National College of Business Administration

National College of Business Administration & Economics
Lahore

THE DEVELOPMENT OF MICROFINANCE SECTOR IN PAKISTAN
SUBMITTED BY:
MUHAMMAD JONAIDREG. NO. 2161363
SUBMITTED TO:
MS. HUMAIRA TAJ
MASTER OF BUSINESS ADMINISTRATION
MARCH, 2018
national college of business administration & economics
THE DEVELOPMENT OF MICROFINANCE SECTOR IN PAKISTAN
By
MUHAMMAD JONAIDREG. NO. 2161363
A dissertation submitted to
School of Business Administration
In Partial Fulfillment of the
Requirements for the Degree of
Master OF BUSINESS ADMINISTRATION
MARCH, 2018

In the name of ALLAH, the Compassionate, the Merciful
NATIONAL COLLEGE OF BUSINESS ADMINISTRATION & ECONOMICS
THE DEVELOPMENT OF MICROFINANCE SECTOR IN PAKISTAN
BY
MUHAMMAD JONAID
Reg. No. 2161363
A dissertation submitted to School of Business Administration, in partial fulfillment of the requirements for the degree of
MasterS IN business administration
Dissertation Committee:
_____________________
Chairman
_____________________
Member
_____________________
Member
___________________
Rector
National College of Business
Administration & Economics
DECLARATIONThis is to certify that this research work has not been submitted for obtaining similar degree from any other university / college.

MUHAMMAD JONAID
Reg. No. 2161363

DEDICATED TOMy Parents, teachers & supportive friends
ACKNOWLEDGEMENTIn the name of Allah, the most beneficent and the most merciful
The research was conducted at National College of Business Administration & Economics. I would like to say thanks to all people who have helped to make this thesis possible.

I would like to special thanks to my supervisor Ms. Humaira Taj who helped me during my thesis work. I am thankful to everyone working at NCBA&E who helped us directly or indirectly in the success of this effort.

Research Completion CertificateCertified that the research work contained in this thesis entitled
“THE DEVELOPMENT OF MICROFINANCE SECTOR IN PAKISTAN”,
has been carried out and completed by “Muhammad Jonaid” Reg. No. 2161363 under my supervision during his MBA Business Administration Program.

(Ms. Humaira Taj)
Supervisor
ABSTRACTThis study examines the THE DEVELOPMENT OF MICROFINANCE SECTOR IN PAKISTAN. The history of microfinance in Pakistan shall be discussed in this study and also discuss its role in poverty alleviation. This study provides the detailed analysis of the role of microfinance in poverty reduction in Pakistan and also makes the standard of living better of poor people.

I use quantitative & qualitative data for research to get the clear picture of our problem statement. The data collected from different sources such as articles, journals, reports etc to get my desired results. The findings of my research are that microfinance plays a significant role in poverty alleviation by PPAF & microfinance industry initiatives in terms of branchless banking & MF-CIB. Three phases of evolution of microfinance in Pakistan shall be discussed in this study. Its include three phases of development of microfinance in Pakistan by which it can get better understanding how microfinance get importance in Pakistan. Then find the numerous microfinance banks established in Pakistan to provide the loans to low-income groups and also make their living standards better. We also discussed that most of the people of Pakistan are unaware of the microfinance services so there is a need to put efforts to create awareness among people so they can also take advantage from the microfinance to reduce poverty in Pakistan. We also discussed that most of the people of Pakistan are unaware of the microfinance services so there is a need to put efforts to create awareness among people so they can also take advantage from the microfinance to reduce poverty in Pakistan.

