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Ghalib Nishtar is the Chief Executive Officer of Khushhalibank at present. Earlier he has worked for National Bank of Pakistan. He has been assigned the difficult task of providing credit to those most of whom are not conversant with traditional banking system prevailing in the country. Even the bigger challenge was to extend fund without collateral and to also ensure recovery. The common saying is, small borrowers hardly default, and it has proved correct in the case of Khushhalibank.

July 01 - 07, 2002

PAGE: The GOP is promoting small and medium enterprises, what has been the role of your bank?

Ghalib Nishtar: In Pakistan, almost one third of the population, lives below the poverty line. The Government of Pakistan has taken a conscious decision to bring poverty alleviation to the center stage of economic policy making. The strategy includes access to sustainable microfinance services to the poor for enhancement of their income as one of the primary objective. The GoP launched the Microfinance Sector Development Programme in late 2000 to reduce poverty in the country. The purpose was to induce private investments for fostering growth of new microfinance institutions to efficiently provide a range of financial and social service to the poor, especially women. The GoP initiated policy actions for development of the sector. These included: (1) developing an enabling policy framework for microfinance growth, (2) establishment of Khushhalibank, and (3) development of a legislative and regulatory framework to encourage establishment of private sector microfinance institutions. Khushhalibank institutionalized the basic attributes of microfinance policy, specialized operating procedures and established industry benchmarks. The private sector participants in microfinance sector can take advantage of the institutional and operating infrastructure developed by Khushhalibank.

PAGE: Has the GOP and/or international financial institutions helped in raising the seed money?

Ghalib Nishtar: Khushhalibank is owned by 3 public Sector, 11 private sector and 2 foreign banks which have contributed US $ 30 million or Rs. 1.7 billion towards the capital of the bank. In addition to this, the GoP has solicited a loan of US $ 150 million through the Asian Development Bank which comprises, US $ 70 million for on-lending to Khushhalibank, US $ 10 million for its capacity building and the remaining US $ 70 million comprises sectoral funds through endowment created at the State Bank of Pakistan.

PAGE: There are three banks now that are catering to this segment, does this mean competition?

Ghalib Nishtar: The SME Bank focuses on a higher tier of clientele whereas the Khushhalibank and the recently established First Micro Finance Bank cater to the requirements of the small borrowers of the country. However, given the number of 6 million poor households and as per our initial feasibility study, the estimated requirement of funds is about US $ 2 billion annually. There is hardly any competition within the formal sector and the major challenge will be to set up an efficient delivery channel for affordable financial services to the poor.

PAGE: What is being done to create enabling environment?

Ghalib Nishtar: Stakeholder consultations and feasibility study undertaken by the Asian Development Bank (ADB) converged on a financial system development approach to create a broad based system anchored with the ongoing financial sector reforms that emphasize autonomy, good governance, privatization, and sustainability. These arrangements have twin objectives, first to ensure an orderly development of the micro finance sector and second, to protect the financial assets of the poor. NGOs and their sponsors can now graduate into micro finance banks and provide a full range of services to the poor.

PAGE: What has been the experience with regard to loan payments by the borrowers?

Ghalib Nishtar: The bank has established its network across 30 of the poorest districts of the country and extended credit over Rs. 500 million which comprises 50,000 small loans averaging Rs 10,000. Planned, focused and structural policies resulted in recovery rates around 98 per cent while ensuring that over 30 per cent of our clients are women.

PAGE: What is being done to develop entrepreneurial skills?

Ghalib Nishtar: We aim at strengthening the social capital of the poor increasing opportunities for their participation in the working of the society where social cohesion is weak and poor suffer from systematic exclusion. Increasing economic opportunities and creating participatory institutions/mechanisms are required to enhance social capital. These funds support capacity building of community based organization in terms of social awareness and selection and management of income generating activities, developing skills and providing basic training to leaders of community organizations These interventions will strengthen the community organizations, which serve as a delivery point for financial and social services, and promotes social and economic vitality.