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Financial Markets in Pakistan

I am an ex-bank executive now whiling away my time in teaching and traveling.

Financial system of Pakistan

Financial system of Pakistan

Types of Financial Markets in Pakistan

A financial market is a place for the buying and selling of financial securities such as stocks and bonds. It facilitates:

  • The raising of capital (in the capital markets).
  • The transfer of risk (in the derivatives markets.
  • In matching those who want capital to those who have it.

The financial market in Pakistan consists of two things:

  • Money market: provides short-term funds
  • Capital market: makes long-term funds available to businesses and industries

The financial market can be reclassified into two areas:

  • Primary market in which new shares or bonds are issued
  • Secondary market in which securities previously issued are traded, such as shares, bonds, commercial papers, options and mutual funds.

Of this, the banking sectors and non-banking sectors are regulated by the central bank, the State Bank of Pakistan. While rest of the market (lease, stock exchanges, modarba, mutual funds and insurance) is regulated by the Securities and Exchange Commission of Pakistan.

A sketch showing financial markets in Pakistan is shown at top of this article and is further explained in the paragraphs that follow.

Commercial Banks

A type of bank providing checking and saving accounts, credit cards and business loans. Such a bank induces the general public to deposit their savings in the banks and offers a wide range of services such as:

  • Deposit mobilization
  • Money transfer
  • Financing working capital
  • Financing other trade-related mode (import and export)
  • Investing in government securities
  • Call money operations

These banks are of three categories: (i) Public Sector Banks, (ii) Private Bank and (iii) Foreign Banks.

Investment Banks

Investment banks perform a variety of functions. Primarily, they assist corporations in raising equity-capital by underwriting public issues. They also assist companies desiring mergers and acquisitions and derivatives. In addition, they provide services like trading of derivatives, foreign exchange, fixed income instruments and shares listed on the stock exchanges.

Such banks cannot take deposits. They manage their affairs by charging fees such as (i) retainer fee, (ii) advisory fees based on the transactions, (iii) commission on underwriting and (iv) other financial services.

PICIC was once a premier development in Pakitan but has merged with a commercial bank.

PICIC was once a premier development in Pakitan but has merged with a commercial bank.

Development Banks

These banks provide guidance in the selection of industrial units and extend direct financial assistance to partly cover their financial requirements. Also, they engage themselves in promotional activities to attract investors to neglected sectors through publishing brochures and research papers. Besides, they help in assessing the feasibility of potential projects. Such banks are responsible for speeding up the pace of economic growth in the country in conformity with the national objectives, plans and priorities.

Their core functions are:

  • Direct financial assistance
  • Catalytic function
  • Mobilization of domestic savings
  • Ensuring balance in regional and industrial growth
  • Expanding the entrepreneurial base by encouraging newcomers

At one time, there were 14 development banks in Pakistan. However, most of them have been closed one after another as their bad debts mounted up. It is natural as they take substantial risks in promoting new types of industrial projects in underdeveloped areas sponsored preferably by newcomers. Nevertheless, their contribution brings fruits to the economy in the shape of successful industrial units and the transfer of technology.

At present, eight development banks are operating, which are mostly joint ventures with other Islamic countries.

Microfinance Banks

A microfinance bank would cater to the credit needs of poor households and their small enterprises. Thus, microfinance banks provide credit to those poor who are not considered creditworthy by commercial banks and other financial institutions. On the other hand, the microfinance bands recognize every single human being as a potential and creditworthy entrepreneur. In addition, they provide basic training in the start of a small business, simple book-keeping and accounting.

The main aim of microfinance institutions is the alleviation of poverty by helping poor persons to earn some money, especially women.


Islamic Banks

In Islam, it is prohibited to charge interest on any loan. However, it is acceptable to pass on funds to a needy person or corporation for trade purposes, in which case profit could be shared on an agreed basis, whereas loss should be shared according to the funds invested. Besides, there are certain businesses where any form of deal is forbidden, like alcohol and pork.

Accordingly, an Islamic bank refers to a banking activity which is consistent with the Sharia, the Islamic Laws. Otherwise, there is no difference between traditional banks and the Islamic bank.

Discount Houses

These are firms that buy and discount bills of exchange, banker's acceptance, commercial paper, etc. Discount houses also tender for treasury bills, deal in short-dated government bonds, and are an important part of the short-term money markets.

Insurance Companies

Insurance is a hedge against the risk of a contingent and uncertain loss. In other words, it is the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. For this service, the insurer charges a fee called a premium depending upon the risk involved.

