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Microfinance initiatives in Pakistan

Microfinance initiatives in Pakistan

International studies revealed that the global microfinance market size in 2022 was estimated at USD 184.86 billion, USD 202.27 billion in 2023, and is projected to grow at a Compound Annual Growth Rate (CAGR) of 10.49 per cent to reach USD 410.78 billion by 2030. The microfinance sector as per the World Bank released report, a driver of Pakistan’s financial inclusion agenda, serves 76 per cent of all borrowers from the financial sector and accounts for about a third of all outstanding agriculture advances. The sector has been deeply affected through the combined impact of the Covid-19-related economic slowdown and mitigation measures and the devastating floods of 2022.

Pakistan: Active Borrowers, Active Savers and Active Policyholders
Details Micro-Credit Micro-Savings Micro-Insurance
Active Borrowers Value (Rs.million) Active Savers Value (Rs.million) Policy Holders Sum Insured (Rs.million)
2022 9,092,247 491,262 93,957,497 514,289 8,264,513 316,948
2021 8,122,085 392,585 78,731,952 422,547 8,228,178 319,255
Increase/decrease (Net) 970,162 98,677 15,225,545 91,742 36,335 (2,307)
Increase/Decrease (%) 12% 25% 19% 22% 0.4% -0.7%

The Pakistan Microfinance Network (PMN) according to the Economic Survey of Pakistan FY2022, is the national association for retail players in the microfinance industry with a membership of 46 Microfinance Providers (MFPs) including Microfinance Banks (regulated by SBP) and Non-Bank Microfinance companies (regulated by SECP).

The vision of PMNs is to extend the frontiers of formal financial services to all, and the mission is to support the financial sector, mainly retail financial service providers, to improve their scale, quality, diversity, and sustainability in order to attain inclusive financial services.

This Industry broadly provides services in three categories micro-credit, micro-savings and micro-insurance. In Pakistan, the microfinance sector has been dedicated to improving access to economic opportunities and growth for the marginalized segments of the population.

Without considering improvement in social and developmental areas, improving access to financial services is inadequate. These areas have been a priority for MFPs as evidenced through their engagement in a number of social and development initiatives, like increasing access to financial services, development of start-up and existing enterprises, poverty alleviation, employment generation, and promoting gender equality.

It is offered as a package through Microfinance Banks (MFBs), Microfinance Institutions (MFIs), Rural Support Programmes (RSPs) and others including Commercial Financial Institutions (CFIs) and NGOs.

Statistics showed that the micro-credit outreach witnessed a growth of 12 per cent in the micro-credit with active borrowers crossed 9.0 million during FY2022 as against to 8.1 million over the same period last year. While the Gross Loan Portfolio recorded 25 per cent growth and stood to Rs 491 billion during the corresponding period previous year. Micro-savings, on the other hand, recorded a growth of 19 per cent under active savers grew to 94 million and the value of their savings stood to Rs 514.3 billion, a rise of 22 per cent over the same period previous year. Micro-insurance also remained optimistic wherein the number of policyholders grew by 0.4 per cent and touched to 8.26 million. Moreover, sum –insured recorded a pessimistic growth of 0.7 per cent and reduced from Rs 319 billion in 2021 to Rs 317 billion in 2022 along with the value of sum insured of Rs 317 billion.

Experts recorded that microfinance claims to have a double bottom line. Lending to poor populations in developing states needs to be profitable to be sustainable, while social impact in terms of attaining financial inclusion is also demanded through those who invest in the industry. The truth, for microfinance as for any other industry, is that there is only one bottom line: the financial one. A double bottom line is a misleading metaphor. No doubt, financial inclusion aims to offer communities access to formal financial services that can assist enlarge their agricultural activities, businesses, or individual endeavors, to generate better income and improved livelihoods. It brings marginalised and unbanked populations into the formal financial system. However, this is not totally possible without attempts focused towards socially including the excluded segments of society.

Furthermore, there have been many archaic strategies and procedures that we demolished over the years that could have been barriers to the overall inclusion of the masses. The research concludes that the microfinance industry claims that it fruitfully assists in alleviating poverty, even as it accumulates profits through appropriating wealth from poor and low-income households across the globe.

In Pakistan this industry mainly targets marginalised segments of the society like women and small-scale farmers. Moreover, the industry is continuously striving to bring the informal economy into the ambit of the formal economy. Additionally, the sector also plays a significant public policy role by creating and supporting jobs.

The microfinance industry is conscious of the implications of high costs to poor borrowers. Accordingly, the industry has been continuously striving to bring the cost of micro-credit down for the clients.

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