Annual Review - Summary Sheet
Title: Financial Inclusion Programme
Programme Value: £50 million
Programme Code: 113331
Review Date: July 2014
Start Date: July 2008
Summary of Programme Performance
2008
2009
Year
N/A
67.50
Programme Score
N/A
M
Risk Rating
2010
55.00
M
End Date: March 2015
2011
75.00
M
2012
A
M
2013
A
M
2014
A
M
Summary of progress and lessons learnt since last review
Since its inception in 2008, the Financial Inclusion Programme (FIP) has played an instrumental role for
the commercialisation of the microfinance sector. The success of FIP has built a platform from which
DFID and other donors have been able to develop the next generation of access to finance initiatives
and continue the transformation of the financial sector to better serve the poor. FIP is leading on several
national policy initiatives such as the National Financial Inclusion Strategy. This progress has been
achieved in an environment characterised by an uncertain political, economic and security context which
has offered few pro-growth incentives to the struggling economy. Some key results, most of which
significantly exceeded the 2014 targets, are presented below:







An increase in the number of microfinance borrowers by half million to 3.14 million borrowers. Of the
total, 57% are women. (On track to achieve the Operational Plan target of 3.2 million by March
2015).
A 40 % increase in the gross loan portfolio to Rs 61.2 billion (approx. £365m)1
Pakistan continues to remain 3rd in the Economist Intelligence Unit’s global ranking for business
environment for microfinance.
An increase in the number of branchless banking agents by 160% to 168,615.
Nearly doubling the number of number of mobile wallet accounts to 4.2 million with the money
volume of branchless banking transactions, as a percentage of GDP, increasing to 4%.
An 80% increase in the number of FIP supported small and rural enterprises to 9,823.
FIP also helped improve coverage of the credit information bureau (now at 98%), supported an
initiative to improve transparency of microfinance pricing, and initiated the strengthening of the
financial monitoring unit (FMU) to better support domestic anti-money laundering efforts.
Lessons Learnt and Recommendations:
i) FIP ‘met expectations’ but the investment demand for ‘financial inclusion’ still exists. An extension by
five years (2015-2020) is proposed to ensure a seamless transition to DFID’s new programme and to
maintain the current momentum for reform. The FIP instruments however need design readjustment
to:
a) Suit them to current requirements of the existing partner financial institutions and
accommodate the learnings of the FIP implementation experience;
b) Align them with and complement the DFID’s new financial sector initiative ‘Enterprise and
Asset Growth Programme’ (EAGR) planning to rollout returnable capital instruments; and
c) Redeploy remaining funds to support emerging development finance priorities being identified
under the National Financial Inclusion Strategy.
ii) The Credit Guarantee Scheme has achieved its own targets but has not shown any significant
demonstration impact. The design of the guarantee should be switched from an untargeted portfolio
guarantee to a cluster/value chain financing approach. This would mean tailoring credit guarantees
to the needs of individual deals backed by capacity building investments to effectively implement the
transactions.
1
£1 = Rs 167.66 (SBP Website as of 29 Sep 2014)
1
iii) Despite a good track record, communication gaps between FIP and its partners exist. FIP should
improve its programme communication with the commercial partners and donors and should also
avail of central bank’s leverage to create higher levels of ownership of the financial inclusion agenda
in the state agencies including the Ministry of Finance.
iv) The first phase (2008-2015) of FIP is nearing completion and it is now entering into a new phase with
reorientation of its components under a revised logframe. A third party Programme evaluation is
being undertaken to measure impact of FIP investments and effectiveness of its delivery approach.
The impact assessment will also inform the redesign of instruments and management arrangements
for the proposed extension phase (2015-2020) of the programme.
A. Introduction and Context (1 page)
DevTracker Link to
Business Case:
DevTracker Link to
Log frame:
http://devtracker.dfid.gov.uk/projects/GB1-113331
http://devtracker.dfid.gov.uk/projects/GB1-113331/documents/
Outline of the programme
The DFID funded Financial Inclusion Programme (FIP) is implemented through the State Bank
of Pakistan (SBP). It was extended from a 5 year (2008-13) to 7 year programme in the period
of the review, and is now scheduled to end in March 2015. FIP was introduced in a context
when 89% of population was unbanked and while 60% of the population had access to mobile
phones no viable branchless banking solution existed. The number of microfinance borrowers
was 1.75 million (2009) with 2/3rd of them served by subsidized microfinance providers. The
majority of the poor, particularly in rural areas, had no access to financial services. In this
context the FIP aimed to transform the financial sector through efficient market-based and innovative
financial services to better serve the poor.
The programme has been managed by a dedicated FIP team at the SBP, with active involvement of
SBP’s senior management. FIP funds (£50m) are allocated across following five components:
# Component
1 Microfinance Credit Guarantee Facility (MCGF) – to help microfinance providers borrow from
commercial banks by covering up to 40% of any losses incurred
2 Institutional Strengthening Fund (ISF) – for capacity building of microfinance providers
3 Credit Guarantee Scheme (CGS) – to help small and rural enterprises borrow from commercial banks
by covering up to 40% of any losses incurred
4 Financial Innovation Challenge Fund (FICF) – risk capital grants for digital financial inclusion and rural
finance
5 Technical Assistance (TA) – SBP capacity building and financial architecture investments on antimoney laundering, credit information bureau, Islamic finance, consumer protection and branchless
banking
Total
Size
(£m)
15
6
13
10
6
50
FIP is pursuing results in four main areas namely, microfinance, small and rural enterprise finance,
branchless banking and better financial architecture. The logframe was revised in 2012 to fully capture
the attributable results being delivered by each of the components.
FIP is regarded as the most influential financial sector programme currently under implementation in
Pakistan. It has put DFID at the centre of most of the policy thinking related to inclusive financial sector
development. DFID enjoys an excellent relationship with the State Bank of Pakistan and is working
closely with the World Bank, CGAP, KfW, PPAF, IFC and the Gates Foundation to advance the financial
inclusion agenda in Pakistan. FIP also works closely with all major commercial banks, microfinance
institutions, telecom operators and state agencies such as Securities and Exchange Commission of
Pakistan, Punjab Pensions Fund, Employees Old Age Benefits Institution and National Database and
Registration Authority.
