Poverty Alleviation and Microfinancing in Pakistan

During 2002 to 2007, Pakistan's economy grew at an average rate of 7% annually, creating about 2.5m jobs a year, barely keeping up with the number of young people ready to join the work force each year, according to Salman Shah, senior economic adviser to former President Musharraf of Pakistan. However, the current economic slowdown has resulted in significant job losses in almost all private sectors of the economy, increasing visible signs of poverty. According to a BBC report last year, three times a day, hundreds of men, women and children line up outside dozens of Karachi restaurants for meals which are paid for by philanthropists and charity donors. These lines were considerably shorter, or non-existent until early 2008. Many of those lining up are industrial workers who have lost their jobs. Credit crunch has taken its toll on all businesses and consumers, even the microfinance sector helping small entrepreneurs has not been spared. There were about 1.8 million beneficiaries of the microfinance institutions during the financial year 2008. They lent more than Rs. 21 billion to the poor people. The number of active borrowers of microloans has dropped by 7%, while the gross loan portfolio (GLP) has fared even worse, declining by 12%, according to the most recent Microwatch newsletter for the last quarter of 2008. Credit has not been extended to a significant number of previous borrowers as the lenders have not been able to roll-over existing lines of credit.

In response to these declines in small loans, the State Bank of Pakistan has acted to help recapitalize the microlenders in Pakistan. According to a recent report by Microcapital, Pakistan's central bank has launched three microfinance initiatives: the Microfinance Credit Guarantee Facility, the Institutional Strengthening Fund, and Improving Access to Finance Services Fund. The initiatives are part of $75 million Financial Inclusion Program (FIP), a joint venture between SPB and the UK Department for International Development. The objective of the three microfinance initiatives is to provide liquidity to the microfinance providers in response to tighter liquidity conditions and a sudden spike in inflation. In 2008, Pakistan’s inflation rate reached 20.8 percent, primarily due to rising world fuel and commodity prices. The announced initiatives are also in line with the aggressive goals outlined in the Pakistani government’s Poverty Reduction Strategy Paper. In the paper, the government has laid out an evidence based policy and set a target of reaching out to three million microfinance borrowers by the end of 2010 and 10 million borrowers by 2015.

The history of microfinance activities in Pakistan started with the launch of Orangi Pilot Project (OPP) in kutchi abadies (shanty towns) of Karachi in early 1980’s, according to a paper published by Abdul Qayyum and Munir Ahmed. In the late 1960s, prior to OPP, a few NGOs in the rural areas of Pakistan began to experiment with microcredit by offering subsidized loans. However, they mostly failed to reach the poor due to abuse and corruption. Now there are more than sixteen Micro Finance Institutions working in Pakistan. The MFIs in Pakistan can be divided into different groups based on their uniqueness that separates them from other financial institutions and makes them similar in terms of the way they function.

The first group consists of financial institutions with microfinance as a separate product line. The share of microfinance related activities of these institutions is up to 10 percent. This group includes Orix Leasing and the Bank of Khyber –both are profit making organizations and consider microfinance as a separate product line.

The second group refers to the specialized MFI’s, which includes two microfinance banks - The Khushhali Bank and First Microfinance Bank Limited (FMBL) - and two NGOs - KASHF Foundation and ASASAH. All these institutions completely focus on provision of financial services and also have commercial focus as well.

Third category MFIs related to activities of the Rural Support Programs which deals with integrated Rural Development Programs with microfinance as one of its activities. These organizations are National Rural Support Programs (NRSP), Punjab Rural Support Programs (PRSP) and Sarhad Rural Support Programs (SRSP). The last group consists of private NGOs. These NGOs are basically integrated development organizations with microfinance as one of their activities. These include Orangi Pilot Project, Sungi Foundation, Taraqee Foundation, Development Action for Mobilization and Emancipation (TRDP), Sindh Agricultural & Forestry Workers Coordinating Organization (SAFWCO) and Development Action for Mobilization and Emancipation (DAMEN), among others.

Khushhali Bank was established in August 2000 as part of the Government of the Islamic Republic of Pakistan's Poverty Reduction Strategy. The Pakistan Microfinance Sector Development Program (MSDP) was developed with the technical assistance and funding of the Asian Development Bank, which provided a US$150 million loan to the government of Pakistan, US$70 million being used for micro-loans provided by KB. Headquartered in Islamabad, KB operates under the central bank's supervision (State Bank of Pakistan) with several commercial banks operating as its primary shareholders.

The First Microfinance Bank, established by Agha Khan Foundation in 2002 as the first private sector micro-finance bank in Pakistan, is a premier non-commercial bank licensed by the State Bank of Pakistan under the regulatory framework of the Microfinance Institutions Ordinance 2001, issued by President Musharraf. It was created through a structured transformation of the credit and savings section of the Aga Khan Rural Support Program (AKRSP), an institution that had laid the foundations of the microfinance sector in the country in 1982, beginning in the Northern Areas and Chitral.

