Empowering the Unbanked

The News International, Pakistan

Opinion

December 12, 2005

By Nadeem Hussain

The writer is CEO and president of Tameer Microfinance Bank in Pakistan and former country head of consumer banking at Citigroup in Pakistan.

The World Bank declared 2005 as the year of microfinance. This was done presumably to shatter several myths that have clung to the concept since its inception. One of these myths is that micro-finance is not commercially sustainable, premised on yet another myth that the poor are a bad credit risk. The third myth associated with microfinance is that it cannot impact the larger macroeconomic picture of a country with its small-scale nature of operations.

Despite the existence of special licensing provisions in Pakistan, there are only a handful of microfinance institutions making a dent in the rising poverty index of a large mass of people, both urban and rural. So far, there is only a five per cent penetration of the annual two-billion-dollar microfinance market in Pakistan, which is a reflection of how low this instrument is rated as a substantial commercial activity. In addition to the venerable Grameen Bank or NGO model, which is based on grant aid targeted at rural consumers, South Asia is in desperate need of more urban-based, individual lending, commercially sustainable microfinance banks aimed at the lower income group.

In Pakistan, none of the large commercial banks have developed microfinance as a meaningful activity despite benefiting from a source of low-cost funds and an extensive branch network. While the State Bank has allowed district, provincial and national licences, especially for microfinance banking, to date none of the NGOs have been able to make the transition to a microfinance bank, and only a handful of new entrants have entered this market. In the case of the large commercial banks, it can be assumed the lack of interest is a function of considering this kind of lending to be unsustainable and more social than commercial in nature.

In the case of NGOs the minimum capital requirements and the prospect of central bank scrutiny seem to be the barrier. The new entrants, meanwhile, seem to view the SBP’s maximum loan size as the major impediment. So how does one overcome these obstacles and allow microfinance to make the necessary development impact which is so sorely needed in a country where microfinance and SME can be a major engine of growth.

More:http://www.jang.com.pk/thenews/dec2005-daily/09-12-2005/oped/o3.htm