MARIAM ALI BAIG: You recently published the Impact & Sustainability Report called Enriching Lives. What prompted this?
MAYA ISMAIL: As a part of the Aga Khan Development Network (AKDN) we have been doing this kind of work very quietly for the last 10 years, and we have done some excellent work. AKDN is committed to improving the quality of life of people in need, primarily in Asia and Africa. The thrust of our efforts has been in education and health because they are priority areas but we are also involved in climate and adaptation, humanitarian disasters and cultural conservation. As we tend to not talk about what we do – we tend to do it – hence the report.
MAB: When you say “we”, are you talking about HBL?
MI: Yes. HBL is majority owned by the Aga Khan Fund for Economic Development (AKFED) and as a national institution, the vision is that HBL should always support and contribute towards building Pakistan. Although we are embedded in Pakistan’s financial ecosystem, we often play the role of a development bank.
MAB: How do HBL’s activities fuse with AKDN’s broader vision?
MI: AKDN acts as an umbrella over a number of agencies. They include Aga Khan Health Services, Aga Khan Education Services, Aga Khan Foundation, Aga Khan Academies and AKFED which is the only part of the network that is for-profit – the rest are not-for-profit entities. In Pakistan, AKFED covers Tourism Promotion Services (including Serena Hotels), Jubilee Insurance (general and life) HBL and NPAK Energy. The genesis of all this started with His Highness, Sir Sultan Mohammed Shah, Aga Khan III, whose vision it was to set up institutions for the benefit of the communities.
MAB: When did HBL’s association with AKDN begin?
MI: In 2002, the Government of Pakistan was looking at privatising the banking sector, His Highness, Shah Karim al-Husayni, Aga Khan IV, was interested in acquiring HBL. AKFED won the bid for HBL in December 2003 and in February 2004, management control was transferred to AKFED and it has been so ever since, and which is why, although we are a commercial bank, we have always had a development mandate – this is the guidance from AKFED. For example, in 2004, HBL had 300 branches and was present in very small towns and hamlets – possibly, it was the only bank there – and there was no question of them even breaking even. However, the guidance from AKFED was that the bank had not been acquired for the purpose of shutting down branches. The guidance from AKFED has always been about sustainability and serving people. In 2004, our overall customer base in Pakistan was approximately one to two million. We had about 1,100 branches and we grew them to about 1,700. By 2017-18, with all the investments made, we were at 12 million customers in our brick-and-mortar branches. Then came branchless banking, and today we serve over 32 million customers. Inclusion is very much our mandate.
MAB: What about the green aspect of your operations?
MI: The genesis of green started with lending institutions such as the International Finance Corporation (IFC )/World Bank and British International Investment (the UK’s development finance institution). Their view was that when it came to corporate lending – large infrastructure lending – banks should encourage their customers to be greener and more responsive to the environment, as well as mindful of the damage caused to the environment. Here, I have to tell you that our customers were ahead of the game, especially the textile sector. As exporters, they were already responding to the requirements of their global clients.
MAB: What about those customers who are not subject to global pressures? How challenging is it to convince them to adopt greener practices?
MI: Their credit approvals depend on their compliance. We have an environmental social governance team that signs off on credit approvals without which the financing will not happen. Some customers understand what green involves and others find it difficult. There are also challenges within the operating environment. It is not only the green aspect; one needs to look at the entire environmental and social governance framework. In 2018, our board committed to becoming net zero by 2030 (this includes the offsetting aspect) and ever since we have said no to new coal projects. Believe me, it made a difference to our bottom line and the management was in an uproar, because in Pakistan most of the power is generated through coal. Yet, since 2018, we have said no to financing any coal business. This means we do not allow our customers to use our banking services to make payments for coal shipments either. In 2021, we also committed to not providing financing to industries that cause deforestation.
MAB: What is green taxonomy?
MI: Green taxonomy is about the financial ecosystem of green and the green economy. It includes whom to lend to, how to encourage customers to adopt environmentally friendly products, and how to syndicate water and solar renewable energy. Basically, it acts as a tool for transparency to measure green economic activities. In terms of green banking guidelines, we have been ahead of the curve and played a thought leadership role when we worked with the State Bank of Pakistan on crafting their green banking guidelines
MAB: What about agri-finance?
MI: This comes under the ambit of development finance; it was something we started four years ago when we set up a board-level development finance committee. We ran three pilot projects on maize and wheat, and later rice. We worked with smallholding farmers – about 8,000 acres collectively. Our corporate customers provided the seeds and farming equipment and we hired a team of 40 agronomists to work with farmers and advise them about yields, soil quality and planting methods. The objective was to eliminate the arthi (middleman). We were able to increase yields by 27% and the actual income of the farmer by about 36%. Now the challenge is to take this mainstream, and for next year we are committed to taking the acreage to over 40,000 acres.
MAB: Are any efforts made to encourage farmers to grow less water-intensive crops?
MI: Absolutely, which is why we did not go for sugar. We are now doing potatoes for example. When you do this at scale, it has to be something which is sustainable.
MAB: How do you persuade farmers to work with you?
MI: We work primarily through our agricultural lending arm – we are the largest agricultural lender in the country with 23% of the market share. We work directly with farmers to convince them and then it is word of mouth.
MAB: Are you involved with warehousing?
MI: Yes. We are also part of warehouse receipt financing because it’s about building up the ecosystem around it.
MAB: How successful is it, given this is a new concept? How many farmers are actually moving in this direction?
MI: I would estimate probably over two or three percent.
MAB: How focused is the bank on climate change?
MI: In this respect, I would like to start by talking about the greening of our own operations, and here it is important to stress that the biggest polluters are buildings – the biggest emissions come from them. Furthermore, at HBL we have 1,700 branches and 3,100* ATMs – and ATMs have to work 24/7, which means they have to be backed by generators. To counter this, we are solarising our branches. Currently, we have solarised about 370 branches, including their ATMs. Our new building – the ‘black box’ – at Do Talwar in Karachi, is LED certified; in other words, it was built in compliance with environmental building codes. The regional headquarters of the HBL Microfinance Bank (HBL MfB) in Gilgit is an IFC EDGE advanced certified building and a gold LED standard building. In fact, it is the first building of its kind in AKDN’s global network, and we are committed to ensuring that any building project we undertake meets international environmental standards. HBL MfB, by the way, is the largest microfinance bank in Pakistan, with 213 branches and 2.7 million customers. The result of these efforts is that while pursuing our mandate for financial inclusion, we have vastly reduced our emissions per customer. That is Scope One and Scope Two – dealing with our own emissions and our travel footprint. Scope Three is about the emissions of our vendors, and in a country like Pakistan, this is a difficult proposition to manage. However, we are ensuring that the air-conditioners our vendors use are environmentally friendly; this is one way we are improving the ecosystem of our suppliers. Our next step will be to measure all this work and gauge the extent to which we are contributing towards the UN’s Sustainable Development Goals.
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*The correct number is 2,100 ATMs and not 3,100 as stated in the article. The error is regretted.