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  • September 2008

    MicrofinanceIndustry Assessment:A Report on Pakistan

    MicrofinanceIndustry Assessment:A Report on Pakistan


    Published by Pakistan Microfinance Networkin collaboration with the SEEP Network

    Funded by the Citi Foundation


    Pakistan Microfinance Network is a network of organizations engaged in

    microfinance and dedicated to improving the outreach and sustainability of

    microfinance services in Pakistan through knowledge management,

    capacity building, transparency and advocacy.


    The Citi Network Strengthening Program - an initiative of Citi Foundation in

    collaboration with the SEEP Network - aims to strengthen national and

    regional microfinance networks' ability to positively impact the

    microfinance sector. Participating networks will have access to a range of

    support instruments including high quality technical assistance, operational

    support, local expert advice and peer learning opportunities. As a result of

    this support, participating networks will be able to further promote growth

    and development of local microfinance industries, to strengthen their

    strategic focus on providing value to members, and contribute to

    international innovations in the field.

    Microfinance Industry Assessment: A Report on Pakistan

    First printed in 2008 in Pakistan

    Copyright 2008 Pakistan Microfinance Network (PMN)

    38-B, Street 33, F-8/1, Islamabad, Pakistan

    Tel: +92 51 2816139-41

    Fax: +92 51 2854702

    Email: info@pmn.org.pk

    Website: www.pmn.org.pk

    Authored by Aban Haq

    Edited by Minerva John

    Designed and printed at Channel 7 Communications Pvt. Limited.

    PMN does not guarantee the accuracy of the data included in this

    document and accepts no responsibility for any outcome of their use.

  • MicrofinanceIndustry Assessment:A Report on Pakistan


    AKAM Aga Khan Agency for Microfinance BRAC Bangladesh Rural Advancement CommitteeAKRSP Aga Khan Rural Support Programme

    CSC Community Support ConcernCFI Commercial Financial InstitutionCWCD Centre for Women CGAP Consultative Group to Assist the

    Cooperative DevelopmentPoorDAMEN Development Action for CIB Credit Information Bureau

    Mobilization & EmancipationDFI Development Finance InstitutionFMFB First MicroFinanceBank Ltd.DFID Department for International KB Khushhali BankDevelopmentNMFB Network MicroFinance Bank FIP Financial Inclusion Programme

    Ltd.FMiA First Microinsurance AgencyNRSP National Rural Support ProgrammeFY Fiscal Year OPP Orangi Pilot ProjectGDP Gross Domestic ProductP-O MFB Pak-Oman Micro Finance BankGLP Gross Loan PortfolioPRSP Punjab Rural Support ProgrammeGoP Government of PakistanRMFB Rozgar Microfinance Bank Ltd.HDI Human Development IndexSAFWCO Sindh Agricultural & Forestry IFAD International Fund for Agricultural

    Workers Coordinating Organization DevelopmentSRSP Sarhad Rural Support ProgrammeMFB Microfinance BankTF Taraqee FoundationMFI Microfinance InstitutionTMFB Tameer Microfinance Bank Ltd.MFP Microfinance ProviderTRDP Thardeep Rural Support ProgrammeMIFF Microfinance Industry Funding


    MoF Ministry of Finance

    NBFI Non-Bank Financial Institution

    NSO National Savings Organization

    OSS Operational Self Sufficiency

    PMN Pakistan Microfinance Network

    PPAF Pakistan Poverty Alleviation Fund

    PPSB Pakistan Post Savings Bank

    PRSP Poverty Reduction Strategy Paper

    ROA Return on Assets

    ROE Return on Equity

    Rs. Pakistani Rupees

    RSP Rural Support Programme

    SBP State Bank of Pakistan

    SECP Securities and Exchange Commission of Pakistan

    Notes: Exchange rate in June 2008: 1 US Dollar SEEP Small Enterprise Education and (US$ 1) = 67.7 Pakistan Rupees (Rs.)Promotion

    SME Small and Medium-sized Enterprise

    SPV Special Purpose VehicleSource: www.exchange-rates.orgZTBL Zarai Taraqiati Bank Limited.

