In late October 2016, the government announced the signing of the Shareholder’s Agreement for the establishment of Pakistan Microfinance Investment Company (PMIC). The company has been set up by the Pakistan Poverty Alleviation Fund (PPAF), with a sizable grant of GBP 15 million from the United Kingdom Department of International Development (through Karandaaz Pakistan) and EUR 7 million through Germany based development bank, KfW.Previously, the UK government has helped 2 million people gain access to microcredit in the country, by leveraging 100 million pounds to the microfinance sector.
Microfinance Benefits Abound
According to the Pakistan Microfinance Review (2015), the annual assessment of the microfinance industry in the country, active borrowers stand at 3.6 million, out of which 2 million are women. In contrast, the estimated potential market of borrowers consists of about 20 million people, who will eventually benefit from PMIC financing and the additional 300,000 new employment avenues that it is expected to open with every passing year. Moreover, one of the goals of the Financial Inclusion Strategy of the government is to provide access to microcredit to 1 million people by the year 2020.
The Pakistan Microfinance Network reports a growth in microcredit of almost 20 percent in terms of outreach in the last year alone. However, the penetration rate of the sector only increased from 13.3% to 13.7% in the last quarter of 2015.
The importance of non-bank MFPs is accentuated by the fact that less than a quarter of the adult population in the country is banked and just over 20% use formal services. The figures are even more worrying for rural areas and for women.
Millions of financially excluded individuals and small enterprise owners in Pakistan, which are reported to generate the most income and employment out of all SMEs, are expected to be included in the microcredit net once PMIC starts operating at full capacity. As equity for PMIC, the PPAF is providing PKR 3000 million, DFID £15million and kfW €7 million in capital.
Launch of PMIC
PMIC is a specialized, for-profit wholesale investment finance company established to fund the expansion of microfinance in Pakistan. PMIC is the first publically funded, privately managed, commercial development finance institution dedicated to accelerate the development of microfinance in Pakistan.
The purpose of PMIC is to build on the strong platform developed by the Pakistan Poverty Alleviation Fund over the last 15 years and establish a well-capitalized for-profit wholesale finance business that will provide sustainable funding to retail MFIs through building deep links with commercial credit and capital markets.
The Company is mandated to provide a broad range of financial services, inlcuding senior and subordinated credit lines, other investment services and opportunistically make equity-linked investments in retail MFIs. PMIC will also offer technical assistance to support the institutional strengtheing of retail MFIs to build and maanage greater operating scale.
Microfinance: Status and Support in Pakistan
The act of giving out small loans to low-income, disadvantaged sections of the society has been known to help the poorest of the world improve their socio-economic status. Microfinance, or micro-credit loans, as it is more formally called, has especially benefitted women who use the money to set up small businesses and thereby sustain family livelihoods.
Two supportive steps taken in 2015 have made the establishment of PMIC more promising and relevant. The first was the promulgation of the National Financial Inclusion Strategy (NFIS) by the Finance Minister in 2015, which aims to achieve financial inclusion for poor segments of the population. And for this purpose, the strategy recognizes microfinance as a catalyst for the financial empowerment movement.
The second move was the introduction of regulatory framework by SECP for Non-Bank Microfinance Institutes (NBMFI) in 2015, which has made it easier for non-bank microfinance institutions to scale up their businesses and expand the outreach of micro-credit, especially to the poor. Microfinance needs are expected to grow manifold by 2018, according to the Ministry of Finance, and thus reforms in the sector were much anticipated. Not only will this move help increase liquidity to microfinance providers, but the regulations will remove one of the greatest challenges faced by non-bank MFPs in the financial sector, and help the microfinance sector expand at a faster rate.
PMIC which is being set up as a Non-Bank Finance Company (NBFC), is considered a favourable step towards broader access to microfinance in Pakistan, by actively increasing access to commercial funding for the microfinance sector. Reports leading up to the launch stated that 50 percent of the loans would be reserved for women and rural areas. This move signals advancement for struggling households, with a long-term view of improving social conditions of participating families and spurring economic growth.
About the Contributor:
Hira Mirza is a Digital Content Specialist, Researcher and Blogger. She cares about everything revolutionary, and wants to witness a global shift in social values, favourable for women and minorities, in her lifetime. She has published reports for development organisations, written for blogs &e-newsletters and contributed to national newspapers.