Khushhali Bank Survey

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Khushhali Bank is the Pakistani government first major government initiative to bridge the demand for microfinance services. The bank operates on a community-based service delivery mechanism and forms client clusters to reduce transactional costs

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Khushhali Bank Survey

  1. 1. PROJECT ON SPECIALIZED FINANCIAL INSTITUTIONS Submitted To: Prof. Sadia Farooq Project On: KHUSHHALI BANK Submitted By: SALMA BASHIR 126 SANA KHALID 127 NASIBA WARIS 139 SAMEERA DAR 1542 SOBIA IKHLAQ 1548 Section: “C” (Morning) Semester 7th
  2. 2. ACKNOWLEDGEMENT We are grateful to Allah almighty, for enabling us to fulfill this tiring, but interesting job for the completion of our report. We would not be going to do justice in presenting this report without mentioning the people around us who have been inextricably related with the completion of this report. We would like to express our heart felt thanks to our course teacher Prof. Sadia for her support and guidance, which she rendered through out the study to peruse this report. It could not have been possible to accomplish this report without her thoughtful guidance and expertise. We would also like to thank the management of KHUSHALI BANK for permitting us to conduct the interviews from their different department and for supporting us in the whole procedure. Finally, for any all too fallible errors, omissions and shortcomings in the writing of the report only we are responsible for which we hope that all concerning regards of this report will forgive us.
  3. 3. BRIEF CONTENTS Synopsis ------------------------------------------------------------------------------ 1 Bank’s Profile------------------------------------------------------------------------- 2 History---------------------------------------------------------------------------------- 3 Introduction- Khushhali Bank of Pakistan----------------------------------------- 4 Mission & Values--------------------------------------------------------------------- 5 Facts and Figures---------------------------------------------------------------------- 5 Shareholders--------------------------------------------------------------------------- 6 Network--------------------------------------------------------------------------------- 7 List of Participant--------------------------------------------------------------------- 8 Cooperate Governance and Management------------------------------------------ 11 Key Events------------------------------------------------------------------------------ 11 Upcoming Projects--------------------------------------------------------------------- 13 Products---------------------------------------------------------------------------------- 14 Micro Credit Products--------------------------------------------------------------14 Micro Insurance Product-----------------------------------------------------------19 Full Service Banking---------------------------------------------------------------20 Donors and Funding--------------------------------------------------------------------21 Projects--------------------------------------------------------------------------------- 26 Poverty Alleviation Programs in Pakistan-------------------------------------- 26 Scholarship------------------------------------------------------------------------ 29 Women Empowerment and Social Welfare------------------------------------ 31 SME Development---------------------------------------------------------------- 33 Agricultural extension------------------------------------------------------------ 36 Earthquake livelihood Rehabilitation Programm----------------------------- 38 Dairy and Meat Farm Financing------------------------------------------------ 42 Challenges and Prospectives--------------------------------------------------------- 44 Strengths ------------------------------------------------------------------------------ 49 Weaknesses---------------------------------------------------------------------------- 52 Conclusions---------------------------------------------------------------------------- 54 Recommendations-------------------------------------------------------------------- 55
  4. 4. SYNOPSIS Khushhali Bank (KB) was established in August 2000 as part of the Government of the Islamic Republic of Pakistan's Poverty Reduction Strategy. The Pakistan Microfinance Sector Development Program (MSDP) was developed with the technical assistance and funding of the Asian Development Bank, which provided a US$150 million loan to the government of Pakistan, US$70 million being used for micro-loans provided by KB. Headquartered in Islamabad, KB operates under the central bank's supervision (State Bank of Pakistan) with several commercial banks operating as its primary shareholders. KB has already provided services to 100,000 customers and aims to reach 700,000 by 2007. Khushhali Bank is the Pakistani government first major government initiative to bridge the demand for microfinance services. The bank operates on a community-based service delivery mechanism and forms client clusters to reduce transactional costs. The Bank’s line of products includes short-term micro loans ranging up to US$500 for working capital and asset purchase. It also mobilizes deposits and provides counselling services to its clients. Khushhali Bank has extensive links with existing microfinance NGOs. These alliances have been constructed with the aim of developing a more effective and cohesive microfinance sector in Pakistan. Khushhali Bank has operating branches in four provinces, throughout the 38 districts of the country including Azad Jammu and Kashmir. The Bank now provides microfinance services to over 100,000 poor households through 38 branches (hubs) and 72 Service Centres (spokes). Approximately 30% of KB’s clients are women (Aug 2003). Khushhali Bank operates throughout urban and rural Pakistan. It currently provides services to over 100,000 clients of which approximately 30% are women. More than 30% of KB’s staff members are women, with two women on the board of directors. KB also directs its financial endowments to partnering NGOs for social mobilization, capacity building of communities and providing small infrastructure projects within the bank's service areas. This unique arrangement allows KB to disseminate specialized social services through NGOs while its delivers financial services to the same market segments. 1-
  5. 5. BANK’S PROFILE Khushhali Bank is the country's first major initiative to bridge the demand for microfinance services. Integral to microfinance services is the intensive and sustained social support for mobilization, management and development of all clients of the bank and their access to basic infrastructure services.As a for-profit, commercial microfinance institution, its purpose is to: • Establish a sustainable, scalable pro-poor financial services platform with retail delivery. • Catalyze an enabling environment, within which the microfinance sector can develop in Pakistan. • Assist the central bank in setting up an appropriate and responsive regulatory framework within which microfinance institutions can operate on sustainable grounds, thereby expanding outreach to the poor. • Promote transparency, financial rigor and good governance as leading indicators of excellence within the microfinance sector in Pakistan. Operating through the Microfinance Sector Development Program, Government of Pakistan has issued a Microfinance Development Policy and the State Bank of Pakistan has developed an exclusive regulatory framework for microfinance institutions with a set of initiatives to ensure dynamic governing conditions. The objective of MSDP is to provide affordable financial and social services to the poor for a significant impact on poverty reduction through:  Increased income of poor households,  Enhanced outreach, particularly to women,  Build social capital, and  Reduce risks faced by the poor The Microfinance Sector Development Program provides an integrated package of policy reforms and means for institutional development and outreach expansion to facilitate growth of microfinance sector. LOCATION Corporate Office 94W, 4th Floor Jinnah Avenue, Blue Area 2-
  6. 6. Islamabad-44000, Pakistan +92 (0)51 111 092-092 HISTORY In August 2000, Khushhali Bank was established as part of the Government of Islamic Republic of Pakistan's Poverty Reduction Strategy and its Microfinance Sector Development Program (MSDP) that was developed with the assistance of Asian Development Bank. It is headquartered in Islamabad and operates under the central bank's supervision (State Bank of Pakistan) with commercial banks as its shareholders. Its mandate is to retail microfinance services and act as a catalyst in stabilizing the country's newly formed microfinance sector. Key Project Activities • Improved delivery systems in non-bankable territories; • Raised awareness of formal banking options through innovative marketing strategies; • Applied communication strategies that improve financial discipline of potential clients; • Focused business development services on technical information, product development and marketing of specific enterprise, crop or livestock products; • Building of the KB image as a trusted, financially strong and friendly bank that wants to facilitate them in improving their income levels and reduce their debt; • Improved institutional capacity of KB to trigger take off in non-bankable segments by analysis of how much subsidy per unit borrower is required and for what length of time before KB can make a non-bankable territory into a bankable territory • Providing higher education opportunities to qualified poor from the project area to build future KB local capacity to support KB banking operations; INTRODUCTION Who We Are We are a for-profit, commercial, microfinance institution established for the poor through financial collaboration through shareholder from private and public commercial banks. We operate under a regulatory framework of the country’s central bank (State Bank of Pakistan). Our mandate is to develop outreach and establishing a pro-poor sustainable financial 3-