To highlight the positive impact of microfinancing on the lives of poor people in Pakistan, Microfinance Connect website has a number of success stories. For example, a Kashf Foundation customer Shehnaz tells the story of how she was able to keep the the business running while dealing with her husband's illness because of health insurance provided through the foundation's microinsurance program. Rashida Bibi, an Asasah customer, succeeded in doubling her dairy business revenue because of the microloan she received. Shopkeeper Mohammad Aijaz tells a similar story of increased business during the holiday season made possible by a Rs. 35000 loan from Tameer.

In Pakistan, the total banking sector serves around 6 million borrowers and 25 million depositors, implying a penetration rate of 3.6 percent and 15 percent respectively. In terms of access to microfinance, which means the availability of small loans, micro deposits and micro-insurance services to low income households, the current penetration rate is only 10 percent. In other words, 85 percent of Pakistan's population does not have access to any financial services at all, which inherently creates an uneven and an inequitable economic world, where the majority of people are financially marginalized. This situation drives the poor to rely on informal sources of funding like the unscrupulous moneylender, where the calculus of the relationship works to the detriment of the borrower. A well regulated and highly effective microfinance sector is, therefore, absolutely necessary to give hope to the poor in breaking the vicious cycle of dependence and poverty.

In addition to microlending for the traditional small businesses, there is a need in Pakistan to expand this effort by emulating the work of Grameen Shakti to empower villagers with electricity, water, sanitation and other necessities. It is one of more than two dozen organizations within the Grameen family of enterprises that is dedicated to improving the quality of rural life in Bangladesh. The lack of electricity results in low levels of human development, low productivity and widespread poverty in the developing world, including Pakistan. The governments of most developing nations, particularly in South Asia, have miserably failed in providing such a basic necessity as electricity to their people. About 40% of the people in both India and Pakistan have no access to electricity, the percentage lacking access in Bangladesh is even higher.

Microfinancing, along with social entrepreneurship, should be an essential component of non-government efforts in Pakistan and other developing nations to empower ordinary people to become self-reliant by lifting them out of poverty and teaching them the right skills to help themselves. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb has guided the efforts of late Dr. Akhtar Hameed Khan, acclaimed Pakistani social scientist and founder of Orangi Pilot Project. All efforts at alleviating poverty should be guided by this proverb that captures the essence of self-reliance.

Here is a Kashf Foundation video clip explaining how microfinance works in Pakistan:



Related Links:

Microfinance Connect

Microfinance in Pakistan: A Silver Bullet for Development?

Microfinance Industry Overview

Pakistan Financial Sector Risks

Akhtar Hamid Khan's Vision

Grameen Foundation in Pakistan

Pakistan's Poverty Reduction Strategy

Grameen Shakti Solar Model For Pakistan

Job Losses Hit India and Pakistan

MicroCapital in Pakistan

Comments

Riaz Haq said…
Here are some excerpts from a Businessweek story on microfinance in India:

Savita Ramesh Rathore stands at the door of her dimly lit workshop in Mumbai's Dharavi slum, filled floor to ceiling with bundles of old clothes, and talks about the cost of her son's wedding last year. "Jewels, clothes, food, the town hall," says Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($647) from moneylenders charging 60 percent interest and took additional loans from friends. Three months ago she got a 10,000-rupee loan from urban lender Hindusthan Microfinance at an interest rate of just over 20 percent to repay some of that debt.

Rathore is one of 25 million Indians who have taken so-called microfinance loans, often without adequate documentation or collateral, according to research firm Micro-Credit Ratings International. As Hyderabad-based SKS Microfinance plans to become the first microlender in the country to go public, an industry credited with helping alleviate poverty is suddenly provoking comparisons to subprime lenders in the U.S.

"Globally, microfinance is showing characteristics of the Western financial markets before the collapse," says Sanjay Sinha, managing director at Micro-Credit Ratings in Gurgaon. "In the U.S., homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises."

Microfinance firms make loans in poor areas largely shut off from traditional banking services. The past two years have been marked by surging defaults in some countries. Microfinance markets in Nicaragua, Morocco, and Pakistan have seen default levels climb to more than 10 percent, the threshold that marks a "serious repayment crisis," according to a February report from policy and research firm Consultative Group to Assist the Poor.

India, where more than 600 million people live on less than $1.50 a day, is the world's largest microfinance market. Most microfinance loans in India range from 5,000 to 20,000 rupees ($108 to $431), with interest rates ranging from 18 percent to 33 percent. Although Indian microfinance firms have reported bad-loan ratios of about 2.5 percent on average, levels may be higher because some lenders roll over loans to struggling borrowers to avoid defaults, says Micro-Credit's Sinha.

