Pakistan Microfinance Review 2010 - PMN / Headbumped Studio by Headbumped Studio

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Pakistan Microfinance Review Annual Assessment of the Microfinance Industry

FINANCIAL SERVICES FOR ALL.

Copyright c 2011 Pakistan Microfinance Network 132, Street 40, F-10/4 Islamabad, Pakistan Telephone: +92 51 2292231 Fax: +92 51 2292230 www.pmronline.info

Edited by Ali Shahrukh Pracha

The Pakistan Microfinance Review is published annually by the Pakistan Microfinance Network. This report is supported with a soŌware applicaƟon: www.pmronline.info All rights reserved. The data in this report have been carefully compiled and are believed to be accurate. Such accuracy is not however guaranteed. No porƟon of this publicaƟon may be reproduced in any format or by any means including electronically or mechanically, by photocopying, recording or by any informaƟon storage or retrieval system, or by any form or manner whatsoever, without prior wriƩen consent of the author and publisher of the publicaƟon. Disclaimer: Neither Pakistan Microfinance Network (PMN), the Pakistan Microfinance Review’s Editorial Board, nor PMN’s funders accept responsibility for the validity of the informaƟon presented or consequences resulƟng from its use by third parƟes.

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Contents

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Pakistan Microfinance Review Annual Assessment of the Pakistan Microfinance Industry

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Contents

Editorial Board Ghalib Nishtar Chairperson, Editorial Board President, Khushhali Bank

Syed Samar Hasnain Director, Agriculture Credit and Microfinance Department State Bank of Pakistan

Blaine Stephens COO and Director of Analysis Microfinance Information eXchange, Inc. (MIX)

Waqas-ul-Hassan Private and Financial Sector Development Advisor Department for International Development (UK)

Ahmad Jamal Senior Advisor Pakistan Poverty Alleviation Fund

Agha Ali Javad General Manager National Rural Support Programme

Salim N Jiwani Independent Consultant

PMN Team Mehr Shah Independent Consultant

Ali Basharat Author and Managing Editor

Syed Muhammad Ali Data Collection and Compilation Pakistan Microfinance Network (PMN) is grateful to all contributing organizations for making their financial information available for the publication of the Pakistan Microfinance Review, 2010. Pakistan Microfinance Network would like to thank DFID (UK Aid), Pakistan Poverty Alleviation Fund (PPAF) and Citi Bank for their support in the continued production of this publication.

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Contents

Exchange Rates Currency

Symbol

Exchange rate to PKR

Euro

â&#x201A;Ź

104.82

Great Britain Pound

ÂŁ

128.35

US Dollar

85.51

PLEASE NOTE: For the Government of Pakistan the financial year (FY) covers July to June time period, e.g., FY 2010 commenced July 1, 2009 and closed June 30, 2010.

Sources for the exchange rates listed above: www.sbp.org.pk/ecodata/rates/m2m/M2M-History.asp

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Contents SECTION 1: THE YEAR IN REVIEW 1.1. 1.2. 1.3. 1.4.

Macro Economy and the Microfinance Industry Policy Environment and the Microfinance Industry Microfinance Industry Initiatives Conclusion

2 4 5 8

SECTION 2: INDUSTRY PERFORMANCE 2.1. Industry Overview

2.1.1. Funding Profile

2.1.2. Gender Distribution

2.1.3. Depth of Outreach

2.1.4. Portfolio Breakdown

2.2. Asset and Funding Structure

2.2.1. Asset Composition

2.2.2. Funding Profile

2.3. Profitability and Sustainability 2.4. Risk Assessment

15 16

2.4.1. Credit Risk

2.4.2. Market Risk

2.4.3. Operational Risk

2.5. Efficiency and Productivity Assessment

2.5.1. Expense Structure

2.5.2. Staff Performance

2.6. Wrap-Up

SECTION 3: THE WAY FORWARD 3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 3.7.

Branchless Banking Islamic Microfinance Micro Insurance Microfinance CIB Risk Mitigation and Deposit Protection Fund Diversification of Funding Options Corporate Governance

20 21 21 21 22 22 22

ANNEXURES Annex AI: Annex AII: Annex B: Annex C: Annex D: Annex E:

Performance Indicators – Industry (2006-2010) Performance Indicators – Institutional and Peer Group (2010) Regional Benchmarks Sources of Data Adjustments to Financial Data Terms and Definitions

27 33 60 61 72 75

Pakistan Microfinance Review 2010

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Contents

Acronyms and Abbreviations ADB

Asian Development Bank

MFB

Microfinance Bank

BISP

Benazir Income Support Programme

MFCG

Microfinance Consultative Group

BPS

Basis Points

MF-CIB

Microfinance Credit Information Bureau

CIB

Credit Information Bureau

MFD

Microfinance Division

CPI

Consumer Price Index

MFP

Microfinance Providers

CPC

Consumer Protection Code

MFI

Microfinance Institution

DFI

Development Finance Institution

MIOP

Microfinance Innovation and Outreach Programme

DFID

Department for International Development, UK

MoF

Ministry of Finance

DPF

Depositorâ&#x20AC;&#x2122;s Protection Fund

MSDP

Microfinance Sector Development Programme

ECA

Eastern and Central Europe

NRSP

National Rural Support Programme

EUR

Euro

OAEM

Other Assets Especially Mentioned

Financial Institution

OPP

Orangi Pilot Project

FIP

Financial Inclusion Programme

OSS

Operational Self Sufficiency

FMFB

The First Microfinance Bank Ltd.

PAR

Portfolio at Risk

FSP

Food Support Programme

PBM

Pakistan Bait-ul-Mal

FSS

Financial Self Sufficiency

PKR

Pakistan Rupee

Financial Year

PMFF

Pakistan Microfinance Fund

G2P

Government to People

PPAF

Pakistan Poverty Alleviation Fund

GBP

Great Britain Pound

PRI

Pakistan Remittance Initiative

GLP

Gross Loan Portfolio

PRISM

Programme for Increasing Sustainable Microfinance

GNI

Gross National Income

PRSP

Poverty Reduction Strategy Paper

GoP

Government of Pakistan

RCDS

Rural Community Development Society

HDI

Human Development Index

ROA

Return on Assets

IAFS

Improving Access to Financial Services

ROE

Return on Equity

IDP

Internally Displaced People

RSP

Rural Support Programme

IFAD

International Fund for Agricultural Development

SAP

Structural Adjustment Programme

IMF

International Monetary Fund

SBI

Shore Bank International

IPO

Initial Public Offering

SBP

State Bank of Pakistan

ISF

Institutional Strengthening Fund

SRSP

Sarhad Rural Support Programme

JPY

Japanese Yen

SSC

Special Saving Certificate

KBL

Khushhali Bank Ltd.

TAP

Technical Assistance Provider

Kashf Foundation

TMFB

Tameer Microfinance Bank Ltd.

KfW

Kreditanstalt fur Wiederaufbau

TRDP

Thardeep Rural Development Programme

KIBOR

Karachi Inter-Bank Offering Rate

UNDP

United Nations Development Programme

KMFBL

Kashf Microfinance Bank Ltd.

USAID

US Agency for International Development

Khyber Pakhtunkhwa

USD

United Sate Dollar

MCGF

Microfinance Credit Guarantee Facility

WPI

Wholesale Price Index

MENA

Middle East and North Africa

YPP

Young Partner Programme

Pakistan Microfinance Review 2010

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

1 ANNEXURES

1.1. Macro Economy and the Microfinance Industry 1.2. Policy and Regulatory Environment and the Microfinance Industry 1.3. Microfinance Industry Initiatives 1.4. Conclusion

1. The Year in Review Pakistan’s microfinance industry started 2010 aiming for stability and growth. The last three years have been challenging as the country experienced large-scale population displacement from its northwest region in the wake of a deteriorating security situation, a general economic slowdown due to reduced local and foreign investment, and a severe energy crisis. However, the floods of August 2010 resulted in a further extension of the industry’s recovery phase. Pakistan’s macroeconomic and fiscal targets had to be revised within a month of the start of the fiscal year (FY).1 The agriculture sector in particular took a significant hit. As a result, the modest acceleration in credit outreach in the first half of 2010 was squeezed once again in the last two quarters of the year.2 The continued inadequacy of funds for expansion reinforced the squeeze on credit growth. Although a number of foreign investors explored the local market for retail partners in 2009 and 2010, high lending rates (due to increased country risk and the prevalence of subsidized lending) served as a disincentive for retailers to work with off-shore funders. Simultaneously, donor preference for industry development initiatives such as debt and innovation guarantee funds and technical assistance funds (as opposed to money directly routed to retail players for on-lending) further shrank traditional sources of subsidized funding utilized by the industry during its previous growth spurt. However, a positive outcome of this inadequacy has been an increase in the pace to tap depositors. In 2010, numbers for depositors increased at an encouraging 65 percent compared to the previous year. Interest in equity funding is also emerging as some institutions have started to approach their capital limits and therefore begun to explore initial public offering (IPO) and additional shareholder options. Access to adequate funding for more rapid growth continues to present a bottleneck, the resulting slowdown in credit outreach growth has not necessarily been a negative thing for the industry. The search for more sustainable fund sources such as deposits and equity investments is expected to have positive implications for the industry in the medium to long term. As the incentive structure for the industry is altered, there is already some evidence of improving industry fundamentals in terms of

financial performance. Although a detailed analysis of financial performance per se is the topic of the following section of this report, it is sufficient to say that in line with the previous year, industry fundamentals in 2010 have continued to indicate a positive trajectory in terms of financial sustainability, efficiency, and overall risk management. Forward movement in terms of policy direction also demonstrates sustained commitment by the State Bank of Pakistan (SBP) to integrate microfinance into the overall financial landscape of the country. Avenues for integration are being explored through experimentation of combining technology with financial services by catalyzing branchless banking in the country. Industry infrastructure is simultaneously being pumped up in anticipation of future expansion and integration. Initiatives already backed by the SBP in partnership with donors, the Pakistan Poverty Alleviation Fund (PPAF), and the Pakistan Microfinance Network (PMN) include a credit bureau for microfinance, improved disclosure requirements, discussions on a disaster management fund, and uniform regulation for non-bank industry players. As the industry evolves and establishes a presence within the financial landscape of Pakistan, it is important to monitor its progress in order to inform stakeholders on multiple levels. The performance of Pakistan’s microfinance industry is the subject of the Pakistan Microfinance Review (PMR). The report provides a multi-layered assessment of the industry and its players: SECTION 1 provides a bird’s-eye view of the sector, taking into account macroeconomic performance and policy and regulatory changes likely to impact the industry. SECTION 2 provides a detailed analysis of the industry, disaggregating the numbers by peer group and, where necessary, by individual institution. A more nuanced view of the industry is obtained through this de-averaging exercise. Based on this macro, meso, and micro-level assessment, SECTION 3 identifies potential opportunities and challenges for the industry and its upstream and downstream constituents, i.e., regulators, policymakers and investors, and clients, respectively. It should be noted that the data used for the PMR 2010 is drawn from the audited accounts of 23 reporting

1 The fiscal year in Pakistan commences in July and ends in June the following year. 2 MicroWatch, Volume 18 Jan–Dec, 2010.

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

1.1. Macro Economy and the Microfinance Industry 1.2. Policy and Regulatory Environment and the Microfinance Industry 1.3. Microfinance Industry Initiatives 1.4. Conclusion

microfinance providers (MFPs). The discussion in SECTION 2 is backed solely by industry data for the year prior to publication. A more forward-looking approach has been adopted in SECTION 1 and SECTION 3. Where possible macroeconomic data for 2011 has been incorporated into the discussion to enable the reader to acquire as current a sense of Pakistan’s industry as possible.

1.1 Macro-economy and the Microfinance Industry The present government began its term in office in 2008 with an inherited backlog of problems - fiscal deficits, electricity shortages, security expenditures, rising militancy, the resettlement of internally displaced people (IDPs), low economic growth, and persistent inflation. The year 2010 brought new and totally unexpected internal and external challenges such as the devastating floods that created huge losses in the agriculture and livestock sectors3 and in the country’s physical infrastructure, and the current spike in oil prices that peaked at USD 120 per barrel twice in FY 2011.4

Baluchistan. Damage in Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan (GB) was relatively minor. Since the rural microfinance portfolio is largely concentrated in Punjab and Sindh, the impact on some organizations was inevitable. In total, the portfolio affected has been estimated at PKR 3.4 billion i.e., 13 percent of the overall portfolio which stood at PKR 26.4 billion at the time of the floods. This estimate does not include the proportion of the loan portfolio that was rescheduled. The rescheduling was meant to assist micro-borrowers by increasing the tenor of their loans to give them the breathing space required to recover from their losses. Whether or not the desired results materialize, remains to be seen. Real GDP growth in FY 2011 is estimated to remain at around 2.4 percent compared to the original target of 4.5 percent. The setback is due mainly to the agriculture sector which was badly affected by the floods. In addition, the persisting energy crisis will also continue to weigh down growth rates across all segments of the economy, including micro and small businesses. Thus, both urban and rural credit demand for productive purposes is likely to remain feeble.

The floods forced the government to divert resources for IDP rehabilitation and infrastructure reconstruction. Reconstruction cost estimates by province are given in EXHIBIT 1.1, which reveal that Sindh suffered the greatest losses followed by Punjab, Khyber Pakhtunkhwa (KP), and

Inflation however, continues to be a challenge for the Government. An upward trend persisted in all indices used to measure inflation during FY 2011 (see EXHIBIT 1.2). The consumer price index (CPI) averaged 14.1 percent during the period July 2010–April 2011, the wholesale price index (WPI) 23.3 percent, and the

EXHIBIT 1.1: DAMAGE AND RECONSTRUCTION COSTS OF CRITICAL INFRASTRUCTURE, BY PROVINCE

EXHIBIT 1.2: TREND IN INFLATION

Damage (billion PKR)

Reconstruction cost (billion PKR)

Azad Jammu and Kashmir

Baluchistan

Federally Administered Tribal Area

Islamabad Capital Territory

Gilgit Baltistan

Khyber Pakhtunkhwa

100

106

Punjab

219

Sindh

373

228

Total

855

578

WPI

CPI

SPI 23.7

25 20.9

20 Percentage

Territory

14.9

15 10

14.6 14.2

17.1 19.1

20.1

27.9 27.9 24.5

22.6 21.4

15.9

5 0

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Source: Inflation Monitor 2011, SBP

Source: National Flood Reconstruction Plan, 2010

3 The floods wiped out about two percentage points from the GDP growth and caused USD 10 billion worth of damage. Some 20 million people were displaced as more than 50,000 sq. km of land was submerged. 4 http://www.finance.gov.pk/survey/chapter_11/Overview%20of%20the%20Economy.pdf

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

3 ANNEXURES

1.1. Macro Economy and the Microfinance Industry 1.2. Policy and Regulatory Environment and the Microfinance Industry 1.3. Microfinance Industry Initiatives 1.4. Conclusion

sensitive price index (SPI) 18.2 percent, which are higher than the corresponding period of the last fiscal year. The primary reason for this continued inflationary pressure is public sector borrowing in the aftermath of the floods. External financing flows had dried up due to difficulties in the Structural Adjustment Program (SAP) with the International Monetary Fund (IMF). Insufficient funds from non-bank sources (such as the limited uptake of sovereign bonds in international markets) resulted in a borrowing of PKR 342.2 billion from the central bank to finance the fiscal deficit through most of the first half of FY 2011. Other factors contributing to the inflationary pressure include rising international oil prices and shortages of key consumer items in the market. The SBP has raised the policy rate by 150 basis points (bps) to address the inflationary pressure, since July 2010. In August 2010, the policy rate was increased by 50 bps to 13 percent; in November 2010, it was increased by a cumulative 100 bps to 14 percent. The policy rate stands at 13 percent as of June 2011. As a result, commercial borrowing continues to be an expensive option for the microfinance industry, with commercial loans procured under various guarantees priced in a range of KIBOR plus 200 basis points. Poverty levels have been rising in Pakistan due to high food prices, a slowdown in the economy, and the floods of 2010. Food inflation has averaged 18 percent over the last four years.5 This has resulted in an erosion of consumer purchasing power, especially of the poor as food makes up 48.1 percent of household consumption expenditure.6 According a study, “Global Food Price Inflation and Developing Asia”, conducted by the Asian Development Bank (ADB), a ten percent increase in domestic food prices for one year can push an additional 3.47 million people below the $1.25-a-day poverty line, and worsen the poverty situation by 2.2 percent. The slowdown in economic growth since FY 2005 has had an observable impact on poverty reduction. The poverty situation has been compounded by the 2010 floods that affected over 20 million people. In this context, growth in microfinance credit outreach is likely to be cautious. In response to the increase in poverty, the Government has introduced a number of social safety net programs in addition to existing ones like the Pakistan Bait-ul-Mal (PBM), with the objective to provide financial support to

population segments living below a poverty line of PKR 110 per day (USD 1.25). • The Benazir Income Support Programme (BISP) The BISP envisages a monthly cash grant of PKR 1,000 to female-headed households with a monthly income of less than PKR 6,000. The aim is to ameliorate the conditions of the poorest of the poor through targeted subsidies. In the short to medium term, BISP is also intended to serve as a platform for complementary social assistance programs, the main being health insurance for the poor and vulnerable. An amount of PKR 15.3 billion was disbursed during FY 2009 while PKR 32 billion was disbursed in FY 2010. An allocation of PKR 50 billion has been kept during FY 2011 for this purpose. With the up-coming elections, this number is unlikely to come down in the short term. • Waseela-e-Haq This component of BISP was launched in October 2009 with the objective of providing interest-free loans. A total of 750 registered beneficiaries of BISP under the current targeting mechanism are selected through a monthly draw. The targeting mechanism is designed to identify a niche that can repay, but have no access to financial service providers. Each of them are provided with an interest-free loan worth PKR 0.3 million, repayable in installments over a period of 15 years. • Pakistan Bait-ul-Mal (PBM) A total of PKR 2,261 million was disbursed in FY 2010 against PKR 3,432 millions in FY 2009, registering a 34 percent decline in disbursements and an 82 percent increase in beneficiaries (1.16 million to 2.11 million). The main reason behind this sharp decline in overall disbursement was the closure of PBM’s Food Support Program (FSP) in FY 2010; the FSP was merged into BISP. With the launch of these safety net programs, the Government initiated structured targeting of the poorest segments of the population in the country. The introduction of targeted subsidies is a clear indication policymakers are starting to understand that poverty encompasses an entire spectrum of people, some of whom need more support than others. This nuanced view of poverty bodes well for Pakistan’s microfinance industry, which has had to fill the vacuum that persisted with no safety net programs in place. As these safety net

5 Pakistan Economic Survey, 2010–11. 6 Household Integrated Economic Survey (HEIS), 2011.

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

1.1. Macro Economy and the Microfinance Industry 1.2. Policy and Regulatory Environment and the Microfinance Industry 1.3. Microfinance Industry Initiatives 1.4. Conclusion

programs find their feet, the microfinance industry is expected to take its rightful place as a financial industry player with a double bottom line ethos. Overall, the macroeconomic situation in Pakistan remained stressed in FY 2011 in the aftermath of the floods and the continuing fallout of the war on terror. Inflation stayed above the single-digit range, the budget deficit increased, and the policy rate was maintained at around 13 percent. The GDP growth rate was revised to 2.4 percent for FY 2011 compared to the target of 4.5 percent, primarily because the agriculture sector recorded a modest growth of 1.2 percent in FY 2011 against a target of 3.8 percent. Other factors that challenged the economy in 2010 were increasing oil prices, the gradual removal of government subsidies on utilities, increasing circular debt in the power sector, and increased losses in government-owned enterprises.