  7. 7. services delivery network in the country and assist in creating an enabling environment that will attract other microfinance operators to commence their operations. Head Office Islamabad, Pakistan. Branches The Bank is servicing 85 districts of the country through 73 branches and 12 district service centers. It operates across all provinces of the country including Azad Jammu and Kashmir. Customers Since launching our operations in August 2000, we have maintained our commitment to increase our women-client base across our urban and rural operations. As a result, over 23% of our 565,000 clients are women. Product range The bank operates on a community-based service delivery mechanism and forms client clusters to reduce transactional costs. The Bank’s line of products includes short-tenure micro loans ranging up to US$ 500 for working capital and asset purchase. It also proactively mobilizes deposits and provides counseling services to its clients and continues to expand its range of services to address client needs. Our Alliances Government of Pakistan The Government has undertaken a significant numbers of programmes to improve the welfare of its citizens, particularly the poor. The Government initiated a Micro Finance Sector Development Programme (MSDP) to provide a conducive environment and institutional capacity to retail microfinance services to the poor. This included the launch of Khushhali Bank (KB) in August 2000, which with in the period of just over six years of this commercial launch has established a network of 73 branches and 147 service centers in 85 districts across Pakistan. As of March 31, 2007, KB has also processed over 986,687 loans totaling more than Rs. 10.3 billion across 560,000 households. The Bank proactively encourages formation of alliances with the NGOs and recognizes their role in poverty reduction efforts as envisaged by Government of Pakistan’s Microfinance Sector Development Policy. The Bank benefits from the an endowment fund, namely MSDF(Microfinance Social Development Fund) established by the Government under a Asian Development Bank loan by directing their proceeds to its pertaining NGOs for social projects within the Bank’s service areas. This unique arrangement allows the Bank to disseminate specialized social services through NGOs while it delivers financial services to the same market segments. 4-
  8. 8. MISSION & VALUES Mission To strengthen the economic base of low-income populace across Pakistan by improving their accessibility to financial services. By backing a diverse product suite with exemplary customer service, and by combining cost-efficiency with next-generation delivery systems, we intend to achieve our core objective of attaining operational and financial self-sufficiency. Values • Service excellence • Performance • Ethics • Team work • Professionalism FACTS AND FIGURES  Profit seeking, commercial, microfinance institution.  Established for the poor through financial.  The banks head office is located in Islamabad, Pakistan.  Collaborated through shareholder from private and public commercial banks.  Operate under a regulatory framework of the country’s central bank (State Bank of Pakistan).  The Bank is servicing 85 districts of the country through 73 branches and 12 district service centers.  It operates across all provinces of the country including Azad Jammu and Kashmir.  The bank operates on a community-based service delivery mechanism and forms client clusters to reduce transactional costs.  The Bank’s line of products includes short-tenure micro loans ranging up to US$ 500 for working capital and asset purchase. 5-
  9. 9.  It also mobilizes deposits and provides counseling services to its clients and continues to expand its range of services to address client needs. The Shareholders Fourteen commercial banks, including three multinational banks are the bank's shareholders: Private Sector Banks 1. Allied Bank Limited 2. Askari Commercial Bank Limited 3. Habib Bank Limited 4. Habib Metropolitan Bank Limited 5. KASB Bank Limited 6. MCB Bank Limited 7. My bank Limited 8. Soneri Bank Limited 9. SaudiPak Commercial Bank Limited 10. United Bank Limited Public Sector Banks 1. National Bank of Pakistan Multinational Banks 1. ABN Amro BankCitibank 2. N.AStandard Chartered 6-
  10. 10. The Network Khushhali Bank operates in all provinces of the country. While its concentration was in rural territories, it is fast penetrating into urban territories as well as its delivery systems strengthen. The Bank leverages upon a community-based approach for financial intermediation and invests on building social collateral amongst its client groups. Operations Department NWFP Branches 15 Distrcit/Tehsil Service 2 Centers Urban Service Centers - Presense in Distrcits 7 Punjab Branches 24 District & Tehsil 10 DSC + 15 TSC = Service Centers 25 Urban Service Centers 16 Presense in Distrcits 34 Sindh Branches 17 District & Tehsil 10 TSC Service Centers Urban Service Centers 9 Presense in Distrcits 17 Baluchistan Branches 11 District & Tehsil - 7-
  11. 11. Service Centers Urban Service Centers 4 Presense in Distrcits 11 AJK Branches 1 FATA Branches 2 District & Tehsil - Service Centers Urban Service Centers - Presense in Distrcits 2 Pakistan Branches 73 District & Tehsil 12 DSC + 25 TSC = Service Centers 37 Urban Service Centers 29 Presense in Distrcits 85 List of Participants Sr. # Participant’s Name & Designation Name of Institution 1. Dr. Ishrat Husain Governor State Bank of Pakistan 2. Mr. Mansur-ur-Rehman Khan Deputy Governor State Bank of Pakistan 3. Mr. Kazi Abdul Muktadir Managing Director National Institute of Banking & Finance 4. Mr. Akram Durrani Director / Head State Bank of Pakistan 8-
  12. 12. 5. Mr. Saleem Umer Chief Executive The Institute of Bankers Pakistan 6. Mr. Ismet Saeed Mirza Joint Director – Compensation & Benefits State Bank of Pakistan 7. Mr. Amjad Manzoor Joint Director – Recruitment & HRIS State Bank of Pakistan 8. Mr. M. Mazher-ul-Haq Joint Director – Training & Development State Bank of Pakistan 9. Mr. Anjum Amin Vice President (Human Resources) ABN Amro Bank N.V. 10. Dr. Ziauddin Ahmed Zia EVP & Chief of Human Resources Allied Bank of Pakistan Ltd. 11. Mr. Shakil Mapara Manager/Head (Human Resources) American Express Bank Ltd. 12. Mr. Zahid Mehmood Senior Vice President (Human Resources) Askari Commercial Bank Limited 13. Mr. Rafiq Ahmed Suhrwardy General Manager (Human Resources) Bank Al Habib Limited 14. Mr. Zaffar-ul-Islam Siddiqui Deputy General Manager (Human Resources) Bank Al Habib Limited 15. Mr. Bakhtiar Khawaja Executive In-charge HR Bank Alfalah Ltd. 16. Mrs. Amena Arif Buksh 9-
  13. 13. Director (Human Resources) Citibank N.A. 17. Mr. Ahmed Kamran EVP/Regional Manager (HR) Faysal Bank Limited 18. Mrs. Saira Khan SVP Human Resources Habib Bank Limited 19. Mr. Sadiqul Huda Head of Human Resources & Training Industrial Development Bank of Pakistan 20. Mr. Muhammad Aftab Changi Head of Human Resources & Training KASB Bank Limited 21. Syed Zahid Raza Head of Human Resources & Training Khushhali Bank 22. Mr. Ozair A. Hanafi Executive Director Khushhali Bank 23. Mr. Pervez Mobin Head, Training & Human Resources Meezan Bank Limited 24. Mr. Anwar Noman Vice President (Human Resources) Metropolitan Bank Limited 1st Meeting of Banks’ HR Heads Forum held on 22nd November, 2004 at SBP, Karachi List of Participants Sr. # Participant’s Name & Designation Name of Institution 25. Mr. Malik Abdul Waheed Group Head, HR & Training Muslim Commercial Bank Limited 26. Mr. S. Safdar Raza Rizvi SVP Human Resources 10-
  14. 14. National Bank of Pakistan 27. Mr. Rahat Saeed Khan Executive Vice President (HR) PICIC Commercial Bank Limited 28. Mr. Moghis Bokhari EVP & Head (Human Resources) Prime Commercial Bank Limited 29. Ms. Beenish Rehman SVP / Head – HR / Admn Saudi Pak Commercial Bank Limited 30. Mr. Saeed Shakir Vice President (Human Resources) Soneri Bank Limited 31. Mr. Monis Mirza Head of Human Resources Standard Chartered Bank Ltd. 32. Ms. Shahma Zahid Manager (Human Resources) The First Micro Finance Bank Limited 33. Mr. Asir Manzur Director, Human Resources Union Bank Limited 34. Mr. Aejaz H. Khan Senior Vice President & Manager Union Bank Limited 35. Ms. Rukhsana Asghar Ali Head of Human Resources United Bank Limited Corporate Governance & Management An autonomous, private-sector board comprising of professional bankers and social developers governs bank's policies and provides guidance to the management in establishing a robust, customer-centric platform. With an intention to establish a dynamic work environment and to inculcate a competitive culture, the bank's core management is selected from the banking industry bringing skills in operations and financial management whereas a robust delivery channel gains its strength from professionals with marketing backgrounds from various sectors. 11-
  15. 15. Key events December 1999 Government’s Economic Reform Agenda centers on poverty alleviation and commits to establish a Bank for the poor. February 2000 Task force is formed comprising of Ministry of Finance, SBP and the civil society. June 2000 The Finance Minister announces the Microfinance Policy. August 2000 The President of Pakistan promulgates an ordinance to establish the country’s first microfinance bank which is later named as Khushhali Bank. August 2000 Khushhali Bank commences its operation from a remote village in Dera Ghazi Khan. December 2000 Asian Development Bank approves a loan of US$ 150 million for the Microfinance Sector Development Program. December 2000 Khushhali Bank establishes outreach to 1000 households in 4 of the poorest districts. October 2001 Omnibus legislation promulgated by the president opening the sector to private sector. December 2001 Khushhali Bank achieves its expansion into 20 districts covering 15,000 households. December 2002 Khushhali Bank achieved its expansion into 31 districts covering 68,000 households. December 2003 Khushhali Bank achieved its expansion into 38 districts covering 139,000 households. December 2004 Khushhali Bank achieved its expansion into 46 districts covering 264,000 households. December 2005 Khushhali Bank achieved its expansion into 75 districts covering 412,000 households. 12-
  16. 16. December 2006 Khushhali Bank achieved its expansion into 85 districts covering 535,000 households. Next phase of Khushali Bank's micro-scheme be carried out soon ISLAMABAD, September 29 (Online): President Khushli Bank Ghalib Nishtar has said that the next phase of Khushali Bank's micro-scheme will be carried out in the month of January 2006 with the worth 150 million dollars aiming at facilitating the 3 million households. quot;Khushali Bank's operations have posed positive influence on income generation, empowerment, health and education,” he said while talking to Online here on Wednesday. He said that the first phase of micro scheme of khushali bank had been successful and would be completed in the month of December and its next phase would start in January. He informed that as many as 150 million dollars would be spent in the next phase and 0.5 million households would be facilitated in the next two years. He added that 6 million households had been targeted to be facilitated through micro scheme and Khushali Bank would facilitate 3 million households and the rest would be benefited by other banks from the private sectors. He said that as many 6 new banks were about to launch their branches in the country and it was the evidence that the micro scheme had been successful in achieving its targets. He said that the sphere of micro scheme would be extended to the far-flung and remote areas of the country so that the target set could be achieved. 13-
