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Pakistan: Second Generation of Capital Market Reform Program

Sovereign (Public) Project | 41108-013 Status: Closed

ADB is helping Pakistan develop well-functioning capital markets, particularly in equity and long-term debt. The program includes a range of policy and regulatory reforms to increase the supply of and demand for securities, such as shares and bonds, and strengthen securities market oversight.

Project Details

Project Officer
Conrad, Jurgen F. Central and West Asia Department Request for information
  • Pakistan
  • Loan
  • Technical Assistance
  • Finance
Project Name Second Generation of Capital Market Reform Program
Project Number 41108-013
Country Pakistan
Project Status Closed
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 2340-PAK: Second Generation of Capital Market Reform Program
Ordinary capital resources US$ 400.00 million
Ordinary capital resources US$ 400.00 million
TA 4956-PAK: Supporting Second Generation of Capital Market Reform Program
Japan Special Fund US$ 1.00 million
Japan Special Fund US$ 1.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector

Finance / Money and capital markets

Gender Equity and Mainstreaming No gender elements

The impact of the proposed Program will be enhanced economic growth through a more efficient and balanced financial system. The Program_s outcome will be increased resource mobilization through the capital market for productive investment and employment generation by providing efficient savings vehicles for retail and institutional investors and diversify funding sources for enterprises. This diversification of funding sources will also make the corporate and financial sector more resilient to shocks.

The Program will: (i) support the development of institutional investors to facilitate long-term capital formation and increase the demand for securities, (ii) improve the efficiency of securities markets to increase the supply of corporate securities and optimize the allocation of financial resources into productive investment, and (iii) strengthen the governance of capital markets to improve market transparency and protect investors.

Project Rationale and Linkage to Country/Regional Strategy

ADB has been supporting financial sector development in Pakistan since 1995 when the Financial Sector Intermediation Loan (FSIL) was approved. While this loan included a small capital market component (it focused on banking), only the Capital Market Development Program (CMDP), approved in 1997 together with a TA loan for capacity building, initiated comprehensive capital market reforms. CMDP was broad based and touched on all integral components of the capital market. According to its Performance Audit Report, CMDP was successfully implemented and produced concrete results. This included (i) establishment of SECP, (ii) modernized stock exchange infrastructure, (iii) full operationalization of automated trading and the central depositary system, (iv) establishment of a national clearing and settlement system, (v) liberalization of mutual fund investment policies and harmonization of taxation for private and state-owned mutual funds, and (vi) establishment of basic regulatory frameworks for insurance, leasing, and asset backed securities.

Building on the CMDP agenda, ADB approved the Financial (Nonbank) Markets and Governance Program (FMGP) in 2002. The Program consisted of a program loan, a political risk guarantee facility, and two TA loans aimed at strengthening (i) pension, insurance, and savings systems and (ii) regulation, enforcement, and governance of nonbank financial markets. Key achievements of FMGP include: (i) improved SECP capacity in the area of on-site and off-site inspections; (ii) establishment of regulatory frameworks for money markets and futures; (iii) strengthened disclosure and governance requirements for listed companies and nonbank financial institutions (iv) establishment of professional standards for accountants and auditors, (v) establishment of a legal framework for demutualization of stock exchanges (v) harmonization of the tax treatment of government and corporate bonds; and (vi) privatization of state-owned enterprises through the stock exchange. However, the FMGP had a number of complex amendments to financial sector laws, which have been considerably delayed, and covered a broad range of issues in various subsectors. The Government has proposed to ADB that the remaining amount under the second tranche of FMGP following release of the incentive tranche in September 2005 be cancelled, and key reform measures included under FMGP be pursued through the proposed Program. In line with the request, ADB cancelled the pending tranche of $80 million in May 2007. This approach takes into account the significant changes that occurred in the Pakistan's financial sector since FMPG was approved in 2002 and focused on addressing a smaller number of key binding constraints for capital market development. The Program supports a second generation of capital market reforms, building on key achievements made under CMDP and FMGP.

Impact More sustainable economic growth through improved financial sector intermediation
Project Outcome
Description of Outcome A more efficient and more balanced financial sector
Progress Toward Outcome second tranche release towards achieving the outcome
Implementation Progress
Description of Project Outputs

Enabling environment for private pension funds established

Development of domestic institutional investors supported

Corporate bond market development facilitated

Increased equity market breadth and reduced volatility

Institutional framework for sector supervision strengthened

Governance of securities markets, market professionals, and issuers strengthened

Status of Implementation Progress (Outputs, Activities, and Issues) Second tranche released 30 June 2011. Loan is financially closed.
Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design The Government requested ADB to support its renewed capital market development initiative in continuation of past assistance provided by ADB.
During Project Implementation The Government has established the Program Coordination Unit in the Ministry of Finance to coordinate program implementation. The Program Coordination Unit will cooperate closely with the Securities and Exchange Commission of Pakistan (SECP) and the Ministry of Privatization, which are the implementing agencies.
Business Opportunities
Consulting Services n/a
Procurement The loan proceeds will be used to finance the foreign exchange cost of items produced and procured in ADB member countries, other than the items specified in the negative list of ineligible items and imports financed by other bilateral and multilateral sources.
Responsible ADB Officer Conrad, Jurgen F.
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
Ministry of Economic Affairs and Statistics
Room 316, Block C
Secretariat Building
Islamabad, Pakistan
Concept Clearance 02 Aug 2005
Fact Finding 06 Mar 2007 to 19 Mar 2007
MRM 20 Apr 2007
Approval 31 Jul 2007
Last Review Mission -
PDS Creation Date 15 May 2007
Last PDS Update 26 Sep 2011

Loan 2340-PAK

Approval Signing Date Effectivity Date Closing
Original Revised Actual
31 Jul 2007 15 May 2008 13 Jun 2008 30 Jun 2009 30 Jun 2011 12 Jul 2011
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 800.00 Cumulative Contract Awards
ADB 800.00 31 Jul 2007 400.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 31 Jul 2007 400.00 0.00 100%

TA 4956-PAK

Approval Signing Date Effectivity Date Closing
Original Revised Actual
31 Jul 2007 06 Sep 2007 06 Sep 2007 31 Jan 2010 30 Sep 2010 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
2,000,000.00 0.00 0.00 0.00 0.00 0.00 2,000,000.00 31 Jul 2007 283,658.77

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

Title Document Type Document Date
Pakistan: Second Generation of Capital Market Reform Program Validations of Project Completion Reports May 2014

Related Publications

None currently available.

The Access to Information Policy (AIP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.

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No tenders for this project were found.

Contracts Awarded

No contracts awarded for this project were found

Procurement Plan

None currently available.