Microfinance lending in India may surge by about 40 percent annually over the next few years, says Sinha. SKS, betting the potential for growth will attract investors, is seeking regulatory approval for an initial public offering. Basix Group, which focuses on poor households in rural areas and provides loans averaging about 3,000 rupees, may sell shares in an IPO next year, says Chairman Vijay Mahajan. Others are likely to follow. Until now, microfinance companies have relied on loans and grants from banks, insurers, and foundations for funding, he says.

Micro-Credit's Sinha worries that growth in the microfinance market is masking an erosion of lending standards that may spark rising defaults. India doesn't have a nationwide system for tracking borrowers' credit histories, making it hard for lenders to check whether clients have multiple loans. "There is significant investor interest in microfinance companies' public issues, but it's being driven by irrational exuberance," says Sinha.
Riaz Haq said…
Here's a BBC report on Indians banks committing to work with microfinance industry in the wake of borrowers' suicides:

India's banking industry has thrown its support behind microfinance lenders after weeks of upheaval and confusion.

Major banks like the State Bank of India, Standard Chartered and Citi have all agreed to continue lending to microfinance firms.

The multi-billion dollar industry was on the brink of a mass default.

The banks' support has hung in the balance since lenders became embroiled in controversy in the southern state of Andhra Pradesh.

About four weeks ago, authorities started blaming microfinance firms for a string of suicides in rural villages.

They claim the suicides have been caused by company malpractice, heavy handed debt recovery methods and high interest rates.

Lenders deny the accusations.

Microfinance is designed to offer small, cheap loans to poorer borrowers, often in rural areas, who have difficulty accessing funds from banks.
Riaz Haq said…
Rumors of the death of microfinance in India have been greatly exaggerated, says Lindsay Clinton is the editor of Beyond Profit.

Here's what's really happening.

Until recently, microfinance was the darling of poverty alleviation. A foolproof way to pull people out of $2-a-day poverty. But, now, the microfinance sector in India is in crisis, so much so, The New York Times announced last week that “Indian Microcredit Faces Collapse from Defaults.” Is this another sub-prime fiasco? What happened to take us from “putting poverty in a museum” to putting the kibosh on the whole model?

Well, we got a little ahead of ourselves for several reasons. But, before we go there, here’s a brief recap on what’s happening in Indian microfinance: Last month, the government of the state of Andhra Pradesh, India’s most saturated microfinance market, ordered microfinance institutions to stop lending, and told borrowers to stop repaying. A spate of suicides by men and women who were microfinance borrowers alarmed many, and the government felt that microlenders were to blame. Were they?

In AP, two dueling parties provide a financial service to the poor. It gets a little complicated, but in essence, there are two ways to get a microloan, from the government or from a microfinance institution. Through banks, the government lends to groups of 11 to 20 women in so-called self-help groups or SHGs. The government has a mandate to disperse $22 billion to SHGs by 2014. The other option is a commercial, for-profit microfinance lender. They are shooting to use profits to scale up and reach even more borrowers. To get commercial microfinance money you become a member of a "joint-liability group" for a loan supported by group collateral. Some choose the SHG, others the standard microfinance institutions, and some take advantage of both, receiving multiple loans from multiple sources.

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Microcredit is only impactful if we create a deep connection to a borrower by offering a suite of services: microinsurance, financial literacy, business development training, etc. Some MFIs are already offering these services, and doing it well (see BASIX, for one great example), accepting that they may not grow as fast. The sooner MFIs evolve beyond the growth mantra and commit to making a real impact, the sooner we’ll be on the right track.
Riaz Haq said…
Here are a few excerpts from a recent NPR discusion of microfinane:

In 2006, Muhammad Yunus was awarded the Nobel Peace Prize for his work lending very small amounts of money to very poor people. Since then, microfinance institutions have popped up all over the world. Some organizations are using investors to make significant profits from this work, drawing criticism from traditional non-profit organizations. Host Neal Conan talks with Vikram Akula, the founder of SKS Microfinance, a for-profit microfinance organization in India, and Grameen Foundation president and CEO Alex Counts, about the pros and cons of fighting poverty for a profit.
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CONAN: I just wanted to bring Alex in on that point. From what you understand about the regulatory system in India, is are the rates being charged by SKS out of line, do you think?

Mr. COUNTS: Actually, no. In fact, SKS, we have some disagreements with their approach, but I would say that by global standards they are quite an efficient organization, pass many of those efficiencies on to the poor, and the trend is in the right direction. I think people are can afford those, running certain types of businesses.

But I do think there's a larger point, which is that, you know, there's in microfinance and outside of it, there's a lot of wishful thinking about people being able to make a lot of money and do a lot of good for the poor, and yet in reality there are not the accountabilities in terms of doing right by the poor, that there are in terms of making money.

