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IFC Advisory Service in the Middle East and North Africa

Canada, Denmark, Netherlands,Islamic Development Bank,Switzerland, United Kingdomand the United States.

In partnership with:

Health and Social WorkPrivate Sector Hospitals


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IFC, a member of the World Bank Group, creates opportunity for people to escape poverty and improvetheir lives. We foster sustainable economic growth in developing countries by supporting private segmentdevelopment, mobilizing private capital, and providing advisory and risk mitigation services to businessesand governments. This report was commissioned by IFC through its Bank Advisory Services program which,helps build capacities of commercial banks to provide banking services to small and medium enterprises(SMEs) in a responsible, profitable and sustainable manner.

International Finance Corporation 2011. All rights reserved.

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Washington, D.C. 20433

Internet: www.ifc.org

The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation

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IFC does not guarantee the accuracy, reliability or completeness of the content included in this work, or for the conclusions or

judgments described herein, and accepts no responsibility or liability for any omissions or errors (including, without limitation,

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legal status of any territory or the endorsement or acceptance of such boundaries. The findings, interpretations, and conclusions

expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they

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Acknowledgements

This segment booklet has been developed jointly by International Finance Corporation (IFC) and State Bankof Pakistan (SBP). We would particularly like to thank Kamran Hafeez (Partner, Head of Advisory Services)Anjum Asim Shahid Rahman (member firm of Grant Thornton International), who were commissioned byIFC to conduct this market research. Anjum Asim Shahid Rahman (AASR) is a leading firm of charteredaccountants and management consultants committed to providing the highest quality of professionalservices in accounting, auditing, taxation and financial services consultancy.

The project was conceived and implemented by IFCs Bank Advisory Services team, in partnership withState Bank of Pakistan (SBP) and in consultation with several major banks in Pakistan. Bank Advisory Servicesprogram, builds the capacities of commercial banks to provide banking services to small and medium

enterprises (SMEs) in a responsible, profitable and sustainable manner. Particularly, IFC works to increasethe volume of SME lending, the number of banks with SME banking operations, and the number ofbusinesses that have access to banking services.

SBPs SME Finance Department provided critical facilitation and oversight for this initiative. State Bank ofPakistan is the Central Bank of the country. Like a Central Bank in any developing country, State Bank ofPakistan performs both the traditional and developmental functions to achieve macro-economic goals.This role covers not only the development of important components of monetary and capital markets butalso to assist the process of economic growth and promote the fuller utilization of a countrys resources.


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Guidelines

Introduction & Objectives

Economic Overview

Industry Overview

Market Assessment

Market & Demographic Profile

Owner Profile

Business Linkages

Business Cycle

Financial Assessment & Profile

Financial Information

Indicative Business Requirements

Financial Needs Analysis

Usage of Banking Products

Segment Risk Considerations

Proposed Banking Product Suite

Product Features

Eligibility Criteria for Asset Products

Distribution and Communication

Considerations

1.

2.

3.

4.

5.

5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

5.10

6.

6.1

6.2

7.

Contents

1

2

5

5

7

7

9

9

11

11

12

13

14

14

15

16

16

17

18

Page No.


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1 GUIDELINES

1. Guidelines

This segment booklet provides indicative businessand financial characteristics based on the informationevidenced from a sample of business owners viaprimary research survey. It can be used by banks asa starting point for development of program basedlending products for tapping the underutilizedpotential for providing financing products to smallbusiness owners.

The Health and Social Work - Private Sector HospitalsIndustry overview is developed using informationobtained from secondary and tertiary sourcesincluding, industry associations and data available inpublic domain.

Market Assessment

The section contains analysis based on primaryfindings of survey exercise conducted in major citiesof Pakistan; the information can form the basis ofidentifying the characteristics of a typical business

entity in the segment.

Product Suite

Proposed banking product suite provides a numberof potential core banking products templates thatcan be used by banks to design appropriate bankingproducts for gaining access to the particular segment.However, it is highly recommended that productdevelopment undergoes the usual general practiceand protocols employed by the bank. It is highlyrecommended that the product development and thebusiness line team work together to conduct a quickmarket research of a small sample in order to validatethe results of this study. The methodology,questionnaire, sampling plans and results tables fromthis study are available with IFC for further reference.

Marketing and Distribution

Market and Distribution considerations are indicativeand have been based on the assumption that banks will employ their individual marketing anddistribution strategy for product development.However, information presented can be utilized by

banks for developing certain hypothesis to be validatedfor developing their marketing and delivery strategies.


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2 INTRODUCTION & OBJECTIVES

2. Introduction & Objectives

Small and Medium Enterprises (SMEs) account forapproximately 70% of businesses in Pakistan andplay a major role in spurring economic activity witha contribution amounting to 78% of non-agricultureGDP of Pakistan, as per State Bank of Pakistan.However, the segment remains largely unbankedowing to the following impediments:

A different risk profile

Lack of substantial collateral Conservative approach adopted by financial

institutions Lack of awareness and willingness to bank

The SME sector presents immense businessopportunities for financial institutions from theperspective of increasing book size while generatingstrong risk adjusted returns, however there is animminent need to understand the dynamics of thissegment in order to enable financial institutions tostructure products that meet overall risk managementguidelines and facilitate the growth of the SME sector.

