Pakistan Microfinance Review 2013 September 30, 2014 Ali

136 Pages·2014·3.65 MB·English

PAKISTAN
MICROFINANCE
REVIEW
Annual Assessment of the
Microfinance Industry
2013
FINANCIAL SERVICES FOR ALL
Produced by: Pakistan Microfinance Network
Art Direction: Sumaira Sagheer
Design & Layout: Uzma Toor
Photocredits: Retroactive Studios Library
Printed at: Pangraphics
© 2014 Pakistan Microfinance Network
PAKISTAN
MICROFINANCE
REVIEW
Annual Assessment of the
Microfinance Industry
FINANCIAL SERVICES FOR ALL
EDITORIAL BOARD
Mr. Ghalib Nishtar
Chairperson Editorial Board
President, Khushali Bank
Mr. Syed Samar Hasnain
Director,
Agriculture Credit and Microfinance Department,
State Bank of Pakistan
Mr. Blain Stephens
COO and Director of Analysis
Microfinance Information eXchange, Inc. (MIX)
Mr. Raza Khan
Statistics & Results Adviser,
Results & Evaluation Team- Economic Growth Group,
Department for International Development (UK)
Mr. Yasir Ashfaq
Group Head, Financial Services Group,
Pakistan Poverty Alleviation Fund
Mr. Abrar Mir
EVP and Group Head, Digital Money & Mobile Payments,
United Bank Limited (UBL)
Mr. Masood Safdar Gill
Director Program, Urban Poverty Alleviation Program,
National Rural Support Programme
PMN TEAM
Aban Haq
Advisor
Ali Basharat
Author and Managing Editor
Ammar Arshad
Author and Data Compilation
Zahra Khalid
Author
Aimen Shahid
Author
ACRONYMS AND ABBREVIATIONS
AC & MFD Agriculture and Microfinance MFI Microfinance Institution
Division MIS Management Information System
ADB Asian Development Bank MO Micro-Options
AMRDO Al-Mehran Rural Development NADRA National Database and Registration
Organization Authority
BPS Basis Points NGO Non-Governmental Organization
CAR Capital Adequacy Ratio NFLP National Financial Literacy Program
CIB Credit Information Bureau NMFB Network Microfinance Bank Limited
CGAP Consultative Group to Assist the Poor NPLs Non-Performing Loans
CNIC Computerized National Identity Card NRDP National Rural Development Program
CPP Client Protection Principles NRSP National Rural Support Programme
CPI Consumer Price Index OPD Organization for Participatory
CPC Consumer Protection Code Development
DFID Department for International OSS Operational Self Sifficiency
Development, UK PAR Portfolio at Risk
DPF Depositor’s Protection Fund PBA Pakistan Banks Association
ECA Eastern and Central Europe PKR Pakistan Rupee
EUR Euro PMN Pakistan Microfinance Network
FIP Financial Inclusion Program PPAF Pakistan Poverty Alleviation Fund
FMFB The First Microfinance Bank Ltd. PRISM Programme for Increasing Sustainable
FSS Financial Self Sufficiency Microfinance
FY Financial Year PRSP Punjab Rural Support Program
GBP Great Britain Pound PTA Pakistan Telecom Authority
GDP Gross Domestic Product ROA Return on Assets
GLP Gross Loan Portfolio ROE Return on Equity
GNI Gross National Income RSP Rural Support Programme
GoP Government of Pakistan SBI Shore Bank International
IAFSF Improving Access to Financial Services SBP State Bank of Pakistan
Support Fund SC The Smart Campaign
IFAD International Fund for Agricultural SDS SAATH Development Society
Development SECP Securities and Exchange Commission of
IFC International Finance Corporation Pakistan
JIWS Jinnah Welfare Society SPTF Social Performance Task Force
KBL Khushhali Bank Ltd. SME Small and Medium Enterprise
KF Kashf Foundation SRSO Sindh Rural Support Organization
KIBOR Karachi Inter-Bank Offering Rate SRDO Shadab Rural Development Organization
KMFBL Kashf Microfinance Bank Ltd. SVDP Soon Valley Development Program
KP Khyber Pakhtunkhwa TMFB Tameer Microfinance Bank Ltd
MCGF Microfinance Credit Guarantee Facility UBL United Bank Limited
MCR Minimum Capital Requirement USD United Sate Dollar
MENA Middle East and North Africa USSPM Universal Standards for Social
MFB Microfinance Bank Performance Management
MFCG Microfinance Consultative Group VDO Village Development Organization
MF-CIB Microfinance Credit Information Bureau WPI Wholesale Price Index
MFP Microfinance Providers
HIGHLIGHTS
YEAR 2009 2010 2011 2012 2013
Active Borrowers (in millions) 1.4 1.6 1.7 2. 0 2.4
Gross Loan Portfolio
(PKR billions) 16.8 PKR 20.2 PKR 24.8 PKR 33.1 PKR 46.6
Active Women Borrowers
(in millions) 0.6 0.8 0.9 1.3 1.4
Branches 1,221 1,405 1,550 1,460 1,606
Total Staff 11,557 12,005 14,202 14,648 17,456
Total Assets
(PKR billions) 30.4 35.8 48.6 61.9 81.5
Deposits
(PKR billions) 7.2 10.1 13.9 20.8 32.9
Total Debt
(PKR billions) 23.2 27.5 38.3 24.9 26.9
Total Revenue
(PKR billions) 6.4 7.5 10.1 12.5 17.3
OSS (percentage) 104.6 99.7 108.4 109.5 118.1
FSS (percentage) 86.8 81.7 100.5 107.5 116.5
PAR > 30 (percentage) 3.4 4.1 3.2 3.7 2.5
CONTENTS
SECTION 1: THE YEAR IN REVIEW
1.1. Macro-economy and the Microfinance Industry .........................10
1.2. Policy and Regulatory Environment ....................................12
1.3. Microfinance Industry Initiatives ......................................14
1.4. Conclusion ...........................................................20
SECTION 2: INDUSTRY PERFORMANCE
2.1. Industry Overview ...................................................25
2.2. Scale and Outreach ...................................................26
2.3. Financial Structure ...................................................34
2.4. Funding Profile .......................................................36
2.5. Profitability and Sustainability ........................................37
2.6. Efficiency and Productivity ...........................................40
2.7. Risk Analysis .........................................................42
2.8. Conclusion ...........................................................43
SECTION 3: THE WAY FORWARD
3.1. Challenges ...........................................................46
3.2. Opportunities ........................................................50
ANNEXURES
Annexure A-1: Performance Indicators-Industry Aggregate (2007-2011) ....56
Annexure A-2: Performance Indicators-Individual Institutions
and Peer Groups (2012) ....................................64
Annexure B: Regional Benchmarks 2010 .................................94
Annexure C: Sources of Data 2012 ......................................96
Annexure D: Adjustments to Financial Data ..............................106
Annexure E: Terms and Definitions .....................................108