  17. 17. PRODUCTS The bank's line of products includes short-tenure microloans, for working capital and asset purchase, as well as training and consulting; i.e.;  Micro credit products  Micro insurance product  Full service banking  Micro Credit Products  Agriculture Loan This type of loan (AGL) provides facility to small farmers who depend mostly on landlords or the moneylenders at the time of sowing or cutting of the crops. The clients can purchase seeds, pesticides, herbicides, fertilizers, watering the land, rent the services of transportation, purchasing or hiring the servicing of agricultural equipment etc. Product Features Details Product Name Agriculture Loan Product Type/Category (Group Group Based Based, Individual etc.) For the purchase of new assets having minimum Product Description useful life of one year Age: 18 – 58 years, Maximum for repeat clients: 65 years Income: Maximum 150,000 PKR Loan Eligibility Criteria Resident for 2 years NADRA NIC Holder 2 years experience Loan Amount (i) Minimum initial amount PKR 3,000 (ii) Maximum initial amount PKR 10,000 14-
  18. 18. (iii) Maximum total amount PKR 30,000 3-12 Months Tenure/Repayment Options Bullet/Quarterly/Semiannual Guarantors Cross Guarantees Collateral None Insurance Mandatory Rates & Fee Structure 23% (on declining balance) ILA, PG form, Cash flow, Credit scoring, Loan Documentation Required Contract terms and conditions, Schedule of Charges, Loan Repayment Schedule Disbursement Tools (Draft/Cheque/ Cheque/Draft/ *Direct Account Credit Cash etc. ) Repeat Loans Yes Top Ups Not allowed  Live Stock Loan Under this category of loan the client can purchase livestock for milking reasons or for breeding/slaughtering and other animals from which the client can generate income. This type of loan can use for the purpose of primary source of income or supplementary source of income. Product Features Details Product Name Live Stock Loan Product Type/Category (Group Based, Individual Group Based etc.) Product Description Both Rural and Urban 15-
  19. 19. Age: 18 – 58 years, Maximum for repeat clients: 65 years Income: Maximum 150,000 PKR Loan Eligibility Criteria Resident for 2 years NADRA NIC Holder 2 years experience Loan Amount (i) Minimum initial amount PKR 3,000 (ii) Maximum initial PKR 10,000 amount PKR 30,000 (iii) Maximum total amount 3-12 Months Tenure/Repayment Options EMI for dairy Bullet/Quarterly/Semiannual for breeding Guarantors Cross Guarantees Collateral None Insurance Mandatory Rates & Fees Structure 23% (on declining balance) ILA, PG form, Cash flow, Credit scoring, Loan Documentation Required Contract terms and conditions, Schedule of Charges, Loan Repayment Schedule Disbursement Tools (Draft/ Cheque/Draft/ *Direct Account Credit Cheque/Cash etc. ) Repeat Loans Yes Top Ups Not allowed  Asset Purchase Loan Under this category the customer may purchase movable engines, parts, machines, tools (including agriculture related tools), equipments etc, which is usable minimum for one year. The purchased asset should be according to the client’s working experience. Product Features Details Product Name Asset Purchase Loan Product Type/Category Group Based (Group Based, Individual etc.) For the purchase of new assets having minimum Product Description useful life of one year Loan Eligibility Criteria Age: 18 – 58 years Income: Maximum 150,000 PKR 16-
  20. 20. Resident for 2 years NADRA NIC Holder 2 years experience Loan Amount (i) Minimum initial amount PKR 3,000 (ii) Maximum initial amount PKR 10,000 (iii) Maximum total amount PKR 30,000 3-12 Months Tenure/Repayment Options EMI / Bullet / Quarterly / Semiannual Guarantors Cross Guarantees Collateral None Insurance Mandatory Rates & Fees Structure 23% (on declining balance) ILA, PG form, Cash flow, Credit scoring, Loan Documentation Required Contract terms and conditions, Schedule of Charges, Loan Repayment Schedule Disbursement Tools Cheque/Draft/ *Direct Account Credit (Draft/Cheque/Cash etc.) Repeat Loans Yes Top Ups Not allowed  Working Capital Loan This type of loan (WCL) is for the client who is already doing his business, so WCL is for improving the existing business that’s why the experience in current business is mandatory to avail this type of loan. It is not for the clients/customers who want to establish their business. From this loan the client can purchase raw material, increase its production capacity, can purchase stock/inventory. 17-
  21. 21. Product Features Details Product Name Working Capital Loan Product Type/Category (Group Based, Individual Group Based etc.) Extended for managing running business for the Product Description purchase of raw material/inventory Age: 18 – 58 years, Maximum for repeat clients: 65 years Income: Maximum 150,000 PKR Loan Eligibility Criteria Resident for 2 years NADRA NIC Holder 2 years experience Loan Amount (i) Minimum initial amount PKR 3,000 (ii) Maximum initial amount PKR 10,000 (iii) Maximum total amount PKR 30,000 3-12 Months Tenure/Repayment Options EMI / Bullet / Quarterly / Semiannual Guarantors Cross Guarantees Collateral None Insurance Mandatory Rates & Fees Structure 23% (on declining balance) ILA, PG form, Cash flow, Credit scoring, Loan Documentation Required Contract terms and conditions, Schedule of Charges, Loan Repayment Schedule Disbursement Tools Cheque/Draft/ *Direct Account Credit (Draft/Cheque/Cash etc. ) Repeat Loans Yes Top Ups Not allowed  New Business Loan This type of loan (NBL) is for the persons who are entering in the new business. The NBL also applicable for the clients who are doing the business and want to increase the business. NBL is for those customers who want to avail it for income generating purpose not for those who want to use it for consumption purpose. Relevant working experience is considered additional advantage but not mandatory. So the first time the credit scoring and cash flow are exempted but the standard evaluation is mandatory to repeat the loan. 18-
  22. 22. Product Features Details Product Name New Business Loans Product Type/Category (Group Group Based for both rural and urban Based, Individual etc.) Product Description Extended for establishment of new business Age: 18 – 58 years, Maximum for repeat clients: 65 years Loan Eligibility Criteria Income: Maximum 150,000 PKR Resident for 2 years NADRA NIC Holder Loan Amount (i) Minimum initial amount PKR 3,000 (ii) Maximum initial amount PKR 5,000 (iii) Maximum total amount PKR 30,000 3-6 Months Tenure/Repayment Options Equal Monthly Installment (EMI). Guarantors Cross Guarantees Collateral None Insurance Mandatory Rates & Fees Structure 23% (on declining balance) ILA, PG Form, Loan Contract terms and Documentation Required Conditions, Schedule of Charges, Loan Repayment Schedule Disbursement Tools Cheque/Draft/ *Direct Account Credit (Draft/Cheque/Cash etc. ) Repeat Loans Yes Top Ups Not allowed  Micro Insurance Product  Micro Loan Insurance Scheme Product Features Details Product Name KBL Micro loan insurance Scheme Credit/default insurance on the event of death/partial or Product Description permanent disability of an active borrower Insurance Coverage Death / Disability of Borrower of Eligibility All eligible borrowers Scope of Coverage Credit default only 19-
  23. 23. Exclusions (if any) None Period Covered Equal to loan term Sum Insured Outstanding Loan Indemnity Death / Disability Immediate reporting from branches to HO, Information to Procedure for Claim be consolidated and forwarded to NJI along with respective documents Claim Settlement 90 days Period  Full Service Banking  Current Account Product Product Features Details Product Name Khushhali Mahana Committee Account Product Description Current Account (non-interest bearing) Checking or Non-Checking Non-checking account account Age: 18 years and above Eligibility Criteria NADRA NIC Holder/Valid Pakistani Passport 2 Passport Photographs Account Opening Amount (i) Minimum amount required Rs. 200 Account Statement Cycle Half Yearly Account Opening form, Contract terms and conditions, Schedule of Charges, Signature Documentation Required Specimen Card, KBL Customer ID Card, Indemnity forms Fees & Charges - Account opening charges Rs. 50 - Incidental charges; charges re. balance falling below the Rs. 25 / month minimum balance limit - Charges if Account Statement is required before the stipulated Rs. 50 period Donors and Funding A donor in general is a person that donates something voluntarily. Usually used to represent a form of pure altruism but sometimes used when the payment for a service is 20-
  24. 24. recognised by all parties as representing less than the value of the donation and that the motivation is altruistic Funding It is to provide capital (funds), which means money for a project, a person, a business or any other private or public institutions. Those funds can be allocated for either short term or long term purposes. The health fund is a new way of funding private healthcare cent Sources of Funding Among the main sources of funding, there are:  Savings  Credit  Donations,  Lottery  Subsidies, Grants  Taxes Saving In common usage, saving generally means putting money aside, for example, by putting money in the bank or investing in a pension plan. In a broader sense, saving is typically 21-
  25. 25. used to refer to economizing, cutting costs, or to rescuing someone or something. In terms of personal finance, saving refers to preserving money for future use - typically by putting it on deposit - this is distinct from investment where there is an element of risk. Credit is the provision of resources (such as granting a loan) by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources (or material(s) of equal value) at a later date. The first party is called a creditor, also known as a lender, while the second party is called a debtor, also known as a borrower. Any movement of financial capital is normally quite dependent on credit, which in turn is dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds. A donation is a gift given, typically to a cause or/and for charitable purposes. A donation may take various forms, including cash, services, new or used goods as i.e. clothing, toys, food, vehicles, emergency or humanitarian aid items, and can also relate to medical care needs as i.e. blood or organs for transplant. Charitable gifts of goods or services are also called gifts in kind. Legal Aspects Donations are gifts given without return consideration. This lack of return consideration means that, in common law, an agreement to make a donation is an quot;imperfect contract void for want of consideration.quot;Only when the donation is actually made does it acquire legal status as a transfer or property. In civil law jurisdictions, on the contrary, donations are valid contracts, though they may require some extra formalities, such as being done in writing. In politics, the law of some countries may prohibit or restrict the extent to which politicians may accept gifts or donations of large sums of money, especially from business or special interest groups. In countries where there are limits imposed on the freedom of disposition of the testator, there are usually similar limits on donations. The person or institution giving a gift is called the donor, and the person or institution getting the gift is called the donee. Donating in the Name of Others It is possible to donate in the name of a third party, making a gift in honor or in memory of someone or something. Gifts in honor or memory of a third party are made for various reasons, such as holiday gifts, wedding gifts, in memory of somebody who has died, in 22-