1.2 Policy and regulatory environment and the microfinance industry Following its success in laying the regulatory foundation for Pakistan’s microfinance industry, the Ministry of Finance (MoF) tasked the SBP with developing a policy framework for microfinance. The draft strategy was presented to the Microfinance Consultative Group (MFCG), drawing representation from key stakeholders including the MoF, the (PMN), and various MFPs and donors. The views of MFCG were incorporated into the final draft. The strategy was further refined in light of recommendations from the Pakistan Branchless Banking Conference, conducted by the SBP. The MoF has supported the strategy. The resulting “Strategic Framework for Sustainable Microfinance in Pakistan” was published in January 2011. Based on sector diagnostics, the new strategic framework provides a roadmap for developing sustainable microfinance to foster financial inclusion. The policy focus remains on promoting market-based financial services that meet the diverse needs of poor and low-income segments. Specifically, • Improving the quality of growth by promoting inclusive financial services and up-scaling credit

7 BPRD Circular No. 9 of 2011, SBP, http://www.sbp.gov.pk/bprd/2011/C9.htm

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operations; • Promoting innovations to achieve rapid scale and reduce operating costs; • Promoting organizational development through effective governance and professional management at the strategic, middle, and operational levels; • Improving sector discipline using consumer protection policies, financial literacy programs, and exploring options to bring non-regulated microfinance institutions (MFIs) under a minimum regulatory framework. Other additions in the policy environment include the amendments to the Branchless Banking Regulation. Sector visibility has increased globally due to the Branchless Banking Guidelines issued by the SBP in 2008. The guidelines were developed mainly to leverage Pakistan’s strong telecom industry infrastructure, and to some extent, its vast postal network with an aim to extend cost-efficient financial services to the unbanked population. However, the market response was less enthusiastic than anticipated despite the introduction of branchless banking regulations and the subsequent launch of branchless banking services. Some amendments were introduced after consultations were carried out in FY 2011 with industry players. These include a new “Level 0” account which removes the need for biometric fingerprint information when opening new accounts or changing transaction limits.7 The “Level 0” account can be opened electronically and requires no paper work. This will greatly assist in expanding outreach to people previously lacking access to financial services, and give greater flexibility to branchless banking agents. The revision in limits on the higher side and exclusion of utility bills from normal transaction limits reflects the erosion of purchasing power witnessed in the last three years. EXHIBIT 1.3: “LEVEL 0” ACCOUNT TRANSACTION LIMITS (PKR) Daily limit

Monthly limit

Annual limit

Maximum balance limit

15,000

25,000

120,000

100,000

The Bill and Melinda Gates Foundation approved a grant

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

5 ANNEXURES

1.1. Macro Economy and the Microfinance Industry 1.2. Policy and Regulatory Environment and the Microfinance Industry 1.3. Microfinance Industry Initiatives 1.4. Conclusion

EXHIBIT 1.4: “LEVEL 1” ACCOUNT TRANSACTION LIMITS (PKR) Daily limit

Monthly limit

Annual limit

Maximum balance limit

Revised limits

25,000

60,000

500,000

No Limit

Old limits

10,000

20,000

120,000

60,000

of USD 8 million for branchless banking in Pakistan. Although the grant is not directed at the microfinance industry per se, initiatives pursued under it are likely to have an impact on microfinance players already within the branchless banking space, such as Tameer Microfinance Bank Ltd. (TMFB). The SBP has followed an innovative and liberal approach towards continuous improvement in its regulatory framework for microfinance. The policy and regulatory environment continues to improve and is recognized as well-developed. According to the Economist Intelligence Unit (EIU), which ranks and provides an analysis of the microfinance business environment in 54 countries, Pakistan was ranked the global leader in microfinance regulations in 2010.8

1.3 Microfinance industry initiatives A number of industry-wide initiatives were launched during 2010 and 2011, and existing initiatives expanded. An MoU has been signed between SBP, PPAF, and PMN to expand the Credit Information Bureau (CIB) following a successful pilot in the district of Lahore. The project is in

the planning phase and is expected to go into implementation in the fourth quarter of 2011. Fifteen MFPs participated in the pilot phase. According to an assessment report by Shore Bank International (SBI), 233,956 client entries constituting 73 percent of the total microfinance penetration in Lahore have been reported; 29,926 enquires have been made as of June 2011, of which 3,242 loan applications were turned down for reasons of multiple-borrowing and a history of fraud and default. As a result, approximately PKR 66.7 million of possible default and subsequent loss has been averted. The SBP has played a key role in facilitating continued access to commercial funding for the industry via the Microfinance Credit Guarantee Fund (MCGF). This facility provides incentives to commercial banks and development financial institutions (DFIs) to provide funds to MFPs at commercial rates. The incentives include a guarantee on repayment of 40 percent of the funds provided. In addition, banks and DFIs may deduct funds loaned to MFPs from their demand and time liabilities when calculating their statutory liquidity and the cash reserve requirements for regulatory purposes. The Institutional Strengthening Fund (ISF) was established in 2009 with the objective of increasing the capacity of MFPs by providing grants to make advances in human resources, management, governance, internal controls, business development, cost reduction mechanisms, product innovation, and technology implementation. With good performance, MFPs may be recipients of grants several years in a row. MCGF and ISF were both established in 2009. Deals finalized in 2010 and 2011 are listed in EXHIBIT 1.5a and 1.5b for MCGF and ISF, respectively.

EXHIBIT 1.5a: DISBURSEMENT UNDER MCGF (FY 2011)9 MFB/MFI

Lender

Amount

Tenure

(millions PKR)

(years)

Option

Exposure (millions)

Status

Tameer MFB

BAF

40% pari passu

Guarantee issued

Tameer MFB

JS Bank

100

40% pari passu

Guarantee issued

Kashf Foundation

MCB Bank

225

40% pari passu

Guarantee issued

National Rural Support Programme

Syndicate10

1,200

25% first loss

300

Guarantee issued

Tameer MFB

Allied Bank Ltd.

100

40% pari passu

Guarantee issued

Tameer MFB

Standard Charted

600

25% first loss

150

Guarantee issued

Kashf Foundation

Silkbank Ltd.

150

40% pari passu

Guarantee issued

25% first loss

Guarantee issued

Tameer MFB

MCB Bank Ltd. Total

100 2,525

725

8 The Economist Intelligence Unit (EIU) is part of the Economist Group which also publishes the magazine, “The Economist”. 9 Department for International Development (DFID), UK. 10 Syndicate includes: HBL, NBP, ABL, MCB, UBL, AKBL, NIB, and FBL.

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

1.1. Macro Economy and the Microfinance Industry 1.2. Policy and Regulatory Environment and the Microfinance Industry 1.3. Microfinance Industry Initiatives 1.4. Conclusion

EXHIBIT 1.5b: DISBURSEMENT UNDER ISF (FY 2011) PKR (millions)

Total grant approved

Institution

Amount disbursed

First round 1

Tameer Microfinance Bank Ltd.

82.000

Pakistan Microfinance Network

133.000

78.099

National Rural Support Programme

82.000

Sub total

297.000

242.099

The PPAF is also a key player in providing financial and capacity-building grants to MFPs in Pakistan. A brief overview of funding and grant options available for MFPs by PPAF is shown in EXHIBIT 1.6.

Second round 4

First Microfinance Bank Ltd.

7.387

5.325

Center for Women Cooperative Development

6.000

Kashf Microfinance Bank Ltd. Sub total

44.956

20.230

58.343

31.555

Pakistan has faced a number of disasters in recent years, including devastating floods last year and the earthquake in 2005, unrest, and droughts. The need for a risk mitigation fund is being assessed keeping this in view. Under Microfinance Sector Development Program (MSDP) 1 and 2, a risk management fund and a depositor’s protection fund for microfinance banks (MFBs) have already been provisioned for, under the auspices of the SBP. The only contributor to the funds, however, is Khushhali Bank Ltd. (KBL). As a result of KBL’s contributions (five percent of its after-tax profits), the initial seed money of USD 5 million placed in each of the funds, now has a combined value of USD 29 million. It is being recommended that this amount be channelized for such a fund and all MFBs be given access to it.

Third round 7

Kashf Foundation

32.458

6.492

Asasah

8.610

3.444

First Microfinance Bank Ltd. Sub total

8.284

49.350

9.935

Fourth round 10

Tameer Microfinance Bank Ltd.

20.320

Buksh Foundation

4.800

1.680

Advans

60.000

Center for Women Cooperative Development

3.000

1.200

Sub total

88.120

2.880

Grand total

492.813

286.469

The Improving Access to Financial Services (IAFS) fund is a USD 20 million endowment from the ADB. The IAFS also places some focus on increasing capacity in remittances and Islamic financial services. It will also train government and regulatory authorities on supporting the development of an inclusive financial system enabling financial service providers to launch financial and basic literacy programmes for their clients.

EXHIBIT 1.6: TYPES OF PPAF FUNDS AND GRANTS AVAILABLE FOR MFPS Fund name

PPAF-III

Microfinance Innovation and Outreach Programme (MIOP) - Innovation and Outreach Facility (IOF)

(million USD)

Undisbursed amount

Debt: 33

19.94

Grant: 5.5

4.89

Debt: 10.8

Concluded

Grant: 10.6

Concluded

Volume

Tenor

Purpose

Terms and conditions

Source of funds

Only for non-bank microfinance players. Funds available for 37 districts with low penetration

World Bank

(million USD)

2009 2013

Debt: Focuses on districts with low penetration and/or high levels of poverty Grant: For technical assistance

2006 2011

Debt, grant: To facilitate pilots, action research, assessments, and upscaling new microfinance products and approaches in rural areas

10–30 percent of grant portion of IOF to be contributed by grant recipient 10–20 percent of grant portion of YPP facility to be contributed by grant recipient

MIOP – Young Partner Programme (YPP)

Grant: 7.40

Concluded

2006 2011

Grant: Strengthens capacity of existing and new organizations through staff trainings

MIOP

Grant: 1.3

Concluded

2006 2011

Grant: Strengthens ability to sustainably extend outreach and expand scope of current microfinance operations in rural areas

International Fund for Agricultural Development (IFAD)

Continued on Page 7

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

7 ANNEXURES

1.1. Macro Economy and the Microfinance Industry 1.2. Policy and Regulatory Environment and the Microfinance Industry 1.3. Microfinance Industry Initiatives 1.4. Conclusion

Continued from Page 6

Fund name

Programme for Increasing Sustainable Microfinance (PRISM)- Equity Fund

PRISM-Credit Enhancement Facility

PRISM-Technical Support/ Institutional Strengthening Fund for MFIs

PRISM-Knowledge Management and Policy Support

Volume (million USD)

Equity: 7.4

Debt: 31.1

Grant: 2.5

Grant: 1.1

Undisbursed amount

Tenor

Purpose

Terms and conditions

(million USD)

Not utilized

2008 2013

Equity injection: To assist in improving the financial position of some of the leading microfinance organizations in which there has been little or no equity investment over the years, thereby facilitating the provision of financing from the commercial sector

1.45

2008 2013

Debt: To establish a facility for leveraging financing from the commercial sector for financially sound microfinance organizations

2.26

1.05

2008 2013

Grant: To provide MFIs with necessary professional support to enable them to strengthen their institutions and secure commercial finance

2008 2013

Grant: To promote a conducive environment for growth in microfinance, increase understanding of microfinance by commercial sector players, and improve the awareness of MFIs of the operations of commercial banks

Amount not to exceed 50 percent of net portfolio or PKR 150 million, whichever is lower

May be used for cash collateral, letter of credit, and guarantee. Transaction size cap: PKR 250 million To be provided on a grant basis with an element of cost sharing; 20 percent of total cost to be contributed by recipient

Source of funds

IFAD

Any single MFI over the lift of the program will not receive more than ten percent of total funding for the component The support would complement the previous three components initiated under PRISM and may be used for activities like awareness creation, knowledge sharing, and policy support and dialogue

Source: Funds Available for Pakistan’s Microfinance Industry as of March 31, 2011, Pakistan: Pakistan Poverty Alleviation Fund (PPAF)

Only MFB clients have access to independent, third party complaint resolution through the SBP. No such platform exists for non-bank MFPs. In this regard, PMN has been interacting with key stakeholders like PPAF and SBP to establish a formal grievance redressal mechanism. A model for the interim arrangement has been finalized after input from key stakeholders. In the long run, a statutory body similar to the National Credit Regulator (NCR) in South Africa has been envisioned to redress microfinance client complaints. The SBP launched a nation-wide Financial Literacy Program (FLP) with M/S Bearing Point as its implementing partner, in April 2011. The program is funded by ADB through its Improving Access to Financial Service Fund (IAFSF) to promote financial literacy initiatives in the country. The launch was preceded by a thorough review by the IAFSF committee which included the SBP, the Pakistan Bankers Association (PBA), PPAF, PMN, and ADB. The program’s aim initially, is to impart knowledge about basic financial concepts like budgeting, savings, investments, debt management, financial products, and branchless banking to 45,000 beneficiaries with an

emphasis on the low-income strata. The program aims to expand to 500,000 people across the country upon completing the pilot phase. This nationwide FLP shall result in increased financial knowledge amongst target populations of microfinance, resulting in more responsible borrowers, and ultimately improving their repayment capacity through enhanced financial management. EXHIBIT 1.7: NCR, SOUTH AFRICA • Established in 2005 under the National Credit Act; • Regulator of the South African credit industry; • Tasked with the registration of credit providers, credit bureaus, and debt counselors; • Investigates consumer complaints and ensures consumer rights; • Promotes an accessible credit market; • Carries out education, research, and policy development and enforcement of Act.

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

1.1. Macro Economy and the Microfinance Industry 1.2. Policy and Regulatory Environment and the Microfinance Industry 1.3. Microfinance Industry Initiatives 1.4. Conclusion

1.4 Conclusion The microfinance sector witnessed a number of crises in the form of catastrophic floods in the country and continued macroeconomic pressure in 2010. Sector performance was noteworthy despite these setbacks. Credit outreach and gross loan portfolio (GLP) both registered modest growth. On the funding side, deposits mobilization continued to expand for MFBs. On the policy and regulatory end, the SBP published the “Strategic Framework for Sustainable Microfinance in Pakistan” after consultations with the stakeholders. The document provides a roadmap for the development of sustainable microfinance to foster financial inclusion. Regulations regarding branchless banking have been amended keeping market requirements in view. As a result, Pakistan’s policy environment and regulatory framework have been highly ranked by the EIU in its global ranking exercise spanning 54 countries. A number of new initiatives have also been launched and existing initiatives expanded, with the aim of improving the working environment for the microfinance sector. These included the continued operation of guarantee and technical assistance funds managed by the SBP and the national apex, discussions on the expansion of industry infrastructure such as the credit bureau and a grievance redressal mechanism, and the establishment of a natural disaster and risk mitigation fund. In 2011, the year is likely to be the same with continued energy shortages and slow economic growth. A high budget deficit is likely to lead to excessive borrowing by the state and high inflationary pressures. KIBOR is likely to remain in double digit around 13 percent. Resultantly, clients’ purchasing power is likely to erode which can lead to increased credit risk for MFPs. The sector’s growth will likely dampen as a result of this high credit risk. As far as funding is concerned, MFBs are likely to continue targeting deposits for raising low-cost funds, with unutilized amounts to be invested in high-yield, low-risk assets such as Government t-bills. MFP demand for off-shore debt is likely to remain low due to high hedging costs, given slow sector growth. Interest of foreign microfinance funds in the industry is more likely to have uptake in the form of equity placements. There is also likely to be continued interest in the microfinance sector by telecom companies with an aim of launching mobile/branchless banking. Given the challenging macroeconomic environment in

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the country, new entrants, especially multinationals, are unlikely to apply for more licenses; however existing licensing grantees are poised to enter the industry. The impact these entrants will have on the industry, given their large size and deep pockets, however, remains to be seen.

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

9 ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

2. Industry Performance This section provides a detailed analysis of the financial performance of Pakistan’s microfinance industry. The analysis is backed by 88 financial indicators. As stated previously, these indicators have been calculated based on the audited financial information of reporting organizations. Comparisons have been made across three levels: industry-wide, peer group and individual institution. Detailed financial information is provided in ANNEX A-I and A-II of the PMR. Aggregated data for the industry has been reproduced for five years; peer group and institution-specific data have been made available only for 2010. A total of 23 MFPs submitted their audited financial statements for the PMR 2010. One new respondent, Rural Community Development Society (RCDS) has been included in this year’s dataset. The dataset for 2010 however, does not include financial information for Kashf Foundation (KF), whose market size was estimated at approximately 14.6 percent of total credit outreach as of June 2011.11 For comparison purposes therefore, aggregated industry data for 2009 has been restated by excluding data for KF. Refer to ANNEX B for a complete list of reporting organizations.

Rural support programme An NGO registered as a non-profit section 42 company under the Companies Ordinance. An RSP is differentiated from the MFI peer group based on the purely rural focus of its credit operations. As a group, the RSPs are registered with and supervised by the Securities and Exchange Commission of Pakistan (SECP).

The distribution of respondents by peer group (number of reporting organizations) is given in EXHIBIT 2.1. As shown, for 2010, the MFI peer group comprised the largest number of respondents followed by the MFBs and RSPs, respectively. The total number of respondents is 23. EXHIBIT 2.1: DISTRIBUTION OF RESPONDENTS BY PEER GROUP MFBs RSPs 26% 17%

57%

Industry players are categorized into three groups for the purposes of benchmarking and comparison: MFBs, MFIs and rural support programmes (RSPs). See BOX 1 for detailed definitions. BOX 1: PEER GROUPS Microfinance institution A non-bank non-government organization (NGO) providing microfinance services. Organizations in this group are registered under a variety of regulations, including the Societies Act, Trust Act, and the Companies Ordinance. The MFI peer group includes local as well as multinational NGOs such as BRAC-Pakistan and ASA-Pakistan. Microfinance bank A commercial bank licensed and prudentially regulated by the SBP to exclusively service the microfinance market. The first MFB was established in 2000 under a presidential decree. Since then, seven MFBs have been licensed under the Microfinance Institutions Ordinance, 2001. MFBs are legally empowered to accept and intermediate deposits from the public.

MFIs

2.1 Industry overview As of December 2010, the total asset base of the reporting MFPs stood at PKR 35.8 billion (USD 409 million) of which the GLP was PKR 20.3 billion (USD 232 million). Outreach totaled 1.57 million active borrowers and 0.764 million active depositors. The figures presented above vary significantly from outreach estimates as reported in the PMN’s quarterly publication for the same period i.e., MicroWATCH, December, 2011. According to the quarterly update, outreach was estimated at 2.059 million active borrowers and 3.295 million depositors as of December 2010. This significant variation is mainly due to differences in the number of reporting MFPs. It is also worth noting that the latest numbers for outreach as cited

11 MicroWATCH, A Quarterly Update on Microfinance Outreach in Pakistan. Issue 20, Quarter 2 (April–June 2011).

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

in MicroWATCH of June 2011 are estimated at 2.030 million for credit outreach; 3.637 million for depositors outreach, and 2.690 million for the number of insurance policies sold.

EXHIBIT 2.3: ACTIVE BORROWERS BY PEER GROUP 1.80

MFBs

1.60

MFIs

RSPs

2.1.1 Funding Profile As stated above, by December 2010, industry players were reaching out to 1.57 million active borrowers as compared to 1.409 million in December, 2009, showing an increase of 11.4 percent. GLP on the other hand increased by 21 percent from PKR 16.75 billion (USD 192 million) to PKR 20.3 billion (USD 409 million in the same time period. The number of depositors increased by 64 percent to 0.76 million as compared with 0.46 million in 2009 i.e., an increase of 66 percent. The amount in deposits increased from PKR 7.161 billion (USD 82 million) to PKR 10.132 billion (USD 116 million), also showing a marked increase of 41 percent. EXHIBIT 2.2: INDUSTRY OUTREACH (BORROWERS, DEPOSITORS, GLP, DEPOSITS) GLP

Active borrowers

Deposits outstanding

Depositors 1.80

1.60

1.20

16.76

1.00 0.80

10 7

0.60 0.40

0.20

35%

1.20

37%

1.00 0.80

25%

19%

0.60 0.40

44%

40%

2009

2010

0.20 0.00

Seven MFPs accounted for 81 percent of total credit outreach. This includes the National Rural Support Programme (NRSP), which remains the largest player in the market with a 28 percent share of reported outreach; KBL is in second place at 21 percent, and The First Microfinance Bank Ltd. (FMFB) takes third place with a share of over ten percent (see EXHIBIT 2.4). Other sizeable players include the Punjab Rural Support Program (PRSP), BRAC-P, ASA-P, and TMFB. While overall performance in the MFI peer group remained modest, BRAC-P and ASA-P made noteworthy progress, having registered a growth of 88 percent and 367 percent, respectively. GLP for BRAC-P and ASA-P also grew exponentially by 93 percent and 512 percent, respectively. The market share of the MFBs is continually increasing in the overall microfinance industry of the country. With the launch of operations of NRSP Bank in March 2011, the sector will be dominated by MFBs in terms of market share. EXHIBIT 2.4: ACTIVE BORROWERS BY ORGANIZATION

0.00

0 2009

2010

When analyzed by peer group, the MFBs accounted for 39 percent of the credit outreach; RSPs accounted for 35 percent; the rest was made up by MFIs. Compared to 2009, the MFI peer group accounted for an increased six percent of total credit outreach. This increase can largely be attributed to BRAC-P and ASA-P, the Bangladeshi MFPs that started operations in Pakistan in 2007 and 2008, respectively. Of total GLP, MFBs accounted for 48 percent, followed by RSPs with a share of 32 percent, and MFIs with nearly 20 percent.

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PRSP

MFPs

1.40

20.30

Outreach (millions)

Amount (billion PKR)

Outreach (millions)

1.40

78,091

BRAC-P

84,411

ASA-P

85,380

TMFB

111,153

FMFB

151,797

KBL

325,523

KMFB

431,027

100,000

200,000

300,000

Outreach (thousand)

400,000

500,000

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

In case of deposits, FMFB is the biggest player with 53 percent of total deposits outstanding, followed by TMFB with 29 percent, and KBL with ten percent as of December 2010 (see EXHIBIT 2.5).

An example of the progress made in deposit-taking by the MFB peer group is demonstrated through the progress made thus far by KBL since launching its depositmobilization strategy as shown in BOX 2.

EXHIBIT 2.5: DEPOSIT DISTRIBUTION BY MFB

BOX 2: SNAPSHOT OF KBL’S DEPOSIT-MOBILIZATION INITIATIVE

KBL started mobilizing deposits in 2008, eight years after it was incorporated and started operations as a microfinance bank. Between 2008 and 2011, KBL has gone on to tap more than 251,259 depositors. Of these, approximately 57,790 are women depositors. Outstanding deposits amount to PKR 911,419,478. Thus, within three years of initiating its deposit taking business, KBL’s deposit-toGLP ratio has increased by 26.87 percent.

Deposits 53%

50 40 30

29%

With an average deposit size of PKR 3,627, it is possible to conclude that thus far, KBL is maintaining a focus on the micro-depositor.