2
Going forward, DFID, through a combination of FIP and the new Enterprise and Asset Growth
programme (EAGR), will be able to offer an even more comprehensive response to support financial
inclusion in Pakistan. FIP will remain housed in the SBP and take forward implementation of national
initiatives on financial inclusion policy whilst EAGR, implemented through a special purpose vehicle, will
rollout market based and sustainable instruments for furthering MSME finance and digital financial
inclusion in Pakistan.
B: PERFORMANCE AND CONCLUSIONS (1-2 pages)
Annual outcome assessment
Outcome Indicator
Baseline
1.Money volume of branchless banking as
% of GDP
2. SME credit size as % of GDP
3. Number of Microfinance Borrowers
4. Market-based funding (commercial debt
and deposits) as %age of total liabilities of
microfinance providers - indicator for
Microfinance Sector's reduced dependence
on subsidized sources of credit for
improved access
Milestone 2014
0% (2009)
Progress
2013
3%
6.0%
Achievement
2014
4%2
3.1% (2008)
1.75m (Female:
49%) (2009)
41%
1%
2.63m (58%
female)
81%
4.0%
2.9m (60%
female)
85%
1%
3.14m (57%
female)
81%
The key Outcome indicator for increasing microfinance outreach has been exceeded while others have
fallen slightly short. An unfavourable macro-economic situation, and the funding and capacity limitations
of microfinance providers to increase the pace of outreach are the main reasons for the “missed” targets.
Further details are provided below:
Outcome indicator 1: The money volume of branchless banking (BB) rose but still fell below the 2014
target. This despite the fact that all BB related output-level indicators substantially exceeded their
targets. The main reason for this discrepancy is the time lag between the achievement of outputs (higher
number of agents and mobile account holders etc.) and how this will translate to a higher transaction
volume. There are other issues as well such as the physical concentration of agents in urban and periurban areas, the sharing of agents by various service providers and slower than expected pace of
product development to suit diverse client needs.
Outcome indicator 2: The performance on SME credit size as percentage of GDP remained well below
the target. As a whole, domestic credit to private sector has consistently fallen in the past few years from
22.7% to 15.7% of GDP3. These figures are very low when compared with regional economies (India –
51.8%; Bangladesh – 48.3%; Nepal – 58.1% of GDP). The main reason for this has been the poor
performance of the Pakistan economy with high public sector borrowing, increasing public debt, severe
energy crisis and ongoing conflict with the militants, all helping in “crowding out” credit to the private
sector and SME’s in particular. In such a tough environment, the CGS has helped the commercial banks
remain involved in SME lending. To improve the effectiveness of the CGS it is proposed to restructure it
by adopting a ‘cluster/value chain financing approach’ to deliver more targeted outputs and demonstrate
the commercial viability of SME financing in selected clusters and value chains.
Outcome indicator 3: The microfinance outcome indicator on outreach has exceeded the target
whereas one on commercial finance has (almost) achieved it. This indicates that a robust microfinance
sector has expanded its outreach to a large number of microfinance borrowers while reducing its reliance
on subsidized financing. In the last 5 years, the cumulate outreach growth rate has been in excess of
12% with 18% and 19% growth in 2013 and 2014 respectively. This indicates a sustained increase in the
growth rate of financial service outreach with the possibility of making inroads to reduce the numbers of
people still excluded from the financial sector in future years. The sector could double its outreach by
2
3
The total volume of transactions from Jul 2013-Jun 2014 is RS 1,012.348 billion. GDP: US$244billion (IMF)
http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS
3
2020 to 6 million (growing at a 5 year average of 12%) or even cross 9 million if enough funds are made
available to grow at the rate of 18%-19% of the last two years. The portfolio-at-risk or non-performing
loans are merely 1.2% of the outstanding portfolio4.
Outcome indicator 4: Although the target has been missed the sector is on the right trajectory to reduce
its dependence on subsidized sources of credit. It is becoming clear that the sector taking more time to
raise deposits for financing growth and microfinance providers have hit their individual borrowing limits
set by the commercial banks against the MCGF. This highlights the limitation of MCGF as a credit
enhancement instrument. Higher growth is expected in next few years if sector is provided higher levels
of access to market based capital such as through the EAGR debt fund (Pakistan Microfinance
Investment Company). This expansion needs to also be accompanied with improved risk regimes for
microfinance banks (MFBs). SBP has recently (June 2014) revised prudential regulations for
microfinance banks. The aim of these revisions is to improve their corporate governance, consumer
protection practices, and anti-money laundering (AML) policies. It is hoped that that the revised
regulations will help MFBs to better position themselves for managing higher level of growth.
Overall output score and description
A summary of the ratings/scores of individual Outputs is presented below. Based on these ratings, the
overall Output Score for FIP is ‘A – Outputs met expectations’ for 2014. Based on this score and the
overall ratings of the Programme from its inception, it can be stated that the Programme exceeded
expectations in the areas of financial infrastructure including new products and branchless banking, met
expectation for policies on financial inclusion and microfinance outreach and is struggling to increase
financing for small and medium enterprises.
Output
1
2
Title
Planning and implementation of financial inclusion polices
Improvement in financial sector infrastructure, governance and the
development of new products
Microfinance services
Access to finance for small, medium and rural enterprises
Leveraging technology for enhancing access of financial services
3
4
5
Overall Programme Rating
Output Rating
A
A
A
B
A++
A
Key lessons
1. DFID programmes with credit guarantees should have clear exit routes available to them.
Guarantees create exposure beyond the closure date of the programme because loans, issued
during the programme life, are repaid only when their repayment cycle is completed. DFID-P is in a
unique position that it enjoys an excellent relationship with SBP and both organizations have a
shared vision for financial inclusion in Pakistan. This positioning allows DFID to modify its guarantee
instruments to suit evolving market needs and to reuse the same resources already provided as
grant to the SBP (see FCPD advice on Annex 5).
2. MCGF’s approach of choosing winners (Tier I microfinance providers) has helped drive the
expansion of microcredit in Pakistan. These players can now become clients of a market based debt
fund. With these players transferred to EAGR debt fund, MCGF may focus for a similar period (up to
5 years) on weaker players which have been unable to access the guarantee to date.
3. The plain credit guarantee approach for CGS did benefit nearly 10,000 small and rural enterprises
however has not been successful in creating enough incentives for risk taking of commercial banks
for the overall SME sector. The credit guarantee scheme for small and rural enterprises needs to be
restructured to ‘‘cluster/value chain financing approach’ Banks should be given enough time (up to 5
years) to develop appropriate products for specific clusters/value chains, train staff and complete one
cycle of building and recovering the loan portfolio.
