Microfinance Pakistan

8/9/2019 Microfinance Pakistan

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MICROFINANCEBY : IOBMPakistan


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Microfinance 0bjectives low-income households: permanent access high

quality financial services

to finance their income-producing activities, buildassets

stabilize consumption

protect against risks

not limited to credit, but include savings, insurance,

and money transfers.


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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


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Examples OF Microfinance

Features

Micro Business Loan

Micro Agri Loan

Micro Assets Loan

Livestock Loan

New Micro Business Loan

Loan Amount : 10,000 - 40,000Loan Tenure :3 24 Months

Loan Amount3, 000 5,000Loan Tenure3 6 Months

PAK OMAN MICROFINANCE BANK


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Microfinance clients

Poor & low-income people

usually self-employed

Micro-entrepreneurs

near the poverty line, both above and below

Women : majority of clients.


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Example of Microfinance clientsTAMEER MICROFINANCE BANK


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Institutions delivering

microfinance?

MFIs started as not-for-profit organizations

MFIs are now organized as for-profit entities

Because: license from banking authoritiesto offer savings services.


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Examples of Institutions deliveringmicrofinance?

Pakistan : Khushali Bank

India : SEWA Bank

Chile : BancoEstado

Mexico : CompartamosBanco


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MFIs, Interest rates are highest?

administrative cost : making tiny loans is muchhigher in percentage terms than the cost ofmaking a large loan.

Credit decisions for borrowers who have neithercollateral nor a salary cannot be based onautomated scoring

Microcredit market matures in a given country,administrative costs usually drop


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Recession hits Microfinance

GLO

BAL 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 interestrates

Cambodia, loan growth from 61% to 10%


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EastAsia and the Pacific

KOREA

US$73 million in direct loans andguarantees to MFIs

MFIs in Korea should experience relativelylower liquidity


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Eastern Europe andCentralAsia

Mongolia

larger MFIs, successfully met the newrequirements

less well-established MFIs may find thischallenging


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Latin America and theCaribbean

Colombia

region lags in terms of deposit-taking

removing restrictions on foreignlending and lowering interestrates


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Middle East and North Africa

operate in highly regulated & insulatedfinancial markets

we can expect less of an impact from theglobal financial crisis


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South Asia

India

MFI , foreign lending restrictions to non-bank financial companies

Rupee depreciate to slow the outflow ofcapital


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SouthAsiaIndia


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MFI fundedby?

Debt

Deposits,

Equity


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MFI fundedby? DEPOSITbased:

Challenged by inflation, food and fuel price volatility

decrease in remittance flows

local currencies in developing countries lose value, clients willfind it increasingly difficult to maintain savings levels

Deposits declines and non-performing loans increases - clientsrequire additional capital to cover basic needs.


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MFI fundedby?

Equity-based

Initially, low default rates andstrong profit margins

MFIs enjoyed higher netinterest margins

Now, compressed NIMs &higher lending rates

Impact - pressure on profitmargins and makemicrofinance less attractive toequity investors


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Shortcomings of Micro financing

# 1

industry Is still young

Dependent On donor assistance to grow, whichthough necessary at infancystage is an unsustainableapproach to long-term

development.

MFIs move toward deposit mobilization toincrease funds for on-lending


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# 2


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Shortcomings of Micro

financing # 3


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# 4

concerns over

gender

will have to be critically examined

and addressed in order tomake microfinances ability

to fight poverty more meaningful.


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# 5

lack of

regulations

Mexican banks are charging

anyway from 50% to 120%annual interest on loans.


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# 6

reachingremote areas

due to limited infrastructureand the complications ofreligious and politicalpressure;


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Facts about Pakistantill december 2008

MFI has 1.8 million customers

microfinance borrowers: 3 million by 2010 & 10 million

by 2015.

Pakistan , leader in the Asian region incommercialized microfinance

first country - to introduce a comprehensive legal,regulatory, and supervisory framework for formalmicrofinance in Asia.


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SBP initiatives for the Promotion

of Microfinance4)

Financial Inclusion Program

aimed at eliminating market failures.

A 50 million program funded by the UK

for financial services for poor ,marginalized groupsand for small enterprises


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of Microfinance

5) Branchless Banking Regulations -promotebanking in remote areas using technology.

6) SBP encouraged microfinance institutions to

transform into regulated entities


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of Microfinance7) 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 12,000branches.

There is scope for the Post Office and MF providers to joinforces

with the MFI acting as intermediaries for funds raised by POs


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of Microfinance

8) International players including BRAC and

ASA who have already startedmicrofinance operations in Pakistan

9) Micro finance focal group - with anindependent head and qualified staff


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SBP ACTIONSFOR Microfinance

SBP in December08 launched :

1) The Microfinance Credit Guarantee Facility

2) The Institutional Strengthening Fund; and

3) The Improving Access to Finance ServicesFund


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The Microfinance Credit Guarantee Facility

expected to increase the flow of credit tomicrofinance sector

Commercial banks are allowed options to

undertake microfinance business directly and inpartnership with MFIs by providing wholesalefunds to them


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SBPACTIONSFORMicrofinance

The Microfinance Credit Guarantee Facility

standalone MF Branches, establishment ofindependent subsidiary MFB &linkage with NGO

build links between micro borrowers and formalfinancial institutions.

provide partial Guarantee to minimize the perceivedrisk premium by covering part of the losses incurredon funds made available to MFIs


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SBPACTIONSFORMicrofinance

The Institutional Strengthening Fund

build capacity of the microfinance sector

improving human resource quality, service deliveryand increasing service availability to potential

microfinance clients.

fund is established at the State Bank under the UK

Governments Financial Inclusion Program


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The Institutional Strengthening Fund

generate on-lending resources throughcommercial sources, equity investments ordeposit mobilization strategy

provide grants for employing cost reductionmechanisms


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Improving Access to Financial Services

promote financial literacy

Capacity building and training of Government andregulatory authorities

training of financial services providers to promoteexpansion into rural areas; product and serviceinnovation


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Globally , according to a survey, still 80% of theinvestors have theirmoney in MFIs.

Finally

In Pakistan , SBP initiatives have strongsupport of the industry simply because of the

partnership we have with the Pakistan Micro

Finance industry and network.

Documents

Microfinance Pakistan