10 0

10%

8% 0.3%

KBL

TMFB

POMFB

0.3%

FMFB

NMFB

KMFB

The average deposit size for MFBs stood at PKR 13,258 (USD 152). However, the average deposit size for all players except FMFB is below the industry average. At PKR 24,412 (USD 279), FMFB is the outlier in the peer group. This is largely due to the fact that FMFB has succeeded in tapping a significant sum of institutional deposits. Overall, the deposit-to-GLP ratio for the industry has shown considerable improvement. Although some of the improvement in the ratio can be attributed to a general decline in credit growth rates, recent progress by TMFB, KBL, and KMFB is encouraging (see EXHIBIT 2.6). EXHIBIT 2.6: DEPOSIT-TO-GLP RELATION BY MFB 250.0

60,000

KBL is also offering a range of deposit products, including current accounts, savings accounts, and term deposits. The product range is similar to that of commercial banks. However, KBL is currently unable to provide services like ATMs, online banking, call centre support, and cheque clearing and is likely to launch these services shortly. Moreover, it is likely to face stiff competition in deposit mobilization from commercial banks and other financial intermediaries with well-established presences in the market. Figure A: KBL’s financing structure of (2008–2010) Deposits

28.0%

31.5%

71.7%

65.6%

60 50 40

55.6%

30 20 10 0.3%

150.0 30,000 100.0 20,000 50.0

10,000 0

0.0

KBL

TMFB

POMFB

FMFB

NMFB

KMFB

1,000,32

2,954,65

27,724

5,344,19

29,027

776,401

Gross loan 3,722,15 portfolio Deposits26.9% to-GLP

3,096,04

88,348

2,373,88

61,619

453,102

95.4%

31.4%

225.1%

47.1%

171.4%

Percentage (%)

PKR (millions)

30.6%

2.9%

2009

13.8%

2010

200.0

40,000

Deposits

Equity

2008

50,000

Debt

100 Proportion of deposits, debt and equity (%)

2.1.2 Gender distribution The proportion of women borrowers has improved over time. By December 2010, the proportion of women borrowers stood at 52 percent of total active borrowers, up from 45 percent in 2009. Similarly, the proportion of women borrowers tapped by the MFB peer group increased from four percent of total depositors in 2009 to 18 percent in 2010. A comparison by peer group shows that in 2010, the number of women borrowers was 33 percent of the total

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

active borrowers of MFBs as compared to 28 percent in 2009. In the case of MFIs, 80 percent of the borrowers were women as against 76 percent in 2009; for RSPs the figure was 52 percent as compared to 51 percent in 2009. EXHIBIT 2.7: ACTIVE BORROWERS AND DEPOSITORS BY GENDER Male

Female

1.4 47%

51%

0.8

18%

0.6

0.4 0.2

53%

49%

82%

Depositors

Borrowers

Depositors

96%

0.0

2009

2010

Thus, noteworthy progress was seen in the MFB peer group. Major improvement was made by TMFB: outreach to women clients was increased from 37.3 percent of total credit outreach in 2009 to 60.3 percent in 2010. For Kashf Microfinance Bank Limited (KMBL), the figure went up from 3.5 percent to ten percent in the same time period, and in the case of Pak-Oman Microfinance Bank (POMFB), the increment was from 26.2 percent to 30 percent. EXHIBIT 2.8: GENDER CREDIT OUTREACH BY PEER GROUP 700,000 Male

Female

600,000

500,000 Outreach (thousands)

The depth of outreach of an MFP’s credit operations is measured by a proxy indicator: average loan balance per borrower as a proportion of per-capita gross national income (GNI). A value of below 20 percent of GNI means that the MFP is poverty focused. Except for KMBL and TMFB, all of the MFPs fall below this category, as compared to four in 2009. For 2010, average depth of outreach is estimated at 12 percent as compared to 13.8 percent in the previous year. A look at the regional and global average loan size per borrower shows that Pakistan is at the lowest tier i.e., the depth of outreach is even lower than the average for South Asia and has been declining consistently over the period 2006–10. This data implies that Pakistan’s microfinance sector has maintained its poverty focus relative to countries in other regions. EXHIBIT 2.9: DEPTH OF OUTREACH 25 MFBs Average loan balance per GDP (%)

1.2 1.0

Borrowers

Outreach (millions)

1.8 1.6

2.1.3 Depth of outreach

Cut-off

300,000

200,000 324,565

283,826

205,311

MFBs

2009

2010

MFIs

RSPs

A close analysis of the depth of outreach will, however, lead to doubt the above assessment. A more plausible explanation for the increased depth of outreach is the erosion in the value of loans as a result of double-digit inflation, especially in the last two to three years. Since loan sizes have not been revised upwards by MFP’s to keep pace with inflation, the value of loans is eroding without the client group being replaced, as indicated by the limited addition of first-time borrowers. Instead, MFPs have largely chosen to hedge their risk in the uninviting economic scenario prevalent in the country.12

12 Microcredit Utilization: Shifting from Production to Consumption, Hussan-Bano Burki, November 2010.

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2008

258,060

413,386 82,807

100,000

RSPs

2007 400,000

MFIs

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

EXHIBIT 2.10: REGIONAL COMPARISON OF AVERAGE LOANS PER BORROWER13

3,000

Africa ECA MENA

Asia LAC Pakistan

2.2 Asset and funding structure

2,500

As of December 2010, the asset base of reporting MFPs stood at PKR 35 billion (USD 409 million) showing an increase of 17.6 percent in 2010.

2,000 1,500

EXHIBIT 2.12: TOTAL ASSETS BY PEER GROUP

1,000

25.0

500

MFBs

0 2007

2008

2009

2010

2.1.4 Portfolio breakdown The credit portfolio distribution saw major change with microenterprise lending coming ahead of agriculture lending. According to the MicroWATCH for December 2010, trade, services, and manufacturing accounted for 55 percent of the credit portfolio. Agriculture came at second place with 23 percent, followed by livestock at 15 percent. Borrowing for ‘other’ purposes (which includes mostly consumption-related borrowing) made up eight percent of total sector GLP.14 The share of housing loans remained negligible. EXHIBIT 2.11: SECTOR-WISE DISTRIBUTION OF CREDIT PORTFOLIO Agriculture Livestock/ poultry 23%

Total assets (billion PKR)

Average loan per borrower (USD)

3,500

funding to livestock and microenterprise.

MFIs

RSPs 21

20.0 18

15.0

10.0

9.5

5.0

5 4

0.0 2009

2010

MFBs made up 59 percent of the balance sheet of the industry. MFIs accounted for 14 percent, and the rest was made up by RSPs. Overall, the industry remains highly concentrated, with 80 percent of total industry assets belonging to just seven organizations. KBL continues to have the largest asset base, followed by NRSP and FMFB, as shown in the following exhibit. EXHIBIT 2.13: LARGEST MFPs, BY ASSET BASE

15%

ASA-P

Others

0.81

BRAC-P KMFB MFPs

54%

Microenterprise

The relegation of agriculture to second place is generally due to increased MFP focus on urban clientage, although NRSP and KBL are exceptions. Moreover, in the aftermath of the floods, funds were also diverted from agriculture

1.11 1.23

PRSP

2.05

TMFB

5.28

FMFB

6.35

NRSP

6.98

KBL 0.00

7.24

2.00

4.00

6.00

Total assets (billion PKR)

13 Microfinance Information Exchange (MIX), 2009, Benchmarks: Mix Micro Banking Bulletin: 2006-2008. 14 MicroWATCH: A Quarterly Update on Microfinance Outreach in Pakistan. Issue No.19 Quarter 1, March 2011.

Pakistan Microfinance Review 2010

8.00

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

2.2.1 Asset composition The bulk of industry assets remain composed of advances. However, the asset composition varies substantially among the three peer groups. EXHIBIT 2.14: ASSET COMPOSITION BY PEER GROUP (2009, 2010) Fixed assets

Advances

Investments

90 Proportion of total assets (%)

80 70

50.1

52.9

62.9

66.4

68.2

76.7

60 50 40 30 20 10 0

19.4

23.9

4.8

4.0

22.9

22.0

2009

4.6 0.0

3.3 0.0 3.4 0.0 30.2

2010

32.6

28.2

19.9

2009

2010

MFBs

2009

MFIs

3.5 0.0

Debt makes up to 80 percent of the funding sources for RSPs and MFIs. Out of the total debt, more than 50 percent is subsidized. Although the proportion of subsidized debt continues to be high, it has demonstrated a significant decrease from 70 percent in 2009. This is largely due to a policy shift by the PPAF, the national apex for microfinance, which is now charging commercial rates for loans of more the PKR 500 million. EXHIBIT 2.16: DEBT COMPOSITION OF MFPS Commercial debt

2010

RSPs

Subsidized debt

100

In case of MFBs, advances grew by 13 percent from 2009 to 2010, but their proportion of overall assets fell to 50 percent. Investments increased by more than 48 percent in the same time period, showing banksâ&#x20AC;&#x2122; inclination to generate risk less returns by placing funds in government securities. Cash at hand and banks balances grew by 14 percent as compared to previous year. On the other hand, advances for MFIs grew by 46 percent in FY 2010 and accounted for the bulk of their assets i.e. 77 percent. RSPs witnessed a modest growth in advances at 16 percent for the same time period.

2.2.2 Funding profile The funding structure also varies significantly with the EXHIBIT 2.15: FUNDING PROFILE BY PEER GROUP (2010)

Composition of devt type (%)

Cash and bank balance

100

peer group. The MFB segment has capital structures with equity making up 26 percent, deposits making up 48 percent, and debt making up the remainder. The proportion of deposits increased from 40 percent in 2009 to 48 percent in 2010. Contributors for this higher-thanexpected deposit-to-asset ratio include FMFB (84 percent), KMFB (63 percent), and TMFB (56 percent).

90 80

70 60 50

40 30

20 10

0 2009

2010 Year

Though commercial debt remains expensive with KIBOR at around 13 percent, two rapidly growing MFIs, ASA-P and BRAC-P have 100 percent commercial debt showing that MFIs can survive, grow, and sustain themselves in the absence of subsidized debt.

35.0 Deposits

Debt

Equity

PKR (billions)

30.0 25.0

48%

20.0 15.0

10,132,331,796

15,531,887,493 26%

10.0

7,840,367,074 1,726,217,493

5,564,562,756 4,090,782,845 849,294,785

5.0 26%

0.0

82%

83% 18%

17%

MFBs

MFIs

* MFIs and RSP cannot intermediate deposits. This why deposits are shown for MFBs, only

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RSPs

It is pertinent to note here that though MFBs have been successful in mobilizing deposits, it must be kept in mind that in the medium and long run, they are going to be competing with other commercial financial intermediaries like commercial banks. Commercial banks are relatively better positioned to mobilize deposits due to a number of reasons, including their long standing presence in the market which has resulted in brand recognition and faith, and due to their larger menu of financial services, including real-time transactions and international transfers, remittances, and clearances. To compete for deposits, MFBs will have to invest substantially in infrastructure and

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

product lines, or give competitive returns on deposits. Both options will translate into higher costs for MFBs. In view of this, we will continue to see these institutions relying on debt as a major source of funding. EXHIBIT 2.17: FINANCING STRUCTURE OF MFPS Total debt

Deposits

Total equity

followed by the Orangi Pilot Project (OPP) with 5.7 percent, and the Thardeep Rural Support Programme (TRDP) with 4.3 percent. Peer group wise, the performance of RSPs remained better than that of MFIs and MFBs. The increase in the industry’s ROAs is due to an increase in net income accruing mainly from higher yields on portfolio.

100 90

A regional comparison of the nominal yield as shown in EXHIBIT 2.19 shows that Pakistan’s microfinance sector has improved its yield on portfolio from 26 percent to 32.9 percent. Thus, the under-pricing of assets that the industry has faced since its inception is being rationalized. MFBs with their heavier cost structures have the highest average yields at 36 percent as a peer group.

23.3%

23.9%

80 Percentage (%)

70 60 50

48.4%

52.6%

40 30

EXHIBIT 2.19: REGIONAL COMPARISON OF NOMINAL YIELD (PERCENT)

20 10

35.0

28.3%

23.5%

30.0

0 2010 Year

2.3 Profitability and sustainability Profitability ratios for Pakistan’s microfinance industry showed improvement but still remained in the red (see EXHIBIT 2.18).

Nominal yield (%)

2009

25.0 20.0 15.0 10.0

Africa MENA

5.0

Asia Pakistan

ECA

0.0 2006

EXHIBIT 2.18: PROFITABILITY AND SUSTAINABILITY RATIOS (2010) Africa

Asia

ECA

MENA

Pakistan

Capital/asset ratio

24.3

16.4

27.3

45.4

23.3

Debt to equity ratio

2.4

4.6

2.7

0.9

3.3

Deposit to loan

56.1

28.8

Portfolio to asset

62.8

75.9

74.7

ROA

- 0.2

1.8

1.1

3.4

- 0.1

ROE

2.31

11.22

2.95

10.23

- 0.2

Despite negative profitability and sustainability ratios for the industry as a whole, some players showed encouraging numbers: Sungi Development Foundation (SDF) achieved a return on asset ratio (ROA) of 11.1 percent,

2008

2009

2010

The industry has not achieved operational and financial self-sufficiency, though the sustainability indicators continue to exhibit improvement. Regional comparisons reveal that Pakistani MFPs lag behind, although the difference is continuously deceasing. It is encouraging to note that MFPs with an operational self-sufficiency (OSS) above 100 have increased from 7 in 2009 to 13 in 2010. EXHIBIT 2.20: REGIONAL COMPARISON OF OSS (PERCENT) 140 120

ECA: Eastern Europe and Central Asia MENA: Middle East and North Africa

100 OSS (%)

Source: Pakistan Microfinance Review (2006, 2007, 2008 and 2009). Pakistan Microfinance Network. The Microbanking Bulletin No. 19 and 20. Microfinance Information eXchange.

2007

80 60 40

Africa MENA

Asia Pakistan

ECA

0 2006

2007

2008

2009

2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

In regional comparisons, financial self-sufficiency (FSS) lags more than the OSS due to higher adjustments in financial expenses, loan loss provisions, and double-digit inflation. As the percentage of commercial borrowings increases for Pakistanâ&#x20AC;&#x2122;s microfinance industry, its subsidized cost of funds is decreasing, leading to an increase in adjusted financial expense. Moreover, with the increase in provisioning expense, coupled by a 15 percent inflation rate, the FSS continues to exhibit a modest improvement as compared to OSS. EXHIBIT 2.21: REGIONAL COMPARISON OF FSS (PERCENT) 140 120

EXHIBIT 2.23: REGIONAL COMPARISON OF PERSONNEL EXPENSE-TO-GLP RATIOS

100 80

18.0

16.0

40 Africa MENA

Asia Pakistan

ECA

0 2006

2007

2008

2009

2010

A break up of the revenues of the microfinance industry shows a growing trend towards diversification of revenue streams. Out of the total revenue of the industry, 81.4 percent is the income from loan portfolio, 11.6 percent is income of financial assets, and the rest is by other sources, including subsidies and grants.

Personnel expence-to-GLP ratio

FSS (%)

The personnel-to-GLP ratio continues to be higher than the average of Asia, ECA, and Africa. The ratio for the Pakistani industry shows an increasing trend over the last two years. Among the peer groups, MFBs have the highest personnel-to-GLP ratio at 18.3 percent, followed by MFIs at 11.8 percent, and RSPs at 8.8 percent. Due to their higher salary structures15 and larger numbers of back office operations staff, MFBs have higher personnel-toGLP ratios. Moreover, staff hiring for deposit mobilization has also resulted in increases in the ratio. However, as deposits grow over time, the per-staff cost of deposits will decrease, resulting in profits in the medium term. Until then, we are likely to witness higher personnel-to-GLP ratio for MFBs.

14.0 12.0 10.0 8.0 6.0 4.0

Africa MENA

2.0

Asia Pakistan

ECA

0.0 2006

2007

2008

2009

2010

EXHIBIT 2.22: REVENUE STREAMS

2.4 Risk assessment

8.0 Loan portfolio

Financial assets

Financial services

7.0

A number of risks are faced by MFPs in Pakistan. Some of the most common ones are discussed below.

PKR (billions)

6.0 5.0

2.4.1 Credit risk

4.0

Credit risk remains the greatest risk faced by the industry the world over.16 It remains the top-most concern from the point of view of practitioners, investors, and depositors. For an industry that prided itself on its enviable loan repayment record, this is a worrying trend.

3.0 2.0 1.0 0.0 2006

2007

2008

2009

2010

15 Microfinance Industry Salary Survey 2010, MicroNote No. 13, September 2011. 16 Microfinance Banana Skins 2011 , The CSFI survey of Microfinance Risk.

http://www.pmronline.info

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

The continued increase in PAR is a worrying sign. This is likely to worsen next year when the full impact of the floods of 2010 is felt and reflected in financial statements next year. EXHIBIT 2.24: PAR > 30 DAYS AND WRITE-OFFS PAR > 30 days

Cut-offs

7.0

Percentage (%)

6.0 3.6%

5.0 4.0

2.9%

1.8%

2.0 1.0

3.4%

3.1% 2.3%

4.1%

2.1%

0.0 2006

2007

2008

2009

Active borrowers

Portfolio at risk (>30)-to-GLP

Portfolio at risk (>90)-to-GLP

Write-offs

Cut-offs

Active borrowers (millions)

1.80

6.0

1.60

5.0

1.40

4.0

1.20 1.00

3.0

0.80

2.0

0.60 0.40

1.0

0.20

0.0

0.00 2006

2007

2008

2009

2010

The CIB, though still in its initial phase, will contribute to the reduction of credit risk for the industry by reducing incidents of multiple borrowing and making available past credit history of perspective borrowers.

2.4.2 Market risk

1.8%

2.0%

3.0

EXHIBIT 2.25: RISK PROFILE OF MFPS

Market risk is the risk that the value of a portfolio (investment portfolio or trading portfolio) will decrease due to changes in value of market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices.

8.0 Write-offs

SBP.

PAR, write-offs and cut-offs (%)

The current economic situation has been a difficult one for Pakistanâ&#x20AC;&#x2122;s microfinance industry. The security situation, inflation, and food security have all had an impact on credit risk with large parts of funding being diverted towards consumption.17 The rapid growth in advances witnessed by MFPs during the last few years has resulted in over-indebtedness as a result of multiple lending and weak internal controls. It is clearly evident from the increase of the portfolio at risk (PAR). Despite the GLP showing modest growth, PAR past due 30 days grew by 43.5 percent as compared to 2009, and PAR past 90 days increased by 81 percent over the same period. Correspondingly, PAR past 30 days increased to 4.1 percent from 3.4 percent of the GLP in 2009. In addition, PAR past 90 days increased to 2.8 percent from 1.9 percent of GLP in the same period. One reason for the increase has been low PAR last year, accompanied by high write-offs.

2010

In the last five years, the risk coverage ratio of MFPs has varied from a high of 394 percent in 2008 to a low 88.4 percent in 2010. If we compare the ratio by peer group, MFBs have a much higher ratio with an average of 116 percent, MFIs with 78 percent, and RSPs with 62 percent. MFBs have a higher coverage ratio due to the additional provisioning requirement of 1.5 percent by the

Interest rates continue to remain in double digits due to inflation and excessive government borrowings. The SBP kept a tight monetary policy in order to control inflation, with KIBOR hovering around 13.5 percent. Borrowing funds from commercial banks, though increasing, remains around 25 percent of the total funding needs of the microfinance sector. Though banks can now borrow in foreign currency from overseas sources, there has been no such instance. However, whenever such borrowing does takes place, the MFPâ&#x20AC;&#x2122;s Forex risk increases. Moreover, MFBs are not allowed to invest in the stock market, so they are immune from the adverse changes in stock prices. Overall, as subsidized debt from donors decreases, MFPs will be forced to look towards commercial debt and borrowing in foreign currency. Market risk will then become important and have a bearing on the risk profile

17 Burki, Hussan-Bano. 2010. Microcredit Utilization: Shifting from Production to Consumption.

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

The operations a company or firm undertakes when it attempts to operate within a given field or industry, is defined as operational risk. Operational risk is the risk that is not inherent in financial, systematic, or market-wide risk. It is the risk remaining after determining financing and systematic risk, and includes risks resulting from breakdowns in internal procedures, people, and systems.18 Operational risk can be summarized as human risk; it is the risk of business operations failing due to human error. It is an important consideration to make when looking at potential investment decisions. Industries with lower human interaction are likely to have lower operational risk as compared to labour intensive industries. Being in the service industry where person-to-person contact is very important, the operational risk is likely to be quite high for MFPs. However, it can be lowered by having effective internal controls. Many of these organizations have weak management structures with less than optimal board oversight. For years, these organizations have been undertaking operations under organic governance structures. There remains the risk that despite transformation, founders and old management continue favoring old, informal structures.19 As MFPâ&#x20AC;&#x2122;s expand in size and spread geographically, operational risks will rise.

EXHIBIT 2.26: EXPENSE BREAKUP FOR MFPS

This section summarizes the efficiency and productivity of the microfinance industry in Pakistan.

2.5.1 Operating expense to average GLP Operating expenses continued to show an increasing trend in 2010 with personnel expense making up more

18 www.investopeida.com 19 Strategic Framework for Sustainable Microfinance in Pakistan, SBP, 2011.

http://www.pmronline.info

Loan loss provision expense

Personnel expense

Admin expense

100 90 80

23.8

29.2

35.6

37.4

6.7

9.5

29.7

26.8

2009

2010

70 28.5

60 50

38.5

40 22.7

9.5

20 10

22.8

24.6

2007

2008

EXHIBIT 2.27: OPERATING INCOME OF MFPS GLP

GLP (billion PKR)

Different donor-funded initiatives have been launched in this regard with the aim of strengthening management information systems (MIS), human resources, and internal controls.

2.5 Efficiency and productivity assessment

Financial expense

OPEX

Total revenue

Revenue and OPEX (billion PKR)

2.4.3 Operational risk

than 37.4 percent of the total expense. Correspondingly, the operating expense-to-average GLP has risen to 25.7 percent from 23.3 percent in the previous year. By peer group, this ratio remains high among MFBs at 33.1 percent, while for MFIs, the ratio is close to the industry average of 24.5 percent. For RSPs, it stood at around 15.3 percent. Overall, the ratio showed great variance with a high of 101.1 percent for the Sarhad Rural Support Programme (SRSP), and a low of 10.8 percent for OPP.

Proportion of total cost (%)

of the industry.

