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Report No: AB113
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PAKISTAN - Pakistan Poverty Alleviation Fund II
South Asia Regional Office
Micro- and SME finance (70%); Water supply (10%); Other social services
(10%); Roads and highways (5%); Irrigation and drainage (5%)
Gender (P); Access to urban services for the poor (P); Rural services and
infrastructure (P); Civic engagement, participation and community driven
development (S); Rural markets (S)
P082977
GOVERNMENT OF PAKISTAN
PAKISTAN POVERTY ALLEVIATION FUND
Address: 6-A, Park Road, F-8/2, Islamabad
Contact Person: Kamal Hyat
Tel: 92-51-2253178, 2253225, 2251450, 2856393
Email: info@ppaf.org.pk
F (Financial Intermediary Assessment)
Fax: 92-51-2251726
September 18, 2003
April 28, 2003
December 4, 2003
1. Country and Sector Background
Sector Issues
Overall Poverty Levels
Poverty in Pakistan has persisted at more or less the same level since the nineties. According to the World
Bank’s Poverty Assessment Report, released in October, 2002, one third of the population in Pakistan can
be classified as poor. The Pakistan Economic Survey 2002-2003 states that "Not only do the poor have low
incomes, they also lack access to basic needs such as education, health, clean drinking water and proper
sanitation. This undermines their capabilities, limits their opportunities, leads to their social exclusion and
exposes them to exogenous shocks. Moreover, poverty is perpetuated as governance structures exclude the
most vulnerable from the decision making process".
As poverty is multidimensional encompassing economic, social and political needs, definitions abound some focusing on income levels, some on basic needs, some on caloric intake, yet others on lack of
opportunity. This makes it difficult to assess the extent and depth of poverty. The Government of Pakistan
has recently adopted an official poverty line based on caloric norm of "2,350 calories per adult per day 2,150 in rural areas and 2,450 in urban areas". This basic needs poverty line approximates per capita
expenditure of Rs. 670 (US$12) per month in 1998-99 increasing to Rs. 748 (US$13) per month in 2001.
To facilitate comparison, a basic needs poverty assessment has been carried out based on the Household
Income and Expenditure Surveys (HIES).
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Pakistan
Poverty in Pakistan - Head Count Ratio
Rural
45
Urban
40
35
30
25
%
20
15
10
5
0
FY91
FY93
FY94
FY97
FY99
FY01
FY03
Source: Economic Survey 2002-2003
Though there are a plethora of issues related to poverty, some of the key ones that the project will be trying
to address include the following:
Higher Incidence of Rural Poverty
Two-thirds of the poor reside in rural areas and their poverty is more deep and severe than urban poverty (
see graph above). Although rural households earn their livelihood from a number of sources, most are
linked directly or indirectly to agriculture, including the bulk of non-farm activity. Rural poverty levels rose
during the later half of the decade due to the persistence of drought particularly in Sindh and Baluchistan.
Exclusion of Women
"One of the finding of the Participatory Poverty Assessment carried out recently shows that women are
among the poorest and most vulnerable communities in the country. Pakistan has one of the highest
maternal mortality rates in the world. Women's access and control over productive resources are limited.
Lack of skills, limited opportunities in the job market and social and cultural restrictions limit women's
chances to compete for resources in public. However, the nature and degree of women's vulnerability vary
across classes, region and the rural/urban divide" (Draft PRSP, May 2003).
Inadequate Access to Services
Access to services is grossly deficient and is one of the main causes why substantial poverty persists
throughout Pakistan. This lack of access to both productive resources and social services has resulted in
low indicators of well being and lack of employment opportunities. The situation is compounded in rural
areas, where access is even more difficult due to the inadequacy or complete lack of basic infrastructure.
Yet, it is in areas such as these that a large number of the poor live.
Low Skill Levels
Lack of education and vocational training are critical determinants of poverty - only 27 percent of a poor
household is literate compared to 52 percent of a non-poor household. Moreover, poverty is usually higher
where the head of the household is unskilled. Hence, communities not only require access to resources but
also need support in terms of education and skill development.
