New Microfinance Strategic Framework to promote financial inclusion in Pakistan

Karachi: Governor, State Bank of Pakistan Yaseen Anwar says central bank has laid down a detailed strategy to promote sustainable growth of microfinance sector in its new Microfinance Strategic Framework 2011-15, which will foster a pro-poor and sustainable development in the country.

In inaugural speech Friday at 5th Pakistan Microfinance Country Forum at local hotel, he said strategy’s effectiveness and success hinges on growth dynamism fundamentally coming from microfinance operators themselves. SBP will continue to work with all stakeholders, in order to support this nascent industry, which is expected to be a key driver in expanding financial services to all over Pakistan.

He said SBP’s role is to develop banking infrastructure, encourage use of successful global practices, provide regulatory and supervisory mechanism to enable Microfinance Banks MFBs develop viable business models. SBP will issue regulatory guidelines to MFBs for up-scaling of loans, and develop reporting structure to assess geographic distribution of microfinance growth.

Anwar said success of microfinance in Pakistan has widely been acknowledged by international community. “Our microfinance regulatory framework has been ranked globally at the top in 2010 & 2011 by independent Economic Intelligence Unit, arm of UK’s The Economist magazine.” Evolution or trajectory of microfinance has so far remained positive despite many challenges,” he said. Presently, nine MFBs are operating in Pakistan.

He said recent development in mobile phone banking is highly encouraging. Expansion in retail network of microfinance has been brought about overwhelmingly from agents and mobile phone channels. Within span of just two years, there are now almost 18,000 branchless banking outlets surpassing 10,000 conventional bank branches.

He said combined daily transaction volume of two prominent branchless banking models Easypaisa & Omni now averages over 175,000, with average size of Rs 3,700. As per independent World Bank – CGAP study, small size of transaction indicates enhanced access to finance by poor and marginalized unbanked people, important milestone for financial inclusion.

He lauded role of UKAid & Asian Development Bank in development of microfinance in Pakistan and said under programs sponsored by these donors, a number of market interventions are managed by SBP. Institutional Strengthening Fund ISF, a UK £10million grant facility launched in December 2008, is intended to strengthen institutional & human resource capacity of MFBs/MFIs to enhance scale and sustainability of microfinance services. ISF has thus far approved Rs 522 million for 11 microfinance providers including top and middle tier MFBs & MFIs. Under arrangements, ISF will support 15 projects for investment in HR, IT, product development, risk management systems, business plans, branchless banking development.

Under ISF, Pakistan Microfinance Network PMN was also provided funding support to conduct research, develop the industry’s infrastructure such as testing of pilot Microfinance Credit Information Bureau MCIB in Lahore. Going forward, ISF will consider how to further support important systemic areas such as upgrading CIB to national level, he added.

SBP Governor said Microfinance Credit Guarantee Facility MCGF, UK £10 million guarantee facility, was launched by SBP in December 2008 to mobilize wholesale commercial funding for microfinance providers through partial guarantees to commercial banks. It so far mobilized commercial funding of Rs 3225.0 million for four microfinance providers for onward lending to around 200,000 new micro borrowers. It will aim to raise commercial debt from non bank sources, diversifying sources of commercial capital for microfinance providers and will be instrumental in mainstreaming microfinance providers and resolve some of its funding constraints on a permanent basis.

Financial Innovation Challenge Fund FICF, UK £10million innovation grant facility, was launched by SBP in May 2011 to provide grants to foster innovation, test new markets, lower cost of delivery, enable systems, procedures to be more efficient, provide new ways of meeting larger demand for financial services, he said. Banks, public sector institutions, microfinance institutions, government agencies, pension funds, academic institutions were invited to apply for promotion of financial inclusive G2P payments through bank accounts at branchless banking outlets and also provide other financial services to G2P payments beneficiaries. A number of applications have been received from these institutions, which are now being evaluated for first round of G2P payments challenge.

He said SBP started a pilot Financial Literacy Program FLP with private sector as implementing partner. It is first ever initiative to promote financial literacy among general public at national level. Dissemination will be made through TV channels, regional Radio, print media, mobile network operators. Field training, street theatres will also be used to target beneficiaries. FLP will impart knowledge on basic financial concepts – budgeting, savings, investments, debt management, financial products, branchless banking. Pilot phase will target about 50,000 beneficiaries with emphasis on low income strata. After completion, impact assessment of pilot will be conducted and based on results and recommendation program will be scaled to national level.

Anwar said though early successes in microfinance industry are laudable, they have yet to create major dent in widespread financial exclusion. Currently, microcredit is reaching to only 2 million borrowers whereas size of target market is estimated to be 25 to 30 million. Pakistan has one of lowest financial penetration levels in the world with 56% adult population totally excluded, and another 32% informally served.

He stressed need for microfinance development for fostering pro-poor and sustainable development in Pakistan. Microfinance sector needs to discontinue dependence on external catalysts and focus on improving its financial, operating performance by setting targets for borrowers, savers, portfolio quality, self-sufficiency. Considerable work still needs to be undertaken to ensure that all microfinance banks and institutions are acting responsibly. It is also important for industry to continue to innovate, create new partnerships with growing branchless banking networks, evolve, provide financial access to unbanked.

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