The central bank on Thursday said so far 25 guarantees of over Rs 7 billion had been issued under the Microfinance Credit Guarantee Facility (MCGF) which was launched in 2008 to match the massive scarcity of funding to the majority of the local microfinance market.
The said guarantees had been issued for five leading microfinance (MF) providers enabling micro-credit access to around 350,000 new borrowers.
“The facility, due to its risk sharing structure has achieved a leverage of 3 times, mobilising an additional Rs 5 billion from private capital markets, establishing that microfinance may not be that as risky as a business proposition, and most of all, the facility has engaged 16 commercial banks and recently retail investors in funding the microfinance providers,” said Governor State Bank of Pakistan (SBP)Yaseen Anwar while addressing the closure ceremony of Term Finance (Sarmaya) Certificate (TFC) of Tameer Microfinance Bank.
Declaring that the central bank was pursuing a multi-pronged approach to tackle the challenge of high financial exclusion in the country, Anwar said the MCGF of UK £ 15 million had been instrumental in relaxing funding constraints of the microfinance sector in Pakistan.
He said MCGF had helped build links between micro borrowers and banks/DFIs. The familiarisation of the banks/DFIs with the client will eventually lead to mainstreaming and graduation of the micro borrower, he said.
The SBP Governor said the facility has introduced microfinance business to banks/DFIs as banks have to evaluate the microfinance providers which must have helped them develop their own sense of the risks involved in microfinance. As a result, banks are now more willing to invest in micro banking. Anwar said the dacility had also helped microfinance providers to offer small ticket sizes for retail investors. This had offered small retail investors an alternate channel for investing their savings and earning relatively higher returns, encouraging the concept of micro-savings.
Anwar said the SBP had launched the facility with the help of UK’s DFID in 2008. “Prior to the launching of this facility, and apart from one-off funding deals between the few MF providers and commercial banks, the commercial funding market was nonexistent for microfinance providers and the microfinance industry was severely handicapped and highly donor dependent for its funding needs,” he added.
The SBP Governor said the scope of the facility had recently been enhanced to allow microfinance providers to mobilise non-bank financing from capital markets, further diversifying sources of financing for micro borrowers, adding that it is heartening to see that a number of microfinance providers, including Tameer Microfinance Bank, while benefiting from the MCGF, have helped the facility attain its objective.
“In particular, SBP is aiming to develop an efficient and sustainable market-based financial structure meeting the financial needs of the marginalised population of the country including women and young people,” he said.
He said that the issuance of this TFC will go a long way in diversifying funding for the microfinance sector. “I strongly encourage all financial market players to develop a long term vision for making the financial sector in Pakistan more inclusive,” Anwar said.
Anwar observed that the estimated microfinance market of 25-30 million clients may not necessarily just need credit services. “It is of utmost importance that the industry should aim to provide holistic and appropriate financial services, including deposit, credit, insurance and remittance services,” he said, adding that the SBP is well aware of the fact that the industry is faced with a number of challenges in the way of achieving this objective. “SBP is actively engaged with all stakeholders to address the sector specific challenges in a sustainable manner,” he said. He noted that the financial sector in Pakistan remained restricted in its outreach both in terms of its depth and breadth. According to the Access to Finance Study of 2008, hardly 12% of the population has access to formal banking services and another 32% is informally served whereas 56% of the adult population is totally excluded, he said adding that similarly in Pakistan, the estimated size of the microfinance market is in the range of 25-30 million clients which indicates that the current level of microfinance access at 2.4 million clients is only 10% of the potential market.