4. FIP’s investment in branchless banking was successful because it offered incentives for all in the
chain - entrepreneur (bank and platform service provider), agents and the end user (client).
5. Given that market demand exists and that DFID, SBP and their partners are well geared to develop
on the successful implementation experience it is proposed to continue DFID’s partnership with SBP.
Without FIP funds, part of which will remain committed under the guarantees for some time, SBP will
4
PAR (>30 days) Source: MicroWatch June 2014
4
not have enough resources to address current and emerging priorities (including National Financial
Inclusion Strategy) and may lose initiative for driving the financial sector reforms with same vigour.
The ongoing restructuring of the Pakistan Poverty Alleviation Fund, the other main supporter of the
microfinance industry and the time it will take for DFID’s EAGR programme (and its instruments) to
become fully operational could also lead to a significant shortage of liquidity in the sector and
severely retard its growth potential just when it is beginning to show huge promise.
Key actions
MCGF
1. With Pakistan Microfinance Investment Company (PMIC) on horizon and aiming to acquire credit
worthy clients, MCGF should focus on Tier II (i.e. weaker and less resilient clients) with an option of
higher risk cover (say up to 60%). PMIC, PPAF and FIP/MCGF would need a agree a coherent
segmentation strategy in the interest of market development ensuring that genuine demands of
different segments are met and no facility competes with the other. Part of MCGF funds may also be
used as (deal specific) TA for those microfinance providers which need capacity building for
increasing the outreach.
2. MFPs should be encouraged to upscale their lending and offer microenterprise loans between Rs
100,000 to Rs 500,000 (approx. £600-£3,000) through provision of technical assistance.
CGS
3. Keeping in view the transition from a portfolio approach to a cluster/value chain approach, a twopronged strategy needs to be adopted. The banks that will be provided a SME guarantee should
also be provided technical assistance to help them increase their outreach to SMEs through market
research and product development. The partner banks should also be given the option to include
additional sectors. The restructured CGS should have friendly claim procedures and should also
encourage banks to downscale to the ‘missing middle’ through smaller loan sizes.
4. The following studies need to be conducted, prudential regulations need to be drafted, and
databases need to be developed:
a. Programme evaluation to measure FIP’s impact from 2008-2015
b. Impact assessment of Branchless Banking on poor.
c. Database on Branchless Banking users should be developed by SBP.
d. Prudential regulations on protection and grievance redress of Branchless Banking users.
e. Agriculture Database to help banks develop products for rural financing and lending strategies
5. Future demands relating to eligible areas under ISF and FICF should be met by EAGR after the
ongoing institutional grants (13) under ISF are closed and 3rd Round on Islamic finance under FICF
has been completed (expected March 2015).
6. To take forward the lessons learnt and give effect to above recommendations:
a. FIP should be extended to 31st March 2020 to allow industry to respond to the incentives
offered by the restructured guarantee facilities.
b. DFID’s oversight of progress management of FIP can be provided through EAGR
c. The FIP Log Frame, Workplan, and Budget along with Output targets and milestones
need to be revised for the extension period 2015-2020.
d. On completion of the FIP extension all unspent funds will either revert to DFID or be
provided to EAGR against a results and a reporting framework.
e. The Annual Review 2016, with the help of FIP Sectt, will conduct an assessment of
progress made, demand/pipeline of activities (exposure in case of guarantees) against
different components and may recommend reallocation of funds within the programme,
reversion of part of funds to DFID or grant to EAGR.
Has the logframe been updated since the last review?
No.
5
C: DETAILED OUTPUT SCORING (1 page per output)
Output Title
Improvement in the planning and implementation of financial inclusion polices,
including improvement in their sector and geographical linkages
Output Score
Output number per LF
1
A
Risk:
Medium
Impact weighting (%):
Risk revised since last AR?
N
Impact weighting % revised N
since last AR?
Indicator(s)
1.1 Integrated financial inclusion
action plan adopted by the State
Bank of Pakistan
Milestones
1. Diversification of Agri. Credit
through lending to Non-Farm
Sector activities-Pilot Projects. 2.
Develop secured transaction
Regime in coordination with
donors/GoP. 3. Enter into
arrangements for a Microfinance
Funding Facility.
1.2 Pakistan's Global Ranking in Within top 3
Microfinance Policy Environment
15%
Progress
1) 12 pilot projects worth Rs 410
million (approx. £2.44m) for
diversification
of
agriculture
credit were funded, 2) Law on
Secured Transaction Framework
drafted, 3) MCGF supported top
tier microfinance providers for
growth which are now ready to
be clients of a market based
debt fund, FIP established credit
information bureau and its TA
conducted demand analysis and
feasibility for the fund which is
now
forming
basis
of
shareholder negotiations for the
Karandaaz/EAGR’s
equity
investment in a Microfinance
Funding Facility.
Pakistan ranked 3rd.
Key Points
Output 1.1:
 12 pilot projects worth Rs 410 million (approx. £2.44 million) were funded in the 2nd FICF
Challenge Round on rural financing. The round includes grants on agriculture value chain,
warehouse receipt, green agricultural financing, databases on use of farm land, use of ICT
solutions for agricultural finance and sharing price information with farmers.
 Draft of Secured Transaction Law has been prepared by the SBP and has undergone one round
of comments by experts including World Bank/donors. The law calls for establishment of Secured
Transaction Registry Office in Pakistan to register all moveable assets of SMEs and Agriculture
borrowers. Once these assets are registered, banks will find it easier to provide SME and
agriculture loans against these assets offered as collateral. The overall framework will be
finalized by January 2015. Global experience suggests that collateral facilitates credit by reducing
the potential loss lenders face from loan defaults. For example, the share of moveable-based
lending in private credit rose from 12% to around 20% in China within four years (2007-2011) of
introduction of a similar law and the registry.
 FIP has (i) grown the market of credit worthy microfinance players; (ii) established credit
information bureau to better appreciate lending risks; and (iii) helped informed policy and
investment dialogue necessary for creation of a market based funding facility. DFID-P’s second
phase of financial sector engagement (EAGR/Karandaaz) is in advanced stage of shareholder
negotiations with PPAF and KfW for creation of Pakistan Microfinance Investment Company
(PMIC) by end 2014. PMIC (a subsidiary of Karandaaz) will initially offer debt however will also
include equity investments in its mandate.
 To comprehensively approach the financial inclusion agenda, FIP has taken a leap in 2014, going
beyond the logframe targets, and has commissioned World Bank to formulate National Financial
Inclusion Strategy for Pakistan.