Limited Access to Credit
Traditional financial institutions have shied away from supporting the poor due to high costs. As such,
informal provision of credit (money lenders, traders, family and friends) is often the only method of access
to credit for the rural and urban poor. However, as the effective annual rates of interest in the informal
sector range from 80% to 120% per annum, this source of credit proves very expensive for the poor and
leaves little for savings or investment. Recognizing the need of the poor, the Government has tried to
introduce several schemes through public financial institutions such as the Agricultural Development Bank
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of Pakistan (ADBP), however, these schemes have generally not reached the target market, having been
hijacked by the influential due to their concessionary interest rates. While the Government's recent
initiatives of Khushhali Bank and PPAF have proved more successful, a large segment of the market
remains underserved.
Limited Support to Pro-Poor Institutions
Lack of resources has restricted outreach of civil society institutions that cater to the poor. Prior to the
PPAF, many NGOs, with a few exceptions, were supported sporadically by relatively small amounts of
bilateral aid which was invariably linked to specific agendas and subject to shift in emphasis from one
sector to the other. PPAF's support has led to impressive growth in the sector demonstrating that civil
society institutions are capable of increasing their outreach to the poor. However, in view of the scale of
poverty, greater and continued support is still required.
2. Objectives
The Pakistan Poverty Alleviation Fund Project II (PPAF II) is a follow-on of the Pakistan Poverty
Alleviation Fund Project. The development objective remains: to reduce the incidence of poverty in the
country through provision of resources and services to the poor and low income, particularly women. This
is to be achieved through an integrated approach including provision of microcredit, community
infrastructure, training and skill development and social sector interventions. The apex Pakistan Poverty
Alleviation Fund (PPAF) and its partner organizations (POs) will continue to play a key role in delivery of
these services to the poor.
3. Rationale for Bank's Involvement
The Bank has extensive experience in the provision of microfinance, community infrastructure and social
sector interventions all over the world. Bank support would, thus, give PPAF access to ‘best practices’ for
effective targeting as well as high quality technical assistance for institutional development and
sustainability of operations. Most importantly, continuing support to this project conveys the Bank's
commitment to its clients, both the Government who have requested Bank's support for a follow-on project
and the poor of Pakistan who would be directly supported by this project.
4. Description
The follow-on Project would provide funds to PPAF for further reducing the incidence of poverty in the
country. The size of the Project has been determined based on PPAF's experience during the first Project as
well as on conservative estimates of the absorptive capacity of PPAF's existing POs for the next four years.
The funds will be channeled through POs and their communities as loans and grants to the poor and low
income. Services to the poor would include provision of micro-finance, community infrastructure, skill
development and education and health facilities. The main components of PPAF II include:
Credit & Enterprise Development (IDA: US$158 million, Reflows: US$ 100 million)
Under the credit and enterprise component PPAF will continue to lend to POs for on-lending to individuals
or groups of individuals who meet the eligibility criteria of the PPAF. Under PPAF II, PPAF is targeting to
expand outreach and introduce second generation innovations for its existing micro-credit clients,
approximately one million new loans are planned for over half a million borrowers.
Sector Development
Pakistan microfinance sector has matured and become far more transparent over the past four to five years.
Pakistan Microfinance Network (PMN) – set up by microfinance practitioners, has played a key role in
compiling sector data, setting standards and disseminating information. According to PMN estimates, as of
end 2002, there were approximately 250,000 active microfinance clients in Pakistan – 81 percent of whom
are being serviced by the NGO sector.The number of potential borrowers, on the other hand, is estimated at
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5.1 million, thus indicating significant unmet demand and the need for continued financial and capacity
building support in the sector.
Performance under PPAF I
PPAF has effectively enhanced retail capacity in a country where the poor have had very limited access to
micro-credit. Specially of smaller retail institutions working as its partners as a result of which in FY03, 41
percent of its funding was disbursed through these small and emerging NGOs. PPAF's clients have doubled
every year for the past three years and as of March 2003, POs had extended 187,000 loans from PPAF
funding to more than 180,000 borrowers, 41% of whom are women. The average loan size is
approximately US$150 - well below the individual loan ceiling of US$500. PPAF has also managed to
bring financial discipline into a sector resulting in 100 percent repayments that PPAF will be using as
reflows to fund the increased demand for credit.
