Success of microfinance widely acknowledged by world: SBP governor

The Governor of the State Pakistan, Yaseen Anwar, has said that based on the early success of mobile banking in Pakistan due to collaborated efforts of a wide range of stakeholders there was an urgent need for continued close co-ordination between all diverse organisations of the micro finance sector to foster a market-driven mobile banking eco-system.
Speaking at the inaugural session of the fifth Pakistan Microfinance Conference 2011 organised by Shamrock Conferences International here on Friday, he pointed out that Pakistan has one of the lowest financial penetration levels in the world with 56 percent adult population totally excluded, and another 32 percent informally served. However, despite considerable support from the government, donors and the State Bank of Pakistan, the microfinance sector has only been able to tap a small fraction of the potential market, with current active borrowers standing at roughly two million.
He said that financial literacy has assumed greater importance in recent years and is now considered an important systemic area for promoting financial inclusion and ultimately financial stability. "Both developed and developing countries, therefore, are focusing on programs for financial literacy/education. The SBP has started a pilot Financial Literacy Program (FLP) with the private sector as an implementing partner. The Program is the first ever initiative to promote financial literacy among the general public at the national level."
He said that efforts to mainstream Microfinance into the formal financial system started in 2000 and 2001 when the government promulgated the Microfinance Ordinance. The passage of the law allowed private sector to establish Microfinance Banks those are licensed and regulated by State Bank of Pakistan. "Since then, we have witnessed the establishment of new MFBs, transformations of large MFIs, diversification of funding sources, development of inclusive financial services, emergence of alternative delivery channels, and piloting of Microfinance - Credit Information Bureau' (MCIB)", he said.
These developments are indeed a sign of growth and maturity and a direct outcome of the enabling regulatory framework and market development initiatives for microfinance. He pointed out that the success of microfinance in Pakistan is widely acknowledged by the international community. "Our microfinance regulatory framework has been ranked globally at the top in 2010 and 2011 by the independent the Economic Intelligence Unit of UK The Economist' magazine", he said.
He said in developing regulations for microfinance, the State Bank has pursued a bottom-up approach along with use of strong analytical and problem solving skills and industry consultation. "Since the inception of microfinance banking in Pakistan, our goal has been to determine the proportionality of a regulation before it is put in place", he added. Hence, the regulatory approach has remained gradual and in line with the evolution of the sector.
He pointed out that the evolution or trajectory of microfinance has so far remained positive despite the fact that many challenges arose along the way "which I will cover later". At present, nine MFBs are operating in Pakistan. All these MFBs are privately owned and reflect diversity of ownership and approaches to microfinance banking. Considering that the market has potential and the regulatory framework is supportive, the ownership in MFBs has flowed both from local and international investors including banks, development agencies, investment funds, mobile network operators, and large domestic MFIs.
According to the SBP Governor, the recent development in mobile phone banking is highly encouraging. The expansion in the retail network of microfinance has arisen overwhelmingly from agents and mobile phone channels. Within a span of just two years, there are now almost 18,000 branchless banking outlets surpassing the 10,000 conventional bank branches. The combined daily transaction volume of the two prominent branchless banking models 'Easypaisa' and 'Omni' now averages over 175,000, with an average size of Rs 3,700. He said organisational development and funding avenues for microfinance service providers are two major challenges for the sector. He said MFBs need to improve the quality of growth through promoting inclusive financial services with up-scaling credit operations.
He said SBP will issue regulatory guidelines to MFBs for up-scaling of loans, and develop a reporting structure to assess the geographic distribution of microfinance growth. Donor funding can support product development, capacity building, and market surveys. He said institutions must assign equal importance to consumer protection and awareness. SBP will also review and strengthen its regulatory and supervisory processes to ensure protection of microfinance clients' rights.
In the new Microfinance Strategic framework 2011-15, SBP has laid out a detailed strategy to promote sustainable growth of the sector. The role of SBP is to develop the banking infrastructure, encourage the use of successful global practices, and provide the regulatory and supervisory mechanism to enable MFBs to develop viable business models.
Nadeem Hussain, President and CEO f Tameer Microfinance Bank, talked about the "fascinating advantages" of branchless banking, in creating livelihood opportunities and poverty alleviation. He said, "Branchless banking is the key for exponentially increasing outreach." He advised that social investment can be encouraged by linking financial assistance with borrower's productivity. Financial literacy can be delivered at the common man's doorstep, by expanding the telecom sphere in rural Pakistan.
Chairman of the conference, Menin Rodrigues, said that SHAMROCK Conferences International is committed to facilitating dialogue for the expansion and outreach of micro finance in Pakistan. He said that such cohesive efforts trigger fresh ideas and industry experts are able to address challenges and opportunities in an effective way.
The moot featured case-studies and deliberations on effective strategies for "Stretching out to the Unreached". Leading microfinance experts addressed the key stakeholders of Microfinance sector including Dean of M.A. Jinnah University, Dr Abdul Wahab; Chairman of the First Microfinance Bank, Akbarali Pesnani; Ahmed Jamal, Senior Group Head, Pakistan Poverty Alleviation Fund; Ms Cary Clark, Senior Advisor, Mazars Consulting, and Ramiz Allahwala, CEO, Gulfstone Training.