0 2006

2007

2008

2009

2010

The breakup of expense remained much the same over

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

19 ANNEXURES

2.1. Industry overview 2.2. Asset and funding structure 2.3. Profitability and sustainability 2.4. Risk assessment 2.5. Efficiency and productivity assessment 2.6. Wrap up

the years. Personnel expense continues to make up the bulk of the expense followed by administrative and financial expenses, and then loan loss provision expenses. In 2010, financial expenses showed a slight decrease, whereas loan loss provisions showed an increase. Personnel expenses continued to show an increase making up 37.4 percent of total expenses, while administrative expenses showed a slight decrease. Branchless banking has the potential to decrease the percentage of personnel and administrative expenses in the long run by reducing infrastructure costs. However, as donor funding dries up, more and more emphasis on commercial debt will lead to an increase in financial expenses, especially in the present high-interest regime.

2.5.2 Borrowers and depositors per staff Borrowers-per-staff ratios increased from 122 in 2009 to 131 this year, showing an increase of 7.3 percent. This increase is due largely to decreases in the number of loan officers from 6,637 in 2009 to 5,148 in 2010. The continued decline in the personnel allocation ratio from 57.4 percent to 42.9 percent reflects that new hiring is more towards the deposit-taking business and other areas, especially keeping in view expansion related to branchless banking. Deposits-per-staff showed an increase of 60 percent which corresponds with the 48 percent increase in deposits for MFBs.

2.6 Wrap up In 2010, Pakistanâ&#x20AC;&#x2122;s microfinance industry continued to grow despite the economic pressures and losses caused by floods in the second half of the year. MFBs continued their focus on deposit mobilization with notable success. However, this was not matched by increases on the credit side as most of these funds were invested into low-risk assets pointing towards the industryâ&#x20AC;&#x2122;s risk averseness. Moreover, MFBs continued to diversify their revenue streams by providing financial services. Portfolio at risk continued to increase due to losses arising from the floods. Moreover, the provisioning amount also went up, showing further anticipated losses due to floods. On the funding side, commercial debt continued to see an increase. Though subsidized debt makes up a major chunk of total debt, its share is gradually decreasing. However, equity injections in the industry remained limited. Industry performance in terms of profitability and sustainability continued to improve with notable performance by some MFPs. However, on the whole, the sector remained in the red. A major reason for this has been sluggish credit growth despite having the required capacity, and high personnel costs.

EXHIBIT 2.28: PRODUCTIVITY OF MFPS

Borrowers and depositors per staff

160

Borrowers per staff Depositors per staff

140 120 100 80 60 40 20 0 2006

2007

2008

2009

2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

3.1. Branchless banking 3.2. Islamic microfinance 3.3. Micro insurance 3.4. Microfinance CIB 3.5. Risk mitigation fund and deposit protection fund 3.6. Continued diversification of funding options 3.7. Corporate governance

3. The Way Forward The aim of this section is to identify and analyze the challenges and opportunities faced by the microfinance industry in Pakistan. Each of these opportunities and challenges will require a joint effort by sector organizations to bring these opportunities to fruition and mitigate risks.

3.1 Branchless banking Using alternative delivery channels in the form of branchless banking and opportunities created by leveraging Pakistan’s technology infrastructure, MFPs have a golden opportunity to expand their outreach, especially to rural areas. This can result in significant cost reductions by replacing a labour-intensive business model with banking agents. In 2008, comprehensive regulatory guidelines on branchless banking were issued by the SBP. The guidelines defined a bank-led model for Pakistan, whereby a telecom company could not offer branchless banking services without a banking partner fronting the venture. Following this, a variety of branchless banking initiatives were launched: • FMFB partnered with the Pakistan Postal Service to leverage its existing infrastructure network. FMFB established kiosks at Pak Post branches. Through this arrangement, approximately 40,000 borrowers have been reached through 68 kiosks.20 • TMFB was acquired by Telenor, the multinational telecom giant. Together with Telenor, TMFB launched its branchless banking initiative in October 2009 under the banner of ‘Easy Paisa’ which has reached around 11,600 agents and has processed over ten million transactions, including domestic remittances, overthe-counter bill payments, and over 0.5 million mobile accounts. Together, these services have helped process a total of PKR 43 billion (USD 500 million).21

operate under the banner of Omni and aimed to capture a niche in the government-to-people (G2P) payments space. UBL has over 3,000 agents across the country and is a recipient of two grants totaling USD 8.4 million from the Bill and Melinda Gates Foundation, to roll out Omni. In addition, branchless banking licenses have also been given to Waseela, the subsidiary MFB established by Mobilink, Pakistan’s largest cellular service provider, and MCB. A non-bank applicant for the license includes the courier service provider, TCS, which is currently under consideration. Despite significant deployment, branchless banking’s takeoff has remained muted, with less than one million users tapped over a period of three years. Keeping in view the slower growth in the area, the regulations have been amended. Amendments include: i) Rationalization of account opening requirements by removing the need to capture biometric fingerprint information at time of account opening for lowest value account; ii) There has been a substantial increase in transaction limits, from PKR 10,000 to PKR 25,000 per person in one day, coupled with the elimination of maximum balances and the removal of bill payments from the transaction limit; and iii) the introduction of a new “Level 0” account with the lowest transaction limits which can be opened electronically with no physical paperwork required. According to the Strategic Framework 2010–2015, the aim of these amendments to the regulation is to increase the number of users to five million, and banking agents to over 30,000. With these amendments, the opportunities already available in the branchless banking space are likely to expand further. For industry players, this can turn into an opportunity or a significant challenge, depending on how it is internalized. Forging successful partnerships may help in the re-creation of existing microfinance programmes to tap into the cost-cutting opportunities on offer.

• United Bank Ltd. (UBL) launched a retail agent basedmodel in April 2010. Their branchless banking services 20 Strategic Framework for Sustainable Microfinance in Pakistan, SBP. 21 Bold, Chris. 2011. Pakistan as a Laboratory for Innovation in Branchless Banking. CGAP: Washington DC. http://technology.cgap.org/2011/10/12/cgap-releases-briefing-on-branchless-banking-in-pakistan-a-laboratory-for-innovation/?utm_source=feedburner&utm_ medium=email&utm_campaign=Feed%3A+cgaptechnology+%28CGAP+Technology+Blog%29

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

21 ANNEXURES

3.2 Islamic microfinance Islamic microfinance has the potential to expand financial access to a clientage which currently rejects microfinance products that do not comply with Islamic law. While conventional microfinance products have been very successful in Muslim countries, they do not fulfill the needs of all clients. Just as there is demand from mainstream banking clients for Islamic products, there are also many poor people who insist on these products. Islamic microfinance represents the confluence of two rapidly growing industries: microfinance and Islamic finance. Unlocking this potential could be the key to providing financial access to many Muslim poor who currently reject microfinance products that do not comply with Islamic law.22 In a 2007 global survey on Islamic microfinance, CGAP collected information on over 125 institutions and contacted experts from 19 Muslim countries. The survey and a synthesis of other available data revealed that Islamic microfinance has a total estimated global outreach of only 380,000 customers and accounts for only an estimated 0.5 percent of total microfinance outreach. The experience of commercial banks in Islamic banking and the emphasis of some local players on Islamic microfinance, show that Pakistan has a niche market likely to respond positively to shariah-compliant services and products. Three MFIs, namely CWDC, Asasah, and Akhuwat, have already started to provide their clients services consistent with Islamic financial principles. Three more MFPs, Sungi, TMFB, and POMFB, are actively planning to launch shariah-compliant financial services. Keeping in view the potential for Islamic microfinance, PMN has formed an Islamic Microfinance Working Group (I.WG) with an aim to facilitate discussion and analysis on the ‘nuts and bolts’ of forging microfinance programmes equipped to offer Islamic microfinance services and products. Before scarce resources are invested in making changes to business models and operations, there is a need to answer questions pertaining to: • The economics of Islamic microfinance to ensure organizational longevity and financial sustainability;

• The risk management measures needed to ensure business model success; • The operational aspects of cascading required changes into the organizational fabric. Thus, although Islamic microfinance can offer a substantial opportunity, wholesale organizational shifts to shariah-compliant products and systems need to be preceded by pilots and studies that answer some pertinent questions with regard to market size, business model, and risk management.

3.3 Micro insurance Although a number of MFPs have been providing credit life insurance, and a handful have progressed to offering health insurance for a number of years now, a consolidated move towards providing a legal framework for the provision of micro insurance services has been made as recently as 2011 in the form of the draft Micro Insurance Rules 2011, jointly released by the SECP and the Centre for International Private Enterprise (CIPE). The rules are intended to provide a framework for participation in micro insurance in Pakistan.23 Although a draft for review was not available, the framework is said to stress three important bottlenecks: i) Increased use of technology; ii) Reconsideration of administrative fees; and iii) Getting more healthcare providers involved in the industry. As some of the first movers to join hands with insurance service providers and technology platform providers such as telecom companies, MFPs are in a unique position to form the nexus. As such, MFPs can leverage their expanding, technology-backed outreach to provide insurance companies with low-cost scaled options for the sale of re-engineered products.

3.4 Microfinance CIB Pakistan’s pilot CIB project was launched in May 2010 in Lahore as a joint venture between industry retailers operating in Lahore and the PMN, SBP, DFID, and Citi Foundation (for update on pilot, see SECTION 1).

22 Islamic Microfinance: An Emerging Market Niche, CGAP Focus Note No. 49, August 2008 23 Express Tribune. Micro Insurance: Draft Regulations Unveiled. January 14, 2011 http://tribune.com.pk/story/103436/microinsurance-draft-regulations-unveiled/

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Microfinance CIB assists the industry in two ways: firstly, by providing borrower credit histories, and secondly, by reducing instances of multiple borrowing. Based on the utilization of information in the CIB for loan approval, the decision to roll out the CIB on a national scale now presents an opportunity to reduce credit risk for the industry as a whole. Realizing this reduced risk, however, will be highly dependent on the credit policies adopted by MFPs and the provision of up-to-date information so that CIB users are privy to the latest and most relevant data for decision-making.

3.5 Risk mitigation fund and deposit protection fund In recent years, Pakistan has faced a number of natural disasters like the devastating floods in 2010, the earthquake in 2005, and recurrent droughts, especially in the southern reaches of the country. This has resulted in significant losses for MFPs. Keeping this scenario in view, the requirement for a risk mitigation fund cannot be denied. Under MSDP 1 and 2, a risk management fund (RMF) and a depositor’s protection fund (DPF) have been established under the auspices of the SBP. Initial seed money of USD 5 million each was placed into the funds. Over time, this amount was to be supplemented with five percent of the profits of MFBs. Of the MFBs operating in Pakistan, only KBL has been contributing to the funds, given that all the other entities have not yet achieved financial sustainability. As a result, the RMF and DPF are now worth USD 29 million. It is recommended that the SBP strategize around opening up this fund for the industry as a whole. Since KBL is the sole contributor to the funds, the modalities of this can be worked out, for example, in the form of a time-bound fund contribution holiday, until some amount of equity in contribution is achieved.

3.6 Continued diversification of funding options In 2009–10, up to 48 percent of MFBs’ total assets and 28.5 percent of the entire industry’s assets were being funded through deposits, representing more than a 40 percent increase compared to the previous year. To continue progress in this direction so that MFBs can

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diversify their funding sources, it is important that policymakers and funders continue to maintain the correct incentive structure. The industry also needs to engage with private equity funds, microfinance equity funds, development finance institutes (DFIs), sovereign wealth funds, and asset management companies to improve their debt-equity ratios. A number of international funds specializing in placements of microfinance investments have been showing increasing interest in Pakistan’s microfinance industry. These include well-known funds like Accion International, Blue Orchard, Equator Capital, ADA, and Triple Jump.

3.7 Corporate governance As the microfinance sector matures, the need for strong corporate governance cannot be denied. Key challenges faced are board effectiveness, management control, disclosure and transparency, shareholder and stakeholder relations, and succession planning. Boards should be composed of people with backgrounds and understanding of commercial finance, people from academia and the development sector, people from subcommittees overseeing various important management functions, and people with proactive roles in strategic planning and implementation. Strong internal controls, risk management, and operational internal controls are aspects that MFPs must continue working towards.

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Contents

ANNEX A: PERFORMANCE INDICATORS

ANNEX B: REGIONAL BENCHMARKS

ANNEX C: SOURCES OF DATA

ANNEX D: ADJUSTMENTS TO FINANCIAL DATA

ANNEX E: TERMS AND DEFINITIONS

ANNEXURES

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Annex A-I: Performance Indicators - Industry Aggregate (2006-10) Annex A-II: Performance Indicators â&#x20AC;&#x201C; Individual Institutions and Peer Groups (2010) Annex B: Regional Benchmarks Annex C: Sources of Data Annex D: Adjustments to Financial Data Annex E: Terms and Definitions

Annex A:

Performance Indicators Annex A-I: Performance Indicators - Industry Aggregate (2006-09) INFRASTRUCTURE 2006

Total assets (PKR 000)

2007

2008

2009*

2010**

17,535,983

22,862,066

33,193,784

30,473,198

35,826,211

Branches (including head office)

1,073

1,165

1,277

1,221

1,405

Total staff

7,342

9,529

11,499

11,557

12,005

Growth Rate Total assets

30.4%

45.2%

-8.2%

17.6%

Branches (including head office)

8.6%

9.6%

-4.4%

15.1%

Total staff

29.8%

20.7%

0.5%

3.9%

* Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 ** KF and RMFB not reported for PMR 2010

FINANCING STRUCTURE 2006

2007

2008

2009*

2010**

Total assets (PKR 000)

17,535,983

22,862,066

33,193,784

30,473,198

35,826,211

Total equity (PKR 000)

6,077,925

6,418,594

8,018,344

7,297,847

8,359,260

11,457,585

16,443,471

25,175,440

23,175,352

27,466,951

Commercial liabilities (PKR 000)

2,475,376

2,723,484

6,252,075

2,577,741

4,910,265

Deposits (PKR 000)***

1,448,803

2,845,014

4,111,730

7,161,634

10,132,332

Gross loan portfolio (PKR 000)

8,444,919

12,749,983

20,001,190

16,757,846

20,295,915

Total debt (PKR 000)

Ratios Equity-to-asset ratio

34.7%

28.1%

24.2%

23.9%

23.3%

Commercial liabilities-to-TD

21.6%

16.6%

24.8%

11.1%

17.9%

1.9

2.56

3.14

3.18

3.29

17.2%

22.3%

20.6%

42.7%

49.9%

8.3%

12.4%

23.5%

28.3%

48.2%

55.8%

60.3%

55.0%

56.7%

Debt-to-equity ratio Deposits-to-GLP Deposits-to-total assets GLP-to-total assets

* Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 ** KF and RMFB not reported for PMR 2010 *** Only MFB deposits included

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

OUTREACH 2006

2007

2008

2009*

2010**

Active borrowers

835,460

1,267,182

1,695,421

1,409,657

1,567,355

Active women borrowers

434,122

640,868

803,795

643,392

811,520

8,445,099

12,749,983

20,001,190

16,757,846

20,295,915

57,000

81,000

86,000

105,300

887,108

1,351,462

1,791,688

1,409,657

1,547,197

70,891

146,258

248,842

463,361

764,271

Number of deposit accounts***

749,897

494,709

248,842

463,361

764,271

Number of women depositors***

542,120

508,000

44,081

78,427

64,159

2,349,383

3,617,332

4,111,730

7,161,634

10,132,332

Proportion of active women borrowers (%)

52.0%

50.6%

47.4%

45.6%

51.8%

Average loan balance per active borrower (PKR)

10,100

11,797

11,888

12,949

Average loan balance per active borrower/ per capita income

17.7%

13.78%

13.8%

12.3%

Average outstanding loan balance (PKR)

9,500

9,400

11,163

11,888

13,118

Average outstanding loan balance/per capita income

16.7%

16.6%

13.8%

12.5%

764.7%

44.4%

17.7%

16.9%

8.4%

Average saving balance per active depositor (PKR)

1,700

3,200

16,523

15,456

13,258

Active deposit account balance (PKR)

3,100

7,300

16,523

15,456

13,258

Gross loan portfolio (PKR 000) Annual per capita income (PKR)** Number of loans outstanding Depositors***

Deposits outstanding***

Proportion of active women depositors (%)

* Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 ** KF and RMFB not reported for PMR 2010 ** http://www.finance.gov.pk/survey/chapter_11/Overview%20of%20the%20Economy.pdf *** Only MFB deposits included

http://www.pmronline.info

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

FINANCIAL PERFORMANCE (Figures in PKR 000)

2006

Income from loan portfolio

2007

2008

2009*

2010**

1,493,902

2,746,985

4,202,506

4,352,648

6,122,154

Income from investments

611,657

638,909

831,602

1,087,106

870,809

Income from other sources

16,517

32,347

80,552

975,335

528,457

2,122,076

3,418,241

5,114,660

6,415,089

7,521,420

460,666

876,871

1,556,375

1,820,037

2,016,795

1,661,410

2,541,370

3,558,285

4,595,052

5,504,624

302,616

363,353

1,440,324

408,684

745,660

Net financial margin

1,358,794

2,178,018

2,117,962

4,186,368

4,758,964

Personnel expense

1,084,180

1,476,490

1,828,726

2,186,177

2,819,891

791,179

1,122,978

1,507,667

1,719,283

1,961,816

1,875,359

2,599,468

3,336,393

3,905,460

4,781,707

(516,566)

(421,450)

(1,218,432)

280,908

(22,742)

(22,401)

75,179

(1,001)

5,353

(7,047)

(494,164)

(496,629)

(1,217,431)

275,555

(15,696)

15,646,074

20,055,650

27,996,183

29,363,269

30,399,088

5,509,135

6,115,580

7,177,338

7,006,506

7,854,713

Total revenue Less : financial expense Gross financial margin Less: loan loss provision expense

Admin expense Less: operating expense Net income before tax Provision for tax Net income/(loss) Inflation Adjustment Expense Average total assets Average total equity

Ratios Adjusted return-on-assets

(6.7%)

(6.4%)

(7.6%)

(3.3%)

(0.1%)

Adjusted return-on-equity

(19.0%)

(20.9%)

(29.8%)

(14%)

(0.2%)

Operational self sufficiency (OSS)

80.4%

89.0%

80.8%

104.6%

99.7%

Financial self sufficiency (FSS)

66.5%

74.0%

70.5%

86.8%

81.7%

* Based on Kashf Foundation financials for 2008

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

OPERATING INCOME (Figures in PKR 000)

2006

2007

2008

2009*

2010**

Revenue from loan portfolio

1,493,902

2,746,985

4,202,506

4,352,648

6,122,154

Total revenue

2,122,076

3,418,241

5,114,660

5,804,616

7,521,420

Adjusted net operating income / (Loss)

(1,068,698)

(1,202,537)

(2,113,788)

(887,558)

(22,742)

Average total assets

15,646,074

20,055,650

27,996,183

29,363,269

30,399,088

Gross loan portfolio (opening balance)

5,602,086

8,283,941

12,698,918

16,780,162

16,948,466

Gross loan portfolio (closing balance)

8,445,099

12,749,983

20,001,190

16,757,846

20,295,915

Average gross loan portfolio

7,032,593

10,516,962

16,350,054

16,769,004

18,622,190

8.9%

7.9%

12.0%

20.8%

15.0%

13.6%

17.0%

18.3%

19.8%

24.7%

(50.4%)

(32.5%)

(41.3%)

(24.6%)

(0.3%)

Yield on gross portfolio (nominal)

21.2%

26.1%

25.7%

26.0%

32.9%

Yield on gross gortfolio (real)

11.4%

16.9%

12.2%

4.3%

15.5%

Inflation rate***

Total revenue ratio (total revenue-toaverage total assets) Adjusted profit margin (adjusted profit/ (loss)-to-total revenue)

* Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 ** KF and RMFB not reported for PMR 2010 *** Source: http://www.sbp.org.pk/ecodata/pricei.pdf

http://www.pmronline.info

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

OPERATING EXPENSE (Figures in PKR 000)

2006

2007

2008

2009*

2010**

Adjusted total expense

3,190,774

4,620,778

7,228,448

7,454,381

7,544,162

Adjusted financial expense

1,012,254

1,593,368

2,440,032

3,140,237

2,016,795

303,161

427,943

1,452,023

408,684

745,660

1,875,359

2,599,468

3,336,393

3,905,460

4,781,707

552,132

781,087

895,356

1,320,200

15,646,074

20,055,650

27,996,183

29,363,269

30,399,088

Adjusted loan loss provision expense Adjusted operating expense Adjustment expense Average total assets

Ratios Adjusted total expense-to-average total assets

20.4%

23.0%

25.8%

25.4%

24.8%

Adjusted financial expense-to-average total assets

6.5%

7.9%

8.7%

10.7%

6.6%

Adjusted loan loss provision expense-toaverage total assets

1.9%

2.1%

5.2%

1.4%

2.5%

12.0%

13.0%

11.9%

13.3%

15.7%

Adjusted personnel expense

6.5%

7.4%

6.5%

9.3%

Adjusted administrative expense

5.1%

5.6%

5.4%

5.8%

6.5%

Adjustment expense-to-average total assets

3.5%

3.9%

3.2%

4.5%

0.0%

Adjusted operating expense-to-average total assets

* Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 ** KF and RMFB not reported for PMR 2010

OPERATING EFFICIENCY 2006

2007

2008

2009*

2010**

Adjusted operating expense (PKR 000)

1,875,359

2,599,468

3,336,393

3,905,460

4,781,707

Adjusted personnel expense (PKR 000)

1,084,180

1,476,490

1,828,726

2,186,177

2,819,891

Average gross loan portfolio (PKR 000)

7,023,593

10,516,962

16,350,054

16,769,004

18,622,190

Average number of active borrowers

754,250

1,143,320

1,685,382

1,387,670

1,567,355

Average number of active loans

796,604

1,209,237

1,635,342

1,423,467

1,567,355

Adjusted operating expense-to-average gross loan portfolio

26.7%

24.7%

20.4%

23.3%

25.7%

Adjusted personnel expense-to-average gross loan portfolio

15.4%

14.0%

11.2%

13.0%

15.1%

3.3

2.7

2.0

2.20

2.23

Adjusted cost per borrower (PKR)

