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Learning objectives:  This activity aims to enable the students to get an understanding about safety measures taken by Government in the country’s financial sector for a purpose of:

  • Protection of investors
  • Protect investors and customers from exploitations; &
  • Stability of financial system.

 

Learning outcomes: After going through this activity, the students would be able to know the tools and tactics used by Government for the stability of financial system in the form of pre-defined rules, regulations and requirements set for the financial institutions.

 

Case:

In Pakistan, there are many people who cannot get benefit from financial products (instruments), Because of their low income, unemployment, residence in small villages, less awareness of financial services & financial markets. To facilitate such people, there are “Microfinance banks (MFB’s)”, to serve people who have no mean to gain financial services. The goal of MFB’s is to provide low income and poor people an opportunity to become self-sufficient and secured by efficient means of saving & borrowing money and insurance.

Now a day, many MFB’s are operating to facilitate poor people especially of small villages. On the other hand, the responsibility of their protection lies on the shoulder of government, to develop a system in which investors (especially small investors) should be protected. For this purpose, Government of Pakistan provides complete set of regulations and requirements for microfinance banks. From time to time government keeps on revising them to make them more effective.

Waseela Microfinance Bank Ltd. has been established in Pakistan, with the evolution in technology and branchless banking. It offers mobile banking products including several types of loans, deposit accounts, branchless banking, ATM cards, SMS alerts and E-statement.

 “Mobicash” is the branchless banking product of Waseela Microfinance Bank Ltd. “Mobicash” provides the following services: money transfer, bill payment, mobile account, mobile top-up, Mobicash beema (insurance) and corporate solutions.

Use the following resources:

  • Prudential and Revised Regulations for Microfinance banks.pdf,
  • Waseela MFB Audited Financial Statements December 31 2013.pdf ( along with notes)
  • 3 TV Advertisements
  • Websites: Waseela MFB: http://www.waseelabank.com/ & Mobicash: http://mobicash.com.pk/

Now go to your LMS interface and download a “RAR file: Money & Banking MGT411 GDB 2.rar” that includes the above resources” uploaded there in the “Downloads” tab. Get this file downloaded, thoroughly go through the above mentioned resources and answer the following questions.                                                                                                           (1.25 x 4 marks)                              

           

  1. Financial literacy programs

Do you think that Waseela MFB provides proper guidance about their product “Mobicash”, to its users through media channel and website?                                 

(Resources Hint: TV Advertisements & Website)

 

  1. Minimum capital requirements:

Do you think Waseela MFB has maintained the minimum requirement of capital according to its level of operations? Discuss

(Resources Hint: MFB Regulations, TV Advertisements & Audited Financial Statements)

 

  1. Transparency & disclosures:

Government requires MFB’s to make their working more transparent with maximum disclosures. Do you think that depositors/users of Waseela MFB can judge the financial soundness of a bank from the given disclosures? Discuss

(Resources Hint: Audited Financial Statements)

 

  1. Reserve and Liquidity:

In 2013, Waseela MFB incurred loss. For small villagers (depositors/ users), it is very difficult to measure its riskiness of operations. Do you think Waseela Bank is running/ facing liquidity risk?

(Resources Hint: MFB Regulations & Financial Statements)

 

(Support your answer with logical reasoning)  

Note: Complete your comment within 250 words

Important Instructions:

 

1.   Your discussion must be based on logical facts.

2.   The discussion board will remain open for 3 working days.

3.   Do not copy or exchange your answer with other students.  Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.

4.   Obnoxious or ignoble answer should be strictly avoided.

5.   Questions / queries related to the content of the discussion board, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of discussion board is over.

For detailed instructions please see the discussion board announcement

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Replies to This Discussion

MGT411 - Money & Banking Graded Discussion Board (GDB) No. 2 Solution and Discussion Spring 2014 of Virtual University (VU) Due Date: July 17, 2014

Please all students related this subject Share your online Quizzes here to help each other.thanks

 

Please share the question and their answers of this quiz if anyone has done.
Thanks. 

THE GOVERNMENT SAFETY NET

There are three reasons for the government to get involved in the financial system To protect investors To protect bank customers from monopolistic exploitation To ensure the stability of the financial system Investor Protection Small investors are unable to judge the soundness of financial institutions In practice only force of law ensure the bank's integrity, thus investors rely on government to protect them from mismanagement and malfeasance Protection from monopolistic exploitation Monopolists exploit their customers by raising prices to earn unwarranted profits Government intervenes to prevent firms in an industry from becoming too large. The same mayapply to banks as wellStability of financial systemLiquidity risk and information asymmetry indicate the instability of financial systemFinancial institution can create and destroy the value of its assets in a very short period, and asingle firm's failure can bring down the whole systemGovernment officials employ a combination of strategies to protect investors and ensure thestability of the financial systemThey provide the safety net to insure small depositorsThey operate as the lender of last resort

The Unique Role of Depository Institutions

Depository institutions receive a disproportionate amount of attention from government regulators because They play a central role in the economy They face a unique set of problems We all rely heavily on banks for access to the payments system Banks are also prone to runs, as they hold illiquid assets to back their liquid liabilities,promising full and constant value to the depositors based on assets of uncertain value They are linked to each other both on their balance sheets and in their customers' minds;This in terconnectedness of banks is almost unique to the financial industry

The Government as Lender of Last Resort

The best way to stop a bank failure from turning into a panic is to make sure solvent institutionscan meet their depositors' withdrawal demandsThe existence of a lender of last resort significantly reduces, but does not eliminate, contagionFor the system to work, central bank officials who approve the loan applications must be able todistinguish an illiquid from an insolvent institutionIt is important for a lender of last resort to operate in a manner that minimizes the tendency forbankers to take too much risk in their operations

Problems Created by the Government Safety Net
Protected depositors have no incentive to monitor their banks' behavior, and knowing this,
banks take on more risk than they would normally
In protecting depositors the government creates moral hazard
Some banks are too big to fail, meaning that their failure would cause havoc in the financial
system.
The managers of such institutions know that if they begin to founder the government will have
to bail them out
The too-big-to-fail policy limits the extent of the market discipline that depositors can impose
on banks and compounds the moral hazard problem

 

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