOTE:<br /> This article was published in Dec 1998. As such numbers/data may not be relevant.<br /> However, the purpose of sharing its contents is to undertake a comparison with current situation in<br /> the Emerging Markets (especially concerning Pakistan) and to learn about some basic themes &<br /> concepts as well as the evolving trends/patterns.<br /> For most banks, selling consumer finance products in emerging markets has seemed like more trouble than<br /> it’s worth. In these markets, incomes are low, transactions are small, and relatively few people use banking<br /> services of any kind. Add to that the recent economic weakness in Asia, Africa, and Latin America, and the<br /> prospect of making money on consumer finance in emerging markets seems doubtful at best.<br /> In reality, the opportunity to create profitable consumer-finance businesses in emerging markets is much<br /> more attractive than it appears. But to take advantage of that opportunity, banks and other financial services<br /> institutions must develop new business models and find ways to team up with new partners.<br /> Sizing Up the Market:<br /> Although the volume of consumer finance business in emerging markets is extremely low, the population’s<br /> appetite for debt to enable purchases of common items such as televisions, refrigerators, and motor<br /> scooters is growing fast. In Mexico, for example, consumer finance assets, at around U.S. $1.5 billion,<br /> represent about 1 percent of the country’s total loan portfolio. These loans, however, are projected to<br /> increase 10 to 15 percent per year for at least the next five years. And even at the current level, consumer<br /> finance loans provide approximately 8 percent of Mexico’s total net-interest margin because of the wide<br /> spread―up to 10,000 basis points―between consumer interest rates and the cost of capital to financial<br /> institutions.<br /> What’s more, operating costs and default rates for consumer finance loans in emerging markets are<br /> generally low, making these loans extremely profitable. In Latin America as a whole, for instance, the<br /> operating costs on the roughly U.S.$6 billion in consumer finance loans account for only 50 percent of the<br /> net interest margin of U.S.$4.2 billion―a considerably lower percentage than that in most other finance<br /> businesses. With default rates a surprisingly low 3 to 5 percent of total assets, net profits before tax total<br /> approximately U.S.$1.8 billion―a profit margin of 36 percent.<br /> The trends are similar in Asian emerging markets, despite the recent downturn in many of those economies.<br /> Thailand, Malaysia, and Indonesia, for example, consumer credit volumes are still likely to triple over the<br /> next ten years. And in India, which has yet to be affected by the economic crisis, the annual net-interest<br /> margin from consumer credit is expected to grow from U.S.$630 million to as much as U.S.$3.2 billion by<br /> the year 2010. Although net interest margins in Asian emerging markets tend to be lower than those in<br /> Latin America (in the neighborhood of 15 to 20 percent), operating costs are lower as well (roughly 30<br /> percent of net interest margin). Estimates put current net profits before tax for India, Malaysia, Thailand,<br /> and Indonesia combined at U.S. $530 million. Those profits should continue to grow at double digit rates.<br /> Where’s the Catch?<br /> Despite the expanding opportunity, however, few of the existing players―whether banks, local<br /> moneylenders, or retailers―are well positioned to exploit it. Traditional banks are significantly over<br /> engineered for the needs of consumers in emerging markets. Their methods for assessing credit, approving<br /> loans, and collecting payments are costly and ill suited to populations lacking traditional credit information.<br /> In addition, low-income consumers are often intimidated by the procedures of the typical bank branch.<br /> Independent moneylenders are generally more accessible, but they have their own liabilities. Their cost of<br /> funds is high, and they do not have easy ways of identifying prospective customers or an economic means<br /> of leveraging their credit experience beyond their narrow customer base. In theory, retailers are well<br /> positioned to address consumers’ credit needs, since they “own” customers at the point of sale. However,<br /> only the large chains have the scale to justify investing in the necessary credit-appraisal and loan-processing<br /> systems.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 105<br /> What’s needed is a new approach to consumer finance that draws on the financial and distribution strengths<br /> of different types of players in emerging markets and delivers credit economically, efficiently, and in ways<br /> that are acceptable to consumers.<br /> 􀂋 Because many of their customers have no banking relationships, retailers could be a steady,<br /> low-cost of new consumer-finance clients. Retailers could work closely with banks, other<br /> financial companies, and manufacturers of big-ticket items such as appliances to originate<br /> installment loans<br /> 􀂋 Credit assessment in emerging markets must rely on the available consumer data. In markets<br /> where standard information, such as salary documentation and utility bills, does not exist or is<br /> difficult to obtain, credit officers must be prepared to make lending decisions on the basis of<br /> less tangible information, such as a consumer’s standing in the community and personal<br /> guarantees<br /> 􀂋 Local stores are well suited to be loan-payment locations in emerging markets. When<br /> consumers are delinquent on payments, however, the best method of collection will be door to<br /> door. Whereas approach is too expensive to pursue in developed countries, it is much less<br /> costly in emerging markets. Moreover, it is extremely effective with low-income consumers,<br /> who don’t want to jeopardize their ability to borrow in the future. In fact, if the collection<br /> process is managed properly, default rates can be held to less than 5 percent<br /> Assembling the Right Lending Capabilities<br /> Banks and other financial-services companies that wish to pursue consumer finance opportunities in<br /> emerging markets can consider a variety of approaches.<br /> Some banks will enter the business by adjusting their existing systems, cost structures, and cultures.<br /> However, most will find it easier to create a separate company or to team up with finance companies that<br /> already have low-cost systems for acquiring customers, assessing credit, and collecting payments. That<br /> approach enables banks with high credit ratings to take advantage of the efficiencies of finance companies<br /> while capitalizing on their own ability to access funds at competitive rates.<br /> ICICI, one of India’s largest banks, recently adopted this strategy with its acquisition of Anagram Finance, a<br /> domestic finance company with 60 branches. And in Brazil, Unibanco has joined forces with Fininvest, a<br /> leading Brazilian finance company with receivables of roughly U.S.$1 billion and a client base of several<br /> million. Fininvest targets low-income consumers by financing specific items in stores through agreements<br /> with retailers. The company has developed sophisticated systems for risk assessment and customer<br /> management: Credit assessment is centralized, closely controlled by the corporate center, and completed<br /> before any loan is approved. The company also regularly screens transaction histories, purchasing patterns,<br /> and payment records in order to identify cross-selling opportunities.<br /> Banks that join forces with finance companies may reap other benefits as well. As finance-company<br /> customers become more affluent, banks can provide them with accounts and other financial products.<br /> Large retailers may establish their own consumer credit businesses to increase their customers’ purchasing<br /> power and generate additional profits for themselves. For example, Elektra, a major retailer of furniture and<br /> appliances in Mexico, is also the country’s leading consumer lender: some 60 percent of its profit in the year<br /> came from its finance activities. However, developing the necessary capabilities for credit assessment, loan<br /> underwriting, and collections is not for everyone. Many retailers will opt in favor of negotiating partnerships<br /> with manufacturers and finance companies that already have the required skills.<br /> Even global finance companies are identifying opportunities to leverage their product and credit knowledge<br /> in emerging markets. Rather than venturing on their own, though, some elect to team up with local lenders<br /> and retailers. GE Capital, for example, has recently purchased several local finance companies in Asia and<br /> has acquired controlling stakes in the private-label credit-card business of Thailand’s largest retailer and in a<br /> new credit-card venture of State Bank of India.<br /> As long as the demand for consumer finance was barely measurable in emerging markets, most traditional<br /> financial players were content to wait on the sidelines. As the potential for the business comes into focus,<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 106<br /> however, those hoping to participate must begin to determine precisely what kind of role they want to play.<br /> Companies that act early have an opportunity to lay the foundation for an exciting―and profitable― future.<br /> 2009: A year in Emerging Markets<br /> The problems facing the global economy emanate from the developed markets, not the emerging<br /> world. Although the news from emerging market economies has deteriorated – like everywhere else<br /> – they will withstand the global recession better than developed markets, and much better than<br /> they would have done themselves in the past. Yet this is not yet reflected in markets, which appear<br /> too cheap.<br /> The ‘credit crunch’ – the virtual freezing up of lending by banks – is primarily a developed market problem,<br /> created in the developed world. In the last six years, for example, personal debt in the US grew by as much<br /> as it had in the previous forty years. Too much cheap lending has now resulted in a complete and dramatic<br /> reversal of this trend, with banks unwilling to lend to other banks, unsure of their financial solvency.<br /> The upshot is that expectations for global economic growth have deteriorated sharply in recent months. In<br /> this environment, growth in the emerging world will also slow next year. Just like everywhere else in the<br /> world, more difficult times are ahead.<br /> The only place to go for growth<br /> Newspapers are filled with stories every day now about the slowdown in economic activity in countries<br /> around the world. India and China – where manufacturing activity has slowed, along with other emerging<br /> markets, have been no exception. The difference is, we believe, that overall economic growth will remain in<br /> positive territory – unlike the US, UK and Europe, where the process of debt reduction is likely to be<br /> protracted and will dampen spending and investment.<br /> Schroders is forecasting economic growth at 3.5% in emerging economies in aggregate next year, versus a<br /> fall of 1% in the OECD. In fact, emerging market economies should be at the forefront of global economic<br /> recovery when it comes – albeit gradually – in 2010.<br /> Economic decoupling<br /> Emerging economies are less dependent on the developed world for growth than they were a few years ago.<br /> Strong demand from within their own growing economies, and trade with other growing emerging market<br /> countries (particularly China and India), make these economies much more self-sufficient. Once they would<br /> have been the worse hit in a global recession; now they are able to withstand a US-led downturn better than<br /> markets like the UK.<br /> Across the region, revenues from exports to other emerging markets have now overtaken exports to the<br /> industrial nations, and domestic demand in many countries is growing at a very fast pace. This is particularly<br /> the case in China, where demand for Chinese products provided around four times more contribution to its<br /> domestic economic growth than total exports did in 2007. That trend is expected to continue. Of course,<br /> exports from China to the developed world will inevitably slow, but planned increases in Chinese<br /> government spending should help to offset this: the government announced a national stimulus package,<br /> totaling $586 billion, this November, which should see more infrastructure spending on roads and other<br /> projects.<br /> Emerging markets are not borrowed up to the hilt<br /> Local banks have little exposure to the toxic assets that have been part of the reason for the meltdown in<br /> the global financial system. Furthermore, debt levels in these economies are generally modest. While<br /> emerging markets will suffer in the short-term from the global liquidity squeeze, they will not suffer the<br /> same issues that developed markets are currently going through in terms of long and painful period of<br /> reducing debt.<br /> The chart below shows household debt as a percentage of the total economies in emerging market regions<br /> compared to the developed world.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 107<br /> In fact, there is actually potential in emerging markets for household debt to rise further, which will support<br /> future growth in consumption. Public sector debt in emerging markets is also low compared to developed<br /> markets.<br /> Other economic fundamentals are good compared to developed markets. Foreign reserves are at a record<br /> high and foreign debt has declined sharply – resulting in a dramatic turnaround in the net trade balance.<br /> Markets are cheap relative to developed markets<br /> Despite the extent of economic decoupling, these stock markets have been at the sharp end of the sell off in<br /> global equities this year. As investors have reacted to a more gloomy global environment, they have written<br /> off emerging markets as too risky and taken profits on extremely good returns in the previous few years.<br /> Record inflows from foreign investors in 2005, 2006 and 2007 became record outflows this year.<br /> This can have some knock-on effect on economies themselves, of course, as large outflows of foreign<br /> investment takes its toll on companies.<br /> But this does not reflect the underlying economic picture relative to the developed world. Recent underperformance<br /> does not mean that emerging market economies and developed economies have re-coupled, it<br /> simply means that investors’ perceptions of what is ‘risky’ and what is not have yet to catch up.<br /> There could continue to be more volatility and disappointments in the short term as more companies issue<br /> results; investors are arguably still a little unrealistic in their company profit expectations. Even so, the<br /> current price/earnings ratio across emerging markets is 7.5 times next year’s corporate earnings. This<br /> compares to a longer-term average of around 13 times for the region. The p/e of the US market and the<br /> average p/e for global markets are now both over 9 times. Valuations may be flattered by overly optimistic<br /> company earnings forecasts, but even if downgrades are factored in and the ‘e’ part of the p/e equation<br /> falls, these markets are still likely to offer much better value.<br /> The best place to be<br /> Of course, uncertainty on a global basis is dominating stock markets at the moment – no one is sure how<br /> long before we see the shoots of economic recovery, or how many more bank bailouts there will be. This<br /> means we are seeing sharp swings in markets on a daily basis everywhere, but also that investors have lost<br /> their sense of perspective on emerging markets’ prospects for the longer term. But given that economic<br /> fundamentals in these markets are stronger and that they will be able to withstand the global economic<br /> downturn, yet still offer more attractive valuations, we think they are the best place to be.<br /> A Food for Thought:<br /> There is a great deal of research that finds finance is positively correlated with growth, but this work has<br /> a couple of serious limitations – if you want to derive any robust implications for policy.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 108<br /> First, it is about the amount of financial aggregates (e.g., money or credit, relative to GDP) rather than the<br /> share of financial sector GDP in total GDP. I, (The Author), know of no evidence that says you are better<br /> off with a financial sector at 8% rather than, say, 4% of GDP.<br /> Second, the research shows correlations not causation. So all we really know is that richer countries have<br /> more financial flows relative to GDP, not that more finance raises GDP in any linear fashion.<br /> Attempts to dig into causation tend to show that financial development is not the bonanza that it is<br /> cracked up to be.<br /> Third, we know finance can become “too big” relative to an economy. The work in this area is still at any<br /> early stage. Given what we’ve seen since Mid-2007 crisis, which way should we lean: towards believing in<br /> the positive power of finance, until the opposite is proven; or towards being skeptical of finance in its<br /> modern form, until we see evidence that this actually makes sense?<br /> Surely our skepticism should extend to financial innovation. Show me the evidence that this kind of<br /> innovation really adds value, socially speaking – rather than providing a very modern way to extract<br /> amazing “rents”<br /> An Alternate View on Financial Innovation:<br /> 􀂋 Even if financial innovation does not boost growth, it is a good thing if it improves welfare<br /> 􀂋 Modern finance improved people’s access to credit<br /> 􀂋 Computers enabled lenders to use standardized credit scores, and the risk-spreading from<br /> securitization made it safer to lend to less creditworthy borrowers<br /> 􀂋 This “democratization of credit” let more people own homes (and even after 1&1/2 year post Mid-<br /> 2007 financial crisis, it is worth remembering that most subprime borrowers are keeping up with<br /> their payments)<br /> 􀂋 It enabled more households to smooth their consumption over time, reducing their financial<br /> hardship in lean times<br /> 􀂋 Studies show that consumers in Anglo-Saxon economies cut their spending by less when they<br /> suffer temporary shocks to their income than those in countries with less sophisticated financial<br /> systems<br /> 􀂋 Smoother household consumption often means a smoother economic cycle, too<br /> 􀂋 Many economists believe that financial innovation, including easier access to credit, is one reason<br /> for the “Great Moderation” in the business cycle in the past few decades<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 109<br /> LESSON 20<br /> INDIA CONSUMER BANKING LANDSCAPE<br /> India: Credit where it’s due<br /> Emerging markets often offer greater growth potential than developed markets but they also pose a<br /> different set of challenges. Take India, where the burgeoning middle class, especially the young, is rapidly<br /> becoming accustomed to credit and to replacing bank notes with plastic. ‘People used to say ‘save now buy<br /> later’. Now it’s all about affordable indulgence,’ says Chanda Kochhar, head of consumer banking at ICICI<br /> Bank, one of the country’s largest banking groups.<br /> ‘Until three or four years ago, the 25-30 age group of young working couples with no kids wasn’t taking out<br /> loans. Now they are behaving differently from their parents and earlier age groups,’ says Rajiv Jamkhedkar,<br /> head of Citibank’s personal loans business in India. It is not just televisions, scooters and cars that such<br /> people are buying on credit. They are also borrowing to pay for such things as holidays, marriage<br /> celebrations (which couples sometimes help their parents to finance) and homes (as upwardly mobile<br /> couples break with tradition and move away from their parents).<br /> All this is helping India’s market for consumer finance to grow at an annual rate of 40%. Social change is<br /> not the only thing that is driving the market. There has been a rapid growth in incomes too: the number of<br /> households earning over Rs 80,000 a year (US$1,860 at current values) has raised by 20 million since 1996<br /> to a current figure of 60 million.<br /> Yet consumer loans worth US$15 billion (excluding secured mortgages) still account for only 3.5%-4% of<br /> India’s gross domestic product. Government-owned banks tend to lend only to existing retail customers, so<br /> those in the private sector, which market aggressively to new customers, account for most of the expansion.<br /> The market leader is ICICI, which offers consumer finance in 1,000 cities, up from as few as 15 as recently<br /> as 2000. This is followed by foreign banks such as Citibank, HSBC and Standard Chartered, which face no<br /> barriers to entering the market but which tend to focus on the large metropolitan areas where credit risks<br /> are lower.<br /> Despite recent growth, credit and debit cards still account for only about 0.6% of consumer spending. From<br /> three million credit cards in 1998, the market has grown to a combined total of 44 million credit and debit<br /> cards in 2004, worth around US$23bn, according to a study by Visa International and India’s National<br /> Council of Applied Economic Research.<br /> Competition for market share is intense. Consumers are offered a range of inducements including interest<br /> rates on credit cards as low as 0.99% and free holidays as rewards for accumulated points. Standard<br /> Chartered has broken new ground with a card called Manhattan that offers ‘lifestyle’ packages, allowing<br /> users to redeem points against activities that range from a visit to an Indian vineyard or a spa to white water<br /> rafting and previews of films.<br /> An impediment to growth in both consumer loans and cards is the lack of credit bureaux, identity cards or a<br /> social security system that would enable applicants’ identities and creditworthiness to be checked.<br /> Understandably, this makes most foreign banks concentrate on the safer end of the market. ‘We currently<br /> focus on self-employed professionals and salaried individuals who make up 80% of our customers, so there<br /> is still a big untapped market among self-employed proprietors and small businesses,’ says Citibank’s Mr<br /> Jamkhedkar. A list of defaulters, started by MasterCard in the late 1990s, now covers all banks and cards.<br /> Rival banks are also beginning to co-operate more on defaults, partly through CIBIL, a credit bureau set up<br /> in 2000.<br /> Another obstacle to growth is a resistance to the use of credit and debit cards by merchants such as<br /> shopkeepers, and from self-employed professionals like doctors. Even the owners of schools are reluctant<br /> to accept cards. Like others, they baulk not just at the cost of merchant fees and card-processing equipment<br /> but also at anything that would involve them in having to add sales tax and so helping the authorities to<br /> track the flow of money. Government departments and public utilities are even more resistant to change<br /> because it would mean abandoning hand-written or typed files that provide employment for clerks.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 110<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 111<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 112<br /> India’s Leading Bank<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 113<br /> India’s Leading Bank<br /> Consumer Finance Strategy<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 114<br /> The Online trading platform caters to more than 1.4 million customers handling about 350,000<br /> trades a day<br /> To achieve market leadership in consumer finance in India<br /> • Do these details/facts about Indian Consumer Finance Industry have any<br /> Relevance/Significance for our purposes in the context of Pakistan?<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 115<br /> • Can we put these details/facts into some perspective by applying the “Learning<br /> Process” we discussed in our first lecture?<br /> • Let’s try by considering yet another analogy!<br /> Learning is the acquisition of data, information, knowledge, understanding, and wisdom.<br /> And what are those things?<br /> • Data consists of symbols that represent objects, events, and their properties. For example, the<br /> speedometer in a car presents data<br /> • Information is data that has been made useful. Information answers who, what, where, when, and<br /> how many questions. Information is helpful in deciding what to do, not how to do it. For example,<br /> the information that you are driving at 120 mph will help you decide whether to speed up or slow<br /> down. But information won’t tell you how to do it<br /> • Knowledge consists of instructions and know-how. Knowledge answers how questions. For<br /> example, your driving knowledge tells you how to control the car’s speed<br /> • Understanding consists of explanations. Understanding answers why questions. For example, you<br /> understand why you are in the car in the first place: because you are driving your kids to school<br /> • Wisdom is the ability to perceive outcomes and determine their value. It is useful for deciding what<br /> should be done. For example, the wise may decide that driving recklessly may lead their children to<br /> do the same in the future<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 116<br /> LESSON 21<br /> THE NEXT 4 BILLION MARKET SIZE & BUSINESS STRATEGY AT THE BASE OF THE<br /> PYRAMID AN IFC/WORLD RESOURCES INSTITUTE REPORT (2007)<br /> Four billion low-income people, a majority of the world’s population, constitute the base of the economic<br /> pyramid. New empirical measures of their behavior as consumers and their aggregate purchasing power<br /> suggest significant opportunities for market-based approaches to better meet their needs, increase their<br /> productivity and incomes, and empower their entry into the formal economy.<br /> The 4 billion people at the base of the economic pyramid (BOP)—all those with incomes below $3,000 in<br /> local purchasing power—live in relative poverty. Their incomes in current U.S. dollars are less than $3.35 a<br /> day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India. Yet together they have substantial<br /> purchasing power: the BOP constitutes a $5 trillion global consumer market.<br /> The wealthier mid-market population segment, the 1.4 billion people with per capita incomes between<br /> $3,000 and $20,000, represents a $12.5 trillion market globally. This market is largely urban, already<br /> relatively well served, and extremely competitive.<br /> In contrast, BOP markets are often rural—especially in rapidly growing Asia—very poorly served,<br /> dominated by the informal economy, and, as a result, relatively inefficient and uncompetitive. Yet these<br /> markets represent a substantial share of the world’s population. Data from national household surveys in<br /> 110 countries show that the BOP makes up 72% of the 5,575 million people recorded by the surveys and an<br /> overwhelming majority of the population in Africa, Asia, Eastern Europe, and Latin America and the<br /> Caribbean—home to nearly all the BOP.