And this is why we've, through Grameen Foundation, have been trying to take a model developed by the Grameen Bank, which we call the Progress out of Poverty Index, a kind of self-accountability tool for how the poor moving out of poverty. It is now the most widely used tool in the industry. We've long hoped that SKS would adopt it or any other tool that does the same purpose, and they've not elected to do that.
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And in case of Vikram, according to analysis that I've seen, his own personal stock options, there something in the range of $60 million. And I don't begrudge him that - those resources at all, but it does provoke a kind of a backlash. And that backlash is right now threatening the microfinance sector throughout India. And it's something a lot of us are worried about. And we think it didn't need to happen if people had been a little more thoughtful about how they rolled out this model.
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CONAN: The concern, and I don't again, would not put words in Alex Counts's mouth. But the concern is that sometimes profits become the goal, as opposed to the goal of eradication of poverty.

Mr. AKULA: Well, I think there's a distinction that one has to make between sort of what happens in theory and what's actually happening in fact.

You know, Neal, you had started with the question of, you know, wouldn't competition bring down prices over time. And in fact, that's exactly what we're seeing in India.

If you look at SKS, we were, at one point, as high as 40 percent interest when we started out, because we needed to charge that much to break even. We've lowered it to 31, 27 and now 24.5 percent. And what's interesting is at the same time, our return on equity went up from five to 12 to 18 to 21 percent, where it stands now.

So the actual history, the actual facts that suggest that competition does lower price over time, you know, as you get more and more, you know, players in, and simultaneously because of our volumes and our efficiency, you can actually provide even greater, you know, shareholder return.

I think the real question to ask is: Look, if the market works forthe middle class, it works for the wealthy, if competition gives choice and, you know, better pricing, why should the poor have anything less?
Riaz Haq said…
Here is SKS Microfinance IPO analysis by Xavier Reille of World Bank's CGAP published Wednesday, August 11, 2010:

By market standards, the SKS IPO is a great success. Institutional investors have over-subscribed their allocations by 13 times, and the company’s valuation of USD 1.5 billion came in at the top end of the offer band price.

This sky high valuation represents 6.7 times the company’s post issue book value, and about 40 times the company’s fiscal year 2010 earnings.

Such multiples are not in line with market peers. In emerging markets, banks are valued at 3 times the book value, while finance institutions serving low-income customers are trading at 2.6 times the book value. The SKS valuation is even higher – by a margin — than Compartamos’s valuation in its landmark 2007 IPO. At listing, Compartamos was valued at 27 times the company’s historical earnings although its 2006 return on equity (ROE) at 55% was more than double the ROE of SKS today.

Earning prospects at SKS are attractive, but on their own don’t justify such a high valuation. On the positive side, SKS still has a lot of room for growth. It has ambitious plans including offering new financial products, distributing goods and services beyond microfinance at the bottom of the pyramid, and transforming into a universal bank. But there are clouds on the horizon. Portfolio yield might stagnate as increased competition and political scrutiny put pressure on interest rates. The cost of risk will likely go up in the absence of a well-functioning credit bureau. Transaction costs for group lending will also increase as SKS focuses its growth on underserved, harder-to-reach clients and states.

So what might explain the unrealistically high valuation? This “irrational exuberance” in the SKS IPO price is probably due in part to excess capital flow. It reflects strong institutional investor interest in microfinance combined with the dearth of publicly-traded microfinance securities. Investors are seeking more exposure to emerging markets and to alternative assets. They are eager to buy into the microfinance story and with only two pure microfinance institutions listed, prices are getting ahead of fundamentals.

One of my concerns is that investors buying at such a high level may pressure management to increase profitability, at the expense of clients’ interests and long-term company sustainability. There is indeed a risk that a focus on short-term profit and quarterly earnings might overshadow—if not clash—with the social mission of SKS. True, this did not happen in the Compartamos case (the company did not become more “commercial” after its IPO) but there is still a risk.

What does appear likely is that someone is going to lose as, over time, the SKS valuation should come in line with global standards. Will it be the latecomer investors who bought too high? Or will it be clients as the institution prioritizes profit maximization? And what about possible broader ripple effects? Unmet expectations might make it harder for other MFIs to go gain the confidence of the public markets.
Riaz Haq said…
Here are some excerpts from a BBC report on allegations against Mohammad Yunus:

A documentary maker has alleged that cash was diverted from Professor Yunus' Grameen Bank to other parts of Grameen.

In a statement, the bank said that the allegations were false.

It said that a full explanation with more details would be provided at the "earliest convenient time".

The bank was set up by Professor Yunus to provide micro-credit - or small loans - to the poor.

The move by the Norwegians - who insist that no criminal activity has taken place - comes at a time when the reputation of the micro-credit industry has been under attack.

The original aim of the micro-credit concept was poverty reduction, but in recent years some micro-financial institutions have been criticised over exorbitant interest rates and alleged coercive debt collection.

