May help developing a strong cottage industry base
By AMANULLAH BASHAR
July 30 - Aug 05 , 2001
The micro-finance culture being introduced under
the supervision of the State Bank of Pakistan is likely to be
instrumental in developing a strong base for a massive scale cottage
industry in Pakistan.
So far the banking sector has been the forbidden
fruit for the poor in Pakistan. The less fortunate were allowed to use
the banking facilities only to deposit their hard earned money with
the banks while the facility of bank advances was exclusively made
available to the moneyed people.
With the promulgation of the Micro-finance
Institutions (MFIs) Ordinance, a secondary but really strong financial
sector at micro level is likely to emerge due to overwhelming support
from the grass root level.
Under the Ordinance, any micro-finance institution
could be set up with the objective of serving the poor and support
poverty alleviation programme launched by the present government.
Zubair Motiwala, President Karachi Chamber of
Commerce and Industry (KCCI) while appreciating the micro-finance
scheme has expressed the hope that a strong vendor industry can emerge
to support the manufacturing sector at the macro level.
He however suggested that initially those persons
already in business or those having technical qualification be
preferred to make best use of the available funds. The fresh and raw
hands could be accommodated in the scheme at a later stage. He said
that such scheme have already proved a great success in Bangladesh and
Indonesia. The scheme not only helps overcoming the problem of
unemployment but will encourage the new entrepreneurship in the
country. The micro-finance institutions in fact were the need of the
hour to reduce ever-increasing disparity between the haves and
He however sounded a note of warning that all
precautionary measures should be taken prior to introduce the scheme
to avoid recurrence of the yellow cab scheme which turned to be a big
The Micro-finance Institution Ordinance 2001 will
regulate the MFIs, which will provide assistance to micro-enterprises
and services in a sustainable manner to help the poor. These
institutions have been empowered to undertake mobile banking to
expedite transactions and cut costs. Five per cent of the annual
pre-tax profits of the institutions and profits earned on investment
of the PDF shall be credited to the Depositors Protection Fund. The
fund shall be invested in government securities or deposited with the
State Bank in a remunerative account. In case of liquidation of the
MFIs, the Fund will be used to pay individuals with deposits up to
Rs10,000, it will become operative with effect from the expiry of five
years from the date of first balance-sheet and shall remain
unencumbered at all times.
The MFIs would be allowed to operative at district,
provincial and national levels and the amount of paid-up capital has
been linked to area of its operation — Rs100 million for SBP licence
for a specified district, Rs250 million for a specified province and
Rs500 million for national-wide operations. The size of the amount
could also be raised by the central bank from time to time. The MFIs
will be governed by the prudential regulations and conditions attached
to the licence issued by the SBP.
The MFIs will provide financing facilities with or
without collateral security to poor persons for all types of economic
activities including housing but excluding transaction in foreign
exchange business. An MFI will undertake the management, control and
supervision of any organization, enterprise, scheme trust fund or
endowment fund for the benefit and advancement of the poor.
The MFI will be allowed to buy, sell and supply on
credit to poor persons industrial and agricultural inputs, livestock,
machinery, implements, equipment, industrial raw materials and to act
as agent for any organization for sale of such goods and stocks. These
micro-finance institutions will provide professional advance to poor
persons regarding investment in small business and such cottage
industries as may be prescribed and to borrow and raise money and open
bank accounts. These institutions under the Ordinance have been
allowed to receive grants from government or any other source
permitted by the State Bank.
Under the law the regulator would be the State Bank
of Pakistan and the Banking Companies Ordinance and any other law in
force, relating to the banking companies or financial institutions,
shall not apply to micro-finance institutions (MFI) licensed under
Moreover, no one would be allowed to use the name
of micro-finance bank or institution suggesting that it is a
micro-finance institution without registration under this ordinance.
MFI would also be allowed to invest in shares of
any unit providing any micro-finance services to the poor, to provide
storage and safe custody facilities and any research activity relating
to the improvement of poor people's work.
It would also be eligible to advise the poor in the
matter of making small investments, to provide services to the poor to
hedge against any risk relating to micro-finance activities and to
render managerial, marketing and related advice.