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<ul><li><p>September 2008</p><p>MicrofinanceIndustry Assessment:A Report on Pakistan</p><p>MicrofinanceIndustry Assessment:A Report on Pakistan</p><p>CITI NETWORK STRENGTHENING PROGRAM</p><p>Published by Pakistan Microfinance Networkin collaboration with the SEEP Network</p><p>Funded by the Citi Foundation</p></li><li><p>ABOUT PMN</p><p>Pakistan Microfinance Network is a network of organizations engaged in </p><p>microfinance and dedicated to improving the outreach and sustainability of </p><p>microfinance services in Pakistan through knowledge management, </p><p>capacity building, transparency and advocacy. </p><p>ABOUT THE CITI NETWORK STRENGTHENING PROGRAM </p><p>The Citi Network Strengthening Program - an initiative of Citi Foundation in </p><p>collaboration with the SEEP Network - aims to strengthen national and </p><p>regional microfinance networks' ability to positively impact the </p><p>microfinance sector. Participating networks will have access to a range of </p><p>support instruments including high quality technical assistance, operational </p><p>support, local expert advice and peer learning opportunities. As a result of </p><p>this support, participating networks will be able to further promote growth </p><p>and development of local microfinance industries, to strengthen their </p><p>strategic focus on providing value to members, and contribute to </p><p>international innovations in the field. </p><p>Microfinance Industry Assessment: A Report on Pakistan</p><p>First printed in 2008 in Pakistan</p><p>Copyright 2008 Pakistan Microfinance Network (PMN)</p><p>38-B, Street 33, F-8/1, Islamabad, Pakistan</p><p>Tel: +92 51 2816139-41</p><p>Fax: +92 51 2854702</p><p>Email: info@pmn.org.pk</p><p>Website: www.pmn.org.pk </p><p>Authored by Aban Haq</p><p>Edited by Minerva John</p><p>Designed and printed at Channel 7 Communications Pvt. Limited. </p><p>PMN does not guarantee the accuracy of the data included in this </p><p>document and accepts no responsibility for any outcome of their use. </p></li><li><p>MicrofinanceIndustry Assessment:A Report on Pakistan</p></li><li><p>ACRONYMS MICROFINANCE PROVIDERS</p><p>AKAM Aga Khan Agency for Microfinance BRAC Bangladesh Rural Advancement CommitteeAKRSP Aga Khan Rural Support Programme</p><p>CSC Community Support ConcernCFI Commercial Financial InstitutionCWCD Centre for Women CGAP Consultative Group to Assist the </p><p>Cooperative DevelopmentPoorDAMEN Development Action for CIB Credit Information Bureau</p><p>Mobilization &amp; EmancipationDFI Development Finance InstitutionFMFB First MicroFinanceBank Ltd.DFID Department for International KB Khushhali BankDevelopmentNMFB Network MicroFinance Bank FIP Financial Inclusion Programme</p><p>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 &amp; Forestry IFAD International Fund for Agricultural </p><p>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 </p><p>Facility </p><p>MoF Ministry of Finance</p><p>NBFI Non-Bank Financial Institution</p><p>NSO National Savings Organization</p><p>OSS Operational Self Sufficiency </p><p>PMN Pakistan Microfinance Network</p><p>PPAF Pakistan Poverty Alleviation Fund</p><p>PPSB Pakistan Post Savings Bank</p><p>PRSP Poverty Reduction Strategy Paper</p><p>ROA Return on Assets</p><p>ROE Return on Equity</p><p>Rs. Pakistani Rupees</p><p>RSP Rural Support Programme</p><p>SBP State Bank of Pakistan</p><p>SECP Securities and Exchange Commission of Pakistan</p><p>Notes: Exchange rate in June 2008: 1 US Dollar SEEP Small Enterprise Education and (US$ 1) = 67.7 Pakistan Rupees (Rs.)Promotion</p><p>SME Small and Medium-sized Enterprise</p><p>SPV Special Purpose VehicleSource: www.exchange-rates.orgZTBL Zarai Taraqiati Bank Limited.