In the south-eastern Indian state of Andhra Pradesh, for example, micro-loans have been blamed for a series of suicides among struggling farmers.

It is estimated some 250 organisations in the state have handed out loans totalling more than £1.65bn (£883m), only a small proportion of which have been paid back.

The Grameen Bank's denial followed the release of a documentary by Danish filmmaker, Tom Heinemann, who claimed Professor Yunus and his associates diverted nearly $100m of grant money to another company - Grameen Kalyan - which was not involved in micro-credit operations.

Mr Heinemann said he stumbled upon the documents and letters relating to the alleged transfer while doing research for his documentary on micro-credit.

"I got most of the documents from the archives of Norad, the Norwegian aid agency in Oslo," he said.

The Grameen group of more than 30 companies headed by Professor Yunus is divided between those not operating for profit and those which do.

Mr Heinemann's report alleged that after the Norwegian authorities raised objections to the alleged transfer of funds, the Grameen bank returned about $30m. The aid money was from Norway, Sweden and Germany.

Professor Yunus, known as the Banker to the Poor, and the Grameen Bank were awarded the Nobel Peace Prize in 2006 "for their efforts to create economic and social development from below".

The economist founded the bank, which is one of numerous organisations now providing loans to the poor - especially women - in Bangladesh.

The micro-credit lending model has been replicated in other parts of the world.

Reacting to the latest report, the Norwegian authorities say they have no suspicions of tax fraud or corruption committed by Grameen Bank.

"Having said that, the Government of Norway finds it totally unacceptable that aid is used for other purposes than intended no matter how praiseworthy the causes might be," Norwegian International Development Minister Erik Solheim said in a statement e-mailed to the BBC.

Mr Solheim said that he had asked the Norwegian Agency for Development Co-operation for a full report on the matter.

"At the same time it is important to stress that we are firm believers in micro-finance as a tool in the fight against poverty," he said.

The documentary "Caught in Micro Debt" was shown on Norwegian National Television earlier this week.

"I travelled to Bangladesh, India and Mexico to find out whether micro-credit loans have really helped the poor. But I found out that poor people are getting into more and more debt because of micro-credit loans," Mr Heinemann told the BBC.

He said that he was not accusing Professor Yunus of misusing the money or personally benefiting from the transfer.
Riaz Haq said…
Here's a disappointing report from Microfinanceafrica.net about Pakistan missing its target of 3 million borrowers by the end of 2010:

KARACHI: The microfinance sector in Pakistan failed to achieve its target of three million borrowers at the end of 2010, said the State Bank of Pakistan in a recent report.

Microfinance Strategy of 2007 set a target of three million borrowers to be achieved by the end of 2010 from 0.9 million borrowers at end-2006.

“The current outreach of two million borrowers is only seven percent of the potential market,” the central bank said in a report on ‘Strategic Framework for Sustainable Microfinance in Pakistan’ released recently.

It said that microfinance in Pakistan has failed to make major breakthroughs to become a dynamic participant within the overall financial sector and to reach millions of underserved people.

The sector achieved an impressive growth rate of 43 percent per annum in 2007 and 2008, but the growth decelerated in 2009 and 2010, it added.

The report said that microfinance in Pakistan has come a long way since 2000 and is gradually mainstreaming into the formal banking system. Eight microfinance banks (MFBs) have been established, three of them transformed from microfinance institutions (MFIs). Two of the world’s largest MFIs have started operations in Pakistan, reflecting private sector participation and institutional diversity.

Pakistan has one of the lowest financial penetration levels in the World with 56 percent adult population totally excluded, and another 32 percent informally served.

“Despite considerable support from the government, donors and the State Bank of Pakistan, the microfinance sector has only been able to tap a small fraction of the potential market,” the report said.

In 1999-2000, various government initiatives were undertaken to lay the foundation for a national microfinance sector. The year 2007 heralded a second phase, in which policy and strategy focus has been on accelerating growth through scalable and sustainable approaches.

In order to promote sustainability and encourage a market-driven formal system, the SBP, with broad stakeholder consultation, formulated a national strategy called “Expanding Outreach of Microfinance” (EMO), which was approved by the government in February 2007.

Traditionally, funding to microfinance in Pakistan has been supported by donors. This form of funding is limited and unsustainable. In order for the industry to grow in a financially stable manner, permanent sources of funding are crucial.

“Unfortunately, there are presently various challenges on availability of appropriate funding sources: Firstly, commercial banks are risk-averse due to, inter alia, tight liquidity conditions and less know-how of the microfinance sector. Secondly, though MFBs have the license to mobilize deposits, these have been unable to do so on a large scale.”

Even though MFB deposits registered 73 percent growth in 2009, they only contribute 40 percent of the entire funding structure.

