MFB Stats - June 2006


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MFB Stats - June 2006

  1. 1. Micro financing by Commercial Banks The regulatory initiatives Qasim Nawaz Director, SMEs & Microfinance Department State Bank of Pakistan
  2. 2. Background <ul><li>Need for Microfinance </li></ul><ul><ul><li>Expansion of outreach by all market participants </li></ul></ul><ul><ul><li>A viable business Model </li></ul></ul><ul><ul><li>Already developed in some countries on sustainable basis </li></ul></ul><ul><ul><li>Definition </li></ul></ul><ul><ul><li>Provision of financial services to poor </li></ul></ul><ul><ul><li>In order for a person to qualify for Microfinance; his/her earnings should be less than the Tax able limit- </li></ul></ul><ul><ul><li>Maximum Loan per person is Rs 100,000/- Enhancement to Rs 150,000/ under consideration </li></ul></ul>
  3. 3. Government Initiatives <ul><li>Microfinance Sector Development Program (MSDP)-ADB funded (US$150 million) </li></ul><ul><ul><li>facilitated the establishment of Khushhali Bank as a model retail MFB </li></ul></ul><ul><ul><li>provide support for the institutional strengthening of licensed MFBs </li></ul></ul><ul><ul><li>Established KB </li></ul></ul><ul><li>Legal Framework (MFIs Ordinance 2001) </li></ul><ul><ul><li>Commercial players commenced banking with the poor </li></ul></ul><ul><ul><li>MF sector players can move from NGO/MFI towards a regulated MFB </li></ul></ul><ul><li>Apex Institution – PPAF </li></ul><ul><ul><li>A wholesale window for NGOs/MFIs for funding their on-lending and capacity building </li></ul></ul><ul><li>New Bank Fund </li></ul><ul><ul><li>valuing US$15m established with the assistance of ADB </li></ul></ul><ul><ul><li>assistance for Capacity building of new licensed MFIs at Provincial & District level. </li></ul></ul>
  4. 4. SBP Initiatives <ul><li>Licensing Criteria for Establishing MFBs- parameters for new entrants establishing an MFB </li></ul><ul><li>Prudential Regulations for MFBs- framed in consultation with all stakeholders (evolving nature & characteristics of MF in Pakistan) </li></ul><ul><li>Mobile Banking Guidelines - for outreach expansion in cost effective manner, ensuring proper risk mitigation </li></ul><ul><li>Fit and Proper Criteria – for Board members & President/CEO of MFBs </li></ul><ul><li>NGO-NRSP Transformation Guidelines </li></ul><ul><li>Policy Formulation through Consultative Mechanism </li></ul><ul><li>Guidelines for Commercial Banks to undertake MF – an effort to increase outreach through multi-institution approach. </li></ul>
  5. 5. The Sector-Outreach (Microfinance Banks) <ul><li> As of 30-06-2006 </li></ul><ul><li>Nation-wide MFBs 4 </li></ul><ul><li>District Based MFBs 2 </li></ul><ul><li>Total MFBs 6 </li></ul><ul><li>Total Branches of all MFBs 112 </li></ul><ul><li>Service Centers 141 </li></ul><ul><li>Loans Outstanding Rs. 2,739 m </li></ul><ul><li>Deposits Rs. 746 m </li></ul><ul><li>Active Borrowers 266,720 </li></ul><ul><li>Active Depositors 35,888 </li></ul>
  6. 6. Expansion of outreach- Why Commercial Banks? <ul><li>Large Branch Network across the Country- especially in rural areas- Market presence since long </li></ul><ul><li>Access to Stable Sources of Funds-Large deposit base </li></ul><ul><li>Established Accounting, Information & Internal Controls Systems w </li></ul><ul><li>Established Fund Management & Treasury Systems </li></ul><ul><li>High Impact- Agricultural Credit experience </li></ul>
  7. 7. Commercial Banks and Micro financing- Issues and challenges <ul><li>Commitment from Highest Level </li></ul><ul><li>Change in traditional mindset </li></ul><ul><li>Reorientation & training of staff </li></ul><ul><li>Development of demand driven & research based products </li></ul><ul><li>Business Approach </li></ul>
  8. 8. Guide Lines for micro financing by Commercial Banks- Modes For Commercial Banks <ul><li>MF counters in existing branches </li></ul><ul><li>Standalone MF Branches </li></ul><ul><li>Establishment of Independent subsidiaries </li></ul><ul><li>Linkages with NGO-MFIs </li></ul>
  9. 9. Mode 1- MF Counters <ul><li>Requires minimal changes in organizational structure. </li></ul><ul><li>Cost effective. </li></ul><ul><li>No approval required from SBP. </li></ul><ul><li>Counter Manger Either Report to Branch Manager or the Division at Head Office-as per bank’s discretion </li></ul>
  10. 10. Mode II- Standalone MF Branches <ul><li>MF Exclusive Branches with separate MF Division at head office. </li></ul><ul><li>Separate Division to operate as HO for the MF Branches </li></ul><ul><li>The Banks to submit detailed plan to SBP to initiate MF Business along with detail of branches to be converted and CVs of the key persons </li></ul><ul><li>On satisfaction SBP would give its consent </li></ul><ul><li>No separate license & fee required. </li></ul>
  11. 11. Mode III- Establishment of MFB as Subsidiaries <ul><li>CB may also establish MFBs with independent board & management. </li></ul><ul><li>Existing branches having substantial MF growth potential may be clubbed together & transformed into an independent MFB as a subsidiary of the CB. </li></ul><ul><li>CB may opt for either District, Regional, Provincial or National License for their subsidiary </li></ul><ul><li>Subsidiary may enter into an agreement with the bank for using the treasury & fund management operations. </li></ul>
  12. 12. Model IV-Developing linkages with MFIs <ul><li>Partnership with the NGOs. </li></ul><ul><li>No change in the organizational structure. </li></ul><ul><li>No approval required from SBP </li></ul><ul><li>Banks may opt for whole-sale lending to NGO-MFIs for their on-lending needs, and/or </li></ul><ul><li>Banks may develop linkages/agency arrangements for extending loans through NGO-MFIs </li></ul><ul><li>Separate Prudential Regulations for Microfinance issued </li></ul>
  13. 13. The way forward- <ul><li>Banks to firm up their business plan for Microfinance </li></ul><ul><li>Option to choose the mode remains with Banks </li></ul><ul><li>Further consultation & facilitation if any is welcomed-SBP will have a detailed and focused discussion with Commercial banks </li></ul>
  14. 14. THANKS