Microfinance sector

According to the latest reports, Khushhali Microfinance Bank has posted its appreciable growth in terms of profits and dividends. The Bank maintains the largest network of 173 outlets and enjoys the largest market share in terms of loan portfolio, deposits and asset base in the micro-finance sector. Compared to last year, portfolio quality indicators also improved, with growth in loan book of 40 per cent primarily led by the agriculture sector lending. The Bank deposits expanded appreciably by over 100 per cent as compared to last year and a strong built up was seen in urban operations. This illustrates how Pakistan's microfinance sector is growing from year to year. In 2017 turned out to be a good one for the country's microfinance industry. With an assets base of Rs 203.3 billion, the Microfinance Banking Industry grew by 52.5 percent during the last fiscal year (FY17).

According to State Bank of Pakistan, the microcredit portfolio posted an increase of 53.5 percent to reach Rs 111.9 billion as at end of FY17 compared to Rs 72.86 billion end of FY16. Similarly, the number of borrowers of Microfinance banks (MFBs) grew by 29.9 percent to 2.209 million during FY17. Asset base grew by 52.5 percent to Rs 203.3 billion end of last fiscal year compared to Rs 133.324 billion end of previous year. The latest figures show that there was a double-digit growth in key sector indicators. The borrowing side picked up significantly in the first six months of the calendar year, and the number of active borrowers reached 5.2 million, a growth of 14 percent since December 2016. The gross loan portfolio increased to Rs171 billion, up 25 percent from Rs137 billion reported six months ago.

The latest data based on reports from 39 microfinance providers (MFPs) - 11 microfinance banks, 12 microfinance institutions, 4 rural support programmes, and 12 social sector organisations shows that microfinance is expanding its penetration across Pakistan. Microfinance coverage now extends to 106 districts in Pakistan. The microfinance penetration rate is reported at roughly 25 percent, based on an estimated potential market size of 20.5 million. The number of active borrowers has doubled between 2011 and 2016 - and the tally is getting bigger. There are plans to double the coverage by 2020. The potential market is still very large, and apparently growing. A loan-book of over Rs400 billion is needed to serve 10 million micro borrowers. That means equity capital must reach at least Rs40 billion.

The sector was able to extend micro-credit services to over 5.202 million low income borrowers by June 30, 2017, registering an increase of 25 percent from 4.161 million in the previous year. Concurrently, a growth of 57 percent or Rs 62.127 billion was also registered in the gross loan microcredit portfolio that increased to Rs 171 billion from Rs 108.8 billion during the preceding year. The average loan balances also increased by Rs 6,703 to reach Rs 32,868. To serve the credit demand of 10 million borrowers, the microfinance entities need to disburse additional Rs220 billion over existing loan-book size.

The recent launch of the Pakistan Microfinance Investment Company, which is a PPAF spin-off that is also funded by donors, can be instrumental in bridging that gap. Commercial banks will need to play a role, too. According to SBP, a Line of Credit (LoC) is being established with the funding support of the government of Pakistan under the World Bank's Financial Inclusion Infrastructure Project. The new schemewill allow MFBs to improve microenterprises' access to credit.