Since the creation of microfinance regulatory framework by the State Bank of Pakistan (SBP), several institutions transformed into regulated banks and some new beginners also emerged to commence its business operations with a dynamic vision in Pakistan. Microfinance sector is considered to be a tool for poverty reduction, empowering the women and bringing the unbanked into financial stream. Interestingly, poverty and financial inclusion are increasing with the passage of time though development economists assuming that both of them have an imperative relationship.
Microfinance is not responsible completely to eradicate the existing problem due to loan size being offered to the potential markets both in rural and urban. Industry as a whole the average loan size is from 35,000 to 42,000 for business up gradation of clients while the average loan size for housing is approximately Rs 80,000 despite of regulator’s new limitation up to Rs 1.0 million. This loan size might meet the consumption smoothing activities but not for the investment in the microfinance sector and upgradation of houses due to sky rocketing prices of business and final goods.
According to the World Bank report, women represent 59 percent of the total microfinance borrowers in Pakistan, ostensibly the actual beneficiary of loan account is female but in reality male household execute the remaining activity with the availed fund. Typically these males have either defaulted on earlier loans in their own names or cannot access the facility because of gender conditions attached to some microfinance programmers. However Women group loan is a good omen disbursed solely to female, engaged in self-employment opportunities but it is a very small fraction of total portfolio.
Some regulated practitioners seem reluctant to provide lending facility to unmarried women classifying them as risky borrowers and existing terms and conditions create hurdles even for married women customers. The actual theme of microfinance lending is to provide loan against social collateral and women should be given a priority, on the contrary microfinance banks seem diversifying their strategies towards tangible collateral, consequently commercial customers now avail loans from MF windows. The hefty mark-up rates and service charges against lending also a question can be raised by customers.
The growth of Islamic financing is increasing after financial crises in 2008 all over the world which affect most of the countries. In Pakistan Islamic microfinance has appeared with a sustainable position such as Akhuwat works in 20 cities of Pakistan including Gilgit Baltistan. One of the institution’s primary deviations from commercial microfinance is that it charges no interest rates as revealed by Executive Director Dr Amjad Saqib and chief credit officer of the organisation. Very interestingly recovery rate of the institution is 99.75 percent. No doubt Pakistan is a country where Islamic ideology has a dominant thus public could accept the shariah banking, so it is an imperative to conventional microfinance banks to introduce Islamic products by following Akhuwat’s successful experience.
Approximately 80 percent business operation of microfinance banks initially focused on lending so these institutions formulate their own internal policies in view of the market risk, at the same time deposit mobilisation is a major problem because of poor networking setup, except of few private microfinance banks having collaboration with telecom industry. In this regard Tameer microfinance bank is said to have capture the maximum BB customers through Easy paisa solutions and tested itself successfully in corporate market as well for liquidity needs.
As for as branchless banking is concern, it is also an important to bring forward the reality that Bangladesh has made more progress in last two years than Pakistan has in the last four years. When CGAP consultant compared the latest central bank data from the two countries, surprisingly Bangladesh was in the lead on various counts. The latest quarterly data available shows that the branchless banking transactions value grew by 57 percent in Bangladesh compared to 7.0 percent in Pakistan.
From the qualitative point of view Pakistani industry has done better compared to Bangladesh and other Asian countries. Pakistan due to its territorial status and other aspects has to strictly comply international compliance after 9/11.The existing KYC procedure is a barricade for customers especially women clients both in rural and urban areas. The main reason of a lower GDP growth rate in our country is financial seclusions. Anyhow current competitiveness 0f the branchless banking and MF in Pakistan is a good sign to combat informal transactions, mobilisation of hidden informal transactions towards a formal spectrum.
In addition foreign microfinance institutions including Karakorum cooperative bank also are expected to be entered into the sector, however these are the positive signals for microfinance industry and society welfare in term of a vast ground of competitiveness and convenient base of financial inclusion. It is suggested to regulator and federal government to provide special relaxations to the practitioners particularly work in remote areas of our country. (By Sanabar Hussain)