Keywords:
Microfinance, Development, Evolution, Phases
Table of Contents TOC o “1-5” h z u
DECLARATION PAGEREF _Toc510174953 h 3DEDICATED TO PAGEREF _Toc510174954 h 4ACKNOWLEDGEMENT PAGEREF _Toc510174955 h 5Research Completion Certificate PAGEREF _Toc510174956 h 6ABSTRACT PAGEREF _Toc510174957 h 7Table of Contents PAGEREF _Toc510174959 h 8List of Figures PAGEREF _Toc510174960 h 11List of Abbreviations PAGEREF _Toc510174962 h 12CHAPTER 1 PAGEREF _Toc510174963 h 13INTRODUCTION PAGEREF _Toc510174964 h 131.1 Evolution of Microfinance Sector in Pakistan PAGEREF _Toc510174965 h 141.2 Problem Statement PAGEREF _Toc510174966 h 15CHAPTER 2 PAGEREF _Toc510174967 h 16LITERATURE REVIEW PAGEREF _Toc510174968 h 162.1 Purpose of the Study PAGEREF _Toc510174969 h 172.2 Research Question PAGEREF _Toc510174970 h 18CHAPTER 3 PAGEREF _Toc510174971 h 19METHODOLOGY PAGEREF _Toc510174972 h 193.1 Data Collection PAGEREF _Toc510174973 h 193.2 Secondary Data PAGEREF _Toc510174974 h 20CHAPTER 4 PAGEREF _Toc510174975 h 21DATA ANALYSIS PAGEREF _Toc510174976 h 21Role of Financial Services in Poverty Alleviation PAGEREF _Toc510174977 h 214.1 Poverty in Pakistan PAGEREF _Toc510174978 h 214.2 Evolution of Microfinance in Pakistan PAGEREF _Toc510174979 h 23Figure 4.2 Evolution of Microfinance in Pakistan PAGEREF _Toc510174980 h 244.2.1 Phase-1 (The 1970’s) PAGEREF _Toc510174981 h 254.2.1.1 Government Directed Credit PAGEREF _Toc510174982 h 254.2.2 Phase-2 (Early1980’s to Mid 1990’s) PAGEREF _Toc510174983 h 254.2.2.1 The RSP Model PAGEREF _Toc510174984 h 264.2.3 Phase-3 (Late 1990’s till the present) – Entry of Specialist MFI PAGEREF _Toc510174985 h 294.2.3.1 Entry of Commercial Banks PAGEREF _Toc510174986 h 304.2.3.2 Microfinance Banks (MFB) PAGEREF _Toc510174987 h 314.2.3.2.1 First Microfinance Bank Ltd. (FMFB) PAGEREF _Toc510174988 h 324.2.3.2.2 Khushhali Bank PAGEREF _Toc510174989 h 324.2.3.2.3 Advans Pakistan Microfinance Bank PAGEREF _Toc510174990 h 334.2.3.2.4 Pak Oman Microfinance Bank Ltd. PAGEREF _Toc510174991 h 334.2.3.2.5 U Microfinance Bank Ltd. (U Bank) PAGEREF _Toc510174992 h 334.2.3.2.6 Kashf Foundation PAGEREF _Toc510174993 h 344.2.3.2.7 Apna Microfinance Bank PAGEREF _Toc510174994 h 354.2.3.3 National Rural Support Program (NRSP) PAGEREF _Toc510174995 h 364.2.3.4 Pakistan Microfinance Network (PMN) PAGEREF _Toc510174996 h 384.2.3.5 Pakistan Poverty Alleviation Fund (PPAF) PAGEREF _Toc510174997 h 39CHAPTER 5 PAGEREF _Toc510174998 h 41RESULTS PAGEREF _Toc510174999 h 415.1 Conclusion: PAGEREF _Toc510175000 h 42Bibliography: PAGEREF _Toc510175001 h 43
List of FiguresFigureNo. Title Page
4.1 Poverty Percentage in Pakistan 25
4.2 Evolution of Microfinance in Pakistan 26
4.3 Distribution of respondents by peer groups 33
4.4 Depositors 38
List of AbbreviationsGLP Gross Loan Portfolio
MFP Microfinance Providers
CGAP Consultative Group to Assist the Poor
SBP State Bank of Pakistan
NGOs Non Government Associations
MFBs Microfinance Banks
YIPS Youth Investment Promotion Society
AKRSP Aga Khan Rural Support Program
VOS Village Organizations
RSP Rural Support program
NRSP National Rural Support Program
LAP Leasing Association of Pakistan
FMFB First Microfinance Bank
SBP State Bank of Pakistan
PMN Pakistan Microfinance Network
PPAF Pakistan Poverty Alleviation Fund
CHAPTER 1INTRODUCTIONMicrofinance (MF) is the arrangement of budgetary administrations, more often than not as little estimated budgetary exchanges to individuals who can’t access such administrations from ‘commercial banks’. After the commencement of Grameen in Bangladesh in 1984, the principal formal microfinance bank of the world, MF has generally been perceived as an essential apparatus for destitution decrease. Effective experience of Grameen Bank, in serving the money related requirements of the poor section of the general public on maintainable premise, made the bank a good example for private and open area foundations in different nations to take after. Amid 1990s, the significance of microfinance has been perceived at universal gatherings; all the more imperatively International Financial Institutions (IFIs) began giving assets to improvement of MF area. Directly, advancement of MF division has turned out to be one of the primary columns in neediness lessening procedures of numerous creating nations.
Poverty is a situation or issue which is faced by almost every underdeveloped country and is a reason of rising different other issues. So due to its spreading nature and infecting the societies with its difficulties every country is trying to tackle it by different measures.

In Pakistan, MF has begun picking up significance, as a device of social activation what’s more, destitution lessening, since late 1990s. Undoubtedly the improved worldwide accentuation, specifically the expanded subsidizing from IFIs for MF, supported both open and private division to create microfinance part in the nation.
The target of this unique area is to return to the improvements of microfinance in Pakistan since 2000, especially the experience of Microfinance Banks (MFBs) in the nation. A concise survey on advancement of microfinance in Pakistan is displayed in the following area, trailed by degree and current market structure in third segment. The fourth segment covers the development, credits order and maintainability of Microfinance Banks (MFBs) in Pakistan. The last segment closes the investigation.

1.1 Evolution of Microfinance Sector in PakistanAs detailed above, after the growing concentration at global stage microfinance commenced getting significance in Pakistan toward the end of 1990s. The big increment within the worldwide financing empowered non government institutions (NGOS) to grow their sports and become likewise a noteworthy riding compel for foundation of specific microfinance companies inside the formal component including MFBS.
Expertise the want and significance of mf, as an apparatus of neediness decrease and social activation, the legislature has quickened its endeavors to accumulate solid institutions of mf in formal part and stretched out an enormous assist to the casual element (NGOS) too. Retaining in mind the quit aim to advance the mf in formal phase, the maximum noteworthy improve taken by means of the legislature was the beginning of microfinance location improvement application (msdp) in 2000. the essential goal of this software turned into to expand and increment the tempo for the improvement of the phase to present the cash related administrations to terrible on affordable premise. further, the authorities has perceived microfinance as an vital device of destitution lessening in its poverty discount approach paper (prsp). khushali bank (kb), the primary specific microfinance financial institution, become installation in 2000 beneath a completely unique mandate. at that factor mfi ordinance 2001 changed into installation to provide isolate administrative shape solely for mf.

even as these measures via the management gave the empowering framework to the mf development, the executive and unique administrations have been attempted via the kingdom financial institution of pakistan (sbp). sbp is the executing company for msdp and has likewise been in fee of checking of formal microfinance establishments (mfis). focal factor of sbp techniques stayed on giving helpful situation to the private vicinity and increasing the coordination among open and private department for the expedient improvement of the mf part. as a end result, within the four years of mfi statute 2001, 4 specific mfbs have begun their activities. to start with microfinance financial institution restricted (fmfbl) and tameer microfinance financial institution restricted are working at national level, whilst rozgar microfinance bank confined (rmfbl) and network microfinance banks restrained (nmfbl) are serving at place level.1.2 Problem StatementPoverty has been a critical improvement issue of Pakistan. Microcredit is all in all one of the intense responses for clearing dejection of the overall public. It can upgrade their salary. It can empower them to develop their own specific business and decreasing their shortcoming. It moreover fills in as an instrument of free work for men and women to accomplish change. People with low pay don’t approach formal cash related foundations, are the essential clients of microcredit.

