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It looks like the country’s microfinance sector closed out the year 2021 on a strong note. Going through the latest data released by the sector association Pakistan Microfinance Network (PMN), one can see that there is substantial growth in year-end sector position for borrowing, savings and insurance portfolios. Aggregate sector data is based on reporting by three dozen microfinance providers (MFPs).

As MFPs added more than a million active borrowers in 2021, this marked an exceptional year for the sector’s credit portfolio, where growth had come to a crawl in pre-pandemic times. Also, during the first pandemic year, active borrowers’ number had actually dipped. Standing at 8.1 million, number of active borrowers grew 16 percent year-on-year in CY21. The microfinance banks (MFBs) hold 57 percent of the borrowers, whereas the non-banking microfinance companies (NBMFCs) have the remaining 43 percent.

Borrower growth and better liquidity availability led to higher disbursements. By December 2021 end, the sector’s gross loan portfolio (GLP) increased by 21 percent year-on-year (Rs68 bn more) to reach Rs393 billion. This is the largest absolute growth in recent years for GLP. (Three-quarters of GLP rests with the MFBs). As per the PMN, “the recent push from the Central Bank to increase disbursements associated with Enterprise Loans and Housing Loans has presented an opportunity to MFBs in particular to attract the high end of the market via larger loan sizes, resulting in a considerable growth in disbursements.”

Savings portfolio continues to give, as number of savers in microfinance ecosystem went up 23 percent year-on-year to reach 79 million by December 2021 end. That’s an addition of some 15 million savers during CY21, which follows addition of 16 million+ savers during CY20 when the pandemic-led restrictions were comparatively much more prevalent. More than four-fifth of savers are accounted for by mobile wallets that have small deposits, and the rest are traditional branch accounts with larger deposits.

The value of savings stood at Rs423 billion by December 2021 end, up by 13 percent (or Rs48 billion more) compared to December 2020. Pace of deposit accumulation, which is still noteworthy, is decelerating. In this space, MFBs operate alone – the NBMFCs are not allowed to accept public’s deposits, as they do not have banking license. It is traditional branch-banking accounts that account for 86 percent of deposit value, compared to 14 percent for m-wallets issued by branchless banking players.

Meanwhile, the indicator that monitors sector’s financial health shows fatigue. The infection ratio – which is the share of loan portfolio that is at risk for over 30 days – increased from 3.7 percent in December 2020 to 4.9 percent in December 2021. This is mainly because the year-long Covid-era moratorium and relaxation in loan provisioning (as directed by SBP to MFBs and by SECP to NBMFCs) ended during 2021. This led to higher provisioning and losses associated with non-performing loans (NPLs).

Breaking it down, infection ratio in the same period jumped among MFBs from 3.3 percent to 5.1 percent, whereas infection ratio decreased among NBMFCs from 4.9 percent to 4.1 percent. MFBs faring worse on this count is mainly because the value of Covid-era deferred/rescheduled loans by MFBs was more than thrice the loans deferred/rescheduled by NBMFCs. As per the PMN, “the MFBs were the hardest hit amidst the pandemic, which has become evident with the increase in the infection ratio for the peer-group over the quarters. NBMFCs, in comparison, have been successful in maneuvering through the crisis.”

Let’s see what 2022 has in the pipeline. While the growth in credit portfolio is especially welcome, there is still a long way to go to cover potential market. At 8.1 million active borrowers, the current coverage is 17 percent of the PMN-estimated addressable market of 47 million micro clients and enterprises. To finance a majority of the potential market, the sector’s loan book will need to be tripled and the MFPs’ physical footprint, which stood at 3,823 branches by December 2021 end, will need to be significantly expanded.


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