In our column earlier this week, it was argued that developing a corporate debt market could be a long haul towards the overall development of debt capital market (DCM). A quicker way perhaps to get the DCMs rolling could be to develop the market for government papers.
To that end, the SECP is already toying with ways to boost the asset management industry - especially those dealing with government papers. The commission, however, might have to consider creating some incentive structures in the system because the return on Pakistani equities has been consistently beating many other asset classes at home and elsewhere in the region.
There are few ways to expand the footprint of asset management companies (AMCs). For one, after rationalizing the NSS (See BR Research column: Fixing the debt capital market published yesterday), the NSS distribution network can be leveraged and its retail investor base capitalised upon by allowing private sector mutual funds access to the NSS platform for distribution of their investment products. Mutual funds can be made attractive to the retail investor base as they can be tailored to varying needs and investment/saving profiles.
The AMC footprint can also be expanded by promoting m-investing along the lines of m-banking, and by using the network of Pakistan Post Office (PPO). However, for the latter the PPO would need to be strengthened technologically and operationally. Fakir Shaharyar uddin, PPOs Additional DG, told BR Research last year that while the PPO does have an advantage given its wide footprint and extended timings, it still needs to invest in technology in order to make use of its network and act as a marketing and distribution agency for AMCs.
Parallel to building this eco-system is the need to roll out two kinds of bonds. First is the infrastructural bond. Nadeem Naqvi, MD KSE, recently told BR Research that they want the government to launch infrastructural bonds directly into the market, with at least a certain percentage of guaranteed retail participation.
To that end, the KSE is already in talks with the ADB Pakistan office. The ADB in turn had earlier told BR Research that they are interested in tapping the growing Islamic liquidity to raise finance via Islamic bonds for infrastructure spending. Naqvi also maintains that the government needs to mandate that a certain percentage of its papers are issued directly to retailers.
The second bond that needs to be rolled out is the diaspora bond - something that fits well with the PML-N manifesto which says that they would channelize remittances into investments. In that vein, SBP sources have told BR Research that the Pakistan Remittance Initiative has already made the proposal for diaspora bonds.
That proposal is being fine tuned at the moment, following which it will be sent to the EAD at Ministry of Finance and the Planning Commission. The reason why it will bring Planning Commission on board is because the PRI proposal also contains asset-backed Sukuks for infrastructure financing.
PRIs aim is to target the bond to both skilled expats in the West and the unskilled in Middle East since more often than not, the latter find themselves without savings when they come back home to Pakistan as their families had spent those remittances. PRI is looking at an initial target of $500 million to $1 billion without cannibalizing the existing trends in remittances.
This column would like to add that the PRI should envision the diaspora bonds as a tradable instrument on the exchange, which in turn should be connected across several channels to give bond holders the ability to encash it via different channels including the branchless banking channels.

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