30m live below poverty line

KARACHI - The micro-credit borrowers in the country would soon have the lending facility from the formal financial institutions under the "Microfinance Credit Guarantee Facility" which is expected to increase the flow of credit to microfinance sector.
Governor State Bank of Pakistan stated this on Friday while launching important initiatives for the growth and development of microfinance sector. The event was held at SBP premises here on Friday.
SBP Governor Dr Shamshad Akhtar said in Pakistan there are about more than 30 million people living below the poverty line. Despite the consensus that microfinance is an effective tool to alleviate poverty, the gap between demand for and supply of financial services for the poor and marginalised segments of population is very wide.
The current microfinance outreach of 1.8 million customers is limited to only around 5pc of the potential market. The SBP and the Government of Pakistan are committed to increasing the number of microfinance borrowers to 3 million by the end of 2010 and 10 million by 2015 as documented in the national Microfinance Strategy adopted in 2007.
She said to realise the growth targets of microfinance, the SBP has identified three concurrent steps the industry needs to undergo in order to fulfill set goals: sustainable cost-covering operating/business model; mobilise private domestic capital; and build human resource systems.
Talking about the key features of the MCGF, she said the facility has been designed to incentivise banks/DFIs to channelise funds to MFBs/MFIs for on-lending to low income segment of the population. The facility would provide credit guarantees of up to 40 percent of the funding provided by banks/DFIs and aimed to develop market and graduate poor borrowers to mainstream financial service providers. Banks/DFIs would lend to MFBs at the SBP policy discount rate plus 200 bps. The funds channelised under facility to MFBs/MFIs would be deductible from Demand and Time Liabilities of the banks/DFIs for the purpose of SLR and CRR calculation.
She also said that the facility would be established at State Bank of Pakistan (SBP) with the help of the UK Government Financial Inclusion Programme grant funds equivalent of up to GBP 10 million to be used as the guarantee fund. The State Bank had issued necessary guidelines for operationalising the facility which were finalised after due consultation with stakeholders.
"The MCG facility is expected to help raise local currency funds for eligible MFIs/MFBs. The loans portfolio under the guarantee scheme will be administered by banks. The facility will also help building links between micro borrowers and formal financial institutions. The familiarisation of the bank with the client should eventually lead to the "graduation" of the borrower. The facility shall provide partial guarantees to minimise the perceived risk premium by covering part of the losses incurred on funds made available to MFBs/MFIs with the advantage of leveraging the guarantee fund a number of times while keeping the incentive for banks/DFIs to collect the loan. The lending of MCG facility will help these institutions to play their role in the growth of micro credit more effectively," she added.
"Apart from MCGF, SBP has been designed two more significant programmes titled the Institutional Strengthening Fund and the Improving Access to Financial Services to build capacity of the microfinance sector. The fund is expected to enhance potential for growth and create depth in outreach by improving human resource quality, service delivery and increasing service availability to potential microfinance clients," she said.
Speaking about the special measures which have been taken by the central bank in collaboration with multilateral donors, she said such initiatives were expected to ease liquidity constraints of microfinance providers in view of the tighter liquidity conditions and sudden spike in inflation which has severely affected the poor and marginalised segments of the society.
"These initiatives are part of the GBP 50 million 'Financial Inclusion Programme' (FIP) supported by the UK Department for International Development (DFID) and an endowment fund worth $20 million under the ADB's Improving Access to Financial Services Programme," Governor said.
The Institutional Strengthening Fund is established at the State Bank under the UK Government's Financial Inclusion Programme that involved funds equivalent to Pound Sterling 10 million for institutional strengthening. The fund will provide grants for capacity building to generate on-lending resources through commercial sources, equity investments or deposit mobilisation strategy through improvement in management, governance, internal controls and functions.
The fund will also provide grants for employing cost reduction mechanisms for increasing outreach in rural and remote areas through product innovation, development or use of technology. In addition, the fund will provide grants for business development services to MFI clients or improving quality of services, and developing capacity for transformation of MFIs into licensed microfinance banks," she said.
Dr Akhtar explained that the Improving Access to Financial Services was also designed to enhance capacity of the microfinance sector and promote financial literacy. The fund had been established at the State Bank with the help of an endowment of $20 million under the ADB supported "Improving Access to Financial Services Programme - IAFSP". The fund would provide benefits for and have positive impacts on rural and urban communities, in particular the poor and the women.
The event was attended by all stakeholders including donors, presidents/CEOs of commercial/microfinance banks, and representatives of the Pakistan Microfinance Network and Pakistan Bankers Association.