The high growth rate was the result of lower base, and also concentrated in two leading MFBs (First MicroFinance Bank Limited and Tameer). Around 74 percent of the total deposits belong to one MFB, it added.

The report said that the country has immense potential for micro-savings but the MFBs are still largely credit driven.

MFBs have also been unable to leverage their geographic spread by offering home remittances and inland money transfers. Similarly, the MFBs’ interest in providing micro insurance is also limited.
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Riaz Haq said…
Here's a report in The News about SBP Gov Yaseen Anwar's assessment of Pakistan finance sector:

KARACHI: Yaseen Anwar, Governor, State Bank of Pakistan (SBP), said on Friday that the country has one of the lowest financial penetration levels in the world.

“Microfinance in Pakistan has made good progress but must make major breakthroughs to reach millions of underserved people,” he said while addressing at 5th Pakistan Microfinance Country Forum.

“Pakistan has one of the lowest financial penetration levels in the World with 56 percent of the adult population totally excluded, and another 32 percent informally served,” he added.

The SBP governor said that despite considerable support from the government, donor and the SBP, the microfinance sector has only been able to tap a small fraction of the potential market. “The current active borrowers standing at roughly two million,” he added.

He said that the microfinance regulatory framework has been ranked globally at the top in 2010 and 2011 by ‘the Economic Intelligence Unit’ of the UK’s The Economist Magazine. Anwar said that the recent development in mobile phone banking is highly encouraging and that the expansion in the retail network of microfinance has been brought about overwhelmingly from agents and mobile phone channels. Within a span of just two years, there are now almost 18,000 branchless banking outlets surpassing the 10,000 conventional bank branches, he added. He lauded the role of UKAid and Asian Development Bank in the development of microfinance in Pakistan and said that under the programmes sponsored by these donors, a number of market interventions are managed by the SBP.

SBP governor said that the Microfinance Credit Guarantee Facility (MCGF), a £10 million guarantee facility of UK’s DFID, was launched by SBP in December 2008 to mobilise wholesale commercial funding for microfinance providers through partial guarantees to commercial banks.

“The facility has thus far mobilised commercial funding of Rs3.225 billion for four microfinance providers for onward lending to around 200,000 new micro borrowers,” he added.

Nadeem Hussain, President and Chief Executive Officer (CEO) of Tameer Microfinance Bank said around 18-20 million account holders have access to credit. “If excluded the multiple account then the number is only at 8-10 million account holders,” he added. He termed branchless banking key to enhance outreach significantly.

Hussain said that potential exists in banking through telecommunication technology. “Presently phone density is one hundred million where banking density is much lower,” he added.


http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=80543&Cat=3
Riaz Haq said…
Asasah, a microfinance institution (MFI) in Pakistan, reportedly has announced that it will be utilizing Easypaisa, the branchless banking service of MFI Tameer Microfinance Bank Limited (TMFB) of Pakistan, as an option for borrowers to repay their loans [1]. Easypaisa is a joint venture of TMFB and Telenor Pakistan, a subsidiary of Norwegian mobile communications company Telenor Group. Easypaisa users are able to conduct financial transactions using mobile phones or by visiting an Easypaisa shop, Telenor service center or TMFB branch. There are reportedly 14,000 Easypaisa agents in approximately 600 cities across Pakistan.

As of 2010, Asasah reported to the US-based nonprofit Microfinance Information Exchange (MIX) a gross loan portfolio of USD 1.9 million and 18,900 active borrowers, most of whom are women. TMFB reported to MIX total assets of USD 61.7 million, a gross loan portfolio of USD 36.2 million, return on assets (ROA) of 3.74 percent, return on equity (ROE) of 12.6 percent and 111,100 active borrowers as of 2010.

By Nisha Koul, Research Associate

About Asasah: Asasah was established in 2003 in Pakistan as a nonprofit organization with the aim to “enhance the micro productivity of the house hold living below the poverty line by providing economic, educational and diversified information opportunities” and has since been operating as a microfinance institution (MFI) with 100 percent of its funding supplied by commercial sources. As of 2010, Asasah reported to the US-based nonprofit Microfinance Information Exchange (MIX) a gross loan portfolio of USD 1.9 million and 18,900 active borrowers.

About Tameer Microfinance Bank Limited: Tameer Microfinance Bank Limited is a licensed commercial bank in Pakistan that provides microfinance services such as small business, group and emergency loans; micromortgages; microinsurance; savings; and money transfers. It was founded in 2005 and is based in Shahrah-e-Faisal, Pakistan. Telenor Pakistan, a subsidiary of the Norwegian mobile communications company Telenor, owns 51 percent of TMFB. As of 2010, TMFB reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 61.7 million, a gross loan portfolio of USD 36.2 million, return on assets (ROA) of 3.74 percent, return on equity (ROE) of 12.6 percent and 111,100 active borrowers.

