A way forward in micro finance expansion

Mar 21 - 27, 2005




Pakistan has come a full circle to foster micro finance at the national level without which our ambition of sustained growth at the grass root level may remain unrealized. This process was initiated in December 1999 when the government announced a new economic dispensation whereby a reform agenda was articulated which particularly centered on poverty alleviation.

The plan included reforming the country's financial system and making its orientation pro-poor and setting up a bank for the poor. In this regard, a task force was set up at the Ministry of Finance in February 2000 comprising stakeholders to chalk out a road map.

In Pakistan formal financial sector outreach has remained limited and to extend the financial sector outreach to the marginalized and the less privileged, that were out of bounds of our traditional banking system, is an economic priority. The government remain committed to bring policy shifts that would set the balance in favor of the less privileged. The support from the government has been forth coming with change and removal of any hurdle in the implementation of the road map for the development of micro finance sector in Pakistan.

In June 2000, the micro finance policy was announced and a proactive central bank got underway to devise a new set of regulations for establishment of micro finance institutions in the country.

In terms of Khushhali, in just over three years, is the largest micro finance institution in the country and one of the fastest growing in South Asia. Its experience has synthesized evidence, which leads us to believe that there is a large unmet demand at the grass root-oriented financial services sector. This promises huge potential for future expansion of micro finance activities and is especially true for remote rural areas where the commercial and other formal institutions have limited exposure. There is thus a tremendous potential for setting up of branches, service posts or mobile delivery schedules to remote communities to expand client outreach. Once branch viability systems and procedures are established, the potential for quick replication of the franchise across diverse territories and environments can be capitalized upon.

However, providing financial service access to a much larger number of people in Pakistan, building of a number of institutions required. So far the response from the private sector has been encouraging as four institutions licensed under the framework by the State Bank of Pakistan has been established in the last 48 months whereas more are expected by year-end.

Khushhali is the lead institution within this framework and all efforts over the past four years have been to develop an efficient distribution system capable of handling large volume of business across diverse operating environments while at the same time, developing an insight into the market.

Today, Khushhalibank has a network of over 130 service outlets across 64 districts of the country. It has processed nearly 400,000 loans valuing about Rs4 billion with a predominantly rural portfolio.



Khushhalibank has successfully bridged with bilateral and multilateral development agencies to simultaneously focus on highly marginalized territories in Sindh and Balochistan and route human and capital investment for sustained results with minimal lead-time. Without such partnerships which bring valuable global experiences to Pakistan the development of marginalized areas may not remain within the realm of strategic priorities manifesting expansion in productive areas only.

In terms of business plans for 2005, Khushhali plans to expand its network to 75 districts of the country, expect disbursements of nearly Rs3 billion with a strategic focus on the rural areas of Pakistan.

Incidentally, 2005 also happens to be the United Nations declared year of 'micro-credit' and global spotlight has moved on to the micro finance industry, perhaps rightly so since probably no other development tool has attracted so much global attention in the recent history of poverty focused development intervention than micro finance. The attention is justifiable given the potential of micro finance to contribute to economic growth at the grass roots level while all efforts will be targeted towards achieving the significant milestone of making micro-credit available to the majority of the masses, Pakistan will be making its contribution to the achievement of this important millennium development goal.

Khushhalibank has also been invited to present its case at the Asian Regional Multistakeholder consultations during March 14-16, 2005 at Manila being hosted by the Asian Development Bank in collaboration with United Nations Capital Development Fund to observe the International Year of the Micro-credit. The Asia Pacific Regional meeting aims to bring together key stakeholders from Asia & the Pacific to identify constraints and opportunities that are particularly salient from their perspective and assist developing countries think through their strategies for developing an inclusive financial sector.

However, Pakistan which have a long way to go, still require consistent effort and needs forging effective partnerships between stakeholders, which include poor households, leaders of micro finance institutions, donors, micro finance networks, central bankers, finance ministers and even a role from heads of the state and government. Partnerships like these have put micro finance on the global agenda and helped to construct institutional and financial architectures that support the inclusion of larger numbers of rural and urban poor in to the formal economy. The combined efforts and active role of these individuals will help in developing and fortifying the micro finance sector.