Community Infrastructure (IDA: US$58 million; Community Contribution: US$ 13 million)
The community infrastructure component will continue to support, in the form of grants on a cost sharing
basis, community physical infrastructure (CPI) sub-projects. Identification of sub-projects will be done by
poor communities and their selection will be transparent and based on sustainability as determined by the
ability of the communities to recover operations and maintenance costs. POs will assist communities in
organizing as groups and preparing, implementing and managing these schemes. Based on past trends, it is
expected that 40 percent of the conventional projects would be for drinking water supply, 20 percent for
irrigation, 18 percent for sanitation, 20 percent for link-roads and bridges and the remaining 2 percent for
flood protection works. PPAF expects to fund infrastructure projects that are expected to reach
approximately 3.8 million poor (approximately 541,000 households). Apart from conventional community
infrastructure projects, POs are also expected to undertake new initiatives aimed at integrated development,
dissemination of low-cost, appropriate and innovative technologies, such as micro-hydels, desalination,
windmill and solar pump projects, as well as towards reducing poverty in drought stricken/ prone areas
through implementation of drought mitigation & preparedness plans (DMPPs). These interventions would
involve provision of sustainable infrastructure facilities to the poor in a holistic and systematic manner.
Performance under PPAF I
PPAF is currently working with 24 POs and has approved 6,564 projects for implementation in 75 districts
of the country. 3,223 project are currently in progress of which 2,730 have been completed. All projects
have been identified by the communities, are small in size and well within per capita limits. They are also
being operated and maintained by the community organizations satisfactorily. Within three and a half years
of operations, PPAF's infrastructure schemes have benefitted some 1.54 million men and women. In view
of the fact that a large percentage of the population still does not have access to basic infrastructure and
that implementation capacity and outreach of existing POs has been enhanced, PPAF aims to increase
coverage and make a tangible impact on poverty reduction.
Training & Skill Development (IDA: US$9 million)
This component would primarily cover the costs of training communities as well as staff of PPAF's
partners. Vocational and technical training would be given to community members to enhance their income
generating skills and increase their understanding of market structures and marketing. Under the first
Project, PPAF funded 1,570 such trainings for community members which benefitted approximately
38,000 community members, 40 percent of whom were women. Approximately 108,000 new borrowers
and 61,000 repeat borrowers would be trained through this component under PPAF II. Exposure visits to
other communities for some 1,500 community members would also be supported to allow dissemination of
best practices. In addition, a limited number of exhibitions would be funded to introduce community made
products to the market.
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Education & Health (IDA: US$5 million)
Under this component, PPAF would provide funding to its existing POs for their health and education
programs, subject to their meeting the additional eligibility criteria for these services. These include
amongst others: i) active participation of communities; ii) equity and cost effectiveness of the intervention;
iii) linkages and mainstreaming with public sector programs; iv) conformity with environmental and safety
standards; v) community contributions towards upkeep of the facility; vi) comprehensive baseline to assess
potential of the facility; vii) mandatory training of teacher/health worker; viii) preference for using local
human resources; etc.
Support for PPAF (IDA: US$8 million)
All operating costs under the first project are currently being met by PPAF, from interest income and
returns on the initial endowment received from Government. IDA support under this component relates to
costs for the new project and would include capital costs, equipment, training facilities, and a resource
center. This support also includes costs of consultancies primarily for baseline socioeconomic data
collection, post intervention impact assessments, and technical assistance for improving data management
and financial systems.
