YPIP Pakistan Economy and Banking Awareness Syllabus

What is the SBP interest-rate corridor, and what forms its ceiling and floor?

It is a band for the overnight money market rate. The ceiling is the reverse repo / discount rate (SBP lends to banks); the floor is the repo / floor rate (SBP takes deposits from banks). The policy rate sits in the middle (typically ceiling minus 100 bps).

What is the discount rate (SBP reverse repo rate)?

It is the rate at which the SBP lends overnight funds to commercial banks against eligible collateral; it forms the ceiling of the interest-rate corridor.

What are Open Market Operations (OMOs)?

OMOs are the SBP's buying (injection) or selling (mopping up) of government securities in the open market to manage banking system liquidity and steer the overnight money-market rate toward the policy rate.

In an OMO, what is the difference between an 'injection' and a 'mop-up'?

An injection (reverse repo by SBP / repo for banks) adds liquidity by lending to banks; a mop-up (absorption) drains excess liquidity by borrowing from banks (SBP sells/takes securities).

What is the Cash Reserve Requirement (CRR) in Pakistan?

The CRR is the minimum percentage of a bank's demand and time liabilities that it must hold as cash reserves with the SBP, used as a monetary control and prudential tool.

What is the Statutory Liquidity Requirement (SLR)?

The SLR is the minimum percentage of a bank's total demand and time liabilities that it must maintain in approved liquid assets (cash, gold, and approved government securities) over and above the CRR.

How do the CRR and SLR differ?

CRR must be held as cash reserves with the SBP and earns no return; SLR is held in liquid/approved assets (including government securities) by the bank itself and can earn a return. Both restrict lendable funds.

How does raising the CRR or SLR affect bank lending and money supply?

Raising CRR/SLR reduces the funds banks can lend, contracting credit and the money supply (tightening); lowering them frees up funds, expanding credit (easing).

Define inflation.

Inflation is a sustained increase in the general price level of goods and services in an economy over time, which reduces the purchasing power of money.

What is the most commonly used measure of consumer inflation in Pakistan, and who compiles it?

The Consumer Price Index (CPI), compiled and published by the Pakistan Bureau of Statistics (PBS).

Differentiate between headline, core, and food inflation.

Headline inflation is the total CPI change including all items; core inflation excludes volatile food and energy prices to show underlying trend; food inflation measures price changes of food items only.

What is 'price stability' as a monetary policy objective?

Price stability means keeping inflation low, stable and predictable (around a target/medium-term range) so that money retains its value and economic decisions are not distorted by price uncertainty.

Distinguish between demand-pull and cost-push inflation.

Demand-pull inflation results from aggregate demand exceeding supply (too much money chasing too few goods); cost-push inflation arises from rising production costs (wages, energy, imported inputs) pushing prices up.

Give the formula for the inflation rate using a price index.

Inflation rate (%) = [(CPI of current period − CPI of base/previous period) ÷ CPI of base/previous period] × 100.

What is a commercial bank?

A commercial bank is a financial institution that accepts deposits from the public, provides loans/credit, and offers payment and other banking services, operating for profit and licensed/regulated by the SBP under the Banking Companies Ordinance, 1962.

What is a microfinance bank (MFB) in Pakistan?

An MFB is a bank that provides small loans, deposits and other financial services to low-income and unbanked populations and microenterprises; it is licensed and regulated by the SBP under the Microfinance Institutions Ordinance, 2001.

How do commercial banks differ from microfinance banks?

Commercial banks serve the general public/corporates with larger loans and full-scale services; microfinance banks focus on small-ticket loans and savings for low-income, financially excluded clients and microenterprises, with poverty alleviation as a key aim.

Under which law are commercial (scheduled) banks in Pakistan primarily regulated?

The Banking Companies Ordinance, 1962, administered by the SBP.

What is a 'scheduled bank' in Pakistan?

A scheduled bank is one listed in the schedule maintained by the SBP, meeting prescribed capital and other requirements, thereby gaining access to SBP facilities and obligations such as maintaining reserves with the SBP.

What is Islamic banking?

Islamic banking is banking conducted in compliance with Shariah (Islamic law), which prohibits interest (riba), excessive uncertainty (gharar) and gambling (maysir), and operates on profit-and-loss sharing and asset-backed transactions.

What is 'Riba' and why is it central to Islamic banking?

Riba is interest or usury, an unjustified, predetermined increase on a loan of money. Its prohibition is the foundational principle distinguishing Islamic banking from conventional interest-based banking.

Name common Islamic banking modes of financing.

Murabaha (cost-plus sale), Ijarah (leasing), Musharakah (partnership/joint venture), Mudarabah (profit-sharing investment), Salam, Istisna, and Diminishing Musharakah.

Explain the difference between Musharakah and Mudarabah.

In Musharakah, all partners contribute capital and share profit/loss (and may share management); in Mudarabah, one party (Rab-ul-Maal) provides the capital and the other (Mudarib) provides expertise/management, with profit shared by agreed ratio but financial loss borne by the capital provider.

What is Murabaha in Islamic banking?

Murabaha is a cost-plus-profit sale in which the bank buys an asset and sells it to the client at a disclosed cost plus an agreed mark-up, usually paid in deferred installments.

What is Ijarah in Islamic finance?

Ijarah is an Islamic leasing contract where the bank (lessor) leases an asset to the client (lessee) for agreed rental payments, retaining ownership while the client uses the asset.

What body ensures Shariah compliance in Pakistan's Islamic banks, and what oversight does the SBP provide?

Each Islamic bank has a Shariah Board/Shariah advisor; at the national level the SBP maintains a Shariah Advisory Committee and a Shariah governance framework to ensure compliance across the Islamic banking industry.

What are Development Finance Institutions (DFIs)?

DFIs are specialized financial institutions that provide medium- and long-term financing for development projects in priority sectors (industry, agriculture, infrastructure, SMEs), often jointly owned by the government and partners, and regulated by the SBP.

How do DFIs differ from commercial banks?

DFIs focus on long-term project and development financing for specific sectors and generally do not take retail deposits from the public, whereas commercial banks accept public deposits and focus on short-term lending and general banking services.

Give examples of Development Finance Institutions operating in Pakistan.

Pak-Kuwait Investment Company, Pak-Libya Holding Company, Pak-China Investment Company, Pak-Brunei Investment Company, Pak-Oman Investment Company, and Saudi Pak Industrial & Agricultural Investment Company.

What is the difference between the policy (target) rate and the discount rate in the SBP corridor?

The policy/target rate is the SBP's mid-corridor benchmark guiding the overnight rate, while the discount (reverse repo) rate is the ceiling at which the SBP lends to banks; the discount rate is typically about 100 basis points above the policy rate.