Daulat from Karachi was a single mother with three children who had faced many hardships during the early years of her life. Undeterred by the tough task of fending for her young children, she started as a small caterer and would sell items cooked by her at home.
However, she faced many health problems early in her life and had to sell off all her assets and savings on numerous occasions to cover her medical expenses. She approached The First MicroFinanceBank (FMFB) for a small loan and managed to start a new catering business to support her family.
Daulat soon started earning a fairly good income and when she found out that FMFB opened a bank account with a small amount of Rs 5 only, she opened her first ever bank account with a deposit of Rs 100. Today, she enjoys all the basic necessities of life and has improved the overall quality of life for her household. Such is the profound impact of micro-finance in the development of an individual!
The First MicroFinanceBank, a part of the Aga Khan Agency for Microfinance (AKAM), was established in 2002 as the first private sector micro-finance bank in Pakistan. It is a premier non-commercial bank licensed by the State Bank of Pakistan under the regulatory framework of the Microfinance Institutions Ordinance 2001 and was created through a structured transformation of the credit and savings section of the Aga Khan Rural Support Programme (AKRSP), an institution that had laid the foundations of the microfinance sector in the country in 1982, beginning in Gilgit Baltistan and Chitral.
FMFB was created with the mission to alleviate poverty through sustainable economic development and a non-commercial objective of recovering only its inflation adjusted costs. With the vision to alleviate poverty in Pakistan, the Bank has focused on laying a strong institutional foundation for developing into a solid financial institution, which reaches out to the unbanked poor providing them with an efficient financial intermediation service.
The Bank offers credit, savings and life insurance services along with an efficient and low cost funds transfer service to its target populations. FMFB takes pride in pioneering a unique banking model as it is the only MicroFinance Institution (MFI) in Pakistan and amongst a few in the world that funds its entire loan book through self-generated deposits.
Through provision of targeted financial and multi-sectoral products and services relevant to the evolving needs of the poor, the Bank's services have provided the unbanked poor with an opportunity to become a part of the mainstream financial system enabling them to strengthen their entrepreneurial base and build financial, physical and human capital for the future.
The Bank has come a very long way in serving the poor population of the country while developing into an institution that has demonstrated phenomenal growth, outstanding performance and international recognition. The Bank has maintained its high credit rating of A1 (short term) and A+ (medium to long term) by the SBP approved and internationally affiliated rating agency JCR-VIS. With over 147 locations including 83 FMFB branches and 64 Pakistan Post Sub Offices, FMFB has disbursed over PKR 16 billion (US $188 million) through more than 888,000 loans while generating a deposit base of PKR 5.3 billion (US $62.3 million) as at December 2010.
Addressing one of the major challenges faced by MFIs across the globe of reaching out in a cost effective manner to the remotest rural areas where the most unbanked vulnerable poor reside, FMFB was the pioneer in exploring the concept of branchless banking in Pakistan by identifying an alternate delivery channel.
Through its unique partnership with the Pakistan Post for provision of credit services through their extensive network of Sub Offices (SOs), FMFB was able to expand and deepen its outreach in an accelerated and more cost-effective manner. Through the SOs, the Bank has been able to disburse more than 138,000 loans amounting to PKR 2.09 billion ending 2010.
FMFB, in line with the Aga Khan Development Network's philosophy of development, has been committed to design its services in accordance with the needs of the communities whereby the people themselves decide on how they wish to improve their living prospects.
To enable the poor to capitalise on economic opportunities, and to allow access to basic social services and facilitate capital formation, FMFB offers a range of targeted loan products catering to the diverse financial needs of the poor all across Pakistan. Micro credit for economic activities ranging from farm and non-farm based activities, manufacturing and trade services are offered to micro-entrepreneurs.
Cognisant of the needs and dynamics of micro-business, FMFB has adopted a cash flow based lending methodology that takes into account both the amount and frequency of the borrower's cash flow to determine the repayment schedule. All borrowers benefit from life and credit insurance. In the event of death of permanent disability of the borrower, all outstanding dues of the borrower are written off. In addition, the family is assisted with Rs 10,000 (US $125) for emergency costs.
A wide range of saving facilities including checking accounts, savings accounts and term deposits are offered for all income groups. Individuals may establish accounts with as little as PKR 5 (US $0.07), pay no transactional charges and need not retain a minimum balance. Competitive rates of return are offered on all saving schemes, with extra benefits for small savers (those saving less than PKR 25,000 or US $310). Over 85 percent of FMFB-P's depositors are micro-savers and have an average deposit holding of Rs 395 (US $4.70).
In 2010, FMFB completed the Social Performance Research project which had been undertaken in partnership with the Harvard Business School to develop a set of standard, verifiable social indicators both to segment poverty and to monitor the impact of the Bank's services on the lives of the poor.
The indicators are being integrated into the FMFB MIS so that the Bank can develop targeted products and easily track the changes in the livelihood of the poor vis-à-vis its services. Another new product, Health MicroInsurance, which was piloted in Karachi is now being launched in other areas. The Health Insurance Service will reduce the vulnerabilities of the poor segments of our society and enable the poor to safeguard their entire families against medical emergencies.
Recently, the Bank launched a Housing Finance product designed to help poor and low-income families make their homes safer, healthier and more energy efficient. FMFB will provide needs-based, short to medium-term financial services (housing finance) for both structural and non-structural improvements to the houses. For non-structural improvements, FMFB will provide loans for purchase of fuel efficient stoves, light and ventilation systems, and low-cost insulation methods. It is estimated that each out to 27,000 beneficiaries in the next 3 years.
The Bank reaches out to the poorest segments of society. On a sample basis, 76% of the FMFB clients live below US $1 per day and 24% of the clients live below US $1-2 per day. Women approximately constitute 71% of the poor in Pakistan and with the objective of encouraging women to become independent second earning members of the family, FMFB focuses on providing services to vulnerable women.
Encouraging women to supplement the household earnings has proved to be an effective way of accelerating the process of poverty alleviation. About 35% of FMFB's active borrowers are female. Another aspect of poverty targeting is the geographic area in which FMFB operates.
With the vast majority of the poor population residing in the rural areas, about 70% of the cumulative loan amount disbursed by FMFB is in the rural areas. FMFB is one of the fastest growing MFIs in the region and plans to continue reaching out to the poorest segments of society and enabling them to build a sound and secure future with dignity and pride and not merely to survive; alleviation of poverty through sustainable economic development.