Besides traditional insurance companies, there are many Islamic insurance companies in Pakistan known as Takaful operators. Takaful is an Islamic insurance concept based on mutual cooperation, responsibility, assurance, protection and assistance between groups of participants. These companies believe in promoting the cause of Takaful as well as promoting the insurance business in a Shariah Compliant i.e., halal and absolutely Riba-Free insurance.


Stock Exchanges

The stock exchange is a place where securities are bought and sold. Such securities include shares, derivatives, unit trusts and bonds. It also provides facilities for the issue and redemption of securities. Prices of shares and bonds are influenced by their demand and supply, like in other commodities.

In order to list a security on the stock exchange, there are certain requirements. Transactions in the stock exchange are conducted by members only. The stock exchange serves both as a primary market for the initial public offerings and as a secondary market for their subsequent buying and selling.

Investors are not bound to sell stock or bonds through the stock exchange. They can directly deal with the seller. Similarly, there is no compulsion that stock must be traded on the exchange. The securities can change ownership out of the exchange, which is called "over the counter” or “curb dealings."


It is a contract where the owner of an asset agrees to allow someone to use it for a fixed rental. It can be for a fixed or indefinite period of time. It is a binding contract which sets out terms of the lease agreement between the owner and the user.

Leases are of various types, mainly (i) financial leases and (ii) operating leases. The financial lease is a long-term and non-cancellable contract where the user assumes some of the risks of ownership and has the right to keep the assets or get them transferred to its own name after fulfilling the necessary conditions. In an operating lease, the owner transfers only the right to use the assets, which is returned back at the end of the lease.

There are some other types, especially in the aircraft industry, like wet lease and dry lease. In a wet lease, a company agrees to provide an aircraft along with a pilot and crew and would be responsible for the maintenance of the aircraft. Dry lease, on the other hand, refers to leasing only the aircraft.


It is a form of partnership which has two distinct parties: (i) the financier and (ii) the manager. The financer takes no part in the management of the business. The profits are distributed among the subscriber while the manager is paid the usual salary.

Modarba is one of the modes of Islamic finance. It is like a mutual fund minus its un-Islamic features.

Not only Pakistan but the Islamic financial services industry has also witnessed phenomenal growth all over the Islamic world. In particular, the Modaraba Sector has been able to create a market niche for itself in the corporate sector. This model is enjoying a unique recognition due to its well-designed structure with proper rules and regulations defined by the regulators. It has proved its resilience in this time of global financial turmoil.

Mutual Funds

It is a professionally managed type of pooled investment for acquiring securities like stocks, bonds, marketable securities and commodities. The profit is distributed by way of dividend to all investors.

Suggestions for Improvement

The financial market in Pakistan experienced boom conditions in 1991 due to the liberalization policies of the government. There was a manifold increase in the number of listed companies: commercial banks, local and foreign and financial instruments like commercial paper.

But it has still to develop, and a number of suggestions have been made:

  • The public sector should reduce its dependence on the State Bank of Pakistan.
  • The infrastructure projects should be financed through domestic bonds of longer maturities (10-20 years).
  • The financial sectors (capital markets, microcredit, banking and non-banking sector) should have a better and more clearly delineated division of responsibilities.
  • Foreign institutional investors should be encouraged to take up (i) private equity funds, (ii) private pension funds, (iii) provident and gratuity funds and (iv) Real Estate Investment Trusts.
  • Mortgage financing should be encouraged.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.


G.m on May 17, 2020:

Sir g financial market role of pakistan bta dyein plz now-a-day 2020

sahar on July 30, 2018:

Sir I am confused about Mutual fund as to how should i classify the investment.

By looking on monthly statement of fund eg NAFA Fund the investment is allocated as 1. Equity 25% 2. Fixed Income 75%.

Know the question is, How:

The 75% Fixed Income is tobe written

sidra munir on March 30, 2017:

plz tell me examples of financial market

seher on March 23, 2017:

thanks for basic info.......

shams on November 10, 2016:

thanks alot dear and respected sir. this article is meticulous and full of knowledge. if possible please how these instruments are traded and what is the structure of stock exchange..

shams on November 10, 2016:

thanks alot dear and respected sir. this article is meticulous and full of knowledge. if possible please how these instruments are traded and what the structure of stock exchange..

mohammad jan on August 09, 2016:

nice sir

mehak on July 17, 2016:

Kindly share information about role of financial markets to the economy of pakistan....

anu oluokun on February 02, 2016:

hello, can you incorporate a deposit-taking institution for me in Pakistan?

thank you

Wajahat on September 05, 2015:

Thanks alot sir appreciated your effect

Namna on May 27, 2014:

I am thankful to u sir for this informative knowledge....

hafeezrm (author) from Pakistan on April 19, 2014:

Stock Exchanges and Bond Markets in Pakistan. Please go to this link:

waqar on April 19, 2014:

sir plz tell me the example of primary markets in pakistan ???

hafeezrm (author) from Pakistan on April 07, 2014:

Please browse the internet.

