lec 2 micro finance sector in pakistan

8/2/2019 Lec 2 Micro Finance Sector in Pakistan

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Microfinance sector in PakistanMicrofinance sector in PakistanLecture # 2


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OUTLINEOUTLINE

y History

y Microfinance Institutions

y O

utreachy Sustainability

y Performance

y

LatestTrends


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HistoryHistory

y The origin of microfinance in Pakistan can be

traced back to the early 1990s and two

projects:

y the Orangi Pilot Project and

y the Aga Khan Rural Support Program

(AKRSP).

y In 1999, the AKRSP and the National Rural

Support Programme accounted for 84

percent of total microfinance services.


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Cont..Cont..

y Today, a multitude of institutions provide microfinance

services in Pakistan.

y Twenty of these institutions are registered onThe

Microfinance Information exchange (MIX) Market (an

online information service), 19 of which are members of

the Pakistan Microfinance Network (PMN).

y Most of these institutions are not specialized in

microfinance, but combine microfinance with other

development programs, such as health and education.y Microfinance providers in the country can be classified into

the following groups:


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Classification of MFIsClassification of MFIs

y Microfinance banks (MFBs): specialized institutions that operate asmicrofinance banks;

y Rural Support Programmes (RSPs): programs themicrofinanceoperations as a part of integrated rural development

initiatives;

y Nongovernmental organizations/microfinance institutions (NGOMFIs):nongovernmental organizations that run microfinance operations aspart of integrated development programs or that focus exclusively onmicrofinance;

y Commercial financial institutions: commercial institutions involved inmicrofinance

y Government-owned institutions: institutions involved in microfinance

that are owned by the government.


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Microfinance banksMicrofinance banks

y MFBs are licensed by the State Bank of Pakistan under theMicrofinance Ordinance of 2001. MFBs can be established ateither the district, province, or national level, based on theirvolume of capital and geographic area.

y At present, there are six MFBs in the country with loanportfolios ranging from $846,000 to $43 million, as follows:

y 1. Khushhali Bank ($43 million)

y 2. Network Microfinance Bank Limited ($846,000)y 3. Pak-Oman Microfinance Bank Limited ($1.5 million)

y 4. Rozgar Microfinance Bank Limited (n/a)

y 5. First Microfinance Bank Limited ($11 million)

y 6.Tameer Microfinance Bank Limited ($6.6 million)


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Rural SupportRural Support ProgrammesProgrammes

y In 1982, the Aga Khan Foundation started offeringmicrocredit services in the Northern Areas ofPakistan under the Aga Khan Rural SupportProgram (AKRSP).

y In the 1990s, the Government of Pakistanacknowledged the idea of microfinance byestablishing the National Rural Support

Programme (NRSP) at the national level and, later,by establishing other such programs at provincialand regional levels.


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Nongovernmental OrganizationsNongovernmental Organizations

y NGOs either provide dedicatedmicrofinance services or offer them as partof integrated development programs.

y

There are several NGO-MFIs providingmicrocredit services in Pakistan, the mostestablished of which was Kashf Foundation.Created in 1996, Kashf has over 295,000

active borrowers and was the first MFI tobecome sustainablein 2004.


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Commercial Financial InstitutionsCommercial Financial Institutions

y Apart from their core business line,CFIsprovide microfinance services by creatingseparate microfinance departments or

divisions.y For example,ORIX Leasing (Pvt) Limited

provides microfinance services throughseparate branches, with its other business

lines subsidizing the microfinanceoperation.


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GovernmentGovernment--owned Institutionsowned Institutions

y The National Bank of Pakistan (NBP) provides arange of services to micro entrepreneurs, includingcredit and savings accounts, through the Rozgarscheme.

y This initiative provides credit facilities to selectedyouth groups, with loans of up to $1,500 at highlysubsidized rates.

y The National Savings Centre provides savings servicesthrough 12 savings programs that operate through 12regional directorates and 366 savings centres.

y Finally, the Pakistan Post Savings Bankhas the largestsavings bank network in the country.