PPAF's Equity (Government of Pakistan: US$10 million)
Under the first Project, the Government provided PPAF with US$10 million endowment to build its equity
and manage the US$90 million IDA Credit, which is invested in Government securities to support PPAF's
core institutional costs related to the first project. A second injection of equity of the same amount by the
Government is justified on the grounds that: i) the size of the follow-on project is nearly four times the first
and therefore PPAF would require support in meeting the incremental costs related to the much larger
second project; ii) it will help assure sustainability of PPAF’s operations in the future without further
infusion of capital; and iii) the additional US$10 million would ensure that PPAF remains a strong and
sustainable financial institution.
5. Financing
Source (Total ( US$m))
BORROWER ($10.00)
IDA ($238.00)
LOCAL COMMUNITIES ($13.00)
SUB-BORROWER(S) ($107.00)
Total Project Cost: $368.00
6. Implementation
Executing Agency:
Implementation Period:
Pakistan Poverty Alleviation Fund (PPAF)
4 years (December 2003 - March 2008)
Institutional Arrangements
PPAF
The Project will be implemented through the PPAF, an apolitical apex organization, working with NGOs as
its partners in reaching-out to the poor. Financing would be provided to NGOs with good track records of
working with communities and building their capacity to handle credit, implement and maintain community
infrastructure schemes and support social sector interventions.
Partner Organizations
In relation to the mandate of PPAF, POs are defined as all those NGOs, rural support programs (RSPs),
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CBOs, and private sector institutions and entities that are involved in the work of poverty alleviation. POs
are expected to perform the following functions, depending upon arrangements reached with PPAF:
Mobilizing communities and training them in skill enhancement, marketing, etc.
•
Acting as intermediaries for microcredit
•
Providing communities with health and education facilities
•
Acting as intermediaries for community infrastructure projects in the following ways:
•
§ assisting communities with the preparation of their proposals; and
§ facilitating communities in implementation of projects
Supervising and monitoring PPAF-financed projects
•
Implementation Arrangements
Methodology
The following flow chart gives an overview of the implementation methodology:
Beneficiaries submit proposals to POs for sub-projects for implementation
POs appraise beneficiaries and sub-projects according to their eligibility criteria
and submit proposals to PPAF for funding
PPAF appraises POs that meet its eligibility criteria and continuously
monitors, evaluates and audits their performance
Terms and conditions between the PPAF and the POs and between the POs and the beneficiaries are clearly
laid out in their respective Terms of Partnership.
7. Sustainability
The financial sustainability picture of PPAF’s POs depends on a number of factors. For a start, it depends
on the rate of expansion of new branches compared to the rate of expansion of new clients in existing
branches.Secondly, in a geographically diverse country like Pakistan, it depends to a significant extent on
the agro-ecological zone that the PO operates in. Third, it depends on the extent of portfolio diversification.
Fourth, it also varies according to the various products, both financial and nonfinancial that are offered to
the clients. And finally, it depends on the interest rates charged by the PO to the borrower as well as the
level of cost-efficiency of the PO. International comparisons show that operating costs of major Pakistani
microfinance providers are one of the lowest (17%), and compare favorably with financially self sufficient
MFIs in the Asia region (19%). However, in order to achieve long run financial sustainability, PPAF POs
would need to raise the volume and size of microcredit loans as well as rationalize on-lending rates to raise
effective yield on portfolio to fully cover their credit delivery costs.
8. Lessons learned from past operations in the country/sector
The Project and PPAF are poised to build on the valuable lessons learnt during Phase I and continue to
strive towards excellence. Key lessons reflected in the Project design include:
l
A holistic approach is needed to improve access and reduce poverty. The Project combines provision
of microcredit with community infrastructure, education, health facilities as well as skill development
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l
l
l
l
l
l
l
for improving standards of living and empowering the poor.
Autonomy and freedom from political pressures is critical for effective functioning. The
implementing agency - the PPAF, is incorporated under the Companies Ordinance which ensures its
autonomy and clearly identifies the role of its Board and CEO. One of the ‘cardinal principles’ of
PPAF, as enshrined in its Articles and Memorandum of Association, states that: “the Board of
Directors, shall ensure that the resources of the company shall not be used for political patronage or for
any other political purposes”. Selection of Board members through the General Body also safeguards
against political and government pressures.
