Pakistan: Microfinance - Teeming with Spirit

Jul 2015
Pakistan, July, 14 2015 - Microfinance graduated to a billion dollar business in Pakistan last year. Gleaning the Pakistan Microfinance Review (2014), which was recently released by the sector’s representative body and data-aggregator Pakistan Microfinance Network (PMN), the year gone by, can be classified as the sector’s best in recent years.

The sector saw notable expansion in 2014. Microfinance branches had increased by 27 percent year-on-year to reach 2,026 establishments in 2014. Hiring kept pace with physical expansion, as total staff increased by 23 percent to reach 21,516 employees.

Data reporting by some 42 microfinance providers (MFPs) showed that they collectively held assets worth Rs105 billion as of 2014 end, with microfinance banks having a 70 percent share. This capital structure was broken down as 44 percent deposits, 33 percent debt, and 23 percent equity.

The increased MFP outreach picked up some of the unmet demand, thus reflecting very favourably in the sector’s core operations for the year. For instance, the number of active borrowers reached nearly 3 million, a 25 percent up tick over previous year. It’s encouraging that female borrowers continue to make over half of this pool, having grown by over 17 percent to reach 1.7 million users in 2014.

By year end, the sector’s gross loan portfolio was clocking Rs63.5 billion, a rise of 36 percent year-on-year. This had more than just the growth in borrowers and the branch spread-out behind it. There was visible enlargement in the sector’s resource-base as well. During 2014, deposits grew by 30 percent, to Rs42.7 billion. Besides, there was a 29 percent increase in the sector’s total debt that reached Rs34.7 billion.

Portfolio quality also seemed to be improving. About 1.1 percent of the loan book was deemed risky in 2014, down from 2.5 percent in 2013. It was more than credit that strengthened the sector last year. The number of deposit accounts nearly doubled to 5.7 million. Policyholders also showed double-digit growth to reach 3.8 million, with MFPs underwriting over 60 billion rupees of insurance as of 2014 close.

No wonder these all-round improvements last year produced an all-time high top line for the sector when revenues surged by 40 percent to reach Rs24.3 billion. Net income reached Rs3.4 billion for the year, a year-on-year growth of 59 percent that resulted in an attractive net margin of 14 percent.

The spell of macroeconomic stability – chiefly lower inflation and falling discount rate – and security amelioration which started last year, coupled with the sector’s internal risk management and organic expansion explain away a stellar 2014.

The sector, according to an estimate, is currently covering 10 percent of a potential market of 30 million micro borrowers. With the favourable macroeconomic conditions expected to continue in foreseeable future, and as measures such as the amended credit guarantee scheme, upcoming MFI regulations, ongoing credit checks and faster clearing start to bear fruit, the sector is expected to be on an even stronger footing. The policy focus on financial inclusion will also hopefully lend support.


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