6
Output 1.2:
 Pakistan’s overall ranking for business environment for microfinance stayed at number 3 both in
2012 and 2013 as per the Economist Intelligence Unit’s global Microfinance business
environment index.
Issues:
 Federal government launched a subsidized microfinance programme (Qarz e Hasna) in 2013.
Government has allocated Rs 3.5 billion for the programme and microfinance industry/Pakistan
Poverty Alleviation Fund (PPAF) has engaged with the sector to focus the lending against this
programme for very poor and in geographically unserved areas. Depending on the future scale
and strategy of funding, the programme has the potential of undermining the developing market
of the microfinance sector.
Recommendations
 FIP, through PPAF and PMN, should continue to engage with Ministry of Finance and ensure that
subsidized microfinance follows the intended geographical and pro-poor targeting and does not
create negative incentives for the market based lending of microfinance.
 DFID-P should remain closely involved in the development of the NFIS and efficiently position
both of its instruments, (transitioning) FIP and (unfolding) EAGR to pick the most effective areas
of investment for furthering MSME finance and financial inclusion agenda in Pakistan.
Output Title
Improvement in financial sector infrastructure, governance and the development of
new products leads to expansion in the breadth and depth of financial services
Output Score
Output number per LF
2
A
Risk:
Low
Impact weighting (%):
Risk revised since last AR?
Y
Impact weighting % revised N
since last AR?
Indicator(s)
2.1 Percentage of Microfinance
Industry covered by Credit
Information Bureau
2.2 % of operating expenses
PMN is able to meet through
own-source
revenues
(fee,
reports, services, endowment
income) etc.
2.3 Fully functional Financial
Monitoring Unit
15%
Milestones 2014
90%
Progress 2014
98%
70%
88%
FMU
databases
are
fully
functional and well integrated
with the partner financial and
non-financial agencies.
FMU databases exist and
receive regular data/reports from
the partner financial and nonfinancial institutions. FIP is now
assisting FMU in installation of
state-of-the-art GoAML software
by Dec 2014.
Key Points
Output 2.1:
 51 microfinance providers have been registered with the Microfinance Credit Information Bureau
(MF-CIB) and 98% of sector’s data is being collected now,. The remaining 2% will be registered
by March 2015. PMN has worked with NADRA to verify and upload approximately 2.99 million
active client records, covering almost the entire microfinance industry. This is a substantial
contribution to the sector’s data integrity.
 PMN has arranged to conduct an independent third party review of the CIB to identify operational
and capacity related challenges that need to be addressed to keep the data updated, relevant
and useful for the sector.
Output 2.2:
 PMN has been able to successfully follow its sustainability plan. At the closure of its financial year
2013, PMN’s equity stood at Rs 136 million (approx. £0.81m) as compared to Rs 60 million
(approx. £0.36m) in 2012. PMN plans to ramp it up to Rs 155 million by December 2014. PMN
7
will become sustainable by end of 2017 when its generated revenues will cover 100% of its core
costs. PMN ensures highest standards of data reporting of the microfinance sector. It issues
quarterly MicroWatch, annual Pakistan Microfinance Review, series of knowledge pieces on key
themes (demand analysis, gender, returns etc) during the year and maintains an interactive
website. Its reports and research work are regarded factually correct and of high technical quality
by the industry, donors and regulators. PMN has been a key FIP partner for monitoring of the
microfinance sector, introducing transparency of interest rates, establishment of microfinance
credit information bureau, better consumer protection practices and impact assessment of
microfinance in Pakistan. PMN represents Pakistan’s microfinance sector on several global
forums and is also currently the chair of South Asia Microfinance Network.
Output 2.3:
 FMU databases exist and are receive regular reports from the partner financial and non-financial
institutions. To strengthen the FMU’s role in quality analysis of the suspicious transaction reports
filed by the partner institutions, FIP is providing £2.1m to United Nations Office on Drugs and
Crime (UNODC) for acquisition of the most sophisticated software called GoAML and its
installation at the primary data centre.
Issues:
 Delays have been faced in finalizing contractual arrangements with UNODC.
 Separately, UK’s Government’s scoping visit on Anti-Money Laundering (AML) and Counter
Terrorist Financing (CTF) was conducted in August 2014. The visit believes that the upcoming
October review of the Financial Action Task Force (FATF) will be broadly favourable however the
concerns will remain regarding the implementation of AML and CTF legislation and enforcement
mechanism of these laws.
Recommendations:
 DFID, SBP/FMU and UNODC should closely coordinate for smooth implementation of TA
programme for FMU as further delays may create programme management complications as
well as reflect poorly on Pakistan’s assessment during FATF reviews.
 Technical assistance on enforcement of and prosecution under AML/CFT laws may be beyond
the scope of FIP as it involves engagement with wider set of law enforcement and justice sector
agencies. However the programme will consider any future training needs
Output Title
Enhanced client and geographic outreach of microfinance services through
sustainable and regulated financial institutions
Output Score
Output number per LF
3
A
Risk:
Medium
Impact weighting (%):
Risk revised since last AR?
N
Impact weighting % revised N
since last AR?
Indicator(s)
3.1 Gross Loan Portfolio
of
Microfinance
(i.e.
outstanding
credit
to
microfinance borrowers) Rs Billion
3.2
%
Share
of
Microfinance Banks in the
Microfinance industry by
outstanding credit
3.3 No of districts served
by microfinance (more
than
50,000
active
borrowers per district)
25%
Baseline
Progress 2013
Milestones 2014
Progress 2014
19.6
43.5
51
(160% over
Baseline)
61.2
(212% over
Baseline)
31.5%
57%
58%
56%
8
18
18
(against target of
14)
18
8
Key Points:
Output 3.1:
 The growth in outstanding loan portfolio to Rs 61.2 billion (approx. £365 million) is driven both by
increasing average loan sizes (8% from June 2013 to June 2014) as well as the unmet demand
of a large number of excluded borrowers. FIP’s Microfinance Credit Guarantee Facility (MCGF),
covering risk for a loans volume of Rs 4.5 billion, accounts for approximately 39.3% of annual
increase in the gross loan portfolio last year.
