Just as CY16, this year is also turning out to be a good year for the country’s microfinance sector. There is double-digit growth in key sector indicators in 1HCY17, as per the latest numbers released by the sector’s association, the Pakistan Microfinance Network (PMN).
To begin with, the borrowing side has picked up significantly in the first six months this calendar year. Number of active borrowers reached 5.2 million by June 2017 – a growth of 14 percent since December 2016. Gross loan portfolio increased to Rs171 billion, up 25 percent from Rs137 billion reported six months ago. Average loan size stood at Rs44863, up from 41663 in December last year.
On the savings front, number of savers has surged to 25.2 million as of June 2017, up 9 percent from December 2016 level. There is higher growth in saving deposits, which have grown some 22 percent since December-end to Rs148 billion in June end. That reflects in a higher average savings balance, which reached Rs5852 in 1HCY17.
The micro-insurance segment is not behind when it comes to growth. Number of policyholders has grown to 6.3 million as of June 2017, up 8 percent from December 2016. The sum insured has climbed to Rs168 billion, 12 percent higher compared to December 2016.
Gradually, microfinance is expanding its penetration across Pakistan. For its latest MicroWatch issue, the PMN aggregated data that was reported from 39 microfinance providers (MFPs) – 11 microfinance banks, 12 microfinance institutions, 4 rural support programmes, and 12 social sector organisations that provide microfinance as part of a multi-dimensional service offering.
Together, the MFPs have expanded microfinance coverage to 106 districts in Pakistan as of June end. The microfinance penetration rate is reported by PMN at roughly 25 percent, based on an estimated potential market size of 20.5 million.
The MFPs have doubled the number of active borrowers between 2011 and 2016 – and this year, too, the tally is getting bigger. There are plans to double the coverage by 2020. So there is work to be done. The addressable market is still very large, and apparently growing. A loan-book of over Rs400 billion is needed to serve 10 million micro borrowers. That means equity capital must reach at least Rs40 billion.
To serve the credit demand of 10 million borrowers, the MFPs need to disburse additional Rs220 billion over existing loan-book size. The recent launch of the Pakistan Microfinance Investment Company, which is a PPAF spin-off that is also funded by donors, can be instrumental in bridging that gap. But it likely won’t be enough. Commercial banks will need to play a role, too. Perhaps the central bank can nudge them in that direction.