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Pakistan PovertyPakistan Poverty AllevationAllevation FundFund

y It represents innovative model of public

private partnerships sponsored by govt of

Pakistan and funded by the world bank

and other global donors.


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Pakistan Microfinance NetworkPakistan Microfinance Network

PMNPMNy PMN was established in 1997 for

microfinance practitioners in pakistan. It

serves as information hub for local

microfinance industry.


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Microfinance Institution OrdinanceMicrofinance Institution Ordinance

20012001


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Causes of failureCauses of failure

y Self Sustainability

y Funding

y High Operational costs

y HighTransaction costs v/s small credit

amounts

y Product Innovations

y Social tendency to avoid riba


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Future of MicrofinanceFuture of Microfinance


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Microfinance outreachMicrofinance outreach

y Most microfinance providers are concentrated in the Punjab and Sindh

provinces.Their infrastructure and higher population density, relative to

other provinces, are the likely cause of more specialized MFIs being

active in Punjab than in any other province.

y A comparison of the data by province shows that almost 60 percent of

total active borrowers in the country are from the Punjab, followed

(with a considerable lag) by Sindh Province,with 23 percent of active

borrowers.

y Punjab and Sindh are the two most densely populated provinces in the

country, with 56 and 25 percent of the total population of Pakistan,

respectively.The uneven penetration of microfinance between provincesmay therefore be attributed to the population distribution in the

country.


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PerformancePerformance

y Despite the volatile economic and

y political situation of the country, and the

devastating floods in the latter half of

2010, the microfinance sector posted

growth of13% in credit and 40% in

savings outreach.


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ContCont

y Typical loan sizes range between $100 and$500 and are disbursed through a grouplending model; credit is used primarily foragriculture, livestock, and trade businesses.

While the regulatory loan ceiling is $2,500,very few institutions offer loans at this level.

y Moreover, microfinance providers arehesitant to increase their exposure to

individuals because of the risks ofnonsocialcollateral associated with larger loan sizes.


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ChallengesChallenges

y The primary challenges facing all MFPs inPakistan are lack ofadequate humanresources, securing sources of funding,

and reaching profitability. In general,microfinance is still viewed as a socialintervention to alleviate poverty.Thisviewpoint has been the primary reason

for lack of growth in the sector and is thesource of its current challenges


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Recent NewsRecent News

yPartnershipsy A new collaboration between the First Micro Finance

Bank Ltd. (FMFB) and the Pakistan Postal Servicebegan in late 2007.

y FMFB, an MFI that operates under the aegis of theAga Khan Development Network, signed anagreement with the Pakistan Post in October 2007 toprovide microfinance services through post officesacross the country. Funding to provide loans is

provided by FMFB.Under the agreement, the postalservice provides office space and verifies clients insupport of loan appraisal, disbursement, andcollection services.


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Product research and developmentProduct research and development

y Some microfinance providers have begun to offer branchlessbanking services on a limited basis.Certain of them are usingvehicles to access areas where there are no branchnetworks, while others are exploring mobile phone bankingon a pilot basis.

y Tameer received funding through

CGAP and the GatesFoundation to explore branchless banking using mobile

phones..

y Kashf Foundation is also planning to pilot mobile phonebanking.The State Bank of Pakistan supports these initiativesthrough a bank-led model. If successful, SBP will consider

supporting telco-led models, whereby telecommunicationscompanies act as direct agents instead of the banks. Inaddition to mobile banking, many resources have beeninvested into research on savings products.


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GROWTHGROWTH

y Growth in microsavings is increasing bothin terms of active savers and the

y volume of savings. However, according to

interviews conducted for this study, mostmicrofinance banks view savings as aservice, not as a low-cost financingalternative.This view is due in part to the

lack of commercial business cultureamong microfinance providers


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lec 2 micro finance sector in pakistan

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