  26. 26. memory of pets or in the name of groups or associations no longer existing. Memorial gifts are sometimes requested by the survivors (e.g. quot;in lieu of flowers, contributions may be made to ABC Charityquot;), usually directing donations to a charitable organization for which the deceased was a donor or volunteer, or for a cause befitting the deceased's priorities in life or manner of death. Memorial donations are also sometimes given by people if they cannot go to the ceremonies. Lottery It is a form of gambling which involves the drawing of lots for a prize. Some governments outlaw it, while others endorse it to the extent of organizing a national lottery. It is common to find some degree of regulation of lottery by governments. At the beginning of the 20th century, most forms of gambling, including lotteries and sweepstakes, were illegal in many countries, including the U.S.A. and most of Europe. This remained so until after World War II. In the 1960s casinos and lotteries began to appear throughout the world as a means to raise revenue in addition to taxes. Subsidies In economics, a subsidy (also known as a subvention) is a form of financial assistance paid to a business or economic sector. A subsidy can be used to support businesses that might otherwise fail, or to encourage activities that would otherwise not take place. Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs. Financial assistance in the form of a subsidy may come from one's government, but the term subsidy may also refer to assistance granted by others, such as individuals or non- governmental institutions, although these would be more commonly described as charity. Grants Grants are funds dispersed by one party (Grant Makers), often a Government Department, Corporation, Foundation or Trust, to a recipient, often (but not always) a non profit entity, educational institution or business. Such application processes, generally require some form of Grant Writing often referred to as either proposals or submissions. For more information regarding successful grant submissions see Grant Writing Many Grant Makers require Grant Seekers to have some form of tax-exempt status, be a registered nonprofit organization or a local government. Most grants are made to fund a specific project and require some level of reporting. The Grant Writing process involves an applicant submitting a proposal (or submission) to a potential funder, either on the applicant's own initiative or in response to a Request for Proposal from the funder. Other 23-
  27. 27. grants can be given to individuals, such as victims of natural disasters or individuals such as people who seek to open a small business. Taxation A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (for example, secessionist movements or revolutionary movements). Taxes are also imposed by many subnational entities. Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour equivalent (often but not always unpaid). A tax may be defined as a quot;pecuniary burden laid upon individuals or property to support the government a payment exacted by legislative authority.quot; A tax quot;is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authorityquot; and is quot;any contribution imposed by government whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name.quot; In modern taxation systems, taxes are levied in money, but in-kind and corvée taxation are characteristic of traditional or pre-capitalist states and their functional equivalents. The method of taxation and the government expenditure of taxes raised is often highly debated in politics and economics. Tax collection is performed by a government agency such as Canada Revenue Agency, the Internal Revenue Service (IRS) in the United States, or Her Majesty's Revenue and Customs (HMRC) in the UK. When taxes are not fully paid, civil penalties (such as fines or forfeiture) or criminal penalties (such as incarceration) may be imposed on the non-paying entity or individual Donor and Funding of Khushhali Bank The Government of Pakistan has obtained a funding of US$ 150 million from the Asian Development Bank (ADB) to support the operations of Khushhali Bank Limited and to promote microfinance sector in Pakistan. Khushhali Bank Limited utilizes a US$ 70 million component of this loan for micro-loans to the poor, particularly to the women of country's rural and urban areas and a US$ 10 million component has been allocated toward institutional capacity building. Another US$ 70 million component has been allocated to support policy reforms of microfinance sector in Pakistan. Under the sector reforms, four endowment funds have been established at the State Bank of Pakistan to support the poor with periodic contributions from both the government and Khushhali Bank Limited to ensure sustained ownership. These measures are construed as a catalyst for broadening and deepening the country's microfinance market thus contributing towards poverty alleviation in the country on sustainable basis. They include: 24-
  28. 28. Microfinance Social Development Fund US$ 40 million fund supports social mobilization activities within poor communities. Earthquake Livelihood Restoration Fund 20,000 community groups will be formed for provision of equity support and working capital loans to 100,000 households to restore 100,000 livelihoods. 2,000 Community Infrastructure projects will be implemented with good community groups. A fund of US$ 38 million to finance Earthquake Livelihood Rehabilitation Programme (ELRP) has been established in SBP which is managed by ELRF Committee. Risk Mitigation Fund US$ 5 million fund provides risk mitigation cover to micro borrowers of the bank. Deposit Protection Fund US$ 5 million fund provides protection to micro depositors of the bank. PROJECTS OF KHUSHHALI BANK  Poverty Alleviation Programs in Pakistan: Great Expectations 25-
  29. 29. With the increasing severity of poverty and its adverse social, economic and political effects, the present regime has initiated some major policy interventions under the umbrella of poverty alleviation programs in the country. These include micro finance/Khushhali bank; food support program (FWP); revamping Zakat system; and public works program (PWP). These programs are in addition to the on going program for poverty reduction, Pakistan poverty alleviation fund (PPAF). Poverty is not just non-accessibility of sufficient food and other basic necessities of dailylife. Most recent literature for poverty describes it as a deprivation and exclusion of social, economic and political opportunities in society. Poverty results from the poor performance of the economy, institutions, governance and an unequal distribution of resources. The reduction of poverty, therefore, requires a holistic approach, one, which should address the broader macro economic issues and the main causes of poverty effectively in society. The objective of MSDP is to provide affordable financial and social services to the poor for a significant impact on poverty reduction through: • Increased income of poor households • Enhanced outreach, particularly to women • Build social capital • Reduce risks faced by the poor Products & Services The Bank's line of products includes short-tenure micro loans ranging up to US$ 500 for working capital and asset purchase. It also proactively mobilizes deposits and provides counseling services to its clients and continues to expand its range of services to address client needs. With the increasing severity of poverty and its adverse social, economic and political effects, the present regime has initiated some major policy interventions under the umbrella of poverty alleviation programs in the country. These include micro finance/Khushhali bank; food support program (FWP); revamping Zakat system; and public works program (PWP). These programs are in addition to the on going program for poverty reduction, Pakistan poverty alleviation fund (PPAF). Poverty is not just non-accessibility of sufficient food and other basic necessities of daily life. Most recent literature for poverty describes it as a deprivation and exclusion of social, economic and political opportunities in society. Poverty results from the poor performance of the economy, institutions, governance and an unequal distribution of resources. The reduction of poverty, therefore, requires a 26-
  30. 30. holistic approach, one, which should address the broader macro economic issues and the main causes of poverty effectively in society. Against this backdrop, it would be timely to critically evaluate the government’s poverty alleviation progrmmes. Let us begin with a brief description of its components: Major Objectives The main objective of the bank is to reduce poverty through the provision of micro credit. The bank has signed agreements of $150 million loan with the Asian Development Bank. The government has also provided some tax exemptions and other incentives for the bank. The Khushhali bank will deliver its services mainly through the network of National Rural Support Program (NRSP). The loans will be provided without physical collateral to the poor. The size of the loan will be between Rs. 3000-30,000. The identification of the poor, mobilization of the community and recovery of loan will be made through the NRSP. In the areas where NRSP does not exist, the bank will provide loans through other NGO’s and commercial banks within the areas. The bank will only be responsible for monitoring the accountancy and auditing of loan records. ECONOMIC INITIATIVES 27-
  31. 31. Econ Intiatives Projects Agriculture and Livestock Support Distribution of compound animal feed & urea molasses to flood affected households in Sindh. Micro-Credit Program Loan disbursment to support agriculture, livestock and small enterprises. 28-
