KHUSHHALI BANK: EXPANDING FRONTIERS OF MICROFINANCE IN PAKISTAN
As a development instrument, microfinance has received unsurpassable global attention and acceptance
By M. GHALIB NISHTAR
Sep 12 - 18, 2005
The year in passing has witnessed an unprecedented resolve and undertakings on part of the Pakistan government, not only in sustaining and reinforcing the pace and momentum of reforms initiated six years ago but also in introducing the next generation of reforms, structured to deliver a higher quality of life to majority of the population across the country. This commitment is also reflected in the encouragement and support that the Microfinance sector has been consistently receiving as it continues its efforts to benefit hundreds of thousands of households across all parts of the country.
Pakistan's strategic approach in the Microfinance sector - with a timely and a sophisticated legal, policy and regulatory framework presently in place and a service delivery mechanism on ground - has generated considerable interest in the global development community. As one of the fastest growing institution in the region, we hope to assist with capitalizing on sharing of experiences in order to facilitate the expansion of microfinance service outreach.
Declared as the year of Micro-credit by the United Nations, 2005 brings an international spotlight to the industry. And perhaps rightly so. As a development instrument, microfinance has received unsurpassable global attention and acceptance in the recent history of poverty-focused development interventions. This appears well justifiable, given the potential of microfinance to contribute to economic growth at the grassroots level. It comes as no surprise therefore, that this realization is at the heart of the Millennium Development Goals.
Pakistan's proactive efforts, targeted towards achieving the milestone of making micro-credit available to the majority of its masses, is therefore, also making a contribution to achieving this important goal within the strategic framework of Pakistan's Microfinance Development Strategy.
The process was initiated in December 1999 with the launching - by the government - of a new economic dispensation whereby a poverty alleviation-centered reform agenda, was articulated; this agenda set out sustained growth and macro economic stability as prerequisites for achieving its objective. Critical to this agenda was reforming the country's financial system and making its orientation pro-poor and the setting up of a a bank for the poor. It was envisaged that the establishment of an enabling policy framework would lend impetus to private sector investments in line with the government's overall strategy of assigning financial service delivery to the private sector.
Pakistan's financial sector outreach has remained limited in the past; particularly the less privileged have largely remained out of bounds of our traditional banking system. As a result of the paradigm shifts in strategy witnessed over the last six years, this is now an economic priority with the government committed to policy changes that are setting the balance in favor of the less privileged within society.
Over the last six years, support from the government has been key to addressing impediments to the implementation of the road map for the development of Microfinance sector in Pakistan. The process began with the announcement of the Microfinance policy in June 2000. Subsequently, a proactive central bank got underway to set up the regulatory and supervisory framework for the establishment of microfinance institutions in the country.
Khushhali Bank, the first licensed microfinance institution in the country achieved the distinction of becoming the largest Microfinance service provider in the country in just over three years - and one of the fastest growing amongst its peers globally.
Encouraged by these developments, the private sector was quick to respond in establishing three additional licensed institutions under the framework; currently, there are others in the pipeline expected to be operational by the end of the year. This is a befitting response given that providing financial services access to a much larger number of people in Pakistan will require creating a large number of institutions.
Our experience has synthesized evidence, which leads us to believe that there is a large unmet demand at the grassroots-oriented financial services sector. This promises huge potential for future expansion of microfinance 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 branches, service posts or mobile delivery schedules to remote communities to expand service outreach.
Khushhali Bank being the lead institution within this framework has endeavored, over the last five years, to develop an efficient and sustainable distribution system capable of handling large volumes of business across diverse operating environments while at the same time developing an insight into the market. Today, the bank has a network of over 140 service outlets across nearly 75 districts of the country; has processed over half a million loans valuing Rs 5.5 billion with a strategic focus on the rural areas of Pakistan.
The bank 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.
While we have only just begun in Pakistan and perhaps have a long way to go, it will require consistent effort and support from all stakeholders; these include poor households, leaders of microfinance institutions, donors, microfinance networks, central bankers, finance ministers and even heads of state and government.
It is partnerships like these that have put microfinance on the global agenda and Pakistan on the global map of microfinance-friendly countries. It is helping to construct institutional and financial architectures that support the inclusion of larger numbers of rural and urban poor into the formal economy. The combined efforts and active role of these individuals will help in developing and fortifying the Microfinance sector, and in helping us leverage our collective skills to provide a greater number of Pakistanis with economic opportunities, and indeed hope for a better future for themselves and their families.