<br /> Analysis of the survey data—the latest available on incomes, expenditures, and access to services—shows<br /> marked differences across countries in the composition of these BOP markets. Some, like Nigeria’s, are<br /> concentrated in the lowest income segments of the BOP; others, like those in Ukraine, are concentrated in<br /> the upper income segments. Regional differences are also apparent. Rural areas dominate most BOP<br /> markets in Africa and Asia; urban areas dominate most in Eastern Europe and Latin America.<br /> Striking patterns also emerge in spending. Not surprisingly, food dominates BOP household budgets. As<br /> incomes rise, however, the share spent on food declines, while the share for housing remains relatively<br /> constant—and the shares for transportation and telecommunications grow rapidly. In all regions half of<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 117<br /> BOP household spending on health goes to pharmaceuticals. And in all except Eastern Europe the lower<br /> income segments of the BOP depend mainly on firewood as a cooking fuel, the higher segments on<br /> propane or other modern fuels.<br /> That these substantial markets remain under-served is to the detriment of BOP households. Business is also<br /> missing out. But there is now enough information about these markets, and enough experience with viable<br /> business strategies, to justify far closer business attention to the opportunities they represent. Market-based<br /> approaches also warrant far more attention in the development community, for the potential benefits they<br /> offer in bringing more of the BOP into the formal economy and in improving the delivery of essential<br /> services to this large population segment.<br /> A BOP Portrait<br /> The development community has tended to focus on meeting the needs of the poorest of the poor—the 1<br /> billion people with incomes below $1 a day in local purchasing power. But a much larger segment of the<br /> low income population—the 4 billion people of the BOP, all with incomes well below any Western poverty<br /> line—both deserves attention and is the appropriate focus of a market-oriented approach.<br /> The starting point for this argument is not the BOP’s poverty. Instead, it is the fact that BOP population<br /> segments for the most part are not integrated into the global market economy and do not benefit from it.<br /> They also share other characteristics:<br /> 􀂋 Significant unmet needs<br /> Most people in the BOP have no bank account and no access to modern financial services. Most<br /> do not own a phone. Many live in informal settlements, with no formal title to their dwelling. And<br /> many lack access to water and sanitation services, electricity, and basic health care.<br /> 􀂋 Dependence on informal or subsistence livelihoods<br /> Most in the BOP lack good access to markets to sell their labor, handicrafts, or crops and have no<br /> choice but to sell to local employers or to middlemen who exploit them. As subsistence and smallscale<br /> farmers and fishermen, they are uniquely vulnerable to destruction of the natural resources<br /> they depend on but are powerless to protect (World Resources Institute and others 2005). In effect,<br /> informality and subsistence are poverty traps.<br /> 􀂋 Impacted by a BOP penalty<br /> Many in the BOP, and perhaps most, pay higher prices for basic goods and services than do<br /> wealthier consumers—either in cash or in the effort they must expend to obtain them—and they<br /> often receive lower quality as well. This high cost of being poor is widely shared: it is not just the<br /> very poor who often pay more for the transportation to reach a distant hospital or clinic than for<br /> the treatment, or who face exorbitant fees for loans or for transfers of remittances from relatives<br /> abroad.<br /> Addressing the unmet needs of the BOP is essential to raising welfare, productivity, and income—to<br /> enabling BOP households to find their own route out of poverty. Engaging the BOP in the formal<br /> economy must be a critical part of any wealth-generating and inclusive growth strategy. And eliminating<br /> BOP penalties will increase effective income for the BOP. Moreover, to the extent that unmet needs,<br /> informality traps, and BOP penalties arise from inefficient or monopolistic markets or lack of attention and<br /> investment, addressing these barriers may also create significant market opportunities for businesses.<br /> Perhaps most important, it is the entire BOP and not just the very poor who constitute the low-income<br /> market—and it is the entire market that must be analyzed and addressed for private sector strategies to be<br /> effective, even if there are segments of that market for which market-based solutions are not available or<br /> not sufficient.<br /> Some Additional Comments on BOP by World Economic Forum:<br /> Although individual incomes of the BOP are low, the aggregate market is large: in 2008, their income pool<br /> totaled slightly more than US$ 2.3 trillion. Since some of them have already begun to accumulate disposable<br /> incomes to spend on goods beyond basic necessities, they present an attractive opportunity for marketbased<br /> interventions.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 118<br /> Incomes for the BOP have been growing rapidly at around 8% per annum. Even in the context of a global<br /> economic downturn, this market is likely to see some continued growth. If growth was to continue at the<br /> rate of 8% per year seen in recent years, by 2015 the aggregate income pool of today’s BOP could increase<br /> to approximately US$ 4 trillion.<br /> The BOP can be divided into three income segments – lowest, middle and top. The lowest level consists of<br /> about 1 billion people who live below the poverty lined and struggle to make ends meet. The middle<br /> segment constitutes the largest group, with approximately 1.6 billion people. Although they have little<br /> discretionary spending power, they are generally able to support their basic needs and will require<br /> intervention only to improve the level and consistency of their existing incomes.<br /> The top segment – which comprises around 1.1 billion people – has sufficient disposable income to<br /> purchase nonessential products, yet they receive little attention from most businesses, because their incomes<br /> are still relatively low and tend to fluctuate.<br /> This group may be easiest to engage with, since they have surplus incomes and already spend on<br /> discretionary items. However, engaging the lower income ranges of the BOP is also feasible and important.<br /> If businesses and organizations help to increase capacity and income among all ranks of the BOP, they will<br /> foster broad-based growth throughout the market.<br /> In many countries, women undertake most of the farm labour, as well as food collection or purchasing and<br /> preparation. Yet, women often have less access to information, credit and services than men do, which<br /> constrains their capacity as producers and consumers. Companies could pay special attention to women as<br /> an under-served segment and address their needs, preferences and constraints in the design of products and<br /> services. For example, micro-farm equipment can be designed to be affordable and require less intense<br /> manual labour, and food products can be targeted to household nutritional needs. Since women reinvest<br /> most of their income into the family, they are a powerful avenue for value creation at the household and<br /> community level. Companies that recognize and invest in this opportunity could help strengthen<br /> community-level productivity and enhance long-term market growth.<br /> Where does the BOP live?<br /> People living at the BOP can be found all over the world, yet they are particularly concentrated in a few<br /> areas. India and China alone account for 60%. Asia, Africa and Latin America together account for 94% of<br /> the total BOP population. Africa has the highest share of the poorest segment – only 65% of Africa’s BOP<br /> population is above the World Bank’s US$ 1 a day poverty line, compared with more than 86% in Latin<br /> America. The majority of the BOP live in rural areas (68% globally), which adds to the complexity and costs<br /> of reaching them.<br /> Some salient characteristics<br /> Although it is difficult to generalize about a group as varied as the BOP, it is important to understand the<br /> characteristics that distinguish them from other groups.<br /> They manage low and fluctuating incomes<br /> The burden of low incomes is compounded by the fact that income streams for BOP households are<br /> unpredictable. As customers, therefore, they resist large up-front outlays and recurring expenses in the form<br /> of installments. In addition, most lack access to affordable credit which would enable essential purchases or<br /> business investments. Therefore, companies might look for ways to align their prices and financing for<br /> consumers with incomes that ebb and flow. They might also design financial incentives that provide a stable<br /> income and encourage entrepreneurship when engaging with the BOP as producers.<br /> They cope with domestic constraints and difficult living conditions<br /> The living spaces of BOP households are typically quite small. Furthermore, conveniences that more<br /> affluent households take for granted – such as uninterrupted electricity and clean running water – have yet<br /> to reach many BOP households. These conditions impose constraints on both the type of products that the<br /> BOP can produce and consume and their level of productivity. Companies engaging with the poor could<br /> strive to deliver business and product solutions that address these constraints.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 119<br /> They are smart shoppers and investors<br /> Since every cent counts for low-income households, they are unlikely to spend money on products they<br /> don’t understand or trust. However, they don’t necessarily prefer cheaper or stripped-down versions of<br /> more expensive offerings. They want high-quality products, even if they have to ration their use.<br /> Therefore, they prefer products that are known to be reliable or are demonstrably superior. For example,<br /> despite cash constraints, farmers will often pay a premium for high productivity seeds that other farmers<br /> have used and profited from.<br /> They are unfamiliar with many products, technologies and procedures<br /> At the BOP, communication channels are scarce, literacy rates are low, and many consumers are often firsttime<br /> users. These factors increase the need for consumer education, product trials and demonstrations to<br /> explain product benefits and usage. Producers and entrepreneurs also lack crucial information. Therefore,<br /> companies sourcing from the BOP must be willing to invest in educating their suppliers as well.<br /> They look for trusted advice<br /> Because the BOP are new to many products and have limited access to information sources, they are more<br /> likely to rely on the opinions of people they know and trust. Advertisements can help raise awareness, but<br /> they seldom address all the barriers to purchasing a product. The experiences of friends and relatives – good<br /> and bad – as well as direct experience through product testing and demonstrations, strongly influence the<br /> BOP’s choice of products and brands. For that reason, encouraging local groups to advocate products and<br /> services to friends and creating networks for educating first-time users is a valuable tool in many business<br /> models.<br /> They demand respect<br /> Surveys of low-income households elicited statements such as: “We need to be well dressed and look good.<br /> Otherwise, people will not take us seriously. And at school, the teachers will write my children off as poor<br /> and not deserving of a good education.” Being treated equitably and with dignity also influences where the<br /> BOP shops. They often prefer neighborhood shops– which are familiar and offer personalized service –<br /> over supermarkets, which may require more travel time and seem intimidating. Companies should consider<br /> such sensitivities and treat the BOP – whether as consumers or employees – with respect.<br /> They face disadvantages in the market<br /> Because BOP consumers’ spending power is limited, and the costs to reach them are high, they tend to be<br /> served by inefficient supply chains. That often results in their paying higher prices for inferior goods,<br /> compared to wealthier members of their societies – an inequity often referred to as the “BOP penalty”. This<br /> cost dynamic presents a tremendous opportunity for organizations and businesses to offer better quality and<br /> more affordable options to the poor. But realizing that opportunity will require: uprooting entrenched<br /> stereotypes and being open to new ways of engaging with this segment.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 120<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 121<br /> LESSON 22<br /> MARKET-BASED APPROACH FOR POVERTY REDUCTION<br /> Analysis of BOP markets can help businesses and governments think more creatively about new products<br /> and services that meet BOP needs and about opportunities for market-based solutions to achieve them.<br /> For businesses, it is an important first step toward identifying business opportunities, considering business<br /> models, developing products, and expanding investment in bop markets. For governments, it can help focus<br /> attention on reforms needed in the business environment to allow a larger role for the private sector.<br /> BOP market analysis, and the market-based approach to poverty reduction on which it is based, are equally<br /> important for the development community. This approach can help frame the debate on poverty reduction<br /> more in terms of enabling opportunity and less in terms of aid. A successful market-based approach would<br /> bring significant new private sector resources into play, allowing development assistance to be more<br /> targeted to the segments and sectors for which no viable market solutions can presently be found.<br /> There are distinct differences between a market-based approach to poverty reduction and more traditional<br /> approaches. Traditional approaches often focus on the very poor, proceeding from the assumption that they<br /> are unable to help themselves and thus need charity or public assistance. A market-based approach starts<br /> from the recognition that being poor does not eliminate commerce and market processes: virtually all poor<br /> households trade cash or labor to meet much of their basic needs. A market-based approach thus focuses<br /> on people as consumers and producers and on solutions that can make markets more efficient, competitive,<br /> and inclusive—so that the BOP can benefit from them.<br /> Traditional approaches tend to address unmet needs for health care, clean water or other basic necessities<br /> by setting targets for meeting those needs through direct public investments, subsidies, or other handouts.<br /> The goals may be worthy, but the results have not been strikingly successful. A market-based approach<br /> recognizes that it is not just the very poor who have unmet needs—and asks about willingness to pay across<br /> market segments. It looks for solutions in the form of new products and new business models that can<br /> provide goods and services at affordable prices.<br /> Those solutions may involve market development efforts with elements similar to traditional development<br /> tools—hybrid business strategies that incorporate consumer education; micro loans, consumer finance, or<br /> cross-subsidies among different income groups; franchise or retail agent strategies that create jobs and raise<br /> incomes; partnerships with the public sector or with nongovernmental organizations (NGOs). Yet the<br /> solutions are ultimately market oriented and demand driven— and many successful companies are adopting<br /> such strategies.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 122<br /> Perhaps most important, traditional approaches do not point toward sustainable solutions—while a marketoriented<br /> approach recognizes that only sustainable solutions can scale to meet the needs of 4 billion people.<br /> Growing Interest, Growing Success in BOP Markets:<br /> Business interest in BOP markets is rising. Multinational companies have been pioneers, especially in food<br /> and consumer products. Large national companies have proved to be among the most innovative in<br /> meeting the needs of BOP consumers and producers, especially in such sectors as housing, agriculture,<br /> consumer goods, and financial services. And small start-ups and social entrepreneurs focusing on BOP<br /> markets are rapidly growing in number. But perhaps the strongest and most dramatic BOP success story is<br /> mobile telephony.<br /> Between 2000 and 2005 the number of mobile subscribers in developing countries grew more than<br /> fivefold—to nearly 1.4 billion. Growth was rapid in all regions, but fastest in sub-Saharan Africa—Nigeria’s<br /> subscriber base grew from 370,000 to 16.8 million in just four years (World Bank 2006b). Household<br /> surveys confirm substantial and growing mobile phone use in the BOP population, which has clearly<br /> benefited from the access mobile phones provide to jobs, to medical care, to market prices, to family<br /> members working away from home and the remittances they can send, and, increasingly, to financial<br /> services (Vodafone 2005).<br /> A strong value proposition for low-income consumers has translated into financial success for mobile<br /> companies. Celtel, an entrepreneurial company operating in some of the poorest and least stable countries<br /> in Africa, went from start-up to telecom giant in just seven years. Acquired for US$3.4 billion in 2005, the<br /> company now has operations in 15 African countries and licenses covering more than 30% of the continent.<br /> Not all sectors have found their footing in BOP markets yet. Privatized urban water systems, for example,<br /> have encountered financial and political difficulties in developing countries, and the result has been neither<br /> better service for low-income communities nor success for the companies. The energy sector has similarly<br /> had only limited success in providing affordable off-grid electricity or clean cooking fuels to rural BOP<br /> communities. But even these sectors have seen encouraging new ventures, and further development of<br /> technology and business models may expand BOP markets.<br /> Moving towards a more hospitable environment for business:<br /> The operating and regulatory environments in developing countries can be challenging. Micro and small<br /> businesses especially face disadvantages. If they are informal, they cannot get investment finance, participate<br /> in value chains of larger companies, or sometimes even legally receive services from utilities. Condemned to<br /> remain small, they cannot generate wealth or many jobs. Nor do they contribute to the broader economy by<br /> paying taxes.<br /> Most, face barriers to joining the formal economy in the form of antiquated regulations and prohibitive<br /> requirements—dozens of steps, delays of many months, capital requirements beyond attainment for most<br /> of the BOP. In El Salvador, for example, starting a legitimate business used to take 115 days and many<br /> separate procedures—until recent reforms reduced the effort to 26 days and allowed registration with four<br /> separate agencies in a single visit. But even for legitimate small businesses, investment capital is generally<br /> unavailable and supporting services scarce.<br /> Fortunately, there is growing recognition of the importance of removing barriers to small and medium-size<br /> businesses and a growing toolbox for moving firms into the formal economy and creating more efficient<br /> markets. And as the World Bank and International Finance Corporation (IFC) show, in their annual Doing<br /> Business reports, there is also mounting evidence that the tools work. In El Salvador five times as many<br /> businesses register annually since its reforms. Many countries, including China, have dropped minimum<br /> capital requirements. The pace of reform is accelerating, with more than 40 countries making changes in the<br /> most recent year surveyed. Coupled with reform is growing attention to enterprise development initiatives<br /> focusing on BOP markets and investment capital for small and medium-size businesses. Several<br /> international and bilateral development agencies are launching investment funds to support the growth of<br /> small and medium-size enterprises across the developing world. These efforts, and the growing private<br /> sector interest in investing in such enterprises in developing countries, explicitly recognize that an expanded<br /> private sector role and a bottom-up market approach are essential development strategies.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 123<br /> What BOP markets look like?<br /> Total household income of $5 trillion a year establishes the BOP as a potentially important global market.<br /> Within that market are large variations across regions, countries, and sectors in size and other<br /> characteristics.<br /> Asia (including the Middle East) has by far the largest BOP market: 2.86 billion people with income of<br /> $3.47 trillion. This BOP market represents 83% of the region’s population and 42% of the purchasing<br /> power—a significant share of Asia’s rapidly growing consumer market.<br /> Eastern Europe’s $458 billion BOP market includes 254 million people, 64% of the region’s population,<br /> with 36% of the income.<br /> In Latin America the BOP market of $509 billion includes 360 million people, representing 70% of the<br /> region’s population but only 28% of total household income, a smaller share than in other developing<br /> regions.<br /> Africa has a slightly smaller BOP market, at $429 billion. But the BOP is by far the region’s dominant<br /> consumer market, with 71% of purchasing power. It includes 486 million people—95% of the surveyed<br /> population.<br /> Sector markets for the 4 billion BOP consumers range widely in size. Some are relatively small, such as<br /> water ($20 billion) and information and communication technology, or ICT ($51 billion as measured, but<br /> probably twice that now as a result of rapid growth). Some are medium scale, such as health ($158 billion),<br /> transportation ($179 billion), housing ($332 billion), and energy ($433 billion). And some are truly large,<br /> such as food ($2,895 billion).<br /> Evidence of BOP penalties emerges in several sectors. Wealthier mid-market households are seven times as<br /> likely as BOP households to have access to piped water. Some 24% of BOP households lack access to<br /> electricity, while only 1% of mid-market households do. Rural BOP households have significantly lower<br /> ICT spending and are significantly less likely to own a phone than rural mid-market households or even<br /> urban BOP households—consistent with the broad lack of access to ICT services in rural areas.<br /> BOP business strategies that work:<br /> Why are some enterprises succeeding in meeting BOP needs, and others are not? Successful enterprises<br /> operating in these markets use four broad strategies that appear to be critical:<br /> 1. Focusing on the BOP with unique products, unique services, or unique technologies that are<br /> appropriate to BOP needs and that require completely re-imagining the business, often through<br /> significant investment of money and management talent. Examples are found in such sectors as<br /> water (point-of-use systems), food (healthier products), finance (micro-finance and low-cost<br /> remittance systems), housing, and energy.<br /> 2. Localizing value creation through franchising, through agent strategies that involve building local<br /> ecosystems of vendors or suppliers, or by treating the community as the customer, all of which<br /> usually involve substantial investment in capacity building and training. Examples can be seen in<br /> health care (franchise and agent-based direct marketing), ICT (local phone entrepreneurs and<br /> resellers), food (agent-based distribution systems), water (community-based treatment systems), and<br /> energy (mini-hydropower systems).<br /> 3. Enabling access to goods or services—financially (through single- use or other packaging<br /> strategies that lower purchase barriers, prepaid or other innovative business models that achieve the<br /> same result, or financing approaches) or physically (through novel distribution strategies or<br /> deployment of low-cost technologies). Examples occur in food, ICT, and consumer products (in<br /> packaging goods and services in small unit sizes, or “sachets”) and in health care (such as crosssubsidies<br /> and community-based health insurance). And cutting across many sectors are financing<br /> strategies that range from micro loans to mortgages.<br /> 4. Unconventional partnering with governments, NGOs, or groups of multiple stakeholders to<br /> bring the necessary capabilities to the table. Examples are found in energy, transportation, health<br /> care, financial services, and food and consumer goods.<br /> 5. Enterprises may—and often do—use more than one of these strategies serially or in combination.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 124<br /> New Perspectives --- Challenging Deep-Seated Beliefs:<br /> Much of the conventional wisdom about business operations in emerging economies stands in the way of<br /> further growth and opportunity among the BOP.<br /> There could be five ways of reframing the problems that have challenged conventional solutions:<br /> • Affording access rather than ownership<br /> • Monetizing hidden assets<br /> • Bridging the gap in public goods through private enterprise<br /> • Scaling out versus scaling up<br /> • Governing through influence rather than authority<br /> Affording Access Rather than Ownership:<br /> A person doesn’t have to own a product in order to benefit from it – he or she just has to use it. Yet,<br /> companies tend to measure a product’s market potential in terms of the number of people who can afford<br /> to buy it. Given the relatively low and volatile incomes of the BOP, this mindset severely restricts the<br /> perceived potential of these markets. If organizations think about “who can use the product” rather than<br /> “who can buy it,” they will find a much larger and potentially profitable opportunity.<br /> Reframing this problem requires new kinds of metrics to measure market potential and affordability. What<br /> if companies were to measure “access” to their products rather than ownership? Such access could be<br /> provided through a shared-usage model or through an entrepreneur who “leases” the product to customers.<br /> This way of thinking has opened up valuable markets for a number of companies.<br /> In Bangladesh, for example, Grameen Telecom equipped village women with mobile handsets and, for a<br /> small fee, the women make the handsets available to others for both incoming and outgoing calls. Over<br /> time, many of these customers have bought their own mobile handsets – often choosing a Grameen phone;<br /> since it is the brand they have become familiar with and have grown to trust. As a result, the mobile phone<br /> sector in Bangladesh has been growing rapidly: from only 200,000 subscribers in 2001 to more than 42<br /> million at the end of May, 2008. Nearly half of those 42 million subscribers use Grameen Phone. At the<br /> same time, numerous women have become entrepreneurs and improved their incomes, thereby reducing<br /> poverty and expanding opportunities. Other organizations around the world have adopted and extended the<br /> Grameen shared-access model for mobile phone usage, including offering additional services Kenya<br /> Agricultural Commodity Exchange (KACE) and Safaricom Ltd combined the shared-access model with a<br /> new application that offers a valuable information service to farmers and traders. The service provides<br /> information on the prices of specific commodities via SMS messages – by typing in “beans”, or “maize”, for<br /> example, to find the going price in the capital. As a result, farmers can access vital pricing information to<br /> target their sales to the best buyers, and improve their negotiating position with traders and middlemen. It<br /> costs only 15 shillings (20 cents) per use, and the costs can be shared among the farmers.