CHAPTER 2LITERATURE REVIEWMicrocredit, or microfinance, is saving cash the unbankables, bringing credit, funds and other fundamental budgetary organizations inside the accomplish of a large number of people who are too much poor, making it difficult to be serve by general banks, when in doubt since they can’t offer satisfactory assurance. At the point when all is said in done, banks are for people with money, not for people without” (Maanen, 2004).

Microfinance relies upon the preface that the poor have aptitudes which remain unutilized or underutilized. It is obviously not the absence of capacities which make down and out people poor generosity is not the reaction to poverty. It is noble motivation desperation to continue. It makes dependence and takes away the individual’s drive to overcome the mass of desperation. Discharging of imperativeness and creativity in each individual is the reaction to desperation.” (Yunus, 2003)
Microfinance suggests monetary administrations of ‘small’ size gave to the monetarily dynamic poor ordinarily for short to medium terms. These money related administrations incorporate advances, funds, cash exchange benefits and renting administrations. The noteworthy highlight of microfinance is its dependence on “social security” as a methods for hazard administration rather than physical insurance. The idea of Social Collateral merits further clarification. Insurance tries to take care of the data asymmetry issue and diminish costs for the moneylender. Banks take physical insurance since they understand that their entrance to data about the borrower’s business and related money streams is restricted and strict borrower checking involves costs. In any case, the bank trusts the evidence speak for itself of borrower’s inability to make installments, the security, estimation of which is autonomous of the borrower’s monetary condition can be sold to cover the default hazard. In any case, this hazard scope is not pertinent in the event of microfinance where the poor can’t give guarantee. The bank for this situation needs to depend on its evaluations of future income and the past reimbursement conduct of borrower as a measure of obligation limit and the eagerness to reimburse advances.
Nobody is a superior judge of money related propensities for an imminent borrower than his companion, neighbor or a relative. This is especially successful when this group of friends itself is an arrangement of imminent borrowers. These potential borrowers give cross certifications assuming liability exclusively and in addition by and large for the reimbursement of their kindred “gathering” individuals. Thus social linkages when tied in commonly ensuring advance contracts give social insurance. This circumstance is fairly much the same as the joint and a few obligation statements in an association contract. (Amer Saleem Khan and Stefan plateau, 2001)
The present accentuation in the microfinance business is a move from benefactor supported to industrially economical activities. This research assesses the effect of access to microloans from the Khushhali Bank Pakistan’s first and biggest microfinance bank which works on business standards. Utilizing essential information from a nitty gritty family review of about 3,000 borrower and non-borrower families, a distinction in contrast approach is utilized to test for the effect of access to credits. Once the outcomes are disaggregated amongst rustic and urban regions there is a positive effect in country territories on nourishment consumption and on some social markers, for example, the strength of youngsters and female strengthening. These effects are watched even in exceptionally poor family units. These discoveries recommend that financially arranged microfinance and the thousand years advancement objectives are not contradictory, given a strong situation. (Heather Montgomery and John Weiss, 2011)
2.1 Purpose of the StudyThe objective of this study is to find the THE DEVELOPMENT OF MICROFINANCE SECTOR IN PAKISTAN, as well as find their efforts to make the better living standards for poor and low pay groups of Pakistan. Everyone can’t get the easy access to the institutions for getting small financing that’s why the microfinance institution have to do increased efforts in this regard.

2.2 Research QuestionDiscuss the THE DEVELOPMENT OF MICROFINANCE SECTOR IN PAKISTAN and its role in poverty alleviation and economic well –being in Pakistan?
CHAPTER 3METHODOLOGYThe Methods are mainly categorized into two types, qualitative method & quantitative method. They can differ in terms of numeric data & non-numeric data. I use the qualitative methods for our research questions & also use some descriptive data to support our problem statement. I collect the data from different articles, literature, internet, numerical & non-numerical data.

3.1 Data CollectionThere are numerous approaches to get the data to answer the ‘research’ questions. The perfect way to gather data from multiple CITATION Imp07 l 1033 (Impact of mixcrofinance on Living Standards, empowermentnad Poverty Alleviation for Poor People, 2007) sources and including a wide range of fundamental data. To choose the best possible and right strategy for data a few stages has been taken including examination and detailing assets, assets accessible, validity and skill of evaluator and so forth.
I gather the based on fact information and writing from various assets which addressed our statement questions. I gather the measurable information from the Pakistan microfinance sector. I get the opportunity to utilize this information to break down the execution of microfinance division. To discover the small scale credit help in expelling poverty of individuals by contrasting information of various years with think about the change in the dynamic borrowers. For example, microfinance establishments, microfinance banks and national country bolster program works in Pakistan, and looking their part in destitution mitigation. These establishments have vast information and research on the microcredit.

3.2 Secondary DataI utilized the vast majority of the auxiliary information in my proposal from a few sources. Auxiliary information sources have more honed basic data that is as of now demonstrated and looked into by the analyst.
I got the supplementary information from the Microfinance sector, State Bank of Pakistan and National provincial help programs. This information is extremely dependable and legitimate to answer our proposition question. This supporting information incorporates every one of the statistical data points determined by the analyst to make execution reports and yearly reports of the microfinance organization. I will utilize this measurable information to break down the small scale fund area execution and accomplishments in Pakistan. I look at the measurable information of one year with various years to think about the advance of miniaturized scale fund division. In my exploration i likewise utilize college information base which is great wellspring of online books and articles.