Output 3.2:
 All of the five microfinance providers driving growth are banks (Khushali, NRPS Bank, Tameer
FMFB and FINCA) and all of them (except FINCA) are partners of FIP’s MCGF. The share of
microfinance banks is therefore generally on a rise. It varies from quarter to quarter though and
took a slight dip of 1% from 57% (Q1-2014) to 56% (Q2-2014) and missed the target by a narrow
margin of 2%. Microfinance banks can grow more compared with rural support programmes or
NGOs as they are considered more credit worthy, raise cheaper deposits and also have access
to equity.
Output 3.3:
 Overall, the 39 microfinance providers are running 2389 branches across 94 districts of Pakistan.
FIP target (for 2014) of reaching to 18 districts (13.6%) with a client base of over 50,000
microfinance borrowers was met last year (it exceeded previous year’s target by 4 districts)
however target for this year was not revised upwards as it was assessed to be difficult to
increase exposure to that level in any of the other districts. The outstanding loan portfolio and
number of borrowers is increasing because of higher levels of penetration in the existing areas of
operation. Providers have however faced law and order, security, low economic activity and
liquidity issues for increasing the geographical outreach in other areas.
Issues:
 MCGF is a transitory instrument. It has helped create some winners who are driving growth
however, with current levels of risk cover (i.e. 40%) and leveraging bandwidth consumed by
major players, it has not been able to support those microfinance providers which are small but
have the capability and ambition to grow.
Recommendations:
 With Pakistan Microfinance Investment Company (PMIC) on horizon and aiming to acquire credit
worthy clients, MCGF should focus on Tier II i.e. weaker and less resilient clients with an option
of higher risk cover (say up to 60%), if so demanded by the lenders. PMIC, PPAF and FIP/MCGF
would need a coherent segmentation strategy in the interest of market development ensuring that
genuine demands of different segments are met and no facility competes with the other.
 The segmentation strategy would need careful analysis of growth projections of individual
microfinance providers, a uniform composite scale to classify different tiers and a coordination
mechanism involving managers of other facilities.
Output Title
Enhancing access to cash-flow based finance for small, medium and rural enterprises
for growth and jobs
Output Score
Output number per LF
4
B
Risk:
High
Impact weighting (%):
20%
Risk revised since last AR?
N
Impact weighting % revised N
since last AR?
9
Indicator(s)
Baseline
4.1 Number of FIP supported 0
small, medium and rural
enterprises getting access to
finance
4.2
%
share
of
non- 0%
collateralized lending in SME
portfolio supported by FIP
guarantee
Progress
2013
5,473
Milestones 2014
10,000
Progress
2014
9,823
2%
30%
1.1%5
Key Points:
Output 4.1:
 As of June 2014, FIP’s Credit Guarantee Scheme for small and rural enterprises has facilitated
financing worth Rs 6.328 billion (approx. £37.7m) to 9,823 SMEs against the target of 10,000.
Average loan size for rural enterprises is around Rs 400,000 (approx. £2,386) whereas it is Rs
2.2 million (approx. £13,122) for SMEs.
 Majority of borrowers are sole proprietors with an employee base of up to 5 and an overwhelming
(more than 80%) number of borrowers are from the agriculture or its related sectors.
Output 4.2:
 The CGS has failed to encourage non-collateralized (cash flow based) lending which remained
paltry 1.1% against a target of 30%. Given economic uncertainties the SME sector is still seen as
very risky by commercial banks. Commercial banks themselves do not have the credit appraisal
systems to effectively implement cash-flow based lending and are unlikely to develop this
capacity given the relatively small size (currently) of their SME portfolio. It is unrealistic to assume
this will change in the short term and the indicator will need to be reassessed.
 To provide banks better understanding of SME sector, FIP is undertaking 31 SME cluster surveys
(21 completed) and value chain analysis of six key value chains namely rice, tobacco, potato,
meat, milk and aquaculture. FIP has also held SME Finance Grass Roots Training Programme
for bank officials.
Issues:
 The programme target of number of small and rural enterprises has nearly been achieved
however CGS could not show a demonstration impact on the overall SME finance environment in
Pakistan. The CGS design, being a plain guarantee spread across large portfolios of commercial
banks, could not encourage innovation and risk taking necessary for growth of SME finance in
the current challenging environment.
 The number of women accessing small and rural enterprise financing is very small, a negligible
1.6%.
Recommendations:
 Transition to cluster based financing: Keeping in view the transition from a portfolio approach
to a cluster approach, a two-pronged strategy needs to be adopted. The banks that will be
provided a SME guarantee for structured credit schemes (including those for women) should also
be provided technical assistance to implement them. This will help them improve their outreach to
SMEs through developing and introducing improved SME focussed financial products based on
proper market research. Further, banks would require enough time (up to 5 years) to perfect this
approach and take it as a serious business line. However, Annual Review 2016 should make a
detailed assessment of the pipeline being developed and the extent to which the new approach is
successful in committing the CGS funds.
 The commercial banks should be given the option to include sectors depending on their
specialisation and interest. These may include sectors such as biotechnology, drip irrigation,
alternate energy, horticulture, etc.
 All SME cluster studies conducted by the Programme must be widely disseminated and need to
be made available on SBP’s website.
5
Calculated from collateral figures of Development Impact Review
10


Commercial Banks should be allowed to file claim under guarantees when a loan is declared
doubtful rather than waiting till it is declared a default.
Commercial Banks should be encouraged to downscale their lending and offer loans between Rs
500,000-Rs 3,000,000 (£3,000-£18,000) through capacity building of staff, technical assistance in
product development, market assessment, client survey, etc.
Output Title
Leveraging technology for enhancing access of financial services to the poor and
financially excluded regions (Branchless Banking)
Output Score
Output number per LF
5
A++
Risk:
Low
Impact weighting (%):
Risk revised since last AR?
N
Impact weighting % revised N
since last AR?
Indicator(s)
Baseline
5.1 Number of active branchless 0
banking agents
5.2 Number of branchless 0
banking account holders (mobilewallet accounts)
5.3
Number
of
licensed 0
branchless banking deployments
in Pakistan
25%
Progress
2013 (Q1)
64,716
Milestones 2014
Progress 2014
35,000
168,615
2.4 million
3.0 million
4.2 million
4 (against
target of 3)
a 4
8
Key Points
Output 5.1:
 The only reference point which existed for defining this target was number of brick and mortar
bank branches (12,000 roughly) in Pakistan. The branchless banking (BB) agent network, riding
on networks of mobile service operators and other consumer product chains, grew so fast that it
surpassed all ambitious growth projections of this delivery channel. The number of branchless
banking agents is now 168,615 against the logframe target (set in 2012) of 35,000. Whereas it is
acknowledged that branch network has grown very rapidly and somewhat unpredictably, the
target should have been revised last year based on growth trajectory and network strength of
service providers entering the market in 2013.