  32. 32.  Scholarship Ever since its inception, Khushhali Bank Limited has been providing services to the areas earlier considered as un-bankable segments. Khushhali Bank’s strategy has been to provide impetus to growth by providing economic uplift and creating opportunities for underprivileged people residing in the most marginalized areas of the country. In line with this strategy, KBL in collaboration with USAID has endeavored to award scholarships to deserving students of relatively backward and underdeveloped areas of Baluchistan, Sindh (rural) and FATA to extend the benefits of quality education to the less privileged segments of such marginalized territories. The scholarship will cover: Tuition and examination fee, course related material/books, boarding & lodging expenses and associated incidental charges ELIGIBILITY FOR FULL SCHOLARSHIP:  The student must hold a domicile of any area of Baluchistan, any rural territory of Sindh and FATA.  The student must have an offer of admission to a two-year full time academic program of study leading to a Master’s Degree or a two to four years program leading to the award of a Bachelor’s Degree in business disciplines.  The student must qualify for financial assistance in accordance with established university/institute’s policy. The declared gross annual income of the student’s parents/guardians must not be in excess of 300,000 PKR. 29-
  33. 33.  The continuation of scholarship to students will be subject to their ability to maintain minimum academic performance as prescribed from time to time, and in compliance with the academic/discipline rules of the university/institute. PROCEDURE Students will apply directly to the university/institute on the prescribed application form for the award of scholarship. The Khushhali Bank Scholarship Program will be managed by a committee comprising of one representative each from KBL and the university/institute. The university/institute will shortlist the students and forward details to the committee for a final decision in this regard. The committee will review the academic performance of all students who have been awarded the Bank’s scholarship on a periodic basis. WAY FORWARD During the course of study, the students may be offered internship and on completion of the degree, they may also be offered employment in accordance with the bank’s requirements, rules and regulations. 30-
  34. 34. PARTICIPATING UNIVERSITIES/INSTITUTES University No. of Scholarship 31-
  35. 35. LUMS Lahore Website: www.lums.edu.pk 7 IBA Karachi Website: www.iba.edu.pk 3 IBA Sukkur Website: www.iba-suk.edu.pk 11 BUITMS Quetta Website: www.buitms.edu.pk 17 SZABIST Karachi Website: www.szabist.edu.pk 4 IMS Hayatabad Peshawar Website: www.imsciences.edu.pk 47 City University of Science & Information Technology Peshawar Website: www.cityuniversity.edu.pk 34 University of Peshawar Website: www.upesh.edu.pk 47 Total 170  Women Empowerment and Social Welfare: Women Empowerment: The Government of Pakistan is committed to ensure an active role for women in the Socio-economic field through their active participation relating policies and programs. The current situation is briefly described as: 32-
  36. 36.  68 percent rural women fall in the category of the vulnerable lacking in assets, access to services and economic opportunities.  Women dwelling in slums or katchi abadis or just above the poverty line –lack basic needs.  Both rural/urban women suffer socio-cultural gender biases. In the Medium Term Development Framework (MTDF), the following objectives are envisaged for women development:  Greater participation of women in political, economic and legislative- decision- making.  Enhanced availability of Micro credit facilities for women.  Accurate gender and rural/urban disaggregated database for planning &programming purposes. The overall strategy of Women Development is the socio-economic and political empowerment of all Pakistani women and eradication of extreme poverty. The objective is to bring rural women into the mainstream. The major aim is to ensure women’s equal access in the development process. A national and four provincial Gender Reform Action Plans (GRAPs) have been prepared through a consultative process under the aegis of Ministry of Women Development. Economic Empowerment Concerted efforts are being made by the Government to alleviate poverty amongst the women of Pakistan. Consequently, the Ministry of Women Development in Collaboration with development partners and financial institutions like Aga Khan Rural Support Program (AKRSP), First Women Bank Ltd (FWBL) and Khushhali Bank (KB) Conceived pilot projects for economic empowerment of rural women under the Umbrella of National Fund for Advancement of Rural Women, Jafakash Aurat. Three Pilot projects were launched in remote areas of Balochistan, NWFP and Punjab under the Jafakash Aurat Program for this purpose. JAFAKASH AURAT PROJECT The project aims at providing skills to Gawadar women to generating/improve income generation capacity presented by the existing and aspect market conditions. Over period of three year approximate 3500 women will be trained in various skills (suited to literate/illiterate women) and 1000 women provided with micro credit to set up their businesses or enhance the existing ones. This project has two components, vocational skills training of women and providing micro credit to enable the women to set up their own micro businesses or acquiring gainful employment for well being of their economic conditions. PROJECT IMAGES 33-
  37. 37. Social Empowerment Some 8,314 women in different districts benefited from women centers in the form of shelters, free legal aid, free medical aid and psycho -social counseling. Annual Plan 2007-08 An amount of Rs 163.1 million in PSDP 2007 -08 has been allocated for 12 on-going and new projects. Some of the major projects are Gender Reform Action Plan (GRAP) which includes inter-alia a national and four provincial plans, establishment of Crisis Centres in various Districts of the country, National Fund for Advancement of Rural Women, Jafakash Aurat and Pilot Project for District Resource Centers for Women in Local Government. Physical Targets The Ministry of Women Development plans to establish District Resource Centers for women in Local Government throughout Pakistan under its Gender Reform Action Plan to provide conducive atmosphere for the women councilors. More women crisis centers are envisaged throughout the country to provide legal aid and protection to women. Under the Jafakash Aurat Program, technical, vocational, marketable skills and micro credit facilities will continue to be provided to local women entrepreneurs.  Project of SME Development The bigger challenge was to extend fund without collateral and to also ensure recovery. The common saying is, small borrowers hardly default, and it has proved correct in the case of Khushhalibank. 34-
  38. 38. ROLE OF KHUSHHALI BANK IN RISING OF GOP: In Pakistan, almost one third of the population, lives below the poverty line. The Government of Pakistan has taken a conscious decision to bring poverty alleviation to the center stage of economic policy making. The strategy includes access to sustainable microfinance services to the poor for enhancement of their income as one of the primary objective. The GOP launched the Microfinance Sector Development Programme in late 2000 to reduce poverty in the country. The purpose was to induce private investments for fostering growth of new microfinance institutions to efficiently provide a range of financial and social service to the poor, especially women. The GOP initiated policy actions for development of the sector. These included:  developing an enabling policy framework for microfinance growth  establishment of Khushhalibank, and  development of a legislative and regulatory framework to encourage establishment of private sector microfinance institutions. Khushhalibank institutionalized the basic attributes of microfinance policy, specialized operating procedures and established industry benchmarks. The private sector participants in microfinance sector can take advantage of the institutional and operating infrastructure developed by Khushhalibank. International financial institutions helped in raising the seed money Khushhalibank is owned by 3 public Sector, 11 private sector and 2 foreign banks which have contributed US $ 30 million or Rs. 1.7 billion towards the capital of the bank. In addition to this, the GoP has solicited a loan of US $ 150 million through the Asian Development Bank which comprises, US $ 70 million for on-lending to Khushhalibank, US $ 10 million for its capacity building and the remaining US $ 70 million comprises sectoral funds through endowment created at the State Bank of Pakistan. Three banks now that are catering to this segment The SME Bank focuses on a higher tier of clientele whereas the Khushhalibank and the recently established First Micro Finance Bank cater to the requirements of the small borrowers of the country. However, given the number of 6 million poor households and as per our initial feasibility study, the estimated requirement of funds is about US $ 2 billion annually. There is hardly any competition within the formal sector and the major challenge will be to set up an efficient delivery channel for affordable financial services to the poor. Creation of enabling environment 35-
  39. 39. Stakeholder consultations and feasibility study undertaken by the Asian Development Bank (ADB) converged on a financial system development approach to create a broad based system anchored with the ongoing financial sector reforms that emphasize autonomy, good governance, privatization, and sustainability. These arrangements have twin objectives, first to ensure an orderly development of the micro finance sector and second, to protect the financial assets of the poor. NGOs and their sponsors can now graduate into micro finance banks and provide a full range of services to the poor. The experience with regard to loan payments by the borrowers: The bank has established its network across 30 of the poorest districts of the country and extended credit over Rs. 500 million which comprises 50,000 small loans averaging Rs 10,000. Planned, focused and structural policies resulted in recovery rates around 98 per cent while ensuring that over 30 per cent of our clients are women. Development of entrepreneurial skills: Bank aim at strengthening the social capital of the poor — increasing opportunities for their participation in the working of the society where social cohesion is weak and poor suffer from systematic exclusion. Increasing economic opportunities and creating participatory institutions/mechanisms are required to enhance social capital. These funds support capacity building of community based organization in terms of social awareness and selection and management of income generating activities, developing skills and providing basic training to leaders of community organizations These interventions will strengthen the community organizations, which serve as a delivery point for financial and social services, and promotes social and economic vitality. INCLUSIVE FINANCIAL SYSTEM Bank programs in FATA with support October - December 06 One promise: Poverty breaks people. It smears dignity. It poisons hope. It violates dreams. It shatters self-esteem. It burns integrity. Khushhali Bank has provided micro-loans to over five hundred and fifty thousand Pakistanis with the primary aim of supporting and rebuilding ordinary lives by creating the right combination of circumstances through skill and infrastructure development, community empowerment, independence and enterprise. More proof that we’re giving common people an uncommon advantage to realize heir full potential. Which is why, Khushhali Bank is more than a bank, it’s a promise.Inside this Issue; 36-
