Pakistan: Microfinance during Covid

Sep 2020
India, September, 22 2020 - Overall, the state of the microfinance sector in the early months of the crisis now looks like a mixed bag, between shrinking outreach and growing deposits. But it’s not a terribly bad picture during a global pandemic and local recession.

So how did the microfinance sector cope with Covid-19? There had been early reports of massive decline in borrowers’ weekly incomes, amid concerns for loan defaults and business sustainability. Then SECP and SBP stepped in to offer interim relief early on in the lockdowns. With the June-end numbers for the microfinance sector now out, it is time to take an objective look at the initial impact of the pandemic.

Reading the latest data from Pakistan Microfinance Network (PMN), the national body of microfinance providers (MFPs), two negative effects are obvious since March 2020. First, outreach to new borrowers suffered amid lockdown restrictions in Apr-Jun quarter. The number of active borrowers at June-end was 6.9 million, lower nearly 6 percent than March 2020 and lower 4 percent than June 2019.

And the second impact of the restrictions and economic weaknesses is on fresh lending. The number of new loans and the value of new disbursements both fell by over 25 percent in Apr-Jun compared to Jan-Mar quarter. The gross loan portfolio of the sector thus declined by 3 percent since March to come down to Rs300 billion as of June end. (This figure is, however, 2 percent higher year-on-year).

It seems that during a time period that witnessed majority of the country’s corona-lockdowns and associated fall in economic output, the sector did not suffer catastrophic consequences. However, the rates of decline mentioned above were more pronounced for non-banking MFPs – which include rural support programs and grassroots community organizations that deal directly with the poor and low-income communities, especially in villages – than microfinance banks that have a more urban flair.

But those aggregate numbers may belie the suffering individual microfinance borrowers might have faced since March. Earlier in May, a PMN survey of five MFPs, conducted during last week of April, showed significant impact of coronavirus on micro and small enterprises. Over 80 percent of microfinance borrowers in the study (n=428) reported a decline in household incomes or business revenues. Reasons related mostly to lockdown-based issues like market closures and travel restrictions.

About 40 percent of respondents feared that they could only sustain the crisis situation for less than a month, and another 19 percent indicated two months as their holding power. Majority of clients wanted the MFPs to delay repayments without penalties; they also wanted the government to offer relaxations in lockdown duration and associated restrictions so they could resume business. This survey showed a broad-based suffering among clients, and it isn’t really clear as to what extent it has eased post lockdown.

On the positive side, the sector’s financing lifeline continued to grow during the crisis. The PMN data show that in the Apr-Jun quarter, MFPs mobilized Rs30 billion in incremental savings to take deposits to Rs294 billion (12% quarterly growth; 18% yearly growth). Number of savers grew to almost 53 million in Apr-Jun (7% quarterly growth; 40% yearly growth). This significant prize of 3.6 million new savers since March-end owes mainly to on-boarding m-wallet users by MFPs that deal in branchless banking.

In addition, thanks to restructuring assistance from regulators, the sector’s infection ratio – portfolio at risk for over 30 days – declined from 5.6 percent as of March-end to 4.5 percent as of June-end. (The risky portfolio was slightly higher than 3.5 percent as of June 2019). The survey cited above also damningly revealed that a majority of borrowers were unware of supportive regulatory policies or government assistance during pandemic. This is a failure on part of MFPs to assist their clients in accessing relief.

Overall, the state of the microfinance sector in the early months of the crisis now looks like a mixed bag, between shrinking outreach and growing deposits. But it’s not a terribly bad picture during a global pandemic and local recession. Surely, targets will be missed for 2020, and beyond, but the less damaged the stakeholders emerge from this situation, the better it will be for odds of recovery later. But so far as microfinance borrowers are concerned, it seems as though they were left to fend on their own.


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