2,500

2,300

2,000

2,814

3,051

Adjusted cost per loan (PKR)

2,400

2,100

2,000

2,744

3,051

Average salary/GDP per capita

* Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 ** KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

PRODUCTIVITY 2006

2007

2008

2009*

2010**

Number of active borrowers

835,460

1,267,182

1,695,421

1,399,239

1,567,355

Number of active loans

887,108

1,351,462

1,791,688

1,399,239

1,567,355

Number of active depositors

1,364,470

1,143,551

248,842

463,361

764,271

Number of deposit accounts

750,077

494,709

248,842

463,361

764,271

Total staff

7,342

9,529

11,499

11,441

12,005

Total loan officers

4,513

5,734

6,916

6,619

5,148

Borrowers per staff

114

133

147

122

131

Loans per staff

121

142

156

122

131

Borrowers per loan officer

185

221

245

211

304

Loans per loan officer

197

236

259

211

304

Depositors per staff

186

120

Deposit accounts per staff

102

Personnel allocation ratio

61.5%

60.2%

60.1%

57.9%

42.9%

* Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 ** KF and RMFB not reported for PMR 2010

RISK (Figures in PKR 000)

2006

2007

2008

2009*

2010**

Portfolio at risk > 30 days

194,821

396,159

426,693

578,032

829,314

Portfolio at risk > 90 days

109,525

283,676

190,350

318,824

577,972

Adjusted loan loss reserve

378,716

484,409

1,680,846

477,785

733,338

Loan written-off during year

205,216

209,238

299,986

602,421

335,463

Gross loan portfolio (GLP)

8,445,099

12,749,983

20,001,190

16,757,846

20,295,915

Average gross loan portfolio

7,023,593

10,516,962

16,350,054

16,769,004

18,622,190

Portfolio at risk (>30)-to-GLP

2.3%

3.1%

2.1%

3.4%

4.1%

Portfolio at risk(>90)-to-GLP

1.3%

2.2%

1.0%

1.9%

2.8%

Write off-to-average GLP

2.9%

2.0%

1.8%

3.6%

1.8%

194.4%

122.3%

393.9%

82.7%

88.4%

Risk coverage ratio (adjusted loan loss reserve-to-portfolio at risk >30days)

* Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 ** KF and RMFB not reported for PMR 2010

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Annex A-I: Performance Indicators - Industry Aggregate (2006-10) Annex A-II: Performance Indicators – Individual Institutions and Peer Groups (2010) Annex B: Regional Benchmarks Annex C: Sources of Data Annex D: Adjustments to Financial Data Annex E: Terms and Definitions

Annex A-II: Performance Indicators – Individual Institutions and Peer Groups (2010) Microfinance Bank (MFB)

Bank licensed and prudentially regulated by the State Bank of Pakistan to exclusively service the microfinance market

Microfinance Institution (MFI)

Non-governmental organization providing only microfinance services

Rural Support Program (RSP)

Non-governmental organization running microfinance operation as part of multi-dimensional development programme with specific focus on rural areas

INFRASTRUCTURE MFB KBL Age

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

Total assets (PKR 000)

7,238,672

5,279,389

745,414

6,352,778

251,859

1,228,339

21,096,450

Total equity (PKR 000)

2,215,782

1,323,754

700,477

753,883

220,124

350,543

5,564,563

Total liabilities (PKR 000)

5,022,890

3,955,635

44,936

5,598,896

31,735

877,796

15,531,887

109

147

345

2,163

786

151

1,544

111

448

5,203

Branches (including head office) Personnel

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

3,161

384

4,094,697

1,068,480

5,163,176

Sub

RCDS 16 286,719 37,974 22 201

248,745

ORIX 18 224,240 44,840 9 57

179,400

SDF 16 45,748 38,212 7,536 4 35

Akhuwat 10 223,099 219,185 33 215

3,914

ASASAH 8 421,310 (46,880) 23 219

468,189

OPP 23 627,751 273,079 354,672 14 132

JWS 19 200,942 33,714 10 84

167,228

BRAC-P 3 1,105,046 29,652 94 899

1,075,395

ASA-P 2 806,230 285,616 100 596

520,614

CWCD 19 210,307 2,871 22 174

207,436

182,337

11,506

193,843

CSC

DAMEN 14 521,056 73,254 447,802

65,457

158

Personnel

Branches (including head office)

200

Total liabilities (PKR 000)

231,428

Total equity (PKR 000)

Total assets (PKR 000)

191

Age

296,886

SAFWCO

MFI

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

RSP NRSP Age

PRSP

SRSP

TRDP

Sub

Total assets (PKR 000)

6,980,066

2,050,152

22,933

513,434

9,566,585

Total equity (PKR 000)

995,709

627,523

7,599

95,387

1,726,217

5,984,357

1,422,629

15,333

418,047

7,840,367

502

676

2,396

978

237

3,641

Total liabilities (PKR 000) Branches (including head office) Personnel

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

FINANCING STRUCTURE (Figures in PKR 000)

MFB KBL

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

Total assets

7,238,672

5,279,389

745,414

6,352,778

251,859

1,228,339

21,096,450

Total equity

2,215,782

1,323,754

700,477

753,883

220,124

350,543

5,564,563

Total debt

5,022,890

3,955,635

44,936

5,598,896

31,735

877,796

15,531,887

Subsidized debt*

3,637,295

Commercial debt

225,000

661,608

886,608

Deposits

1,000,329

2,954,653

27,724

5,344,198

29,027

776,401

10,132,332

Gross loan portfolio

3,722,153

3,096,044

88,348

2,373,880

61,619

453,102

9,795,146 Weighted Average

Equity-to-asset ratio

30.6%

25.1%

94.0%

11.9%

87.4%

28.5%

26.4%

4.5%

16.7%

0.0%

5.7%

2.3

3.0

0.1

7.4

0.1

2.5

2.8

Deposits-to-GLP

26.9%

95.4%

31.4%

225.1%

47.1%

171.4%

103.4%

Deposits-to-total assets

13.8%

56.0%

3.7%

84.1%

11.5%

63.2%

48.0%

5.2%

4.6%

0.7%

8.7%

11.2%

7.5%

6.4%

51.4%

58.6%

11.9%

37.4%

24.5%

36.9%

46.4%

Commercial liabilities-to-TD Debt-to-equity ratio

Cost of funds GLP-to-total assets

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * Below market rate

Pakistan Microfinance Review 2010

Cost of funds

9.2%

12.8%

12.5%

7.9%

1.4%

7.4%

9.9%

6.3%

7.6%

0.0%

6.0%

8.3%

3.3%

7.4%

GLP-to-total assets

77.9%

70.8%

94.9%

62.5%

91.3%

63.6%

82.2%

80.5%

67.9%

67.3%

80.8%

94.9%

67.5%

75.6%

Deposits-to-total assets

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Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * Below market rate

0.0%

3.83

6.6

4.0

0.2

0.0

-10.0

1.3

5.0

36.3

1.8

33.8%

0.0%

18.6%

5.7%

0.0%

72.7%

94.4%

1.0%

20.7%

13.2%

20.0%

83.5%

98.2%

-11.1%

43.5%

16.8%

2.7%

35.4%

1.4%

5.9% -

131,517 736,038 702,521 165,225 505,215 286,028 150,039 36,959 212,838 193,613

183,903

3,904,067

368,825

1,382,507

86,920

20,073

782,085

491,355

2,073

2,208,991

221,387

176,110

5,000

359,775

273,392

160,952

183,989

178,781

443,396

206,210

4,094,697

248,745

179,400

7,536

3,914

468,189

354,672

167,228

1,075,395

520,614

207,436

182,337

447,802

231,428

1,068,480

37,974

44,840

38,212

219,185

(46,880)

273,079

33,714

29,652

285,616

2,871

11,506

73,254

65,457

5,163,176

286,719

224,240

45,748

223,099

421,310

627,751

200,942

1,105,046

806,230

210,307

193,843

521,056

296,886

Sub

RCDS

ORIX

SDF

Akhuwat

ASASAH

OPP

JWS

BRAC-P

ASA-P

CWCD

CSC

DAMEN

SAFWCO

SECTION 3: THE WAY FORWARD

0.0%

72.3

0.0%

14.1%

SECTION 2: INDUSTRY PERFORMANCE

0.0%

15.8

0.0%

Commercial debt

0.0%

Deposits-to-GLP

0.0%

Debt-to-equity ratio

0.0%

Commercial liabilities-to-TD

6.1

Equity-to-asset ratio

0.0%

Gross loan portfolio

0.0%

Deposits -

Subsidized debt*

231,348

Total debt

22.0%

Total equity

0.0%

Total assets

3.5

SECTION 1: THE YEAR IN REVIEW

0.0%

Contents

ANNEXURES

(Figures in PKR 000)

MFI

Weighted Average

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

(Figures in PKR 000)

RSP NRSP

PRSP

SRSP

TRDP

Sub

Total assets

6,980,066

2,050,152

22,933

513,434

9,566,585

Total equity

995,709

627,523

7,599

95,387

1,726,217

Total debt

5,984,357

1,422,629

15,333

418,047

7,840,367

Subsidized debt*

3,639,085

334,619

15,333

398,155

4,387,192

Commercial debt

2,176,440

464,711

2,641,150

5,638,524

662,612

10,756

284,809

6,596,701

Deposits Gross loan portfolio

Weighted Average Equity-to-asset ratio

14.3%

30.6%

33.1%

18.6%

18.0%

Commercial liabilities-to-TD

36.4%

32.7%

0.0%

33.7%

6.0

2.3

2.0

4.4

4.54

Deposits-to-GLP

0.0%

Deposits-to-total assets

0.0%

Cost of funds

9.8%

6.9%

24.2%

7.0%

9.1%

80.8%

32.3%

46.9%

55.5%

69.0%

Debt-to-equity ratio

GLP-to-total assets

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * Below market rate

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

OUTREACH MFB KBL Number of active borrowers

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

325,523

111,153

7,045

151,797

5,734

17,445

618,697

81,381

66,983

2,111

50,907

1,745

203,126

3,722,153

3,096,044

88,348

2,373,880

61,619

453,102

9,795,146

Annual per capita income*

105,300

Number of loans outstanding

325,523

111,153

7,045

151,797

5,734

17,445

618,697

Number of depositors

205,936

228,634

17,082

218,921

15,222

78,476

764,271

Number of deposit accounts

205,936

228,634

17,082

218,921

15,222

78,476

764,271

64,159

1,000,329

2,954,653

27,724

5,344,198

29,027

776,401

10,132,332

Number of active women borrowers Gross loan portfolio (PKR 000)

Number of women depositors Deposits outstanding (PKR 000)

Weighted Average Percentage of women borrowers

25.0%

60.3%

30.0%

33.5%

0.0%

10.0%

32.8%

Average loan balance (PKR)

11,434

27,854

12,541

15,639

10,746

25,973

15,832

Depth of outreach

10.9%

26.5%

11.9%

14.9%

10.2%

24.7%

15.0%

Average outstanding loan balance (PKR)

11,434

27,854

12,541

15,639

10,746

25,973

15,832

10.9%

26.5%

11.9%

14.9%

10.2%

24.7%

15.0%

Percentage of women savers

0.0%

29.3%

0.0%

8.4%

Average saving balance (PKR)

4,857

12,923

1,623

24,412

1,907

9,893

13,258

Active savings account balance (PKR)

4,857

12,923

1,623

24,412

1,907

9,893

13,258

Average outstanding loan balance/per capita income

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * http://www.finance.gov.pk/survey/chapter_11/Overview%20of%20the%20Economy.pdf

http://www.pmronline.info

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Sub 406,772 324,565 3,904,067 105,300 406,772 -

RCDS 17,638 12,498 193,613 105,300 17,638

ORIX 15,553 14,800 212,838 105,300 15,553

SDF 5,512 5,512 36,959 105,300 5,512

Akhuwat 20,158 6,048 150,039 105,300 20,158

ASASAH 29,806 29,806 286,028 105,300 29,806

OPP 49,155 9,831 505,215 105,300 49,155

JWS 13,019 12,319 165,225 105,300 13,019

BRAC-P 84,411 84,411 702,521 105,300 84,411

ASA-P 85,380 84,820 736,038 105,300 85,380

CWCD 12,897 4,030 131,517 105,300 12,897

Deposits outstanding (PKR 000)

CSC 11,975 10,862 183,903 105,300 11,975

Number of women depositors

DAMEN 38,145 38,145 368,825 105,300

11,483 231,348

Number of deposit accounts

Number of depositors

38,145

Number of loans outstanding

Annual per capita income*

105,300

Gross loan portfolio (PKR 000)

23,123

Number of active women borrowers

Number of active borrowers

23,123

SAFWCO

MFI

Weighted

79.8% 9,598 9% 9,598 9.1% -

70.9% 10,977 10% 10,977 10.4% -

95.2% 13,685 13% 13,685 13.0% -

100.0% 6,705 6% 6,705 6.4% -

30.0% 7,443 7.1% 7,443 7.1% -

100.0% 9,596 9.1% 9,596 9.1%

20.0% 10,278 9.8% 10,278 9.8%

94.6% 12,691 12.1% 12,691 12.1%

100.0% 8,323 7.9% 8,323 7.9%

99.3% 8,621 8.2% 8,621 8.2%

Active savings account balance (PKR)

31.2% 10,197 9.7% 10,197 9.7%

90.7% 15,357 14.6% 15,357 14.6%

100.0% 9,669 9.2% 9,669

10,005 9.5%

Average saving balance (PKR)

Percentage of women savers

capita income

9.2%

Average outstanding loan balance/per

Average outstanding loan balance (PKR)

10,005

Depth of outreach

9.5%

Average loan balance (PKR)

Percentage of women borrowers

49.7%

Average

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * http://www.finance.gov.pk/survey/chapter_11/Overview%20of%20the%20Economy.pdf

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

RSP NRSP

PRSP

SRSP

TRDP

Sub

Number of active borrowers

431,027

78,091

1,121

31,647

541,886

Number of active women borrowers

225,048

35,550

862

22,366

283,826

5,638,524

662,612

10,756

284,809

6,596,701

Annual per capita income*

105,300

Number of loans outstanding

431,027

78,091

1,121

31,647

541,886

Number of depositors

Number of deposit accounts

Number of women depositors

Deposits outstanding (PKR 000)

Gross loan portfolio (PKR 000)

Weighted Average Percentage of women borrowers

52.2%

45.5%

76.9%

70.7%

52.4%

Average loan balance (PKR)

13,082

8,485

9,595

9,000

12,174

12%

13,082

8,485

9,595

9,000

12,174

12.4%

8.1%

8.5%

11.6%

Percentage of women savers

Average saving balance (PKR)

Active savings account balance (PKR)

Depth of outreach Average outstanding loan balance (PKR) Average outstanding loan balance/per capita income

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * http://www.finance.gov.pk/survey/chapter_11/Overview%20of%20the%20Economy.pdf

http://www.pmronline.info

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

41 ANNEXURES

FINANCIAL PERFORMANCE (Figures in PKR 000)

MFB KBL Income from loan portfolio

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

1,203,274

888,205

35,687

978,550

30,617

204,167

3,340,499

Income from investments

194,489

59,255

62,980

246,374

21,055

36,063

620,217

Income from other sources

192,211

117,294

5,166

27,601

3,666

36,895

382,834

1,589,974

1,064,754

103,834

1,252,525

55,337

277,125

4,343,550

260,552

181,769

315

487,057

3,563

65,786

999,041

1,329,423

882,985

103,519

765,469

51,774

211,339

3,344,508

113,065

25,248

4,750

224,433

19,245

32,177

418,918

1,216,358

857,737

98,769

541,035

32,529

179,162

2,925,591

Personnel expense

672,706

508,525

59,212

339,518

28,650

170,663

1,779,274

Administrative expense

355,514

293,861

33,040

358,491

21,847

194,254

1,257,007

1,028,220

802,386

92,252

698,009

50,497

364,917

3,036,281

188,138

55,351

6,518

(156,974)

(17,969)

(185,755)

(110,691)

(17,849)

12,585

495

(11,515)

(16,284)

188,138

55,351

24,367

(169,559)

(18,464)

(174,240)

(94,406)

Average total assets

6,913,226

4,039,437

733,120

3,351,892

301,635

1,210,097

16,549,406

Average total equity

2,146,118

1,198,832

688,294

669,032

229,356

437,663

5,369,294

Total financial revenue Less: financial expense Gross financial margin Less: loan loss provision expense Net financial margin

Less: operating expense Net income before tax Provision for tax Net income/(loss)

Weighted Average Adjusted RoA

2.7%

1.4%

3.3%

-5.1%

-6.1%

-14.4%

-0.6%

Adjusted RoE

8.8%

4.6%

3.5%

-25.3%

-8.1%

-39.8%

-1.8%

Financial expense ratio

7.1%

7.8%

0.3%

18.9%

4.6%

15.0%

10.9%

113.4%

105.5%

106.7%

88.9%

75.5%

59.9%

97.5%

81.3%

89.1%

52.2%

83.6%

50.7%

51.5%

79.0%

Operational self sufficiency Financial self sufficiency

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

http://www.pmronline.info

29,514

(29,983)

(5,796)

4,745

10,008

9,238

1,966

(84,679)

(86,770)

(75,441)

11,562

10,008

4,745

(5,796)

(29,983)

29,514

1,966

(86,770)

27,717

805,711

19,798

23,802

5,858

26,069

83,393

46,275

34,140

232,678

94,550

60,509

58,959

345,289

7,712

12,102

1,759

8,640

44,556

38,340

15,411

80,083

29,627

29,136

24,789

460,422

12,086

11,701

4,098

17,429

38,837

7,935

18,729

152,594

64,924

31,373

34,169

42,375

730,269

31,360

33,810

10,603

20,273

53,410

75,789

36,106

145,907

122,267

51,949

25,812

79,215

136,220

1,305

3,057

339

932

3,229

15,297

26,289

9,517

15,551

21,071

32,843

866,490

32,665

36,867

10,942

21,206

56,639

91,086

36,106

172,196

131,784

67,500

46,883

112,058

302,495

8,120

14,801

450

35,649

22,250

16,636

79,859

7,030

16,428

22,774

57,283

1,168,984

40,785

51,668

11,391

21,206

92,288

113,336

52,743

252,055

138,814

83,928

69,657

169,342

71,771

94,245

5,654

251

19,199

1,058

2,087

5,397

30,870

(8,993)

32,912

3,181

974

1,656

63,820

1,002

2,007

(2,245)

19,710

275

9,156

1,618

5,638

5,645

21,015

1,010,919

35,131

51,417

10,390

93,476

91,540

47,071

212,029

146,189

45,378

60,831

147,353

70,115

Sub

RCDS

ORIX

SDF

Akhuwat

ASASAH

OPP

JWS

BRAC-P

ASA-P

CWCD

CSC

DAMEN

SAFWCO

SECTION 3: THE WAY FORWARD

9,238

18,479

(8,560)

(33,146)

30,065

21,214

SECTION 2: INDUSTRY PERFORMANCE

11,562

Net income/(loss)

(8,560)

Provision for tax

Net income before tax

(33,146)

Less: operating expense

72,440

Administrative expense 50,557

Income from investments

6,775

Personnel expense

Net financial margin

6,775

Less: loan loss provision expense 6,790

Gross financial margin

43,767

Less: financial expense

24,172

Total financial revenue

23,068

Income from other sources

47,240

Income from loan portfolio

(3,473)

SECTION 1: THE YEAR IN REVIEW

(3,473)

Contents

ANNEXURES

(Figures in PKR 000)

MFI

Continued on Page 43

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Continued from Page 42

CWCD

ASA-P

BRAC-P

JWS

OPP

ASASAH

Akhuwat

SDF

ORIX

RCDS

255,220

235,490

477,824

978,378

185,409

518,348

419,492

170,162

42,558

269,890

286,719

20,984

7,151

147,536

41,421

30,787

241,114

(31,302)

167,192

35,717

39,836

37,974

Sub

CSC

525,335 69,866

4,635,902

DAMEN

271,077

Average total equity

866,623

SAFWCO Average total assets

58,347

MFI

Weighted

-1.8% -9.8% 93.9% 76.8%

9.2%

4.0% 30.4% 139.6% 77.7%

4.2%

3.7% 25.1% 124.0% 69.6%

7.3%

11.1% 13.3% 171.4% 96.8%

1.5%

-3.4% 3.5% 0.0% 78.5%

75.5% 64.0%

47.9%

-7.1% -95.8%

135.2% 98.4%

13.0%

5.7% 12.2%

103.9% 91.2%

5.2%

1.1% 6.4%

74.4% 73.6%

12.4%

-8.9% -209.5%

124.9% 95.0%

15.0%

3.9% 12.5%

90.7% 70.0%

1.6%

-3.6% -119.7%

67.8% 49.2%

11.5%

-13.0% -158.0%

104.2%

Financial self sufficiency

97.4%

12.0%

1.3% 9.7%

95.4%

14.5%

Operational self sufficiency

73.0%

Financial expense ratio

-6.0%

Adjusted RoE

9.6%

Adjusted RoA

-1.3%

Average

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

(Figures in PKR 000)

RSP NRSP Income from loan portfolio

PRSP

SRSP

TRDP

Sub

1,550,849

127,577

6,221

79,142

1,763,789

104,692

100,041

1,915

12,467

219,115

1,038

21,053

1,891

23,982

1,656,579

248,671

8,136

93,500

2,006,886

583,771

98,714

3,703

29,071

715,259

1,072,808

149,957

4,432

64,429

1,291,627

167,954

22,079

490

190,522

Net financial margin

904,855

127,878

4,432

63,939

1,101,104

Personnel expense

469,815

75,428

15,687

19,266

580,195

Administrative expense

285,130

46,078

6,334

21,978

359,520

754,945

121,505

22,020

41,244

939,715

149,910

6,372

(17,588)