CHAPTER 4DATA ANALYSISRole of Financial Services in Poverty Alleviation
Microfinance infers monetary administrations of little size gave to the financially dynamic poor for the most part for short to medium terms. These budgetary administrations incorporate advances, reserve funds cash exchange benefits and renting administrations. The noteworthy highlight of microfinance is its dependence on “social security” as methods for hazard administration rather than physical security. The idea of Social Collateral merits further clarification.
Insurance tries to tackle the data asymmetry issue and decrease costs for the moneylender. Banks take physical insurance since they understand that their entrance to data about the borrower’s business and related money streams is constrained and strict borrower observing involves costs. Notwithstanding, the loan specialist trusts the jury to decide wisely of borrower’s inability to make installments, the guarantee, estimation of which is autonomous of the borrower’s monetary condition can be sold to cover the default chance. In any case, this hazard scope is not pertinent if there should be an occurrence of microfinance where the poor can’t give security. The bank for this situation needs to depend on its assessments of future capital and the past reimbursements conduct of borrower as a measure of obligation limit and in addition the readiness to reimburse advances.

4.1 Poverty in PakistanAccording to the Multidimensional Poverty Index (MPI) report about 39 percent of Pakistanis live in multidimensional neediness, with the most noteworthy rates of destitution in FATA and Balochistan. Pakistan’s MPI demonstrated a solid decay, with national destitution rates tumbling from 55% to 39% from 2004 to 2015. However advance crosswise over various areas of Pakistan is uneven. Neediness in urban regions is 9.3 percent when contrasted with 54.6 percent in provincial territories. Inconsistencies additionally exist crosswise over areas.

The report found that more than 66% of individuals in FATA (73 percent) and Balochistan (71 percent) live in multidimensional neediness. Destitution in Khyber Pakhtunkhwa remains at 49 percent, Gilgit-Baltistan and Sindh at 43 percent, Punjab at 31 percent and Azad Jammu and Kashmir at 25 percent. There are extreme contrasts between areas: Islamabad, Lahore and Karachi have under 10 percent multidimensional destitution, while Qila Abdullah, Harnai and Barkhan (all in Balochistan) have more than 90 percent neediness. Hardship in instruction contributes the biggest offer of 43 percent to MPI took after by expectations for everyday comforts which contributes almost 32 percent and wellbeing contributing 26 percent. These discoveries additionally affirm that social markers are extremely frail in Pakistan, even where financial pointers seem sound. The report additionally found that the decline in multidimensional neediness was slowest in Balochistan, while destitution levels had really expanded in a few locale in Balochistan and Sindh amid the previous decade. The level and arrangement of multidimensional neediness for every one of Pakistan’s 114 regions are likewise canvassed in this report.

Figure 4.1 : Poverty Percentage in Pakistan

Source : Report of MPD&R on MPI
4.2 Evolution of Microfinance in PakistanThe microfinance development in Pakistan took after a exceptional developmental way in the course of the most recent decades. In the continuing passages we display the three ‘development phases’ of the division. Each stage speaks to passage of new institutional ‘structures’ in the Pakistani microfinance area.
Figure 4.2 Evolution of Microfinance in Pakistan
Source: SBP Presentation in a conference on “Microfinance in Pakistan-Innovating ; Mainstreaming” December 2004, Islamabad
The contiguous diagram show some highlights of the history.

Phase-1 (The 1970’s)
Phase-2 (Early1980’s to Mid 1990’s)
Phase-3 (Late 1990’s till the present) – Entry of Specialist MFI
4.2.1 Phase-1 (The 1970’s)4.2.1.1 Government Directed CreditThe utilization of fund (generally credit) as an improvement instrument has a history in Pakistan in the type of government coordinated/financed credit conspires especially in country zones. In late years Small Business Finance Corporation (SBFC), Youth Investment Promotion Society (YIPS), Self Employment Scheme (SES) and Yellow Cab Scheme are ordinary illustrations While SBFC and YIPS speak to a direct institutional intercession through
utilization of open assets and institutional structures.

The government actually constrained business money related organizations (generally public sector) to give concessionary financing particularly to jobless youth and business new companies. The advance defaults related with these plans influencing the money related organizations gainfulness has been broadly detailed in the prominent press. In spite of the fact that these coordinated credit programs might have brought about a transitory exchange of assets to the poorer portions of populace, there has been no long haul positive effect regarding making lasting, long haul money related intermediation instruments for poor people and the un-managed an account.

