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Growth of microfinance industry imperative to help overcome poverty, generate employment opportunities

Rs5.58bn has been granted to 251,351 youth under PM Interest Free Loan Scheme

Microfinance Industry in Pakistan faces a number of challenges which, if overcome, can help prove to be drivers of growth apart from overcoming the vicious circle of poverty. In order to help micro finance industry, there is an urgent need to bring non-bank MFPs under the regulatory umbrella. Another key challenge is having the requisite human capital. This requires sector-wide capacity building initiatives to be started to meet enhanced training needs of practitioners.

Despite, microfinance banks are working efficiently, which is evident from the data that as many as 10 big microfinance banks, which were given the target of Rs60.1 billion for disbursement, and in the first six months of fiscal year 2016-17, their disbursement stood at record Rs42.2 billion meeting the target by 84 percent. These microfinance banks included Khushhali Bank, NRSP microfinance bank, the first microfinance bank, Pak-Oman microfinance bank, Tameer microfinance bank, Mobilink microfinance bank, U microfinance Bank, FINCA microfinance bank, Apna microfinance bank and Sindh microfinance bank.

On the other hand, 16 microfinance institutions were given Rs 34.3 billion target and they achieved it 21 percent by disbursing Rs7.2 billion among farmers. These microfinance institutions included National Rural Support Program (NRSP), Thar Deep Microfinance Fund, SAFCO Support Foundation, Punjab Rural Support Program (PRSP), Kashf Foundation, Akhuwwat, Sindh Rural Support Organization (SRSO), Damen Support Program, National Rural Development Program, Agahi, BRAC Pakistan, Son Valley Development Program, Villagers Development Organization, Farmers Friends Organization, Support with Working Solutions and Al-Mehran Rural Development Organization.

Financial analysts told PAGE that Pakistan’s microfinance industry currently stands at roughly over 3.1 million active borrowers with a gross loan portfolio (GLP) of over Rs62 billion. Outreach in terms of active borrowers has been growing steadily due to increase in number of microfinance providers (MFPs) working in the country, as well as the maturity of existing MFPs.

According to them, Pakistan’s microfinance sector is currently rated amongst the best in the world in terms of its policy and business environment mid rapid developments in digital financial inclusion and branchless banking. The central bank has also been playing a key role in providing strategic direction to the microfinance sector and proactively making policy in order to address the issues of poverty and increasing unemployment in the country, an interest-free microloan scheme is being extended to the poor and destitute segments of the population.

Around 251,351 interest free loans amounting to Rs5.58 billion have been granted to poorest of the poor under Prime Minister’s Interest Free Loan Scheme. These interest free loans have been provided in 427 Union councils of 44 districts across the country and 62 percent of loan beneficiaries were female. The recovery rate of the scheme was 99 percent. Official sources said Pakistan Poverty Alleviation Fund (PPAF) has been implementing this scheme through its 26 Partner Organizations (POs).

The PM’s Youth Program has broad canvas of schemes enabling youth and poor segments of population to get good opportunities of employment, economic empowerment, acquiring skills needed for gainful employment, access to IT and imparting on-the-job training for young graduates to improve probability of getting a productive job.

Prime Minister’s Youth Program includes six schemes – PM’s Youth Business Loan Scheme, PM’s Interest Free Loan Scheme, PM’s Youth Skill Development Program, PM’s (National) Program for Provision of Laptops to Talented Students, PM’s Fee Reimbursement Scheme for Less Developed Areas, and PM’s Youth Training Scheme. Under PM’s Youth Business Loan Scheme, 17,720 loan cases worth Rs17.713 billion have been disbursed so far among potential entrepreneurs either to establish new businesses or to expand existing ones. The recovery rate is 94 per cent with 6 per cent delinquency rate. These are subsidized business loans at 6 per cent mark up for a period of eight years, with the first year as grace period, and are granted by banks after satisfactory evaluation of borrowers’ business feasibility plans.

Under PM’s Youth Skill Development Program, so far 75,000 youth both male and female have been trained in more than 100 demand-driven traded across Pakistan as per NFC award quotas. Training classes of another 25,000 trainees under Phase III (Batch-II) have been commenced. Besides imparting free training, Interns are also getting Rs. 3000/month scholarship for the six-month training period.

However, Federally Administered Tribal Areas (FATA) students are being paid Rs4000/month as stipend. The 33 percent of total training slots are reserved for female trainees. Madaris graduates and disabled youth are also catered to under this scheme.

Under PM’s (National) Program for Provision of Laptops to Talented Students Phase-I & II, so far 189,519 laptops have been distributed among Ph.D/ MPhil/MS. Masters’ and bachelors’ students of 97 Higher Education Commission (HEC) recognized universities across Pakistan.

Under PM’s Fee Reimbursement Scheme, so far tuition fee of 161,038 students of less developed areas across the country amounting to Rs4.7 billion has been reimbursed/paid up front to universities.

Students hailing from less-developed areas and enrolled in MA, MS/MPhil and PhD programs in HEC-recognized public sector universities are eligible to apply under this Scheme. Due to this valuable intervention, 100 per cent enrolment has increased in some universities of Balochistan like Sardar Bahadur Khan Women University, Quetta.

Under Phase-I (Batch I & II) of PM’s Youth Training Scheme, around 44,000 fresh graduates, degree/diploma holders, were granted 12-month paid internship @ Rs. 12000/month based on their matching demand in reputed public and private sector organizations.

Banks have extended Rs301.7 billion loans to farmers across the country in first half of on-going fiscal year as bankers move on to achieve the target of Rs700 billion disbursement among the farming community for the year 2016-17 with microfinance banks leading the rest.

For the microfinance industry to be counted as a key player in the financial industry and play a pivotal role in financial inclusion, it needs to expand to cater to at least 10 million active borrowers. The microfinance industry can utilize government directed credit schemes and other public sector initiatives like credit guarantees for small and marginalized farmers and the low cost housing guarantee scheme to its advantage to increase outreach and enter new market segments like housing. In addition, the fast growing branchless banking segment can be utilized to expand outreach and provide variety of services in a cost effective manner. This is imperative to achieve the goal of progress of prosperity to become a dignified country in the comity of nations.

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