Apr 28 - May 11, 2008

[Having over 20 years of experience in financial sector, S. Faiq Husain joined Rozgar Micro Finance Bank Limited in September 2006. He did his MBA from IBA in 1984. After assuming the helm of affairs in Rozgar Micro, he introduced several correcting business policies that resulted in the revenue growth.]

Micro financing following the promulgation of Micro Finance Ordinance 2001 mitigated the concerns of small borrowers who could not identify tangibility on loan redemption and therefore often missed the lending facility but the novel concept of making available finance to enterprising entrepreneurs basically for creating income sources in Pakistan has not been as pervasive as it might have been amidst significant unemployment rate that narrows down options of earning for livelihood. Along with many reasons, unawareness in public about micro finance and stigmatization of bank loans have kept the underperformance of micro financing.

Moderately inspired by the idea of Grameen bank that was introduced 35 years ago in Bangladesh to change the fate of cash-strapped businesspersons and to have provided them finances without any collaterals, micro financing in Pakistan focused since its beginning on to promote cottage and small scale industry. From agriculture sector to vendor industry, this financing facility still releases capital to people on the back of flexible guarantee. And, this distinguished feature of the lending agreement between banker and borrower obliterate the strict criterion of setting up collateral, which becomes extensively difficult to meet by the informal debtors.

The potential of micro financing is rather needed to be uncovered across the country, in Karachi, which is an industrial hub and hotbed of occupations and having an untapped over 50% micro financing target market, micro finances to people would not only give impetus to micro economic activities but also reduce the unemployment that is the root cause of perilous poverty.

Especially in metropolis like Karachi, there are numbers of people associated with the informal trade sector and rotating substantial revenues in the mainstream economy. Since most of them hardly keep record of their business transactions formally, to them proving their ability to repay credit often is not easy. Retailers and manufacturers in home-grown industry pin pointedly fall in the category of businesspersons group, which finds it problematic to seek micro financing in order for either business expansion or increasing sales turnover.

Let alone this group, unemployed person who wants to start up his own business from the scratch seldom avails lending facility of micro finance due to slight under marketed community based lending that, hence, confines its facilitation to a close knitted circle of people. When asked about the reason behind low outreach of micro financing, S. Faiq Husain, President & CEO Rozgar MicroFinance Bank Limited replied micro financing involves high risk and high cost because of it sanctions capital to debtor in return of no collateral.

What we require are only guarantees of one to three fellow beings of the group, which seek finance. On individual lending, even this condition is waived off. However, the credit limit of up to Rs. 150,000 is shrunken in the individual lending. Owing to the high cost incurred on vigilance and analyses of debt repayment ability, the bank ought to keep its low profile. "We have to carefully expand the outreach of micro financing," said CEO during an interview with the PAGE.

Rozgar MicroFinance, which is a district based bank and owned by the syndicate of private businesspersons, has 12 services centres and 4 full fledged branches across Karachi. Faiq Husain hinted at the plan of expansion the district branch network. We are also pondering at the modalities of out of city operation, he informed. Presently, the Rozgar bank is licenced to operate within the city. While Hawksbey, Lyari, Korangi, New Karachi, etc. are the main business areas, he said saying the bank is concurrently exploring other untapped markets of over 50% around the district by organizing road shows in New Sabzi Mandi and Behns Colony, that he thinks, are the promising markets for micro financing.

Sometimes, micro loan is not utilized on purpose for which it is sought actually by debtors but instead usually consumed on personal use in absence of counselling. Aside by intentional lapse in repayment, most of the time debtors genuinely incapacitate to get their loans matured within one year-maximum repayment period of Rozgar micro finances-just because of unplanned use of micro loan.

While outlining the essential factors that can penetrate micro financing in the unexplored market, he said, vocational training and technical skills enhancement can guarantee proper use of capital. Self employment and promotion of entrepreneurship among people could lead us towards economic betterment, he stated. There are several occupations people can earn income from. Referring to an example, he said 20,000 types of candles manufactured in Taiwan have become exportable products, making their way alike in the US market. Similarly, to name few making of artificial jewellery and beauty parlours are emerging professions in our country that can open up sustainable sources of household incomes if people are trained with short tem vocational courses. He offers his services and facilitation centres to be used as training spots.

Only trained debtor would know about how to get consistent return on his borrowed amount. He said girls colleges should be focused to start with vocational training. Not only in urban areas but also in farmlands micro financing can enhance the productivity level, he remarked. Rozgar MicroFinance has five products with secured lending on 18% and unsecured on 20%. The reason, he expressed, underlying high interest rates is bank's inadequate avenues of profit.

No other banking services other than public deposit and lending investment are allowed to us. Besides, as soon as borrowers' base currently standing on 7,500 widens lenders will get the advantage of institutional economies of scale, Faiq Husain assured. Since its inception in April 2005, Rozgar MicroFinance has sanctioned loans worth Rs. 155 million. Of that, Rs. 20 million losses enveloped. According to him default ratio of bank loans is 30%. He said 70% loans are recoverable. Even then, he urges, SBP should expand the period of categorizing non performing loan above 29 days. This would encourage micro finance borrowers, he said adding SBP should also subsidize operations of micro finance banks, which are still thriving to cross break evens. Maintaining paid-up capital requirement of Rs.100 million for district based micro finance banks should be calculated on percentage basis, he suggests, given the operational efficacy of micro financing at present. Micro financing banks enjoy conditional tax free status until they don't disburse dividends. All in all, yet he terms micro financing sector is holding a bright scope.