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  • PAKISTAN MICROFINANCE REVIEWAnnual Assessment of the Microfinance Industry

    FINANCIAL SERVICES FOR ALL

    2012

  • 2

    Produced by: Pakistan Microfinance NetworkArt Direction: Sumaira SagheerDesign & Layout: Uzma ToorPhotocredits: Retroactive Studios LibraryPrinted at: Pangraphics

    2013 Pakistan Microfinance Network

  • PAKISTAN MICROFINANCE REVIEWAnnual Assessment of the Microfinance Industry

    FINANCIAL SERVICES FOR ALL

  • EDITORIAL BOARD

    Mr. Ghalib Nishtar Chairperson Editorial Board President, Khushali Bank

    Dr. Saeed Ahmed Head of Department, Agriculture Credit and Microfinance Department State Bank of Pakistan

    Mr. Blain Stephens COO and Director of Analysis Microfinance Information eXchange, Inc. (MIX)

    Mr. Raza Khan Statistics & Results Adviser, Results & Evaluation Team- Economic Growth Group Department for International Development (UK)

    Mr. Yasir Ashfaq Group Head, Financial Services Group Pakistan Poverty Alleviation Fund

    Mr. Abrar Mir EVP and Group Head, Digital Money & Mobile Payments, United Bank Limited (UBL)

    Mr. Masood Safdar Gill Director Program, Urban Poverty Alleviation Program National Rural Support Programme

    PMN TEAMMs. Aban Haq Advisor

    Mr. Ali Basharat Author and Managing Editor

    Mr. Ammar Arshad Co-Author

  • ACRONYMS and ABBREVIATIONS

    AC and MFD Agriculture and Microfinance Division

    ADB Asian Development Bank

    BPS Basis Points

    CAR Capital Adequacy Ratio

    CIB Credit Information Bureau

    CGAP Consultative Group to Assist the Poor

    CNIC Computerized National Identity Card

    CPP Client Protection Principles

    CPI Consumer Price Index

    CPC Consumer Protection Code

    DFID Department for International Development, UK

    DPF Depositors Protection Fund

    ECA Eastern and Central Europe

    EUR Euro

    FIP Financial Inclusion Program

    FMFB First Microfinance Bank Ltd.

    FSS Financial Self Sufficiency

    FY Financial Year

    GBP Great Britain Pound

    GDP Gross Domestic Product

    GLP Gross Loan Portfolio

    GNI Gross National Income

    GoP Government of Pakistan

    IAFSF Improving Access to Financial Services Fund

    IFAD International Fund for Agricultural Development

    IFC International Finance Corporation

    JIWS Jinnah Welfare Society

    KBL Khushhali Bank Ltd.

    KF Kashf Foundation

    KIBOR Karachi Inter-Bank Offering Rate

    KMFBL Kashf Microfinance Bank Ltd.

