MICROCAPITAL STORY: State Bank of Pakistan signs MoU with Tameer Microfinance Bank (TMFB) in Pakistan for Rs. 82 million (aprox USD 1 million)

The State Bank of Pakistan (SBP) has signed a Memorandum of Understanding (MoU) with Tameer Microfinance Bank (TMFB) under which the SBP will provide Rs 82 million (approx USD 1 million) to TMFB over a period of one year. According to a press release on the Pakistani Financial Daily Business Recorder, the funding will be provided under the Institutional Strengthening Fund (ISF), a microfinance initiative launched by the SBP [1]. (Business Recorder is a financial and business newspaper owned by the Business Recorder Group, a media conglomerate based in Pakistan).

Attending the signing ceremony of the MoU at Karachi in Pakistan, Mr. Salim Raza, the Governor of the SBP, expressed hope that the grant facility would help TMFB launch branchless banking operations and help build its institutional capacity [1]. In November 2008, MicroCapital reported that TMFB had 27 branches with many of its borrowers living in rural areas. Given long distances people had to travel to perform even the most routine banking transactions, TMFB had resorted to mobile banking as a primary way to reach its rural customers. In 2007, TMFB was also named as one of Consultative Group for the Poor’s (CGAP) nine technology partners [6]. As part of the partnership, CGAP staff provided technical advice and operational guidance to help Tameer Bank implement the use of cards and point-of-sale devices to complete financial transactions. For more information on CGAP’s nine technology picks, please look up this 2007 MicroCapital story.

The Governor’s note on branchless banking is consistent with the Government of Pakistan’s recognition and general support of branchless banking models as a way to increase access to financial services [5]. According to the CGAP article ‘Regulation of Branchless Banking in Pakistan’, both the SBP and the Pakistan Ministry of Information Technology (MoIT) ‘support opening up space for branchless banking’. Owing to the interest of Pakistani policymakers and private operators (banks and mobile network operators) in branchless banking, Pakistan was also one among the seven countries selected by CGAP for a series of pilot diagnostics on branchless banking. In keeping with the Government’s efforts, the Banking and Policy Regulations Department of the SBP had also introduced a regulatory framework for financial institutions desirous to undertake branchless banking in Pakistan; the full text titled ‘Branchless Banking Regulations’ is available here. MicroCapital has extensively featured the growth, scope and challenges of the branchless banking models; a complete list of relevant stories can be found here.

In a series of efforts to boost the country’s microfinance sector, the SBP had also recently signed two other MoUs, one with the Pakistan Microfinance Network (PMN) and the other with the NRSP Microfinance Bank wherein the SBP agreed to provide a total of Rs 215 million under the ISF [2]. While the grant facility to the Pakistan Microfinance Network is expected to help its efforts to foster transparency and promote information exchange in the microfinance sector, the grant to the NRSP Bank will help develop a real time Management Information System (MIS) to accept deposits.

The ISF under which these grants are provided is a microfinance development fund launched by the SBP, with an objective to provide liquidity to microfinance providers in response to tighter liquidity conditions and a sudden spike in inflation. The ISF initiative is part of the USD 75 million Financial Inclusion Program (FIP), which is a joint venture between SPB and the UK Department for International Development. The ISF aims to increase the capacity of MFIs by providing grants for them to make advances in their human resources, management, governance, internal controls, business development, cost reduction mechanisms, product innovation, and technology implementation. The ISF is capped at USD1 million per year per recipient, and is subject to at least a 25 percent matching grant from the recipient [3]. The fund would primarily focus on institutions that are already regulated, or are in the process of seeking a license, or have solid plans for restructuring in the near future [3]. Per available information, MFIs may also be recipients of the grants several years in a row with good performance and resubmission of their proposal.

The State Bank of Pakistan was inaugurated by Mr. Muhammad Ali Jinnah, Pakistan’s first President, in 1946 as the central bank of Pakistan and was nationalized in 1974 [4]. The scope of the bank’s operations increased from its original mandate ‘to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage’ to its expanded mandate in 1956 to ‘regulate the monetary and credit system of Pakistan and to foster its growth in the best national interest with a view to securing monetary stability and fuller utilization of the country’s productive resources’ [3]. Total assets in 2008 were Rs 1.05 trillion (USD 13.3 billion) [4]. The SBP and the Government of Pakistan have set a goal increasing the number of microfinance borrowers to three million by the end of 2010, and to ten million by 2015, as documented in the national Microfinance Strategy adopted in 2007 [2].

Established in 2001, Tameer Microfinance Bank is a USD 20.3 million commercial microfinance bank in Pakistan. It was licensed by the State Bank of Pakistan under the Microfinance Ordnance 2001. As of March 2009, it had 118, 883 active clients and 57, 088 active borrowers. Total deposits amounted to Rs. 755 million (USD 9.1 million) and total loan disbursed stood at Rs. 3 billion (USD 36 million). As of 2008, its debt to equity ratio was 0.92, return on assets was -31.37 percent and return on equity stood at -77.43 percent [7].

By Bharathi Ram, Research Assistant

Bibliography:

[1] Business Recorder, SPB signs MoU with Tameer Bank http://www.brecorder.com/index.php?id=944003&currPageNo=1&query=&search=&term=&supDate=

[2] Microfinance Focus, SBP signs MoUs to boost Pakistan Microfinance Sector http://www.microfinancefocus.com/news/?p=313\

[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 ‘, 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] State Bank of Pakistan, http://www.sbp.org.pk

[5] Prudential Regulations for Branchless Banking, http://docs.google.com/gview?a=v&q=cache:D1RsiUjE64YJ:www.cgap.org/gm/document-1.9.2304/PKNotes_RegulationBranchless_2007.pdf+Prudential+Regulations+for+Branch-less+Banking&hl=en&gl=us

[6] MicroCapital Story, CGAP Announces 9 Technology Picks, http://microcapitalmonitor.com/cblog/index.php?/archives/650-CGAP-Announces-Its-9-Technology-Picks.html

[7] MIX Market, http://mixmarket.org/mfi/tmfb/data