</p></li><li><p>vii</p><p>01</p><p>01</p><p>01</p><p>05</p><p>05</p><p>05</p><p>06</p><p>07</p><p>07</p><p>08</p><p>08</p><p>08</p><p>09 </p><p>11</p><p>11</p><p>11 </p><p>15</p><p>17</p><p>17</p><p>18</p><p>19</p><p>20</p><p>20</p><p>21</p><p>21</p><p>21</p><p>21</p><p>22</p><p>22</p><p>22</p><p>23</p><p>25</p><p>26</p><p>29</p><p>31</p><p>Contents</p><p>Foreword</p><p>Country Overview</p><p>1.1 Macroeconomic Situation</p><p>1.2 Demographic Profile</p><p>Financial Sector Overview</p><p>2.1 Financial Service Providers</p><p>2.1.1 Commercial Banks</p><p>2.1.2 Non-Bank Financial Institutions</p><p>2.1.3 Microfinance Providers</p><p>2.1.4 Other Financial Service Providers</p><p>2.1.5 The Role of Informal Financial Markets</p><p>2.2 Access to Financial Services</p><p>2.2.1 Financial Penetration</p><p>2.2.2 Barriers to Access for Low-Income Population</p><p>2.3 Regulations and Government Initiatives</p><p>2.3.1 Financial sector reforms</p><p>2.3.2 Key Strategies for Financial Inclusion and Poverty Reduction</p><p>2.3.3 Regulatory &amp; Supervisory Framework</p><p>Microfinance Sector in Pakistan</p><p>3.1 History</p><p>3.2 The Retail Level Players</p><p>3.2.1 Microfinance Banks</p><p>3.2.2 Microfinance Institutions</p><p>3.2.3 NGOs and RSPs</p><p>3.2.4 Commercial Financial Institutions</p><p>3.2.5 MFPs in Pakistan compared across Asia</p><p>3.3 Meso-level Organizations</p><p>3.3.1 Networks and Associations</p><p>3.3.2 Technical Assistance and Training</p><p>3.3.3 Rating Services</p><p>3.3.4 Credit Bureaus</p><p>3.4 Funding</p><p>3.5 Impact</p><p>3.6 Challenges &amp; Opportunities</p><p>References </p><p>Further Readings and Resources</p></li><li><p>List of Tables, Boxes &amp; Figures</p><p>Table 1: Key Macroeconomic Indicators</p><p>Table 2: Social Development Indicators: Regional Comparison</p><p>Table 3: Poverty Profile of Pakistan</p><p>Table 4: Financial Penetration Rural vs. Urban (December 2006)</p><p>Table 5: Key Statistics for MFBs in Pakistan</p><p>Table 6: Key Statistics for MFIs in Pakistan</p><p>Table 7: Key Statistics for some NGOs and RSPs in Pakistan</p><p>Box 1: Employment Profile</p><p>Box 2: Micro-Insurance in Pakistan</p><p>Box 3: Financial Inclusion Programme (FIP)</p><p>Box 4: Microfinance Sector Development Programme</p><p>Box 5: Pakistan Poverty Alleviation Fund (PPAF)</p><p>Figure 1: Differentiating between Access and Use</p><p>Figure 2: Average Deposit &amp; Loan Sizes of Different Financial Service Providers June 2007</p><p>Figure 3: Origin of Microfinance Providers in Pakistan</p><p>Figure 4: Active Borrowers by Peer Group (March 2008)</p><p>Figure 5: Projected Capital Structure of Microfinance Consolidated MFI/MFB Assets</p><p>Figure 6: Composition of Debt in 2010 (Rs. billions)</p><p>Figure 7: Top 5 MFPs in terms of Outreach and their Sustainability</p></li><li><p>Foreword</p><p>Although a number of reports and publications are available </p><p>on the microfinance sector in Pakistan, there is no one </p><p>comprehensive document that provides an overview of the </p><p>sector with a historical and futuristic approach. This </p><p>Industry Assessment is designed to provide such an outlook </p><p>while meeting certain other objectives which include, but </p><p>are not limited to:</p><p>i. Contextualizing the microfinance sector within the </p><p>country's financial sector landscape and access to </p><p>financial servicesii. Providing a snap-shot of where the industry stands </p><p>today, the important trends at the retail and meso level, </p><p>and the gaps in the market in the medium term.iii. Identifying the challenges for the sector and providing </p><p>an outlook on the expected future developments, at </p><p>least in the medium term. iv. Serving as a resource to support strategic planning for </p><p>networks, network members and external audiences </p><p>such as donors, investors, policymakers, etc.</p><p>Given the scope and objectives of the assessment, this </p><p>report has been structured into the following sections:</p><p>i. Section I gives a brief description of Pakistan's socio-</p><p>economic situation, with a focus on the demographics </p><p>and social indicators in comparison to other countries, </p><p>so as to put the country's development status in context </p><p>for the reader. ii. Section II provides an overview of the financial sector in </p><p>the country with a focus on issues most relevant to the </p><p>development of an inclusive financial sector, along with </p><p>taking a look at the regulations and