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Micro financing by Commercial Banks The regulatory initiatives

Micro financing by Commercial Banks The regulatory initiatives. Qasim Nawaz Director, SMEs & Microfinance Department State Bank of Pakistan. Background. Need for Microfinance Expansion of outreach by all market participants A viable business Model

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Micro financing by Commercial Banks The regulatory initiatives

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  1. Micro financing by Commercial Banks The regulatory initiatives Qasim NawazDirector, SMEs & Microfinance DepartmentState Bank of Pakistan

  2. Background Need for Microfinance • Expansion of outreach by all market participants • A viable business Model • Already developed in some countries on sustainable basis Definition • Provision of financial services to poor • In order for a person to qualify for Microfinance; his/her earnings should be less than the Tax able limit- • Maximum Loan per person is Rs 100,000/- Enhancement to Rs 150,000/ under consideration

  3. Government Initiatives • Microfinance Sector Development Program (MSDP)-ADB funded (US$150 million) • facilitated the establishment of Khushhali Bank as a model retail MFB • provide support for the institutional strengthening of licensed MFBs • Established KB • Legal Framework (MFIs Ordinance 2001) • Commercial players commenced banking with the poor • MF sector players can move from NGO/MFI towards a regulated MFB • Apex Institution – PPAF • A wholesale window for NGOs/MFIs for funding their on-lending and capacity building • New Bank Fund • valuing US$15m established with the assistance of ADB • assistance for Capacity building of new licensed MFIs at Provincial & District level.

  4. SBP Initiatives • Licensing Criteria for Establishing MFBs- parameters for new entrants establishing an MFB • Prudential Regulations for MFBs- framed in consultation with all stakeholders (evolving nature & characteristics of MF in Pakistan) • Mobile Banking Guidelines - for outreach expansion in cost effective manner, ensuring proper risk mitigation • Fit and Proper Criteria – for Board members & President/CEO of MFBs • NGO-NRSP Transformation Guidelines • Policy Formulation through Consultative Mechanism • Guidelines for Commercial Banks to undertake MF – an effort to increase outreach through multi-institution approach.

  5. The Sector-Outreach (Microfinance Banks) As of 30-06-2006 • Nation-wide MFBs 4 • District Based MFBs 2 • Total MFBs 6 • Total Branches of all MFBs 112 • Service Centers 141 • Loans Outstanding Rs. 2,739 m • Deposits Rs. 746 m • Active Borrowers 266,720 • Active Depositors 35,888

  6. Expansion of outreach- Why Commercial Banks? • Large Branch Network across the Country- especially in rural areas- Market presence since long • Access to Stable Sources of Funds-Large deposit base • Established Accounting, Information & Internal Controls Systems w • Established Fund Management & Treasury Systems • High Impact- Agricultural Credit experience

  7. Commercial Banks and Micro financing- Issues and challenges • Commitment from Highest Level • Change in traditional mindset • Reorientation & training of staff • Development of demand driven & research based products • Business Approach

  8. Guide Lines for micro financing by Commercial Banks- Modes For Commercial Banks • MF counters in existing branches • Standalone MF Branches • Establishment of Independent subsidiaries • Linkages with NGO-MFIs

  9. Mode 1- MF Counters • Requires minimal changes in organizational structure. • Cost effective. • No approval required from SBP. • Counter Manger Either Report to Branch Manager or the Division at Head Office-as per bank’s discretion

  10. Mode II- Standalone MF Branches • MF Exclusive Branches with separate MF Division at head office. • Separate Division to operate as HO for the MF Branches • The Banks to submit detailed plan to SBP to initiate MF Business along with detail of branches to be converted and CVs of the key persons • On satisfaction SBP would give its consent • No separate license & fee required.

  11. Mode III- Establishment of MFB as Subsidiaries • CB may also establish MFBs with independent board & management. • Existing branches having substantial MF growth potential may be clubbed together & transformed into an independent MFB as a subsidiary of the CB. • CB may opt for either District, Regional, Provincial or National License for their subsidiary • Subsidiary may enter into an agreement with the bank for using the treasury & fund management operations.

  12. Model IV-Developing linkages with MFIs • Partnership with the NGOs. • No change in the organizational structure. • No approval required from SBP • Banks may opt for whole-sale lending to NGO-MFIs for their on-lending needs, and/or • Banks may develop linkages/agency arrangements for extending loans through NGO-MFIs • Separate Prudential Regulations for Microfinance issued

  13. The way forward- • Banks to firm up their business plan for Microfinance • Option to choose the mode remains with Banks • Further consultation & facilitation if any is welcomed-SBP will have a detailed and focused discussion with Commercial banks

  14. THANKS

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