Microfinance In Pakistan

Microfinance In Pakistan

Pakistan is one of the few countries in the world which has a separate legal and regulatory framework for microfinance instructions.

At present, six microfinance banks are operating in the country and few banks are expected to be licensed in the near future. Besides there are about 100 NGO-MFIs engaged in provision of micro crdit to the poor.

However, total number of clients of MFBs and NGO-MFIs is around half million, which is less than 10% of the potential market to 6.5 to 7 million poor households. A multi institutional approach is required to tap huge un-severed/underserved market.

Micro-Finance By Commercial Bank:

In Pakistan, commercial banks have a huge branch network across the country with more than 3,000 branches in rural and semi-rural areas and semi urban areas. This branch network coupled with access to stable sources of funding and well established systems, could be effective utilized to extend microfinance services to the low income population which would bring additional revenue stream for banks.

The commercials banks may enter in MF market through variety of institutional managements including establishing MF counters ,etc. Commercial banks face increasing competition in their traditional retail markets. This is causing margin squeeze. It is also leading forward-thinking banks to explore new potential markets that can generate growth in client numbers at acceptable profit margins.

The commercial banks interested in building MF portfolios should review the different  institutional or organizational arrangements and select the mode based on their organizational culture, capacity and overall objectives.

No legal status, most in informal sector. Poor is unbankable perception-unable to provide collateral, minimum balances, tiny transactions. Risks in agric lending- main occupation of rural dwellers, erratic rainfall, drought, markets. Lack of conducive policies and at times conflicting. Lack of technologies to support outreach. High transaction costs, poor infrastructure.

Current Situation:

Presently the microfinance banks/institutions have a key role to play in creating economic opportunities for the poorest sections of the society by broadening  their outreach. The searching and encouring use of successful global practices and guides the provision of rules and oversight that would enable microfinance institutions build sources of public finding.

In developing economics, the symbiosis between the regulator and operators would be a critical underpinning  for this vital function to pull its weight as a major solution to poverty. The State Bank of Pakistan is facilitation setting up a microfinance exclusive credit information bueau to reduce risk association with microfinance operation and their clients.

Several initiatives have been taken by the SBP support micro financial development. These include measures to address most common causes of banking exclusion to facilitate and create enabling environment  for banks to address needs to under-severed and un-banking segments through dedicated prudential regulations, and through guideline for microfinance, SME finance, agricultural finance and other areas and to provide alternative finance models as such as Islamic banking which can operate in parallel with conventional banking.

The MFI Ordinance -2001 has been instrumental in catalyzing growth creating investors confidence and protecting depositors. State Bank of Pakistan has recently amended the Prudential Regulation for microfinance banks removing regulatory bottlenecks pointed out by industry. SBP increased ceiling on lending limits for MFBs and relaxed borrowed criteria. MFBs can now extend microloans of up to Rs.150,000/- for general purpose and Rs.500,000/- for housing loan.

Conclusion:

The concept of formal microfinance banks in Pakistan having capacity to provide a range of financial services to low income group on easy terms has emerged in mid 90s and since then it has been gaining growing acceptance of the getting-aware market.