KARACHI: Microfinance banks can ensure sustainable development in Pakistan because they are already targeting small farmers and people who work in small industries, said FINCA Microfinance Bank CEO M Mudassar Aqil.
“Absolutely, microfinance sector is playing a critical role in the country’s economic growth,” he said when asked about sustainable development.
Micro, small and medium size enterprises (MSMEs) along with small farmers are the engines of growth that are propelling the growth of Pakistan’s economy. Since microfinance banks today are serving these two segments, their role is critical to sustainable development, he added.
Up to 80% of non-agri labour force is said to work in MSMEs in Pakistan while over 70% of Pakistan’s farmers grow crops on landholdings of less than five acres. At the end of the third quarter in 2017, the gross loan portfolio of Pakistan’s entire microfinance industry stood at Rs183 billion, up 49% compared with last year. In the past one year, the industry has disbursed Rs235 billion, with an average disbursement size of Rs43,000.
Before joining FINCA in 2011, Aqil worked for 14 years at leading commercial banks in Pakistan and the US. He holds an MBA from Salisbury University, Maryland, US.
FINCA has a global network of microfinance institutions in 20 countries. Since its inception, 10 years ago in Pakistan, the bank has given over 700,000 small loans to micro enterprises for businesses and disbursed Rs60 billion.
He said that access to financial services is a vital requirement of these small businesses to increase productivity and scale up their operations. “I see a lot of room for improvement in Pakistan in serving the SME segment. I hope that the State Bank of Pakistan would allow microfinance banks to leverage their grass root mobilisation and deep understanding of the market to serve the SME sector,” he added.
When asked where he sees room for improvement in the industry, Aqil said the policy needs to focus on bringing financial inclusion with emphasis on leveraging tech, incentivising use of digital money, allowing digital credit, introducing block-chain, electronic payments and documentation etc to become mainstream and acceptable. “The policy should create special incentives and risk sharing mechanisms for financial institutions to be able to develop new products and take additional risks to serve these segments,” he stressed. Despite fast growth in recent years, Pakistan is still one of the most financially excluded countries in the world with 85% of the people without a bank account.
FINCA says that its loan disbursements are evenly focused more on extending outreach to the agriculture, both livestock and crop farmers, and the MSME sector. The 700,000 loans that it extended so far has directly resulted in the creation of 135,555 additional employments within its micro entrepreneurs’ businesses.
He said the capital his bank lends is critical to the microenterprises’ expansion, working capital needs and immunity from seasonal fluctuations in business revenues. Agriculture accounts for 20% of the GDP, employing roughly 45% of the labour force while also contributing to the value chain of several related industries. Meanwhile, our priority towards MSME is in sync with the government’s priority for boosting the available financing for this sector as well.
Aqil believes that the financial services landscape of Pakistan will be completely transformed in the next five years. Majority of the people in Pakistan will have a smartphone and they will own a digital bank account on those phones, which means digital transactions and payments through these wallets will become mainstream.
The writer is a staff correspondent
Published in The Express Tribune, March 19th, 2018.