In this context, International Finance Corporation(IFC) in partnership with State Bank of Pakistan(SBP), and in consultation with several major bankshave conducted a secondary research and a primarysurvey of the SME businesses within the top ten SMEsectors / subsectors of Pakistan to determine bankingand financial needs of the sector.

This booklet contains the findings pertaining to theservices segment ofHealth and Social Work PrivateSector Hospitals.

At present, the private sector hospitals in Pakistanare relatively organized with sales being generatedthrough predominantly individual customers thatare patients. A number of private sector Hospitalsare on the panel of corporate as well as health insurancecompanies and therefore also have a proportion ofsales from corporate accounts.

This segment is largely dispersed in the urban areasand underserved by financial institutions; however,demand for this segment continues to increase

substantially with an overall increasing populationand greater awareness of health issues.

Limitation of the Research

The Sample may not be geographicallyexhaustive.

The sampling plan may not suit the

requirements of every bank. Some of the recommendations are not backed

by qualitative primary research but are basedon knowledge of the market and bestpractices.


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CrietariaParticular Rationale

Informal businesses would be entities that do not have formal accounting and book keeping

system. They do not get their accounts properly audited and are normally not registered

under an official trade/regulatory body

A wide majority of businesses operating in Pakistan are informal businesses in terms of theirquality of record keeping and accounting information in the absence of which banks do

not offer them any credit based products

A study of informal businesses enables us to gauge the reasons of these proprietors to

remain within the informal segment and still compete in the market with formal businesses

enterprises within the same industry sector

Moreover Small businesses have been assumed to have a maximum financing need of up

to PKR 15 MN, which may not compel banks to require audited financial statements and

advanced cash flow models. A basic system of book keeping and accounting will suffice

for them to be able to qualify for a structured lending product.

Formal businesses are those entities that are relatively larger in size and have a proper book

keeping system. These are also registered businesses that are operating either under an

association of businesses or under a formal regulatory license, with a fair amount of

transparency in their accounting and book keeping systems

Including the above gives us a fair representation of businesses that are eligible for all

financial services being offered by banks and their extent of using banks as their main

financiers and other service providers or are using banks for only holding their business

operating accounts

Formal businesses have more structured requirements that those who use banks only forproducts such as fund transfers

At least 60% will be

informal businesses

At least 20% will be

formal businesses

Status


Sample size is sufficient enough to gather relevant qualitative and quantitative information

on each segment

Increase in the sample size will only add marginal value to the overall information collected

from the survey exercise

Change of Definition of SME by SBP SBP is planning to revise their classification criteria for Small enterprises as compared with

Medium enterprises within the new draft prudential regulations being proposed for regulating

banking services to the SME segment

Small enterprises would be defined as those businesses that have employees up to 20 and

annual turnover up to PKR 75 MN

Medium enterprises would be businesses with more than 20 employees and turnover in

excess of PKR 75 MN for the purpose of classification and segmentation by banks

For the purpose of this research the small portion of medium entities that we have reviewed

include entities that have revenue up to PKR 150MN which would be approximately double

in size with the small entities as per new definition

250 detailed one on

one interviews for 10

segments

25 SMEs surveyed

within each segment.

Size

Sampling Plan

In total, interviews with 34 SME owners wereconducted for Health and Social Work - Private SectorHospitalssegment. The locations and classificationof these SMEs are covered in Section 5.1 of thisbooklet under Segment Demographic. Number ofemployees under this segment is covered in

section 5.2 Owners Profile.

The primary research exercise conducted foridentifying the financial needs of the SME sub segmentwas based on the following sampling methodology.


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The corresponding sample mix has been adopted to ensure majority coverage of small

businesses in the overall sample size since these would be the primary candidates for

programme lending products

However for the purpose of understanding the financial needs of medium sized entities

that are close to the threshold point of small and medium we have covered a minor portion

to understand their requirement for structured loan products as well as other financial

services generally required by businesses that are relatively mature and larger sized than

small enterprises

At least 60% with

turnover less than

average PKR 75 MN

At least 20% with

turnover more than

average PKR 75 MN

Turnover

At least 60% willhave less than 20

employees

At least 20% will

have more than 20

employees

Employees

SMEs that are not in the manufacturing sector are relatively understaffed owing to the smallsize of their business and ease of management

Moreover businesses that have more than 20 employees will now be classified as medium

sized hence we have covered a small portion of such entities as well


As per SBP prudential regulations any business operated by an individual, but meets the

classification criteria of the regulations will be termed under SME

On account of above a majority of sample in the market are operating their businesses

through a bank account (either in the name of the proprietor or in the name of the business)

Most of the financial needs and preferences that are objectives of this assignment, have

been obtained from the above sample who are using a bank for their businesses operating

needs

However a very small portion of the market is totally un-banked which is also touched

during our survey to understand their reasons for not banking and fulfilling their needs for

financial services through other, more expensive, informal channels

At least 80% with

banking history

At least 5% with no

banking history

Banking

history


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5 ECONOMIC OVERVIEW / INDUSTRY OVERVIEW

Demand

Pakistan has two parallel health care systems, public

and private. The private sectors share in health carehad been rather small in the beginning since greatmajority began as private practices and transformedinto hospitals over time.

