Banking the unbanked: Microfinance market in Pakistan keeps bankers optimistic

Kashf Bank eyes growth amid favourable regulations and untapped market. DESIGN: FAIZAN DAWOOD

KARACHI: 

With foreign direct investment in decline for many years in a row, the recent acquisition of Kashf Microfinance Bank by a foreign entity seems like a clean break with the past.

After all, it is not usual for a global leader in microfinance to inject equity of Rs824.7 million into a Pakistani microfinance bank, bringing its foreign holding to 82.8%.

“The State Bank of Pakistan (SBP) has been increasing the minimum capital requirement for microfinance banks. We needed additional equity in order to meet the new minimum capital requirement of Rs1 billion, and that’s when FINCA came in,” said Mohammad Mudassar Aqil, CEO of Kashf Microfinance Bank, while speaking to The Express Tribune in an interview.

Kashf Miucrofinance Bank was founded in 2008 by Roshaneh Zafar, a graduate from Wharton Business School of the University of Pennsylvania. The acquirer, according to its website, is based in Washington DC and currently reaches over 950,000 clients through a worldwide network of 21 affiliate programmes in Africa, Eurasia, the Greater Middle East, and Latin America.

Aqil said the deal with FINCA was finalised after a long search of potential partners by the bank’s previous sponsors. “We felt that the fit was just right because there was harmony in the missions of both organisations. It was made sure that the majority ownership was given up only on the condition that the acquirer would keep the mission and take it to the next level,” he added.

While noting that Kashf Microfinance Bank is one of the major players in microfinance in terms of the number of borrowers, he said his bank was set up long after the establishment of Khushhali Bank, Tameer Microfinance Bank, First Microfinance Bank and the National Rural Support Programme, which currently hold the largest market shares in terms of gross loan portfolio. “Still, going by the annual growth rate, Kashf Microfinance Bank has been one of the fastest growing banks in 2012 – fastest in terms of percentage growth in the number of borrowers as well as the increase recorded in deposits,” he noted.

According to latest data released by the regulator, Kashf Microfinance Bank had 310,258 active borrowers at the end of fiscal 2013. This translates into a market share of 11.8%, making it the third largest player in terms of active borrowers. However, it is not among the top five players in terms of gross loan portfolio.

According to Anne Folan, an independent consultant who has worked with FINCA since 2000, Pakistan is an exceptionally attractive market for microfinance business with almost 86% of the adult population currently being unbanked or under-banked.

“Pakistan has such an entrepreneurial spirit. People are very resourceful. They just figure it out and do what they have to do, and that’s exactly how FINCA likes to work,” Folan said in an exclusive interview with The Express Tribune. “Many other countries where FINCA works make Pakistan looks like Switzerland,” she observed while referring to the regulatory framework that the State Bank of Pakistan has put in place for microfinance providers in the country.

She said a FINCA team conducted due diligence for almost a year before finally making the decision to acquire the majority stake in Kashf Microfinance Bank. “FINCA people of all departments X− from product and services side to operations, legal and internal audit − did a thorough job, moving back and forth for an entire year,” she said.

“Pakistan has a huge addressable market,” she added, referring to the microfinance market penetration rate of only 9.6%.