Mar 5 - 11, 20

The microfinance environment is conducive for investors in Pakistan. The field is open for banks, non-bank financial institutions (NBFIs), and non-governmental organizations to attract customers through competitive offerings. These were the findings of a recent report by Economist Intelligence Unit (EIU).

Global Microscope on the Microfinance Business Environment 2011 reported the in-depth analysis of microfinance environment of 55 countries, ranking Pakistan and Philippines top two countries in the East and South Asia. These two countries also came in the top 10 list globally.

In the regulatory framework and practices, Philippines came first and Pakistan at No.2. The Microscope 2011 analysed the performance of microfinance sector under the two categories: regulatory framework and practices as well as supporting institutional framework.

The trend is all the same in most of the Asian countries. However, the report recognized Pakistan as one of the few countries in the world where microcredit sectors are promoted at the government-level.

Supporting institutional framework is essential to build confidence of bankers/lenders about protection of their assets. It is interesting to note under this indicator Pakistan clinched top-25 positions whereas most others were dragged at the bottom. But, that does not signify accounting transparency, transparency in pricing, and dispute resolution are good in the country. There is no independent department/credit bureau working for microcredit transactions. Especially for non-banking financial institutions, such protection mechanism is not present making lenders from for example civil service organizations frightened of delivering financial assistances at community level. On other fronts too, the micro financing sector is not outstanding.

Pakistan has a poor literacy rate. A significant portion of its population cannot read and write official language, which is English. All the procedures for running government affairs are penned down in English. Obviously, since it is an official language, it is a predominant means of government-public communication. Banks/financial institutions take care of public comprehension while devising marketing campaigns. In rural areas and countryside, they even come closer to people by developing marketing campaigns in vernaculars. However, they are seen going unnecessarily hard to understand when it comes to creating awareness about legal bindings that govern their relationship with customers/borrowers. Therefore, borrowers get alienated towards bank dealing if entangled in some legal battle in case of default. As it is said, there is no proper mechanism to discern between genuine and wilful loan defaulters. Usually, genuine borrowers are treated as delinquents because of his/her lack of understating of legal jargons. Not only to avert defaults, easy procedures would be instrumental in encouraging micro banking transactions. Easy communication can help in increasing financial inclusion.

Impressively growing branchless banking is also enhancing the financial outreach to unbanked population in the country. In last two years, numbers of branchless banking agents are all set to reach nearly 20,000, double than total numbers of bank branches of approximately 10,000.

Microfinance banks are partnering with mobile network operators to provide banking services to the customers. The government has visibly capitalized on branchless banking modes to deal out financial assistances to people as it did when it issued visa cards to flood victims to make purchases and withdraw cash, in partnership with UBL, Bank Alfalah, and HBL. The government is also working on social cash transfer with branchless banking agents under Benazir income support programme (BISP).

There are 11 emerging and established branchless banking services in the country including Askari Bank, Bank Alfalah, HBL, Kashf, MCB, Waseela Bank (Mobilink), TCS Bank, Dubai Islamic Bank, and First Microfinance Bank while large-scale deployments include Tameer Easypaisa with 12,000 agents and UBL Omni with 5,000 agents, said the CGAP.

According to the Consultative Group to Assist the Poor (CGAP), an independent policy and research centre housed at the World Bank, First MicroFinance Bank (FMB) was the first bank that initiated branchless micro financing through loan disbursement and collection from 52 post offices in March 2008. So far, it has distributed 162,000 loans totalling $29 million. Lack of electronic data management is creating problems in extending financial outreach, it said.

Mobilink, the leading mobile service operator, has twice taken whacks at branchless banking, first with Pakistan Post Office and then Citibank. Its Waseela Microfinance Bank got the branchless banking license. The mobile-based micro financing services would lead to enhancement of financial access.

Similarly, TCS, a big courier and logistic company with 400 outlets, was also planning to launch its microfinance bank. According to the CGAP, the company would become the first courier service provider in the world to offer financial services, if granted license from State Bank.

Askari Bank, which has 235 branches, has also signed an agreement with China Mobile Company (CMC), famously known as Zong, to encourage subscribers to open accounts and for saving mobilization through agents to be deputed at army posts/garrisons. In addition, a number of banks and telecommunication companies are eager to capitalize on mobile technologies to mobilise deposits and meet daily financial requirements of the people. Micro financial transactions can successfully be carried forward through mobile technology.

There is need to bring down interest rate to help micro financing sector grow. The loan documents should be understandable to the borrowers to avert unpleasant situation. Notably, default rate of micro financing is negligible. However, people must know the legal rights and obligations they are entitled to. Lending should be linked to skill developments as well as post-production linkup. Borrowers fail to take benefits from microcredit, as they don't know how and where to sell their products. Lending institutions should take the responsibility of facilitating the borrowers at every step.