In Pakistan, poverty has been a chief development problem. Microfinance seems to be one of the effectual solutions of removing poverty within the people in Pakistan and also in the developing countries. Researchers identified that it can assist to enhance their income. It can also assist them organize their own business and decrease their vulnerability. Microfinance also works as an instrument of self-employment for people including men and women to bring about change.
Microfinance is the provision of financial services, usually in the form of small sized financial transactions to people who are unable to access such services from commercial banks.
| Top 10 Risks To The Microfinance Sector In 2020 | |||
|---|---|---|---|
| Rank | Pakistan | South Asia | Global |
| 1 | Credit Risk | Political Risk | Technology Risk |
| 2 | Natural Disasters | Product Risk | Strategy |
| 3 | Strategy | Technology Risk | Risk |
| 4 | Profitability | Strategy | Credit Risk |
| 5 | Liquidity | Credit Risk | Risk Management |
| 6 | Macroeconomic Trends | Talent | Product risk |
| 7 | Internal Fraud | Risk Management | Corporate Governance |
| 8 | Interest Rate | Service Delivery | Talent |
| 9 | Technology Risk | Funding | Management |
| 10 | Competition | Management | Regulation |
Historically, after the inception of Grameen in Bangladesh in 1984, the first formal microfinance bank of the world, Microfinance has extensively been recognized as significant equipment for poverty reduction. Successful experience of Grameen Bank, in serving the financial needs of the poor segment of the society on sustainable basis, made the bank a role model for private and public sector institutions in other countries to follow.
During 1990s, the significance of microfinance has been recognized at international forums; more importantly International Financial Institutions (IFIs) started offering funds for development of Microfinance sector. In our country, Microfinance has started gaining significance, as a tool of social mobilization and poverty reduction, since late 1990s. Indeed the enhanced international emphasis, in particular the increased funding from IFIs for Microfinance, encouraged both public and private sector to develop microfinance sector in Pakistan.
The Microfinance sector in Pakistan is now recognized as a major player in the financial inclusion arena. With nearly 46 players, big and small, operating in the country, the sector is striving to offer financial services to the unbanked segment of the population. It is also identified that building on sustainability, microfinance sector is not only spreading geographically but also catering to specific market segments. It is increasingly relying on commercial funding sources to fuel its growth. Furthermore, the sector is keenly adopting digitization to bring down its costs and expand outreach. As the sector matures, new problems and risks are emerging. With growth rates in double digits for greater than five years now, the rapid growth can pose serious problem for the players.
According to the government official statement, the Pakistan Microfinance Network (PMN) is the national association for retail players in the microfinance sector with a membership of 46 microfinance providers, counting Microfinance Banks (regulated by SBP) and Non-Bank Microfinance companies (regulated by SECP). The Microfinance sector generally offers services in three categories of micro-credit, micro-savings and micro-insurance.
Statistics show that the Micro-credit witnessed 3 percent fell in growth with active borrowers during FY2020, while the gross loan portfolio recorded 6 percent growth reaching Rs 324.15 billion. Micro-savings, furthermore, recorded a growth of 35 percent under active savers increased to over 64 million and the value of their savings rose to Rs 374.4 billion, an increase of 40 percent over the same year. Statistics also show that the number of policyholders in micro-finance sector fell to 7.3 million by the end of the year 2020 along with the value of sum insured which fell by 8 percent, stood to Rs 244.65 billion. Since last decade microfinance sector rapidly has been grown in the world and mainly in Pakistan.
Various challenges are in front of this sector like improper regulations, increasing competition, innovative and diversified products, profitability, stability, limited management capacity of micro finance institutions (MFIs) etc. On the contrary, poverty quickly increased in Pakistan, along with other opportunities, is road surface way for the growth of this sector and offering vast market possibility for microfinance. This base shows a lot of opportunities in this sector like stimulating growth of economy, women empowerment, increasing volume, accessibility, economics of scope etc.
| Microfinance In Pakistan | ||||||
|---|---|---|---|---|---|---|
| Description | Micro-Credit | Micro-Savings | Micro-Insurance | |||
| Active Borrowers | Value (Rs million) |
Active Savers | Value (Rs million) |
Policy Holders | Sum Insured (Rs million) |
|
| 2020 | 7,005,885 | 324,155 | 64,112,657 | 374,362 | 7,324,379 | 244,650 |
| 2019 | 7,249,943 | 305,753 | 47,642,271 | 267,591 | 8,479,576 | 266,748 |
| Increase/Decrease (Net) | -244,058 | 18,402 | 16,470,386 | 106,770 | -1,155,197 | -22,097 |
| Increase/Decrease (%) | -3 | 6 | 35 | 40 | -14 | -8 |
| Source: Pakistan Microfinance Network (PMN) | ||||||