Microfinanc E: Iobm Pakistan

MICROFINANC
E IOBM
BY :
Pakistan
Microfinance objective
Microfinance Features
Microfinance Clients
List of Microfinance Institutions
MFI and Commercial banks
Microfinance Globally and in Recession
Funding of Microfinance
Shortcoming of Microfinance
SBP initiatives for Pakistani MFI
Actions for Pakistani MFI

Microfinance 0bjectives…
• low-income households‘: permanent access high
quality financial services
• to finance their income-producing activities, build

assets
• stabilize consumption
• protect against risks
• not limited to credit, but include savings, insurance,

and money transfers.
Microfinance Features…
• financial services : poor & low-income clients.
• very small loan : unsalaried borrowers-collateral
• include group lending and liability
• pre-loan savings requirements
• gradually increasing loan sizes

Examples OF Microfinance
Features…
PAK OMAN MICROFINANCE BANK
Micro Business Loan Loan Amount : 10,000 - 40,000

Micro Agri Loan Loan Tenure :3 – 24 Months
Micro Assets Loan
Livestock Loan
New Micro Business Loan Loan Amount3, 000 – 5,000

Loan Tenure3 – 6 Months
Microfinance clients…
• Poor & low-income people
• usually self-employed
• Micro-entrepreneurs
• near the poverty line, both above and below
• Women : majority of clients.

Example of Microfinance clients
TAMEER MICROFINANCE BANK
Institutions delivering
microfinance?
• MFIs started as not-for-profit organizations
• MFIs are now organized as for-profit entities
• Because: license from banking authorities

to offer savings services.
Examples of Institutions delivering
microfinance?
• Pakistan : Khushali Bank
• India : SEWA Bank
• Chile : BancoEstado
• Mexico : CompartamosBanco
MFIs, Interest rates are highest?
• administrative cost : making tiny loans is much
higher in percentage terms than the cost of
making a large loan.
• Credit decisions for borrowers who have neither

collateral nor a salary cannot be based on
automated scoring
• Microcredit market matures in a given country,

administrative costs usually drop
Recession hits Microfinance
GLOBAL FACTS, 20TH MARCH 09
• 25% MFIs decreased lending
• 20% MFI reduced staff
• 37% MFI have reduced their growth plans
• 41% MFI have began charging higher interest

rates
• Cambodia, loan growth from 61% to 10%

• East Asia and the Pacific
• KOREA
• US$73 million in direct loans and

guarantees to MFIs
• MFIs in Korea should experience relatively

lower liquidity
• Eastern Europe and Central Asia
• Mongolia
• larger MFIs, successfully met the new

requirements
• less well-established MFIs may find this

challenging
• Latin America and the
Caribbean
• Colombia
• region lags in terms of deposit-

taking
• removing restrictions on foreign

lending and lowering interest
rates
• Middle East and North Africa
• operate in highly regulated & insulated

financial markets
• we can expect less of an impact from the

global financial crisis
• South Asia
• India
• MFI , foreign lending restrictions to non-

bank financial companies
• Rupee depreciate to slow the outflow of

capital
South Asia
India
MFI funded by?
• Debt
• Deposits,
• Equity
MFI funded by?
• DEBT based:
• depend upon fixed-income investment - greatest risk
• less available debt capital & offered at higher interest rates
• Foreign loans, requiring repayment in hard currency at a

moment of devalued domestic currencies
• leaving MFIs to bear the foreign exchange risk

MFI funded by?
• DEPOSIT based:
• Challenged by inflation, food and fuel price volatility
• decrease in remittance flows
• local currencies in developing countries lose value, clients will

find it increasingly difficult to maintain savings levels
• Deposits declines and non-performing loans increases - clients

require additional capital to cover basic needs.
MFI funded by?
• Equity-based
• Initially, low default rates and

strong profit margins
• MFIs enjoyed higher net

interest margins
• Now, compressed NIMs &

higher lending rates
• Impact - pressure on profit

margins and make
microfinance less attractive to
equity investors
Shortcomings of Micro financing
• #1
industry Is still young
Dependent On donor assistance to grow, which

though necessary at infancy
stage is an unsustainable
approach to long-term
development.
MFIs move toward deposit mobilization to

increase funds for on-lending
• #2
cost-efficiency is especially important in the
current environment of
the global financial crisis
cost of borrowing will eventually impact

cost of lending for MFIs and
MFBs as they move towards
commercial funding
• #2
• #3
Resource deficiency exists for

microfinance not only in the
form offunding
Human must also be strengthened to

resource provide quality microfinance
capacity services.
Shortcomings of Micro
financing
• #3
• #4
concerns over will have to be critically examined

gender and addressed in order to
make microfinance’s ability
to fight poverty more meaningful.
• #5
lack of Mexican banks are charging

regulations anyway from 50% to 120%
annual interest on loans.
• #6
reaching due to limited infrastructure

remote areas and the complications of
religious and political
pressure;
Facts about Pakistan
till december 2008
• MFI has 1.8 million customers
• microfinance borrowers: 3 million by 2010 & 10 million

by 2015.
• Pakistan , leader in the Asian region in

commercialized microfinance
• first country - to introduce a comprehensive legal,

regulatory, and supervisory framework for formal
microfinance in Asia.
SBP initiatives for the Promotion
of Microfinance
1)Sustainable cost-covering operating/business

model;
2) Mobilize private domestic capital;
3) Build human resource systems.