22,695

161,389

149,910

6,372

(17,588)

22,695

161,389

Average total assets

6,471,920

2,163,419

50,275

528,166

9,213,780

Average total equity

915,749

617,046

7,658

78,345

1,618,797

Income from investments Income from other sources Total financial revenue Less: financial expense Gross financial margin Less: loan loss provision expense

Less: operating expense Net income before tax Provision for tax Net income/(loss)

Weighted Average Adjusted RoA

2.3%

0.3%

-35.0%

4.3%

1.8%

Adjusted RoE

16.4%

1.0%

-229.7%

29.0%

10.0%

Financial expense ratio

11.4%

13.8%

17.1%

10.1%

11.6%

Operational self sufficiency

109.9%

102.6%

31.6%

132.1%

108.7%

Financial self sufficiency

101.5%

63.1%

15.4%

86.9%

91.8%

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

http://www.pmronline.info

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

OPERATING INCOME (Figures in PKR 000)

MFB KBL

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

Revenue from loan portfolio

1,203,274

888,205

35,687

978,550

30,617

204,167

3,340,499

Total financial revenue

1,589,974

1,064,754

103,834

1,252,525

55,337

277,125

4,343,550

188,138

55,351

6,518

(156,974)

(17,969)

(185,755)

(110,691)

Average total assets

6,913,226

4,039,437

733,120

3,351,892

301,635

1,210,097

16,549,406

Gross loan portfolio (opening balance)

3,630,205

1,539,841

100,571

2,778,352

92,074

424,125

8,565,167

Gross loan portfolio (closing balance)

3,722,153

3,096,044

88,348

2,373,880

61,619

453,102

9,795,146

Average gross loan portfolio

3,676,179

2,317,943

94,459

2,576,116

76,846

438,613

9,180,156

Annual inflation rate (2011)*

15.0%

Adjusted net operating income/(loss)

Weighted Average Financial revenue ratio (total financial revenue-to-

23.0%

26.4%

14.2%

37.4%

18.3%

22.9%

26.2%

11.8%

5.2%

6.3%

-12.5%

-32.5%

-67.0%

-2.5%

Yield on gross portfolio (nominal)

32.7%

38.3%

37.8%

38.0%

39.8%

46.5%

36.4%

Yield on gross portfolio (real)

15.4%

20.3%

19.8%

20.0%

21.6%

27.4%

18.6%

average total assets) Adjusted profit margin (adjusted profit/(loss)-tofinancial revenue)

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * Source: http://www.sbp.org.pk/ecodata/MPM.pdf

Pakistan Microfinance Review 2010

34.1%

39.8%

35.0%

21.4%

34.2%

0.0%

35.6%

25.2%

18.3%

30.7%

21.6%

17.4%

5.6%

16.7%

-13.0%

18.0%

8.9%

2.9%

13.6%

(real)

16.6%

Yield on gross portfolio

31.9%

(nominal)

14.7%

Yield on gross portfolio 27.3%

35.6%

29.1%

25.8%

28.4%

21.9%

22.0%

12.5%

26.8%

19.1%

14.2%

25.2%

-10.2%

20.0%

-34.4%

3.7%

26.0%

-32.5%

-27.3%

22.2%

5.1%

6.1%

-6.5%

average total assets)

-47.6%

Adjusted profit margin (adjusted profit/(loss)-tofinancial revenue)

31.9%

Financial revenue ratio (total financial revenue-to-

14.7%

http://www.pmronline.info 142,356

428,169

532,852

134,486

426,910

273,319

123,470

29,146

204,085

191,963

15.0%

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * Source: http://www.sbp.org.pk/ecodata/MPM.pdf 15.0%

15.0%

3,904,067

193,613

212,838

2,686,242

190,314

195,332

21,333

96,901

260,611

348,606

103,747

363,183

120,300

153,196

197,086

4,635,902

286,719

269,890

42,558

170,162

419,492

518,348

185,409

978,378

477,824

235,490

255,220

525,335

(75,441)

11,562

10,008

4,745

(5,796)

(29,983)

29,514

1,966

(86,770)

27,717

(8,560)

(33,146)

6,775

1,168,984

40,785

51,668

11,391

21,206

92,288

113,336

52,743

252,055

138,814

83,928

69,657

169,342

71,771

1,010,919

35,131

51,417

10,390

93,476

91,540

47,071

212,029

146,189

45,378

60,831

147,353

70,115

Sub

RCDS

ORIX

SDF

Akhuwat

ASASAH

OPP

JWS

BRAC-P

ASA-P

CWCD

CSC

DAMEN

SAFWCO

SECTION 3: THE WAY FORWARD

36,959

150,039

286,028

505,215

165,225

702,521

736,038

131,517

183,903

422,704

(3,473)

SECTION 2: INDUSTRY PERFORMANCE

3,295,155

190,495

15.0%

368,825

271,077

SECTION 1: THE YEAR IN REVIEW

15.0%

395,764

Annual inflation rate (2011)* 15.0%

balance)

32.2%

Gross loan portfolio (closing

4.0%

ing balance) 212,928

Gross loan portfolio (open-

231,348

Average total assets

37.2%

222,138

income/(loss)

19.3%

Average gross loan portfolio

15.0%

Adjusted net operating

26.5%

Total financial revenue

-4.8%

Revenue from loan portfolio

31.6%

14.4%

Contents

ANNEXURES

(Figures in PKR 000)

MFI

Weighted Average

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

(Figures in PKR 000)

RSP NRSP

PRSP

SRSP

TRDP

Sub

Revenue from loan portfolio

1,550,849

127,577

6,221

79,142

1,763,789

Total financial revenue

1,656,579

248,671

8,136

93,500

2,006,886

149,910

6,372

(17,588)

22,695

161,389

Average total assets

6,471,920

2,163,419

50,275

528,166

9,213,780

Gross loan portfolio (opening balance)

4,601,408

769,620

32,451

293,579

5,697,057

Gross loan portfolio (closing balance)

5,638,524

662,612

10,756

284,809

6,596,701

Average gross loan portfolio

5,119,966

716,116

21,604

289,194

6,146,879

Annual inflation rate (2011)*

15.0%

Adjusted net operating income/(loss)

Weighted Average Financial revenue ratio (total financial revenueto-average total assets)

25.6%

11.5%

16.2%

17.7%

21.8%

9.0%

2.6%

-216.2%

24.3%

8.0%

Yield on gross portfolio (nominal)

30.3%

17.8%

28.8%

27.4%

28.7%

Yield on gross portfolio (real)

13.3%

2.4%

12.0%

10.8%

11.9%

Adjusted profit margin (adjusted profit/(loss)-tofinancial revenue)

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010 * Source: http://www.sbp.org.pk/ecodata/MPM.pdf

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

OPERATING EXPENSE MFB KBL Adjusted total expense

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

1,401,836

1,009,403

97,316

1,409,499

73,306

462,880

4,454,240

Adjusted financial expense

260,552

181,769

315

487,057

3,563

65,786

999,041

Adjusted loan loss provision expense

113,065

25,248

4,750

224,433

19,245

32,177

418,918

Adjusted operating expense

1,028,220

802,386

92,252

698,009

50,497

364,917

3,036,281

Average total assets

6,913,226

4,039,437

733,120

3,351,892

301,635

1,210,097

16,549,406

Weighted Average Adjusted total expense-to-average total assets

20.3%

25.0%

13.3%

42.1%

24.3%

38.3%

26.9%

3.8%

4.5%

0.0%

14.5%

1.2%

5.4%

6.0%

1.6%

0.6%

6.7%

6.4%

2.7%

2.5%

14.9%

19.9%

12.6%

20.8%

16.7%

30.2%

18.3%

Adjusted personnel expense

9.7%

12.6%

8.1%

10.1%

9.5%

14.1%

10.8%

Adjusted administrative expense

5.1%

7.3%

4.5%

10.7%

7.2%

16.1%

7.6%

Adjusted financial expense-to-average total assets Adjusted loan loss provision expense-to-average total assets Intermediation cost (operating expense to average total assets)

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Sub 1,244,425 302,495 136,220 805,711

19,798 286,719

4,635,902

RCDS 29,223 8,120

23,802 269,890

1,305

ORIX 41,660 14,801

5,858 42,558

3,057

SDF 6,646 450

26,069 170,162

339

Akhuwat 27,002 -

83,393 419,492

932

ASASAH 122,271 35,649

46,275 518,348

3,229

OPP 83,822 22,250

34,140 185,409

15,297

JWS 50,777 16,636

232,678 978,378

BRAC-P 338,826 79,859

94,550 477,824

26,289

ASA-P 111,097 7,030

60,509 235,490

9,517

CWCD 92,488 16,428

58,959 255,220

15,551

CSC 102,803 22,774

72,440

Average total assets

525,335

21,071

DAMEN 162,566 57,283

47,240

32,843

Adjusted operating expense

271,077

Adjusted loan loss provision expense

21,214

Adjusted financial expense

6,790

Adjusted total expense

75,244

SAFWCO

MFI

Weighted

26.8% 6.5%

13.8%

8.8%

6.9%

17.4%

9.6%

4.3%

4.2%

9.9%

4.1%

4.5%

2.7%

7.4%

2.9%

10.2% 2.8%

15.3% 10.2% 5.1%

0.5%

15.4% 5.5%

19.9% 9.3% 10.6%

1.1%

15.6% 1.1%

8.9% 1.5% 7.4%

0.8%

15.9% 0.0%

18.4% 10.1% 8.3%

0.5%

29.1% 8.5%

23.8% 15.6% 8.2%

0.8%

16.2% 4.3%

19.8% 13.6% 6.2%

3.0%

27.4% 9.0%

25.7% 13.3% 12.4%

0.0%

34.6% 8.2%

23.1% 13.4% 9.7%

2.7%

23.3% 1.5%

13.8% 8.1%

Adjusted administrative expense

5.7%

2.0%

39.3% 7.0%

17.4%

Adjusted personnel expense

8.9%

6.6%

40.3% 8.9%

30.9% 10.9%

average total assets)

8.5%

average total assets

8.3%

Adjusted loan loss provision expense-to-

6.3%

Adjusted financial expense-to-average total assets

7.8%

assets

2.5%

Adjusted total expense-to-average total

27.8%

Average

Intermediation cost (operating expense to

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

RSP NRSP Adjusted total expense

PRSP

SRSP

TRDP

Sub

1,506,669

242,298

25,723

70,805

1,845,496

Adjusted financial expense

583,771

98,714

3,703

29,071

715,259

Adjusted loan loss provision expense

167,954

22,079

490

190,522

Adjusted operating expense

754,945

121,505

22,020

41,244

939,715

6,471,920

2,163,419

50,275

528,166

9,213,780

Average total assets

Weighted Average Adjusted total expense-to-average total assets

23.3%

11.2%

51.2%

13.4%

20.0%

9.0%

4.6%

7.4%

5.5%

7.8%

2.6%

1.0%

0.0%

0.1%

2.1%

11.7%

5.6%

43.8%

7.8%

10.2%

Adjusted personnel expense

7.3%

3.5%

31.2%

3.6%

6.3%

Adjusted administrative expense

4.4%

2.1%

12.6%

4.2%

3.9%

Adjusted financial expense-to-average total assets Adjusted loan loss provision expense-to-average total assets Intermediation cost (operating expense to average total assets)

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

OPERATING EFFICIENCY MFB KBL

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

Adjusted operating expense (PKR 000)

1,028,220

802,386

92,252

698,009

50,497

364,917

3,036,281

Adjusted personnel expense (PKR 000)

672,706

508,525

59,212

339,518

28,650

170,663

1,779,274

Average gross loan portfolio (PKR 000)

3,676,179

2,317,943

94,459

2,576,116

76,846

438,613

9,180,156

Average number of active borrowers

325,523

111,153

7,045

151,797

5,734

17,445

618,697

Average number of active loans

325,523

111,153

7,045

151,797

5,734

17,445

618,697 Weighted Average

Adjusted operating expense-to-average gross loan

27.97%

34.6%

97.7%

27.1%

65.7%

83.2%

33.1%

18.30%

21.9%

62.7%

13.2%

37.3%

38.9%

19.4%

3.0

6.1

3.7

2.1

2.5

3.6

3.2

Adjusted cost per borrower (PKR)

3,159

7,219

13,095

4,598

8,807

20,918

4,908

Adjusted cost per loan (PKR)

3,159

7,219

13,095

4,598

8,807

20,918

4,908

portfolio Adjusted personnel expense-to-average gross loan portfolio Average salary per capita (PKR)

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Sub 805,711 460,422 3,295,155 406,772

17,638 17,638

406,772

RCDS 19,798 12,086

15,553 15,553

191,963

ORIX 23,802 11,701

5,512 5,512

204,085

SDF 5,858 4,098

20,158 20,158

29,146

Akhuwat 26,069 17,429

29,806 29,806

123,470

ASASAH 83,393 38,837

49,155 49,155

273,319

OPP 46,275 7,935

13,019 13,019

426,910

JWS 34,140 18,729

84,411 84,411

134,486

BRAC-P 232,678 152,594

85,380 85,380

532,852

ASA-P 94,550 64,924

12,897 12,897

428,169

CWCD 60,509 31,373

11,975 11,975

142,356

CSC 58,959 34,169

38,145

Average number of active loans

38,145

190,495

DAMEN 72,440 42,375

23,123

395,764

Average number of active borrowers

23,123

Average gross loan portfolio (PKR 000)

24,172

Adjusted personnel expense (PKR 000)

222,138

Adjusted operating expense (PKR 000)

47,240

SAFWCO

MFI

Weighted

24.5% 14.0%

1,530

1,122

1,981

1,530

1,122

1,981

1.4

10.3% 6.3%

1,063 1,063

0.0

11.7% 5.7%

1,293 1,293

0.6

20.1% 14.1%

2,798 2,798

0.7

21.1% 14.1%

941 941

0.8

30.5% 14.2%

2,622 2,622

1.7

10.8% 1.9%

2,756 2,756

0.6

25.4% 13.9%

1,107 1,107

2.1

43.7% 28.6%

4,692 4,692

1.6

22.1% 15.2%

4,923 4,923

1.0

42.5% 22.0%

1,899

Adjusted cost per loan (PKR)

1,899

1.7

31.0% 17.9%

2,043

2.1

18.3%

Adjusted cost per borrower (PKR)

2,043

Average salary per capita (PKR)

10.7%

gross loan portfolio

2.0

Adjusted personnel expense-to-average

10.9%

gross loan portfolio

1.2

Adjusted operating expense-to-average

21.3%

Average

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

RSP NRSP

PRSP

SRSP

TRDP

Sub

Adjusted operating expense (PKR 000)

754,945

121,505

22,020

41,244

939,715

Adjusted personnel expense (PKR 000)

469,815

75,428

15,687

19,266

580,195

Average gross loan portfolio (PKR 000)

5,119,966

716,116

21,604

289,194

6,146,879

Average number of active borrowers

431,027

78,091

1,121

31,647

541,886

Average number of active loans

431,027

78,091

1,121

31,647

541,886 Weighted Average

Adjusted operating expense-to-average gross

14.7%

17.0%

101.9%

14.3%

15.3%

9.2%

10.5%

72.6%

6.7%

9.4%

1.9

0.7

5.0

0.8

1.5

Adjusted cost per borrower (PKR)

1,752

1,556

19,643

1,303

1,734

Adjusted cost per loan (PKR)

1,752

1,556

19,643

1,303

1,734

loan portfolio Adjusted personnel expense-to-average gross loan portfolio Average salary per capita (PKR)

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

PRODUCTIVITY MFB KBL

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

Number of active borrowers

325,523

111,153

7,045

151,797

5,734

17,445

618,697

Number of active loans

325,523

111,153

7,045

151,797

5,734

17,445

618,697

Number of active savers

205,936

228,634

17,082

218,921

15,222

78,476

764,271

Number of saving accounts

205,936

228,634

17,082

218,921

15,222

78,476

764,271

2,163

786

151

1,544

111

448

5,203

764

524

562

226

2,209

Total staff Number of loan officers

Weighted Average Borrowers per staff

150

141

119

Loans per staff

150

141

119

Borrowers per loan officer

426

212

108

270

280

Loans per loan officer

426

212

108

270

280

Savers per staff

291

113

142

137

175

147

Saving accounts per staff

291

113

142

137

175

147

Personnel allocation ratio

35.3%

66.7%

43.0%

36.4%

61.3%

50.4%

42.5%

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Sub 406,772 406,772 3,161 1,651

RCDS 17,638 17,638 201 63

ORIX 15,553 15,553 57 35

SDF 5,512 5,512 35 24

Akhuwat 20,158 20,158 215 150

ASASAH 29,806 29,806 219 96

OPP 49,155 49,155 132 46

JWS 13,019 13,019 84 38

BRAC-P 84,411 84,411 899 505

ASA-P 85,380 85,380 596 411

CWCD 12,897 12,897 174 68

CSC 11,975 11,975 158

DAMEN 38,145 38,145 -

23,123 -

Number of loan officers

200

Total staff

Number of saving accounts

Number of active savers

191

Number of active loans

Number of active borrowers

23,123

SAFWCO

MFI

Weighted

129 129 246 246 0 52.2%

88 88 280 280 0 31.3%

273 273 444 444 0 61.4%

157 157 230 230 0

94 94 134 134 0

68.6%

0 43.8%

0 34.8%

69.8%

136 136 310 310

0 45.2%

372 372 1,069 1,069

0 56.2%

155 155 343 343

0 69.0%

94 94 167 167

0 39.1%

143 143 208 208

0 35.4%

74 74 190 190

Personnel allocation ratio

40.0%

76 76 214 214

191 191 477 477

121

Saving accounts per staff

41.4%

Savers per staff

Loans per loan officer

293

Borrowers per loan officer

293

Loans per staff

Borrowers per staff

121

Average

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

RSP NRSP

PRSP

SRSP

TRDP

Sub

Number of active borrowers

431,027

78,091

1,121

31,647

541,886

Number of active loans

431,027

78,091

1,121

31,647

541,886

Number of active savers

Number of saving accounts

2,396

978

237

3,641

643

448

180

1,288

Total staff Number of loan officers

Weighted Average Borrowers per staff

180

134

149

Loans per staff

180

134

149

Borrowers per loan officer

670

174

176

421

Loans per loan officer

670

174

176

421

Savers per staff

Saving accounts per staff

Personnel allocation ratio

26.8%

45.8%

56.7%

75.9%

35.4%

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

RISK (Figures in PKR 000)

MFB KBL

TMFB

POMFB

FMFB

NMFB

KMFB

Sub

Portfolio at risk > 30 days

146,016

14,613

7,754

133,479

32,231

14,958

349,050

Portfolio at risk > 90 days

33,579

6,284

2,859

92,776

15,721

10,691

161,911

Adjusted loan loss reserve

100,742

25,248

4,750

224,433

19,245

32,177

406,596

85,720

951

5,277

125,113

11,209

24,790

253,060

Gross loan portfolio

3,722,153

3,096,044

88,348

2,373,880

61,619

453,102

9,795,146

Average gross loan portfolio

3,676,179

2,317,943

94,459

2,576,116

76,846

438,613

9,180,156

Write-off

Weighted Average Portfolio at risk (> 30)-to-gross loan portfolio

3.9%

0.5%

8.8%

5.6%

52.3%

3.3%

3.6%

Portfolio at risk(> 90)-to-gross loan portfolio

0.9%

0.2%

3.2%

3.9%

25.5%

2.4%

1.7%

Write-off-to-average gross loan portfolio

2.3%

0.04%

5.6%

4.9%

14.6%

5.7%

2.8%

69.0%

172.8%

61.3%

168.1%

59.7%

215.1%

116.5%

Risk coverage ratio (adjusted loan loss reserve-toportfolio at risk > 30 days)

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

(Figures in PKR 000)

Sub 174,742 120,482 136,220 82,404 3,904,067

193,613 191,963

3,295,155

RCDS 2,214 2,214

3,001 212,838 204,085

1,305

ORIX 12,140 10,678

490 36,959 29,146

3,057

SDF 430 430

409 150,039 123,470

339

Akhuwat 1,429 744

286,028 273,319

932

ASASAH 6,698 6,444

141 505,215 426,910

3,229

OPP 1,246 1,022

165,225 134,486

15,297

JWS 13 -

7,759 702,521 532,852

BRAC-P 29,438 22,642

736,038 428,169

26,289

ASA-P 8,354 1,220

14,185 131,517 142,356

9,517

CWCD 65,079 40,726

13,417 183,903 190,495

15,551

CSC 24,720 24,017

38,604 368,825

Average gross loan portfolio

395,764

21,071

DAMEN 12,472 -

4,398

Gross loan portfolio

231,348

32,843

Write-off

222,138

Adjusted loan loss reserve

10,343

Portfolio at risk > 90 days

6,790

Portfolio at risk > 30 days

10,509

SAFWCO

MFI

Weighted

4.5% 2.5% 78.0%

3.1%

1.1% 0.0% 59.0%

1.1%

5.7% 1.5% 25.2%

5.0%

1.2% 1.7% 78.7%

1.2%

1.0% 0.3% 65.2%

0.5%

2.3% 0.0% 48.2%

2.3%

0.2% 0.0% 1227.6%

0.2%

0.0% 0.0% 0.0%

0.0%

4.2% 1.5% 89.3%

3.2%

1.1% 0.0% 113.9%

0.2%

49.5% 10.0% 23.9%

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

http://www.pmronline.info

31.0%

13.4% 7.0%

13.1%

3.4% 0.0%

4.5%

85.2%

reserve-to-portfolio at risk > 30 days)