Increasing population, industrialization, resultanthigh level of environmental pollution and increasedhealthcare awareness and lack of focus or a structuredpublic health care system has effectively limited thecapacity of the existing public health care system inthe country. This has given rise to high demand ofprivate sector health care facilities to complement itspublic sector counterpart.

With growing number of patients and lack ofmaintained infrastructure in public sector, an increasedpreference towards private hospitals developed overthe years, which seems to have become an icon of apromised quality care and treatment. However dueto high quality services provided, private sectorhospitals are comparatively highly expensive than thepublic sector and unaffordable for the large sectionof the population.

Supply

The human resource available for health care havegradually increased over the years and though thereis annual output of around 5,000 medical graduatesfrom both private and public medical colleges thecurrent ratio of one doctor per 1,183 persons is belowthe recommended ratio by World Health Organization(WHO) of one doctor per 1,000 persons. There ishowever number of doctors, dentists and nurses whichare not registered with (Pakistan Medical and DentalCouncil) PMDC and practicing hospitals/clinics.

There are many private practicing clinics but are

mostly located in the urban areas of the country

3. Economic Overview

Pakistans economy has shown resilience against shocksof high intensity which include domestic factors suchas political uncertainty, security situation andinternational financial crisis, in addition to anunprecedented rise in food and energy prices. As perthe Economic Survey of Pakistan, macroeconomicstability has been attained over the past two yearsleading to moderate recovery in the economy, despiteone of the most serious economic crises in the countrys

recent history. The economy grew by 4% in FY2010,after a modest growth of 1.2% in FY 2008-09.

4. Industry Overview

Sub Segment Overview

Positives

Economic ConsiderationsIndicator

Challenges

Heavily populated, (over 170MN people) translatinginto strong future potential for improvement inpurchasing power, leading to growth in consumerrelated segments

Structural reforms have accelerated economic growthwith strong momentum of real GDP growth of 7.0%from FY03 to FY08, although this is unlikely to beattained over the next few years due to economicslowdown and political uncertainty

Rising rates of urbanization with the UN forecastingthe proportion of city dwellers climbing from 34.9%of the population in 2005 to more than 50% by 2035 should continue to serve as a key driver of economic

growth.

Low level of foreign reserves, thereby enhancedvulnerability to external shocks

Heavily dependent on funding from multilateralinstitutions and bilateral partners

Despite rapid economic growth in recent years, poorper capita income just USD 1046

Balance of payments portrays a bleak picture in lightof rising oil prices, with oil imports of more than 50MN barrels per year for catering local demand for fuelproducts

With growing number of patients, increase in

population, greater health awareness and lack of

maintained infrastructure in public sector, high

preference is placed on the private sector hospitals.

Demand

CommentsFactors

Agha Khan Hospital, Ziauddin and Liaqat National

Hospital are the biggest players in the private sector

hospitals in Karachi. Shaukat Khanum Cancer Hospital

and National hospital are amongst the leading in

Lahore

Supply

Key Players

Private sector hospitals are comparatively very expensive

than the public sector and unaffordable for the majority

of the population.

Private Hospitals AssociationTrade Body

CommentsFactors

Pakistan Medical and Dental Council

Government is keen on enhancing the public-private

hospital partnership to tackle the overall social

requirements for public health.

This sector exhibits a medium term potential subject

to rise in population and increase in the income level

of the population.

Regulatory Body

Recent

Developments

Future prospects


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6 INDUSTRY OVERVIEW

where they are affordable and so in higher demandby the public. Their presence in rural areas is negligibledue to their expensive treatment being out of reachfor the masses.

An increasing number of trusts, NGOs and socialwelfare organizations have invested and support healthfacilities which are also today serving a very largecross section of the population. Most of such facilitiesare not for profit and therefore primarily run ondonations and grants including Zakat.

Key Players

Agha Khan University is a first rate private hospitallocated in Karachi and Hyderabad. They are theleaders of this segments market, followed by LiaqatNational Hospital and Shaukat Khanum Cancerhospital, located in Karachi and Lahore respectively.

Trade Body

Pakistan Medical and Dental Council is the statutoryregulating body of all the medical education andpracticing institution, public and private. Its primemission is to establish uniform minimum standardof basic & higher qualifications in Medicine &Dentistry throughout Pakistan. Private HospitalAssociation is the trade body of all the private hospitalsin Pakistan.

