Numbers don’t lie. But they can be misleading sometimes.
Perhaps this is the reason why Pakistan Microfinance Network (PMN) Chairman Nadeem Hussain believes that an impressive growth of 20-25% per annum for the past many years has still not made the country’s microfinance industry ‘relevant’ in the fight against poverty.
Consistent ‘organic growth’ in the microfinance industry in recent years has resulted in 3.1 million active micro-borrowers. With 30 million customers as the potential size of the microfinance market, the current penetration rate stands at only 11.4%.
It means even if the industry continues its organic growth at the same rate going forward, the number of active borrowers will still hover around six million in 2018.
According to Hussain, the microfinance industry needs ‘interventions’ at multiple levels in order to achieve the customer base of 10 million by 2018. Addressing the inaugural session of the 8th Microfinance Country Forum held on Tuesday, the PMN chairman outlined his plan to achieve ‘exponential growth’ through rapid customer acquisition and enhanced funds to finance the industry.
Breaking it down
Firstly, Hussain believes mining the data of 60 million prepaid telecom users to identify and reach potential microfinance customers will create up to six million new customers.
“It’ll significantly reduce the lending cost because the costs of acquisition, maintenance and collection will also come down. The default rate will increase, but that will be offset by the low cost of acquisition,” said Hussain who also serves as CEO of Tameer Microfinance Bank.
Furthermore, he said another 4 to 5 million people can be added to the customer base if microfinance banks start Shariah-based lending, which is currently outside their scope.
He also emphasised the importance of the Pakistan Poverty Alleviation Fund (PPAF), which is the apex body that provides microfinance institutions (MFIs) with both funds and grants. He said customers of MFIs increased rapidly when PPAF started lending to its partner organisations following the receipt of additional funding from the World Bank.
“It needs to be well-funded because the bulk of our MFIs are still dependent on funding from the apex organisation,” he said, noting that additional funding for PPAF is likely to create another half a million microfinance customers in Pakistan.
As for the estimated funding of Rs210 billion required to achieve the outreach of 10 million customers by 2018, he said the microfinance industry should seek it through mobile wallets.
Currently there are approximately 4.2 million mobile wallets with an average deposit of up to Rs2,000. Through the latest biometric verification system, one can now open a mobile account in a minute without any paperwork. The branchless banking agent can obtain one’s information from National Database Regulatory Authority digitally and populate the mobile account that has no monthly charges or minimum balance requirement.
“We anticipate the industry will open 50 million mobile accounts in the next four years. It will result in Rs100 billion additional funding if the average balance in these mobile accounts is Rs2,000,” he added.
It will be the industry’s biggest source of funding in case the deposits generated through mobile accounts can be placed with MFIs and also lent back to them, Hussain said.
Referring to Tameer Microfinance Bank’s bond issue that raised Rs1 billion last year, he said microfinance banks can potentially borrow up to Rs15 billion from capital markets to meet their funding needs.
Speaking on the occasion, Sindh Minister for Finance Murad Ali Shah said the Sindh government will set up a microfinance bank. However, he did not give any timeframe for the establishment of the proposed bank.
Published in The Express Tribune, November 26th, 2014.
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Congratulation Mr. Nadeem Hussain Chair PMN. In my view the PMN should do the most important task of "Banking the Unbanked" as we know the figure is startling for the Unbanked. Once we have achieved the objective we will bring millions of families contributing to the documentation of our economy, and the Federal, and Provincial taxes. Education for example need huge investments. I suggest if the PMN invest in technology for the alternative to text books, journals, periodicals, all copy righted content under the purview of IPR under WIPO Geneva is available on e-Books. All these eBooks contain all the scientific, technical, engineering, Avionics, Medical, Nuclear topics on earth in the eBook for purchase of the book for one year, or for viewing it for one month. The original book will be accessible in HD, high resolution screen with graphics, in excellent manner. This can be attached to corporate philanthropy to education and save the country from pirated, or photo copy of the books, which are very old. Besides the ePayment which is via a smartphone, will change small businesses, as bus ticket, Pan, etc., to contribute towards taxation, and they will buy good quality stuff, at much less than cash, secure and safe. Purchases of grocery, food stuff, vegetables all can be done from that with his wallet account of Microfinance Bank. I pitched this on the World Consumer Day at an NGO presentation for the Banking the Unbanked.