Micro finance growth

It is a good augury that the micro finance sector continues to grow from year to year. As in CY16, this year is also turning out to be a good one for the country’s micro finance industry. With an assets base of Rs 203.3 billion, the Micro finance Banking Industry grew by 52.5 percent during the last fiscal year (FY17). According to State Bank of Pakistan (SBP), the micro credit 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 Micro finance 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.

According to the latest figures, there is double-digit growth in key sector indicators in 1HCY17. The borrowing side has picked up significantly in the first six months of the calendar year, and the number of active borrowers reached 5.2 million by June 2017 – 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. Average loan size stood at Rs44863, up from 41663 in December last year. Similar progress is witnessed on the savings front as the number of savers has surged to 25.2 million as of June 2017, up 9 percent from December 2016 level.

The latest data is based on reports from 39 micro finance providers (MFPs) – 11 micro finance banks, 12 microfinance institutions, 4 rural support programmes, and 12 social sector organisations that provide microfinance as part of a multi-dimensional service offering. There is clear evidence that microfinance is expanding its penetration across Pakistan. Microfinance coverage now extends to 106 districts in Pakistan as of June end. 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 this year, too, the tally is getting bigger. There are plans to double the coverage by 2020.

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 last year. Concurrently, a growth of 57 percent or Rs 62.127 billion was also registered in the gross loan micro-credit 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 LoC will allow MFBs to improve microenterprises’ access to credit.

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Mian Bilal