About Telenor Pakistan: Telenor Pakistan is fully owned by the Telenor Group, a communication services provider operating in 11 markets in Europe and Asia as of 2010. Telenor Pakistan began commercial operations in Pakistan on March 15, 2005. At the end of October 2010, it reported a subscriber base of 24.1 million and a market share of 24 percent. Telenor Pakistan acquired 51 percent of Tameer Microfinance Bank in November 2008. In 2009 it launched Easypaisa to offer branchless banking services across Pakistan. There are reportedly 14,000 Easypaisa agents in approximately 600 cities across Pakistan.

http://www.microcapital.org/microcapital-brief-asasah-of-pakistan-to-collect-microloan-repayments-via-easypaisa-service-of-tameer-microfinance-bank-telenor-pakistan/
Riaz Haq said…
Here's an except of a microinsurance report on Pakistan:

Pakistan still needs a sustained effort to raise awareness amongst its people with regard to the benefit of insurance, followed by the delivery of insurance products to the poor. There is also great scope in Pakistan to diversify microinsurance products, for example, crop insurance. Indeed, there is a dire need of agriculture microinsurance: in case of natural calamities farmers have to bear the loss of their crop and face default on credit. The need to cover risk and investments of marginalised farmers is of paramount importance.
Existing microinsurance providers in Pakistan : (alphabetical order)


• AKDN Aga Khan Development Network
• BRSP Balochistan Rural Support Programme
• Development Action for Mobilization and Emancipation (DAMEN)
• Kashf Foundation
• NRSP National Rural Support Programme
• PRSP Punjab Rural Support Programme
• Sindh Agriculture and Forestry Workers Coordinating Organization (SAFWCO)
• SRSO Sindh Rural Support Organization
• SRSP Sarhad Rural Support Programme (SRSP)
• SUNGI Development Foundation
• TRDP Thardeep Rural Development Programme
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In Pakistan, serious efforts for microinsurance at the national level only picked up in the last decade with the advent of Microfinance institutions (MFIs) and a mushrooming growth of NGOs. However, there is still scope for extensive growth in this area. The Government has been doing its part by providing support to the RSPs through the creation of SMEDA (Small and Medium Enterprises Development Authority) and recently by the State Bank of Pakistan’s directive to all banks to have at least 20% of their branches in the rural areas. This will open up new avenues to infiltrate financing into crops, livestock and other basic requirements.

The government is also currently working on microfinance policy. It is involved in many social protection programmes, one of which is Benazir Income Support Programme (a cash grant programme being implemented nationwide and aiming to cover 3.5 million women during its first round).

The Planning Commission is also committed to organising roundtables workshops for gathering the viewpoints and perspectives of various experts and professionals for the development of the microinsurance policy.

Besides, the Asian development Bank (ADB) is also playing an important role in Pakistan in the microinsurance sector. From 2001-2008, the ADB had a $150 million Microfinance Sector Development Programme which included $80 million for on-lending, $40 million for social development and $20 million for community infrastructure. A more recent programme from 2006-2008 has been improving access to financial services of which one is microinsurance. A $20 million grant has been given to the Government by the ADB which will be administered through the State Bank of Pakistan over the next 2 decades.

The RSPN-Adamjee Health Microinsurance Model

The Rural Support Programmes Network (RSPN) was registered in 2001 under Pakistan’s Companies Ordinance (1984) as a non-profit company by the Rural Support Programmes (RSPs) of Pakistan. RSPN is a network of ten RSPs. The RSPs involve poor communities, mainly but not exclusively rural, in improved management and delivery of basic services through a process of social mobilization. RSPN is a strategic platform for the RSPs, providing them with capacity building support and assisting them in policy advocacy and donor linkages.
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The Adamjee-RSPN partnership started in 2005 – the very first health microinsurance scheme in Pakistan, providing hospitalisation and accident insurance to low-income rural population across the country who have organised themselves into community organisations (COs) fostered by the RSPs.


http://www.socialsecurityextension.org/gimi/gess/ShowWiki.do?wid=752
Riaz Haq said…
Here's Daily Times on crop insurance for small farmers in Pakistan:

