Spread of micro-credits by banks in Pakistan is lagging behind at a meager seven per cent when juxtaposed with the targeted size of the market, it emerged on Friday. Of the targeted 30 million borrowers, microfinance facility had so far reached only two million creditors that constitute seven per cent of the total while the remaining 93 per cent still lack small credits. This was stated by Governor State Bank of Pakistan (SBP) Yaseen Anwar while delivering his inaugural speech at the 5th Pakistan Microfinance Country Forum held at a local hotel.
“Currently, micro-credit is reaching to only two million borrowers whereas the size of the target market is estimated to be 25 to 30 million,” the SBP governor said. He said Pakistan had one of the lowest financial penetration levels in the world with 56 per cent adult population totally excluded and another 32 per cent informally served. “I would like to reaffirm the need for microfinance development for fostering a pro-poor and sustainable development in Pakistan,” he said. Anwar said the microfinance sector needed to discontinue dependence on external catalysts and focus on improving its financial and operating performance by setting targets for borrowers, savers, portfolio quality, and self-sufficiency.
“Considerable work still needs to be undertaken to ensure that all microfinance banks and institutions are acting responsibly. It is also important for the industry to continue to innovate, create new partnerships with the growing branchless banking networks, and to evolve and provide financial access to the un-banked,” he said. On its part, the governor said, central bank had laid down a detailed strategy to promote sustainable growth of the microfinance sector in its new Microfinance Strategic Framework 2011-15, which would foster a pro-poor and sustainable development in the country. He said the strategy’s effectiveness and success hinges on growth dynamism fundamentally coming from microfinance operators themselves.
“State Bank will continue to work with all stakeholders to support this nascent industry, which is expected to be a key driver in expanding financial services to all over Pakistan.” “Though early successes in microfinance industry were laudable, they had yet to create a major dent in the widespread financial exclusion,” he said. Governor State Bank said regulator would issue regulatory guidelines to MFBs for the up-scaling of loans and develop a reporting structure to assess the geographic distribution of microfinance growth. Anwar said the success of microfinance in Pakistan had widely been acknowledged by the international community. “Our microfinance regulatory framework has been ranked globally at the top in 2010 and 2011 by the independent Economic Intelligence Unit, an arm of UK’s ‘The Economist’ magazine.” Evolution or trajectory of microfinance had so far remained positive despite many challenges, he said adding presently nine MFBs were operating in Pakistan. SBP Governor said recent development in mobile phone banking was highly encouraging. Expansion in the retail network of microfinance had been brought about overwhelmingly from agents and mobile phone channels and within a span of just two years there were now almost 18,000 branchless banking outlets surpassing the 10,000 conventional bank branches.
He said combined daily transaction volume of the two prominent branchless banking models ‘Easypaisa’ and ‘Omni’ now averaged over 175,000, with an average size of Rs3,700. As per an independent World Bank – CGAP study, the small size of the transaction indicated enhanced access to finance by the poor and marginalised people, an important milestone for financial inclusion, he added. Anwar lauded the role of UKAid and Asian Development Bank in development of microfinance in Pakistan saying under programmes sponsored by these donors, a number of market interventions were managed by State Bank. He said Institutional Strengthening Fund (ISF), a UK £10million grant facility launched in December 2008, had so far approved Rs522 million for 11 microfinance providers including top and middle tier MFBs and MFIs. Under arrangements, ISF would support 15 projects for investment in HR, IT, product development, risk management systems, business plans and branchless banking development.
Under ISF, Pakistan Microfinance Network (PMN) was also provided funding support to conduct research and develop industry’s infrastructure such as the testing of pilot Microfinance Credit Information Bureau (MCIB) in Lahore. “ISF will consider how to further support important systemic areas such as upgrading CIB to the national level,” he added. Governor said Microfinance Credit Guarantee Facility (MCGF) had thus far mobilised commercial funding of Rs3225.0 million for four microfinance providers for onward lending to around 200,000 new micro borrowers. MCGF, he said, would aim at raising commercial debt from non-bank sources, diversifying sources of commercial capital for microfinance providers, adding facility would be instrumental in mainstreaming microfinance providers and resolve some of its funding constraints on a permanent basis. Similarly, Financial Innovation Challenge Fund (FICF), a UK £10million innovation grant facility, was launched by SBP in May 2011 to provide grants to foster innovation and test new markets, lower cost of delivery, enable systems and procedures to be more efficient and provide new ways of meeting the larger demand for financial services. He said banks, public sector institutions, microfinance institutions, government agencies, pension funds, and academic institutions were invited to apply for the promotion of financial inclusive G2P payments through bank accounts at branchless banking outlets and also provide other financial services to the G2P payments beneficiaries. “A number of applications have been received from these institutions, which are now being evaluated for the first round of G2P payments challenge,” he added.
He disclosed that SBP had started a pilot Financial Literacy Program (FLP) with the private sector as an implementing partner. The program is the first ever initiative to promote financial literacy among the general public at the national level, he said adding the dissemination would be made through TV channels, regional Radio, print media and mobile network operators.
