Just as the regulator reins down on the insurance sector to beef up capital, the capital adequacy of the country’s micro finance sector is also being debated. According to the Pakistan Microfinance Network, the industry data aggregator, total micro borrowers stood at 3.1 million as of December end last year. Microfinance providers (MFPs) had reached 94 out of 150+ districts across the country. That seems reasonable, right?
But the fact is MFPs are catering about 10 percent of the potential, addressable market of 30 million micro borrowers. That could be either due to limited operational reach or limited funding ability, or both. Well, strong capital base is important for solving both problems. Even if providers can’t or won’t like to expand rapidly, they still need to better fund their existing clients’ financing needs.
For instance, the average loan size was Rs30,604 as of December end – this is a small figure and it causes some of the micro borrowers to borrow from multiple sources, leading to the possibility of debt trap. An MFP must be able to meet a customer’s added credit requirements if s/he fulfills all of the applicable C’s of Credit.
The government – through institutions like PPAF and SBP’s supportive policies – and donors like DFID have been supportive of the sector, backstopping at times some of the sector’s risk exposure. In contrast, commercial banks, which have deep pockets, have generally shied away from micro-lending. But a positive shift is emerging that suggests more players are being convinced of the commercial proposition of microfinance.
Last month, HBL, Pakistan’s largest bank by assets, announced it was mulling over a significant shareholding in First Microfinance Bank (see “HBL: Headlong into microfinance,” published on March 25). Now, reportedly, the NRSP Bank has signed a syndicated finance facility, worth Rs900 million, with the leading development finance institution (DFI), Pak-Kuwait Investment Company (PKIC). PKIC has been a profitable DFI, with its CY14 results showing rising profits at Rs2.67 billion.
The NRSP-PKIC facility would be used for micro loans in the agriculture sector. PKIC’s syndicate also includes Silk Bank and Pak-China Investment Company, another DFI. This arrangement shows growing trust of the private sector in microfinance business.
Microfinance sector leaders have been directed against lending because of its downsides. But the money – to fund the service footprint expansion and to better satisfy growing credit needs of small borrowers – has to come from somewhere. The above two instances show that some intermediaries are now seeing the light, that there does exist a viable case for more exposure in the microfinance sector.
SOURCE: Business Recorder
Apr 23, 2010 26
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