Recent Developments

The need for public-private hospital partnership isbeing strongly felt by the Government of Pakistan as

the health issues are prevailing in the country isunmanageable for the public sector hospital alone.Private sector hospitals are being encouraged for theprovision of health facilities especially in villages andsmall towns.

Future Prospects

Low public expenditure by government, lack ofexpansion in the public health sector, increasingpopulation with rising income levels indicates a highpotential for growth for the private hospitals.According to our primary survey conducted, it has

been observed that 94% of the respondents perceivegreat growth in their business especially in the nextfive years.


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7 MARKET ASSESSMENT

5 Market Assessment & Overview

5.1 Market & Demographic Profile

Private sector hospitals are relatively well organizedwith sales based on a wide cross section of populationconsidering the nature of service and treatmentsoffered.

Most businesses are individual / family owned andalthough most of the owners have traditionally beendoctors, there is now an increasing trend of individualsconsidering hospitals as investment business forcommercial return and therefore have family basedownership. Underlying features inherent to the subsegment include:

1) Ability to assemble the professional andfinancial resources effectively

2) Good perception of business requirements3) Restricted funding sources

Qualified staff is imperative to running this business

with the use of latest technology in order to competein its highly competitive environment. Modernmachinery and equipments along with theirmaintenance are the major costs incurred by thissector.

High staff turnover is a constant threat to privatesectors hospitals which dictate the level and qualityof services they are able to provide and so affect theirquality of treatment and service and correspondingrevenue to a great extent.

Market Sizing and Lending Potential

Businesses in the sub segment are very widespread invarious locations in the urban regions in the countrywith limited presence in the rural areas. The followingtables present a cluster wise location of Private sectorhospitals in Karachi and Lahore.

Area

Karachi

Defence

Clifton

No. of establishments

50

20

Locations for Private Hospitals

Source: Survey Findings


Area

Faisalabad

Peoples Colony

Jinnah Colony

Sir Syed colony

Christian Town

Rehmania Town

Ayub Town

Madina Town

Kohinoor Town


20

30

30

20

25

20

30

20


Area

Lahore

Gulberg

Model Town

Defence

Allama Iqbal Town

Walton

Johar Town

Ferozpur Road

Wapda Town

Samanabad


30

30

20

40

20

20

50

20



Area

Multan

Saddar Multan

Railway Colony

Altaf Town


20

10

10



Area

Karachi

Tariq Road and Bahadurabad

Saddar

Gulshan-e-Iqbal

Gulistan-e-Johar

Nazimabad

F.B Area

Korangi


60

50

80

50

100

50

50




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Segment Demographics

The sub segment is widely spread out across variousregions in the urban areas with very few present inthe rural parts of the country. Demographicinformation is attained from industry sources andprimary research conducted using a selected sampleof businesses in major cities of Pakistan.

According to our primary surveys the owners havebeen running the businesses in this sector for morethan 10 years or between five to ten years showingthis sector to contain many established businessesalong with new entrants.

8 MARKET ASSESSMENT

1 to 3 years,9%

3 to 5 years,9%

5 to 10 years,35%

More than10 years,

47%

Number of years in Operation

Karachi,59%

Multan,6%Gujranwala,

3%Faisalabad,

3%

Lahore,29%

Location of Businesses

Classification of Businesses

Services100%

Source: Survey FindingsSource: Survey Findings



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9 MARKET ASSESSMENT

5.2 Owner Profile

The business owners consist of people in differentage group mostly between 30s and 60s. As this sectoris mainly operated by the qualified doctors andmedical practitioners, education is a primaryrequirement, therefore majority of business ownershave post graduate degrees. Despite the professionalrequirements for the business, interestingly most ofthese businesses are owned and run as family businesseslike any other SME.

Majority of the business are run on individual /proprietorship with 32% on Partnership. The numberof employees varries according to the size of thebusiness setup, which varies drastically under SMEsegment of private hospitals, number of employeesvaries accordingly. As per our survey, the maximumnumber of staff in the business for SMEs was between5-8 or less than 4.

0-429%

5-926%

10-2421%

24-5012%

51+12%

Number of Employeesunder Business Owners

Others,6%

Partnership,32%

Individual /Prpritorship

62%

Ownership Type


5.3 Business Linkages

Businesses in the sub segment are connected to variousinstitutions, which are directly or indirectly affectedby the business operations, Primary stake holders andtheir interests are enlisted in the following table:


More than 65,3%

31-4032%

41-5032%

51-6532%

Age group of Business Owners


Post Graduate82%

Other 3%

High School,3%

Education level of Business Owners

College /Bachelor Degree,

12%


Private Sector Hospitals

Growth and access to financeOwners

Government

Stakeholder

Suppliers(Surgical instruments, medical aids, etc.)