    KP Khyber Pakhtunkhwa

    MCGF Microfinance Credit Guarantee Facility

    MCR Minimum Capital Requirement

    MENA Middle East and North Africa

    MFB Microfinance Bank

    MFCG Microfinance Consultative Group

    MF-CIB Microfinance Credit Information Bureau

    MFP Microfinance Provider

    MFI Microfinance Institution

    MIS Management Information System

    NADRA National Database and Registration Authority

    NGO Non-Governmental Organization

    NFLP National Financial Literacy Program

    NMFB Network Microfinance Bank Limited

    NPLs Non Performing Loans

    NRSP National Rural Support Programme

    OSS Operational Self Sufficiency

    PAR Portfolio at Risk

    PBA Pakistan Banks Association

    PKR Pakistan Rupee

    PMN Pakistan Microfinance Network

    PPAF Pakistan Poverty Alleviation Fund

    PRISM Programme for Increasing Sustainable Microfinance

    PRSP Punjab Rural Support Program

    PTA Pakistan Telecommunication Authority

    ROA Return on Assets

    ROE Return on Equity

    RSP Rural Support Programme

    SBI Shore Bank International

    SBP State Bank of Pakistan

    SC Smart Campaign

    SECP Securities and Exchange Commission of Pakistan

    SPTF Social Performance Task Force

    SME Small and Medium Enterprise

    SRSO Sindh Rural Support Organization

    SVDP Soon Valley Development Program

    TMFB Tameer Microfinance Bank Ltd

    UBL United Bank Limited

    USD United States Dollar

  • HIGHLIGHTS

    Year 2009 2010 2011 2012

    Active Borrowers (in Million) 1.4 1.6 1.7 2.0

    Gross Loan Portfolio (in PKR Billion) 16.8 20.2 24.8 33.1

    Active Women Borrowers (in Million) 0.6 0.8 0.9 1.3

    Branches 1,221 1,405 1,550 1,460

    Total Staff 11,557 12,005 14,202 14648

    Total Assets (in PKR Billion) 30.4 35.8 48.6 60

    Deposits (in PKR Billion) 7.2 10.1 13.9 20.8

    Total Debt (in PKR Billion) 23.2 27.5 38.3 24.9

    Total Revenue (in PKR Billion) 6.4 7.5 10.1 12.5

    OSS (in Percent) 104.6 99.7 108.4 109.5

    FSS (in Percent) 86.8 81.7 100.5 107.5

    PAR > 30 (in Percent) 3.4 4.1 3.2 3.7

    6

  • CONTENTS

    SECTION 1: THE YEAR IN REVIEW

    1.1. Macro-economy and the Microfinance Industry . . . . . . . . . . . . . . 101.2. Policy and Regulatory Environment . . . . . . . . . . . . . . . . . . . . . 121.3. Microfinance Industry Initiatives . . . . . . . . . . . . . . . . . . . . . . . 141.4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

    SECTION 2: INDUSTRY PERFORMANCE

    2.1. Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252.2. Scale and Outreach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262.3. Financial Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342.4. Funding Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362.5. Profitability and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . 372.6. Efficiency and Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.7. Risk Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422.8. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

    SECTION 3: THE WAY FORWARD

    3.1. Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463.2. Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

    ANNEXURES

    Annexure A-1: Performance Indicators-Industry Aggregate (2007-2011) . 56Annexure A-2: Performance Indicators-Individual Institutions and Peer Groups (2012) . . . . . . . . . . . . . . . . . . . . . . . 64Annexure B: Regional Benchmarks 2010 . . . . . . . . . . . . . . . . . . . . . . 94Annexure C: Sources of Data 2012 . . . . . . . . . . . . . . . . . . . . . . . . . 96Annexure D: Adjustments to Financial Data . . . . . . . . . . . . . . . . . . 106Annexure E: Terms and Definitions . . . . . . . . . . . . . . . . . . . . . . . . 108

  • SECTION ONE

    THE YEAR IN REVIEW

    CONTENTS

    1 Macro-economy and the Microfinance Industry

    2 Policy and Regulatory Environment

    3 Microfinance Industry Initiatives

    4 Conclusion

  • The key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder of development.

    Jeffrey d. Sachs

  • The year 2012 saw the industry aiming for growth and profitability although the external environment remained challenging with the adverse security situation and continuing energy shortages in Pakistan. Despite these challenges the industry experienced higher growth in outreach as compared to the last five years1, continued entry of new players and ongoing regulatory and policy reforms. Within the microfinance industry, the total Gross Loan Portfolio (GLP) continued to grow at a fast pace backed by higher loan sizes. Moreover, the Microfinance Banks (MFBs) experienced tremendous growth in deposits.

    Pakistans economy remained sluggish in 2012. Inflation witnessed a slight decline leading to gradual easing of monetary policy by the State Bank Pakistan. However, the decrease in policy rate did not result in increased private sector borrowing due to heavy borrowing by the government to finance an expanding fiscal deficit.

    Within the microfinance sector, there was a major undertaking on the policy and regulatory front as efforts to bring non-bank MFPs under a regulatory umbrella were initiated and regulations for micro-insurance moved forward. Also, the Small and Medium Enterprise (SME) Guarantee facility offered by the State Bank of Pakistan (SBP) was extended to MFBs allowing them to upscale loans while the Microfinance Credit Guarantee Facility (MCGF) coverage was also extended to debt capital markets. In addition, the Pakistan Poverty Alleviation Fund (PPAF), the national apex, aligned the pricing of its loans with market-based floating interest rates.

    1: MicroWatch, A quarterly update on microfinance outreach in Pakistan.

    SECTION ONE

    The year also saw a number of new initiatives being launched and earlier ones being built upon. Branchless banking saw the entry of two new players and witnessed continued growth. The national roll out of the Microfinance Credit Information Bureau (MF-CIB) took place in June. A Corporate Governance Initiative is underway to strengthen governance practices in the industry while a number of social performance initiatives have also been launched to improve client protection and promote pricing transparency.

    MACRO-ECONOMY AND THE MICROFINANCE INDUSTRY

    Pakistans economy witnessed modest growth of 3.7 percent in the financial year 2012 against a target of 4.2 percent2. The under-performance was mainly due to security challenges, energy shortages and catastrophic flooding in the last two consecutive years. The growth was broad based and evenly distributed across agriculture, industry and services sectors. In comparison, the microfinance industry outperformed overall economic growth as outreach increased by 10 percent and GLP grew by 23 percent in the

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