of Microfinance
4)
• Financial Inclusion Program
• aimed at eliminating market failures.
• A £50 million program funded by the UK
• for financial services for poor ,marginalized groups

and for small enterprises
of Microfinance
5) Branchless Banking Regulations -promote

banking in remote areas using technology.
6) SBP encouraged microfinance institutions to

transform into regulated entities
of Microfinance
7)
• SBP encouraged partnerships between the post office (PO)
network and MFI
• Post Offices, manages 4 million savings accounts
• small accounts below Rs 10,000, through more than 12,000

branches.
• There is scope for the Post Office and MF providers to join

forces
• with the MFI acting as intermediaries for funds raised by POs

of Microfinance
8) International players including BRAC and

ASA who have already started
microfinance operations in Pakistan
9) Micro finance focal group - with an

independent head and qualified staff
SBP ACTIONS FOR Microfinance
SBP in December’08 launched :
• 1) The Microfinance Credit Guarantee Facility
• 2) The Institutional Strengthening Fund; and
• 3) The Improving Access to Finance Services

Fund
The Microfinance Credit Guarantee Facility
• expected to increase the flow of credit to

microfinance sector
• Commercial banks are allowed options to

undertake microfinance business directly and in
partnership with MFIs by providing wholesale
funds to them
The Microfinance Credit Guarantee Facility
• standalone MF Branches, establishment of

independent subsidiary MFB &linkage with NGO
• build links between micro borrowers and formal

financial institutions.
• provide partial Guarantee to minimize the perceived

risk premium by covering part of the losses incurred
on funds made available to MFIs
The Institutional Strengthening Fund
• build capacity of the microfinance sector
• improving human resource quality, service delivery

and increasing service availability to potential
microfinance clients.
• fund is established at the State Bank under the UK

Government’s Financial Inclusion Program
The Institutional Strengthening Fund
• generate on-lending resources through

commercial sources, equity investments or
deposit mobilization strategy
• provide grants for employing cost reduction

mechanisms
Improving Access to Financial Services
• promote financial literacy
• Capacity building and training of Government and

regulatory authorities
• training of financial services providers to promote

expansion into rural areas; product and service
innovation
• Globally , according to a survey, still 80% of the
investors have their money in MFIs.
Finally…
• In Pakistan , SBP initiatives have strong

support of the industry simply because of the
partnership we have with the Pakistan Micro
Finance industry and network.

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MICROFINANC

List of Microfinance Institutions

MFI and Commercial banks

Microfinance Globally and in Recession

SBP initiatives for Pakistani MFI

Actions for Pakistani MFI

• to finance their income-producing activities, build

• protect against risks

• not limited to credit, but include savings, insurance,

• very small loan : unsalaried borrowers-collateral

• include group lending and liability

• pre-loan savings requirements

• gradually increasing loan sizes

Micro Business Loan Loan Amount : 10,000 - 40,000

New Micro Business Loan Loan Amount3, 000 – 5,000

• near the poverty line, both above and below

• Women : majority of clients.

• MFIs started as not-for-profit organizations

• MFIs are now organized as for-profit entities

• Because: license from banking authorities

• India : SEWA Bank

• Credit decisions for borrowers who have neither

• Microcredit market matures in a given country,

• 20% MFI reduced staff

• 37% MFI have reduced their growth plans

• 41% MFI have began charging higher interest

• Cambodia, loan growth from 61% to 10%

• US$73 million in direct loans and

• MFIs in Korea should experience relatively

• larger MFIs, successfully met the new

• less well-established MFIs may find this

• region lags in terms of deposit-

• removing restrictions on foreign

• operate in highly regulated & insulated

• we can expect less of an impact from the

• MFI , foreign lending restrictions to non-

• Rupee depreciate to slow the outflow of

• depend upon fixed-income investment - greatest risk

• less available debt capital & offered at higher interest rates

• Foreign loans, requiring repayment in hard currency at a

• leaving MFIs to bear the foreign exchange risk

• Challenged by inflation, food and fuel price volatility

• decrease in remittance flows

• local currencies in developing countries lose value, clients will

• Deposits declines and non-performing loans increases - clients

• Initially, low default rates and

• MFIs enjoyed higher net

• Now, compressed NIMs &

• Impact - pressure on profit

Dependent On donor assistance to grow, which

MFIs move toward deposit mobilization to

cost of borrowing will eventually impact

Resource deficiency exists for

Human must also be strengthened to

concerns over will have to be critically examined

lack of Mexican banks are charging

reaching due to limited infrastructure

• MFI has 1.8 million customers