Micro-financing was effectively used for generating economic activity in Bangladesh and Indonesia

Feb 24 - Mar 02, 2003

Liquidity saturated banking sector in the face lesser demand for project financing in the large manufacturing sector is coming out with different innovative ideas to generate economic activity especially in the micro-financing areas in Pakistan.

Unfortunately, the banking system in the past has served the interests of the moneyed class or to the people having political influence, while the masses could use the banking facility merely for depositing their money and that's all. The uncalled for complexities of the system in the name of prudent banking and the unaffordable lending rates were among the major reasons causing bank defaults but also kept the large manufacturing sector away from the banking system.

Micro-financing was effectively used for generating economic activity in Bangladesh and Indonesia which can be successfully followed in Pakistan also. However, the key to success is the low and affordable lending rates which encourage the borrowers as well as assures for the desired level of rate of recovery. The micro-financing scheme could also be used as an effective tool for combating the formidable task of poverty alleviation one of the important agenda of the present government. So far the schemes announced by the banking sector have been designed to serve the interest of the banking sector, however, these schemes could be more meaningful if the growth of economic activity at the grass root level is also kept in mind while designing such schemes for the banks.

The State Bank of Pakistan which had already allowed consumer financing and other micro advances is expected to allow Housing Finance schemes to the commercial banks.

In a latest move, the banks and financial institutions have been allowed mobile banking operations of micro-finance banks and institutions.

In order to mitigate the risks involved in the mobile operations of micro-financing, the central bank has however issued guidelines for mobile banking operations of the micro-finance banks.

Under the legal framework for micro-finance institutions, the micro-finance banks and institutions can undertake mobile banking outreach of micro-finance services. These guidelines will be applicable to mobile banking operations and will come into force with immediate effect.

The scheme allows opening of Service Centers within a specified radius of the licensed branch, with prior permission in writing from SBP. The areas and locations for these mobile operations within district, city government limits which the bank has a licensed branch or areas/location within a radius of 50 kilometers of the incensed branch could be covered through mobile banking. The micro-finance banks shall design the mobile banking operations in a way which ensures cost effectiveness and financial viability of the operation. In addition to provision of banking services through mobile teams/vans, the banks engaged with scheme may also open small outlets/service centers within the above defined area of the licensed branch to provide a local contact point to the clients.

The Service centers shall have minimum infrastructure manned by two-three bank staff and shall inter alia be mandated to create awareness in the area about bank's products and form community organizations/groups and provide loans to the clients.

The service Centers shall not offer savings/deposit mobilization services and will not maintain overnight record or cash. The record shall be maintained at the licensed branch under which the service center would operate.

For the purpose of extending savings services, the service center may notify the date and time, once or twice in a week, at which the mobile van would be visiting the service center so that the clients willing to avail savings services may deposit the savings etc with the mobile team.

The license to open a branch in a particular area shall also mean permission to undertake mobile banking within the above-defined radium of the branch. The bank shall ensure standardization while providing mobile banking services and shall prepare a bank-wide mobile banking strategy in consultation with its field staff highlighting its objectives, services to be offered, frequency of visits, insurance, security, control mechanism, the operating cost and record keeping etc. A copy of the complete strategy shall be submitted to the state bank for information. The strategy shall be reviewed semi-annually in the light of field experiences and other developments in the sector.

The branch managers shall prepare quarterly mobile banking plan keeping in view the demographic statistics of the areas to be served and the overall mobile banking strategy of the bank. He or she will assign areas to mobile teams, which will be rotated in the teams periodically. Each mobile team shall prepare weekly plans and schedule of its visits and get it approved by the branch manager. The manager shall ensure that the teams' plans/schedules are in line with the bank's overall mobile banking strategy and shall ensure its strict compliance.

The branch and mobile team plan shall be available in the branch for review of internal/external audit teams and SBP inspection teams.