 Number of inactive agents varied between 15%-20% of the total figure in last one year however it
has no bearing on status of achievement of the logframe indicator.
 The number of average transactions per agent has consistently dropped with increase in BB
network as it will take time for the new users to transact most of their business activity through
BB services. Also, agents are densely located and in some cases shared by service providers.
To increase transaction turnover for agents and to spur innovation for Government-to-Person
(G2P) transfers, FIP held first round of its financial innovation and challenge fund on G2P
investments and four projects covering entire G2P spectrum (pensions, social benefits, cash
transfers) with a total grants value of Rs 282.44 million (approx. £1.7m) are currently under
implementation with federal and provincial agencies.
Output 5.2:
Number of mobile wallet account holders is 4.2 million substantially exceeding the target of 3.0
million. Of these, 1.2 million are BISP beneficiaries upgraded from 4.6 million6 limited mandate
accounts to mobile wallets. The number of transactions involving mobile-wallets is also on rise
and is an indicator of gradual movement to cash less environment. The average size of
transactions is nearly Rs 4,000 (£24) and reflects that the BB services are being used by poor
and lower segments of society.
Output 5.3:
 The number of licensed branchless banking deployments in Pakistan is 8 against the end of
programme of target of 5.
6
Total enrolled limited mandate G2P beneficiaries are 5.6 million however 4.6 million are active.
11
Issues:
 Whilst number of licensed BB operators has grown, the number of physical access points for BB
clients has not necessarily increased due to sharing of agents by multiple several service
providers.
 Agent supervision by BB operators and the SBP is weak and no effective mechanism for
grievance redress of BB clients exists.
 Little to no data exists on impact of BB services on the economy and lives of common citizens, in
particular poor and excluded groups.
Recommendations:
 SBP’s Branchless Banking Newsletter should report gender disaggregated data for the
beneficiaries.
 Any future intervention by FIP or under NFIS or by Karandaaz should focus on number of unique
BB agents, density and their physical distances from the population centres.
 Impact Assessment of Branchless Banking on the poor should be conducted and Branchless
Banking Agents Database should be developed by the SBP. These will help BB service providers
in developing new products, which will further improve poor’s access to financial services.
 Prudential regulations on protection and grievance redress of Branchless Banking users should
be developed and introduced by SBP.
 The learning of FIP implementation experience should inform the design and activities of Centre
for Digital Financial Inclusion being created under EAGR/Karandaaz.
D: VALUE FOR MONEY & FINANCIAL PERFORMANCE (1 page)
FIP, implemented through the SBP since 2008. Its design leverages private capital for delivering
development results.
For microfinance, FIP provided £15m for a credit guarantee which has directly encouraged commercial
banks to invest an amount of Rs 10,325 million (equivalent of £61.5 million) 7 of their own commercial
capital for microfinance providers. The amount leveraged is 4 times of our initial investment and has
served over 1.1 million clients by providing them micro-loans at much lower rates compared to the
traditional lenders. Study8 suggests that returns of micro borrowers vary from 79% to 226% on these
loans depending on the nature of their businesses. The operational cost, roughly 10% for such
programmes, is being borne by SBP with no costs to DFID. There have been no calls on the guarantee
to-date which means that full £15m and its interest income are still available to underwrite borrowing by
microfinance providers from the commercial banks. Over the life of the MCGF, it has leveraged a total of
£62m which resulted in an income of £46.5m9 for nearly 413,000 micro borrowers. FIP’s institutional
strengthening fund (£6m) has provided capacity building grants to microfinance providers who cater to
over 80% of the market, supported Pakistan Microfinance Network which acts as policy and knowledge
hub for the sector and financed creation of microfinance credit information bureau which improves
microfinance providers’ appreciation of default risks of their clients. FIP helped transformation of two
microfinance NGOs to licensed banks. The overall support for microfinance has resulted in an increase
of clients from 1.97 million (2008) to 3.14 million (2014) with a unit cost of £5.5 per client. The
investments made are however structural in nature and will continue to benefit the sector.
Similarly FIP’s £13m credit guarantee scheme (CGS) is guaranteeing a portfolio of £38m (3 times the
original size) for lending to small and rural enterprises. This is yielding an income of nearly £5.0m10 every
year for 9,823 businesses which are benefiting from the scheme. Nearly 80% of the small enterprises
employ up to 5 workers. More than 80% of these businesses are based in rural areas and are engaged
in agriculture farming or related businesses. Nearly 74.5% of these borrowers are small and subsistence
farmers (up to 12.5 acres). There is almost no cost to DFID as losses Rs 1.8 million (equivalent £0.01
million) are negligible.
77
£1 = Rs 167.66 (SBP Website as of 29 Sep 2014)
‘Estimating Micro-Businesses Ability to Pay’ available at PMN site
9 Assuming base annual return of 79% and 95% of loan used for businesses (PMN Studies).
10 Assuming small and rural enterprises are making return enough to recover the interest costs.
8
12
The amounts (£28m) of both the microfinance and small and rural credit guarantees are invested in riskfree securities and have grown to Rs 6,715 million (£40 million), available for continued use for the
purposes of financial inclusion.
FIP’s investment in branchless (mobile) banking (BB) is a success story. FIP provided risk capital grant
for the first branchless banking technology solution (EasyPaisa) in the country, held investment
dialogues to help forge industry partnerships and provided innovation grants to a range of other BB
service providers. FIP’s investment for BB has resulted in spread of BB network of 148,324 agents in just
seven years. This is in sharp contrast to less than 12,000 brick and mortar bank branches and,
compared with them, the BB agents provide financial and banking services round the clock, with
increased security, less travel cost and ease of access for clients. The number of mobile wallet accounts
has risen from zero to 4.2 million and value of BB transactions account for 4%11 of GDP now. FIP’s
investment of nearly £3.0m in BB has resulted in daily transaction volume of Rs 2.77 billion (approx.
£16.6 m). The average value of domestic remittances (£24) and utility bill payments (£6.44) indicates
that services are being used by poor to lower middle segments of the society.