Customers

Debt servicing and increase in depositsFinancial Institution

Provision of healthcare, Expansion oftaxation bracket, economic growth,benefit to community at large

Availability of qualified doctors, servicequality and reasonable pricing

Better terms and lower risk

Ceramics / Glass Industry


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10 MARKET ASSESSMENT

Businesses employ various mediums as means ofcommunication with its customers however, due tothe personalized nature of services; personal visits bypatients and telephone are widely utilized. Manyorganizations provide health benefits; enlisting selectedhospitals on their panels for their employees. Theseorganizations later reimburse hospitals for all billsincurred by the employees.

Courier

60%

50%

40%

30%

20%

10%

0%

2%

32%

52%

10%

Email Others PersonalVisits

Tele--phone

Visit by anEmployee

2% 2%

Businesses in the segment are predominantly serviced

by formal suppliers and wholesalers though a smallnumber of business owners utilize the informal marketand individuals as their primary resource for supplies.

Major supplies for sub segments include:

Private Sector Hospitals

Surgical instruments

Dental appliances

Plastic moulds. Medical aids etc.

Most of the business owners rely on the same suppliers

to meet their business needs, except for some of themwho place reliance on many suppliers.

In conclusion, it has been observed in our primarysurvey findings that supplier relations are consistentthrough formal wholesalers and they mostly relybetween two to five suppliers to meet theirrequirements. Each supplier is chosen for a certainraw material, relying mostly on two to five on whomthey have a strong reliance. Only 8% of intervieweeswere not satisfied with their suppliers consistency inmeeting their requirements which shows that thissector has good supplier relationships.

Two to fice65%

More than five21%

One

15%

Number of Suppliers

Rely on thesame supplier

for material needs76%

Supplier Relationship

Depend onmany to meet

businessmaterial needs

18%

Not consisitentin meetingbusiness

material needs6%




Communication with Customers


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5.4 Business Cycle

This segment does not experience cyclical trends assuch but with advent of winters, seasonal health issuesincrease compared to summers. The business is servicebased and so there is no heavy reliance on its suppliers.

Primary survey findings show that, random customersusually visit the hospitals with few for regular checkups.The business has strong reliance on referrals by theexisting customers and recurring customers, dependingmainly on word of mouth.

Many organizations provide health benefits; enlistingselected hospitals on their panels for their employees.These organizations later reimburse hospitals for allbills incurred by the employee.

5.5 Financial Assessment and Profile

Around half of the businesses in the sub segmentprepare formal financial statements and duly get themaudited by the accountants. Owners/managers keeptrack of accounts themselves. Absence of audits bychartered firms presents a constraint for preparationand keeping an organized track of cash movement.

From primary research and interviews conductedfrom trade associations, it has been identified thataverage income is between PKR 1-5 MN, with a greatnumber banking on higher sales volume for earningbetter profits.

As per research findings, business owners in the subsegment did not possess specific informationpertaining to their financial positions with regards tocapital invested, business assets employed, annualrevenue, income and expenses. The informationgathered was an estimate provided to us by theinterviewees.

Business owners reluctance to share accurate financialdata presents an issue for calculation of sectorsbenchmark financial ratios. Devising from theinformation attained in the course of primary research,the indicative ratios will be an estimate at best andcannot be utilized to assess an accurate position ofthe individual businesses operating in the segment.

Conclusively it can be said that there exists an ampledemand for quality private hospitals in Pakistan andalso that the existing scenario provides conduciveopportunities for entry into this business venture.

Suppliers Patients/Customers Organization Panel

Private Hospitals

Patients/Customers

Working Capital

Working capital is dependent upon payment termsoffered to customers and received from suppliers,businesses in private sector hospitals operate on instantpayment from customers.

The segment works mainly on cash base payment toand from customers and suppliers respectively. Veryfew hospitals take loans from their supplier withtenure of less than one month. Considering the servicenature of the business, there is very limited workingcapital requirements for the business.

Less than 1 month100%

Repayment Terms offered by Suppliers

No credit81%

1 month19%

Repayment Terms for Customers




16/24


5.6 Financial Information

Primary survey findings portray the followingfinancial indicators for the segment underconsideration. The results depict Total AverageCapital, Assets, Revenue, Expenses and Incomeunder the selected sample.

Survey findings demonstrate approximately 53%businesses operating with Total Capital and Total

Assets less than PKR10 MN exhibiting a relativelylow initial investment for startup. Total assetscomprise of land and building, machinery andequipment, furniture and fittings, liabilities constitutetrade payables and borrowing for working capitalfinance.

Business related assets constitute of technology highmedical equipments and surgical instruments.

Annual revenue is predominantly less than PKR 10MN of about 59%; about 35% of businesses haverevenue between PKR 10-50 MN. Expensesprimarily represent employee cost and machinerymaintenance.