Insititutional development of pro-poor institutions is critical for poverty alleviation. This is a lesson
PPAF has learnt early-on and under the new project there is even greater emphasis on this. PPAF's
institutional development of POs includes strategic reviews, SWOT analysis, mandatory submission of
business plans, targeted training and capacity building of staff, strengthening of financial and
monitoring functions, etc.
An effective structure enables organizations to respond rapidly and successfully to community
demands. PPAF has a functional organizational structure with separate departments for credit and
enterprise development, community infrastructure, human & institutional development, monitoring,
evaluation and research, and finance and administration. General Managers have full authority to make
decisions based on PPAF's Operational Manual, regarding selection of partners, disbursements, project
implementation, supervision and benefit monitoring.
An organization is only as good as the quality of its staff. Hiring of staff at PPAF is through a
transparent and merit-based procedure. Policies of compensation and staff development are clearly
articulated and reviewed from time to time to incorporate best practices and keep staff motivated.
Simple processes facilitate compliance. PPAF's processes have been kept simple to ensure that its
partners/ potential partners understand what is needed and how to do it. Furthermore, PPAF
continuously seeks feedback from its POs and communities to facilitate service delivery.
Program interventions should be demand driven. PPAF procedures incorporate demand driven
mechanisms for project generation, with effective grassroots participation, creating ownership of
sub-projects by communities, not only through cost-sharing but also by promoting a clear
understanding of the rights and responsibilities of the users and providers.
Monitoring and feedback are critical for continuous improvement. PPAF's feedback and monitoring
mechanisms and requirements are defined in its Operations Manual, and the need for strengthening
them has been recognized. Under PPAF II, feedback by means of periodic review of projects approval
processes, project implementation and completion reports, long term monitoring and evaluation of
projects and post-Project impact assessment studies on beneficiaries will be disseminated to all
stakeholders.
9. Environment Aspects (including any public consultation)
Issues :
The PPAF Project was designed by the Bank in partnership with the Government, PPAF, NGOs and the
private sector. The apex continues to solicit feedback from all stakeholders (POs as well as poor
communities) for improving its service delivery, including feedback on its environmental screening
procedures and impact assessments. PPAF has also carried out an extensive 360 degree feedback from its
POs which resulted in major shifts in its business processes and better facilitation and understanding by all
concerned. An Environmental Management Framework (EMF) was prepared for PPAF under the first
Project. This was operationalized and made an integral part of PPAF's Operations Manual. To give them
legal sanctum and to ensure compliance, the Manual and Framework form part of the Financing Agreement
signed between PPAF and its POs as well as of the Sub-project Financing Agreement signed between a PO
and its community.
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PPAF’s conventional infrastructure projects are small in scale and operation and maintenance by
communities guarantees effective use of natural resources, thereby, ensuring environmentally benign
interventions. This was reaffirmed in an independent assessment of 356 PPAF funded infrastructure
projects, carried out in June 2002, in which over 90 percent of the projects received good or satisfactory
environmental rating.In the follow-on project, new initiatives in the form of 'integrated development
projects' will be undertaken. These will increase the scale of PPAF funded projects due to multiple
interventions in one community, and potentially increase the risk of adverse environment and social
development impacts. However, the kind of integrated projects being suggested may infact be more
environmentally sound as they would support and complement individual infrastructure development
sub-projects. For example, water supply and sanitation will be supported by street-paving and side-drains,
thus promoting environmentally friendly, healthy and hygienic conditions in the community. In any case the
EMF has been revised to include the potential impacts of these larger projects and their mitigation
measures.
10. List of factual technical documents:
(i) Environmental Management Framework
(ii) Operational Manual
11. Contact Point:
Task Manager
Qazi Azmat Isa
The World Bank
1818 H Street, NW
Washington D.C. 20433
Telephone: 92-51-2279641
Fax: 92-51-2279648
12. For information on other project related documents contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-5454
Fax:
(202) 522-1500
Web: http:// www.worldbank.org/infoshop
Note: This is information on an evolving project. Certain components may not be necessarily included
in the final project.