Symbolizes collaboration between
the public and private sectors, donors, NGOs and community
By SHABBIR H. KAZMI
Feb 26 - Mar 04, 2001
Khushhali Bank has been established as a public-private joint venture
with initial paid up capital of Rs 1.7 billion subscribed by 16 commercial banks 13
from private sector, 2 foreign banks and three state-owned commercial banks. The
broad-based ownership structure is a reflection of the social consciousness and support of
the commercial banking industry for poverty alleviation. An independent board of directors
elected by the shareholders is providing policy guidelines to the management. Out of the 8
members of the Board, 2 are women. The management model of the Bank is unique and aims at
ensuring operational and management independence under the Prudential Regulations of the
State Bank of Pakistan.
The business strategy incorporates the best practices in micro-finance
industry. Community Organization (CO) is the focal point for delivery of both social and
financial services. The formation of companies and service delivery follow procedures
similar to those successfully developed by service providers in micro-finance industry.
Financial services are available to members after they have received capacity building
inputs. Mobile Units travelling on a regular schedule to villages and local communities
service customers at their doorstep. All CO members mobilized by the Bank through NGOs
will receive training on social awareness, selection of economic activities, women
empowerment, basic literacy and financial services and products. About 40 per cent of COs
are to be for women exclusively. CO members especially women undergo capacity building in
vocational skills, business management, community development and leadership. Community
infrastructure grants are provided to COs on a cost-sharing basis.
Khushhali Bank is utilizing the services of various Community
Organizations. These Community Organization comprise of 4,500 members. These member will
receive ongoing capacity building training by NGO's on social awareness, selection of
economic activities, women empowerment, basic literacy and understanding of financial
services and products.
By mobilizing Community Organizations and ensuring that at least 40% of
them are women will encourage greater female participation, as Khushhali bank aims to
increase women's access to financial institutes by making it more receptive to their needs
and requirement. Mobile units will also be utilized and will travel on a regular basis to
villages and communities to provide access to Khushhali Bank's services.
The Community Organizations will assist in the development of
appropriate skills such vocational skills, literacy, business management, community
development to be self-sufficient and leadership abilities. These are essential to develop
financial decision making skills and will enable individuals to set up small business and
small-scale cottage industries encouraging them to achieve economic empowerment and
Micro-finance, in particular short- term small-size loans for livestock
and home industries are promoted. Loan size range from Rs 3000 to Rs 30,000 for up to a
year. Interest rate is 18 per cent per annum and is based on the principal of
affordability and full cost recovery that is critical for sustainability in the
micro-finance industry. Khshhali Bank borrows funds at weighted average cost in the
industry and lends at 18 per cent. Approximately 6 per cent of the interest revenues are
diverted to Deposit Protection Fund and Risk Mitigation Fund that will provide insurance
cover to small savings mobilized by the Bank and will mitigate default risk of the poor.
The pricing policy targets the twin objectives of affordability and
full cost recovery that involves trade offs between the two. Successful practices have
shown that financial products and services have to be priced reasonably and affordable if
they are to be of any use to poor. Clients will not use a service that charges fees or
prices loans that represent more than a small fraction of the client's cash passing
through the system.
Achieving full sustainability in micro-finance industry is critical and
yet very difficult in slum and village conditions. It requires a total commitment to cost
control, a fully computerized Management Information System, and shrewd design of delivery
The management fully appreciates the value of cost recovery in terms of
institutional growth and operational sustainability and it remains its key objective in
the medium to long run. In the near term the Bank intends to focus on institutional growth
and outreach expansion to provide the poor access to affordable micro-finance services.
For the purpose, social mobilization cost has been segregated from financial cost. While
the Bank intends to fully recover financial cost, the social mobilization cost is funded
separately through interest revenues of an endowment fund created by the Government of
Pakistan. This mechanism saves the Bank from stress and allows it to grow and quickly
reach out the poor households. Some time down the line, the Bank intends to introduce
diversified product and services to meet needs of the market and achieve the goal of cost
recovery in absolute terms.
At present the focus has been on mobilizing donors' support and
creating institutional framework that can collectively target and provide an outreach to
the poorest of the poor. The core management team is in place now. The Bank has
established branches in each of the four provinces as per its business target for end-Dec
2000. Strategic business and operational plan has been completed. Currently district level
human resource development is underway for covering Bank's operations in 18 new districts
providing geographic coverage to the four provinces and AJK by end of the year 2001. The
expansion strategy is to tap those districts first that are rated higher on the poverty
map of the country.
The establishment of Khushhali Bank has received favourable reviews
from the donor's community. A soft-term loan of US$ 150 million has successfully been
negotiated and signed with Asian Development Bank and additional bilateral support is
expected in the near term. The government has shown full commitment to plans of the Bank.
It is building partnership with civil society institutions and look forward to support
from all the citizens for its mission fight against poverty, and goals of a
The Government of Pakistan has signed an agreement with Asian
Development Bank (ADB) for a loan of US$150 million to support the operations of Khushhali
Bank under ADB's Micro-finance Sector Development Programme designed to strengthen such
activities in Pakistan.
An amount of US$ 50 million has become available for immediate
disbursement which underscores government's resolve to make micro-finance services
available to the poor households. "The Micro-finance Sector Development Programme
loan is indeed a reflection of international development community's trust in the poverty
alleviation measures being adopted by the Government of Pakistan", said Ghalib
Nishtar, President of Khushhali Bank.
Out of the soft loan of US$ 150 million, Khushhali Bank will utilize a
sum of US$ 80 million for disbursement as micro-loans to the poor, particularly women in
rural areas, and capacity building. The remainder will be utilized to support policy
reforms of the micro-finance sector in Pakistan. Khushhali Bank operates through its
community-based organizations established in targeted areas. The Bank has already become
operational in Jacobabad and D G Khan and full scale services will commence through other
parts of the country as Khushhali Bank aims to service over 72,000 clients across 18
districts by end December 2001.
'Khushhali Bank will address the grossly under-served micro-finance
market and act as a sustainable catalyst for development", says Ghalib
Khushhali Bank, inaugurated by the Chief Executive of Pakistan on 11th
August, 2000, symbolizes a collaboration between the Government, private pector, donors,
NGOs and community. A range of financial services are already being delivered to the
country's poor through its pilot operations which will be expanded across 18 districts in
4 provinces and AJK within 2001. The Bank emphasizes gender participation to encourage
development at household level. KHB's initial paid-up capital is Rs. 1.705 billion and it
is regulated by the central bank.