<br /> To challenge conventional wisdom about product ownership, consider the following questions:<br /> 􀂙 “How can a company change from a “selling” mode to one that “deploys” products for use<br /> without requiring ownership?<br /> 􀂙 How would this new approach affect its revenues?<br /> 􀂙 Does such an approach change how the company thinks about realizing further value from existing<br /> assets and customers?<br /> 􀂙 What new business models might this new approach require?”<br /> Monetizing Hidden Assets:<br /> There is a wealth of potential capital residing within BOP communities, but these assets are often hidden<br /> from formal markets. The term “assets” refers to a broad array of resources that can generate economic<br /> value. This includes undocumented capital, which is capital that individuals have used historically or<br /> traditionally, but for which they do not have formal ownership rights.<br /> Undocumented capital could include property for which a family has tenancy rights but no legal title; or<br /> unincorporated businesses that aren’t funded by a bank or other traditional investors. The second type of<br /> capital is personal and community resources that can be leveraged to enable business transactions produce<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 125<br /> or sell goods. It includes the collective power of a community, which is often informally used for contract<br /> enforcement. Even a good personal reputation – a prized asset that allows access to local credit – could be<br /> considered a source of capital. The third kind of capital is underutilized assets, such as civil society<br /> organizations and small and medium enterprises (SMEs). Many of these entities already have strong<br /> networks within the community and a deep knowledge of where their untapped sources of value are. It also<br /> includes people with entrepreneurial or other skills that have yet to be developed.<br /> Leveraging the economic value of these hidden assets can potentially unlock significant market growth.<br /> Indeed, the aggregate value of such capital is potentially enormous. Consider the money that Mexican<br /> immigrants earn in the United States and send back to families in Mexico through informal remittance<br /> channels, or the extraordinarily high interest rates charged by village money lenders in India for low-income<br /> people with no access to formal credit. Companies should look beyond the official models to learn how<br /> local communities bring capital into the system “unofficially”, and seek to leverage that capital to catalyze<br /> further value creation.<br /> In fact, mobilizing the community is a good entry point for identifying hidden assets, since the BOP<br /> maintain strong community ties. For that reason, companies have integrated local community entrepreneurs<br /> into their value chains, in addition to serving them as customers. Not only does this broaden the customer<br /> base for these companies, it can also generate higher profits, since the local entrepreneurs are willing to pay<br /> more for resources they had no access to previously. Lastly, it removes market inefficiencies and thus<br /> creates an economic multiplier. For example, Mibanco (Banco de la Microempresa S.A.) in Peru has loaned<br /> more than US$ 1.6 billion in amounts ranging from US$ 100 to US$ 1,500 to low-income households and<br /> their micro and small enterprises. Mibanco’s innovation was to design special banking products to be used<br /> for the purposes of housing, agriculture, working capital, and other necessities. To ensure that the loans<br /> would be paid back, they instituted personal incentives, such as awards and public recognition.<br /> As a result, they were able to offer credit to people who never had access to the formal banking system in<br /> Peru. Human resources, which include the large pools of people who might become producers or<br /> entrepreneurs with adequate training, are another form of hidden assets. Yet, conventional methods of<br /> developing their skills and collecting the goods they produce in distant villages are expensive. Another<br /> deterrent is the reluctance of many businesses to invest in training when the benefits might be shared by<br /> competitors. For example, companies often need raw materials from farmers in a particular region, but they<br /> avoid sourcing from them because the products are often poor in quality. Although the company and the<br /> farmers would both benefit if the company would help to improve the quality of produce, the company is<br /> reluctant to make such investments because it has no way of ensuring that the farmers won’t begin selling to<br /> other companies as well.<br /> Uncovering hidden community resources will require companies to collaborate with other organizations and<br /> possibly even competitors to share community skills, knowledge and training. But the benefits of gaining a<br /> more skilled, productive and accessible workforce often justify the effort and cost.<br /> The potential for companies to unlock hidden assets by collaborating with local communities and<br /> integrating new models with their current ways of doing business is substantial. To challenge conventional<br /> wisdom about capital assets, consider the following questions:<br /> 1. What hidden assets does the target community have, and how does the community leverage their<br /> value?<br /> 2. How could the hidden capital that exists in informal arrangements be brought into formal systems?<br /> Bridging the Gap in Public Goods through Private Enterprise:<br /> Developing nations face major infrastructure gaps. Organizations that set out to engage low-income groups<br /> as customers or producers are often constrained by the lack of basic infrastructure they take for granted<br /> when serving current mass markets. This greatly increases the costs of engaging with the poor, designing<br /> products for them, and collaborating with them for the purposes of production and sourcing. The missing<br /> infrastructure can include “hard” infrastructure, such as roads, warehousing, logistics facilities and public<br /> utilities for water and electricity.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 126<br /> It can also include “soft” infrastructure, such as producer organizations, educational and training programs,<br /> and basic information on consumers, including individual identification and credit histories that allow<br /> companies to target them for specific products and services.<br /> Hard and soft infrastructures enable market activity and value creation, and they are largely considered the<br /> responsibility of the public sector (such as governments or development agencies). Organizations that seek<br /> to do business with the BOP overcome infrastructure constraints in two ways: they can form active<br /> partnerships with the public sector to improve the circumstance of the BOP, or they can find innovative<br /> ways – often in collaboration with others – to bridge the gap in public goods.<br /> Consider the example of Pésinet Health Care, which funded an innovative initiative to reduce infant<br /> mortality in Mali. Instead of setting up clinics in rural locations, the company trained qualified local<br /> representatives to perform basic check-ups and communicate the information electronically to doctors in<br /> the cities. Patients visited doctors only when they needed hands-on attention. That made the service more<br /> affordable for patients and helped to reduce the country’s infant mortality rate. For the program to become<br /> self-financing, the company needed to achieve economies of scale that required treating 1,200 to 1,500<br /> children. The costs of the project were recovered by revenues generated by subscription charges, which<br /> were US$ 1.05 a month per child and included visits to the doctor and basic medicines. In a similar project<br /> rolled out in Saint-Louis, Senegal, the infant mortality rate fell from 120 per thousand to only 8 per<br /> thousand. The new model has made basic healthcare more accessible to low-income people and, because it<br /> generates sufficient revenues in subscriptions, its operations are sustainable.<br /> Another obstacle, companies face is a lack of information about the choices and constraints in the daily<br /> lives of the BOP. Indeed, some companies even find it difficult to identify which groups of consumers<br /> belong to this segment. Government data is often inaccurate or nonexistent, and many workers lack official<br /> salary records. This can be a particular challenge for banks. By insisting on official records, banks lose not<br /> only potential customers, but also the opportunity to catalyze growth and reduce poverty by providing<br /> essential financial services.<br /> Organizations could work towards improving financial information systems through tools such as credit<br /> bureaus and smart cards. Better, more accurate ways of identifying low-income consumers and determining<br /> their qualifications and needs could be achieved through a consortium of companies that stand to benefit<br /> from this effort, rather than a stand-alone organization. For example, A Little World, a technology company<br /> based in Mumbai, India, launched a project in which a consortium of six banks provide biometrics-based<br /> identification cards and RFID smart cards and near-field-communication mobile phones to people without<br /> bank accounts. Not only has the consortium made it possible to offer banking services without the expense<br /> of building branches, it has also built some invaluable soft infrastructure in the form of credit information<br /> that can be used by many other industries over time to accurately identify and track their customers. That<br /> allows companies to expand their boundaries and partner with companies in other industries to share<br /> investments and returns.<br /> Private intervention can support the creation of public goods – not just for philanthropic reasons, but also<br /> to ensure long-term profitability in low-income markets. Interventions in the public domain by many<br /> companies around the world have demonstrated that they can add value for customers as well as producers.<br /> To challenge conventional wisdom about investing in public goods, consider the following questions:<br /> 1) Will investing in a public good that also benefits competitors actually improve near-term profits?<br /> 2) Who will decide how much each partner will gain from opportunities and how much each could<br /> invest?<br /> 3) How can the organization create an open partnership model to facilitate entry and exit of partners<br /> over time?<br /> Scaling Out versus Scaling Up:<br /> To serve customers efficiently, companies often work to reduce the unit costs of products and achieve<br /> economies of scale through centralized production in large factories. But this model has two problems<br /> when it comes to the low-income market. First, it increases the costs of serving and sourcing (warehousing<br /> and distribution) since producers and customers live far from central factories. Second, centralized factories<br /> often produce standardized products for global or regional markets, which is often not what low-income<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 127<br /> consumers need or want. The BOP’s requirements for locally-targeted products often cannot be met with<br /> standard low cost production models. Companies therefore need to rethink strategies or scaling in this<br /> market.<br /> What’s more, companies often attach hierarchical structure to large-scale operations. As they seek to “scale<br /> up” an innovation, they standardize structures in the forms of decision rules, measurement systems, and<br /> organizational models. While these can boost efficiency in large-scale standardized markets, they can also<br /> limit innovation – a key quality for success in diversified BOP markets. Companies should instead seek to<br /> replicate innovation, constantly adapting it along the way, in order to expand their market and offer a new<br /> pathway to growth.<br /> One of the problems with large-scale sourcing and production schemes is that they are designed for highdensity<br /> areas. The traditional concept of economies of scale often fails when it comes to serving the lowincome<br /> markets. Although demand and supply in this market is potentially very large in the aggregate, these<br /> consumers buy and sell locally because they live primarily in small, scattered groups. The alternative to<br /> scaling up is to scale out: create experiments that can be adapted and rolled out to increasing numbers of<br /> markets. That involves the low-income people as producers and distributors, as well as consumers, and it<br /> minimizes overhead.<br /> Yet, scaling up and scaling out are not mutually exclusive. Instead, organizations need to balance scaling up<br /> (through centralization) with scaling out (through localization) to achieve the right combination of low costs<br /> and customized solutions. To accomplish this, organizations could deconstruct their value chains and for<br /> each step consider the trade-off between centralization and localization. The resulting model could reduce<br /> costs and enhance customer appeal, reach, and credibility.<br /> Aravind Eye Care in India exemplifies such a model in using metrics in initial examinations to triage patient<br /> needs. Its staff of local entrepreneurs examines patients at low-cost community centres, which are located in<br /> remote towns and villages. Basic examination, screening and preliminary diagnostic procedures can be<br /> carried out by these entrepreneurs with minimum training. Cases requiring consultation with an expert are<br /> dealt with by e-mailing patient-exam reports to doctors in cities. These doctors are highly trained and form a<br /> costly resource in the treatment chain. Only patients that need hands-on treatment are referred on to select<br /> hospitals. Each small community centre is self-sustaining, because it uses local resources and inexpensive<br /> basic instruments. The organization has grown by leaps and bounds and that has given many more people<br /> access to good eye-care services. It has also made Aravind a huge success.<br /> A recent study conducted by a hospital showed that after treatment, 85% of the men and 58% of the<br /> women who had lost their jobs due to sight impairment were reintegrated into the workforce. Rethinking<br /> business models can create considerable benefits not only for companies, but also for individuals. By<br /> starting with a few trials, then replicating the innovation and adapting it along the way, companies can<br /> eventually reach markets sufficiently large to ensure profits. In traditional large-scale production models,<br /> everything from procurement to production, processing, packaging and marketing is standardized. That<br /> works efficiently when companies can use established channels for supply and sourcing, and they are<br /> targeting middle- and high-income consumers.<br /> However, production costs increase when demand is broadly dispersed and volumes vary, as is the case at<br /> the BOP. In these settings, localized production centres can be a more effective approach. The French<br /> company Nutriset S.A., which manufactures Plumpy’Nut, a fortified food for extremely malnourished<br /> children, has adopted such a strategy. The company sought to lower manufacturing and delivery costs, allow<br /> flexible production schedules, and maintain high quality standards by introducing a tailored licensing<br /> system. It outsources production to local franchisees, some of which operate as mini manufacturing units,<br /> in Malawi, Niger, Ethiopia and the Democratic Republic of Congo, and plans expansion to other regions.<br /> Nutriset works intensively with franchisees on quality control and monitoring. This makes it possible for<br /> local production to significantly reduce delivery costs, while creating jobs and capacity.<br /> Although the pursuit of economies of scale has been a central tenet of conventional business models for a<br /> long time, the means to achieve it are different for BOP markets, where scale is often better understood and<br /> evaluated at the micro, rather than the macro, level. To challenge the conventional wisdom of economies of<br /> scale, consider the following questions:<br /> 1. Where should the company scale up and where should it scale out?<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 128<br /> 2. Can the company balance both kinds of scale simultaneously?<br /> 3. How will the company adopt a decentralized system, encourage innovation, and still ensure product<br /> quality and effective management?<br /> Governing through Influence Rather than Authority:<br /> As companies grow, the natural inclination is to exert more control on decision-making and tighten<br /> monitoring and audit systems. Yet, at the BOP, information gathering and control has to happen through<br /> collaboration and with local partners. Given the wide dispersion of villages and communities in emerging<br /> markets, it is crucial to retain a high degree of flexibility and decentralization, in order to adapt to local<br /> changes and control costs. To reduce the overall costs of monitoring when enlisting the BOP as consumers<br /> and co-producers, companies must first align their goals with the community’s interests and then introduce<br /> local checkpoints. Organizations that have managed to link their interests to those of their local partners<br /> have found that they can deliver more value at significantly lower cost. This is also true for partnerships<br /> with different organizations.<br /> When considering doing business with BOP communities, companies are often concerned about the<br /> substantial monitoring costs that might be required to ensure compliance with quality standards. A better<br /> approach is to reduce the need for monitoring by aligning the interests of the employees with those of the<br /> company so that employees are motivated to deliver better results. This can be achieved by developing<br /> shared aspirations and values, leveraging incentives such as profits so that employees benefit when the<br /> organization benefits. In order for this to work, however, companies will need to rethink their business<br /> models and current shareholders will need to relinquish some rights in exchange for broadening the range<br /> of benefits.<br /> One organization that has succeeded with such a partnership approach is Child and Family Wellness Shops<br /> in Kenya. They have adopted a franchise model to deliver healthcare, and offered the nurses who run their<br /> local clinics shares in the company. That motivates the nurse-owners to provide high quality healthcare and<br /> reach out to the community with information and education. Not only has providing nurses with better<br /> remuneration improved health in the community, it has also helped to retain local talent, which addresses<br /> the problem of “brain drain” – the out migration of skilled professionals – that affects many developing<br /> countries.<br /> Even after aligning with the interests of local partners, companies will still need to ensure that standards,<br /> payments and other requirements are met. Some companies appoint an “aggregator”, who serves as a point<br /> of contact for accountability and fee collection from the community. For instance, rather than trying to<br /> collect money from individual customers in a village for using its services, a company could consolidate<br /> payments using a commission-based local entrepreneur who collects payments from individuals, thereby<br /> reducing the collection costs for the company and ensuring timely payments.<br /> Some companies partner with communities for the purposes of governance. That’s what the Manila Water<br /> Company Inc. did when it established a community-based collection program for water consumption. To<br /> assess and collect fees, it installed a “mother” meter for the whole community, which was responsible for<br /> jointly paying the bill. The community now employs local checkers to ensure individual payment, which<br /> saves the company from having to employ additional resources. As a result, the program has become a<br /> source of local employment, generating more than 10,000 jobs since it started operations in 1997.<br /> Besides working with local players, businesses can partner with other organizations to create and share<br /> assets. But these organizations should be viewed more as a network of peers, rather than vendors. One of<br /> the main challenges with such arrangements is the establishment of clear governance standards. Often<br /> partnerships have broken down because the partners didn’t share common goals. Even when aspirations<br /> and values are shared, the partnership must still create an open architecture for organizations to enter and<br /> exit on the basis of their capacity to operate in the market. For example, if there is an arrangement among<br /> financial sector companies to create a common customer-credit database, each of the players ought to be<br /> able to contribute and benefit. There should be clear guidelines for how various organizations will<br /> participate and how their contribution will be valued, if they choose to exit.<br /> There is authoritative power in the social forces that bind communities together, and the key to success<br /> among the BOP is to tap into it. Companies that have aligned the interests of communities, and then<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 129<br /> allowed individuals and other partner organizations to manage them, have unlocked great potential, while<br /> reducing the overhead costs of monitoring.<br /> The key to making partnerships work lies in aligning the interests of all stakeholders towards a common<br /> goal. That calls for viewing community members as partners, not just salaried employees. To ensure quality<br /> control, companies can engage managers at the community level and design incentives for the communities<br /> to manage themselves. To challenge conventional wisdom about governance, consider the following<br /> questions:<br /> 􀂙 What partners – with whom the company might share responsibilities and profits – can help it<br /> achieve its goals? Will the organization be willing to relinquish its power in order to lower<br /> monitoring costs?<br /> 􀂙 How can the company align incentives to reinforce accountability and trust with the community?<br /> 􀂙 How can the company establish clear governance standards and an open architecture where<br /> partners can enter and exit freely?<br /> 􀂙 How will the company value their contributions despite its focus on long-term profits?<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 130<br /> LESSON 23<br /> FINANCIAL SERVICES MARKET WITHIN BOP<br /> Microcredit pioneer Muhammad Yunus received the Nobel Peace Prize in 2006, a milestone in public<br /> attention to the financial needs of the BOP. Until recently the main focus has been microcredit, historically<br /> the domain of nonprofits. Now the focus is changing—as new players and new products enters the market<br /> and new technologies transform services. A dynamic financial services sector is emerging—moving toward<br /> financial access for all.<br /> Many microfinance institutions now offer savings as well as microcredit. Commercial banks are becoming<br /> active in the BOP market and bringing a still broader range of services, including insurance. Mobile phone<br /> banking, still at an early stage, promises to dramatically broaden access and lower transaction costs.<br /> Remittances to BOP households from family members overseas have emerged as a significant cross-border<br /> financial flow, bringing new attention and new ways to promote economic growth.<br /> As these changes expand access to financial services for the BOP, the effects can be measured in many<br /> ways, not just in the volume or dollar value of transactions:<br /> • New jobs and income. New types of financial services, provided through mobile phone systems,<br /> are generating new jobs and income for millions of small entrepreneurs who sell over-the-air credit.<br /> • Formal identity. Establishing a banking relationship gives people a formal identity they often<br /> lacked before, contributing to the process of political and social inclusion critical to development.<br /> • Greater personal safety. Cash is a burden for the poor, making them vulnerable to crime. By<br /> doing away with the need to carry a lot of cash, such services as debit cards and mobile phone–<br /> based access to cash and bill-paying facilities enhance personal safety and the quality of life.<br /> • More education for children. In Bangladeshi families that are clients of Grameen Bank, nearly all<br /> girls are in school, compared with only 60% in nonclient families.<br /> • More timely health care. In Uganda the Foundation for Credit and Community Assistance<br /> (FOCCAS) links its microloans to participation in child health education programs and has doubled<br /> the share of its clients using practices to prevent the transmission of HIV. In Bolivia microcredit<br /> clients of Crédito con Educación Rural (Crecer) had higher rates of child immunization in their<br /> families than did nonclients.<br /> • Economic empowerment of women. In Indonesia women who are clients of Bank Rakyat<br /> Indonesia (BRI) are more likely than other women to participate in family financial decisions. In<br /> India borrowers from SEWA Bank have organized unions to lobby for higher wages and more<br /> rights as members of the associated Self- Employed Women’s Association.<br /> Through these effects and many more, financial services play a critical part in reducing poverty and<br /> improving the access of the BOP to goods and services.<br /> How large is the market?<br /> National household surveys capture extensive data on financial matters, but little on actual spending for<br /> financial services. Moreover, the costs of these services are often not fully transparent to BOP customers,<br /> who may not know or understand the actual costs of transferring remittances from sender to recipient, for<br /> example, or the true interest rate paid to an informal village lender.<br /> As a result, robust data on spending for financial services are not available in sufficient detail for meaningful<br /> analysis.<br /> What is known, however, clearly indicates that the financial services sector is changing—and doing so in<br /> ways that are moving it toward broad access for the BOP.<br /> Three factors are powering this transformation:<br /> • The microfinance sector is growing up, attracting new participants and creating new services.<br /> • Rapid changes in technology are reducing the transaction costs in financial services, expanding<br /> markets, and interesting large financial institutions in markets previously ignored.