Microfinance has become an important component of economic development regeneration strategies and poverty reduction, around the world for the past 30 years. The aim is to operate with a basic vision – create a systemic change in the financial systems globally. This service facilitates entrepreneurs and small business owners who have limited or no access to traditional sources of capital, in the form of micro & nanoloans. Under-privileged people qualify for borrowings such as savings account and study loans too.
Pakistan’s microfinance industry is also preparing itself to overcome the challenges and take on a larger enterprise by capitalizing the demand factor that has been spreading vigorously. Unlike the exclusive financial systems that are practiced for decades, benefiting and protecting the wealthy, microfinance aims to financially include and serve the impoverished majorities. It promises both to combat poverty and to develop institutional capacity of financial systems of Pakistan.
FINCA, one of the leading microfinance banks in Pakistan focuses on this this issue and addresses it by effortlessly by providing solutions such as monetary loans to the poor, whereby transforming them into financially independent individuals. Many other microfinance institutions are operating in Pakistan also, working towards financial inclusion of the masses: Kashf Microfinance Bank, Khushhali Bank, Network Microfinance Bank Limited (NMBL), Pak-Oman Microfinance Bank Limited (POMFB), Rozgar Microfinance Bank Limited, Tameer Microfinance Bank Limited & The First Microfinance Bank Limited (FMFB).
FINCA is operating across108 different cities of Pakistan and plans to expand its operations further to serve people all around Pakistan. The bank has maintained its reputation and stabilized its performance. FINCA has also managed to persuade many international lenders to invest their capital in Pakistan’s microfinance sector.
The number of borrowers of FINCA has crossed 75,000 across Pakistan and the bank is determined to set new records by aiming gross loan portfolio of 10 million borrowers by 2020.
If you compare five years ago from today, microfinance market in Pakistan was half of where it currently stands today. Given the fact that the figures of the micro finance industry operating in Pakistan is growing at an average of around 35-40% annually, the ratio is estimated to rise in the future.
The micro finance industry in Pakistan disburses approximately Rs.100 billion outstanding loans with 4.5 million active borrowers. In order to extend further to 10 million active borrowers, it would need a funding of Rs.200 billion and an extra Rs.50 billion Capital by around 11 microfinance banks that are operating in Pakistan at the moment.
As a result, this market-driven microfinance focuses more on client led approach for long term sustainability. For most of the poor and low-income groups, access to microfinance services is both formal and informal financial services. These financial services are meshed in the best possible combinations for the borrowers, to minimize risk and enable them to manage their savings better.
Pakistan currently is ranked among top five countries in the world, which are performing exceptionally well in microfinance. In 2016, it successfully reached a growth rate of 83% in deposits and its ratio of expansion was around 92%. The proportion of advances in the commercial district stands below 50% while the microfinance sector is performing above 80% and there are a few banks that have crossed 100%.
Microfinance banks have played an important role in creating a “pro-people” micro-credit system challenging conventional banks, which charge high interest rates from the under-privileged clients. This is due to efficient, higher repayment rates of clients. Likewise, FINCA bank has had a positive impact on emerging Start Up businesses with limited access to the banking services. Furthermore, new initiatives to showcase technology-led and other innovations, to develop microfinance business models, delivery channels and risk management are established to facilitate poor and under-privileged people extensively.
On an average, it takes a microfinance bank three to four years before it starts to earn profit. In 2015, FINCA bank reached after-tax profit of Rs.166.7 million, later in the initial nine months of 2016; it reached Rs.302.4 million net earnings.
By revolutionizing the microfinance sector, one can create an opportunity to bring together regulators, policy makers, financial service providers, mobile network operators and community-based institutions.
To further develop the micro-credit sector, FINCA share sits vision to harness emerging innovations to meet the needs of the micro level and small enterprises, and also to provide a broad range of affordable financial products and services.
It’s also an opportunity to create a network of microfinance experts as well, who can share their insights and experiences, so they can apply the modern, efficient and effective banking strategies. Thus, by improving financial tools and systems for the most marginalized segments of society and help them to become entrepreneurs who can support and stand on their own feet.