  40. 40. • A very Happy New Year to all our readers. • U.S. Ambassador Supports Khushhali Bank Program in FATA • Khushhali Bank’s Clients & Staff recognized • Global Microcredit Summit 2006 • A Glance into Khushhali Bank’s Promise of “Changing Lives”. U.S. Ambassador Supports Khushhali Bank Program in FATA: While addressing the gathering of Khushhali Bank clients and staff, the US Ambassador congratulated Khushhali Bank on their achievements over the past three years. With USAID assistance, the bank has opened twenty two branches, including two in Khyber and Kurram agency of FATA; has hired nearly 200 loan officers in the field and has disbursed more than 200,000 loans to clients in FATA, Balochistan and Sindh. USAID will further support the bank plans to extend its services in the remaining five agencies of FATA over the next four years. The Ambassador said that creating employment and helping small-scale businesses in Pakistan is an important U.S. goal. Through microfinance, USAID is helping provide impetus to sustained economic growth and fight poverty. The Ambassador specifically encouraged women clients to diligently work for their economic development with Khushhali Bank’s participation. We are proud to announce that out of 150 applications from across pakistan, 20 cases were short-listed by a committee. Khushhali Bank submitted 7 cases and following two clients won the Micro entrepreneurship awards in their respective categories: National Level: Ghazala Yasmeen: Entrepreneur from Faisalabad who’s Customer Services Officer (Khushhali Bank) is Uzma Noureen. Ghazala Yasmeen won the best National Female entrepreneur award of Rs. 150,000 and CSO Uzma Noureen won the Loan Officer Recognition Award- category National amounting to Rs. 20,000. Regional Level Bibi Noor Jahan: Bibi Noor Jahan- Entrepreneurs from Quetta who’s Customer Services Officer Khushhali Bank) is Uzma Naqvi. Bibi Noor Jahan won the Regional Urban Runner-Up entrepreneurship award of Rs.50, 000. And CSO Uzma Naqvi won the Loan Officer Recognition Award under Regional category and got prize amounting to Rs. 15,000. We now have sufficient evidence to show that microfinance works. The challenge for us now is to build a financial system which caters to the majority of the population. Such a system should provide equal opportunity in terms of access to an array of affordable financial services. The task at hand is to secure global commitment to developing such a 37-
  41. 41. system, where people irrespective of their economic threshold have access to services they require to make the best possible use of their human potential. In this context we need to undertake a number of measures to underscore the effectiveness of these initiatives:  Firstly, there is a need to create an increased awareness of microfinance and its potential and the conditions in which it can flourish.  Secondly, it is imperative to fill several information gaps: which for instance are the segments of the population with access to financial services; which services in particular; what is the cost effectiveness of impact and if , there are any impediments to access.  Thirdly, there is a need to secure commitments at the global level and within multilateral frameworks that fiscal, macroeconomic, regulatory and supervisory policies are supportive of microfinance services.  And in the fourth place, microfinance should be mainstreamed into the financial sector as a commercially viable proposition and not viewed as an isolated act of charity. This is envisaged to bring into focus the role of the private sector and private/commercial capital for the requirements of a huge market for financial services. In the context of Pakistan the macro- economic scene has stabilized substantially over the last seven years with the growth in economy and the overall volume of trade leading to better per capita incomes and reduction in absolute levels of poverty, however a formidable challenge still remains in terms of transferring the benefits of the economic turnaround at a faster rate and more equitably across the country’s population. In order to address this situation the Government of Pakistan has developed a strategy to reduce poverty through investment in social sectors, rural development, creating more job opportunities and improving access to financial services. Within the overarching strategy small and medium enterprises and microfinance have attained significant importance as poverty alleviation tools. The Government of Pakistan has systematically, proactively and comprehensively endeavored to address the underlying issues that restrict the flow of microfinance services to the poor and Pakistan is perhaps one of the first countries from amongst the developing world to have put in place a policy framework conducive to the development and growth of the microfinance sector. The Policy framework adopted has the following attributes: It recognizes Microfinance as a part of the broader financial system. It encourages the emergence of Microfinance Institutions to increase outreach to the poor – especially women. The framework recognizes the need to direct investments to build social capital and mitigate risks faced by the poor. The policy promotes cross sectoral linkages between Microfinance Institutions specializing in financial intermediation to provide financial and 38-
  42. 42. non-financial services to individuals as well as groups. It also restricts states direct role and intervention to policy support. Furthermore our framework promotes public-private partnerships and private sector initiatives. It also improves profile of Microfinance Institutions among policy makers and mainstreams core attributes of Microfinance best practices and good governance. Using the attributes of the Microfinance policy, the Government of Pakistan facilitated design of a legal framework for diversification of Microfinance markets in the country. The Legal framework comprises of Microfinance Institutions Ordinance 2000 and 2001 promulgated by the President of Pakistan and the subsequent legislation notified by the central bank – the State Bank of Pakistan. The legal framework opens the sector for private participation with Microfinance institutions enjoying full autonomy and privileges of a financial entity. Seed capital financial requirements have substantially been reduced and institutions are permitted to be established at any level, i.e. districts, province or national and mobilize resources from local markets. Licensing, procedures and supervisory regulations and disclosure standards have been simplified. The Policy clearly sees microfinance as a viable commercial activity run by the private sector with government having a policy support role under a proactive and supervisory role of the State Bank of pakistan These measures have created conducive environment and additionally the enabling infrastructure has brought focus and attracted private sector investment leading to positive outcomes as evidenced by substantial growth in the microfinance sector in Pakistan over the last seven years. This growth has been witnessed in all fronts and is evidenced by increase in the number of microfinance players, entry of Greenfield Microfinance banks, entry of commercial banks into microfinance, diversification of products, ten fold increase in the number . Towards An Inclusive Financial Sector-microfinance In Pakistan of borrowers to seven hundred thousand households and development of distribution networks as conduits for future growth in the rural and marginalized areas of the country. These developments have encouraged the emergence of a meso-sector that services the microfinance market in terms of microfinance networks, specialized rating firms, the big four audit firms getting involved into microfinance, enhancing the capability of a central credit bureau to service the microfinance sector and a greater level of compliance to international standards of reporting and transparency. Today microfinance in Pakistan is a sector in its own right rather than just a tool for poverty alleviation with increasing degree of competition and a high trajectory growth curve. These efforts and investments have been undertaken with an implicit promise in Pakistan - to build a financial system that reaches out to the poor & provides them with quality services to better manage their precarious lives. 39-
  43. 43.  Agricultural extension and the role of the private sector in Pakistan Public and private sectors, particularly from the perspective of small farmers. It argues that both sectors have strengths and weaknesses of their own. The public sector extension services do not reach the bulk of the small farmers due to poorly motivated staff, inadequate operational funds, lack of relevant technology, top-down planning, centralized management, and weak accountability systems. On the other hand, the private sector extension services are targeted at big farmers and are primarily triggered by a profit maximization motive. The paper then presents a unique model of partnership between a private sector concern, a non-profit (rural support programme), and farmers, and argues that similar models could be adopted to make agricultural extension services work to the benefit of small farmers. Introduction Agriculture is the mainstay of Pakistan’s economy. More than 24% of the country’s GDP comes from agriculture sector which also employs about 44% of the labor force, sustains almost 75% of the population, and accounts for 30% of the exports and 50% of the total foreign exchange earnings (Government of Pakistan, 2000). Since Pakistan has high population growth (more than 2.5%), a sustained growth in agricultural output and productivity is critical for its economy and social wellbeing. The Agriculture management model in Pakistan is quite similar to other developing countries. The Ministry of Food, Agriculture & Livestock (MINFAL) through its provincial departments carries out most of the agricultural extension (Umali and Schwartz, 1994; Swanson, Farner and Bahal, 1990). The role of the agricultural extension service is to introduce new technologies, advise farmers on various aspects of crop production, supply inputs such as chemicals, fertilizer and seed, and provide services like crop and orchard sprays against pests and diseases. Pakistan has tried several extension models including the Village Agricultural and Industrial Development Programme (Village-AID Programme), Basic Emergence of private sector in agricultural extension. 40-