government </p><p>initiatives aimed at expanding access to financial </p><p>services. This discussion will look at the overall financial </p><p>sector reforms, as well as developments with respect to </p><p>the microfinance sector.iii. Section III takes an in-depth look at the microfinance </p><p>sector: its history, major players (at the retail and meso </p><p>levels), funding sources, the impact of the microfinance </p><p>activities to-date as well as challenges and </p><p>opportunities for the sector. </p><p>To facilitate readers interested in more information on the </p><p>sector, a reading list has been included at the end of the </p><p>report. The report draws heavily upon existing research and </p><p>publications along with some primary research based on </p><p>interviews with sector stakeholders. </p><p>Pakistan Microfinance Network (PMN) is indebted to all who </p><p>contributed towards this effort, especially the Small </p><p>Enterprise Education and Promotion (SEEP) Network and Citi </p><p>Foundation USA, and hopes this report will prove valuable </p><p>for all audiences. </p></li><li><p>Country Overview</p><p>Pakistan's political and economic history has threat to the economy over the past year. Some </p><p>been a turbulent one, with periods of stability of the biggest challenges for the policy makers </p><p>and growth often followed by instability and today include double-digit food inflation that </p><p>economic slowdowns. It is thus important to can push an increasing number of people </p><p>understand the economic and social below the poverty line, an energy shortage </p><p>environment of the country in order to fully resulting in a slowdown in production and </p><p>understand the context of the microfinance investment, increasing international fuel prices </p><p>and poverty reduction (see Table 1 for a sector in Pakistan.</p><p>snapshot of macroeconomic indicators over the </p><p>past five years). </p><p>The last few years have been a period of high </p><p>growth for Pakistan with an average GDP </p><p>Pakistan's socio-economic history reflects the growth rate of 7.0 percent during the last five </p><p>country's constant struggle with sustaining years. Increasing investment, wide-ranging </p><p>growth and improving the living standards of reforms, macroeconomic stability and </p><p>its people. Periods of high growth have not reduction of poverty have been cited as major </p><p>always translated into an improvement in the accomplishments for the economic managers </p><p>social indicators and even today, Pakistan fares during this period. According to government </p><p>poorly in comparison to other developing statistics, per capita incomes rose from US$ </p><p>countries of the region on various social 586 in 2002-3 to US$ 1,085 by 2007-8. </p><p>indicators, particularly those related to gender However, inflationary pressures and an </p><p>and literacy (see Table 2 on next page). expanding twin deficit have emerged as a </p><p>1.1 Macroeconomic Situation</p><p>1.2 Demographic Profile </p><p>01</p><p>Mic</p><p>rofin</p><p>an</p><p>ce </p><p>Ind</p><p>ustry </p><p>Asse</p><p>ssm</p><p>en</p><p>t</p><p> FY04 FY05 FY06 FY07 FY08* </p><p>Real GDP growth rate (%) 7.5 9.0 5.8 6.8 5.8 </p><p>Per capita income (US$) 669 733 836 926 1,085 </p><p>Inflation rate (%) 4.6 9.3 7.9 7.8 10.3 </p><p>Current Account Balance (% of GDP) 1.9 -1.4 -3.9 -4.9 -6.9 </p><p>Fiscal Deficit (as % of GDP) 2.4 3.3 4.3 4.3 6.5 </p><p>Foreign Direct Investment (US$ million) 949 1,524 3,521 5,140 3,482 </p><p>Average exchange rate (Rs./ 1 US$) 57.6 59.4 59.9 60.6 61.6 </p><p>Unemployment rate (%) 7.69 - 6.20 5.32 - </p><p>Table 1: Key Macroeconomic Indicators</p><p>* Data for FY08 pertains to July April. Source: Pakistan Economic Survey 2007-08, Finance Division, Ministry of Finance and Annual Report 2006-07, State Bank of Pakistan. </p></li><li><p>According to official statistics, 22.3 percent of employment seekers is thus one of the top </p><p>the country's total population (approximately priorities of the government. </p><p>160 million) currently lives below the poverty In addition to job