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 131<br /> • Remittances are approaching an estimated US$350 billion a year, and recipients, businesses, and<br /> national governments are learning how to leverage these “BOP to BOP” financial flows.<br /> The following analysis briefly explores the financial services sector through these three lenses.<br /> The changing banking landscape<br /> Several strategies are at work to bring financial services further into the BOP. One is to expand the<br /> microfinance institutions. A growing number of traditional microcredit banks—such as the Cooperative<br /> Bank of Kenya, Financiera Compartamos in Mexico, and BRI in Indonesia have become profitable on a<br /> fully commercial basis, with sustainable microlending now just a part of their core business. And one<br /> relative newcomer, SKS Microfinance in India, has relied on operational efficiency to power rapid growth in<br /> lending.<br /> By the industry’s own estimate, however, microcredit had reached only 82 million households by the end of<br /> 2006. Even the industry’s new target for 2015, 175 million households, would represent only 31.5% of<br /> today’s 556 million BOP households.<br /> Clearly, other strategies are needed to reach scale. Some are already in play. Major financial institutions are<br /> discovering that they can go “down-market” profitably, leveraging their capital, their expertise, and their<br /> back-office systems. In one of many examples, Citi in late 2006 announced plans to expand into lowincome<br /> neighborhoods of India with automated teller machines (ATMs) using thumbprints to identify<br /> customers. Banks also are beginning to view those receiving remittances as potential customers for a range<br /> of financial services.<br /> Nontraditional players are entering the BOP market. Retail giant Wal-Mart has received regulatory approval<br /> in Mexico to create its own bank, Banco Wal-Mart, co-located with its stores. If the venture is successful,<br /> other Wal-Mart banks will follow elsewhere.<br /> Some microfinance institutions and big commercial banks are meeting in the middle. Grameen Foundation<br /> USA and India’s largest private sector bank, ICICI Bank, have formed Grameen Capital India to assist<br /> microfinance institutions in raising funds. The joint venture will help microfinance institutions access<br /> primary and secondary debt markets and sell portfolios of microloans to other banks—and will also supply<br /> guarantees and credit enhancements for these portfolios where appropriate.<br /> ICICI has many similar ventures in the pipeline aimed at reaching the BOP. One is a partnership with<br /> microfinance institutions and technology provider n-Logue to harness thousands of entrepreneur-run<br /> Internet kiosks as the first touch point for savings accounts, mutual fund purchases, insurance, and even<br /> equity loans—and to provide branches, franchise operators, and ATMs throughout rural India. Partnerships<br /> like these are spreading across the financial sector as a way to broaden access to services for the BOP.<br /> Steady growth of savings accounts in the BOP provides compelling evidence of its appetite for more than<br /> microcredit. Savings accounts for low-income customers in developing and transition economies are<br /> estimated to number more than a billion. Indeed, for BRI and Financiera Compartamos, savings accounts<br /> represent a much larger part of their BOP portfolio than do microloans. Savings vehicles are often<br /> hampered by outdated laws and regulations. But where permitted, they can play a powerful new role in<br /> deepening the financial sector for the BOP.<br /> Finance for small and medium-size enterprises is growing. While this development does not bring financial<br /> services to the BOP, it does expand opportunity by creating jobs and services. The financing comes in the<br /> form of loans and equity investment beyond the limits of microfinance but too small for the traditional<br /> lending windows of large banks. The Asian Development Bank is developing a series of investment funds<br /> for small and medium-size enterprises in Asia, and the Japan Bank for International Cooperation has<br /> increased by several million dollars its pledge for private sector investment in Africa, including money for<br /> small and medium enterprises. Shell Foundation has helped launch several investment funds in Africa that<br /> focus on small enterprises, bringing in local financial institutions as co-investors. The most effective new<br /> models combine the provision of capital with mentoring, business education, and skills training.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 132<br /> Commercial banks are seeking new ways to participate in small and medium-size enterprise finance, driven<br /> by such structural factors as low rates of return on government debt in much of the developed world and<br /> stiff competition among banks at the high end of the market. The global banks usually partner with local<br /> banks, able to provide the risk assessment and community relationships critical to success. Meanwhile, the<br /> availability of capital and the support of big money-center banks are driving local banks to better serve local<br /> small and medium-size enterprises, a market many have long ignored.<br /> Technology as a driver<br /> Technology does two key things that help drive the development of financial services: it cuts costs, and it<br /> bridges physical distance. For BOP customers, technology in financial services can address four important<br /> concerns: convenience, accessibility, safety, and transferability. A mobile phone–based transaction system<br /> offers far more convenience and accessibility than a traditional financial institution, whose use may require<br /> that clients find a bank branch or attend a weekly microfinance group meeting. Electronic forms of money,<br /> less prone to theft, are safer than cash. They also are more easily transferred, especially overseas.<br /> Technology is bringing nontraditional players into the financial services market. Most notably, mobile<br /> phone operators are introducing new products and services over their networks that look and feel like<br /> traditional financial services. Start-ups are finding ways to combine mobile networks and traditional banks.<br /> The resulting hybrids—banks partnered with mobile phone operators, or companies that market both<br /> financial and mobile phone services— pose issues for banking and telecommunications regulators. But the<br /> benefits seem so great as to demand solutions, and Pakistan, for example, has instructed the two sets of<br /> regulators to work out effective solutions.<br /> The emerging technology-driven financial services include bank-centric models, electronic currency, and<br /> mobile commerce systems. The services are being provided through a range of technologies: ATMs, mobile<br /> phones, handheld computers, and credit, debit, and smart cards.<br /> In Kenya, Vodafone is partnering with local mobile operator Safaricom and local microfinance institutions<br /> to roll out a financial transaction system called M-Pesa. The system is based on a new mobile phone card,<br /> developed for the purpose that enables microfinance clients to make deposits, check balances, and fully<br /> manage their accounts. Neighborhood banking agents can turn electronic transactions into cash and take<br /> deposits and payments on behalf of clients, earning commissions along the way. Vodafone has plans to<br /> rapidly add more countries.<br /> Prodem FFP in Bolivia is a sector-leading example in the advanced use of ATMs to provide savings<br /> accounts to low-income, illiterate customers in rural areas. Technology, it understood, would be the key to<br /> providing affordable service. Unable to find the low-cost, high-quality technology it sought, Prodem<br /> partnered with a local firm to create it. The result: an ATM that uses visual and audio prompts in four<br /> languages, including three indigenous ones, and a smart card that captures and stores account information<br /> and biometric identification. ATMs aimed at the BOP are now being taken up by big banks, such as Citi in<br /> its ATM venture in India.<br /> Visa International has partnered with FINCA International, a microfinance institution in Latin America, in a<br /> retail banking program for FINCA’s BOP microfinance clients. The program automatically deposits loans<br /> into a savings account opened by the client at a retail bank and issues the client a Visa debit card and a<br /> personal identification number (PIN) to access the funds. Visa and FINCA have found that the program<br /> makes clients more inclined to save now that their money is in a secure place. The program also increases<br /> security by eliminating the need for a loan check, which could be lost or stolen. And it gives clients a feeling<br /> of prestige associated with carrying a Visa card.<br /> Remittances as a new tool for promoting growth<br /> At the same time that banks are discovering that the BOP want and need full access to financial services,<br /> financial sector analysts are discovering that the funds flowing in and out of the BOP are much greater than<br /> previously thought. The Multilateral Investment Fund of the Inter-American Development Bank took the<br /> lead in tracking remittances to Latin America and the Caribbean, and now others are adding to the data.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 133<br /> The new understanding of the size of remittances brought policy and commercial attention. Reforms were<br /> launched to bring more of the flows into official channels, and new competition emerged among transfer<br /> services (Orozco 2006). With competition have come better service and lower cost. The results have been<br /> especially noticeable in Latin America, where the reported flows from the United States have risen every<br /> year, reaching US$53.6 billion in 2005.12 Worldwide the total is now thought to approach US$350 billion,<br /> with significant flows to every developing region. Indeed, reported remittances doubled between 1999 and<br /> 2004.<br /> This stable flow of funds provides a large share of income for many in the BOP as well as a direct “BOP to<br /> BOP” financing mechanism that helps pay for new houses, new businesses, and children’s educations. But<br /> governments and development agencies are only beginning to understand the national and local effects of<br /> remittance flows—and to find ways to increase the benefits from them.<br /> One benefit: at the national level remittances significantly improve country risk ratings, as recent research by<br /> World Bank economist Dilip Ratha (2005) shows. Higher ratings encourage more private sector investment,<br /> which can help create jobs and fuel growth. Another benefit: several banks in developing countries have<br /> been able to “securitize” remittance flows—that is, use these dependable flows to back a financial<br /> instrument sold in international capital markets—and thereby lower their cost of borrowing. Both these<br /> benefits mean greater national financial capacity for domestic investment, increasing the growth effect of<br /> remittances beyond their impact at the household level.<br /> Recognizing the potential in transferring remittances, businesses are launching new services. At the 3GSM<br /> World Congress in Barcelona in February 2007, a consortium of 19 mobile operators, serving more than<br /> 600 million customers in 100 countries, announced a system that will transfer remittances entirely through<br /> their mobile phone systems, radically reducing cost. The consortium predicts global remittances of more<br /> than $1 trillion a year by 2012.<br /> These developments notwithstanding, there is still a serious shortage of infrastructure on the ground to<br /> provide financial services to the BOP. Carefully mapping where remittances are sent in Mexico and where<br /> formal banking institutions exist, the Inter-American Development Bank has identified many locations with<br /> substantial remittances but no banking services.<br /> This lack of presence represents a lost opportunity for traditional financial institutions and a barrier to full<br /> financial citizenship for the BOP. It also creates a significant opening to this unserved market for nontraditional<br /> players and branchless banking enterprises.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 134<br /> The Pakistan Context …..<br /> The Pakistan Context …..<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 135<br /> Source/Reference:<br /> IFC/World Resources Institute Publication, 2007<br /> Titled, “The Next 4 Billion, Market Size & Business Strategy at the Base of the Pyramid<br /> (BOP)”<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 136<br /> LESSON 24<br /> REFLECTION TIME!<br /> Following is an extract from an article by Prof. Dilworth<br /> Robert L. (Lex) Dilworth is an Associate Professor Emeritus of Virginia Commonwealth University in<br /> Richmond, Virginia, USA. He has a doctorate from Columbia University in Adult and Continuing<br /> Education. His specialties are human resource development (HRD), action learning, and organization<br /> development (OD).<br /> The Nature of Reflection!<br /> If you ask someone to define reflection, you are liable to receive widely varied responses. In the simplest<br /> form, mention may be made of stopping to think, a momentary pause in the activities tied to living (e.g.,<br /> stopping briefly to reflect on what is needed on entering a grocery store). When it comes to reflecting on<br /> your life and critical decisions that need to be made, it becomes much more difficult.<br /> For some, stopping to reflect on their existence can seem too painful. It can bring to mind memories of<br /> failure or life tragedies. I had a student about four years ago who told me that she simply could not do any<br /> deep reflection. She said, "I am afraid of what I may see". Part of her memory was in effect off limits.<br /> Protection of her self-image and self-esteem required that she stay clear of certain sensitive subjects.<br /> While there can be obvious psychological blockages to reflection, the more common reasons for finding it<br /> difficult to reflect are much more basic. First, opportunities to reflect are driven out by the frenzy of life<br /> activity and day in and day out crises. Therefore, the ability to reflect lies undeveloped, and when one<br /> attempts it, reflection can seem extremely awkward--like a right-handed person trying to sign their name<br /> using their left hand. Business executives can be especially resistant to reflection because it can seem a<br /> needless detour from current business activity.<br /> It takes time and practice to unlock the ability to reflect. The art of critical reflection takes even longer, and<br /> some never get there. However, once the impasse is breached and reflection starts to occur naturally and<br /> routinely, the individual can feel empowered and in control of their own life. That can be a liberating<br /> experience. When the reflection pushes to the deeper levels of self, it becomes possible to jettison<br /> dysfunctional assumptions and behaviors. Deep learning can then occur. It can become transformative<br /> learning. The individual is elevated to a new plateau of self-awareness. At this point, it becomes what can be<br /> called emancipatory learning--throwing off the self-imposed, and frequently externally imposed, chains that<br /> have been constraining clear thinking and advance.<br /> Reflection in the end is a dialogue with self. It can lead to a form of self-catharsis, where we find ourselves<br /> listening to our inner feelings. I remember a person in one of my action learning sets in 1996 in England<br /> who reached a point where she could hardly wait to get back to her room at night to reflect on events of the<br /> day and their meaning. She indicated that she found herself good company and had meaningful<br /> conversations with herself as part of the act of reflecting.<br /> Jack Mezirow, who has written on transformative learning and reflection, says this:<br /> Reflective learning involves assessment or reassessment of assumptions. Reflective learning<br /> becomes transformative whenever assumptions or premises are found to be distorting, inauthentic,<br /> or otherwise invalid.<br /> In discussing "reflection and making meaning", Mezirow indicates:<br /> Much of what we learn involves new interpretations that enable us to elaborate, further<br /> differentiate, and reinforce our long established frames of reference to create new meaning<br /> schemes. Perhaps even more central to adult learning than elaborating established meaning<br /> schemes is the process of reflecting back on prior learning to determine whether what we have<br /> learned is justified under current circumstances .What this all leads back to and places in focus is<br /> the Learning Equation of Revans.<br /> Here it is the reflective process (the questioning insight, or Q) that confirms or disaffirms what is currently<br /> in the inventory (the programmed instruction, or "P") from the standpoint of true relevance to what is<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 137<br /> being dealt with first hand. What Mezirow is saying in so many words is that reflection enables you to judge<br /> the relevancy and appropriateness of prior learning to the situation that now confronts you.<br /> Are you a knower or a learner?<br /> Knower Learners<br /> • Someone who obtains his selfesteem<br /> from appearing to be right.<br /> He is not willing to admit, “I don’t<br /> know” and is not willing to be<br /> influenced.<br /> • Knowers believe they know all that<br /> they need to know in order to<br /> address the situations that they are<br /> responsible for.<br /> • Knowing is so central to knowers’<br /> identities that it causes them to<br /> sometimes pretend that they know,<br /> even when they don’t.<br /> • Knowers can easily become<br /> defensive. They hide their lack of<br /> knowledge.<br /> • Learners are players in the game of life<br /> and understand they are there to have an<br /> impact on the game’s outcome.<br /> • The main focus of learners is on<br /> increasing their abilities to respond to the<br /> challenges around them and inside of<br /> them.<br /> • They are willing to be influenced. They<br /> consider what other have to offer.<br /> • They admit their ignorance and then offer<br /> their knowledge. They seek<br /> communication through dialogue, i.e.<br /> balancing advocacy with enquiry.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 138<br /> BOP Market New Approaches & Design Principles for Success (World Economic Forum<br /> Report)<br /> This Framework is based on an analysis of more than 200 Case Studies.<br /> The BOP often find themselves having to make difficult compromises: their incomes are limited, yet they<br /> desire products and services that are suited to their needs; they require information, yet they have difficulty<br /> accessing it; they live in scattered towns and rural villages, yet they must deliver their wares to distant<br /> markets. Companies first need to invest in developing a comprehensive understanding of the BOP and the<br /> constraints they face. The next step is to create new business models that break these compromises and give<br /> low-income people a sustainable foothold in a market that allows them to thrive.<br /> This chapter addresses what it will take to convert the BOP into the next billions. It presents a set of design<br /> principles for developing new business models that are based on an analysis of more than 200 case studies<br /> and numerous discussions with companies planning on or currently engaging with the next billions as<br /> consumers, producers or entrepreneurs. The design principles are structured along four parts of a typical<br /> business model: product innovation, supply chains, marketing and partnerships. They apply specifically to<br /> the circumstances of the next billions and together present a framework for innovation. The five principles,<br /> seen in Exhibit, are:<br /> 1. Create life-enhancing offerings<br /> 2. Reconfigure the product supply chain<br /> 3. Educate through marketing and communication<br /> 4. Collaborate to form non-traditional partnerships<br /> 5. Unshackle the organization.<br /> The chapter concludes with a discussion of how companies can help new business models succeed by<br /> unshackling the organization. It should be noted, however, that these principles are given as suggestions<br /> rather than prescriptive solutions. There is no silver bullet in this market. Organizations will need to be<br /> prepared to consider many kinds of innovations on several fronts.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 139<br /> Create Life-enhancing Offerings<br /> Life-enhancing means offering products and services that improve livelihoods and trigger the economic<br /> multipliers that allow the next billions to overcome their constraints. Rather than offer the same products<br /> they sell in the mass markets of developed economies, companies need to adapt their products and prices to<br /> the specific needs of the next billions.<br /> A farmer in a rural area, for example, may want a rugged mobile handset with a data feed that provides<br /> wholesale prices at nearby markets, whereas a day laborer in a city may care more about how the handset<br /> looks and feels and its ability to take pictures. Therefore, mobile operators and handset manufacturers need<br /> to design products and services that deliver both aspirational and pragmatic value. Research suggests the<br /> following practical guidelines:<br /> Price for the budgets of the next billions<br /> Because the next billions have low incomes and little savings, large up-front purchases are often out of their<br /> reach. For many products, pricing will involve some consideration of credit terms. Producers and retailers<br /> of large-ticket items, such as durable goods, for example, could offer financing tailored to the next billions’<br /> budgets in order to increase sales. Service providers, such as mobile operators, could “fit the pocket” of<br /> consumers by lowering recharge amounts, offering flexible terms, and encouraging free or low-cost trial use.<br /> One of the best ways to make products available is to offer less expensive and smaller packages. For<br /> example, a BOP customer may need a small loan for a one-time purchase of inputs for a business operation<br /> or for an emergency. Yet, many institutionalized credit offerings are expensive and available only for large<br /> amounts. With a minimal investment in restructuring, a financial institution might offer small-size loans<br /> with flexible repayment terms. Since families tend to pool their funds for expensive purchases, certain<br /> products should appeal to all family members. One possibility would be prepaid family plans for mobile<br /> handsets because family members tend to share them.<br /> Tailor products to address local constraints and emphasize quality<br /> Developing low-cost products shouldn’t mean sacrificing quality. In fact, because the BOP can’t afford<br /> products that break down, they will often pay a premium for quality they can trust – even if they have to use<br /> credit or trade down to less expensive products in other categories. Some companies have demonstrated<br /> successful examples of assuring quality for locally tailored products and in turn earning the loyalty of the<br /> consumers. Take the example of International Development Enterprises India (IDE India) which is a social<br /> enterprise that engages actively with small scale farmers by supplying manually operated treadle pumps. As<br /> uninterrupted power supply is rarely available to these small landholders, they could not use electrical<br /> pumps. IDE India designed pumps which required no power supply and enabled farmers to trade up from<br /> manual methods of drawing and transporting water to the treadle pumps. In order to keep retail prices low,<br /> product manufacturing is outsourced to local manufacturers, who follow a stringent quality assurance<br /> program and participate in IDE India’s warranty scheme. The enterprise has also facilitated partnerships in<br /> service hubs that provide processing facilities and allow for intermediary sales of produce. This provided<br /> broad based support to farmers and convinced them to pay money for the product as it’s easy to use and of<br /> high quality. IDE India has successfully helped farmers to increase their productivity and in many cases they<br /> have doubled their income, often within two years of purchase.<br /> Develop environmentally sustainable approaches<br /> Raising the income and consumption level of the BOP will place immense pressure on already-stretched<br /> resources such as land, water, energy and ecosystems. Therefore companies should explore economically<br /> sustainable solutions that have a minimal impact on the environment.<br /> Products and services offered to low-income populations should aim for innovative and eco-friendly<br /> methods of production and consumption. Goods marketed to the next billions should utilize packaging that<br /> minimizes environmentally harmful wastes. Farming techniques and inputs should be developed to address<br /> environmental concerns while also enhancing farmers’ incomes.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 140<br /> Reconfigure the Product Supply Chain<br /> Of the BOP, 68% reside in rural areas, where physical access – for both distribution and sourcing – is a<br /> challenge. Even in urban areas, distribution requires a network of micro-traders. Companies often wrestle<br /> with tradeoffs between cost, coverage and control. Distribution networks need to reach disparate<br /> neighborhoods and villages, while remaining viable at low volumes and prices.<br /> Manufacturers need to ensure that they have adequate oversight of pricing, stocking, and service throughout<br /> the distribution chain to fulfill quality requirements. The following recommendations could guide the design<br /> of effective distribution networks:<br /> Source from local producers<br /> The potential for increased agricultural production is one of the “hidden assets” that often lies untapped in<br /> BOP communities. Companies can develop this value by working with local producers to improve the<br /> quality and volume of their output for a specific market.<br /> Sourcing locally can reduce the cost that companies incur to reach and serve the next billions, enable<br /> provision of customized products for local preferences, and build trust and credibility for the company’s<br /> brand. Most importantly, it can provide a sustainable source of local income, which is vital to BOP farmers<br /> facing volatile markets. Companies might offer mechanisms such as forward contracting or guaranteed<br /> purchasing to reduce risk and uncertainty for farmer incomes. Local sourcing, however, often requires<br /> companies to expand their traditional role and actively coordinate the full supply chain, often enough by<br /> cooperating with several partners.<br /> One of the most prominent examples of local production is Shokti Doi yoghurt, which was introduced by<br /> Grameen Danone Foods Ltd in Bangladesh. Shokti Doi is sourced from, partly processed by, and<br /> distributed and consumed by the local low-income segment. Once a coordinated supply chain is established,<br /> it will grow into a platform that can facilitate other benefits to producer, consumer and company.<br /> Another successful example in this domain is Fair Winds Trading Inc., who partners with Gahaya Links, a<br /> Rwandan woman owned firm that manages a network of 3,000 Rwandan women who weave baskets sold<br /> through an exclusive agreement with Macy's in the US.