PKR10-50 MN

32%

PKR

51-100 MN9%

Undisclosed6%

Less thanPKR 10 MN

53%

Total Capital

PKR10-50 MN

35%

PKR51-100 MN

6%

Undisclosed6%

Less thanPKR 10 MN

53%

Business Assets


PKR

10-50 MN35%

PKR51-100 MN

6%

Less thanPKR 10 MN

59%

Total Revenue

Less thanPKR 10 MN

79%

PKR10-50 MN

18%

PKR51-100 MN

3%

Annual Expense


Source: Survey Findings Source: Survey Findings


17/24


All businesses display relatively fair earnings. Only3% owners experienced a decline in their earningsover the last year. Around 50% respondents earnbetween PKR 1-5 MN with 18% exceeding theirearnings between PKR 6-10MN.

PKR1-5MN50%

PKR6-10MN18%

More than10 MN6%

Less thanPKR 1 MN

26%

Total Income


Financial Information

Total Capital (Net Worth)

Business Assets

Total Revenue

Annual Expense

Total Income

Key Financial Ratios

Profit Margin

Operating Expenses/ Revenue

Asset turnover

ROA

21,890,625

24,556,250

22,352,941

10,917,647

4,733,824

21%

49%

91%

19%

PKR

These are the benchmark financial ratios calculatedon the basis of average value of financial informationobtained from the sample of 34 entities in this subsegment. Such ratios will of course substantially varyfor different sample sizes for each establishmentindividually.

5.7 Indicative Business Requirements

Business owners require equipment and civil worksfor start up or expansion. Hospital set up is capitalintensive in venture. The values provided below are

susceptible to volatility in market prices. In addition,

individual business owners will have distinctiverequirements as per their business needs. The tablebelow is neither comprehensive nor specific andpresented only to provide an indication as to thetypical requirement for set up or the expansionneeds of a small sized business within this segment.


Benchmark Financial Ratios

1

2

3

4

5

6

7

9

10

11

12

250,000

10,000

50,000

100,000

300,000

250,000

5,000

15,000

1,000,000

800,000

1,500,000

800,0008

Indicative

Cost (PKR)Indicative Equipment RequirementS.No.

ECG Machine

Wheel Chair

Surgical Equipment

IT Equipment

Ultrasound

X-ray Machine

BP Apparatus Mercury

Medical Weighing Scale and height Rod

Furniture and fittings (Hospital beds, stretcher, etc)

Ambulance (Hi-Roof)

Ambulance (Vans)

Physiotherapy Equipment

(Transcutaneous Electrical Nerve Stimulation, etc.)


18/24


5.9 Usage of Banking Products

The owners are largely unaware of any SME sectorspecific efforts made by the Government of Pakistan;however some business owners are aware of loanproducts offered by banks and have availed the facilityof loan products for business funding needs.

70% of business owners stated that they use banksto meet banking and business needs availing thefacility of business banking accounts but the ownersare not keen to propose any feature or product to beoffered by the bank.

5.8 Financial Need Analysis

Funds are mostly managed by the owners themselves,mainly required for business assets and working capitalwhich are mostly fulfilled by their own personalsavings or cash flows from the business. Among thefixed assets, finance requirements mainly centered onmachinery and equipment of the business.

According to our primary surveys, 68% businesses

have funding needs for business assets out of whicharound 45% have fixed assets requirement formachinery and equipment and 21% for furnitureand fittings.

The sector is generally underserved with respect tofinancing and banking products. The businessesoperating in the segment are not very keen to obtainfinancing since the general perception within thissegment of obtaining financing is complicated andhas a lot of operational hassles.

From our primary survey, SMEs in private hospitalshave preference for long term equipment financingand vehicle financing. 8% and 10% attributes to longterm equipment financing and Business vehiclefinancing respectively.

Business Funding Needs

Project financing4%

No funding needs6%

Long termequipment financing

8%

Business vehiclefinancing

10%

Working Capital /Overdraft

17%

Businessassets56%


Fixed Assets Requirements

Machinery andEquipment

49%

Furniture and

Fittings21%

Buildings17%

Office andBusiness

Equipment6%None

8%



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of subsector relies on the same supplier to meetmaterial needs and considering the nature of thebusiness, it cannot be stated to have a regular streamof customers.

A large proportion of SMEs in the segment do notuse Banks to meet business needs and are not payingfor any insurance products.

Risks inherent to the sector include:

Availability of doctors and nursing staff toprovide treatments

Patient needs dependent

Staff turnover

Possible Mitigates:

Lending only to those businesses which havebeen operating for more than five years

Proposing products to business with averifiable banking history of more than two

years Review of accounts and register of invoices

Qualified professionals in business

Usage Percentage

79%

23%

Banking Product

Deposit (Checking) Account

Term Deposits

The segment at large is reluctant to use any financingor loan product to meet funding needs, neither dothey propose any specific loan product for the subsector financing needs at large. Only 17% ever useda bank to meet their funding requirements for thebusiness from which only 26% of the owners citedhigh interest rates and eligibility reasons for notapplying for a loan.

In addition it is also observed that other services suchas payroll and money transfer are discouraged by the

sector whereas the response for cash managementand collection services is healthy.