creation, poverty alleviation with another 20.5 percent living in and provision of basic services are important vulnerable conditions (see Table 3 for the issues for the policymakers. Education and poverty profile of Pakistan for 2007-08). A large health facilities, sanitation, access to safe proportion approximately 79 percent of drinking water and infrastructure development these poor reside in rural areas. One of the in peri-urban and rural locations require challenges for Pakistan has been its rapidly targeted interventions. The lack of such increasing population, which has exerted facilities in these areas and little focus on pressure on domestic resources and labor development of agricultural value chains has markets. These pressures are expected to prompted urban migration, which has created increase, as currently 40 percent of the pressures on urban infrastructure and job population is under the age of 14 years. Job markets. creation to absorb the entry of potential </p><p>1line</p><p>02</p><p>Mic</p><p>rofi</p><p>na</p><p>nce </p><p>Ind</p><p>ustr</p><p>y A</p><p>sse</p><p>ssm</p><p>en</p><p>t</p><p>Table 2: Social Development Indicators: Regional Comparison </p><p> PAKISTAN INDIA SRI LANKA BANGLADESH CHINA </p><p>HDI Rank* 136 128 99 140 81 </p><p>Adult illiteracy rate (%) 50.1 39.0 9.3 52.5 9.1 </p><p>Infant mortality rate (per 1000 births) </p><p>79 56 12 54 23 </p><p>Life expectancy at birth (years) </p><p>64 63 71 62 72 </p><p>Gender-related development index rank* </p><p>125 113 89 121 73 </p><p>* Out of 177 countries: a higher rank implies a lower level of development. Source: Human Development Report 2007/08, UNDP.</p><p>Poverty Band Percentage of </p><p>Population </p><p>Estimated Head Count </p><p>(million) </p><p>Estimated Adult </p><p>Population (million) </p><p>Extremely poor [50% and 75% and 100% and 125% and 200% of poverty line] </p><p>20.9 33.63 21.9 </p><p>Total Population 100 160.9 88.4 </p><p>Source: Pakistan Economic Survey 2007-08, Finance Division, Ministry of Finance and PMN estimates.</p><p>Table 3: Poverty Profile of Pakistan </p><p>1 The national poverty line, according to the Government of Pakistan stands at Rs. 944.47 per month (for the year 2005-06), which is based on the conversion of a calorie intake of 2350 (adult equivalent) per person per day into Rupee terms. </p></li><li><p>03</p><p>Box 1: Employment Profile </p><p>Approximately 73 million people are part of Pakistan's labor force, of which 72 percent are male. </p><p>The official unemployment rate in 2007 was estimated to be 6.2 percent, although youth </p><p>unemployment (between 15-19 years) was higher at 7.6 percent and urban unemployment at </p><p>10.1 percent.</p><p>Trends in the labor market show that employment indicators have changed in line with the </p><p>economy's performance and structure in recent years. Agriculture is the largest sector with 43 </p><p>percent of total employed people being related to this sector, although its share has been </p><p>declining. This is followed by services (35.9 percent) of which wholesale and retail is the largest </p><p>sub-sector, and then industry, of which manufacturing and construction are the largest sub-</p><p>sectors. </p><p>The country's informal economy has also grown in recent years. The highest proportion of </p><p>informal employment is estimated to be in the agriculture sector, followed by wholesale and </p><p>retail, and industry. The majority of these informal workers are female.</p><p>Source: Pakistan Employment Report 2007, Government of Pakistan</p><p>Mic</p><p>rofin</p><p>an</p><p>ce </p><p>Ind</p><p>ustry </p><p>Asse</p><p>ssm</p><p>en</p><p>t</p></li><li><p>05</p><p>Financial Sector Overview</p><p>This section provides an overview of the Bank of Pakistan, remained in public hands, </p><p>financial sector of the country, beginning with leaving only 20 percent of the banking system's </p><p>a description of the financial service providers assets in the public sector. </p><p>including banks and non-bank financial By the end of September 2007, ther...</p></li></ul>


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