Pakistan Industrial Credit and Investment Corporation Limited (PICIC) has been in the news for some time. The latest is about some shareholders who have objected to PICIC-NIB amalgamation scheme and a legal notice on their behalf has been sent to PICIC management, with copies to the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) requesting action under provisions of applicable rules.

These shareholders are unhappy with the evaluation of PICIC shares, alleging the transaction is skewed in favour of NIB. The merger of PICIC with NIB should not normally be objected to by the stakeholders, unless it is in violation of any applicable law, rule or regulation. PICIC played a pioneering role in the country’s industrialisation but later its developing weaknesses remained hidden under the rug instead being tackled head on. Weak corporate entities do not have a future. But there are lessons to be learnt from PICIC’s experience.

During its initial years, apart from foreign advisors and experts largely engaged under arrangements with the World Bank, PICIC’s top management comprised eminent personalities such as Chaudhry Muhammad Ali, the ex-prime minister, Mr N. M. Uqaili (appointed later as the federal finance minister), Mr Saeed Ahmed, an experienced central banker, Mr. S. Osman Ali, an ICS Officer and a retired federal secretary (also ex- SBP governor). The presence of such highly esteemed gentlemen in PICIC helped maintain the focus on banking activities for real industrialisation and economic development. These people resisted influences or distractions which was difficult if not impossible for those who succeeded them.

PICIC hired top fresh graduates from Institute of Business Administration (IBA), Karachi. These IBA graduates were groomed to undertake project appraisal and other allied work and functions. The policy for hiring the economists and the engineers was different. They included fresh graduates as well but more emphasis was on hiring experts with field and industry experience. There were no middle management level entries in the finance area. The professionals in the area of finance learned the ropes through extensive in-house training supplemented by mostly foreign training. With experience and length of service, they assumed middle and higher positions.

A number of professionals who initially served in PICIC found jobs with the international financial institutions (IFIs) like the World Bank, the Asian Development Bank and the Islamic Development Bank. This was not all. PICIC professionals up to early eighties were in high demand for advisory assignments in the DFIs being set up in other developing countries. The hiring in PICIC was mostly on merit. However, those who lacked good credentials, once in PICIC, would stick to their positions and overtime also rose through the hierarchy to higher positions where they could influence the formulation of personnel or operational policies.

At that time PICIC was considered the best pay master next to the Citibank. PICIC was paying to the fresh IBA graduates monthly salary and allowance 2-3 times the salary then paid by the local commercial banks to the newly recruited officers. On nationalization of banks in 1973, new unified salary structure was announced for the banks and the DFIs. The employees in the banks had a good raise but there was almost nothing for the DFI employees. No known efforts were made to maintain the DFI premium in salary structure. Due to uncompetitive scales, it became difficult for PICIC to attract or retain the top graduates every year. Gradually, this adversely affected the overall quality of PICIC officers and their level of commitment to developing banking.

The country lacked experienced entrepreneurs and industrialists in the early 50’s. As per government policy, PICIC encouraged new entrepreneurs initially with small loans. Once the projects were in operation and the promoters demonstrated satisfactory loan servicing for about three years, they could borrow fresh and bigger loans for expansion of their businesses. A large number of present day tycoons started small with loans from PICIC which also helped set up many industries in the under- developed areas.

These days, the SBP and SECP are very firm about compliance with the prescribed rules and regulations. Besides, they require the respective boards of different banks and DFIs to prepare and regularly up-date the guidelines and applicable procedures. In those days, PICIC had one comprehensive operations manual which was provided to the newly recruited officers as a guide. With time the organisational structure in PICIC was changing and consequently, the manual was continuously losing some of its relevance and usefulness.

Surprisingly, any suggestion for updating the Manual was snubbed by the immediate supervisors. This happened with me more than once. Eventually a time came when my suggestion for updating of the Manual reached the top management. Instead of passing instructions on my written suggestion, a new note was moved by another department stating that the management finds the manual out-of-date and it must be up-dated. Interestingly, I was picked to work on up-dating of the manual but due to changed circumstances it could not be completed. When lethargy and sycophancy creep into any institution, they attack its very foundations.

Initially PICIC and IDBP were the only DFIs offering foreign currency loans at official rates of exchange as against market rates which were much higher and thus unattractive. Credit lines from the World Bank and ADB as well as the suppliers’ credits were pouring in large amounts for financing import of plant and machinery.

PICIC was providing only long-term loans, both in local and foreign currency, whereas working capital needs of the business and industry were met by the commercial banks. In those days, the non-performing loans (NPLs) in PICIC were very small as compared to the overall loan portfolio. After nationalisation of banks, loss of East Pakistan and devaluation of the rupee, PICIC ran into difficulties. NPLs rose considerably and so did the disputes and litigation for recovery of loans.

According to the arrangements with the World Bank and ADB, the position of the managing director was to be filled in consultation with these creditors. A time came when this position was filled by well-connected persons and the creditors were presented with fait accompli as they were not properly consulted prior to the appointment. More such appointments were made in the middle management level. This changed the whole PICIC management and work culture for good. The IFIs were also discouraged to seek advisors from PICIC for assignments in new DFIs being established in various countries.

A number of DFIs like PICIC were established in Iran, Turkey, India, Thailand and South Korea. All these institutions may not now be DFIs in the strict sense but are thought to be flourishing and playing an important role in economic development of their respective countries. They survived through timely adaptation to new realities. Retaining the original identity, some of them have been converted into commercial banks and thus have access to relatively cheap source of funds. PICIC did start the process to change but in my opinion it was too late. PICIC could have played a big role in the financing of municipal, infrastructure and energy particularly power generation projects but sadly it could not capitalise on the opportunities.