Pakistan: Rs3bn sought for microfinance promotion

Apr 2007
Karachi, April, 11 2007 - Governor State Bank of Pakistan, Dr Shamshad Akhtar has sought Rs3 billion in subsidy from federal accounts for promotion of microfinance among poor rural communities of the four provinces of the country.

Making a presentation before Prime Minister Shaukat Aziz at the PM House recently, Dr Akhtar also recommended a number of policy initiatives for rapid outreach of micro financing, banking industry sources said on Saturday.

She said estimates showed a “shortfall in cost recovery of at least Rs3 billion if the present ratio of number of (micro) loans per loan officer is maintained and capacity building cost continued to be provided.”

She recommended restriction of subsidies to poorer and resource-deficit regions only, capacity enhancement, innovation and growth.

According to her, average interest rates on micro financing stood around 18 per cent in Pakistan. In Bangladesh, the rate was 25 per cent, India 30 per cent and Afghanistan 35 per cent.

She said in order to reach three million microfinance borrowers, a record sum of Rs86 billion would be needed.

For participation of private investors, the SBP may allow subordinated debt as tier-II capital for microfinance banks. These banks may be allowed to float saving products and a procedure may be notified to provide them access to wholesale deposit windows of commercial banks.

She disclosed LFS Financial Systems of Germany and ASA International-Netherlands had expressed their interest to set up Greenfield microfinance banks in Pakistan.

She said Grameen Trust of the US was also seeking partnership with the State Bank for supporting microfinance institutions in Pakistan.

Besides, it would help promote Grameen Bank’s replication programme in Pakistan through financial and technical assistance and also through equity participation and subordination of loan.

She also floated the idea of creation of ‘credit unions’, which existed in the 60s and 70s under the control of provincial governments. In recent years, she added, credit unions had been successfully promoted in a number of countries like Bolivia, Mexico, Brazil, Guatemala, the Philippines, Indonesia, Malaysia, India, South Africa and the United Kingdom.

However, Shamshad was not clear whether these unions would be under the control of federal government, provincial governments or the central bank. She asked what would be the fate of cooperative unions after the approval of legislation for the proposed credit unions.

But she said the promotion of credit unions would be based on international standards and assistance of International Federation of Credit Unions would be sought for establishing these unions.

The SBP governor also proposed the launch of microfinance banks from selected post offices. The central bank was also exploring the option of entering into partnership with the Agha Khan Fund to strengthen the capacity of microfinance banks, microfinance institutions and NGOs in a bid to offer micro insurance products to borrowers.


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