The BB services have proved to be effective delivery channel for efficient, track able and leakage free
G2P (Government to Person) disbursements of social welfare and disaster compensation benefits. The
BB platform was used to disburse cash to flood victims under the Citizen Damage Compensation
Programme. Payments to nearly 4.6 million beneficiaries (93% of the total) of the Benazir Income
Support Programme (BISP) are technology based and relief payments for 51,000 BISP beneficiaries in
famine-stricken Thar District were also been provided through BB route in early 2014. The availability of
BISP poverty scores, unique identification data of the poor and its digital integration with BB service
providers have opened up new possibilities for both provincial and federal governments to plan and
disburse the social and disaster protection benefits for the poor.
FIP pre-dates the detailed economic appraisal regime and the assumptions/methodology used for
economic appraisal are not relevant in the current context.
Quality of financial management
Overall SBP has a strong technical team to oversee the progress of the programme, however the
management of the downstream partners can further be improved.
As of 30 June 2014, DFID-P has released 81.5% (£40.75 million) of the original budget. Additional
contributions (£12.10 million) include interest income and counterpart funding from SBP which brings the
total value of available funds with SBP to (£52.85 million). Approximately, £38.36 million of these funds
are allocated for Microfinance (MCGF) and SME Credit (CGS) guarantees.
All funds disbursed to SBP are now committed in support to partner institutions and 43% of these
(excluding guarantees) are spent.
Components
MCGF
CGS
ISF
FICF
TA
£47.14
Funds
Released
£
Other
Contributions*
Total
Funds
available
with SBP
15,000,000
5,900,081
20,900,081
13,000,000
4,464,632
17,464,632
Total
Approved
funding
Spend (£)/ %
Outstanding
Commitments
-
4,370,000
286,903
4,656,903
4,818,275
4,650,000
837,668
5,487,668
4,131,799
3,730,000
614,264
4,344,264
6,692,983**
40,750,000
12,103,548
52,853,548
15,643,057
3,342,609
(69%)
886,882
(21%)
1,946,643
(29%)
6,176,134
1,475,666
(31%)
3,244,917
(79%)
5,659,010
(85%)
10,379,593
*Include interest income and SBP contribution of £1.7 million to CGS
*Include FMU capacity development support for which DFID is partnering directly with UNODC
MCGF
11
July 2013 - June 2014
13
Approximately £20.9 million is available under this component including £15 million of DFID’s
disbursement plus another £5.59 million in income from accrued interest. The MCGF guarantee has
encouraged commercial banks to invest approximately £60 million of their own capital to meet the needs
of the microfinance sector in Pakistan. The outstanding exposure of the guarantee remained at 60% as
no new limits are assigned this year due to DFID’s pending decision on the extension of the programme.
CGS
The annual guarantee limits assigned to commercial banks have reached 88% (£15.6 million) against
the available funds (£17.8 million) under this component. The utilization rate of limits by the commercial
banks is increased from 53% (previous year) to 97% (£15.2 million) this year.
Institutional Strengthening Fund (ISF).
The financial performance of grants allocated under this component is satisfactory. 95% of available
funds with SBP were allocated to 15 top and middle tier MFBs and MFIs to support their capacity
building needs. Of the 26 grants under this component, 04 new grants were approved and 08 grants
concluded during the last year. Only one grant with First Microfinance Bank has shown no progress and
is recommended for cancellation. The spend profile is increased to 69 % (previously 60%) which takes
into account the 4 recently approved TA grants.
Financial Inclusion Challenge Fund
77% of funds available under FICF are now committed. The second challenge round focusing on rural
financing was launched during the review period and new grants worth £2.5 million were signed bringing
the revised allocations for both rounds to £4.18 million. Progress against the grants allocated during the
first round continued to be challenging. The spend increased from 37% to 53% while two grants (BISP
and UBL) were cancelled due to performance issues and funds already released were called back. The
performance on Punjab Pension Fund is also questionable, however, considering the strategic
importance, it’s recommended to allow the recipient department to improve their progress by end of this
year.
Technical Assistance
09 New grants for a collective value of £3.0 million were approved and five grants were concluded in the
last year. A portfolio review exercise recommends earlier closure of three grants (PRI, Agriculture study
and software for CGS) on performance reasons. The progress on FMU capacity building grant is
seriously delayed due to a pending agreement on the format of MOU between DFID and UNODC.
Recommendations


More proactive engagement with SBP is needed to undertake quarterly portfolio reviews of grants
approved under TA and FICF. Non-performing partners with a serious financial lag should be
identified and their allocations may either be revised downwards or cancelled all together.
SBP needs to develop a robust pipeline to ensure the any freed-up guarantee cover is reassigned
immediately to ensure the outstanding exposure remains higher than 80% at all times. Challenges to
achieving this target strengthen the case to begin an early draw down of the overall size of the
guarantees and require a re-profiling funds either within the programme (i.e to support the
implementation of NFIS) or to invested in EAGR (or returned to DFID).
Audit Report
During FY 2012-13, an unqualified audit certificate has been awarded to FIP Secretariat by Riaz Ahmad
and company KPMG (a certified firm of International Chartered accountants). The audit reports state that
“the grant has been used for the purpose intended at each component level” and all financial statements
produced by the secretariat are satisfactory.
Audit reports for 2013/14 for the programme are expected shortly.
Financial Reporting
14
The quarterly reports produced by FIP secretariat provide useful technical and financial updates for each
component. It is recommended to revise the formats and include an assessment of performance against
the milestones for each grant and provide explanation for any lags.
Date of last narrative financial report
Date of last audited annual statement
15 July 2014
14 October 2013
Performance of partnership (s)
FIP funding has been directed through State Bank of Pakistan. Ownership from such a high level is
essential not only for the programme to be credible, but also to ensure sustainability and to secure the
necessary political will to drive through reforms. The Fiduciary Controls Review, conducted as part of the
2011 Mid-term review examines SBP’s institutional controls and provides a high level of confidence in
SBP management.
DFID has been represented on technical committees for each component under the programme. The
technical committees reviews all proposals and make decisions on funding allocations. At a strategic
level a programme steering committee is operational to oversee the strategic direction of programme to
ensure the delivery of results.
E: RISK (½ page)
Overall risk rating: Medium
The Programme’s overall risk rating is ‘Medium’. Output risk rating remains ‘medium’ for output 2, 3, and
4, low for output 5, and high for output 1. The outputs were given same rating in the Annual Review
2013.