<br /> Broaden reach and save costs by leveraging local distribution channels<br /> Service providers can work with local entrepreneurs to leverage existing low-cost distribution channels. In<br /> Brazil, Nestlé outsources the “last mile” of its distribution network to women entrepreneurs in small<br /> villages. They receive the company’s products through the mail and sell them door to door throughout the<br /> neighborhood, thus increasing the company’s reach and brand credibility. Another company in India gives<br /> its salespeople bicycles to reach villages with populations of less than 5,000.<br /> Companies could also cooperate to bundle product distribution in BOP regions, thus reducing costs for all<br /> involved. Small product manufacturers in Brazil partner with international retailers such as Carrefour and<br /> Wal-Mart to supply private-label products, thereby reducing retailers’ supply-chain costs, as well as<br /> manufacturers’ marketing costs. As a result, nearly 33% of the population is now buying private label<br /> products. In South America, S.A.C.I. Falabella started providing financial services to unserved segments as a<br /> way to drive retail sales; the services now generate at least 50% of the company’s bottom line. In another<br /> example from Brazil, banks have offered their products and services through lottery shops and post offices.<br /> As a result, 28% of unserved municipalities and 98% of Brazilian towns now have banking services.<br /> In addition, companies can capture discretionary retail spending by combining distribution efforts.<br /> Agricultural retail centres in Indian rural areas offer a one-stop shopping service, providing small-scale<br /> farmers with a range of products and services.<br /> Find creative ways to overcome infrastructure constraints<br /> A key constraint in sourcing goods from BOP producers is the risk of loss or damage of agricultural<br /> products due to poor storage and transport infrastructure. Companies buying from the poor have been<br /> addressing this by establishing “scaled out” local processing and collection centres.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 141<br /> Training producers and handlers can also help reduce these losses. Sometimes, it doesn’t take a lot to realize<br /> significant improvements. Metro, a cash and carry outlet in India, suffered losses in its tomato supply as<br /> high as 40%. It turned out that during their breaks, handlers sat or slept on top of bagged tomatoes. By<br /> changing its packaging to crates on which they could sleep, Metro was able to reduce waste to 15%.<br /> Companies can also turn the lack of infrastructure into a business opportunity.<br /> The MPESA service by Safaricom in Kenya, for example, allows individuals to transfer money via mobile<br /> phones. Cash can be deposited or redeemed at local shops that are licensed as agents. By converting smallscale<br /> local retailers into a distribution network for the service, the company is overcoming the lack of more<br /> established service channels.<br /> Source/Reference:<br /> The Next Billions: Unleashing Business Potential in Untapped Markets,<br /> Study/Report prepared by World Economic Forum in collaboration with The Boston<br /> Consulting Group<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 142<br /> LESSON 25<br /> REFLECTION TIME (CONTD…)<br /> This Framework is based on an analysis of more than 200 Case Studies.<br /> Educate through Marketing and Communication<br /> Given low literacy levels and lack of access to mass communication, BOP consumers are often unfamiliar<br /> with new products and their intended benefits. As a result, companies need to create marketing programs<br /> that are as educational as they are persuasive, and they must establish strong credibility and recognition for<br /> their brands.<br /> Educate about product benefits<br /> Once BOP consumers are convinced of the value of a new product, they are often eager to invest in it.<br /> Unilever’s successful hygiene promotion campaigns in India involved product promoters visiting villages to<br /> educate consumers on the health benefits of its soap. In a similar manner, agricultural input companies have<br /> used farmer training programs, agro-dealer certification, and model farms to train farmers on the use and<br /> benefit of specific products.<br /> Companies can create opportunities for new customers to experience their products firsthand through<br /> displays, guided product trials, or explanations by trusted advocates. This approach is especially necessary<br /> for complicated products such as electronic equipment, as well as for products that might be perceived as<br /> potentially harmful, such as fertilizers and other agricultural inputs. In India, Hindustan Unilever’s Project<br /> Shakti – a distribution network of village women – is a good example of explanation by trusted advocates.<br /> The women educate their neighbors about the need for personal hygiene and demonstrate the effectiveness<br /> of the company’s products.<br /> Create word-of-mouth advocacy<br /> Consumers in this market are more likely to trust a friend or family member than a salesperson they don’t<br /> know. Leveraging such informal communication networks can become a powerful sales tool. That insight<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 143<br /> led a Brazilian retailer to hire salespeople from the same neighbourhoods where its customers lived and<br /> thereby increase its sales significantly. One consumer-goods company in India identified key opinion makers<br /> in several communities and developed a partnership with them to market products in the neighbourhood.<br /> The company’s offerings now reach 80,000 villages, which account for about 15% of its rural sales. Intel<br /> Corporation partnered with the Vietnamese government to advocate its low-price Thánh Gióng personal<br /> computers in rural community centres; the company now sells over 3,000 systems a month to small<br /> business owners in Vietnam.<br /> Aim for trust and identity in branding.<br /> Low income consumers are generally more willing to accept an unfamiliar product if it carries a well-known<br /> brand or is endorsed by a trustworthy institution. Companies with strong brand recognition can leverage<br /> that asset by launching additional products and brand extensions.<br /> However, because many companies have yet to access BOP markets, relatively few brands are widely<br /> recognized. New entrants to the market can overcome this obstacle by partnering with established brands in<br /> another industry – for example, a financial services firm could collaborate with a trusted consumer products<br /> brand to promote its services. A number of Latin American companies have successfully used this model –<br /> for example, the arrangement between the Brazilian retailer Magazine Luiza S.A. and Unibanco (União de<br /> Bancos Brasileiros S.A.) to offer consumer credit for shopping.<br /> Once a company has secured customer loyalty, it is important to preserve that trust. Many BOP regions<br /> have few or poorly-enforced consumer-protection regulations for truth in advertising or labeling.<br /> Consumers therefore rely on direct experience or inter-personal communication to form an opinion about a<br /> brand. Building and preserving a strong reputation therefore becomes a key for companies seeking longterm<br /> success in the BOP market. Consumer trust must be secured through consistently delivered quality<br /> and reliability.<br /> Collaborate to form Nontraditional Partnerships<br /> As noted earlier, mass production is often ineffective in the BOP market. Serving this segment requires<br /> companies to go beyond traditional “we-make-it and-you-buy-it” relationships to include the BOP in the<br /> actual production of the offer, as well as its distribution. By engaging with the BOP as a market of<br /> producers as well as consumers, companies can substantially lower the cost to serve, since the local<br /> communities have established networks and deeper reach. This includes collaboration on two levels:<br /> partnering with local communities and collaborating with organizations. Such arrangements are a good way<br /> to reduce production costs. Collaboration also captures “hidden” assets – in the form of untapped<br /> resources and local knowledge – while increasing local incomes. That enhances the BOP’s ability to<br /> purchase more goods and services and generates a virtuous economic cycle for long-term sustainability.<br /> Unlock local potential by engaging with communities<br /> By employing hidden assets in local communities, companies can reduce overall cost to serve, customize<br /> local offerings, improve delivery, and penetrate deeper into markets to fill gaps.<br /> Partner with communities rather than individuals<br /> One of the biggest challenges in using local resources is the cost and complexity of sourcing from smallscale<br /> producers. A potential solution is to involve community aggregators, often village leaders, who can<br /> serve as focal point for a group of producers.<br /> PepsiCo in India uses such an approach in its contract farming program for high quality potatoes. PepsiCo<br /> signs contracts with group of farmers in a village and empowers a village coordinator who enjoys the<br /> confidence of the farming community. The coordinator aggregates supply, disseminates information on<br /> farming practices and technologies, and plays a role in setting mutually agreed and pre-announced prices.<br /> Not only do such aggregation schemes make it easier for companies to source in this market, they also make<br /> sourcing from the BOP easier for the local community. Most families who supply to companies aren’t able<br /> to guarantee a consistent flow of goods because they have other constraints. For instance, women who<br /> weave high-quality carpets also need to take care of their families. Since they work on varied schedules, they<br /> can’t deliver fixed volumes directly to the companies who buy their goods. But when village women work<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 144<br /> together collectively, they can organize their work flow so that the company can receive regular shipments<br /> of goods in required volumes.<br /> Invest in talent and expertise building<br /> Another problem with integrating local producers is that they often don’t have the necessary skills to meet a<br /> company’s quality standards. Most companies are reluctant to invest in workers’ skill base when that may<br /> also benefit its competitors. Furthermore, the investments required are substantial and often entail building<br /> missing infrastructure, so they can be unprofitable for single players. One solution is to set up consortiums<br /> with other companies interested in the market and work collectively towards creating a talent pool. Another<br /> option is to deconstruct the value chain and “de-skill” activities performed in the field or at the point of<br /> service delivery. The Aravind Eye Care model in India and the Pesinet healthcare model in Mali are two<br /> examples of this. In both cases, specialist doctors remain in cities, while field staffs who have received basic<br /> training perform the first level of patient screening and information collection for diagnosis.<br /> Create incentives that encourage self-governance<br /> Most organizations are reluctant to source from the BOP because they believe quality will be poor, and<br /> monitoring for quality control is costly. Yet, it is possible to establish low-cost local checkpoints to ensure<br /> that quality standards are met by aligning the interests of the co-producers.<br /> Coca- Cola innovated along these lines in developing countries in Asia and Africa, where it established<br /> “manual distribution centres” (MDC) staffed by local entrepreneurs. Originally developed in East Africa by<br /> its bottling partner Coca-Cola Sabco (CCS), the distribution system is built around thousands of small,<br /> independent distributors. Coca-Cola bottlers actively manage MDC owners as third parties, supporting<br /> them to establish their operations, secure microfinancing, and design effective delivery operations to keep<br /> customers in stock.<br /> Form deep collaborations with unconventional partners<br /> To succeed in this challenging market, companies need to work with other players to develop the right<br /> products, services, and delivery mechanisms. But serving the next billions will require them to go beyond<br /> traditional forms of partnership, to include civil society organizations and even competitors. In doing so,<br /> they will be able to share costs, as well as capabilities and knowledge. And they can enhance current offers<br /> through bundling and convenient access, and fill the gaps in market infrastructure.<br /> Share products and assets<br /> Companies can partner to bundle several products and services together, often making those products more<br /> affordable. In Brazil, Telefónica S.A.’s partnership with Abril S.A. to offer Internet services over the<br /> television network is one such example. Companies can also share distribution and retail networks, and<br /> leverage common logistics and facilities. Consider the partnership of IFFCO, a fertilizer company in India,<br /> and Airtel, a telecommunications company. Airtel realized that IFFCO had an established and efficient sales<br /> channel to widely disperse rural farmers, so Airtel used it to market and distribute its own products for<br /> farmers.<br /> Channel sharing might also involve a global medical company providing local drug companies in emerging<br /> markets with licenses to produce lifesaving drugs. The local companies bring to the table a deeper reach and<br /> more efficient sales force, while the global company brings superior capacity in research and development<br /> systems. The global company might also be able to receive benefits from the government for such<br /> initiatives.<br /> Share capabilities and knowledge<br /> Organizations can also collaborate in deeper ways to distribute or process information, share knowledge for<br /> product innovation, or improve efficiency. For example, the records that telecommunications operators<br /> have on individual payment histories could be used by a finance company as a proxy to establish their credit<br /> worthiness. Financial service companies are exploring ways to use this information to provide microinsurance<br /> and other financial products. Or an insurance company might enter the low-income market by<br /> having the local postman help to market its products door-to-door and return with feedback on product<br /> satisfaction. Such collaboration practices give companies rapid access to critical knowledge on market<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 145<br /> movements and local consumer behaviour, and they help to eliminate the market inefficiencies of reaching<br /> the BOP.<br /> Make Partnerships Work<br /> The pay-off for nontraditional partnerships is the development of valuable skills in producers, partners, and<br /> consumers that will provide long-term profits. They will also help to build mutually beneficial infrastructure<br /> for all stakeholders, including governments. To make such partnerships work, companies should assess their<br /> capabilities, assets, and knowledge base – then identify other partners who have the additional resources<br /> they need. Next, they should analyse the pros and cons of collaborating, with a long-term view of profits. In<br /> initiating a partnership, they should establish clear governance structures, clearly outline roles, and agree on<br /> how the outcomes will be distributed for mutual benefit. Finally, before work begins, they need to make<br /> sure their systems and performance metrics are aligned.<br /> One of the most important things for companies to keep in mind when partnering in the BOP market is<br /> that some companies have a head start. These leaders can serve as active drivers or facilitators, and not<br /> merely participators. That means orchestrating an arrangement in which it is easy for new players to enter<br /> and old ones to leave in order to maximize adaptability to changing conditions.<br /> Unshackle the Organization to Help New Business Models Succeed<br /> Most organizations – even those well established in emerging markets – focus primarily on serving mass<br /> and affluent markets. As a result their cultures, organization structures, and metrics are likely to be out of<br /> step with the demands of BOP markets.<br /> Companies might consider the following remedies:<br /> Demonstrate senior level commitment<br /> Success in next billions markets requires strong commitment from the leadership team and active advocacy<br /> within the organization. These initiatives should be on senior management’s radar and receive special<br /> recognition, in order to motivate employees to be a part of the effort.<br /> Create focus and accountability<br /> An exclusively top-down approach can limit the innovation required to develop effective ways of serving<br /> this market. Companies also need champions within the organization. Barclays and Citigroup for example,<br /> both have departments focused on micro credit, to develop opportunities for low-income customers.<br /> Provide decision rights and autonomy<br /> The separate departments and champions need to be empowered so that they are not constrained by the<br /> norms and processes that govern corporate activity in developed markets – such as standard cost saving and<br /> revenue goals. These often need to be adapted to allow for the up-front investments or longer pay-back<br /> horizons required for developing BOP business models.<br /> Establish objective metrics<br /> New metrics help to strengthen accountability and track results.<br /> Companies also need to rethink the metrics they use to make go/no-go decisions. Return on capital, for<br /> example, is a better metric than the more traditional “operating margin” when serving high-volume, low<br /> priced markets. A low-priced brand of detergent in India, for example, has an advantage over higher priced<br /> brands due to lower investments in product development and marketing, giving it superior returns on<br /> capital.<br /> Create lean and agile structures<br /> BOP business units need to minimize costs and stay flexible. They should avoid duplication and create<br /> shared assets and services rather than loading on large overheads.<br /> Provide access to capabilities and knowledge<br /> Many organizations create functions that are responsible for transferring best practices across business<br /> divisions. These “success agents” are essentially managers who translate learning from business models into<br /> pointers that other divisions can use for entering a new market. Some companies also acquire local<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 146<br /> companies to accelerate the process of understanding the BOP market and developing appropriate brands<br /> and business models.<br /> A market of 3.7 billion people spending US$ 2.3 trillion per annum remains largely excluded from formal<br /> markets. This is a growing population, living in expanding economies worldwide. While there are numerous<br /> challenges involved in reaching them effectively as consumers or business partners, they provide significant<br /> opportunities for companies that find successful approaches.<br /> The Next Billion Banking Consumers<br /> The Challenges & Proposed Responses/Solutions especially in Pakistan’s Context<br /> 1) Who are the “Next Billion”?<br /> 2) What do the Next Billion need?<br /> 3) Developing Financial Products to Reach the Next Billion<br /> 4) Distributing Financial Products to Reach the Next Billion<br /> 5) Marketing to Reach the Next Billion<br /> 6) Redefining a Bank’s Organization Structure to Reach the Next Billion<br /> 7) Collaborating to Reach the Next Billion<br /> The problem of financial exclusion—individuals’ limited access to or use of formal banking services—<br /> looms large around the world. It both reflects and contributes to the stark socioeconomic divide that<br /> pervades many emerging markets. In China and India, for example, only about one-third of the population<br /> participates in the formal banking sector. Among the excluded are a distinct and huge group of<br /> consumers—the next billion—whose potential to become viable banking customers has been greatly<br /> underestimated. Categorized by income, this group sits just above the poorest of the poor and just below<br /> those who are currently targeted by most banks.<br /> Governments and microfinance institutions have made some headway in alleviating financial exclusion, but<br /> banks have lacked a clear commercial impetus to do so, stifling the development of business models that<br /> have the reach required to confront this problem. By embracing innovative business models, however,<br /> banks can upend the economics of reaching consumers long considered impossible or unattractive to serve.<br /> This approach would open up unparalleled opportunities for profitable expansion in some of the world’s<br /> most rapidly growing economies.<br /> Who Are the Next Billion?<br /> The next billion consumers can be found largely in Brazil, China, and India, but the group also spreads<br /> across Africa and other parts of Asia. If the next billion constituted a nation by itself, it would be the tenthlargest<br /> economy in terms of GDP, ranking after Spain but ahead of Brazil, Russia, India, South Korea, and<br /> Mexico. In its development, the next billion “nation” stands today where India stood in the 1990s and<br /> China stood in the 1980s: on the cusp of high growth and voracious consumption.<br /> The next billion consumers have no lack of interest in banking. Their demand is so strong, in fact, that they<br /> routinely en-dure the trying, sometimes oppressive conditions that plague the informal sector, including<br /> limited choice, usurious rates, and exploitative terms. It is not unheard of for loans in the informal sector to<br /> be repaid through lifelong indentured service.<br /> Rather than having opted out of the formal banking sector, most of the next billion have been excluded<br /> from participating by financial institutions unable or unwilling to invest in understanding their needs and in<br /> adapting business models to serve them profitably. Our definition of the next billion consumers also<br /> includes people whom banks are compelled to serve but who cannot be served profitably through<br /> conventional business models—for example, individuals in government-mandated priority sectors (such as<br /> low-income consumers) and employees of corporate clients. Banks believe they have little economic<br /> incentive to serve such consumers. Some even prefer to incur penalties rather than make the investments<br /> necessary to comply with government mandates. As a result, these consumers are chronically underserved.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 147<br /> In several emerging economies, however, a few financial institutions have recognized the potential of the<br /> next billion and are introducing innovative products and distribution methods in order to carve out broad<br /> avenues for reaching this segment.<br /> What Do the Next Billion Need?<br /> To field an offering that resonates with the next billion consumers, banks must first understand the barriers<br /> to participation in the formal sector.<br /> The leading, if obvious, reason for financial exclusion is a lack of steady, substantial income. It is<br /> compounded by the cumbersome mechanics of cash-based economies, which circumvent financial<br /> institutions, making a relationship with a bank unnecessary and preventing individuals from building a credit<br /> history. This one-two punch minimizes the incentive to maintain a savings account and makes it difficult to<br /> qualify for a formal loan.<br /> Poor proximity to banking services is another reason for exclusion. A study by The Boston Consulting<br /> Group in late 2006 and early 2007 found that in India, the rate of financial inclusion among urban<br /> households was more than double that of rural households—57 percent versus 26 percent—in part because<br /> banking outlets are typically located far from rural areas, and people there often lack the means to make the<br /> trip.<br /> Financial exclusion also stems from a scarcity of suitable products. The next billion consumers would like<br /> flexibility, especially the option to skip or make additional payments on a loan. Because many in this<br /> segment do not have steady incomes, such flexibility is a common feature in products available in the<br /> informal sector. Simplicity is also important. In our work in Brazil and India, we found that the next billion<br /> consumers are generally more concerned about manageable monthly installments than they are about<br /> interest rates.<br /> Many of the next billion also desire easy access to small personal loans, but most banks find the expense of<br /> providing small-ticket financial products prohibitive. In addition, banks won’t lend to individuals lacking<br /> collateral, a verifiable source of stable income, or a documented credit history. Moreover, in some emerging<br /> markets, banks in the formal sector can take up to six months to approve a loan—but a villager can meet<br /> with and secure a loan from a local moneylender virtually anytime.<br /> Financial exclusion is exacerbated by poor relationships between banks and communities. Low-income<br /> people, particularly in rural areas, are often wary of banks and find branches intimidating. A profound lack<br /> of financial literacy only reinforces this sense of alienation.<br /> Overcoming these barriers and altering the economics of serving the next billion require banks to pursue a<br /> variety of innovations—in product development, distribution, marketing, and organization structure.<br /> Innovations in marketing, for example, will play a critical role in engaging this untapped group. New<br /> approaches to distribution will be crucial in serving the segment profitably.<br /> Developing Financial Products to Reach the Next Billion<br /> Banks can address many of the problems that cause financial exclusion by developing products that are<br /> simple, flexible, and accessible. For example, offering a loan with a higher number of installment<br /> payments— and allowing the customer to increase or postpone payments with little or no penalty—would<br /> attract many of the next billion.<br /> Also, linking products directly to individuals’ sources of income could mitigate the risk that banks assume<br /> and thereby help make products more accessible to consumers. Banks in Brazil have adopted this approach,<br /> developing payroll- and pension-backed loans that have opened the credit market to many new consumers.<br /> These products now account for about half of all personal loans in Brazil, according to Banco Central do<br /> Brasil.<br /> Unfortunately, regulations sometimes make it difficult— if not impossible—to offer products that suit the<br /> financial means of the next billion consumers. Our analysis shows, for example, that Indian banks would<br /> need to charge a 32 percent interest rate just to break even on the kind of small, short-term personal loan<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 148<br /> that the next billion consumers would want. Yet national regulations prohibit banks from charging interest<br /> rates to priority sectors that exceed the prime lending rate, which currently stands at about 12 percent. This<br /> problem underscores the need for regulatory reform that complements initiatives to reach the next billion<br /> consumers.