71% of respondents do not pay for any of the proposedInsurance products and 88% of them are not interestedin availing any insurance product in future.

The segment currently is not paying for any advisoryservice and has demonstrated lack of interest inobtaining advisory services from banks; only 22% ofowners are willing to pay for it, a majority is of theopinion that it is not the core function of banks.


5.10 Segment Risk Considerations

Businesses in the segment are largely soleproprietorships, more than 60%, having this businessas the only source of income and nearly 40% of thehospitals surveyed operate from rented premises whichincrease the risk from the view point of the lender.

The segment consists of 47% of businesses that havebeen working for more than 10 years with none ofthe SMEs operating with unskilled workers; alsoalmost half of the businesses are not formally registeredwith any trade union or association.

Around half of the Businesses in the sub segment donot prepare financial statements and very few of theremaining has an audit of financial statements. Theanalysis shows that the segment operates in a lowcompetitive market with a maximum amount ofbusinesses having one to five competitors. The majority


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16 PROPOSED BANKING PRODUCT SUITE

6 Proposed Banking Product Suite

6.1 Products Features

Based on our primary and secondary research we

propose the following for social and economic growth

ofHealth and Social Work Private Sector Hospitals

sub segment:

Asset Products:

Medical Diagnostic Equipment leasing

Lab Equipment Leasing

Ward Expansion Business Loans

Liability Products:

Business Bank Account

Privilege Banking Account for Professionals

Other Products

Bancassurance

Branchless Banking (Mobile)

Utility Bill PaymentDetailsParticulars

Vehicle (Ambulance) Leasing

Minimum initial down payment of 10%

Minimum Limit - PKR 1,000,000 Maximum Limit - PKR 3,000,000

A maximum of three vehicles to be offeredunder the leasing program with the value of

such vehicles not exceeding the total averageturnover of 6 months determined over theperiod of last three years.

Down Payment

Vehicle leasinvg only to businesses with anoperational history of 5 or more years

A pre-approved list of vendors will bedeveloped and used

Leasing facility will be provided

5 years

One time documentation required for a periodof five years

Financial Statements

Salient Features

Tenure

Loan Limit

Documentation

Repayments will be based upon preset EqualMonthly Installments

Repayments &Withdrawals

As per prevailing KIBOR and spreadMarkup

Mandatory Insurance Requirement of theBanks

Insurance

As per existing bank policies and cost ofcharges

Penalty

DetailsParticulars

Medical & Diagnostic Equipment Leasing

Repayments &Withdrawals

Markup

Insurance

Penalty

Repayments will be based upon preset EqualMonthly Installments

As per prevailing KIBOR and spread


As per existing bank policies and cost ofcharges

Documentation One time documentation required for a period

of five years Financial Statements

DetailsParticulars

Medical & Diagnostic Equipment Leasing

Minimum initial down payment of 20%

Minimum Limit - PKR 500,000 Maximum Limit - PKR 3,000,000

In order to ensure capacity of repayment forexpensive equipment financing, the maximumlimit of financing for equipment will notexceed the average annual turnover of thefacility determined over a three year period.

Down Payment

Medical Diagnostic Equipment leasing will beprovided for expansion capital only tobusinesses with an operational history of 5or more years

A pre-approved list of equipment and

machinery manufacturers will be developedbased on information received from tradeassociation and market reputation

Credit facility will be offered directly throughpre approved equipment and machineryvendors

3 years

Salient Features

Tenure

Loan Limit


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17 PROPOSED BANKING PRODUCT SUITE

6.2 Eligibility Criteria for Asset

Products

DetailsParticulars

SME Business Bank Account

PKR 10,000MinimumDeposit

Cvheque Book Upgraded ATM facilities Business Visa Debit Card Phone Banking Mobile Banking Monthly account statement

Non-remvunerative Current Account

CNIC and business registration documents asper SBP guidelines

Account Type

Documentation

Facilities

DetailsParticulars

Privilege Banking Account for Professionals

PKR 100,000MinimumDeposit

Cheque Book Upgraded ATM facilities Platinum/ Gold Visa Credit/ Debit Card Privilege Phone Banking Access to Privilege Lounge in Bank Other Privilege facilities offered

Non-remunerative Current Account

CNIC and business registration documents asper SBP guidelines

Account Type

Documentation

Facilities

DetailsParticulars

Other Products

Bancassurance productvs such as BusinessPremises Insurance, Personal Injury Insurance,Equipment and Vehicle insurance can beproposed by banks through its channelsoffering reasonable rates and servicing throughbanking channels such as direct debit

Bancassurance

BranchlessBanking (Mobile)

Mobile banking services for instance balancingcheck, bill payment and funds transfer

Utility BillPayment

Service for easy payment of electricity, gas,telephone and cell phone bills

DescriptionIndicator

Assessment of type of customers to take into accountthe total indebtedness of the borrower and hisdisposable income and should ensure that the totalfinancing to a borrower does not exceed the reasonablelimits as laid down in approved policies of the bank.Borrower should be a qualified medical practitionerand in practice for the past five years and hold a validCNIC as well as valid Pakistan Medical and DentalAssociation registration

To assess the Borrowers position their invoices willbe verified and checked against banking history

Credit worthiness of the borrower will be ascertainedby collecting information from CIB and other banksoperating in the region.

