With over 22 years of experience, Yasir Ashfaq is the Chief Executive Officer of Pakistan Microfinance Investment Company (PMIC) since August 2017. Yasir has been instrumental in the development of the microfinance sector of Pakistan with a clear emphasis on sustainability and creating an impact during the last ten years.

Prior to pursuing his passion of financial inclusion, poverty alleviation and a sustainable microfinance sector, Yasir has served at several important positions in commercial and investment banks for more than a decade with experience spanning in the areas of Treasury, corporate finance, investment banking, finance and product development. He serves on various Committees of National Financial Inclusion of both the regulators and government.

Yasir is a Fellow member of the Institute of Cost & Management Accountants (ICMA) of Pakistan and holds a master’s degree in Economics from University of Sydney, Australia. Following are the edited transcripts of a recent conversation between BR Research and Mr. Yasir, largely revolving around the state of microfinance in COVID times:

BR Research: What is PMIC's mandate? How is PMIC different from a micro-finance bank or a conventional microfinance institution?

Yasir Ashfaq: Pakistan Microfinance Investment Company (PMIC) was established with a primary aim to meet capital requirements of microfinance providers (microfinance banks and non-bank microfinance institutions – NBMFIs) as a wholesale lender. It was envisaged that PMIC would lead to next phase of responsible and sustainable growth in Pakistan’s microfinance industry. We work on a triple bottom line mandate, whereby the aim is to empower the underserved communities by providing them with viable financial products and access to markets, information and technology enabled solutions through our borrowing MFPs, while working on environment friendly financing. A conventional microfinance institution, on the other hand, provides financial services at retail level to small farmers, entrepreneurs, women, and a range of other clients.

BRR: How was PMIC formed and who are the partners/shareholders?

YA: Pakistan Microfinance Investment Company Limited (PMIC) was formed as a national-level apex institution for microfinance providers in the country. PMIC was established as an important pillar of the National Financial Inclusion Strategy formulated by the Government of Pakistan. Pakistan Poverty Alleviation Fund, Karandaaz Pakistan (KRN) and KfW – a German development bank are the three shareholders of PMIC, and they had established PMIC with a commitment to serve people at the bottom of the pyramid in Pakistan.

BRR: What are PMIC’s thematic focus areas? What products/services do you offer?

YA: The core focus areas for PMIC include provision of financial services to women representing 82 percent of our total clientele; rural communities (62 percent of total geographic outreach); and youth (28 percent of all the clients). PMIC provides a range of financial and non-financial products to its borrowers. These include fixed term senior loans and sub-ordinated loans. Further, we are currently developing guarantee and risk sharing mechanisms. In the near future, our aim is to establish microfinance finance portfolio as an asset class for investors in the country and promote savings. In addition, there are 7 non-financial product verticals with prime focus on development and up-scaling of loan products for renewable energy, agriculture, education, graduation out of poverty and risk mitigation through micro insurance. These products help provide access to finance, markets, information and help build capacity of small farmers, micro and small entrepreneurs, home based workers, school owners etc. - ultimately resulting in increased incomes and employment opportunities.

BRR: Tell us about your loan portfolio and number of clients?

YA: PMIC’s current loan portfolio comes down to Rs24 billion, which has been lent out to 24 MFPs. Around 800,000 clients, in over 80 districts of Pakistan are being served through PMIC’s loan portfolio. There has been a slight decrease in the number of clients being served through PMIC’s microcredit portfolio, over the last quarter, due to Covid-19. However, this number is expected to rise again in the future.

BRR: How has COVID-19 affected the microfinance market? Which business segments have been affected the most?

YA: Like any other major disaster, Covid-19 has affected the microfinance industry as well as the poor clients we serve. Due to the lockdown, economic activity came to a halt, causing closure of means of livelihood and loss of income for most microfinance clients. Majority of these borrowers have faced income losses and had little option but to use their savings to purchase food for their families. However, geographically, it has been observed that districts with dependence on agriculture have been able to deal with Covid-19 better as compared to districts with strong reliance on manufacturing and small and medium enterprises. The clients running small shops, hawkers, traders, tailors, saloons, and parlors, as well as daily wagers were most affected due to the pandemic initially. Similarly, clients involved in the wedding related businesses were also affected.

Clients in livestock and crop sectors have not been affected as adversely due to Covid-19 as services and small-scale manufacturing. The milk and meat shops were open, the only notable issue livestock farmers had faced was the closure of local Mundies. In addition, government’s timely decision to procure more wheat this year, at higher price than last year, resulted in increased incomes for subsistence farmers.

BRR: SECP allowed the non-banking microfinance providers to reschedule client loans and permit deferment of principal repayment. SBP also assisted clients of microfinance banks through a one-year deferral of principal repayment. How effective have these strategies been to salvage the borrowers?

YA: SBP and SECP made these decisions at a time when Covid-19 pandemic was spreading at a fast pace, with the fear of unknown gripping everyone and forcing government to implement lockdowns across the country. Clients, who had taken loans from financial institutions, were finding it hard to make monthly loan installments. Such decisions by both SBP and SECP had provided the necessary cash buffer to clients as well as financial institutions. In case of borrowers, the deferment of principal repayments had provided them with capital to purchase food supplies and feed their families on a sustainable basis, without consuming their savings. While, in case of microfinance institutions, these timely steps by SBP and SECP had created a liquidity buffer, which was used to sustain operations and meet salary requirements of their employees.

PMIC played an important role in this scenario by deferring principal repayments for all its borrowers for 1 year in March 2020. This timely and much needed step by PMIC helped the non-bank microfinance providers, who primarily borrow from PMIC, to provide some sort of relief to their borrowers. This also aided them negotiate loan rescheduling with other lenders and financiers.

BRR: As a provider, how are you seeing the demand for fresh credit? And how do you see the sector's response to credit demand?

YA: PMIC has been constantly in touch with its borrowers during the crisis and has also taken many steps to address their challenges. As the lockdown eased-out, to assess the situation on ground PMIC management recently carried-out a field visit and met with more than 70 clients in multiple districts of Central Punjab. Clients have started operating their businesses on full-time basis, resulting in increased monthly incomes. Micro and low-end business owners have called back their staff, which was laid-off due to Covid-19 lockdown, resulting in increased employment generation. We have observed that though the situation is constantly improving, however, the MFPs are looking to consolidate their position, focus on collection and maintain higher liquidity reserves. In certain cases, some MFIs have started lending out microcredit loans to their existing clients and are even offering top-up loans to help them revive their businesses.

BRR: What impact do you think COVID 19 would have on financial inclusion in Pakistan?

YA: The microfinance sector has shown a lot of maturity in dealing with the situation. Firstly, it has increased interaction with the clients through various channels. This helped the microfinance institutions and banks understand the predicaments of their clients. Based on their assessment they deferred and rescheduled loan repayments. Where they felt the financial health of the client is weak, they provided cash and food items from their resources and donations gathered by them through different sources. The institutions also established linkages of their clients with the government relief schemes. Now that the businesses are restarting, after due diligence, they are providing new loans to their clients. Although, the difficulties are not completely over, nonetheless the situation of clients and microfinance institutions is much better that what it was in May 2020.

Our numbers of financial inclusion are one of the lowest in the world (only around 32 percent Pakistanis own a bank account, in case of women it is even lower at around 22%). This means that we need to cover a lot of ground and it is a long journey. SBP and SECP are taking conducive policy initiatives to improve the situation. There will be some slowdown in the growth of financial services, observed in the last few years. We believe MFIs and banks will focus on consolidation for year 2020, but as the situation further improves, demand for credit and other financial services will increase in 2021.