Enabling the poor: Pakistan ranks 3rd in favourable microfinance environment

According to the report Pakistan is considered to have one of the most enabling environments for microfinance. ILLUSTRATION: JAMAL KHURSHID

KARACHI: 

Pakistan has the third-best microfinance business environment in the world, according to The Economist Intelligence Unit’s analysis of the microfinance business environment in 55 countries.

In its recently released report titled “Global microscope on the microfinance business environment 2013,” the business information arm of The Economist Group puts Pakistan after Peru and Bolivia on the overall microfinance business environment ranking.

“Pakistan… is considered to have one of the most enabling environments for microfinance regionally and globally,” said the report, which ranks countries on the basis of two broad categories: Regulatory Framework and Practices, which examines regulatory and market-entry conditions; and Supporting Institutional Framework, which assesses business practices and client interaction.

Interestingly, Pakistan is nearly tied with Bolivia for the second position because the difference in their respective scores on the index is only 0.1 point.

“Pakistan is an extremely attractive microfinance market. We have a regulator (State Bank of Pakistan), which is ranked among the best in the world,” said Mohammad Mudassar Aqil, CEO of Kashf Microfinance Bank, one of Pakistan’s major microfinance banks, while speaking to The Express Tribune in an interview.

He said Pakistan has one of the most progressive sets of regulations for microfinance banking. “A fully functional credit bureau for microfinance banks with about 93% of the adult population of the country having a unique CNIC number is a great combination of all ingredients,” Aqil added. “What’s missing is the ability of the practitioners (of microfinance banking) to innovate. Now the onus is on us,” he observed.

Pakistan holds the third position in both ‘Regulatory Framework and Practices’, and ‘Supporting Institutional Framework’ categories. However, besides the two core categories, The Economist Intelligence Unit also adjusts each country’s score for political instability into the index.

Based on a complex scoring methodology, this category evaluates political shocks to the microfinance sector and general political stability. Pakistan performs rather poorly on this count, as it ranks 30 among the 55 economies when it comes to political stability.

The State Bank of Pakistan (SBP) tightened its prudential regulations that apply to microfinance banks by increasing minimum-capital requirements. It expanded the scope of potential microfinance clients in 2011 by raising the maximum income level for clients who can qualify for microloans.

While the regulator does not impose interest-rate caps, it does limit the size of loans.

The Economist Intelligence Unit says the launch of the Microfinance Credit Information Bureau (MF-CIB), which was rolled out in June 2012, has been a key development in microfinance business.

“The MF-CIB will be a positive registry (with information on all clients with an outstanding loan, rather than just defaulters) and will cover all types of players serving the industry,” it said.

The total number of active borrowers in Pakistan at the end of the last quarter of fiscal 2013 was 2.6 million, up 4% from the preceding quarter. The penetration rate of the microfinance banking sector has increased from 9.2% to 9.6% due to an increase in overall outreach, according to the latest data