To assess average expenses, income generated andrepayment capacity of the borrower.

To assess that Customer/ Borrower requirements arein compliance with standards set for revolving financescheme by the Bank and/ or Regulatory Authorities.

Verifiable banking history of more than three yearswith active accounts

Business should be in operation for more than fiveyears

BorrowerEligibilityAnalysis

BusinessAnalysis

Creditworthiness

Financialparameters

Adherence toLendingStandards

Banking History

BusinessOperations

DetailsParticulars

Ward Expansion Loans

5 years

5 years

Indicative Tenure

Minimum Limit - PKR 1,000,000 Maximum Limit - PKR 3,000,000 Minimum and maximum loan limits are

reviewed annually

This is for existing hospitals that have ownedpremises and would invest in further expansionand for that would require civil works as wellas furniture

Total limit of loan offered not to exceed totalannual revenue based on the average annualrevenue of the last three years.

Loan Limit

History of

Operation

Detailed documentationDocumentation

Approved on basis of business proposal andRMG guidelines

Approvval

Land Building

Ward expansion only offered initially tohospitals that operate from owned premises.Valuation of property offered as collateral tobe undertaken by approved PBA valuer andverified by Manager/ RM.

Collateral

As per prevailing KIBOR and spreadMarkup


Insurance

No early repayment penalty will be imposedon the borrower

Penalty

No hidden chargesHidden Charges


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Banks need to have a comprehensive distributionstrategy. Banks aims to cater banking needs of privatehospitals sector through its products on national basisin major cities of the country.

Initially the bank will provide financing facility onlyin major urban areas of the cities; however, bankswill penetrate into other small business market after

establishing strong presence in major cities.

Banks will need to adopt conventional deliverychannels:

Branches: Establishment of lending branchesin private sector hospitals with high growthpotential to attract a large number ofcustomers for SME Products

Direct Sales Agent: This activity will beoutsourced and trained marketing team will

periodically visit identified areas within thecities to influence potential customers andcreate awareness of the product & featuresbeing offered under SME Products Suite.

18 DISTRIBUTION AND COMMUNICATION CONSIDERATIONS

7 Distribution and CommunicationConsiderations

SMEs in Health and Social Work Private SectorHospitalsare spread out across the cities in variouslocations, therefore, a single location of delivery forbanking products cannot be proposed.

Entry strategy for this sub sector is listed below:

Marketing Objectives

Marketing objectives for building and promoting thebrand image of SME Products for private sectorhospitals are as follows:

RM teams are to visit the Private sectorhospitals to gain an understanding of theindustry requirements and introduce themthe means for their capital expansion

Advertise banking products to privatehospitals in order to create awareness of thebanking products available for them

Promotional Activities

To create awareness of SME specific products in thetarget market, the management will aggressivelyadvertise various promotional programs and sponsoredevents:

Workshops will be conducted to createawareness amongst business owners. PakistanMedical Association could be partnered withto provide maximum exposure and awareness

to Doctors who are running private hospitals.

Banks can service these SMEs through the followingproposed channels (Please note that this list is notexhaustive):

Direct Sales Agents Brochures

Distribution Strategy

To reach maximum percentage of target market,


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Anjum Asim Shahid RahmanChartered AccountantsHouse # F-67/I/II , Ibn e Qasim Park RoadBlock-4 Clifton,Karachi Pakistan

T +92 (0) 21 35822641-2www.gtpak.com

www.gti.org

Kaiser H. NaseemHead of Bank Advisory ServicesMENA Region

Email:[email protected]

Akbar Zaman KhanBank Advisory ServicesMENA RegionEmail: [email protected]

Researched by:

Contact Information:

Acknowledgement:

Provision of data, selection of 10 SME sectors and participation in meetings / focus groups by the following banks:

Allied Bank LimitedAskari Bank LimitedBank Alfalah LimitedBank Al Habib LimitedFaysal Bank LimitedHabib Bank LimitedHabib Metropolitan Bank LimitedKASB Bank Limited

MCB Bank LimitedMeezan Bank LimitedNational Bank of PakistanNIB Bank LimitedSoneri Bank LimitedStandard Chartered Bank (Pakistan) LtdUnited Bank Limited

State Bank of PakistanI.I. Chundrigar Road, Karachi, Pakistan.

Phone: 111-727-111Fax: (+92-21) 99212433 - 99212436www.sbp.org.pk


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2121 Pennsylvania Avenue, NW

Washington, DC 20433, USAwww.ifc.org

May 2011

finanical hospitl

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