  44. 44. The Khushali Bank has use the micro-finance model in order to provide credit to the poor. This programme has set up based on the experience gained through the RSPs, and is two important pillars of the Pakistan Poverty Reduction Strategy. To illustrate how such a partnership model can work for improved agriculture extension services, a case study from Rahim Yaar Khan, a southern district of Punjab Province, is presented here. A case study of partnership between the public and private sectors in Rahim Yar Khan, wheat, cotton and sugarcane are the main cash crops. Mango orchards are abundant but are mostly owned by relatively large growers. Livestock is a secondary source of income in this area. Rahim Yar Khan lies at the tail of the irrigation system and often faces water shortfalls. Small farmers are especially prone to the irrigation water shortages. Cotton is a high-risk crop, often devastated by sporadic pest attacks and crop diseases. This affects the small farmers, who are left with little or no profit, accumulated debt, and worsened quality of life. In contrast, sugarcane is a low-risk crop. However, it is irrigation-intensive and occupies farmland longer than any other crop. This increases the costs of production. The farmers also have to wait for longer periods before they get paid for their crops, because of their comparative disadvantage in marketing vis-à-vis the bigger farmers. Many COs are showing increased interest in these projects. The communities manage the projects and they also contribute 20-30% towards the total cost. Most of the small farmers have so far opted for installation of electric turbines or renovation of their water channels. So far 32 such projects have been initiated, while others are waiting funding in the next phase. These opportunities have increased the level of interest for unorganized farmers and now more people are joining in after witnessing the success of farmers who reduced their costs and saved water and time after completion of irrigation projects.  Earthquake Livelihood Rehabilitation Program The earthquake of October 8, 2005 hit the hardest on the livelihoods of those who were already poor and accentuated their vulnerability due to lack of skills, difficult terrain, 41-
  45. 45. inaccessibility, and inadequate linkages to the market. Most livelihoods were catering to local markets and the lower income segments of population both for inputs and outputs. The extent of damage to livelihoods was compounded by loss of lives, injuries, destruction of houses, shelter, productive assets, and damage to social, physical and transport infrastructure. Khushhali Bank Limited (KBL), the largest microfinance bank in the country, had already been pooling the development efforts and skills of service provider agencies including NGOs for mobilizing poor households into community groups to provide financial and social services to the group members. In addition, KBL through its partner organizations was also providing community infrastructure grants. These business principals of community based service delivery had fostered active participation and ownership of KBL program at grassroots level. Hence KBL leveraged upon its established experience and developed Earthquake Livelihood Rehabilitation Program (ELRP), salient features of which are as follows: The Objective and Scope The objective of ELRP is poverty reduction through substantial and immediate response directed to poor household in affected areas (as defined by the AJK and NWFP Government) to restore income flows, reduce dependency on relief, revive local economies, and provide shelter including for restoring livelihoods. These will have immediate poverty reduction impact and thereby increase income of effected households, build social capital, and reduce vulnerability. Components and Budget: 20,000 community groups will be formed for provision of equity support and working capital loans to 100,000 households to restore 100,000 livelihoods. 2,000 Community Infrastructure projects will be implemented with good community groups. A fund of US$ 38 million to finance ELRP has been established in SBP which is managed by the ELRF Committee. Project Implementation 42-
  46. 46. • Post Disaster Relief Phase In the relief phase of disaster, KBL has established a Project Implementation Unit (PIU) in corporate office to oversee implementation of the project. • Rehabilitation Phase ELRP was formally inaugurated by Prime Minister of Pakistan on August 26, 2006, in the rehabilitation phase of disaster.KBL has established branches in Abbotabad, Bagh, Batagram, Kohistan, Mansehra, Muzaffarabad, Neelam, Poonch and Shangla. Local resource was hired and trained as Customer Services Officers, to serve their community. KBL has finalized service providers including NGOs to organize community into groups so that groups have access to KBL’s venture capital financing facility and Community Infrastructure Projects’ grant. • Reconstruction Phase Community infrastructure projects were slated to be launched in 2007. • Development Phase: Graduate clients of rehabilitation phase will have access to KBL’s mainstream financial and social services. Khushali Bank Grant/Soft Loan Program (06-10-2007) Eligibility Criteria: • Earthquake affectees who want to establish/strengthen grocery shop etc. will be provided Rs.15,000/family Rs. 12,000/-would be provided as grant whereas Rs. 3,000/- (soft loan with zero mark- up) will be recovered in six installments (Rs.500 / P.M) Updated on 01-04-08 Grant Soft Loan Total S# District Male Female (Rs. in Million) (Rs. in Million) (Rs. in Million) 43-
  47. 47. 1. Muzaffarabad 3,760 4,260 96.240 24.060 120.300 2. Bagh 968 39 12.084 3.021 15.105 3. RawalaKot 1,937 668 31.260 7.815 39.075 4. Neelum 47 -- 0.564 0.141 0.705 Total 6,712 4,967 140.148 35.037 175.185  Dairy and Meat Farm Financing Pakistan is the fourth largest producer of milk in the world, however, only 2-3 percent of milk is processed. Similarly, the country has great potential to develop meat farm and can have substantial share in the attractive Halal meat market. Lack of access to adequate financial services has been among other key impediments in the growth and development of this sector. The easy and sustained access of dairy and meat farms with affordable financial services would enable the dairy and meat growers to acquire modern and efficient livestock facilities, infrastructure and processing systems for milk and meat production thereby giving boost to livestock sector to produce large quantity of livestock products for domestic consumption as well as for export. Delivery Methodology in Livestock and Dairy Sector Expert trainers in Agriculture and Horticulture, Livestock and Dairy Sector. Fisheries and Micro Enterprise Management are hired and khushhali bank has provided them state-of- the-art Audio/Video equipment with documentaries and 4x4 vehicles so that they can reach remote and distant areas. Modules are listed below: Livestock and Dairy Sector 44-
  48. 48. • Breeds of livestock with reference to their productivity traits • Importance of balanced feeding to enhance the productivity of livestock • Methods of urea feeding in livestock • Feeding dairy animals for higher milk production • Fattening of small ruminants • Range management and grazer training • Awareness about contagious diseases and their vaccination program • Awareness about external & internal parasites and their control • Detection and control of mastitis • Care and management of new born calves • Reproductive health management • Hygienic milk production and dairy products CHALLENGES AND PROSPECTIVES Background KB was designed to implement the MF policy in response to the rising incidence of poverty, significant demand and supply gap, negligible institutional outreach, and disarray of DFIs. KB is the lead institution to generate the momentum for the sector to grow, and expected investments and institutional diversity to materialize. The objective of KB is to provide sustainable MF services to the poor in order to reduce poverty and promote social development and economic Justice through community building and social mobilization. While observing successful MF practices KB plans to provide affordable services, including savings, credit, leasing, money transfer, and risk mitigation. KB combines the development efforts of a range of service institutions in a synergistic and catalytic manner. KB has adopted an innovative management structure to reduce transaction costs. 40% of KB staff and 32% of its clients are women. Outreach is projected to be 560,000 borrowers by 2006 with portfolio outstandings projected at US$ 133 million. Khushhalibank’s design incorporates global experiences and best practices of the microfinance industry. By October 2002, KB was operating 31 branches and servicing 33 districts. It was managing receivables of US$ 9 million. KB had successfully disbursed US$ 12 million and serviced over 70,000 loans since its inception. 45-
  49. 49. The number of poor people in Pakistan nearly doubled during the 1990s and this incidence of poverty will continue to increase if economic performance is not accelerated, directed poverty reduction interventions are not enhanced, and delivery of pro-poor services not improved. Therefore, the Government has made poverty reduction its prime objective and identified microfinance (MF) as a critical element of its poverty reduction strategy. As institutional MF is a recent development in Pakistan and, therefore, has a very limited outreach. However, the poverty reduction potential of MF is now widely recognized at the policy-making level and among the development community. Challenges to the Expansion of Khushhali Bank With an outreach of less than 5% of poor households, affordable MF services are not available to the majority of the poor; thus they are unable to participate in the local economy. The outreach of the institutions is expected to grow to 400,000 households (currently about 60,000) by the end of 2004. Commercial banking sector is neither structured nor geared to adopt MF as a substantive part of their portfolio. Therefore, in the absence of complementary or alternative arrangements, the MF market will remain grossly underserved, and its poverty reduction potential largely unrealized in the medium to long term. For this potential to be realized, the following constraints and issues must be addressed,  Social  Inadequate Access of the Poor to Services Inadequate access to productive resources and social services has resulted in low indicators of well-being and lack of employment opportunities. This situation is compounded in rural areas where access is even more difficult due to inadequate or complete lack of basic infrastructure. Low skill level and absence of support for human resource development for the poor prevents them from diversifying their household income. Government interventions have not yielded the desired impact due to inadequate emphasis on community-based participatory approaches. Resource availability relative to the requirements for the social sectors is low. Without these services, MF sector of KB will have less than the intended impact.  Obstacles for Microfinance Outreach to Women Social intermediation costs to enhance women's access to MF are significantly higher in Pakistan as constraints on mobility, social interaction, and skills development must be addressed on a sustained basis. Although returns from social intermediation in terms of social capital and demonstrative effects are high, investments are limited due to high cost. Consequently, the gender orientation of organizations, products, and delivery 46-