9.8%

Risk coverage ratio (adjusted loan loss

263.3%

Write-off-to-average gross loan portfolio

2.0%

Portfolio at risk(> 90)-to-gross loan portfolio

64.6%

Portfolio at risk (> 30)-to-gross loan portfolio

4.5%

Average

Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

(Figures in PKR 000)

RSP NRSP

PRSP

SRSP

TRDP

Sub

Portfolio at risk > 30 days

242,871

46,456

16,605

305,932.20

Portfolio at risk > 90 days

234,977

44,465

16,137

295,579.25

Adjusted loan loss reserve

167,954

22,079

490

190,522.15

Gross loan portfolio

5,638,524

662,612

10,756

284,809

6,596,701

Average gross loan portfolio

5,119,966

716,116

21,604

289,194

6,146,879

Write-off

Weighted Average Portfolio at risk (> 30)-to-gross loan portfolio

4.3%

7.0%

0.0%

5.8%

4.6%

Portfolio at risk(> 90)-to-gross loan portfolio

4.2%

6.7%

0.0%

5.7%

4.5%

Write-off-to-average gross loan portfolio

0.0%

69.2%

47.5%

2.9%

62.3%

Risk coverage ratio (adjusted loan loss reserveto-portfolio at risk > 30 days)

Adjustment in PMR 2010: KF data adjusted for analysis purpose for 2009 Note: KF and RMFB not reported for PMR 2010

Pakistan Microfinance Review 2010

Contents

SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

ANNEXURES

Annex B:

Regional Microfinance Industry Benchmarks [2009] Africa

ECA*

Asia

LAC **

MENA***

All regions

Outreach Number of MFIs GLP (USD) Number of borrowers (000) Deposits (USD) Number of depositors (000) Average loan balance per borrower (USD) Average loan balance per borrower per GNI per capita (%)

150

278

189

347

1,019

29,599,618

47,017,501

38,837,359

56,250,199

21,241,471

44,689,076

42,882

219,431

14,301

42,260

44,502

85,269

33,786,745

14,207,222

24,833,265

37,072,981

2,438,437

26,226,054

137,032

145,748

16,050

49,342

1,579

79,220

738

382

3,317

1,636

906

1,438

114.9

28.6

105.6

40.8

36.1

59.9

Funding structure Total assets (USD)

47,631,282

45,444,501

58,945,067

73,003,113

31,093,334

57,118,207

GLP (USD)

29,599,618

47,017,501

38,837,359

56,250,199

21,241,471

44,689,076

Deposits (USD)

33,786,745

14,207,222

24,833,265

37,072,981

2,438,437

26,226,054

Debt to equity

0.6

5.5

5.2

3.7

3.6

4.0

Capital to total assets

25.1

20.8

36.1

33.1

42.6

29.6

GLP to total assets

62.5

74.4

80.0

77.7

72.0

74.7

Efficiency Operating expenses to average GLP

18.5

11.8

10.3

18.4

16.1

15.0

Cost per borrower (USD)

202

424

266

155

224

Cost per borrower to GNI per capita

36.6

5.5

14.5

7.3

6.4

12.0

Profitability ROA

(3.2)

0.5

0.4

(0.1)

2.9

(0.1)

ROE

(18.5)

29.6

(2.3)

0.5

2.7

5.3

Risk profile PAR > 30 days to GLP

9.9

7.5

7.9

8.0

6.7

8.0

PAR > 90 days to GLP

5.9

5.8

5.6

5.5

3.8

5.6

Write-off ratio

3.3

2.5

2.0

3.3

3.1

2.8

* Eastern Europe and Central Asia ** Latin America and the Caribbean *** Middle East and North Africa

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Contents SECTION 1: THE YEAR IN REVIEW

SECTION 2: INDUSTRY PERFORMANCE

SECTION 3: THE WAY FORWARD

61 ANNEXURES

Annex C:

Sources of Data [2010] Microfinance Bank (MFB) Kashf Microfinance Bank Ltd. (KMBL) • KMBL provided PMN with its audited accounts. The numbers reported in the PMR match these reports. A.F. Ferguson audited its annual accounts for the year ending 31st December 2010. • The financial statements have been presented as per the requirements of the SBP. • All necessary adjustments to KMBL data have been made in order to remove subsidies. Adjustments were not made for loan loss provisioning expenses as KMBL is aggressive in its policies, as required by the SBP. Adjustment for cost of borrowing was not made since there are no borrowings. • KMBL prepares accounts on a historical cost basis using the accrual system of accounting. • Related party transactions have been properly disclosed in notes to the financial statements. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • The following numbers have been taken from KMBL’s MIS: i) rural-urban clients; ii) male-female clients; iii) number of staff; iv) number of credit officers; and v) number of branches (also available in audited accounts). • As per CGAP requirements, portfolio quality, sustainability/profitability, and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Khushhali Bank Ltd. (KBL) • KBL provided PMN with its audited accounts. The numbers reported in the PMR match these reports. A.F. Ferguson audited its annual accounts for the year ending at 31st December 2010. • The financial statements have been presented as per the requirements of the SBP. • All necessary adjustments to KBL data have been made in order to remove subsidies. Adjustments were not made for loan loss provisioning expense as KBL is aggressive in its policies, as required by the SBP. • KBL prepares its accounts on a historical cost basis using the accrual system of accounting. • Related party transactions have been properly disclosed in notes to the financial statements. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • The following numbers have been taken from KBL’s MIS: i) rural-urban clients; ii) male-female clients; iii) portfolio aging; iv) number of staff; v) number of credit officers; and vi) number of branches (also available in audited accounts). • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

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Network Microfinance Bank Ltd. (NMFB) • NMFB has provided PMN with its audited accounts. The figures reported in the PMR match these reports. Ernest and Young audited its annual accounts for the year ending at 31st December 2010. • The financial statements have been presented as per the requirements of the SBP. • NMFB prepares accounts on a historical cost basis using the accrual system of accounting. • Data on the distribution of clients in terms of the urban-rural mix is not available in the disclosures. However, given that NMFB only works in Karachi and its peri-urban areas, the actual numbers can be deduced accurately. • Related party transactions have been properly disclosed in notes to the financial statements. • Numbers taken from the bank’s MIS include: i) male-female clients; ii) portfolio aging and write-offs (verified from audited accounts); iii) number of staff; iv) number of credit officers; and v) number of branches (also available in audited accounts). • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Pak Oman Microfinance Bank Ltd. (POMFB) • POMFB reported its audited accounts in newspapers, from whence the accounts were obtained. The numbers reported in the PMR match these reports. A.F. Ferguson audited its annual accounts for the year ending at 31st December 2010. • The financial statements have been presented as per the requirements of the SBP. • All necessary adjustments to POMFB data have been made in order to remove subsidies. No adjustments were made to financial costs as POMFB was not using any concessional or commercial borrowing during the reported period. Similarly, no adjustment was made on loan loss provisioning expenses; POMFB is aggressive in its policies, as required by the SBP. • POMFB prepares accounts on a historical cost basis using the accrual system of accounting. • Related party transactions have been properly disclosed in notes to the financial statements. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • The following numbers have been taken from POMFB’s MIS: i) rural-urban clients; ii) male-female clients; iii) portfolio aging and write-offs (verified from audited accounts); iv) number of staff; v) number of credit officers; and vi) number of branches (also available in audited accounts). • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Rozgar Microfinance Bank Ltd. (RMFB) • RMFB did not provide PMN with its audited accounts for PMR 2010.

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Tameer Microfinance Bank Ltd. (TMFB) • TMFB provided PMN with its audited accounts. The numbers reported in the PMR match these reports. KPMG audited its annual accounts for the year ending at 31st December 2010. • The financial statements have been presented as per the requirements of the SBP. • All necessary adjustments to TMFB data have been made in order to remove subsidies. Adjustments were not made for loan loss provisioning expenses as TMFB is aggressive in its policies as required by the SBP. Adjustments for cost of borrowing were not made as these are all commercial borrowings. • TMFB prepares accounts on a historical cost basis using the accrual system of accounting. • Related party transactions have been properly disclosed in notes to the financial statements. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • The following numbers have been taken from TMFB’s MIS: i) rural-urban clients; ii) male-female clients; iii) number of staff; iv) number of credit officers; and v) number of branches (also available in audited accounts). • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

The First Microfinance Bank Ltd. (FMFB) • FMFB provided PMN with its audited accounts. The numbers reported in the PMR match these reports. KPMG audited its annual accounts for the year ending at 31st December 2010. • The financial statements have been presented as per the requirements of the SBP. • All necessary adjustments to FMFB data have been made in order to remove subsidies. No adjustments were made to financial costs as FMFB was not using any concessional or commercial borrowing during the reported period. Similarly, no adjustments were made on loan loss provisioning expenses as FMFB is aggressive in its policies, as required by the SBP. • FMFB prepares accounts on a historical cost basis using the accrual system of accounting. • Related party transactions have been properly disclosed in notes to the financial statements. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • There is a proper disclosure regarding the loan portfolio and write-offs. • The following numbers have been taken from FMFB’s MIS: i) rural-urban clients; ii) male-female clients; iii) portfolio aging and write-offs (verified from audited accounts); iv) number of staff; v) number of credit officers; and vi) number of branches (also available in audited accounts). • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

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Microfinance Institutions (MFI) Akhuwat • Akhuwat provided PMN with its audited accounts. The numbers reported in the PMR match these reports. A.F. Ferguson audited its annual accounts for the year ending at 30th June 2010. • Akhuwat prepares its financial statements under the historical cost convention in conformity with accepted accounting practices. • There is proper disclosure on movement in portfolio, loan loss provisioning, and write-offs. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; and ii) male-female clients. • Related party transactions have been properly disclosed in notes to the financial statements. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

ASA Pakistan limited • ASA provided PMN with its audited accounts. The numbers reported in the PMR match these reports. KPMG audited its annual accounts for the year ending at 31st December 2010. • ASA prepares its financial statements under the historical cost convention and in conformity with accepted accounting practices. • There is no adjustment on the cost of borrowing as ASA’s actual costs are higher than adjusted costs. Similarly, no adjustment was made to loan loss provisioning expenses as ASA is aggressive in its policies. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; and ii) male-female clients. • There is proper disclosure on the balance sheet of loan portfolio and loan loss provision; expenses charged during the year are disclosed on the income statement. • Related party transactions have been properly disclosed in notes to the financial statements. • Grant income should be properly presented in financial statements as well, as there should be a disclosure on grants in notes to the financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

ASASAH • Asasah provided PMN with its audited accounts. The numbers reported in the PMR match these reports. Grant Thornton audited its annual accounts for the year ending at 30th June 2010. • Asasah prepares its financial statements under the historical cost convention, in conformity with accepted accounting practices.

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• There is proper disclosure on the movement in portfolio, loan loss provisioning, and write-offs. • Related party transactions have been properly disclosed in notes to the financial statements. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

BRAC-Pakistan • BRAC-Pakistan provided PMN with its audited accounts. The numbers reported in the PMR match these reports. KPMG (Taseer Hadi and Co.) audited its annual accounts for the year ending at 31st December 2010. • BRAC prepares its financial statements under the historical cost convention and in conformity with accepted accounting policies. • BRAC is an integrated program and therefore prepares separate financial accounts for all its programmes. The audit is done and a consolidated audit report is prepared with clear differentiations of revenues and costs for each programme in light of accounting standards.

Community Support Concern (CSC) • CSC provided PMN with its audited accounts. The numbers reported in the PMR match these reports. Rafaqat Mansha Mohsin Dossani Masoom and Co. audited its annual accounts for the year ending at 31st December 2010. • All necessary adjustments to CSC data have been made in order to remove subsidies. There is no adjustment on the cost of borrowing as CSC’s actual cost is higher then the adjusted cost. Similarly, no adjustment was made to loan loss provisioning expenses as CSC is aggressive in its policies. • CSC prepares its financial statements under the historical cost convention and in conformity with accepted accounting practices. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; ii) male-female clients; iii) aging on number of loans and value of portfolio (not verifiable from audited accounts); iv) number of staff; v) number of credit officers; and vi) number of offices. • There is proper disclosure on the balance sheet of loan portfolio and loan loss provision; expenses charged during the year are disclosed on the income statement. • The grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • Related party transactions should be presented in notes to the financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability, and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Centre for Women Cooperative Development (CWCD) • CWCD provided PMN with its audited accounts. The numbers reported in the PMR match these reports. KPMG (Taseer Hadi and Co.) audited its annual accounts for the year ending at 31st December 2010.

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• All necessary adjustments to CWCD data have been made in order to remove subsidies. There is no adjustment on the cost of borrowing since CWCD’s actual cost is higher then the adjusted cost. Similarly, no adjustment was made to loan loss provisioning expenses as CWCD is aggressive in its policies. • CWCD prepares its financial statements under the historical cost convention and in conformity with accepted accounting practices. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; ii) male-female clients; iii) aging on number of loans and value of portfolio (not verifiable from audited accounts); iv) number of staff; v) number of credit officers; and vi) number of offices. • There is proper disclosure on the balance sheet of loan portfolio and loan loss provision; expenses charged during the year are disclosed on the income statement. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • Related party transactions should be presented in notes to the financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Development Action for Mobilization and Emancipation (DAMEN) • DAMEN provided PMN with its audited accounts. The numbers reported in the PMR match these reports. Grant Thornton (Anjum Asim Shahid Rahman) audited its annual accounts for the year ending at 31st December 2010. • Although DAMEN is a multi-dimensional development organization, and accounts for its microfinance functions are kept separate. • All necessary adjustments to DAMEN data have been made in order to remove subsidies. There is no adjustment on the cost of borrowing as DAMEN’s actual cost is higher than the adjusted cost. Similarly, no adjustments were made to loan loss provisioning expenses as DAMEN is aggressive in its policies. • DAMEN prepares its financial statements under the historical cost convention and in conformity with accepted accounting practices. • Grant income has been properly disclosed in financial statements. There is a proper disclosure on grants in notes to the financial statements. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; ii) male-female clients; iii) aging on number of loans and value of portfolio (verifiable from audited accounts); iv) breakup for the number of loans doubtful; v) number of staff; vi) number of credit officers. • DAMEN has proper disclosure in terms of movement in portfolio, loan loss provisioning, and write-offs. • Related party transactions should be presented in the notes to the financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

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Kashf Foundation (KF) • KF did not provide PMN with its audited accounts for PMR 2010.

Orangi Pilot Project (OPP) • OPP provided PMN with its audited accounts. The numbers reported in the PMR match these reports. Hyder and Company audited its annual accounts for the year ending at 30th June 2010. • OPP is a multi-dimensional development organization and accounts for its microfinance functions are kept separate. • OPP prepares four separate sets of audited accounts for four different credit projects. It will be more useful if consolidated audited accounts of the four projects are prepared. • Revenue and expenditure are recognized on a cash-basis. • OPP prepares its financial statements under the historical cost convention, in conformity with accepted accounting practices. • The following numbers have not been reported by the organization: i) rural-urban clients; ii) male-female clients; iii) aging on number of loans and value of portfolio (not verifiable from audited accounts); iv) loan loss provisioning and write-offs; v) number of staff; vi) number of credit officers; and vii) number of offices. • There is proper disclosure on movement in loan portfolio. However there is no disclosure on loan loss provisioning and write-offs. • Grant income should be properly presented in financial statements. There should also be a disclosure on grants in notes to the financial statements. • Related party transactions should be properly disclosed in notes to the financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Rural Community Development Society (RCDS) • RCDS provided PMN with its audited accounts. The numbers reported in the PMR match these reports. Ijaz Tabassum and Co. audited its annual accounts for the year ending at 30th June 2010. • RCDS prepares its financial statements under the historical cost convention and in conformity with accepted accounting practices. Revenue is recognized on a receipt-basis. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; ii) male-female clients; iii) aging on number of loans and value of portfolio (verified from audited accounts); iv) number of staff; v) number of credit officers; and vi) number of branches (also available in audited accounts). • There should be a proper disclosure on movement in portfolio, loan loss provisioning, and write-offs. • Related party transactions have been properly disclosed in notes to financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

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Sindh Agricultural and Forestry Workers Coordinating Organization (SAFWCO) • SAFWCO provided PMN with its audited accounts. The numbers reported in the PMR match these reports. Grant Thornton audited its annual accounts for the year ending at 30th June 2010. • Although SAFWCO is a multi-dimensional development organization, accounts for its microfinance functions are kept separate. • Income and expense are booked on an accrual basis. • All necessary adjustments to SAFWCO data have been made in order to remove subsidies. • SAFWCO prepares its financial statements under the historical cost convention and in conformity with accepted accounting practices using the principles of fund accounting. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; ii) male-female clients; iii) aging on number of loans and value of portfolio (not verifiable from audited accounts); iv) number of staff; and v) number of credit officers. • There is proper disclosure on movement in portfolio, loan loss provisioning, and write-offs. Figures on loan loss provisioning, OLP, and loan loss reserve are disclosed in the financial statements. • Grant income has been properly disclosed in financial statements. There is a proper disclosure on grants in notes to the financial statements. • Related party transactions have been properly disclosed in notes to the financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Jinnah Welfare Society (JWS) • JWS provided PMN with its audited accounts. The numbers reported in the PMR match these reports. Ijaz Tabassum and Co. audited its annual accounts for the year ending at 30th June 2010. • JWS prepares its financial statements under the historical cost convention and in conformity with accepted accounting practices. Revenue is recognized on a receipt-basis. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; ii) male-female clients; iii) aging on number of loans and value of portfolio (verified from audited accounts); iv) number of staff; v) number of credit officers; and vi) number of branches (also available in audited accounts). • There should be a proper disclosure on movement in portfolio, loan loss provisioning, and write-offs. • Related party transactions have been properly disclosed in notes to financial statements. • As per CGAP requirements, portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Sungi Development Foundation (SDF) • SUNGI has provided PMN with its audited accounts for its entire organization. Ernst and Young, Pakistan audited its accounts for the financial year 2010. SDF’s financial year starts from 1st January and ends on 31st December.

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• SDF is an integrated programme. Therefore, its audit reflects a consolidated picture. Hence, necessary adjustments are made for the micro-credit programme in light of information provided to PMN. SDF maintains separate financials for its programme.

Orix Leasing Pakistan Ltd. (OLP) • OLP has provided its audited accounts for the reporting period to PMN. • However, given that OLP’s audited accounts do not disclose figures related to its microfinance division (MFD), the data reported in the PMR is not verifiable with audited accounts. • OLP has separate staff and offices for microfinance. OLP’s MFD has provided data specific to its microfinance operations. • OLP prepares its financial statements under the historical cost convention using the accrual system of accounting. • Adjustments to the data have been made as per the PMN’s adjustment policies. These adjustments are in line with international practices being followed by The MIX.

Rural Support Programmes (RSPs) National Rural Support Programme (NRSP) • NRSP has provided its audited accounts for the reporting period to PMN, and the figures tally with the reported data. Ernst and Young audited its annual accounts for the year ending at 30th June 2010. • NRSP has prepared separate financial statements for its microfinance operations for the first time. • All necessary adjustments to NRSP data have been made in order to remove subsidies. Adjustments have also been made for financial cost and inflation on equity. There is no adjustment on loan loss provisioning expense as NRSP is aggressive in its policies and all loans > 90 days past due are provisioned for 100 percent. • NRSP prepares its financial statements under the historical cost convention, in conformity with accepted accounting practices. • Data on distribution of clients in terms of the urban-rural mix is not provided in the disclosures. However, given that NRSP has a separate programme for urban and rural areas and their information is available separately, the disaggregation can be made quite accurately. The data on gender segregation was taken from the MIS, but is not available in notes to the accounts. • The ageing of portfolio in rupee values is not verifiable from audited accounts. Both ageing on the number of loans and value of portfolio were obtained from the MIS. There is a proper disclosure on movement in portfolio and write-offs. It will be valuable if NRSP could provide separate disclosures on movement in provisioning of portfolio. • Data on the number of total staff, loan officers, and branches has been drawn from audited accounts. • Related party transactions have been properly disclosed in notes to financial statements. • As per CGAP requirements portfolio quality, sustainability/profitability and asset/liability management ratios are presented in the notes to financial statements.

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Punjab Rural Support Programme (PRSP) • PRSP has provided its audited accounts for the reporting period to PMN. KPMG audited its annual accounts for the year ending at 30th June 2010. • Since PRSP is an integrated programme, the following resource allocation process was followed: a. The identified accounts for credit and non-credit functions were directly transferred to the respective programmes; b. All other accounts that were common to the institution were transferred in the ratio of 60% to credit and 40% to non-credit functions; c. 60% of PRSP’s investment income was credited to its credit operations. • All necessary adjustments to PRSP data have been made in order to remove subsidies. This also includes writing-off all GLP 360 days past due. • PRSP prepares its financial statements under the historical cost convention in conformity with accepted accounting practices. • Data on the distribution of clients in terms of the urban-rural mix is not provided in the disclosures. However, given that PRSP only works in rural Punjab, the information can be accurately deduced. The data on gender segregation was taken from the MIS and is not available in notes to the accounts. • The ageing of portfolio in rupee values is not verifiable from audited accounts. Both ageing on the number of loans and value of portfolio were obtained from the MIS. There is proper disclosure on movement in portfolio, loan loss provisioning, and write-offs. • Data on number of staff for PRSP as a whole, is available. These numbers have been allocated between credit and non-credit functions on the basis mentioned above. Data for credit officers has been obtained from the organization’s MIS. • Grant income has been properly disclosed in financial statements. There is also a proper disclosure on grants in notes to the financial statements. • Related party transactions have been properly disclosed in notes to financial statements. • As per CGAP requirements portfolio quality, sustainability/profitability and asset/liability management ratios should be presented to represent a true and fair picture to stakeholders.