ADINA AYISHA on April 07, 2014:

this is indeed a very usefull information

sir will u plz help me i have to work on assignment and i have to search the role of broker and dealers in financial markets specifically i need the case study too. will u plz tell me from where i can search the relevant inormation...

malik on February 01, 2014:

thank you

syed hube habib on December 18, 2013:

sir, this really well written article with full of knowledge behind it thanks a lot sir

iram shehzadi on May 02, 2013:

thank u so much sir for sharing useful information for us.

miss salima on April 15, 2013:

Thanks a lot sir for sharing ur fruitful information.

Waqas Ghori from Mississuaga on March 18, 2013:

A very informative and beautifully written article indeed.

jon on February 08, 2013:


Farah on January 28, 2013:

Sir ,

your effort is wonderful with all information gathered at one place .

hafeezrm (author) from Pakistan on January 01, 2013:

Like what?

sundas on January 01, 2013:

AOA sir i am studying about investment and portfolio management by Charles P .Jones and i am facing some diffiulties

hafeezrm (author) from Pakistan on November 26, 2012:

This comes under deficit financing where government issues bond or bills. It ultimately creates inflation as government plans are long term or it would on borrowing to pay off the previous debts. This also affect exchange rates.

sumairss on November 26, 2012:

Dear Sir,

what is the Impact of government marketable security on economy?

Mohsin on November 24, 2012:

Great one

Shafeeq Ahmad Rahi on October 20, 2012:

Thank you Sir for providing such good information .

lp11sur on July 14, 2012:

Dear Sir,

How Islamic and investments banks come under the category of NON BANKING SECTOR. Islamic banks are also providing identical servises as commercial banks. Could you please explain the reason. I will be grateful. Thanks

tehreem rizwan on June 04, 2012:

thanks sir it would help me in completing my assignments of project management

hafeezrm (author) from Pakistan on June 02, 2012:

Thanks Zenab Taj and Zohaib Noor for your comments.

zohaib noor on June 02, 2012:

really power full for me .

Zenab Taj on May 30, 2012:

This is such an informative and helpful for not only finance students but also for other knowledge seekers. well im too doing MBA in finance. will you help me what i have to do further?

hafeezrm (author) from Pakistan on May 23, 2012:

I am simply MBA in Finance. You must approach a Ph.D.

shama on May 23, 2012:

sir i am doing M.PHIL and i am searching for a good topic for my thesis regarding SECP.Can you help me please?

hafeezrm (author) from Pakistan on May 17, 2012:

Thanks Bilawal for your comments

Bilawal on May 17, 2012:

it was very much helpful to know about the financial markets in pakistan !!!

hafeezrm (author) from Pakistan on April 30, 2012:

Thanks Muhammad Adil Khan for your comments.

Muhammad adil khan on April 30, 2012:

sir,Thanks for sharing the article.its very simple and easy in order to understand financial markets. i get good information from it.

hafeezrm (author) from Pakistan on April 15, 2012:

Thanks Qasim Khan for your comments.

Qasim Khan on April 15, 2012:

very nice sir. its very simple and easy in order to understand financial markets. i get goood information from it.

thanks sir

hafeezrm (author) from Pakistan on March 25, 2012:

Thanks Ali Jan for your comments.

ali jan on March 24, 2012:

very nice and useful data.

hafeezrm (author) from Pakistan on March 20, 2012:

This is a general question. Please research on Google.

Arslan on March 20, 2012:

Dear Sir, this is my topic, if u have material plz share on this page or plz email me, at this address

the topic: -

"various capital and money market instruments available in the financial markets of Pakistan"

hafeezrm (author) from Pakistan on March 19, 2012:

Thanks Rabba for your comments.

Rabba on March 19, 2012:

thx sir for sharing that information it helped me a lot.

hafeezrm (author) from Pakistan on March 12, 2012:

Thanks Yousuf Baloch for your comments.