4.2.2 Phase-2 (Early1980’s to Mid 1990’s)’Aga Khan Rural Support Program’ (AKRSP) Set up in 1982 by the Aga Khan Foundation was the main Integrated Rustic Development Program of its kind, outside the administration area. It has centered its advancement intercessions on the Northern Areas of Pakistan. The later day Rural Support Programs (RSPs), started by the legislature, were motivated by the AKRSP model of provincial improvement. The primary huge scale down to earth usage and conceptualization of advancement systems, for example, “social assembly” and “group loaning approach” can be followed to AKRSP’s microfinance demonstrate started in 1982. AKRSP composed and prepared Village Organizations (VOs) and vivified them as accomplices in building up the wellbeing, training and wage creating activities in the Northern Area of Pakistan. A World Bank Evaluation had detailed AKRSP effort to 900,000 individuals in 1,100 towns of Northern Area and Chitral District of Pakistan Most essentially, approach accentuation was set on reserve funds and in addition credit in its microfinance program. Advancement experts used to wonder about the volume of reserve funds produced by the VOs in remote territories where subsistence farming was the transcendent wellspring of pay.
While AKRSP spearheaded advancement benefit arrangement in the provincial, agrarian boondocks of north Pakistan, OPP responded to the call of handling urban neediness in the greatest ghetto settlement in Pakistan’s port city and business capital Karachi. OPP was built up by Akhtar Hameed Khan , the “Comilla Pioneer” and father of provincial improvement in Pakistan. OPP was set up in 1987 and its improvement administrations incorporate lodging, sanitation and instruction. OPP acknowledged at an opportune time that microfinance is a particular action not to be stirred up with other advancement mediations and subsequently settled ‘Orangi Charitable Trust’ (OCT) in 1989. OCT concentrated only on microfinance. Strangely, OCT was propelled with an underlying credit from ‘National Bank of Pakistan’ branch in Orangi . Not at all like numerous provincial centered microfinance programs, OCT is utilizing the “singular loaning philosophy” and has deliberately fragmented its market.

4.2.2.1 The RSP ModelAKRSP figured and actualized incorporated advancement approach whereby ‘rural population’ was sorted out into VOs and the requirements organized by these group associations were accommodated through a wide scope of advancement administrations, for example, training, wellbeing, sanitation and additionally budgetary administrations (microfinance). AKRSP tried to create human, social and money related capital of the groups it worked with. This incorporated approach was imitated by government started improvement associations called Rural Support Programs (RSPs). By 2004, RSPs were working with in excess of 43,000 group associations including more than 1,000,000 family units.

Sarhad Rural Support Program (SRSP) was the primary RSP to be set up in 1989 as a replication of AKRSP show in the ‘North-West Frontier Province of Pakistan’. In the same year a Pak German advancement venture was rebuilt as a RSP and renamed as Balochistan Rural Support Program (BRSP). Later on Punjab Rural Support Program (PRSP) was additionally propelled by the Government of the Punjab region. The foundation of National Rural Support Program (NRSP) in 1992 has a unique importance. While SRSP and BRSP had commonplace concentration, NRSP was intended to be the biggest national RSP with advancement intercessions including an exceptionally eager microfinance program all finished Pakistan. The rustic centered microfinance tasks of NRSP have ventured into urban regions too under its Urban Poverty Alleviation Program (UPAP). A significant new activity of the UPAP program is “Urban Market Program in Malakand” whereby a market based NRPSP branch with just two field officers gives little credits to businesspeople and road merchants. NRSP’s UPAP has moreover been appraised by M-CRIL Rating International and doled out a rating of A-Minus suggesting “High Safety and Good Systems”. PMN Performance pointers put the NRSP microfinance program as the biggest among the PMN individuals as far as gross advance portfolio (over Rs 829 million) and also number of advances (more than 88,000).

With the previously mentioned point of view, the microfinance system amid the mid 1990’s has certain normal components; “microcredit” was utilized rather than microfinance symbolizing arrangement of just advances (and necessary reserve funds) as a social administration comparable to other improvement needs, for example, instruction, wellbeing, sanitation and so on. Microfinance best practices as we probably am aware them today were still in their developmental stages also, had not solidified into a cognizant arrangement of standards and systems even at the worldwide level.
Microfinance exercises began accepting significant benefactor ‘interest’ at that stage, likely motivated by the accomplishment of the Grameen model and its replications & motivations around the globe. Once more, the help generally centered around the arrangement of “rotating reserves” for a “credit part” which acted just as a help to some other mediation for example, instruction or wellbeing programs.

Till the mid 1990’s microfinance remained generally a “NGO Activity”. Pioneers, for example, AKRSP and OPP had set the stage additionally taken forward by different RSPs. Yet, basically, microfinance includes monetary intermediation. A few NGOs had taken up one side of this intermediation advances. While a couple, including AKRSP, gave credits as well as likewise prepared reserve funds from its customers to be stored in business banks.
The principal attack into microfinance by a directed budgetary foundation was made by a leasing organization ‘Network Leasing Corporation’ (NLCL), built up in 1995, particularly to provide microleasing administrations to private companies all through Pakistan. The most recent yearly report of NLCL indicates credit lines from Deutsche Bank Microcredit Reserve, ‘Swiss Agency for Development and Cooperation’ (SDC), and ‘Pakistan Poverty Alleviation Fund’ (PPAF). No different numbers are accessible for NLCL portfolio in microleasing. Be that as it may, the 2004 yearly report says a total of Rs 229 million as ‘lease’ portfolio in the segment titled “incidental including small scale leases”. This sum speaks to around 32% of the aggregate arrangement of Rs 712 million
While Networking Leasing Corporation is a decent case of an indigenous private area activity stretching out budgetary administrations to the grass roots populace, ‘Orix Leasing Pakistan Limited’ (OLP) speaks to the principal multinational money related administration organization to go into microfinance. Moreover, while NLCL concentrates just on miniaturized scale and little area renting, OLP is a main monetary administration organization with a variety of items.
Set up in 1986, OLP is a recorded Pakistani renting organization supported by ORIX Partnership Japan an incorporated budgetary administration organization with over $50 billion resources spread more than 23 nations. OLP began its microleasing tasks with a $ 26 million World Bank credit line and its most recent yearly report indicates ‘Swiss Agency for Development Cooperation’ (SDC) as one of its principle funders. It is the principal such activity subsidized by World Bank in Pakistan. OLP has likewise propelled its microfinance program (aside from its microleasing activity). In 2005, remarkable arrangement of microfinance add up to Rs 34.2 million
OLP and NLCL get mandatory specify as organizations that have downscaled to the poorer fragments of the populace, notwithstanding, there are two additionally renting organizations which have unobtrusively been attempting to contact poor people: ‘Crescent Leasing Corporation’ (CLC) also, ‘Al – Zamin Leasing Modaraba’.
The full scale passage of the renting division can be credited to the endeavors of the Swiss office for Development and Cooperation (SDC) which gave credit lines and specialized help to NLCL and OLP in 1999. Around the same time, SDC likewise joined forces with ‘Leasing Association of Pakistan’ (LAP) and gave it specialized help to elevating renting to smaller scale and little ventures. The SDC support to LAP and the renting segment has entered Phase III traversing 2003 to 2007.