<br /> Distributing Financial Products to Reach the Next Billion<br /> Banks that already have extensive physical networks should try to maximize the revenue per square foot of<br /> their branches by offering products in addition to financial services, provided that regulations will allow for<br /> this shift. Banks could, for example, set up local communications centers—public pay phones, fax<br /> machines, and Internet access—at rural branches to help make the outlets economically viable, and<br /> therefore more attractive to open and operate with a fully committed, sales-oriented level of service. They<br /> could also use the rural branches to disseminate commodity information and provide access to commodity<br /> exchanges.<br /> At the same time, when one considers the physical and emotional barriers that prevent the next billion from<br /> using branches, it becomes clear that banks seeking to foster inclusion must also employ alternatives to their<br /> traditional outlets. Some banks in emerging markets have already begun to forgo branches, instead reaching<br /> underserved segments through nonbank channels. In Brazil, banks have added nearly 100,000 point-of-sale<br /> (POS) locations by striking deals with post offices, pharmacies, & supermarkets. These channels, which<br /> have operating costs 12 times, lower than those incurred by branches, are more convenient for consumers<br /> and help engage them in the formal banking sector. They now account for more than half of all billpayment<br /> activity in Brazil.<br /> South Africa’s Mzansi account, launched in 2004, illustrates the appeal of nontraditional channels. This<br /> card-based product, which can be used in branches and ATMs but also in post offices and retail stores’ POS<br /> locations, now has more than 4 million subscribers. Self-help groups represent still another viable channel—<br /> and perhaps even a partner—for banks. In a typical self-help group in India, village women save money to<br /> underwrite loans to one another. Through the groups, money from the community is used in the<br /> community, creating a strong moral obligation for borrowers to repay their loans. By drawing on its<br /> personal connections, a self-help group can verify its borrowers’ creditworthiness. If they also collaborated<br /> with banks by directing individuals to tailored commercial products, self-help groups could offer consumers<br /> a familiar path to the formal sector.<br /> Marketing to Reach the Next Billion<br /> Given the uneasy relationship that many low-income consumers have with banks, it is essential that the<br /> financial establishment foster trust among the next billion. Toward this end, expanding inclusion will<br /> require marketing through community-level partnerships—not just through radio, television, and print<br /> media. Moreover, by becoming a partner in a community’s prosperity, a bank could forge bonds that would<br /> be difficult for new financial players to break or replicate. Beyond promoting products and services,<br /> marketing campaigns will need to enhance financial literacy among the next billion. The most effective<br /> marketing campaigns could wind up being equal parts education and sales pitch. As an illustrative example,<br /> consider a leading public-sector bank in India that is currently promoting its credit-counseling services.<br /> These services include free advice on how consumers outside the formal sector can gain access to the<br /> bank’s financial products.<br /> Redefining a Bank’s Organization Structure to Reach the Next Billion<br /> Although all banks in emerging markets should have the next billion consumers on their radar screen, most<br /> of them are not yet ready to undertake the transformation required to serve this segment. In many larger<br /> institutions, a centralized, top-down approach to decision making discourages the types of initiatives needed<br /> to push the boundaries of product offerings. Their metrics and incentives also threaten to inhibit next<br /> billion initiatives in two major ways. First, performance targets, frequently measured by the volume of loans<br /> or savings and applied the same way to both rural and urban branches, motivate the sales force to court bigticket<br /> customers. Second, many banks lack incentives to attract or retain staff in rural areas—a fact<br /> sometimes reflected in poorer levels of service in those locations and a disdain among workers there for<br /> low-income customers.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 149<br /> To overcome their own impediments to serving the next billion, banks must develop separate organizations<br /> dedicated to tapping this opportunity. These units’ performance metrics and incentives should be aligned<br /> with the priorities for serving such customers. For example, banks could measure performance by the<br /> number of customers served, rather than the size of their wallets. Similarly, these units could be allowed to<br /> emphasize growth over profitability in the short term. To reinforce the importance of this opportunity,<br /> banks should create an executive-level position that focuses on the initiatives and reports directly to the<br /> CEO. One private sector bank in India is leading the way by entrusting to a board-level executive its efforts<br /> to boost financial inclusion of the next billion.<br /> Collaborating to Reach the Next Billion<br /> The next billion consumers will not be constrained by traditional industry boundaries, and this factor,<br /> among others, will help set the stage for new players to encroach on what has been a stronghold of banks:<br /> basic payment and deposit transactions. When it comes to those services, the next billion won’t necessarily<br /> distinguish between telecom providers and banks, for example, and they’ll opt to use whichever providers<br /> offer the least cumbersome and lowest-cost offerings. Consequently, if regulators in emerging markets allow<br /> telecom operators to straddle industry boundaries, these players could mount a strong challenge to banks.<br /> In some rapidly developing economies, new mobile phone customers are being added more quickly than<br /> new banking customers, and mobile phone services, in general, boast a significant cost advantage over<br /> branch based banking. Yet the relationship between the banking and telecom industries need not be<br /> adversarial. Before telecom players lay claim to traditional banking strongholds, banks should explore<br /> opportunities for collaboration, identifying ways to cross-sell their products by leveraging the ease of use,<br /> low cost to serve, and accessibility offered by mobile phones. Players from both industries can share<br /> elements of their offerings and value chains in ways that provide mutual benefits, including more attractive,<br /> targeted products. Banks in particular stand to benefit from a steep reduction in transaction costs, because<br /> transactions executed by mobile phones could cost as little as 10 percent of those executed at bank<br /> branches.<br /> Mobile phone networks are already being used as effective channels for financial services in emerging<br /> economies. In Kenya, telecom customers can deposit money into an account on their mobile phones and<br /> transfer the funds to other mobile-phone users— even in remote areas. The telecom operator’s local agent<br /> can then convert the money into cash, allowing people to avoid cumbersome and costly dealings with<br /> banks. In Zambia, telecom company Celtel introduced Celpay, a service that allows customers to make<br /> purchases, pay bills, and transfer funds through their mobile phones. Two percent of Zambia’s GDP was<br /> transferred through Celpay in 2006, and even those Zambian communities that have little or no financial<br /> services infrastructure can now participate in the banking system.<br /> Laying the Groundwork<br /> The breadth of actions required to reach the next billion consumers may seem daunting, but banks can take<br /> several immediate steps to begin the process of unlocking this opportunity:<br /> • Understand the needs of the next billion consumers.<br /> Which features do they value? What barriers prevent them from engaging in the formal sector?<br /> • Analyze product and channel economics.<br /> For each element of the value chain, what are the opportunities to reduce the cost of serving the<br /> next billion?<br /> • Develop new marketing campaigns.<br /> How can marketing improve financial literacy among the next billion consumers while promoting<br /> the benefits and simplicity of basic products and services?<br /> • Design a new organization model.<br /> Which organization structure would best foster experimentation, including collaboration with other<br /> industries?<br /> • Create an empowered executive position.<br /> Who will oversee the strategy for tapping the next billion opportunities?<br /> • Begin adapting the value chain.<br /> Can the bank focus on core activities and use low-cost partners for all other activities, especially<br /> distribution?<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 150<br /> Boosting financial inclusion will no doubt create economic opportunities for an overlooked and<br /> underserved segment. Socioeconomic imperatives aside, however, the prospect of reducing financial<br /> exclusion represents a significant business opportunity for banks. Conventional banks that act in<br /> unconventional ways can transform the next billion consumers—the tenth-largest economy—into a source<br /> of profitable growth.<br /> Source/Reference:<br /> 1. The Next Billions: Unleashing Business Potential in Untapped Markets, Study/Report<br /> prepared by World Economic Forum in collaboration with The Boston Consulting Group<br /> 2. The Next Billion Banking Consumers, An Study by The Boston Consulting Group<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 151<br /> LESSON 26<br /> SBP RISK MANAGEMENT GUIDELINES<br /> A Brief Re-Cap:<br /> 1. Defining Risk<br /> 2. Risk Management (Strategic/Macro/Micro Levels)<br /> 3. Board & Senior Management Oversight<br /> 4. Risk Management Framework (RMC, MIS, Review etc.)<br /> 5. Integration of Risk<br /> 6. Business Line Accountability<br /> 7. Risk Evaluation/Measurement<br /> 8. Independent Review<br /> 9. Contingency Planning<br /> 1. Defining Risk:<br /> • For the purpose of these guidelines financial risk in banking organization is possibility that the<br /> outcome of an action or event could bring up adverse impacts<br /> • Such outcomes could either result in a direct loss of earnings/capital or may result in imposition of<br /> constraints on bank’s ability to meet its business objectives<br /> • Such constraints pose a risk as these could hinder a bank's ability to conduct its ongoing business<br /> or to take benefit of opportunities to enhance its business<br /> • Regardless of the sophistication of the measures, banks often distinguish between expected and<br /> unexpected losses<br /> • Expected losses are those that the bank knows with reasonable certainty will occur (e.g., the<br /> expected default rate of corporate loan portfolio or credit card portfolio) and are typically reserved<br /> for in some manner<br /> • Unexpected losses are those associated with unforeseen events (e.g. losses experienced by<br /> banks in the aftermath of nuclear tests, losses due to a sudden down turn in economy or falling<br /> interest rates)<br /> • Banks rely on their capital as a buffer to absorb such losses<br /> • Risks are usually defined by the adverse impact on profitability of several distinct sources of<br /> uncertainty<br /> • While the types and degree of risks an organization may be exposed to depend upon a number of<br /> factors such as its size, complex business activities, volume etc, it is believed that generally the<br /> banks face following “Risks”<br /> 􀀹 Credit<br /> 􀀹 Market<br /> 􀀹 Liquidity<br /> 􀀹 Operational<br /> 􀀹 Compliance/Legal/Regulatory<br /> 􀀹 Reputational<br /> 2. Risk Management<br /> Risk Management is a discipline at the core of every financial institution and encompasses all the activities<br /> that affect its risk profile. It involves identification, measurement, monitoring and controlling risks to ensure<br /> that:<br /> i. The individuals who take or manage risks clearly understand them.<br /> ii. The organization’s Risk exposure is within the limits established by Board of Directors.<br /> iii. Risk taking decisions are in line with the business strategy and objectives set by BOD.<br /> iv. The expected payoffs compensate for the risks taken.<br /> v. Risk taking decisions are explicit and clear.<br /> • Sufficient capital as a buffer is available to take risk.<br /> • The acceptance and management of financial risk is inherent to the business of banking and<br /> banks’ roles as financial intermediaries.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 152<br /> • Risk management as commonly perceived does not mean minimizing risk; rather the goal of<br /> risk management is to optimize risk-reward trade -off.<br /> • Notwithstanding the fact that banks are in the business of taking risk, it should be recognized<br /> that an institution need not engage in business in a manner that unnecessarily imposes risk<br /> upon it: nor it should absorb risk that can be transferred to other participants.<br /> • Rather it should accept those risks that are uniquely part of the array of bank’s services.<br /> In every financial institution, risk management activities broadly take place simultaneously at following<br /> different hierarchy levels.<br /> a. Strategic level: It encompasses risk management functions performed by senior management and<br /> BOD. For instance definition of risks, ascertaining institutions risk appetite, formulating strategy<br /> and policies for managing risks and establish adequate systems and controls to ensure that overall<br /> risk remain within acceptable level and the reward compensate for the risk taken.<br /> b. Macro Level: It encompasses risk management within a business area or across business lines.<br /> Generally the risk management activities performed by middle management or units devoted to risk<br /> reviews fall into this category.<br /> c. Micro Level: It involves ‘On-the-line’ risk management where risks are actually created. This is the<br /> risk management activities performed by individuals who take risk on organization’s behalf such as<br /> front office and loan origination functions. The risk management in those areas is confined to<br /> operational procedures and guidelines set by management.<br /> • Expanding business arenas, deregulation and globalization of financial activities, emergence of<br /> new financial products and increased level of competition has necessitated a need for an<br /> effective and structured risk management in financial institutions.<br /> • A bank’s ability to measure, monitor, and steer risks comprehensively is becoming a decisive<br /> parameter for its strategic positioning.<br /> • The risk management framework and sophistication of the process, and internal controls, used<br /> to manage risks, depends on the nature, size and complexity of institutions activities.<br /> • Nevertheless, there are some basic principles that apply to all financial institutions irrespective<br /> of their size and complexity of business and are reflective of the strength of an individual<br /> bank's risk management practices.<br /> 3. Board and Senior Management Oversight<br /> a) To be effective, the concern and tone for risk management must start at the top. While the overall<br /> responsibility of risk management rests with the BOD, it is the duty of senior management to<br /> transform strategic direction set by board in the shape of policies and procedures and to institute an<br /> effective hierarchy to execute and implement those policies. To ensure that the policies are<br /> consistent with the risk tolerances of shareholders the same should be approved from board.<br /> b) The formulation of policies relating to risk management only would not solve the purpose unless<br /> these are clear and communicated down the line. Senior management has to ensure that these<br /> policies are embedded in the culture of organization. Risk tolerances relating to quantifiable risks<br /> are generally communicated as limits or sub-limits to those who accept risks on behalf of<br /> organization. However not all risks are quantifiable. Qualitative risk measures could be<br /> communicated as guidelines and inferred from management business decisions.<br /> c) To ensure that risk taking remains within limits set by senior management/BOD, any material<br /> exception to the risk management policies and tolerances should be reported to the senior<br /> management/board that in turn must trigger appropriate corrective measures.<br /> d) These exceptions also serve as an input to judge the appropriateness of systems and procedures<br /> relating to risk management.<br /> e) To keep these policies in line with significant changes in internal and external environment, BOD is<br /> expected to review these policies and make appropriate changes as and when deemed necessary.<br /> f) While a major change in internal or external factor may require frequent review, in absence of any<br /> uneven circumstances it is expected that BOD re-evaluate these policies every year.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 153<br /> 4. Risk Management Framework:<br /> • A Risk Management Framework encompasses the scope of risks to be managed, the<br /> process/systems and procedures to manage risk and the roles and responsibilities of individuals<br /> involved in risk management.<br /> • The framework should be comprehensive enough to capture all risks a bank is exposed to and have<br /> flexibility to accommodate any change in business activities.<br /> • An effective risk management framework includes:<br /> a. Clearly defined risk management policies and procedures covering risk identification,<br /> acceptance, measurement, monitoring, reporting and control.<br /> b.<br /> 􀀹 A well constituted organizational structure defining clearly roles and responsibilities of<br /> individuals involved in risk taking as well as managing it.<br /> 􀀹 Banks, in addition to risk management functions for various risk categories may institute a<br /> setup that supervises overall risk management at the bank.<br /> 􀀹 Such a setup could be in the form of a separate department or bank’s Risk Management<br /> Committee (RMC) could perform such function.<br /> 􀀹 The structure should be such that ensures effective monitoring and control over risks<br /> being taken.<br /> 􀀹 The individuals responsible for review function (Risk review, internal audit, compliance<br /> etc) should be independent from risk taking units and report directly to board or senior<br /> management who are also not involved in risk taking.<br /> c. There should be an effective management information system that ensures flow of information<br /> from operational level to top management and a system to address any exceptions observed.<br /> There should be an explicit procedure regarding measures to be taken to address such<br /> deviations.<br /> d. The framework should have a mechanism to ensure an ongoing review of systems, policies and<br /> procedures for risk management and procedure to adopt changes.<br /> 5. Integration of Risk Management:<br /> • Risks must not be viewed and assessed in isolation, not only because a single transaction might<br /> have a number of risks but also one type of risk can trigger other risks.<br /> • Since interaction of various risks could result in diminution or increase in risk, the risk management<br /> process should recognize and reflect risk interactions in all business activities as appropriate.<br /> • While assessing and managing risk the management should have an overall view of risks the<br /> institution is exposed to.<br /> • This requires having a structure in place to look at risk interrelationships across the organization.<br /> 6. Business Line Accountability:<br /> • In every banking organization there are people who are dedicated to risk management activities,<br /> such as risk review, internal audit etc.<br /> • It must not be construed that risk management is something to be performed by a few individuals<br /> or a department.<br /> • Business lines are equally responsible for the risks they are taking.<br /> • Because line personnel, more than anyone else, understand the risks of the business, such a lack of<br /> accountability can lead to problems.<br /> 7. Risk Evaluation/Measurement:<br /> • Until and unless risks are not assessed and measured it will not be possible to control risks.<br /> • Further a true assessment of risk gives management a clear view of institution’s standing and helps<br /> in deciding future action plan.<br /> • To adequately capture institutions risk exposure, risk measurement should represent aggregate<br /> exposure of institution both risk type and business line and encompass short run as well as long run<br /> impact on institution.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 154<br /> • To the maximum possible extent institutions should establish systems/models that quantify their<br /> risk profile.<br /> • However, in some risk categories such as operational risk, quantification is quite difficult and<br /> complex.<br /> • Wherever it is not possible to quantify risks, qualitative measures should be adopted to capture<br /> those risks.<br /> • Whilst quantitative measurement systems support effective decision-making, better measurement<br /> does not obviate the need for well-informed, qualitative judgment.<br /> • Consequently the importance of staff having relevant knowledge and expertise cannot be<br /> undermined.<br /> • Finally any risk measurement framework, especially those which employ quantitative<br /> techniques/model, is only as good as its underlying assumptions, the rigor and robustness of its<br /> analytical methodologies, the controls surrounding data inputs and its appropriate application.<br /> 8. Independent Review:<br /> • One of the most important aspects in risk management philosophy is to make sure that those who<br /> take or accept risk on behalf of the institution are not the ones who measure, monitor and evaluate<br /> the risks.<br /> • Again the managerial structure and hierarchy of risk review function may vary across banks<br /> depending upon their size and nature of the business, the key is independence.<br /> • To be effective the review functions should have sufficient authority, expertise and corporate<br /> stature so that the identification and reporting of their findings could be accomplished without any<br /> hindrance.<br /> • The findings of their reviews should be reported to business units, Senior Management and, where<br /> appropriate, the Board.<br /> 9. Contingency Planning:<br /> • Institutions should have a mechanism to identify stress situations ahead of time and plans to deal<br /> with such unusual situations in a timely and effective manner.<br /> • Stress situations to which this principle applies include all risks of all types.<br /> • For instance contingency planning activities include disaster recovery planning, public relations<br /> damage control, litigation strategy, responding to regulatory requirements etc.<br /> • Contingency plans should be reviewed regularly to ensure they encompass reasonably probable<br /> events that could impact the organization.<br /> • Plans should be tested as to the appropriateness of responses, escalation and communication<br /> channels and the impact on other parts of the institution.<br /> Uncertainty Tamed?<br /> The Evolution of Risk Management in the Financial Services Industry<br /> A Global Survey/Study identifies:<br /> • Four Reasons why Risk Management remains primarily focused on meeting regulatory<br /> requirements & only secondarily on protecting and enhancing the value of the franchise.<br /> • Ten attributes that would help companies create a world-class culture of Risk Management.<br /> Four Reasons:<br /> • A culture of risk awareness has yet to emerge.<br /> • Compliance is not being turned into competitive advantage.<br /> • The importance of governance is underestimated.<br /> • Quantifiable risks are still absorbing too much attention.<br /> For financial institutions, risk lies around every corner. With little or no warning businesses can stumble and<br /> even collapse because of unexpected events. Growing risk management departments and sophisticated<br /> technology have helped companies in financial services to combat many of the more quantifiable dangers,<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 155<br /> from credit and market risk to such things as regulatory and IT risks. But what about those areas, like<br /> reputational risk, that are both harder to measure and more sudden and severe in their impact?<br /> As, Sir John Bond, Chairman of HSBC, told a conference recently: ‘It used to take years of dedicated bad<br /> management to destroy a company. Now it can be done almost overnight.’<br /> Two years ago, PricewaterhouseCoopers carried out a survey of financial services institutions Worldwide.<br /> The results showed that, while senior executives were keenly aware of the credit and market risks they faced<br /> and were doing more to address them, they tended to pay comparatively little attention to less visible,<br /> equally menacing dangers. Two years on, a fresh survey of more than 130 senior executives in financial<br /> services institutions, carried out by the Economist Intelligence Unit on behalf of PricewaterhouseCoopers<br /> for this briefing, indicates that risk management in general has climbed higher up the corporate agenda and<br /> that an awareness of unquantifiable risks in particular has grown markedly: reputational risk is now regarded<br /> as the greatest threat to an organization’s market value.<br /> Yet significant concerns remain. Many financial services institutions are still failing to think proactively<br /> about unseen and emerging risks. There is evidence that much of the impetus for change in risk<br /> management priorities is coming not from self-assessment but rather from pressure from regulators, rating<br /> agencies and the like. Some 72% of those questioned in the survey said that regulatory pressures were either<br /> an extremely significant or a major driver for changes in the priority of their organization’s risk management<br /> over the past two years.<br /> The evidence of the survey and our interviews suggests four main reasons why risk management remains<br /> primarily focused on meeting regulatory requirements and only secondarily on protecting and enhancing the<br /> value of the franchise:<br /> A culture of risk awareness has yet to emerge.<br /> Risk management has climbed the boardroom agenda since the previous survey: expenditure on risk<br /> management as a percentage of its overall expenses is on an upward trajectory, and more organizations have<br /> a senior risk management executive and committee at the group level. But spending more on risk<br /> management on its own is no guarantee that a company will become better at it. In only 31% of respondent<br /> companies do all major decisions require interaction with, or some form of approval from, the group risk<br /> management committee (that number rises to a still low 47% for larger institutions with total gross income<br /> of $1bn or more). There is a big difference between talking about steps to integrate risk management and<br /> actually taking them. Too often a company’s head of risk is not at the same table as the chief executive<br /> officer or other executive directors when important decisions are being made. A company needs to<br /> inculcate an appreciation of risk that goes beyond the risk management department and permeates the<br /> whole organization.