KHUSHHALI BANK (KB)

"PROSPERITY, ON ALL ACCOUNTS"

HAMADULLAH ABRO
Research Analyst
, PAGE
Apr 28 - May 11, 2008

In August 2000 the Government established the Khushhali Bank as part of the Government of Islamic Republic of Pakistan's Poverty Reduction Strategy and its Micro finance Sector Development Program (MSDP), with the objective to provide sustainable micro finance services to poor and to enable them to stand on their feet and promote social welfare and economic justice through community building. Khushhali bank is funded through a joint venture between the Government of the Islamic Republic of Pakistan and the Asian Development Bank, which provided a US$150 million loan to the Government of Pakistan, US$70 million being used for micro-loans provided by KB. Facilitated by the state bank of Pakistan's enabling environment as implemented by its cutting edge regulations and a consultative approach for adapting the evolving practices, the bank has not only strengthened its foundation but has also set itself on the path of sustainable and quality growth. With in period of 8 years of its commercial launch, it has a presence in 85 districts of the country through a network of 110 service outlets, recognized as largest retail micro finance bank. I t has processed over a million loans cumulative worth of Rs 10 bn across 600,000 households with a portfolio that is pre-dominantly rural and includes the very poor and roughly 1/3 of the beneficiaries being women. Bank is also penetrating fast into urban territories as its delivery systems strengthen. However, despite these successes, the micro finance sector in Pakistan is still at rudimentary stage of development and the current outreach in the country is relatively low given the fact that nearly 25% of the country's population is living below the national poverty line. To eliminate this, Khushhali bank is playing the major role.

Recently, State Bank of Pakistan converted the profile of the Khushhali Bank. SBP converted Khushhali bank into a public limited company incorporated with the Securities and Exchange Commission of Pakistan and licensed by the State Bank of Pakistan to operate under microfinance institutions Ordinance 2001. The objective is to bring microfinance institutions within the formal financial services industry to improve its supervision, outreach and sector growth.

Bank has assets of worth Rs 6.85bn in FY06, showing growth of 12.7% over last year. Banks' total borrower's portfolio represents 92% of industry (exclusive of NBP portfolio). Bank earned PAT of Rs 23.3mn for the period ended 31-12-06.

KHUSHHALI BANK

Number of active Borrowers

227172

Number of women active borrowers

75725

Net loan Portfolio (Rs Mn)

2082.5

Number of loans outstanding

227172

% of women borrowers to KB total borrowers

33.3

Microfinance banks total

248091

KB borrowers to Total of MFBs borrowers

92%

Source: IBP Quarterly Journal Oct-Dec 2007

FINANCIAL PERFORMANCE

Khushhali bank has been profitable since its inception except 2002 .Bank's advances (net) increased to Rs 2.08bn in the FY06 from Rs 1.8bn in the previous year, showing growth of 12.7%, due to its improving out reach. Markup income increased to Rs 685mn in FY06 from Rs 746mn in the last year, exhibiting impressive growth of 44%. It shows bank's recovery is improving. Markup expenses showing growth of 108%, amounting to Rs 158mn in FY06 from Rs 76mn in FY05, due to increase in liabilities. Provision of bad debts showing growth of 50% which is alarming for bank. Bank earned PAT Rs 23.3mn in FY06 from Rs 12.4 in the last year, growing at impressive rate of 88%.

FINANCIAL PERFORMANCE

(AMOUNT IN RS MN)

FY06

FY05

CHANGE %

Advances (net of Provisions)

2082.5

1847.6

12.7%

investment (net of provisions)

1369.4

1373.2

-0.3%

Total assets

6847.5

6163.5

11.1%

Markup earned

684.9

476.6

43.7%

Markup expense

158.5

76.1

108.3%

Net markup income

526.3

400.5

31.4%

Provision & bad debts written off

136

90.4

50.4%

Net markup after provision

390.3

310.1

25.9%

Total non-markup

268.6

222.4

20.8%

Administrative Expenses

626.2

506.2

23.7%

Total non markup interest expense

626.2

506.2

23.7%

Profit after tax

23.3

12.4

87.9%

Source: NBP economic bulletin July-Aug 2007

CONTRIBUTION TO ECONOMY

A study conducted by Asian Development Bank Institute (ADBI) to assess the impact of micro-finance in Pakistan. The results of study showed that Khushhali Bank's operations had positive impacts on all social and financial indicators. It played pivotal role in fighting against poverty. Program had strongly positive impacts on agriculture related income generating activities, employment had generated in all sectors by enabling the start up of household enterprises, Social and financial empowerment of women and poor participants' access to medical treatment had improved.

These are the words said by Dr. Montgomery, Research Fellow at the ADBI. "These findings hold promise for the millions of poor households in Pakistan. If Khushhali Bank is able to maintain its current path toward full financial self-sufficiency, client households will continue to have access to microfinance services and receive these benefits into the foreseeable future, regardless of the whims of donors and the development community, the benefits of micro finance will spread further".

CONCLUSION

Microfinance sector in Pakistan has exhibited astounding growth for the last six years owing to conducive policies and regulatory framework & remarkable steps taken by Government of Pakistan towards the development of the sector to achieve it's first and foremost Millennium development Goal "poverty alleviation". Khushhali bank is playing imperative role in achieving above stated objective. Government and SBP should ensure all policies are implemented effectively with supportive regulatory environment to achieve sole purpose of micro finance and helps bank to achieve operational objectives.

Khushhali bank should target women to increase its ratio in borrower's portfolio because, according to one study, women in Pakistan use micro loans efficiently and rate of recovery from this segment is stands around 98% which is up to standard. It will help bank's in achieving its social and financial objectives and contribute to economy.