In Conversation with Ghalib Nishtar

Set to Achieve Target of 10 million Borrowers by 2020

Q: To begin with, could you please shed light on the state of affairs in the microfinance industry?

A: The current business prospects for microfinance industry in Pakistan are very promising. Currently, there are more than 40 players in the industry (both banks and institutions) while a significant portion of potential market is still untapped. The growth trajectory for the loan and deposit portfolio has been following an upward trend and over the past four years, the total assets of the industry have expanded nearly four times.

Q: How has Khushhali Microfinance Bank (KMBL) been instrumental in the development of microfinance in Pakistan?

A: Founded in 2000, Khushhali Microfinance Bank was the first bank in Pakistan which was designed to cater to the financial needs of low-income market segments of Pakistan. It was established with the objective of being a catalyst to the development of a sound framework for the industry that was both practical and implementable. It was envisioned that with the right policy and framework in place and the massive potential of the market, the industry will attract private sector investment for more institutions, which was essential for the growth and sustainability of the sector. I am happy to state that we have done well in demonstrating the potential of the sector and accomplishing this objective.

Today, there are about 10 microfinance banks in Pakistan. All the banks which have come into this sector have brought foreign direct investment into it, and this shows the confidence of international investors in the sector.


Q: What are some of the risks and challenges of operating in the microfinance segment?

A: Outreach remains the most impending challenge for the microfinance sector to overcome. In order to grow and meet their targets, all the players of the microfinance industry are converging energies on widening outreach through traditional branch network expansion plans and development of feasible alternate delivery channels. Technology will play a lead role in helping the sector overcome this challenge.

In terms of risk, the major challenge of the sector is the danger of client over-indebtedness. With the introduction of MF-CIB, this has been mitigated to a great extent.

Moreover, the market imperfections in the agriculture sector continue to have a debilitating effect on all the players working in rural areas. Given that a considerable portion of microfinance loans comprise of agricultural loans, pricing of agricultural commodities tend to off-set the benefits offered by micro credit. Besides this, the sector remains exposed to the risk of climate change and natural calamities, both of which directly impact its agriculture loans portfolio.

Finally, the pace of growth also poses a challenge in terms of the availability of trained human resource, and staff attrition – within and outside the sector – further exacerbates the situation.

Q: What is the whole digital lending phenomenon and how rapidly is Pakistan catching up?

A: Outreach remains a major challenge for the microfinance industry. The client pockets are spread out in remote areas where the economic feasibility of setting up a branch/ service center is marginal. With the digital lending, we aim to leverage the technology to overcome the economic constraint of service provision and increase accessibility of our services for our clients as well as reduce the cost of client acquisition.

Pakistan is rapidly adapting to the changes in technology and given the high penetration of mobile phones in the country, I believe digital lending will commence shortly. With the right infrastructure in place, I see that the dynamics of the competitive ground of microfinance sector will change drastically.

Q: How does micro-credit work? What sets KMBL apart from other MFIs?

A: In micro-credit, people from the same area/ neighbours come together in financial support groups called group lending; individuals borrow working capital for their microenterprises, and because they have little to offer for collateral, the group guarantees those loans.

The aim of micro-credit is to boost the socially and economically vulnerable members of society and give them the means to attain dignity and economic independence. These services help beneficiaries attain a better and more regular source of income, enabling them to save and set aside money for health, home improvements, their children’s education and so on. As they gain in independence, they become the agents of their own development.

Q: How has KMBL developed since it was established in 2000?

A: We have come a long way since 2000 when we were solely offering loans on solidarity group model. As the bank grew and this client segment matured in their financing needs, we began to realize the diverse needs of our clients.

Over time, we have successfully brought a phenomenal change in the products and services being offered by the bank. We have gone from group loans to individual loans, and for the last two years, we are increasingly focusing on micro-enterprise lending, which is the MSME space. So, we are moving from very small loans to loans of higher value, from loans that were initially a maximum of PKR. 50,000, we have now gone up to a maximum of PKR 500,000.

In addition, we are mostly in rural Pakistan, so our main lending is into agriculture and livestock in these markets. Other banks may be more urban.

The rural markets of Pakistan are very exciting and very large markets. Then, in terms of sustainability, the growth in our asset portfolio is fully funded through deposits, so we are not dependent on any external support or commercial lines of credit. We offer clients an opportunity to save with us and offer positive returns on these savings, so it’s not just about borrowers, it’s also about savers. Currently we offer rates that are competitive as compared to government schemes and commercial banks. This means good returns to low income people and it is safe, because they put their money in a bank which is financially strong, accessible and regulated by the central bank.

Other than that, we are offering health insurance to our clients and facilitating domestic payments and remittances from overseas through the Western Union channel, so today we are giving a full range of services and options to low-income clients which was originally the premise for establishment of specialized microfinance banks in Pakistan.

Khushhali bank continues to remain the market leader amongst microfinance banks in terms of gross loan portfolio and borrowers. We build on our relationships with our clients and aim to foster long-term relationships as we partner them on their journey up the socio-economic ladder.

Q: The target of reaching 10 million borrowers by 2020 is quite ambitious. Is it achievable and what is required to make it happen?

A: The number may seem ambitious at first, but our vision is set on the growth prospects. We are confident that given the enabling regulatory environment and the growing use of digital technology to establish advanced alternate delivery channels, the 10 million borrowers target by 2020 is an achievable target.

At Khushhali bank, we are aiming to remain at the forefront of execution of the country’s Financial Inclusion Strategy while maintaining our market leadership.

Q: Can you elaborate on the current portfolio of Khushhali Microfinance Bank?

A: Khushhalibank prizes more than 5.6 million relationships since its inception. We are the largest and leading microfinance bank in Pakistan with a nationwide network of 149 branches along with 24 service centers spanning all major districts of the country. The entire network of branches is digitally integrated with the bank’s corporate office in Islamabad.

Khushhali bank is constantly focused on expanding its financial offerings for the unbanked segment of the populace. Therefore, newer branches are welcoming people to ensure financial inclusion of this segment and spur the growth of small enterprises across the country.

Currently Khushhali bank is offering microfinance services to microenterprises and farmers (Agriculture and Livestock) of Pakistan living in less developed and rural area of the country.

We are committed to serve the largely untapped market of the country by reaching out and providing innovative financial products and services.

Khushhali bank also has a wide range of financial products for its customers, like saving accounts with positive return on deposit, health insurance with low premium amount, ATM service & agent banking for recovery collection.

Our clients and their prosperity are the biggest motivators for Khushhalibank. We are proud to have the largest client base amongst microfinance banks. Not only do we have the privilege of serving the largest clientele, but we also have the longest relationships with our clients, most of whom are repeat borrowers or depositors.

At the end of first half of 2017, the bank has over 0.6 million active borrowers and over 1.5 million active savers.

Q: How is the establishment of the Pakistan Microfinance Investment Company (PMIC) likely to impact the microfinance sector in Pakistan?

A: According to forecasts given in the Microfinance Growth Strategy 2020, in order to reach up to 10 million borrowers, the sector will require an additional debt for on-lending of up to PKR 300 billion. The Pakistan Microfinance Investment Company has been established to cater to the funding needs of the sector. The major objective of the new entity is to attract commercial funding to serve the increasing demand of those who are financially excluded and further improve the capability and capacity of the sector to absorb these funds. This company comes at the right time and will contribute to the growth and expansion of the sector.

Conducted by Sidra Sajid

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