LOW FINANCIAL ACCESS OF WOMEN, MICRO ENTERPRISES

KANWAL SALEEM
June 1 - 7, 2009

Like in other developing countries, financial access in Pakistan is still very low for women, small and micro enterprises, though they are good customers. Outreach in Pakistan is the lowest in South Asia and Pacific as far as the micro finance is concerned, constituting about 0.2 percent of the total financial assets.

Informal financial sector was more efficient than formal banking in rural areas. Only 14 percent of adults have access to formal financial institutions and about 40 percent have no financial access to formal or informal financial systems.

A report suggests that there is an enormous growth potential for financial services in Pakistan especially in rural areas.

Financial experts told PAGE that mobile technology can greatly help in expanding micro finance in the country. According to them, Pakistani banking sector has made many a strides in the last five years due to robust banking reforms introduced by the State Bank of Pakistan. Pakistani banks' lending to corporate sector has jumped by 83%, small and medium enterprises 134%, agriculture sector 44% while consumer financing surged by three times from December 2003 to December 2007. Micro-financing clients have increased from 330,000 in 2003 to 1.7 million in 2008, showing a five times rise in last five years.

Experts believe that micro-finance clients will grow to 3 million by 2010 and further increase to 10 million by 2015. There is a shift from micro-financing to inclusive financing.

They also emphasized for rationale for the management of balance sheets of commercial banks. If the balance sheet is not properly managed it can affect the overall profitability of the institution besides bringing short-term liquidity crisis that may eventually transform into solvency issues, they said.

They were of the view that the management of balance sheet and liquidity is imperative to ensure that the institution remains in the business on a sustainable basis. They said that for financial intermediaries in an economy like Pakistan the liability side that largely comprises short-term deposits is far more important than the asset side which generally comprises the medium to longer tenure lending.

"SBP not only expects the management of the banks to put in place the robust policy environment that can help that bank's management to accurately measure its current and projected liquidity requirements, it has also put more emphasis on their actual implementation and also proper and adequate reporting of the same to their Board of Directors," they added.

According to country's financial experts, banking system shows strong resilience to unusual shocks in major risk factors. This strength of the banking system largely came from the prudent regulatory and supervisory regime, strengthening of risk management and governance standards in banks as well as the improved solvency position.

The analysts believe that profits will decline in 2009 as well, but the drop will be smaller than the one recorded in 2008. According to the State Bank of Pakistan's Quarterly Performance Review of the Banking System for the quarter ended December 31, 2008 released recently, growth rates, credit risk and earnings of the banking system are likely to remain under strain in future due to constrained economic environment both at home and global fronts. Low demand for banks' advances will shift asset mix away from advances to government papers, and deposits are likely to grow at a steady pace. This respite in liquidity may have positive bearing on interest rates, the report said.

The latest statistics of March 2009 also vindicate these trends. Since the last week of December 2008, the asset base over these weeks has grown by 2.3 percent with 1.8 percent and 11.3 percent increases in deposits and investments, respectively, while advances declined by 2.3 percent. The present tough economic environment will also heighten the credit risk and affect the earnings due to increased loan loss charges and constrained incomes. The system is expected to remain profitable in the coming quarters, though this phenomenon may not be widely shared across the market players. Though the concerns about the solvency of top banks of the world are weighing on the investor confidence across the globe, the banks in Pakistan are still maintaining their resilience, the report said.

The asset base of the banking system grew 2.6 percent over the quarter to reach Rs 5,653 billion, well supplemented by 3.6 percent and 7 percent growth in deposit and shareholders equity, respectively. The liquidity profile of the banking system remained constrained for most part of the quarter. However, post quarter statistics indicate significant easing out in liquidity profile because of the gradual increase in deposits and reduction in banks' advances.

The report pointed out that in line with deterioration in macroeconomic indicators, the credit risk remained heightened during the quarter. Non-performing Loans (NPLs) of the banking system increased to Rs 313 billion (Rs 278 billion in September-2008) giving infection ratio of 9.1 percent and net infection ratio of 2.5 percent. However, satisfactory earnings enabled the system to cover these loan losses. NPLs are covered by the loan loss provisions to the extent of 75 percent, but due to these increased loan provisions in absolute amounts, earnings of the banking system came under pressure and remained lower than last couple of year's levels.

On the other hand, businessmen were of the view that despite hefty liquidity, banks were not providing long-term loans and running finances to industry while India has provided 10-years fixed loans to its industry just at 5% interest rate.

According to Federal Minister for Investment, Senator Waqar Ahmed Khan, National Investment Policy will be formed in consultation with all stakeholders including business community and government has set a target of luring US$ 10 billion investment in the country by December 2009.

"The government will provide comprehensive legislative cover to protect foreign and local investors so that they could make long term investment in Pakistan with confidence," he said. He said that Ministry of Investment was providing One Window Facility and all investors whether small or big are being treated equally to facilitate them in their efforts.