4.2.3 Phase-3 (Late 1990’s till the present) – Entry of Specialist MFIThe later ‘part’ of 1990’s saw the section of systematic money related foundations, for example,’commercial banks’ and ‘leasing organizations’ in the microfinance field. For the most part urban based microfinance just projects came up in real urban communities of Pakistan. Administrative structures began coming to fruition, generating another microfinance institutional structure ‘The Microfinance Bank’ (MFB).
4.2.3.1 Entry of Commercial Banks
‘Commercial banks’ did not neglect to join the microfinance fleeting trend. Their social fund activities took two shapes:
Banks giving credit lines to NGO MFIs for onlending as microfinance advances
Banks giving direct/retail fund to needy individuals.
Habib Bank can be viewed as a pioneer in the roundabout loaning system. It had given a credit line of Rs 2.2 billion to NRSP for onlending as microfinance advances to provincial groups in 1999 to 2000 period. Be that as it may, the part of business banks as wholesalers of assets to MFIs have to some degree faded because of the rise of the ‘Pakistan Poverty Alleviation Fund’ (PPAF) in 2000, which gives concessionary financing to MFIs to a assortment of advancement intercessions including microfinance.

The Bank of Khyber (BOK) and the First Women Bank (FWBL), both open segment keeps money with an advancement order, set up coordinate microfinance windows. As far as effort, extension and institutional advancement, BOK was the most forceful accomplishing effective linkages with real givers and their multisectoral Area Improvement Programs, for example, the Asian Development Bank (ADB) subsidized Barani Area Development Program (BADP) and Malakand Area Development Project (MRDP) as well as IFAD financed Dir Area Support Program (DASP). BOK additionally explored different avenues regarding different microfinance items and strategies including ‘individual lending’, ‘group lending’, NGO linkages and entire offering of assets to NGOs. It likewise gave SRSP a credit line of Rs 10 million for on loaning. Nonetheless, BOK’s microfinance activity has lost its force in the course of the most recent couple of years due and there are gossipy tidbits about the microfinance program being shut down sooner rather than later. FWBL has a “special contract” as a business keep money with an improvement command for the inspire of the ladies in Pakistan. Its shareholding incorporates not just all real banks in Pakistan as well as the ‘Ministry of Women Development’. The annually report of FWBL gives the result that during the period of 1999 to 2004 small credits give to more than 31,000 borrowers amounting Rs. 793 miilion.

4.2.3.2 Microfinance Banks (MFB)’Apart form Khushhali Bank and First Women Bank many other banks have been established under the new SBP Microfinance Regulatory.’
Figure 4.3: Distribution of respondents by peer groups

Source: Pakistan Microfinance Review 2015
4.2.3.2.1 First Microfinance Bank Ltd. (FMFB)The First Microfinance Bank Ltd, Pakistan (FMFB-P) was set up in 2002 as an across the nation microfinance bank, authorized by the State Bank of Pakistan. FMFB-P was made through an organized change of the credit and funds segment of the Aga Khan Rural Support Program’s (AKRSP), an incorporated improvement program to pioneer the microfinance segment in the nation since 1982 in Gilgit-Baltistan and Chitral. FMFB-P was set up with the mission to react to neediness and adds to the social and monetary prosperity of society by giving chances to a large number of under-advantaged families. Through focused money related and multi-sectoral items and administrations in view of the developing needs of poor people, FMFB-P empowers its customers to fortify their entrepreneurial base and assemble budgetary, physical and human cash-flow to secure their future.

4.2.3.2.2 Khushhali BankIt was established in the year 2000, Khushhali Microfinance Bank Limited (some time ago known as Khushhali bank Limited) was a component of the Government of Pakistan’s Poverty Reduction Strategy and its MSDP. To be a main Micro Finance Bank giving money related administrations to Micro, Small and Medium Enterprises and low wage family units crosswise over Pakistan.

Khushhali Achieves SMART Certification another development accomplished. Khushhali Bank picked to acquire SMART Certification utilizing Microfinanza Rating (MFR) with help from the Pakistan Microfinance Network. Keen Certification is an autonomous, third party evaluation to freely recognized as financing institution to serve their clients in a protective way. It motivate monetary foundations to show loyalty to the defend the rights of the people
4.2.3.2.3 Advans Pakistan Microfinance BankAdvans Pakistan Microfinance Bank is the 6th green field of the advans grouping. It was established as the PLC under the Companies Ordinance, 1984 in April 17, 2012. It was get the permit from the SBP in June 28, 2012 to start its operations in Sindh as MFB. The aim of the bank is to serve the MFB services to the low-scale people and to whom who are ignored by the society as served in the MFIs Ordinance, 2001.

As a listed MFB , Advans Pakistan Microfinance Bank Ltd. gives the full fledged services to miniaturizes scale, little and middle size organizations. The average amount of advances is among from 10 thousand to 5 hundred thousand and offer different types of accounts to the people and also the organizations to fulfill their needs.

