The microfinance sector in Pakistan has experienced notable growth and development over the past few decades despite several challenges, including limited access to capital, high operational costs, and low financial literacy among the target population. This is because MFIs play a crucial role in providing financial inclusion to a very unbanked and underserved segment of the society. Its significance too is paramount as it play a vital role in poverty alleviation as well.
During the ongoing economic and political turmoil, the sector has continued to show resilience with decent growth in some key indicators.
Key players in the microfinance sector in Pakistan include microfinance banks (MFBs), microfinance institutions (MFIs), and rural support programs (RSPs). As per the latest data released by the Pakistan Microfinance Network (PMN) – the sector’s body representing about all major service providers, there has been visible growth in the sector’s lending and saving during 1QCY23. The number of active borrowers and savers also increased on a year-on-year basis.
The microfinance industry crossed the Rs500 billion mark in gross loan portfolio, penetrating almost one-fourth of the potential market. The growth in gross portfolio loan was 22 percent year-on-year in 1QCY23, and 3.7 percent quarter-on-quarter. The number of active borrowers during 1QCY23 were up by 13 percent year-on-year, and 1.8 percent quarter-on-quarter in 1QCY23 to reach 9.25 million where a good chunk of 45 and 42 percent of these was represented by women and borrowers from rural areas, respectively.
On the deposit side (savings), the microfinance industry witnessed robust growth in the number of savers during 1QCY23; on a year-on-year basis, this growth stood at 17 percent year-on-year with savers reaching 98 million during the first quarter of 2023. Quarter-on-quarter growth in the number of savers was around 4.4 percent. Total value of savings was also seen growing by 14 percent year-on-year in 1QCY23; However, saving value declined by 5.2 percent quarter-on-quarter
The sector has been posting growth on both the lending and deposit side, the Portfolio at Risk indicator that depicts the loan quality has waned on a year-on-year basis – though it still stood better on a quarter-on-quarter basis. While the sector has been able to penetrate the market, a big chunk – as close to 75 percent of the market remains untapped, which provides significant room for improvement. So far, the sector has remained buoyant, but what is needed is for it to be taken to scale to create greater impact.
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