SECTION 1
The Year in Review
SECTION 1
THE YEAR IN REVIEW
In the year 2013, microfinance industry in Pakistan witnessed another year of continued
growth and expansion. The industry posted consistent increase in not only credit outreach and
gross loan portfolio but also in micro-savings.
Growth in Pakistan’s economy remained modest due to persistent energy shortages and
security challenges. Some macroeconomic indicators turned relatively favorable such as
inflation, which eased up to remain in single digits. Importantly, the year saw a smooth political
transition in the country with one elected government transferring power to another. This not
only kept the economy in general and the microfinance industry in particular safe from adverse A very important
effects that could have resulted from a problematic political transition, but also buoyed investor highlight of the
confidence in the country. year was the
On the regulatory side micro-insurance regulations were launched by the Securities and
emergence of
Exchange Commission of Pakistan (SECP) in an effort to provide a framework for micro-insurance
leading MFPs
operations in Pakistan but also promote further development of this sector.
Investors continued to show interest in the microfinance industry in Pakistan, leading to which can now
another acquisition of a microfinance bank (MFB) by an international entity and importantly be clearly distin-
placement of funds in an MFP by an international lender. MF-CIB -a key development for
guished among
microfinance in the country - was rolled out nationally and opened for enquiries. A number of
their peers.
new responsible finance initiatives were launched including Transparent Pricing Initiative in
collaboration with Microfinance Transparency.
A very important highlight of the year was the emergence of leading MFPs which can now be
clearly distinguished among their peers. These MFPs can be distinguished by their market share,
financial strength, profitability, experience curve and mature business models.
MACRO-ECONOMY AND MICROFINANCE INDUSTRY
Pakistan’s economy grew by 3.6 percent in 2013 as compared to 4.4 percent in the previous
financial year. The economic outcome was below the target of 4.0 percent for the year. Although
industrial sector showed recovery but it could not compensate for slower growth in the services
and agriculture sector1. Despite the modest growth in the economy the microfinance industry
in Pakistan grew by 20 percent in terms of outreach while GLP grew by 36 percent to close at
PKR 52 billion2. This relationship is consistent with findings of a study conducted in 2008 which
showed that GDP growth rate does not have any relation with the performance of microfinance
providers. MFPs can perform well in terms of profitability, operational self-sufficiency and
portfolio quality even in economic downturns and periods of slow economic growth.3
The investment rate, which has been already low in Pakistan, declined further in 2013. The
investment to GDP ratio declined to 14.2 percent from 14.4 percent in the previous year as
shown in the Exhibit 1.14. Persistent macro imbalances, structural bottleneck in the energy
sector, and an uncertain security environment continue to impede investment. On the contrary
microfinance industry continued to attract foreign investment both in terms of equity and debt.
The year saw the acquisition of Kashf Microfinance Bank (KMFB) by FINCA International (see Box
1.1) and lending to NRSP Bank by ECO Trade and Development Bank.
1: Pakistan Economic Survey 2012-13, Ministry of Finance, Government of Pakistan
2: MicroWATCH, A Quarterly Update on Microfinance Outreach in Pakistan, Issue 30, Qtr 4, 2013. PMN.
3: Microfinance Performance and Domestic GDP Growth:Testing the Resiliency of Microfinance Institutions to
Economic Change, Stanford University USA, J. Woolley, May 2008
4: Economic Survey of Pakistan, 2012-13, Ministry of Finance, Government of Pakistan
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