4.2.3.2.4 Pak Oman Microfinance Bank Ltd.It was initiated on May 21, 2006 as an across the nation microfinance bank. The bank has a Paid-up capital of PKR 1 billion. Its Sponsors are Govt. of Sultanate of Oman with 67% shareholding and Pak Oman Investment organization (joint venture between Govt. of Pakistan and Sultanate of Oman) with 33% shareholding. The Bank is putting forth a scope of smaller scale credit and micro reserve funds items and administrations and tries to wind up plainly a engine of employment creation for the under advantaged fragments of its general public.

4.2.3.2.5 U Microfinance Bank Ltd. (U Bank)U Microfinance Bank Ltd. (U Bank) is a wholly owned subsidy of Pakistan Telecommunication Company Limited (PTCL) Etisalat Company. The bank has a system of 75 touch focuses, crosswise over 70 urban areas and provincial territories in Pakistan and offers an extensive variety of microfinance credits, store items and branchless saving money arrangements. U Bank’s branchless managing an account offers benefits under the pennant of U Paisa as a team with Ufone (Pak Telecom Mobile Limited). The administration is offered at almost 45,000 specialist areas crosswise over Pakistan.
U Microfinance Bank is glad to be at the cutting edge of battling destitution in Pakistan and is committed to have its basic influence in the execution of National Financial Inclusion Strategy 2020 that plans to get half of Pakistan’s grown-up populace to saving money net.
At U Microfinance Bank, it solidly trust that entrance to microfinance administrations contribute altogether towards building a more comprehensive society prompting getting underserved populace to saving money net and also help report the casual economy. Our item portfolio is intended to consistently make employments for the underserved populace of Pakistan and convey advancement to their lives.

4.2.3.2.6 Kashf FoundationKashf Foundation is Pakistan first specialized microfinance establishment which was made with the mean to ease destitution by giving a suite of great moderate money related and non-budgetary administrations to low wage families, particularly women, keeping in mind the end goal to fabricate their ability and upgrade their monetary part. Despite the fact that Kashf started its voyage as a microfinance establishment, today it is situated as a riches administration bunch since it gives a one window answer for its customers for ensuring and dealing with their riches and upgrading their profitability and assets. Kashf was begun in 1996 as an activity explore program, and throughout its advancement, Kashf has possessed the capacity to help several thousands of low-salary family units, particularly ladies to lead lives of pride through monetary strengthening by means of money related access. Kashf’s products and administrations are particularly outlined keeping in see the customers’ business and life-cycle needs.

4.2.3.2.7 Apna Microfinance BankApna Microfinance Bank oversaw by Group of exceedingly experienced investors conferred and represented considerable authority in giving money related administrations to less favored/negligible poor including financial strengthening of WOMEN and miniaturized scale business people in the Agri and Micro ventures in country ranges of Pakistan. It is a private business Microfinance bank, at present authorized by the SBP under the Microfinance Ordinance, 2001 to work its operations across the country.
Its fundamental concentration is to give customized administrations to the poor portion of the general public through its devoted Products that plans to change their way of life by entering them in miniaturized scale business people at a most reduced markup rate in the market.
Its plan to orchestrate limit working of underserved masses by enhancing dispositions, aptitude, information and capacity to start and oversee financially feasible tasks.
Its plan to give funds, progresses and other credit offices for the improvement of horticulture and country market part including generation, promoting and house back offices.
To prepare funds by tolerating stores in Savings and other particular store items. We plan to consolidate the information based with the present day administration system, most recent innovation, complex money related instruments, all inclusive Micro-saving money ideas and current corporate sciences.
Its mean to make and propagate a culture of adjusted approach for the improvement of market related aggressive and inventive money related administrations. Presenting a culture of advancement with a view to locate the acceptable solutions for real and conceived obstructions for promoting a genuine microfinance administration.

Figure 4.4 : Depositors

Source: Pakistan Microfinance Review 2015
4.2.3.3 National Rural Support Program (NRSP)’NRSP’ is the biggest RSP in Pakistan established in 1991 in terms of hard work, employees and expansion practices. It is a non-profit association registered under sec-42 of Companies Ordinance 1984.

‘NRSP’ aim is to reduce the destitution by tackle the potential of the people and grab the expansion practices in Pakistan. It works in sixty four districts in all four provinces of Pakistan. ‘NRSP’ is serving more than three million people. The growth is constant of microfinance in Pakistan by which it can remove the poverty and improve the lives of the people in rural areas.

‘NRSP’ main aim is to serve the organizations which are in the initial phase try to capable rustic groups to make strategy for expansion practices and implement and manage this strategy in order to increase employment, poverty reduction and provide better standard of living.

‘NRSP’ was established as a help association to guide the people how to live in a community. The directing principles of ‘NRSP’s’ reasoning is just sort out country groups build up their budget through the best possible options either through by advances or by available cash, well being of mankind and correspondence with other organizations. ‘NGO’ plays the role of a supporter among different clusters that’s why it is also provide services and maintain its relationship with the ‘NRSP’.

There is a chance of being a bias in ‘NRSP’. The organization should meet the structured needs of the people which they are expecting form ‘NRSP’.

To accomplish main objective the solid indicator of research the people eagerness that’s the consequence from the previous practices for complete shows the loyalty for job. To prepare people eagerness by arrangement of community support.

‘NRSP MEDP’ is giving small loans from 1992. The Program gives administrations to males and females in rustic zones, fulfilling advances & protection desires of ranchers by harvest & domesticated advances.
‘NRSP’ by and by give complete scope of small credit Items:
Microcredit can be accessible through the NRSP MFB, the NRSP MEDP and the UPAP that offer services to ladies customers.
MEDP charges enthusiasm at the rate of 28% yearly on declining balance.
UPAP charges enthusiasm at the rate of 30% yearly on declining balance.
The bank items can be accessible through NRSP-MEDP and the NRSP MFB.
Protection can be accessible through NRSP MEDP, UPAP and the MFB.

