Remembering Imtiaz Alam Hanfi

Mr Imtiaz Alam Hanfi, who served as governor State Bank of Pakistan from August, 1988 to June, 1993, with a one-year break necessitated by his resignation forced on him by the PPP government in September, 1989, passed away in Karachi peacefully on April 22, 2015 at the age of 85. May his soul rest in peace and may Allah give strength to his surviving family to bear this loss.
Born in Allahabad in 1929, Hanfi obtained his master’s degree in economics in 1952 from Karachi University standing first class first. Thereafter, he joined the SBP as officer class 1 and rapidly moved up to hold key positions in research, banking, foreign exchange and audit departments of the SBP before becoming its deputy governor in 1984 after three years as the chief executive of the Pakistan Industrial Credit and Investment Corporation (PICIC) on deputation from the SBP. In 1988, he was appointed as first governor from within the career staff of the SBP.
Hanfi held key positions in the financial sector and in the SBP. But he neither used those positions to enrich himself nor allowed others to use him for financial or other gains. He worked as the governor when there was no legal protection to it and no statutory autonomy for the SBP but did not hesitate to take a principled stand in advising the government and protecting the jurisdiction of the SBP. He preferred to step down rather than compromise on principles. In doing so, he enhanced the stature of the position of the governor.
Credit goes to the then government of Nawaz Sharif who restored him back to his position in September, 1990 on its return to power. Hanfi retired in July, 1993 after serving his full second term. Now when the laws give statutory autonomy to the SBP and provide protection to the tenure of the governor, it is about time for the SBP management to learn some lessons from the courage shown by governor Hanfi.
A low keyed and humble man with impeccable integrity, Hanfi served the country for more than forty years in different capacities before becoming its first governor from within the SBP career staff. During his tenure as governor, Hanfi tried to initiate banking reforms to halt its deterioration due to undue interference of the government in the banking sector. He also introduced a system of treasury bill auctions and began to charge a rate of interest on government borrowing from the SBP at the prevailing market rates on treasury bills.
When I travelled to Karachi from Islamabad in July, 1993 to assume the office of the governor, Hanfi was still SBP governor but on leave before retirement. Instead of going to the SBP to assume charge, the first step I took was to pay a visit to him at his residence. He was living in a modest house built by him by taking a loan from the SBP and never moved out of it to occupy the Bank House, the official residence of the SBP governor, even after becoming the governor.
In my conversation with him on the affairs of the SBP, I was struck by his disappointment with government interference in the affairs of the banking system. He openly expressed his relief on having retired as governor SBP and stated that the best thing that can happen to an honourable person is to retire with his personal dignity and professional pride intact. His fear was that a principled person with integrity has to cope with the pressures that are exerted from various powerful quarters to take undue personal financial and other advantages.
In such a situation, mudslinging and false accusations become a common weapon of revenge. While he did not specifically bring up the subject of the kidnapping of his son when he was the governor, I could see that this incident was uppermost on his mind even then.
The official record that I was able to scan as governor showed me how much Hanfi was threatened for the sanction against the rules of the Mehran Bank that was being patronised by the then chief minister of Sindh. Hanfi stood his ground and did not yield to threats and pressures coming from powerful political circles. Since sanction of a new bank was in the hands of the government in those days, the Mehran Bank nevertheless came into existence in January, 1992.
Soon after its inauguration, the Mehran Bank engaged in illegal financial activities and the SBP, under the stewardship of Hanfi, continued to write inspection reports boldly about the Mehran Bank defaulting in meeting the statutory reserve requirements and liquidity ratio and not adhering to SBP guidelines in the matter of its lending practices.
After going over the inspection reports, I came to the conclusion that the Mehran Bank could not be allowed to remain operational under its existing management without severe implications for depositors and the banking industry. Accordingly, I used sections 41A and 41 B of the Banking Companies Act to take over and liquidate the bank and successfully prosecute its chief executive for financial embezzlement – notwithstanding the fact and fear that powerful official circles were behind him. The threats for dire personal consequences that I received reminded me of the courage shown by Hanfi against all odds at the time of sanction of this bank.
Hanfi also initiated crucial financial sector reforms, particularly relating to the purchase of treasury bills by the SBP and management of credit to the private sector. Those initial steps laid the foundation for major banking reforms during 1993-1997 that brought back vitality in the commercial banking system and strategic importance to the SBP as the central bank of the country. It is altogether another matter that recently the SBP has been brought operationally under the Ministry of Finance in violation of the statutory reforms introduced in the 1990s that are still on the law books. It highlights the importance of individuals who head an institution in honouring and enforcing the laws of the land.
The banking sector of Pakistan owes its debt to Mr Imtiaz Alam Hanfi for his efforts, taken at great personal risks, to strengthen the regulatory framework and bring about improvements in the working of the SBP.
The writer is a former governor of the State Bank of Pakistan. Email: doctoryaqub@hotmail.com