ISLAMABAD: The Pakistan Poverty Alleviation Fund (PPAF) has launched the first-ever indexed and hybrid weather micro-insurance products to facilitate and compensate small farmers in Pakistan.
Presided over by Securities and Exchange Commission of Pakistan Commissioner Muhammad Asif Arif, a simple ceremony to this effect was arranged at a local hotel, which was attended by representatives of State Bank of Pakistan, the World Bank, International Fund for Agricultural Development (IFAD), KfW, German Development Bank, UKAID, Tameer Microfinance Bank, National Disaster Management Authority, Pakistan Microfinance Network, government bodies, insurance companies and others.
Addressing the occasion, Arif said that micro-insurance stands at a critical juncture in Pakistan. He commended PPAF on for introducing revolutionary indexed crop and livestock insurance products in Pakistan. As regulator, he said, SECP has remained committed to promoting micro insurance in the country through research, introducing pivotal regulations and promoting a healthy policy environment.
PPAF Board of Directors Member Zubyr Soomro said that the need for micro-insurance has been felt over the years and it is the tipping point to upscale it. He said that we would have to make the most of this opportunity. He said that sincere efforts are needed to make micro-insurance sustainable.
In his remarks, PPAF Chief Executive Qazi Azmat Isa said that micro-insurance initiative is the result of close collaboration between PPAF and IFAD. He lauded the role of insurance companies and SECP as a regulator to make micro-insurance a success. He said that farmers are badly affected by climate change, fluctuation in the prices of their produce and poor quality of agri inputs. He said that micro-insurance would prove to be a vital instrument in fight against poverty.
State Bank of Pakistan Agricultural Credit and Microfinance Department Senior Joint Director Kamran Bakshi said that by launching indexed and hybrid weather micro-insurance PPAF has provided a unique platform to market leaders to serve the poor, particularly the farmers. He said that the focus must be on protecting the borrowers.
PPAF’s Senior Group Head Ahmad Jamal said that PPAF is committed to grassroots development and micro-insurance would prove to be one of the instruments to alleviate poverty. He said that PPAF would capitalise on its outreach so that maximum people could benefit from micro-insurance.
PPAF’s Financial Services Group Head Yasir Ashfaq highlighted that these products will lead the new era for micro insurance in Pakistan. He said indexed insurance products are easy to administer, transparent, innovative and significantly reduce any chances of moral hazard or fraud. He said PPAF envisions scaling up these products at a national level, preparing detailed indices for various districts with the support of stakeholders including government agencies, donors, MFIs and insurance companies.
The weather-indexed crop and ‘live-weight’ livestock insurance products have been designed by PPAF, with support from IFAD through a strategic partnership with SECP.
These products have been prepared in collaboration with Meteorological Department, Livestock Research Institute and are based on needs of small and marginal income farmers. PPAF has launched these products as a pilot in collaboration with local insurance companies in districts Khushab and Chakwal.
The pilot projects have received overwhelming response and showcased significant potential in providing efficient and transparent form of risk mitigation for small and marginal income farmers and livestock owners across the country.


http://www.dailytimes.com.pk/default.asp?page=2013\01\30\story_30-1-2013_pg5_9
Riaz Haq said…
Pakistan ranks 8th in the world of Islamic Finance, according to a Guardian story. Here's an excerpt:

How it works

Islamic finance is all about sharing risk between financial institutions and the individuals that use them. To do that, the two parties are tied into a longer-term relationship with each other that is supposed to shift incentives and avoid cut and run financial deals.

So, for example, sharia-compliant mortgages mean that the bank and the borrower share the risks of repayment rather than charging any form of interest. Similarly, Islamic bonds like the one announced by David Cameron today involve both parties owning the debt, rather than a simple promise to repay a loan.

Since it's Islamic, that also means that financial trading is off-limits for things that are forbidden even if no interest is charged - so investments can't be made in alcohol, tobacco, non-halal meat products such as pork, pornography or gambling companies.

You don't have to be Muslim to use Islamic financial services - a fact which has stimulated further interest in the sector. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.

In numbers

275: The number of Islamic financial institutions in the world.
75: The number of countries where they have a presence.
US$1.357 trillion: The value of the global Islamic finance services industry by the end of 2011.
US$4 trillion: The projected value of the global Islamic finance services industry by 2020.
£200m: The value of the planned Islamic bond being unveiled by David Cameron today.
11th: The ranking of the UK (up 4 places from 2011) in the Global Islamic Finance Report which weighs up variables like the number of institutions involved in Islamic finance industry, the size of Islamic financial assets and the regulatory and legal infrastructure.

Glossary

bay 'al-mu'ajjal: Instant sale of an asset in return for a payment of money (made in full or by instalments) at a future date
gharar: Describes a risky or hazardous sale, where the details of the sale contract are unknown or uncertain
ijarah: Leasing contract
istisna': Refers to an agreement to sell a non-existent asset, which is to be manufactured or built according to the buyer's specifications and is to be delivered on a specified future date at a predetermined selling price.
mudarabah: Profit and loss-sharing
musharakah: Joint partnership
qard hasan: Interest-free financing
riba' : Usury
sharikat al-'aqd: Contractual partnership
sharika al-milk: Proprietary partnership
sukuk: Islamic bonds
tahawwut: Hedging
takaful: Islamic insurance
wadiah: Safe custody
wakala: Investor entrusts an agent to act on his behalf
zanniyyat: probabilistic evidence


http://www.theguardian.com/news/datablog/2013/oct/29/islamic-finance-for-beginners

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