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    Country Overview

    1.1 Macroeconomic Situation

    1.2 Demographic Profile

    Financial Sector Overview

    2.1 Financial Service Providers

    2.1.1 Commercial Banks

    2.1.2 Non-Bank Financial Institutions

    2.1.3 Microfinance Providers

    2.1.4 Other Financial Service Providers

    2.1.5 The Role of Informal Financial Markets

    2.2 Access to Financial Services

    2.2.1 Financial Penetration

    2.2.2 Barriers to Access for Low-Income Population

    2.3 Regulations and Government Initiatives

    2.3.1 Financial sector reforms

    2.3.2 Key Strategies for Financial Inclusion and Poverty Reduction

    2.3.3 Regulatory & Supervisory Framework

    Microfinance Sector in Pakistan

    3.1 History

    3.2 The Retail Level Players

    3.2.1 Microfinance Banks

    3.2.2 Microfinance Institutions

    3.2.3 NGOs and RSPs

    3.2.4 Commercial Financial Institutions

    3.2.5 MFPs in Pakistan compared across Asia

    3.3 Meso-level Organizations

    3.3.1 Networks and Associations

    3.3.2 Technical Assistance and Training

    3.3.3 Rating Services

    3.3.4 Credit Bureaus

    3.4 Funding

    3.5 Impact

    3.6 Challenges & Opportunities


    Further Readings and Resources

  • List of Tables, Boxes & Figures

    Table 1: Key Macroeconomic Indicators

    Table 2: Social Development Indicators: Regional Comparison

    Table 3: Poverty Profile of Pakistan

    Table 4: Financial Penetration Rural vs. Urban (December 2006)

    Table 5: Key Statistics for MFBs in Pakistan

    Table 6: Key Statistics for MFIs in Pakistan

    Table 7: Key Statistics for some NGOs and RSPs in Pakistan

    Box 1: Employment Profile

    Box 2: Micro-Insurance in Pakistan

    Box 3: Financial Inclusion Programme (FIP)

    Box 4: Microfinance Sector Development Programme

    Box 5: Pakistan Poverty Alleviation Fund (PPAF)

    Figure 1: Differentiating between Access and Use

    Figure 2: Average Deposit & Loan Sizes of Different Financial Service Providers June 2007

    Figure 3: Origin of Microfinance Providers in Pakistan

    Figure 4: Active Borrowers by Peer Group (March 2008)

    Figure 5: Projected Capital Structure of Microfinance Consolidated MFI/MFB Assets

    Figure 6: Composition of Debt in 2010 (Rs. billions)

    Figure 7: Top 5 MFPs in terms of Outreach and their Sustainability

  • Foreword

    Although a number of reports and publications are available

    on the microfinance sector in Pakistan, there is no one

    comprehensive document that provides an overview of the

    sector with a historical and futuristic approach. This

    Industry Assessment is designed to provide such an outlook

    while meeting certain other objectives which include, but

    are not limited to:

    i. Contextualizing the microfinance sector within the

    country's financial sector landscape and access to

    financial servicesii. Providing a snap-shot of where the industry stands

    today, the important trends at the retail and meso level,

    and the gaps in the market in the medium term.iii. Identifying the challenges for the sector and providing

    an outlook on the expected future developments, at

    least in the medium term. iv. Serving as a resource to support strategic planning for

    networks, network members and external audiences

    such as donors, investors, policymakers, etc.

    Given the scope and objectives of the assessment, this

    report has been structured into the following sections:

    i. Section I gives a brief description of Pakistan's socio-

    economic situation, with a focus on the demographics

    and social indicators in comparison to other countries,

    so as to put the country's development status in context

    for the reader. ii. Section II provides an overview of the financial sector in

    the country with a focus on issues most relevant to the

    development of an inclusive financial sector, along with

    taking a look at the regulations and government

    initiatives aimed at expanding access to financial

    services. This discussion will look at the overall financial

    sector reforms, as well as developments with respect to

    the microfinance sector.iii. Section III takes an in-depth look at the microfinance

    sector: its history, major players (at the retail and meso

    levels), funding sources, the impact of the microfinance

    activities to-date as well as challenges and

    opportunities for the sector.

    To facilitate readers interested in more information on the

    sector, a reading list has been included at the end of the

    report. The report draws heavily upon existing research and

    publications along with some primary research based on

    interviews with sector stakeholders.

    Pakistan Microfinance Network (PMN) is indebted to all who

    contributed towards this effort, especially the Small

    Enterprise Education and Promotion (SEEP) Network and Citi

    Foundation USA, and hopes this report will prove valuable

    for all audiences.

  • Country Overview

    Pakistan's political and economic history has threat to the economy over the past year. S


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