MICROCAPITAL BRIEF: State Bank of Pakistan Devising New Microfinance Strategy, Focusing on Inclusiveness, Growth, Partnerships and Infrastructure

The State Bank of Pakistan, the country’s central banking authority, recently announced that the State Bank is devising a new microfinance strategy, one focused on financial inclusiveness, growth, partnerships and infrastructure development. The State Bank’s acting Governor, Yasin Anwar, spoke about the initiative at last week’s Swiss Agency for Development and Cooperation Partnership for Microfinance Experience Sharing Event. Mr. Anwar stated that the ultimate goal of the new strategy is to promote development of the infrastructure necessary to sustain growth in the microfinance sector.

Mr. Anwar also stated that the State Bank moved to devise the new strategy after growth in the microfinance sector stagnated in 2009 and 2010, following an average annual growth rate of 43 percent in 2007 and 2008 [1]. Despite some mainstreaming and formalizing of Pakistan’s microfinance activities, microfinance institutions (MFIs) were serving only 5 percent of the potential market in the country as of April 2008, according to the International Finance Corporation (IFC) [2].

Last year, the State Bank of Pakistan created three Microfinance Development Funds in order to expand financial inclusiveness: the Microfinance Credit Guarantee Facility (MFCG), the Institutional Strengthening Fund (ISF) and the Improving Access to Financial Services Fund (IAFSF). The MFCG incentivizes and guarantees loans made to microfinance institutions (MFIs); the ISF finances capacity building for MFIs; and the AFSF also finances capacity building, especially through financial literacy programs [3]. The new strategy will incorporate these funds.

The Bank is currently conducting a financial needs assessment to determine the extent of losses incurred by MFIs after floods devastated the country this month. Experts say the floods have affected up to 8.5 million people, and caused hundreds of millions of dollars in damage to homes, roads, agriculture, livestock and businesses [4].

By Lindsey Shaughnessy, Research Associate

About the State Bank of Pakistan: Established in 1956, the State Bank of Pakistan (SBP) is the nation’s central banking authority. SBP performs several primary functions: to regulate and supervise the nation’s financial system, to conduct monetary policy and to manage public debt. In addition, SBS perfoms non-traditional functions: to develop the financial framework of the country, to provide credit to priority sectors and to help in the Islamization of the banking system.

About the International Finance Corporation (IFC): A member of the World Bank Group, the International Finance Corporation (IFC) uses loan and debt securities, equity investments and guarantees with the intent of alleviating poverty. It invests in financial institutions and other companies in emerging markets as well as provides technical assistance. The IFC has 182 member countries that “collectively determine its policies, and approve investments.” In fiscal year 2009, its new investments totaled USD 14.5 billion.

Sources and Additional Resources:

[1] Dawn, “State Bank devising new strategy on microfinance”, August 19, 2010. http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/business/19-state-bank-devising-new-strategy-on-microfinance-980-hh-07

[2] International Finance Corporation, “Pakistan: Microfinance and Financial Sector Diagnostic Study”, April, 2008. http://www.ifc.org/ifcext/mifa.nsf/AttachmentsByTitle/Pakistan_Diagnostic_Studies_20090428.pdf/$FILE/Pakistan_Diagnostic_Studies_20090428.pdf

[3] MICROCAPITAL STORY, “State Bank of Pakistan Launches Three Microfinance Development Funds with Proceeds from the UK Government Financial Inclusion Programme and the Asian Development Bank”, January 30, 2009. https://www.microcapital.org/microcapital-story-state-bank-of-pakistan-launches-three-microfinance-development-funds-with-proceeds-from-the-uk-government-financial-inclusion-programme-and-the-asian-development-bank/

[4] New York Times: “Desperation Grows Over Pakistan Flood Damage”, by Waqar Gillani, August 17, 2010. http://www.nytimes.com/2010/08/18/world/asia/18pstan.html?src=me

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