Outreach of microfinance continues to grow

The outreach of microfinance continued to grow at a double-digit rate during 2016 with notable expansion in deposit base, as gross-loan portfolio witnessed a staggering growth of 47 percent and crossed Rs 100 billion mark during this period. This is the crux of the “Pakistan Microfinance Review (PMR) 2016” issued by Pakistan Microfinance Network (PMN) here on Wednesday. PMR is an annual state of the microfinance sector report based on financial and social performance analysis of microfinance providers.

The initiative is supported by UKAID’s Department for International Development (DFID). Due to this sustained growth, the sector is now viewed a key pillar in furthering the financial inclusion agenda in the country.

The report highlighted that the industry’s asset base remained strong and stood at over Rs 200 billion with MFBs comprising 75 percent of the total assets. MFBs continued to rely on deposits as their main source of funding, whereas, MFIs and RSPs had to rely on debt as their primary source of financing. The sector’s portfolio quality remained strong, while risk coverage remained high.

The report revealed that in the year 2016, credit outreach remained positive with active borrowers increasing to 4.2 million from 3.6 million in 2015 recording a growth of 16 percent. Meanwhile, the gross loan portfolio witnessed a staggering growth of 47 percent and crossed the PKR 100 billion mark. The GLP stood at PKR 132 billion from PKR 90 billion in Pakistan Microfinance Review 2016 Financial Services for all annual Assessment of the Microfinance Industry.

Among the MFPs, growth in active borrowers was driven by ‘Akhuwat’ which added 162,000 borrowers, registering a growth of 40 percent. Telenor Microfinance Bank added 98,000 borrowers to its portfolio in 2016, while NRSP Bank added 67,000 borrowers. The industry in terms of outreach remained dominated by 9 MFPs comprising of 80 percent of the total active borrowers as shown in Exhibit 2.3. NRSP maintained its top position with a portfolio of 650,000 borrowers. During the year under review, ‘Akhuwat’ surpassed Khushhali Bank and became the second largest provider of micro-credit in terms of active borrowers by recording 568,000 borrowers. Khushhali Bank reported 557,000 active borrowers in its portfolio.

Meanwhile, an event was organized by the Pakistan Microfinance Network (PMN) on the launching of “Pakistan Microfinance Review (PMR) 2016”. The event was well-attended by representatives from the State Bank, DFID, Pakistan Microfinance Investment Company (PMIC), Commercial Banks, Digital Finance players, PMN members (Microfinance Banks, Microfinance Institutions, Rural Support Program) and other stakeholders.

Syed Mohsin Ahmed, CEO PMN, gave presented an overview of the microfinance landscape in the country highlighting key developments of the sector and outlined the current and future challenges facing the industry. Syed Nadeem Hussain, chairman PMN & Coach Planet N, emphasized on the importance of leveraging digital tech to realize Microfinance sector growth objectives.

With the incremental capital that PMIC has lined up, it can finance the sector up to PKR 200 Billion, over 50% of projected sectoral requirements, Zubyr Soomro, Chairman PMIC said.

During a panel discussion chaired by Ghalib Nishtar, CEO Khushhali Bank, the participants deliberated on key developments such as enabling policy environment to realize growth objectives, growing international investors’ interest in the sector, impact of digitization, and responsible finance initiatives. Dr Euan MacMillan, Team leader Finance, Markets and Jobs at DFID while delivering closing remarks reaffirmed DFID’s commitment to strengthening the microfinance industry. “Today’s report highlights the success story of microfinance in Pakistan. By providing poor men and women with the finance they need to start, sustain and grow their businesses, microfinance is supporting the growth and job creation that Pakistan needs. That is why microfinance will continue to be an important part of DFID’s Economic Development Strategy.”

During the period under review, the industry witnessed a substantial growth (88 percent) in number of depositors thereby taking the total depositors to 15.9 million from 10.7 million in 2015 as shown in Exhibit 2.8. Similarly, the value of deposits also posted hefty growth of 41 percent and grew to PKR 118 billion from PKR 60 billion a year earlier. The largest increase in number of depositors came from Mobilink Microfinance Bank (MMFB) which added 4.9 million depositors in the current year and became the industry leader with total depositors standing at 8.1 million. This growth was followed by KBL and FMFB with an addition of 240,000 and 162,000 depositors, respectively. This astounding increase in the depositors can be attributed to growth in mobile banking activities, especially opening of m-Wallet accounts.

Government’s policy of biometric verification of all mobile SIM card holders has eased the process of opening an m-Wallet account. During the period under review, performance of TMFB in terms of depositors remained dull, as the bank’s total depositors witnessed a decline of 293,000. This is mainly due to closure of dormant m-Wallet accounts.

In addition to well-functioning complaints handling mechanisms at the MFP level, there is also a need to set up an independent grievance resolution authority at the national level. Currently, only clients of microfinance banks (MFBs) have access to an independent, third party complaint resolution mechanism through the State Bank of Pakistan. There is no such platform for clients of non-bank microfinance providers. The absence of such a platform increases the risk of clients approaching politicians and media (or other actors such as lawyers and thugs) in case they have a complaint against their respective service provider. Intervention by these types of players is detrimental for the sector and can lead to a delinquency crisis as was witnessed in Punjab in 2008-09, report added.