4.2.3.4 Pakistan Microfinance Network (PMN)The Pakistan Microfinance Network (PMN or ‘the Network’) follows its beginnings to 1997 when a gathering of microfinance experts established its frameworks as a casual stage for coordination, trade of thoughts and associate learning. From that point forward the Network has developed altogether and is presently perceived locally and universally as the national relationship for retail players in Pakistan’s microfinance industry. Enlisted with the Securities and Exchange Commission SECP in April 2001 under Section 42 of the Companies Ordinance, PMN is a part determined system with a dream to extend access to formal money related administrations in Pakistan.
The Pakistan Microfinance Network discovers it starting points in 1995 as a casual affiliation in light of the trading of musings and encounters between microfinance suppliers working in Pakistan. In 1999 this free coordinated effort, the Microfinance Group Pakistan, looked for and got budgetary help from the Aga Khan Foundation and the Asia Foundation. Through its growing and more formalized activities it kept on building certainty and trust among benefactors, government and microfinance establishments. In 2001 it moved effectively to wind up a different lawful element under the name of the Pakistani Microfinance Network (PMN).

The PMN seeks after this mission through three essential targets:
Advancing an empowering domain that advantages crafted by all partners.
Building the limit of partners, particularly that of retail microfinance establishments.
Going about as a data door by dispersing industry significant data, enhancing straightforwardness, advancing benchmarking, and filling in as a data center.

4.2.3.5 Pakistan Poverty Alleviation Fund (PPAF)The Pakistan Poverty Alleviation Fund (PPAF) is the main foundation concentrated on taking out destitution in Pakistan. As one of the biggest foundations spending on poor people, PPAF encourages open private organizations that have a shared objective to accomplish social and monetary change in Pakistan by tending to the multi-dimensional issues of neediness.
Built up by the Government of Pakistan as a self-ruling not-revenue driven organization, PPAF started its activities in 2000. Up to this point, it is working crosswise over 130 areas in the nation with 130 accomplice associations.
PPAF works through CSO that are esteem driven and in view of unbiased and comprehensive models organized particularly to focus on the poorest and most minimized districts of Pakistan. In making these cooperations, PPAF centers around guaranteeing that these accomplice associations are very much administered and straightforwardness and responsibility remains need. Through these cooperations, PPAF stretches out help to groups in desperate need of enhancing their foundation, wellbeing and instruction offices. It additionally creates strength to debacles and enhance vitality assets. It has an effort crosswise over Pakistan (130 locale), supporting groups to get to enhanced foundation, vitality, wellbeing, instruction, employments, fund, and create strength to debacles. We plan to guarantee that our center estimations of social incorporation, support, responsibility, straightforwardness and stewardship are incorporated with all procedures and projects. PPAF has put resources into building up the limits of our 130 actualizing accomplices (common society associations), around 120,000 sorted out group gatherings, 440,000 group credit gatherings, 11,800 town associations, and more than 800 association board level leagues to date.
With an ordeal of over 10 years, PPAF presumes that nearby and group based foundations are critical to making a positive result and demonstrating viable. All together for neediness lessening endeavors to be fruitful over the long haul, PPAF welcomes support from different partners who show possession and duty. PPAF is pleased to have fabricated unions and associations inside the national open and private part, both, and also working with universal organizations.
PPAF’s neediness graduation approach has been attempted and tried effectively and is bolstered by the Government of Pakistan and various givers. To date, the association has dispensed USD 2 billion through gifts and money related administrations in different projects focusing on the powerless groups and zones of the nation. It is glad to have had such a huge effect through its different methodologies and centered activities, and expects to keep fabricating and supporting associations coordinated towards dispensing with neediness in Pakistan and engaging the neighborhood populace.

CHAPTER 5RESULTSThe outcome of our research as we find the facts about the THE DEVELOPMENT OF MICROFINANCE SECTOR IN PAKISTAN.

Microfinance offers ‘financial services’ to the people and its role is remarkable in poverty alleviation. We discussed the history & development of microfinance in Pakistan. There are three phases of the evolution of microfinance in Pakistan. Phase-1 includes the period of 1970’s, Phase-2 includes the period of early 1980’s to mid 1990’s & Phase-3 includes late 1990’s till the present. In this era there was entry of Specialist MFI. According to the data of this study we can say that the microfinance get more importance now a days. People get small loans according to their requirements.

There are many industry players by which we gathered data of distribution of respondents by peer group. MFI get 66 percent, MFB get 27 percent & NRSP get 23 percent.

The performance of microfinance industry is incredible in poverty alleviation in Pakistan by offering PPAF, PMN and number of microfinance banks and microfinance institutions that helps the poor & low income people to solve their financial problems by giving loans on easy terms & conditions. There is also the services of NRSP who help people to reduce their poverty.

5.1 Conclusion: Microfinance is the arrangement of budgetary administrations, more often than not as little estimated budgetary exchanges to individuals who can’t access such administrations from ‘commercial banks’. Microfinance got ‘importance’ in Pakistan at the end of 1990s. Khushali Bank was the first specific microfinance bank ‘established’ in 2000 under a unique mandate. The growth of microfinance sector in Pakistan is continues in Pakistan. The PPAF, NRSP, PMN are the basic elements to reduce destitution in Pakistan. The main objective is to currently facilitate the thirty millions borrowers. Microfinance provides financial services just 6 hundred thousand people in 2006, which was increased to 3 millions in 2010 and reached to 10 millions in 2015. Microfinance provides more opportunities to the low income group in Pakistan that’s why people make their living standard better. But there is also need to provide more financial services to the needy people. The MFBs should find the people who actually need the services. The study reveals that there is the high growth rate in the microfinance industry in near future.
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