Yousuf Baloch on March 12, 2012:


hafeezrm (author) from Pakistan on March 10, 2012:

Thanks Saifullah for your comments.

saifullah on March 10, 2012:

dear sir, I m student of MBA( banking & finance). i got a lot of material. thank u so much

hafeezrm (author) from Pakistan on March 09, 2012:

Thanks Ghazal for your comments.

ghazal on March 09, 2012:

all the information

which i have got from is really v precious

hafeezrm (author) from Pakistan on March 03, 2012:

Thanks Oshaque Ali for your comments.

Oshaque ALI on March 03, 2012:

Nice and simple words to know about the basics.

\ Thank u.

hafeezrm (author) from Pakistan on February 23, 2012:

Thanks Sajid for your comments.

Sajid on February 23, 2012:

very informative articles.

Thank you sooo much Sir!

hafeezrm (author) from Pakistan on February 01, 2012:

Economic Growth needs investments. Financial markets induce the general public to save. Such savings together with funds received from foreigners are passed on to economy for development. This is given in details in the initial paragraphs.

Naqab Khan on January 31, 2012:

hafeezrm...plz explain me the roll of financiak markets in economic development

hafeezrm (author) from Pakistan on December 25, 2011:

Thanks Shaista Tabassum for your comments.

shaista tabassum on December 25, 2011:

Thanks for providing the information about financial markets in Pakistan.....i cant explain u sir hw much in4mative information in this article.thnx

hafeezrm (author) from Pakistan on December 18, 2011:

Thanks all for visiting my page and leaving nice comments.

shakeel baig on December 18, 2011:

great words by great person ur student shaeel baig

shanza on July 24, 2011:

plz see my account

google type malik

Tabinda on July 13, 2011:

Thank you for this unparallel article. It truly is very helpful.

usman asif on June 12, 2011:

excellent struggle

Muhammad sajid on May 29, 2011:

very thankful for providng such useful information about financial Markets in pakistan. God Bless you.

syeda hafsa hameeda hashmi on May 17, 2011:

thanks a lot sir the whole stuff is very informative and it will facilitate us to create better understanding of what finacial market basically is.

hafeezrm (author) from Pakistan on May 15, 2011:

Please go to the internet and obtain a list of all the banks. Then, one by one, read the history of the bank. You will come to know about your question.

gul on May 15, 2011:

i am student of M.B.A i m searching for the list of banks acquired by other banks kindly sir help me in my work

Yousuf Rehman on May 14, 2011:

Thanks a lot for your efforts. This is very appreciable

hafeezrm (author) from Pakistan on May 09, 2011:

Dear Ahmed Jan,

Marketable securities are listed shares and bonds. The stock exchanges are the medium through which these are exchanged.

Muhammad Shoaib Latif on May 08, 2011:

Dear Sir:

Bundle of thanks for sharing such a valuable info with us.



ahmed jan on May 05, 2011:

sir am searching for marketable securitis in pakistan which are not available in this list here just mentioned about different pakistani banks . but overall it is a good resorcen for students of banking and finance or business students for getting more and more knowledge about our banjking system of paklistan. thank you so much.

Owais Hanif on March 25, 2011:

Respected Sir : i found your article very informative ,iam an ACCA Affiliate, i really Appreciate your knowledge.

Emma from Houston TX on March 12, 2011:

Thanks for this informative article that is well shared.

hafeezrm (author) from Pakistan on March 02, 2011:

Thanks M. Mughal and M. Sajid for your comments.

m.sajid on February 24, 2011:

i learned lot of information and guidence for studies thanks, a lot.

M.Mughal on February 12, 2011:

Thanks for providing the information about financial markets in Pakistan

hafeezrm (author) from Pakistan on February 09, 2011:

Dear Akmal Pasha. I am an IBA Graduate myself of 1965 as senior as your grand uncle. Go to my profile and send me a message via hubpage.

Akmal Pasha on February 09, 2011:

An IBA grade of 1995, found this site very exciting especially contextualizing with Pakistani financial scenario. I want to have email contact with Hafeez Saheb, plz manage!

Ahsan Raza on February 04, 2011:

Don't Know about other financial sectors but Islamic Banking is indeed growing in Pakistan.

billrobinson from CA, USA on November 28, 2010:

It has interest me much. Keep on posting more. Thanks for this post.

Aisha Nadeem on November 20, 2010:

Thank u so much Sir for providing us such in depth information and practical examples which has really helped me through out the course so far. It seems while reading your articles that you are in front just like in class and explaining us. I feel so honored and proud that we are blessed with such a great teacher who is praised by all class of people including foreign students.