<br /> Compliance is not being turned to competitive advantage.<br /> Too little emphasis on compliance can, of course, expose an organization to regulatory sanction, litigation<br /> and damage to its reputation. But too much emphasis on box-ticking can also distract a company from<br /> using risk management to create value – by reassessing its investment strategies, making better operational<br /> decisions in areas such as pricing and capital allocation, and by gauging its own appetite for risk. True,<br /> almost 70% of survey respondents assess their performance on some measure of risk-adjusted capital. Yet<br /> many are failing to turn this fully to their advantage, by setting more appropriate product pricing, for<br /> example.<br /> The importance of governance is underestimated.<br /> Robust risk management and sound corporate governance invariably make good bedfellows. Indeed, some<br /> argue that it is impossible to get one without the other. But few survey respondents seem to have acted on<br /> the logic of this argument. When asked in which business processes their organization had a structured<br /> approach to assessing risk, only 43% ticked M&A activity and just 17% pointed to the setting of<br /> compensation policies for directors and recruitment policies as a whole. It is accepted that paying executives<br /> too generously for failing to do their jobs competently or ethically raises questions about governance but it<br /> ought to be a major focus of risk management too.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 156<br /> Quantifiable risks are still absorbing too much attention.<br /> Asked to rate the effectiveness of their organization’s risk management capabilities, survey respondents had<br /> most confidence in their ability to manage data-rich areas such as credit risk, liquidity risk and market risk.<br /> No one disputes the importance of managing these types of risk effectively – respondents still rate these as<br /> the principal threats to earnings, but they are not necessarily the main threat to the health of the franchise<br /> upon which sustainable earnings depend.<br /> Too many organizations are still concentrating on calculating market and credit risk to a further order of<br /> accuracy and too few on understanding the totality of the risks they face in order to give themselves a<br /> competitive advantage.<br /> The tendency for financial institutions to focus on areas of risk that are most familiar and where data and<br /> techniques are most developed is natural, of course. But in an environment where new and potentially lethal<br /> risks can suddenly emerge, the leading institutions consciously and continually look at the bigger picture.<br /> They seek to anticipate and avoid the submerged risks that can abruptly sink an enterprise. And they have<br /> both the crisis management processes and the underlying standards of behavior that are likely to soften the<br /> impact of such risks when they do come to pass. Such institutions accept that uncertainty cannot be tamed;<br /> only mitigated.<br /> Ten Attributes<br /> 1. Pay equal attention to quantifiable and unquantifiable risks.<br /> Institutions are increasingly attuned to the dangers posed by less quantifiable risks, particularly with regard<br /> to their market value. That awareness stretches right to the top of the organization.<br /> In a survey of global CEOs, 28% of financial services bosses felt that reputational risk was a significant<br /> threat and 13% felt that it was one of the biggest threats they face.<br /> 2. Identify, report and quantify all possible risks.<br /> Despite a growing awareness of unquantifiable risks, there remains a danger that some organizations will<br /> take no action if they cannot find the numbers with which to measure a risk or set of risks. As one<br /> respondent to survey tellingly replied, ‘for some risks, the data is insufficient to construct a strategy.’<br /> 3. Let an awareness of risk pervade the enterprise.<br /> Everything from performance to pricing and pay should be adjusted for risk. Too few institutions currently<br /> obey that imperative. Of the 69% of survey respondents to assess their performance on a measure of riskadjusted<br /> capital, fewer than one in five use this information to pay bonuses or set remuneration for senior<br /> executives.<br /> 4. Make risk management everybody’s responsibility.<br /> In the past, financial institutions have tended to look outside their own walls when assessing risks. But<br /> issues of governance, culture and integrity are arguably more critical in protecting firms from unseen<br /> dangers – and should be made the explicit responsibility of all members of staff.<br /> ‘All 20,000 employees have the potential to do something to enhance or destroy our reputation,’ says Chief<br /> Risk and Compliance Officer of a global financial services provider.<br /> 5. Risk managers should have teeth.<br /> Everybody involved in monitoring risk of all kinds should have a genuine influence over decision- making.<br /> Independent risk assessments of a new product or transaction should be made before the CEO and senior<br /> management have approved it in principle. Is it realistic to go back to the drawing board afterwards?<br /> 6. Avoid products and businesses the enterprise does not understand.<br /> If you don’t understand the business, you cannot understand the risks facing it. Encouragingly, 77% of<br /> respondents now include a structured assessment of risk in their product development processes. Less<br /> happily, only 43% said they did so when it came to mergers and acquisitions.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 157<br /> 7. Accept that uncertainty exists.<br /> More than two in five respondents to the survey believe that the greatest risks to the organization’s market<br /> value are ‘unknown’ sources of risk. Workshops, scenario planning and cross-industry reviews are among<br /> the techniques that leading institutions are using to assess the potential impact of, and response to, these<br /> future sources of danger.<br /> 8. Monitor your risk managers.<br /> The amount of attention being paid to risk at board level still leaves much to be desired. In less than a third<br /> of surveyed institutions are risks and risk management discussed in detail at all main board meetings. And<br /> although awareness of risk has grown in over 80% of institutions, in fewer than half is responsibility for<br /> enterprise-wide risk management higher up the organization than it was two years ago.<br /> 9. Good risk management delivers value.<br /> Loss avoidance remains the staple means of demonstrating the value of risk management, but 50% of<br /> survey respondents also look to risk management to contribute to improved shareholder value.<br /> 10. Define and enshrine your company’s risk culture.<br /> The enterprise’s appetite for risk should be clearly and widely understood. ‘We have a very clear risk<br /> appetite for certain events,’ says the MD, Credit Risk Management of an international group. The<br /> institution’s senior leadership should set a tone at the top that creates a behavioral and ethical benchmark<br /> for the entire organization. Given the inherent vagaries of human behavior, however, process controls also<br /> need to be put in place to reinforce cultural norms and compensate for any lapses.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 158<br /> Source/Reference:<br /> 1. SBP Website<br /> 2. PWC Survey/Study<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 159<br /> LESSON 27<br /> ERM: DEVELOPMENT & IMPLEMENTATION OF “INTEGRATED APPROACHES” TO<br /> MEASURE AND MANAGE RISKS ACROSS THE ENTERPRISE<br /> Classification of Banking Risks<br /> Banking Characteristics Risk Class Risk Category<br /> Legislative<br /> Economic<br /> Environment Environmental Risks Competitive<br /> Regulatory<br /> Defalcation<br /> Organizational<br /> Human Resource Management Risks Ability<br /> Compensation<br /> Operational<br /> Technological<br /> Financial Services Delivery Risks New Products<br /> Strategic<br /> Credit<br /> Liquidity<br /> Balance Sheet Financials Risks Market<br /> Leverage<br /> Risk management has never been more critical for mortgage companies. The secondary market continues to<br /> tighten, the financial system is under unprecedented duress, and more regulatory requirements are on the<br /> horizon. To succeed in this environment—to effectively price products based on constantly changing<br /> market dynamics, reassure investors and shareholders, and grow strategically while adhering to regulatory<br /> requirements—it is essential to reevaluate and modify the mortgage risk management and measurement<br /> framework to align with today’s new risks and ensure an appropriate control structure.<br /> Establishing a clearly defined enterprise risk management (ERM) framework begins with an understanding<br /> of the corporate ERM program and establishment of a line of business ERM vision that supports that<br /> broader program. This vision defines the operating model for how risks will be managed and is mutually<br /> reinforcing, achieving short-term business goals and long-term corporate strategies. While important in<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 160<br /> driving the macro approach to risk management, the articulation of the ERM vision also drives role clarity,<br /> consistency, and accountability throughout the organization.<br /> ERM success requires linkage between line of business and corporate risk strategies:<br /> For mortgage lenders, which is often a line of business or separate legal entity within a larger financial<br /> institution, achieving a risk management?<br /> Vision requires lining up the line of business risks with the corporate risk management philosophy and<br /> framework.<br /> For each line of business, the specific measurement process may vary, but the standards must be consistent<br /> and critically assessed for how well they conform to the corporate ERM strategy. However, risk<br /> measurement cannot be determined in a silo—the interrelatedness of the risks defines the overall corporate<br /> exposure. An effective ERM framework is able to aggregate business unit risk exposures across all business<br /> units.<br /> Assessing these risks is an ongoing, continually updated process as changes to the business model and<br /> market conditions occur. Developing a flexible program is critical to a successful risk management<br /> strategy— especially in today’s market. Effectively measuring and modeling risks helps companies more<br /> accurately estimate their risk exposure and develop a plan to manage it.<br /> Developing a plan to manage the risk is where many mortgage companies today are struggling. From this<br /> perspective, companies can focus their energies on two main areas today to have an immediate impact.<br /> Specifically, a strong focus on governance and an overhaul of key risk indicators will help companies lay the<br /> groundwork for an enterprise risk management platform that grows the business while managing risk<br /> exposure.<br /> A focus on governance lays the groundwork for a reliable ERM strategy<br /> A focus on governance begins with determining the top-level risk management vision and objectives<br /> consistent with long-term strategic goals and risk tolerances. The entire risk management function needs to<br /> be evaluated, and the importance of business risk managers must be emphasized through their appropriate<br /> placement throughout the organizational structure and governance framework. This reorganization<br /> supports a culture where risk management is institutionalized by all management and staff. These risk<br /> managers, reporting up through the ranks and to the board, are responsible for creating a consistent process<br /> for measuring and reporting risk, documenting compliance with risk management plans, and developing a<br /> risk response.<br /> As risks escalate in one area or line of the business, the governance structure ensures that the risks are<br /> assessed with regard to other risks and other lines of business and a response is developed accordingly.<br /> Because the governance structure is enterprise-wide, risks that fall under one line of business but affect the<br /> whole company are appropriately considered at the corporate level. This linkage is a critical component of a<br /> transparent risk management strategy.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 161<br /> Accurate key risk indicators allow accurate risk measurement<br /> Developing an effective risk response relies on accurate risk measurement. Key risk indicators (KRIs) are a<br /> baseline for effective risk measurement; yet for many mortgage companies, the KRIs and related<br /> tolerances/triggers are not assessed frequently enough to capture changes in the industry or environment. A<br /> comprehensive, ongoing program to review the relevance of KRIs (including data quality) and tolerances<br /> will help ensure adequate risk measurement.<br /> Across the lines of business, there must be ownership of these risks and accountability for the numbers. For<br /> example, management should be expected to manage the risks identified by monitoring KRIs, not merely<br /> reporting the numbers.<br /> As depicted in the diagram, several concurrent phases of risk management activity overlay business<br /> transactions:<br /> • Lagging indicators, as the name suggests, are indicators that provide data only after the fact. Their<br /> usefulness arises when viewing trends over time, and they are a key input into future modeling and<br /> developing of the escalation criteria<br /> • Escalation triggers drive the notification of increased risk throughout the management team and are<br /> reported to management after a specific trigger— determined by the risk governance oversight<br /> team— has been tripped. Vigilance regarding these criteria facilitates management intervention<br /> prior to a risk manifesting beyond an expected or acceptable tolerance or controls failing to<br /> effectively mitigate a risk<br /> • The leading indicators can be collected at any time, for any period, and identify systemic issues or<br /> causal factors, in a tactical and proactive way. These indicators are reported and reviewed on a<br /> regular basis and can be available as requested to understand risks in a rapidly changing<br /> environment<br /> • The scorecard provides management and any risk oversight structures with insight into current risk<br /> exposure, trends, and actions that need to be taken to remain consistent with the corporate ERM<br /> strategy<br /> • The value metrics encompass both financial and non-financial measures that can help to<br /> demonstrate value creation for the investment community<br /> Effective use of these KRIs requires developing procedures and processes to continually analyze and update<br /> the KRIs as the market or business strategy changes. However, while creating a mortgage risk management<br /> strategy that aligns with corporate ERM expectations is important, it is equally important to confirm KRIs<br /> are consistently tracked and monitored across lines of business.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 162<br /> For example, if one of the leading KRIs for the mortgage business is customer FICO score, with the score<br /> being refreshed on a quarterly basis to observe trends, the effect of declining FICOs may not be felt solely<br /> within the mortgage unit, but within credit card and auto finance units as well. Similarly, when looking at<br /> KRIs for operational or financial data, similar KRIs should use consistent periods (for instance, quarterly vs.<br /> monthly), calculations (such as actual vs. 30-day-average month) and data sources (such as general ledger vs.<br /> production data for certain measurements).<br /> Successfully monitoring risk at the corporate level will take involvement from corporate to work with the<br /> lines of business and establishment of a consistent process for measuring, reporting, and monitoring KRIs.<br /> In some cases, for example when measuring delinquency rates, there may be different calculations or<br /> accounting policies associated with the KRIs. Continually reviewing the KRIs with regard to internal and<br /> external benchmarks will allow identification of variances in a timely fashion so the risk committee or other<br /> oversight governance structure can mitigate risks with the risk response plan.<br /> A strong ERM platform will help position organizations for success<br /> Focusing on the governance structure and KRIs are actionable steps that companies can take now to start<br /> developing a stronger and more adaptive enterprise risk management platform. A strong enterprise risk<br /> management platform will help mitigate risk, improve transparency of risk profiles across the organization,<br /> and position organizations for success.<br /> The effective risk indicators, analysis, event modeling, and tolerances will help to demonstrate full<br /> comprehension of the risk profile at the line of business and enterprise levels. This will provide corporate<br /> risk managers with confidence that the lines of business are taking risks consistent with corporate policy.<br /> Senior management and the board will also have visibility into the risk management plan to be able to<br /> understand risk management procedures and provide top-level support for risk management decisionmaking.<br /> ERM --- Key Drivers and Trends:<br /> Why are companies adopting an ERM approach?<br /> Currently, there are four key forces driving the growth in, and acceptance of, ERM:<br /> • Wake-up calls from corporate disasters.<br /> More than ever, board members and corporate executives realize the consequences of ineffective<br /> risk management. Notable disasters include companies such as Enron and WorldCom, as well as<br /> industry-wide problems such as market-timing and late-trading in the mutual funds industry and<br /> bid-rigging in the insurance brokerage industry. In the aftermath of these corporate disasters, board<br /> members and executives realize that the only alternative to risk management is crisis management,<br /> which can do much more damage to a company’s financial and reputational assets.<br /> • New stringent regulatory requirements.<br /> In response to these events, regulators such as the SEC and the Federal Reserve have increased<br /> their examination and enforcement standards. The Sarbanes-Oxley Act requires enterprise-wide<br /> documentation and testing of controls over financial reporting. Amendments to the NYSE listing<br /> standards require audit committees to discuss risk monitoring and control activities with internal<br /> and external auditors. Basel II and Solvency II will establish a direct linkage between minimum<br /> regulatory capital and the underlying credit risk, market risk, and operational risk exposures of<br /> banks and insurance companies, respectively. In the new business environment, there are clear<br /> incentives for best-practice risk management, while wrongdoers face financial penalties as well as<br /> potential criminal charges and jail time.<br /> • Global initiatives on corporate governance and risk management.<br /> A number of industry initiatives have been organized around the world to establish frameworks<br /> and standards for corporate governance and risk management. The Treadway Report (United States,<br /> 1992) produced the Committee of Sponsoring Organizations (COSO) framework of internal<br /> control, while the Turnbull Report (United Kingdom, 1999) and the Dey Report (Canada, 1994)<br /> developed similar guidelines. In September of 2004, the COSO Enterprise Risk Management –<br /> Integrated Framework and Application Techniques was published. This framework incorporates corporate<br /> governance and internal controls as part of an overall ERM structure. These industry initiatives<br /> have clearly established the role of the board and senior management in risk management.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 163<br /> • Early ERM adopters are reporting tangible benefits.<br /> Companies have reported significant benefits from their ERM programs, including stock price<br /> improvement, debt-rating upgrades, early warning of risks, loss reduction, and regulatory capital<br /> relief. As well, given the significant costs that companies have incurred to comply with Sarbanes-<br /> Oxley, there is an opportunity to convert this “compliance cost” into a “business benefit” by<br /> implementing an ERM program.<br /> Role of Risk Management & Reporting in ERM<br /> One of the key objectives of ERM is to promote risk transparency, both in terms of internal risk reporting<br /> and external public disclosure. Establishing a robust risk measurement and reporting system is therefore<br /> critical to ERM success. The old adage “what gets measured gets managed” holds true in risk management.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 164<br /> The above illustration shows how risk measurement and reporting fits into the overall ERM process. The<br /> implementation of ERM as a management process involves four stages:<br /> Stage 1: ERM foundation setting<br /> In the first stage, a company must establish a sound foundation for the overall ERM program. The board<br /> and senior management provide what is often referred to as “tone from the top.” This includes developing<br /> the ERM framework, allocating sufficient resources, and engaging in risk policy discussions. The company’s<br /> risk appetite is also clearly defined in risk policies and limits. Education and learning is another key<br /> component, which includes training programs and organizational processes that share best practices and<br /> lessons learned. To motivate desired behavior, incentive systems should incorporate risk management<br /> effectiveness and risk-adjusted profitability measurement.<br /> Stage 2: Risk identification and assessment<br /> An ERM process should integrate various risk assessments to develop a comprehensive inventory. Top<br /> down risk assessments of strategic and business risks can be gathered from the executive team through oneon-<br /> one interviews and/or facilitated group discussions. Bottom-up risk assessments of financial and<br /> operational risks can be developed through standardized templates or software applications. In addition,<br /> risk assessments from independent sources – auditors and regulators – should be incorporated into the<br /> overall inventory. Note that the information developed in this stage is largely subjective and qualitative in<br /> nature.<br /> Stage 3: Risk measurement and reporting<br /> In this stage, more objective and quantitative information is developed. This information includes key risk<br /> indicators (KRIs) for business risk, credit risk, market risk, and operational risk. To evaluate trends and<br /> levels, these KRIs are tracked against policy limits (e.g., market and credit risk exposure limits) or<br /> performance standards (e.g., tolerance for error rates or system downtime). External data should also be<br /> integrated to provide additional context for internal KRIs. External data can include interest rate trends,<br /> industry credit default rates, or competitive or industry benchmark data. Finally, risk reporting is provided<br /> to management and the board, as well as outside stakeholders through regulatory filings and public<br /> documents.<br /> Stage 4: Risk mitigation and management<br /> The most important stage of ERM is risk mitigation and management. This includes resolution of<br /> outstanding issues. Moreover, to be a value-added function, ERM must impact decisions that increase the<br /> risk-adjusted profitability of the company. ERM applications – including product pricing, customer<br /> management, business development, capital management, and risk transfer – integrate risk management and<br /> the key drivers of corporate performance. The overall objective is to make more informed business<br /> decisions based on risk management. These decisions may include reducing risk limits during stressed<br /> market conditions, implementing an exit strategy to minimize losses on a bad investment, or allocating more<br /> capital to grow a business with attractive risk-adjusted profitability.<br /> These four stages of the ERM process should not be implemented in a sequential manner for the overall<br /> company. A sequential approach, in which a company spends the first year establishing the ERM<br /> foundation, the second year identifying and assessing risks, and so forth, is both unproductive and<br /> cumbersome. For example, some companies spend a year or more in conducting risk assessments before<br /> developing KRIs. In the meantime, the qualitative risk assessments cannot be validated with quantitative<br /> data, and the task of designing KRIs for hundreds of identified risks and processes is daunting.<br /> Management should instead focus on the company’s most critical risks and apply the overall ERM process<br /> to them. Another approach is to start with the end, and first determine the types of management decisions<br /> and actions that the ERM process must support. From there, management can work backwards and<br /> develop the appropriate KRIs and risk reporting, risk assessment processes, and ERM foundation.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 165<br /> Integration of Key Performance Indicators & Key Risk Indicators<br /> Source/Reference:<br /> 1. Rebuilding toward the future: A Consumer Finance view on managing risk PWC<br /> Consumer Finance Group<br /> 2. Emerging Best Practices in Developing Key Risk Indicators and ERM Reporting, An<br /> Executive White Paper by James Lam & Associate<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 166<br /> LESSON 28<br /> ERM: DEVELOPMENT & IMPLEMENTATION OF “INTEGRATED APPROACHES” TO<br /> MEASURE AND MANAGE RISKS ACROSS THE ENTERPRISE (CONTD…)<br /> Sources for KRI’s:<br /> The development of effective KRIs is a key challenge for most companies. Financial institutions usually<br /> have an abundance of credit risk and market risk indicators, but they are challenged in aggregating this data<br /> as well as developing operational risk indicators. On the other hand, non-financial institutions may have<br /> significant business and quality information, derived from balanced scorecard and quality initiatives, but<br /> they are challenged to develop KRIs for financial risk or technology risk. All companies face the challenge<br /> of developing leading indicators that can effectively provide early warnings of potential future losses.<br /> While the development of effective KRIs is a significant challenge, there are some readily available sources<br /> from which KRIs can be derived.<br /> These sources include:<br /> • Policies and regulations.<br /> Regulations that govern the business activities of the company, as well as the corporate policies and<br /> limits established by management and the board, provide useful compliance KRIs. These KRIs may<br /> include risk exposures against limits or compliance with regulatory requirements and standards.<br /> • Strategies and objectives.<br /> The corporate and business strategies established by senior management, and their associated<br /> performance metrics, are another good source. Note that performance metrics are designed to<br /> measure expected performance, whereas KRIs should be designed to measure downside risk or<br /> volatility of performance.<br /> • Previous losses and incidents.