Sarhad Rural Support Programme (SRSP) • SRSP is a multi-dimensional development organization. It has provided its integrated audited accounts for the reporting period to PMN and has also extracted accounts for its microfinance operations from the consolidated audited statements. • All necessary adjustments to SRSP data have been made in order to remove subsidies. Adjustments have also been made for financial cost, and inflation on equity. There is no adjustment on loan loss provisioning expense as SRSP is aggressive in its policies and all loans > 90 days past due are provisioned for 100 percent. • SRSP prepares its financial statements under the historical cost convention in conformity with accepted accounting practices. • The ageing of portfolio in rupee values is not verifiable from audited accounts. Both ageing on number of loans and value of portfolio were obtained from the MIS. However, there is proper disclosure on movement in portfolio and write-offs. It will be valuable if SRSP could provide separate disclosure on movement in provisioning of portfolio as suggested previously. • Data on the number of total staff, loan officers, and branches has been drawn from audited accounts.

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Thardeep Rural Development Programme (TRDP) • TRDP has provided its audited accounts for the consolidated programme (inclusive of credit and non-credit functions). • Since TRDP is an integrated programme, the following resource allocation process was followed: a. Allocations for the organization’s microfinance function were made based upon assumptions provided by management; b. Income, expense, and liability items relevant to microfinance operations were separately identifiable. All other accounts common to the institution were transferred in the ratio of 55% to credit and 45% to non-credit functions. c. Except for loan portfolio, which was directly identifiable, other assets were also separated on the basis of 55% for microfinance and 45% for other functions. • All necessary adjustments to TRDP data have been made in order to remove subsidies. • TRDP prepares its financial statements under the historical cost convention in conformity with accepted accounting practices. • The following numbers have been taken from the organization’s MIS: i) rural-urban clients; ii) male-female clients; iii) number of staff; and iv) number of credit officers. • The ageing of portfolio (in rupee values and number of loans) is taken from audited accounts.

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Annex D:

Adjustments to Financial Data Rationale Adjustments to financial statements are made when performing benchmark analysis. Adjustments are made for two primary reasons: • To give an institution a more accurate picture of its financial position by accounting for factors unique to an MFP, including the predominance of below-market-rate funding sources. Such factors distort an MFP’s on-going performance. • To make the data of various MFPs comparable. Thus, adjustments are made in order to bring organizations operating under varying conditions and with varying levels of subsidy, onto a level playing field. The following adjustments are made to data used for the PMR:

A. Inflation Adjustment Adjusts for the effect of inflation on an MFP’s equity and non-monetary assets i.e., fixed assets. Inflation decreases the real value of an MFP’s equity. Fixed assets are capable of tracking the increase in price levels; their monetary value is increased. The net loss (or gain) is considered to be a cost of funds, and results in a decrease (or increase) in net operating income. CALCULATION Inflation Adjustment Revenue Multiply the prior year’s net fixed assets by the current year’s average annual inflation rate (average core CPI for current financial year) Formula NET FIXED ASSETS (PRIOR YEAR) × AVERAGE ANNUAL INFLATION RATE (CURRENT FINANCIAL YEAR)

Inflation Adjustment Expense Multiply the prior year’s equity by the current year’s average annual inflation rate, (average core CPI for current year) Formula EQUITY (PRIOR YEAR) × AVERAGE ANNUAL INFLATION RATE (CURRENT YEAR)

Net Inflation Adjustment Expense Subtract the inflation adjustment revenue from the inflation adjustment expense Formula INFLATION ADJUSTED REVENUE – INFLATION ADJUSTED EXPENSE

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B. Subsidies Adjustment Adjustments for three types of subsidies are made: • A cost-of-funds subsidy from loans at below-market rates • Current year cash donations to fund portfolio and cover expenses • In-kind subsidies, such as rent-free office space or the services of personnel not paid by the MFP and thus not reflected on its income statement. Additionally, for multipurpose MFPs, an attempt to isolate the performance of the financial services programme is made by removing the effect of any cross-subsidization. Cash donations flowing through the income statement are accounted for by reclassifying them below net operating income on the income statement. Thus, adjustments for cash donations are not made since these are handled through a direct reclassification on the income statement. This year, no MFP has disclosed receipt of in-kind subsidy. B.1 Cost-of-funds subsidy The cost-of-funds adjustment reflects the impact of soft loans on the financial performance of an MFP. The analyst needs to calculate the difference between what an MFP actually paid in interest on its subsidized liabilities, and a shadow market rate for each country. This difference represents the value of the subsidy and is considered an additional financial expense. Only funds received as loans need to be adjusted. Client deposits are not adjusted. Only loans that have a finite (1–5 years) term length are adjusted. Subordinated debt and other quasi-equity accounts are reclassified as ‘other equity’ on the balance sheet. The analyst must be careful in the choice of an appropriate shadow rate. The PMN has used a KIBOR rate on outstanding loans as reported by the SBP on its website (12.5 percent) to make this adjustment. CALCULATION 1) Calculate average balance for all borrowings. Borrowings do not include deposits or “other liabilities”. If the MFI has given an average balance, see if this is more appropriate to use; if not, calculate an average from last year’s ending balance. 2) Multiply the average balance by the shadow market rate. 3) Compare it with the amount actually paid in interest and fees. If less “market” rate, impute the difference (market price minus financial expense paid on borrowings) to the subsidized cost of funds adjustment expense.

B.2 Cash donations Funds donated to cover operational costs constitute a direct subsidy to an MFP. The value of the subsidy is therefore equal to the amount donated to cover expenses incurred in the period reported. Some donations are provided to cover operating shortfall over a period greater than one year. Only the amount spent in the year is recorded on the income statement as revenue. Any amount still to be used in subsequent years appears as a liability on the balance sheet (deferred revenue). This occurs because theoretically, if an MFP stopped operations in the middle of a multi-year operating grant, it would have to return the unused portion of the grant to the donor. The unused amount is therefore considered as a liability. Funds donated to pay for operations should be reported on the income statement separately from the revenue generated by lending and investment activities. This practice is meant for accurately reporting the earned revenue of an MFP. Donated funds are deducted from revenue or net income prior to any financial performance analysis, because

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they do not represent revenue earned from operations. Note: Costs incurred to obtain donor funds (fundraising costs) should also be separated from operating expenses, because the benefit of receiving the funds is not included.

B.3 In-kind subsidy Imputed cost (book value) of donated/loaned-out vehicles, machinery, and buildings need to be included in operating expenses. Expatriate staff salaries paid by donor or parent company, or other technical assistance, need to be accounted for. Here, imputed salaries are used instead of salaries actually received by them i.e., the salary range that a local hire would get for the same level of work-load/position is used. Note: The analyst must use his/her judgment in deciding whether or not the in-kind donation represents a key input to the on-going operations of the MFP. An appropriate basis for valuation is important. This could include selecting a percentage of the total cost and attributing it to programme expense. The percentage may be selected on the basis of sales proportion, management input, etc.

CALCULATION Sum of in-kind subsidies by operating expense account, added to unadjusted numbers for each account.

C. Loan loss provisioning The PMN standardizes loan loss provisioning for MFPs to a minimum threshold or risk. MFPs vary tremendously in accounting for loan delinquency. Some count the entire loan balance as overdue the day a payment is missed. Others do not consider a loan delinquent until its full term has expired. Some MFPs write-off bad debt within a year of the initial delinquency, while others never write-off bad loans, thus carrying forward a default that they have little chance of ever recovering. The analyst applies a standard loan loss provisioning to all MFPs and adjusts, where necessary, to bring them to the minimum threshold. In some cases, these adjustments may not be precise. Portfolio aging information may only be available on different aging scales. CALCULATION Step 1: Multiply the PAR age categories by the following reserve factors: PAR up to 89 days no provisioning PAR 91 – 180 × 0.50 PAR 181 – 360 × 1.00 Renegotiated loans × 0.50 Step 2: Sum above reserve calculations. If sum is more than current reserves, make calculated reserve new loan loss reserve. If not, keep current reserves. Step 3: Add the unadjusted loan loss provision expense to the difference between the adjusted net loan portfolio and the unadjusted net loan portfolio. This is the adjusted loan loss provision expense.

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Annex E:

Terms and Definitions Age This is the number of years an organization has been functioning as a microfinance provider (MFP).

Active saving account balance This is the average balance of savings per account (not per depositor).

Adjustment expense This is the total adjustment cost related to inflation, subsidized cost of borrowing, loan loss provisioning and in-kind subsidies.

Adjusted financial expense ratio This is calculated by using the standardized ageing-of-portfolio technique. The principle of conservatism is used which is why loan loss provision in audited accounts is greater than the amount computed by the analyst.

Adjusted loan loss reserve Formula: Adjusted financial expense Adjusted average total assets

Adjusted operating expense This includes: • Imputed cost (book value) of donated/loaned vehicles, machinery and buildings; • Expatriate staff salaries paid by donor or parent company; • Other technical assistance paid for with donations. NOTE: imputed salaries should be used instead of salaries actually received by such persons. For imputation, the salary range that a local hire would get for the same level of work-load/position should be used. Judgment is used to decide whether or not the in-kind donation represents a key input to the on-going operations of the MFP. Formula: Personnel expense + Administrative expense

Adjusted operating expense ratio Formula: Adjusted operating expense Adjusted average total assets

Adjusted portfolio at risk > (30, 60, 90 days) This indicates the credit risk of a borrower above the specified number of days (30, 60, 90) past his/her due date for installment payment. Formula: Outstanding balance, loans overdue > (30 or 90) days Adjusted gross loan portfolio

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Adjusted cost per borrower In case of loan size differentials, the operating expense ratio is generally lower (more efficient) for institutions with higher loan sizes, ceteris paribus. This indicator discounts the affect of loan size on efficient management of loan portfolio. Formula: Adjusted operating expense Average number of active borrowers

Adjusted cost per loan Formula: Adjusted operating expense Average number of active loans

Adjustment expense ratio Formula: Net inflation, in kind, loan loss provision and subsidized cost-of-funds adjustment expense Adjusted average total assets

Adjusted financial expense This includes the actual cost of borrowing and shadow cost of subsidized funding.

Adjusted financial expense on borrowing The cost-of-funds adjustment reflects the impact of soft loans on the financial performance of the institution. The analyst calculates the difference between what the MFP actually paid in interest on its subsidized liabilities and what it would have paid at a shadow market rate for each country. This difference represents the value of the subsidy, which is considered an additional financial expense.

Adjusted loan loss provision expense ratio Formula: Adjusted net loan loss provision expense Adjusted average total assets

Adjusted loan loss provision expense This is the loan loss provision expense calculated with the standardized ageing-of-portfolio technique. However, it is ensured that if the actual loan loss provision expense is higher than the adjusted, the conservatism principle is followed.

Adjusted operating expense This includes actual operational expenses and in-kind subsidy adjustments.

Adjusted operating expense ratio This indicates the efficiency of an MFPâ&#x20AC;&#x2122;s loan portfolio. Formula: Adjusted operating expense Average gross loan portfolio

Adjusted personnel expense This includes actual personnel expenses (salaries and benefits), and in-kind subsidy adjustments.

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Adjusted personnel expense ratio Formula: Adjusted personnel expense Average gross loan portfolio

Adjusted profit margin Formula: Adjusted net operating income Adjusted financial revenue

Adjusted return on assets Formula: Adjusted net operating income, net of taxes Average total assets

Adjusted return on equity Formula: Adjusted net operating income, net of taxes Average total equity

Adjusted total expense This includes all actual and adjusted expenses related to operations, cost of borrowings, loan losses and inflation adjustment.

Adjusted total expense ratio Formula: Adjusted (financial expense + Net loan loss provision expense + Operating expense) cost average Total assets

Average gross loan portfolio This is the average of opening and closing balance of gross loan portfolio.

Average loan balance per active borrower This indicates average loan balance outstanding.

Average loan balance per active borrower to per capita income This is used to measure depth of outreach. The lower the ratio, the more poverty-focused the MFP.

Average number of active borrowers This is the average of the opening and closing balances of active borrowers. Formula: [Active borrowers (opening balance) + Active borrowers (closing balance)] 2

Average number of active loans This is the average of the opening and closing balances of active loans.

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Average outstanding balance This indicates the average balance of loans outstanding. Formula: Adjusted gross loan portfolio Adjusted number of loans outstanding

Average outstanding balance to per capita income This measures of the depth of outreach. The lower the ratio, the more poverty-focused the MFP. Formula: Average outstanding balance Per-capita income

Average saving balance per saver This indicates the average amount of saving balance per saver.

Average total assets This is the average of the opening and closing balances of total assets.

Average total equity This is the average of the opening and closing balances of total equity.

Borrowers per loan officer This measures loan officer productivity. It indicates the number of borrowers managed by a loan officer. Formula: Number of active borrowers Number of loan officers

Borrowers per staff This measures staff productivity. It indicates the number of borrowers managed by the staff, on average. Formula: Number of active borrowers Number of total personnel

Commercial liabilities This is the principal balance of all borrowings, including overdraft accounts, for which the organization pays a nominal rate of interest that may be greater than or equal to the local commercial interest rate.

Commercial liabilities-to-gross loan portfolio ratio This indicates the efficiency of an MFP’s loan portfolio. Formula: All liabilities with “market” price Gross loan portfolio

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Deposits Demand deposits from the general public and members (clients) held with the institution. These deposits are not conditional to accessing a current or future loan from the MFP, and include certificates of deposit or other fixed-term deposits.

Deposit-to-gross loan portfolio ratio This is the inverse of the advance-to-deposit ratio. Formula: Deposits Gross loan portfolio

Deposit-to-total asset ratio This indicates the percentage of assets financed through deposits. Formula: Deposits Total assets

Equity-to-asset ratio This is a simple version of the capital adequacy ratio, as it does not take into account risk-weighted assets. It indicates the proportion of a companyâ&#x20AC;&#x2122;s equity that is accounted for by assets. Formula: Total equity Total assets

Financial expense This is the total of financial expense on liabilities and deposits.

Financial revenue This is the total of revenue from the loan portfolio and other financial assets, as well as other financial revenues from financial services.

Financial revenue from other financial assets This is net gains on other financial assets.

Financial revenue from loan portfolio This is total interest, fees, and commissions on the loan portfolio.

Financial revenue ratio This indicates the efficiency with which an MFP is utilizing its assets to earn income from them. Formula: Financial revenue Average total assets

Financial self-sufficiency Formula: Financial revenue Adjusted (financial expense + net loan loss provision expense + operating expense + inflation adjustment)

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Gross loan portfolio This is the outstanding principal for all outstanding client loans, including current, delinquent, and restructured loans. It does not include: • Loans that have been written-off; • Interest receivable; • Employee loans. For accounting purposes, gross loan portfolio is categorized as an asset.

Gross loan portfolio-to-total asset ratio This indicates the efficiency of assets deployed in high-yield instruments/core businesses of an MFP. Formula: Gross loan portfolio Total assets

Inflation adjustment expense PMN adjusts for the effect of inflation on an MFP’s equity and its non-monetary assets - essentially fixed assets - on its balance sheet. Inflation decreases the real value of an MFP’s equity. Fixed assets are considered to track the increase in price levels, and their value is considered increased. The net loss (or gain) is treated as a cost of funds, is disclosed on the income statement, and decreases net operating income.

Inflation rate This is the latest annualized consumer price index (CPI) as reported by the State Bank of Pakistan.

Liabilities-to-equity ratio (debt-equity ratio) Formula: Total liabilities Total equity

Loan loss provision expense This is the sum of loan loss provision expenses and recovery on loan loss provision.

Loans per loan officer Formula: Number of active loans Number of loan officers

Loans per staff Formula: Number of active loans Number of personnel

Net adjusted loan loss provision expense This is the sum of loan loss provision expense and recovery on loan loss provision. MFPs vary tremendously in accounting for loan delinquency. Some count the entire loan balance as overdue the day a payment is missed. Others do not consider a loan delinquent until its full term has expired. Some MFPs write-off bad debt within one year of the initial delinquency, while others never write-off bad loans, thus carrying forward a defaulting loan that they have little chance of ever recovering. The PMN applies a standard write-off and loan loss provisioning to all MFPs, and adjusts where necessary, to bring them to the minimum threshold.

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Number of active borrowers This is the number of borrowers with outstanding loan amounts.

Number of active loans This is the number of loans that have been neither fully repaid nor written-off, and thus are part of the MFP’s gross loan portfolio.

Number of active women borrowers This is the number of women borrowers with outstanding loan amounts.

Number of active women borrowers to total active borrowers This indicates the percentage of women borrower to total active borrowers.

Number of loans outstanding This is the number of loans outstanding at the end of the reporting period. Depending upon the policy of an MFP, one borrower can have two loans outstanding; hence, the number of loans could be more than the number of borrowers.

Number of savers This is the number of depositors voluntary maintaining demand deposit and time deposit accounts with an MFP.

Number of saving accounts One depositor can have more than two deposit accounts. Hence, the number of deposit accounts could be more than the number of depositors.

Number of women savers This is the number of women savers with voluntary demand deposit and time deposit accounts.

Offices The total number of staffed points of service (pos) and administrative sites (including head office) used to deliver or support the delivery of financial services to microfinance clients.

Operating expense This is the total of personnel expenses and administrative expenses.

Operational self-sufficiency Formula:

Financial revenue (Financial expense + Net loan loss provision expense + Operating expense)

Per capita income This is the average income per person.

Percentage of women savers to total savers This indicates the percentage of women in the total saving portfolio.

Personnel This is the number of individuals actively employed by an MFP. It includes contract employees and advisors who dedicate the majority of their time to the organization even if they are not on the MFP’s roster of employees. This number is expressed as a full-time equivalent such that an advisor who spends 2/3 of his/her time with the MFP is accounted for as 2/3 of a full-time employee.

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SECTION 2: INDUSTRY PERFORMANCE

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Personnel allocation ratio The higher the indicator, the more lean the head office structure of the organization. This indictor is used to measure organizational efficiency. Formula: Loan officers Total staff

Risk coverage ratio This indicates the provision created by an MFP against its credit risk. Formula: Adjusted loan loss reserve Par > 30 days

Saving outstanding This is the total value of demand deposit and time deposit accounts.

Savers per staff Formula: Number of savers Number of personnel

Loan loss provision expense This is the sum of loan loss provision expenses and recovery on loan loss provisions

Loans per loan officer Formula: Adjusted loan loss reserve Par > 30 days

Total assets This is total net asset accounts i.e., all asset accounts net of any allowance. The one exception to this is the separate disclosure of the gross loan portfolio and loan loss reserve.

Total equity Equity represents the worth of an organization net of what it owes (liabilities). Equity accounts are presented net of distributions, such as dividends. Formula: Total assets â&#x20AC;&#x201C; Total liabilities

Total liabilities Liabilities represent the borrowings of an organization i.e., the amount owed. Examples of liabilities include loans and deposits. It includes both the interest and non-interest bearing liabilities of an MFP.

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Total number of loan officers This is the number of staff members who dedicate the majority of their time to direct client contact. Front office staff include more than those typically qualified as credit or loan officers. They may include tellers (personnel who open and maintain accounts, such as savings accounts for clients), delinquent loan recovery officers, and others whose primary responsibilities bring them in direct contact with microfinance clients.

Loan written-off during year This is the value of loans written-off during the year.

Write-off rate Formula: Loans written-off during the year Average gross loan portfolio

Yield on gross portfolio (nominal) This indicates the yield on an MFPs loan portfolio and is usually used as a proxy to look at an MFPs (realized) effective interest rate. Formula: Financial revenue from loan portfolio Average gross loan portfolio

Yield on gross portfolio (real) This is the number of depositors maintaining voluntary demand deposit and time deposit accounts with an MFP. Formula: (Yield on gross portfolio (nominal) - Inflation rate) (1 + Inflation rate)

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Performance Reports Published by PMN Performance Indicators Report [Jan – Dec 1999] Performance Indicators Report [Jan – Dec 2000] Performance Indicators Report [Jan – Jun 2001] Performance Indicators Report [Jan – Dec 2001] Performance Indicators Report [Jan – Jun 2002] Performance Indicators Report [Jan – Dec 2002] Performance Indicators Report [FY 2003] Performance Indicators Report [FY 2004] Performance Indicators Report [FY 2005] Pakistan Microfinance Review [FY 2006] Pakistan Microfinance Review [FY 2007] Pakistan Microfinance Review [FY 2008] Pakistan Microfinance Review [FY 2009] These reports are available at: hƩp://www.microfinanceconnect.info/user_arƟcles_display.php?sno=59&acƟon=arƟcle

Pakistan Microfinance Review The Pakistan Microfinance Review (PMR), formerly Ɵtled the Performance Indicators Report (PIR), is an annual publicaƟon of the Pakistan Microfinance Network (PMN). The report tracks the financial performance of Pakistan’s microfinance industry. A total of 88 financial indicators are compiled annually to track industry performance and idenƟfy upcoming trends and challenges. The indicators have been adopted under the guidance of the Microfinance InformaƟon eXchange (The MIX), the leading business informaƟon provider for the global microfinance industry. Baseline informaƟon for the PMR is collected from the audited financial statements of reporƟng organizaƟons. The aim of publishing the PMR is to provide a reliable informaƟon gateway to Pakistan’s microfinance industry. By promoƟng financial transparency and providing detailed analysis based on sector-wide as well as insƟtuƟon-level financial data, the PMN aims to posiƟvely influence the landscape of the microfinance sector by facilitaƟng greater compeƟƟveness, and the establishment of stronger retail insƟtuƟons.

Pakistan Microfinance Network The Pakistan Microfinance Network (PMN) is an associaƟon of retail microfinance providers in Pakistan. As a network its mission is to provide support to the sector to enhance scale, quality, diversity and sustainability in order to build an inclusive financial services sector in Pakistan. The PMN prepares industry staƟsƟcs, analysis, and several research reports and discussion notes on the microfinance industry of Pakistan. For more informaƟon on the PMN and its publicaƟons, please visit: www.microfinanceconnect.info