Micro financing by Commercial Banks
The regulatory initiatives
Qasim Nawaz
Director, SMEs & Microfinance Department
State Bank of Pakistan

Background
Need for Microfinance
 Expansion of outreach by all market participants
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A viable business Model
Already developed in some countries on sustainable basis
Definition
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Provision of financial services to poor
In order for a person to qualify for Microfinance; his/her earnings should be less than the Tax able limit-
Maximum Loan per person is Rs 100,000/- Enhancement to Rs
150,000/ under consideration
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Government Initiatives
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Microfinance Sector Development Program (MSDP)-ADB funded (US$150 million) facilitated the establishment of Khushhali Bank as a model retail MFB provide support for the institutional strengthening of licensed MFBs
Established KB
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Legal Framework (MFIs Ordinance 2001)
 Commercial players commenced banking with the poor
 MF sector players can move from NGO/MFI towards a regulated MFB
Apex Institution – PPAF
 A wholesale window for NGOs/MFIs for funding their on-lending and capacity building
New Bank Fund
 valuing US$15m established with the assistance of ADB
 assistance for Capacity building of new licensed MFIs at Provincial &
District level.
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SBP Initiatives
 Licensing Criteria for Establishing MFBs- parameters for new entrants establishing an MFB
 Prudential Regulations for MFBs- framed in consultation with all stakeholders (evolving nature & characteristics of MF in Pakistan)
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Mobile Banking Guidelines - for outreach expansion in cost effective manner, ensuring proper risk mitigation
Fit and Proper Criteria – for Board members & President/CEO of
MFBs
 NGO-NRSP Transformation Guidelines
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Policy Formulation through Consultative Mechanism
Guidelines for Commercial Banks to undertake MF – an effort to increase outreach through multi-institution approach.
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The Sector-Outreach (Microfinance Banks)
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Nation-wide MFBs
District Based MFBs
Total MFBs
Total Branches of all MFBs
Service Centers
Loans Outstanding
Deposits
Active Borrowers
Active Depositors
As of 30-06-2006
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2
6
112
141
Rs. 2,739 m
Rs. 746 m
266,720
35,888
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Expansion of outreach- Why Commercial
Banks?
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Large Branch Network across the Countryespecially in rural areas- Market presence since long
Access to Stable Sources of Funds-Large deposit base
Established Accounting, Information & Internal
Controls Systems w
Established Fund Management & Treasury
Systems
High Impact- Agricultural Credit experience
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Commercial Banks and Micro financing- Issues and challenges
 Commitment from Highest Level
 Change in traditional mindset
 Reorientation & training of staff
 Development of demand driven & research based products
 Business Approach
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Guide Lines for micro financing by Commercial
Banks- Modes For Commercial Banks
 MF counters in existing branches
 Standalone MF Branches
 Establishment of Independent subsidiaries
 Linkages with NGO-MFIs
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Mode 1- MF Counters
 Requires minimal changes in organizational structure.
 Cost effective.
 No approval required from SBP.
 Counter Manger Either Report to Branch Manager or the Division at Head Officeas per bank’s discretion
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Mode II- Standalone MF Branches
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 MF Exclusive Branches with separate MF Division at head office.
Separate Division to operate as HO for the MF Branches
The Banks to submit detailed plan to SBP to initiate MF
Business along with detail of branches to be converted and
CVs of the key persons
On satisfaction SBP would give its consent
No separate license & fee required.
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Mode III- Establishment of MFB as
Subsidiaries
 CB may also establish MFBs with independent board & management.
 Existing branches having substantial MF growth potential may be clubbed together & transformed into an independent MFB as a subsidiary of the CB.
 CB may opt for either District, Regional, Provincial or National License for their subsidiary
 Subsidiary may enter into an agreement with the bank for using the treasury & fund management operations.
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Model IV-Developing linkages with MFIs
 Partnership with the NGOs.
 No change in the organizational structure.
 No approval required from SBP
 Banks may opt for whole-sale lending to NGO-MFIs for their on-lending needs, and/or
 Banks may develop linkages/agency arrangements for extending loans through NGO-MFIs
 Separate Prudential Regulations for Microfinance issued
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 Banks to firm up their business plan for Microfinance
 Option to choose the mode remains with Banks
 Further consultation & facilitation if any is welcomed-SBP will have a detailed and focused discussion with
Commercial banks
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