<br /> Many companies have compiled loss/event databases that capture historical losses and incidents.<br /> These databases, or even anecdotic evidence, can provide useful input on what processes or events<br /> can cause financial or reputational loss. KRIs can then be developed for these processes and events.<br /> • Stakeholder requirements.<br /> Beyond regulators, the expectations and requirements of other stakeholders – customers, rating<br /> agencies, stock analysts, business partners – can help in the development of KRIs based on<br /> variables that are important to these key groups.<br /> • Risk assessments. Risk assessments performed by the company--including audit assessments,<br /> control self assessments, and Sarbanes-Oxley tests--can provide valuable input on the business<br /> entities, processes, or risks where KRIs are needed.<br /> Given the various sources for KRIs, the objective should be to develop a high-quality set of KRIs,<br /> rather than high quantity.<br /> Ten key characteristics of effective KRIs:<br /> 1. Based on consistent methodologies and standards.<br /> 2. Incorporate risk drivers: exposure, probability, severity, and correlation e.g. VaR, Economic<br /> Capital.<br /> 3. Be quantifiable: PKR/$, %, or #.<br /> 4. Track in time series against standards or limits.<br /> 5. Tie to objectives, risk owners, and standard risk categories.<br /> 6. Balance of leading and lagging indicators.<br /> 7. Be useful in supporting management decisions and actions.<br /> 8. Can be benchmarked internally and externally.<br /> 9. Timely and cost effective.<br /> 10. Simplify risk, without being simplistic.<br /> ERM Reporting --- Key Questions & Attributes:<br /> Over time, a company may develop hundreds or even thousands of KRIs and risk assessments. Then the<br /> company faces a different challenge – the development of an effective ERM report. When designing the<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 167<br /> format and content of an ERM report, and the functionality of an ERM reporting system, it is important to<br /> start by looking at the five basic questions that an ERM reporting system should address:<br /> 1. Are any of our business objectives at risk?<br /> 2. Are we in compliance with policies and regulations?<br /> 3. What risk incidents have been escalated?<br /> 4. What KRIs and trends require immediate attention?<br /> 5. What risk assessments need to be reviewed?<br /> For a typical company, it might take days, weeks, or even months to answer these questions on an<br /> enterprise-wide basis. The fundamental problem is that current approaches to risk reporting can be<br /> described as “risk measurement by silos,” in which management is provided with static reports that provide<br /> risk information for different risks separately. Moreover, static reports require significant manual work,<br /> resulting in more data problems and less time for risk analysis and strategies.<br /> With an effective ERM reporting system, management should be able to answer all five of these questions<br /> in fifteen minutes. An ERM reporting system should provide executive reporting of enterprise-wide risks<br /> and drilldown capabilities so that all key risks can be monitored simultaneously.<br /> The key attributes of an ERM reporting system include:<br /> • Provides a single point of access to all critical risk information that may reside in disparate risk<br /> systems and data sources.<br /> • Combines executive reporting of enterprise-wide risks with drill-down capabilities to more detailed<br /> risk data.<br /> • Delivers “just-in-time” risk information, from real-time risk alerts to monthly credit reports to<br /> quarterly risk assessments.<br /> • Integrates quantitative KRIs, qualitative risk assessments, policy documents, and external market<br /> data.<br /> • Allows users to provide commentary or analysis to the risk information presented by the ERM<br /> reporting system.<br /> The following illustration provides a schematic of an ERM reporting system:<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 168<br /> ERM Implementation – Avoiding Common Pitfalls<br /> Early on, the key questions business executives asked about ERM began with what. What is enterprise risk<br /> management? What are emerging best practices? What are specific industry requirements? Today, the key<br /> questions begin with how. How to implement an ERM program? How to develop specific ERM tools? How<br /> to integrate ERM into business processes?<br /> With respect to ERM implementation, there are five common pitfalls that companies should avoid. These<br /> pitfalls, and strategies to overcome them, are as follows:<br /> • Don’t let the regulatory tail wag the dog – ERM is about management, not simply<br /> compliance.<br /> Companies face an influx of regulatory requirements that they must comply with, such as Sarbanes-<br /> Oxley for public traded companies, Basel II for banks, and Solvency II for insurance companies.<br /> However, compliance with these and other regulatory requirements represents a necessary but<br /> insufficient condition for success. Companies should go beyond compliance and leverage their<br /> ERM programs to realize tangible business benefits. For example, Basel II establishes bank<br /> regulatory capital requirements only for credit risk, market risk, and operational risk. In addition to<br /> these risk categories, leading companies also consider strategic risk and business risk in their capital<br /> management frameworks. A more comprehensive capital management framework would enable a<br /> company to improve profitability and shareholder value by making better risk-based product<br /> pricing, resource allocation, and business development decisions.<br /> • Don’t just integrate risks – break down organizational silos.<br /> ERM is not just about integrating the key risks – strategic, business, credit, market, and operational<br /> – into a common framework. It is also about breaking down organizational silos in order to identify<br /> interdependencies and make trade-off decisions. Most companies have established oversight<br /> functions as part of their governance, risk, and compliance activities. These functions generally<br /> include risk management, audit, compliance, legal, treasury, and other oversight groups. Leading<br /> companies have broken down these silos by establishing organizational structures, processes, and<br /> incentives. These initiatives include establishing risk committees at the board and executive levels,<br /> appointing chief risk officers, and aligning the interests of individual oversight functions through<br /> common objectives, performance measurement, and incentives.<br /> • Don’t boil the ocean – focus the ERM process on what is most important.<br /> Given the wide scope of ERM, many companies are overwhelmed with their risk identification,<br /> assessment, documentation, and reporting processes. The objective of ERM should not be to<br /> address all of the risks faced by the company. In fact, it would be impossible to identify all of the<br /> company’s risks because that list is infinite. The objective of ERM should be to support decisions<br /> on the critical risks and opportunities for the board of directors, executive management, and<br /> business and operational units. An effective ERM program should prioritize risk information for<br /> the company’s key decision makers. As such, an indication of ERM success is not to say “We have<br /> identified 720 risks across the company, and fully documented related controls and risk<br /> assessments,” but to say “We have identified the major risks that require the attention of various<br /> management groups, and supported their decisions for these major risks.” As an example, some<br /> companies find it useful to maintain a “top 10 risks” list for the company.<br /> • Don’t just tell me, show me – quantify risks through effective key risk indicators.<br /> Many ERM programs produce large volumes of qualitative information (e.g., risk and control<br /> assessments, process maps, policies and procedures) that are not conducive to board and<br /> management decision making. In order to support policy and business decisions, critical risks must<br /> be quantified and reported in a concise and effective manner. That is not to say that quantitative<br /> information is more valuable than qualitative data, but there should be a balance in ERM reporting.<br /> For the company’s most critical risks, quantitative analysis can be used to show trends, risk-adjusted<br /> metrics, compliance with policy limits, and performance against established standards. For the same<br /> risks, qualitative analysis can be used to provide expert risk assessments, alternative strategies and<br /> actions, management recommendations, and other contextual information.<br /> • Don’t produce volumes of data and reports – develop an ERM dashboard.<br /> An ERM report should not be a 50-page report that takes the risk committee two hours to simply<br /> walk through. A common complaint from board members and senior executives is that they cannot<br /> see “the forest from the trees.” Companies should develop an ERM dashboard that provides role<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 169<br /> based information to key decision makers. During a board or management risk committee meeting,<br /> the ERM dashboard would enable board members and senior executives to first see high-level risk<br /> information. In addition, it would allow them to drilldown to more granular data if they want to see<br /> more details. An exciting possibility is to develop the ERM dashboard so that it not only provides<br /> dynamic access to risk information, but also to risk analytical models. As such, it would also enable<br /> board members and senior executives to perform real-time scenario analysis, such as “How would a<br /> 30% increase in cruel oil price impact our quarterly earnings, as well as market risk and credit risk<br /> exposures?”<br /> An example of an ERM dashboard is given below.<br /> Summary<br /> In the past 10 years, technology applications were focused on risk quantification in terms of analytical models,<br /> such as asset/liability models, VaR models, credit default models, and so forth. Over the next 10 years,<br /> technology will focus on risk communication in terms of ERM reporting systems. An ERM reporting system<br /> will provide board members, corporate executives, and risk professionals with a single point of access to all<br /> critical risk information – including objectives-at-risk, early warning indicators, KRIs against policy limits or<br /> performance standards, risk assessments and audit findings, escalations of issues and incidents, and riskadjusted<br /> return performance. The time interval for enterprise-wide risk measurement and reporting will<br /> move from monthly to weekly to daily and ultimately to real-time.<br /> The value of risk information is not in its development, but in its application. As such, to realize the full<br /> potential of ERM, risk professionals must deliver the right information, to the right decision makers, at the<br /> right time.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 170<br /> Case Studies<br /> The following case studies showcase real-life situations where ERM has provided significant and tangible<br /> benefits.<br /> JP Morgan Chase<br /> In 1994, JP Morgan Chase received an inexpensive lesson in the need to manage aggregate market risk<br /> exposures. Previously, the bank had focused its market risk oversight mainly on its trading businesses. In<br /> 1994, the Federal Reserve raised interest rates repeatedly, one result being a significant disruption in the<br /> mortgage markets. While the trading businesses performed well, the bank suffered an unexpected, albeit<br /> small, loss in a small S&L that it owned.<br /> According to Leslie Daniels-Webster, chief market risk officer, the bank realized from this experience that it<br /> needed to manage aggregate market risk exposures across three dimensions – trading portfolios,<br /> asset/liability mismatch, and basis risk. The bank further developed its market risk staff and analytical<br /> resources, including VaR and stress testing models. This experience has served the bank well. In 1998, it<br /> weathered the Russian crisis, and it reported earnings of $4 billion (up 4.4 percent) while its peers suffered<br /> significant earnings declines due to market losses.<br /> CIBC<br /> In December 1994, the Toronto Stock Exchange published the Dey Report, which recommended that the<br /> board of every firm listed on the exchange take direct responsibility for risk management efforts within the<br /> firm, and report on these efforts in its annual report. At about the same time, CIBC was expanding globally<br /> in the capital markets business. So the Canadian bank had both regulatory and business reasons to invest in<br /> ERM. That same year, Bob Mark was hired to build an ERM program, including firm-wide market risk,<br /> operational risk, and counterparty credit risk.<br /> The ERM initiative paid off four years later. In the middle of 1998, CIBC was concerned with three early<br /> warning indicators in the capital markets – widening credit spreads, increasing actual and implied volatility,<br /> and the breakdown of historical price relationships. The bank promptly cut global risk limits by one-third<br /> prior to the Russian crisis and market drop later that year, thus avoiding significant losses.<br /> Heller Financial<br /> On May 1, 1998, Heller Financial returned to the NewYork Stock Exchange as a public company. The<br /> commercial finance company aimed to be “world class” in its industry, and realized that it needed to<br /> establish an ERM program. While Heller was confident in its credit risk and market risk functions, it was<br /> missing a formal operational risk methodology and an overall ERM framework.<br /> In September 1999, Mike Litwin, the company’s chief credit officer (who was later promoted to chief risk<br /> officer) led the development of an operational risk methodology and ERM framework. A critical insight<br /> gained during this initiative was that nearly one-third of what Heller had classified as credit losses were in<br /> fact operational losses (e.g., inadequate loan documentation). The ERM program was well underway, and<br /> then on July 30, 2001, GE Capital announced that it was acquiring Heller for $5.3 billion in a cash<br /> transaction, a 48 percent premium. In its press announcement, GE Capital noted that Heller’s risk<br /> management was one of the company’s key assets.<br /> Duke Energy<br /> In July 2000, Duke Energy’s senior executives gathered for a two-day strategy meeting to discuss the future<br /> of the energy business. They reviewed three possible scenarios:<br /> “Economic Treadmill” in which U.S. economic growth slips to 1% per year, “Market.com” in which the<br /> Internet revolutionalizes the relationships between buyers and sellers, and “Flawed Competition” in which<br /> uneven deregulation will continue in the energy industry, resulting in significant price volatility.<br /> To help manage the company’s business uncertainty, Duke Energy appointed Richard Osborne as its first<br /> CRO earlier that year. As early warning indicators for these three scenarios, management established<br /> specific “signposts,” including macroeconomic indicators, regulatory trends, technology changes,<br /> environmental issues, competitive moves and patterns of consolidation in the energy industry. Today, Duke<br /> Energy has performed well relative to its competitors. As of November 2004, the company achieved yearConsumer<br /> Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 171<br /> over-year revenue growth of 41percent, compared to 11percent for the industry. The company’s stock has<br /> increased 45percent in one year, outperforming the S&P 500 by 28 percent.<br /> Rockwell Collins<br /> In July 2001, Rockwell Collins went public. Following the events of 9/11, the supplier of military and<br /> commercial aircraft parts faced hundreds of millions in lost sales and the collapse of its commercial market.<br /> Yet the company responded quickly and put in place a contingency plan within 10 days. Management<br /> credits its ERM program in terms of its preparedness and resiliency.<br /> The company’s ERM program had an interesting start. Several years earlier, project manager John-Paul<br /> Besong applied ERM to support the implementation of a critical SAP system. The project went so smoothly<br /> that he was promoted to chief information officer a short time later. Since that time, ERM has been<br /> integrated into other business processes of the company. The results have been impressive. For the<br /> company’s fiscal year ending September 2004, it reported record sales of $2.9 billion (up 15 percent) and net<br /> income of $301 million (up 17 percent). In January 2004, Forbes called Rockwell Collins the best-managed<br /> aerospace company in America.<br /> Source/Reference:<br /> 1. Emerging Best Practices in Developing Key Risk Indicators and ERM Reporting<br /> 2. An Executive White Paper by James Lam & Associates<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 172<br /> LESSON 29<br /> RISK APPETITE: HOW HUNGRY ARE YOU?<br /> Regulatory pressures, such as Basel II and a greater focus on corporate governance, have been a stimulus<br /> for many changes in the industry – one of these has been the recognition of the need to articulate risk<br /> appetite more clearly. On the face of it, this may seem easy to do. After all, is it not simply a combination of<br /> an institution’s desired credit rating, regulatory capital structure and the relevant solvency needs which set<br /> the ability of the institution to withstand shocks and therefore represent its risk appetite? For some smaller<br /> firms this approach may well be enough, but for others risk appetite is a more complicated affair at the<br /> heart of risk management strategy and indeed the business strategy.<br /> Defined well, risk appetite translates risk metrics and methods into business decisions, reporting<br /> and day-to-day business discussions. It sets the boundaries which form a dynamic link between<br /> strategy, target setting and risk management.<br /> Risk appetite is of course in the eye of the beholder (if the reader will excuse a mixed metaphor!). Different<br /> parts of the organization and external stakeholders have different perspectives. Equity investors’ appetite<br /> for risk will differ from that of the rating agencies. Equity investors want to see a return; rating agencies<br /> want to minimize risk of default. The regulator’s perspective differs from management’s which differs from<br /> that of customers, employees, bondholders etc. Consequently, articulating risk appetite is a complex task<br /> which requires the balancing of many views. Some elements can be quantified but ultimately it is a question<br /> of judgment. All too often many parties take false comfort from purely quantitative risk measures which, if<br /> they were actually attained, would in practice result in huge reputational damage and job losses for the CEO<br /> and the chief risk officer (CRO).<br /> In a corporate context, what do we mean by risk appetite?<br /> At its simplest, risk appetite can be defined as the amount of risk, on a broad level, that an organization is<br /> willing to take on in pursuit of value. Or, in other words, the total impact of risk an organization is prepared<br /> to accept in the pursuit of its strategic objectives.<br /> Risk appetite therefore goes to the heart of how a company does business. How an organization wishes to<br /> be perceived by key stakeholders such as shareholders, employees, regulators, rating agencies and customers<br /> is a function of that company’s risk appetite.<br /> The amount of risk an organization accepts will vary from organization to organization depending on<br /> circumstances unique to each. Factors such as the external environment, people, business systems and<br /> policies will all influence an organization’s risk appetite.<br /> Just as organizational risk appetites vary, so too can risk appetites vary across business units and risk types.<br /> For example a bank’s appetite for risk in mature lending activities may be quite different from its appetite<br /> for risk in an emerging business.<br /> From another perspective, we have seen that smaller losses incurred as a consequence of fraudulent activity<br /> can have a more adverse impact on a bank’s reputation than much larger lending losses incurred in the<br /> normal course of business. Consequently, financial institutions often set a much lower risk appetite for<br /> fraudulent or unethical activity which could damage reputation.<br /> Organizations use different ways to measure risk, ranging from simple qualitative measures such as defining<br /> risk categories and setting target levels around these, to developing complex quantitative models of<br /> economic capital and earnings volatility.<br /> Whichever approach is adopted, risk appetite, if properly articulated, should provide a cornerstone for the<br /> organization’s risk management framework.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 173<br /> Benefits to the Organization and the CRO<br /> There are considerable benefits in taking the time to articulate risk appetite properly. If a financial<br /> institution (or indeed any corporate) has arrived at a crisp definition of its risk appetite it will have achieved:<br /> • Clarity over the risks that the organization wishes to assume;<br /> • The basis for consistent communication to different stakeholders; and<br /> • Explicit articulation of the attitudes to risk of the senior management.<br /> As CROs play a fuller role at board level1, initiating a risk appetite discussion can be an ideal way to engage<br /> senior colleagues and the board on risk issues and strategy.<br /> In our experience, a top-down approach is usually the best way to begin to tackle the problem of defining<br /> risk appetite. A top-down approach makes the requirements of the various external stakeholders explicit<br /> and stimulates debate in the executive team. The process can also be used to engage board and nonexecutive<br /> directors on the subject. The result is a robust framework that can be used to articulate appetite<br /> throughout the group and to external stakeholders.<br /> Following figure conveys an overall approach which involves assessing risk appetite from different<br /> stakeholder perspectives and risk types. The top down view of risk appetite leads typically into an<br /> assessment of the desired risk profile and an action plan to achieve it.<br /> PricewaterhouseCoopers has developed a number of tools and concepts to help clients cut through the<br /> complexities of this multi-dimensional problem. For example, we have found it helpful to introduce the<br /> concept of risk capacity. An organization’s risk capacity is the maximum amount of risk that it can assume.<br /> This is an important concept because risk appetite must be set at a level within the capacity limit. Capacity<br /> needs to be considered before appetite. Stakeholder views will differ on the desired safety margin and it is<br /> crucial to understand this in setting and understanding appetite. It is also necessary to assess other factors<br /> such as the potential impact of a risk incident, as well as the ability of the organization to control the activity<br /> and the market’s perception of the ‘fit’ with the institution’s other activities. These qualitative factors, when<br /> combined with risk capacity and risk measures, enable a balanced appetite to be articulated and monitored.<br /> A top-down approach works better than a detailed bottom-up assessment. The reason for this is that it is<br /> really the only way to bring in the views of external stakeholders and to create a proactive statement of what<br /> management believes its risk appetite should be. In our experience, bottom-up approaches tend to endorse<br /> the status quo and the existing risk profile. They do not take the thinking forward. The result is often a<br /> passive description of risk appetite today rather than a proactive view of where management wants to take<br /> the organization. Another benefit of the top-down approach is that it ensures that senior management are<br /> ‘on the same page’ on risk appetite. This may require more investment at the start but it pays dividends by<br /> making subsequent roll-out much easier.<br /> At one client the first appointee to the newly created role of CRO has used risk appetite discussions to<br /> engage the business unit heads in defining the links between risk and strategy. This is the first time that risk<br /> has been considered as an integral part of the business agenda. Previously risk was treated primarily as a<br /> compliance issue to be monitored by internal audit.<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 174<br /> Approach to Risk Appetite<br /> What does it look like?<br /> A well-defined risk appetite should have the following characteristics:<br /> 􀀹 Reflective of strategy, including organizational objectives, business plans, and stakeholder<br /> expectations.<br /> 􀀹 Reflective of all key aspects of the business (B/Model).<br /> 􀀹 Acknowledges a willingness and capacity to take on risk.<br /> 􀀹 Is documented as a formal risk appetite statement.<br /> 􀀹 Considers the skills, resources and technology required to manage and monitor risk exposures in<br /> the context of risk appetite.<br /> 􀀹 Is inclusive of a tolerance for loss or negative events that can be reasonably quantified.<br /> 􀀹 Is periodically reviewed and reconsidered with reference to evolving industry and market<br /> conditions.<br /> 􀀹 Has been approved by the Board.<br /> In order to ensure effective monitoring and governance, the risk appetite will incorporate a balanced mix of<br /> both quantitative and qualitative measures. Quantitative measures may include financial targets (e.g. capital<br /> adequacy, target debt rating, earnings volatility, credit or other external ratings). Qualitative measures may<br /> refer to reputational impact, management effort and regulatory compliance.<br /> These qualitative aspects of risk appetite are more difficult to quantify. However, organizations that choose<br /> to measure risk more precisely are modeling these risks to determine their risk appetite on a quantified basis.<br /> Once an organization’s risk appetite is defined, the challenge is to implement robust governance and<br /> reporting framework that ensures day-to-day decisions are made in line with the organization’s risk appetite.<br /> In analyzing the risk appetite statements of our client organizations, the following measures were found to<br /> be the most commonly used: earnings volatility (80 percent); economic capital requirements (60 percent);<br /> reputation (60 percent); external credit/debt ratings (40 percent) and regulatory standing (40 percent).<br /> Consumer Banking –BNK603 VU<br /> © Copyright Virtual University of Pakistan 175<br /> <br /> <span style="font-size: large; font-weight: bold;"><a href="http://www.genrica.com/vustuff/BNK603/BNK603_handouts_1_45.pdf" target="_blank">Consumer Banking BNK603  book HANDOUTS in pdf</a></span></div> <div> <h3 style="background-color: white; box-sizing: border-box; color: #3f6184; font-family: "Open Sans", Arial, "Helvetice Neue", sans-serif; font-size: 24px; font-weight: 400; line-height: 1.1; margin: 30px 0px 12px; text-transform: uppercase;"> </h3> </div>

Consumer Banking BNK603 book HANDOUTS in pdf

Consumer Banking BNK603  book HANDOUTS in pdf Handouts | Lectures | Contents | Books LECTURES (VIDEO/AUDIO/DOWNLOAD) DOWNLOA...

Read more »