  50. 50. mechanisms is insufficient to enhance outreach to women. Inadequate social preparation adversely affects group cohesion, the quality of loan portfolio, and ultimately the sustainability of MF operations.  Absence of Risk Mitigation Measures The disadvantages of the poor households include lack of access to financial services, unfair terms of participation in the local economy, and vulnerability to economic and physical downturns. Poor households forego potentially viable technologies, production choices and income opportunities due to risk aversion. Mechanism’s to mitigate such risks are not available. In addition poor have no means to secure the safety of their savings, unless deposited with Commercial banks, to which poor have little access.  Financial  Microfinance-Specific Policy Framework In the early stages of MF sector development, a conducive policy environment is required to encourage innovations and to allow a diverse set of institutions to provide a range of services, particularly savings, in a supervised and regulated environment. The required policy attributes include  promotion of institutions that can target the poor with adequate gender emphasis  acceptance of individuals as well as groups of individuals for MF transactions  mechanisms to ensure that social intermediation precedes and accompanies MF services  significant investments in social intermediation  pro-poor financial innovations such as measures to mitigate risks faced by the poor  realizing public-private sector synergy  autonomy in pricing and client selection  measures to integrate MF with the financial system and  proactive role of the Central Bank in developing the MF sector.  Institutional Limitations The financial reforms in Pakistan have put in place a policy framework for efficient financial intermediation that enables institutions to concentrate on their core competencies. For the CBs and DFIs, this core competency is serving the upper and middle segments of the market. While the banking system has responded positively to the 47-
  51. 51. reform initiatives, an efficient and financially sound system, barring select institutions, has yet to emerge. The high level of nonperforming loans attributed to slack industrial activity is widespread. Some institutions have capital adequacy below the prescribed 8% of risk- weighted assets. Competitive pressures for product differentiation and cost reduction are increasing. Smaller institutions are not able to invest in new technology and a branch network to access low cost retail deposits to gain competitive advantage. The banking system is becoming concentrated in a few large institutions. MF is unlikely to become a significant part of CBs' portfolios. Operating procedures of CBs are incompatible with the requirements of banking with the poor, and thus their services and delivery mechanisms have excluded the poor. Women have been virtually excluded from institutional credit. In addition, CBs are undergoing reforms that include closing loss-making branches (mostly located in rural areas), downsizing, re-capitalizing and implementing measures to recover and write-off non-performing loans. The CB's priorities therefore are restructuring and reorganization. Slow transformation of DFIs into efficient financial intermediaries due to their overt political considerations in business decisions and persistent poor governance, underlines constraints to change and undermines the development of the rural financial system. For these reasons, MF has been perceived as high risk and unprofitable in Pakistan. Consequently, potential suppliers have avoided entry into MF. NGOs have small credit operations with limited MF specialization. NGOs do not have the trained staff, financial systems, and, until recently, have not seen the necessity of following successful practices and procedures. Even among the members of the MF Group, most have yet to achieve financial viability. Inadequate investment in social intermediation also effects portfolio quality.  Services Delivery of financial services to the poor, particularly in rural areas is constrained by low population density in some provinces, inadequate communication services, small loans, and low household savings that increase transaction costs. Seasonally of the agriculture business cycle, the main occupation for poor households, and the high probability of risks add to the problems of providing MF services to the rural poor. In addition, while security of savings is a prime concern for rural households, secure savings facilities are not accessible. CBs find it costly to cater to small depositors. Savings through NGO intermediaries, deposited with CBs, are generally compulsory and do not necessarily provide the maximum return to the depositor. NGOs cannot deploy such savings as micro credit. Towards a new Policy Paradigm 48-
  52. 52. SBP recently invited expression of interests for setting up MFIs from investors both local and foreign. A number of interests received are under processing at SBP.  Support for Social Intermediation As part of the policy, the Microfinance Social Development Fund (MSDF) was established in SBP for provide intensive and sustained support MFIs for promotion of Community Organizations and capacity building for the poor, especially women, to effectively utilize MF services.The revenue earned from MSDF meets defined social preparation costs associated with community mobilization, skills development, social awareness, basic numeracy skills, and selection and management of IGAs for about 560,000 poor organized in about 24,750 COs. MSDF also funds women's empowerment through training in community management, capacity enhancement for specific identified skills, and leadership management.  Enhancing Outreach of Basic Community Services To leverage the social mobilization through MSDF, the Community Investment Fund (CIF) was established in the SBP, with a term of 25 years, to increase the access of the poor to basic infrastructure and thus improve their livelihoods through efficient and productive use of local resources. The involvement of COs in identifying, planning, executing, and monitoring community-based infrastructure subprojects will empower them and serve as an incentive to mobilize and strengthen COs. This will help in expanding the MF market. MSDF and CIF support is to enhance social capital by creating a network of COs, strengthening COs, increasing social and economic interaction among the excluded, influencing norms of behaviors that govern interaction between genders, enhancing capacity and skills, and providing opportunities for economic development. The fund mechanism provides a clear basis for determining social costs associated with MF and has a built-in exit mechanism; as business volumes increase, MFI revenues will meet an increasing proportion of social costs. These funds are used only to provide services through NGOs, and nearly half the proceeds are targeted at poor women.  Pilot Risk Mitigation Mechanisms for the Poor as a Safety Net Measure As a safety net measure, the Risk Mitigation Fund (RMF) was established in SBP. RMF's objective is to reduce risks associated with failed IGAs, both farm and non-farm, of KB clients. RMF will assist KB borrowers, not KB per se, in case of loss of IGAs due to unforeseen circumstances beyond their control. RMF is expected to mitigate risks faced by about 27,000 poor during the last six-year.  Protecting Deposits of the Poor 49-
  53. 53. Although small in absolute amount, the value of the savings of the poor relative to their income is considerable and therefore needs to be protected. KB is a deposit-taking institution, both from its (poor) borrowers and also from non-borrowers. Given substantial paid-up capital and viable operations, no immediate deposit guarantee is considered necessary. However, as a matter of precaution, the Deposit Protection Fund (DPF) was established in SBP to partially secure the savings mobilized by KB. Despite the challenges faced by the micro finance sector, the future prospects for this sector are quite bright due to : • Higher demand for the micro finance services, as a result of which there is expanding branch network of existing MFIs and entrance of the new banks and NGOs in this sector. The MFIs are emerging as an important player in the country’s banking and financial system. • The full commitment and support on the part of the government and SBP to enhance the development and outreach of MFIs in a sustainable way. STRENGTHS Khushhalibank’s design incorporates global experiences and best practices of the microfinance industry. The objective of KB is to provide sustainable MF services to the poor in order to reduce poverty and promote social development and economic Justice through community building and social mobilization.  Largest Microfinance Instituion Khushhali Bank is one of the largest microfinance institutes in the country with 31 branches covering 33 districts and US$12 million in disbursements. But real expansion occurred after the government of Pakistan signed a loan agreement of US$150 million with the Asian. By the end of 2005, KB had 63 branches and employed 1,576 people. KB reported that in 2003, it provided loans to 100,000 households. KB had successfully disbursed US$ 12 million and serviced over 70,000 loans since its inception.The loan portfolio of MFIs is diversified. The major share of the advances belongs to the livestock sector (42 percent) followed by micro enterprises (30 percent) and agricultural inputs (25 percent), the remaining 3 percent consists of miscellaneous sectors  Major Partners 50-

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