Overview of programme risk
The key risks that will affect the successful delivery of the expected results are:
a) Commitment to financial inclusion by the new political government;
b) increase in government borrowing from the commercial banks given weak economic situation
and resource requirements for the IDPs and new infrastructure development -- this will have a
crowding out effect and will reduce Micro and Small and Medium Enterprises (MSMEs) access
to private capital limiting their ability to diversify;
c) weak business environment coupled with ongoing energy crisis can further increase vulnerability
of microfinance and SMEs to external shocks in the absence of an effective safety net; and
d) Weak design of state subsidized access to finance Programme for MSME finance may distort
the market.
The following additional mitigation measures would be required to address the identified key risks:
a) A commitment to financial inclusion should feature in broader government policies related to
poverty reduction and economic growth, e.g. Vision 2025 and provincial policy documents;
b) Continued policy dialogue between Government and donors to support improved macroeconomic management and deficit reduction as part of GoP Economic reforms;
c) Programme partner institutions to introduce innovative products providing affordable business
insurance against external shocks both for the urban and rural MSMEs;
d) discussion with the political leadership and senior government public sector officials through
SBP to ensure that the state funded MSME finance programmes are being implemented on
conditions prevalent in the market; and
e) State Bank should use the NFIS as a vehicle to mitigate all the risks.
Outstanding actions from risk assessment
The State Bank of Pakistan should share with DFID-P the Audit Reports of the Programme conducted by
the i) Auditor General of Pakistan; ii) Third Party; and iii)internal audit conducted by State Bank’s Internal
Audit & Compliance Department.
F: COMMERCIAL CONSIDERATIONS (½ page)
15
Delivery against planned timeframe
As of 30 June 2014, DFID-P has released 81.5% (£40.75 million) against the original forecast of 81.78%
(£29.5 million) defined in Programme’s Memorandum developed in 2008. Against the Programme’s
defined components, 90.70% of the Programme resources are committed. Counterpart funds were
provided as agreed. The Programme will need to be extended up to March 2020 to manage contingent
liability on guarantees and to ensure its smooth transition into EAGR (the last guarantee issued under
the Programme has an exposure up to December 2021). The submission for extension will present a
detailed analysis of the Programme allocation, its revisions, actual disbursements, unspent budget and
proposed component allocations for the extension.
Performance of partnership(s)
SBP implemented the project as envisaged. There were no start-up delays. Coordination between the
SBP and other stakeholders was efficient and productive. SBP persistently maintained a high level of
interest in the Programme objectives, had strong ownership, and as a regulator engaged with financial
service providers on all Programme components. The MCGF and CGS worked well because of
theSBP’s credibility and its efforts to facilitate financial inclusion in Pakistan. SBP’s performance was
highly satisfactory.
Asset monitoring and control
The management and monitoring of Programme assets was satisfactory. Development and
implementation of a Monitoring and Evaluation mechanism by the State Bank of Pakistan along with end
beneficiaries’ feedback surveys will further improve Programme implementation.
G: CONDITIONALITY (½ page)
Update on partnership principles (if relevant)
There are no specific conditions attached to this Programme. The financial aid is not being provided
directly to the host government as budget support but to a regulatory body, the State Bank of Pakistan.
The financial aid is not reflected in the national accounts of the Government of Pakistan and as such no
conditionality is applicable or specified for SBP.
All partnership principles are a part of the ‘Memorandum of Understanding (MoU) for Financial Aid and
Technical Cooperation (2008-2013)’ signed between (i) DFID-P, (ii) Ministry of Economic Affairs and
Statistic’s Economic Affairs Division, Government of Pakistan, and (iii) State Bank of Pakistan. The MoU
was signed on 3 July 2008.
SBP remains committed to the Programme objectives and is compliant with DFID’s VfM and effective
financial control requirements.
H: MONITORING & EVALUATION (½ page)
Evidence and evaluation
There are no changes in evidence for the Programme and therefore no implications. As such ‘theory of
change’ was not required to be outlined in the Programme Memorandum, the assumptions used in the
programme design are working out in practice and the programme has delivered on its results. Since
inception, the log frame has been revised only once to fully capture the actual attributable results being
achieved by FIP. The overall evidence about financial inclusion and its impact on pro-poor growth is still
valid and would continue to hold during proposed extension (2015-2020) as well. The log frame will be
revised to identify and track results that modified instruments will deliver. The data on programme
outcomes and indicators, where possible, will continue to be segregated by gender and geographic area.
Over the years, FIP components, its investments and partners, have been assessed from several
aspects:
16











PMN published ‘Impact on Micro Credit – Evidence from Pakistan’ which concluded that
microfinance clients experience an increase in household and business incomes, consumption
and health expenditures and have experienced an overall positive impact on their lives due to
provision of microfinance.
FIP sponsored two studies ‘Estimating Micro-Businesses Ability to Pay’ and ‘Microcredit
Utilization - Shifting from Production to Consumption’12.
CGAP, DFID’s global partner on technology programme, conducted case study on EasyPaisa
(Does Branchless Banking reach Poor People?)
The World Bank published study on ‘Are Pakistan’s women (entrepreneurs) being served by the
microfinance sector?’.
High level visitors e.g. Independent Commission on Aid Effectiveness (ICAI) also visited
programme beneficiaries.
PMN has completed study on impact of Credit Information Bureau and currently ‘Client Voice
Research’ is underway.
DFID is represented on the National Committee for this research which is assessing consumer
protection regime for microfinance.
A Corporate Governance Review of PMN is also being done and final report due in Oct 2014.
DFID in collaboration with SBP is in the process of commissioning an assessment to measure
and demonstrate FIP’s development impact. The assessment will examine the impact and role of
various risk sharing and smart-grant facilities under the programme.
Separately, PMN is conducting an impact evaluation of the provision of microfinance in Pakistan
which aims to measure impact of access to microfinance services in totality on individuals,
households and enterprises. The evaluation’s first panel report is expected by July/Aug 2015.
DFID’s South Asia Research Hub, in collaboration with Pakistan and India divisions, has also
commissioned a systematic review of evaluations in South Asia which will examine evidence on
what contributes to the success or failure of microfinance programmes across a range of socioeconomic and enabling environment indicators- the report of this review is expected in June
2015.
Monitoring progress throughout the review period
Direct feedback was solicited from Programme stakeholders and beneficiaries. They were satisfied with
DFID’s assistance in promoting financial inclusion and appreciated it. The commercial and microfinance
banks’ representatives commented that the Programme had a multiplier effect in increasing poor people’
access to finance. They suggested that there is a demand in the financial sector for guarantees and that
these should be continued for at least 10 years. 3 Missions were fielded by the DFID-P throughout
review period to discuss Programme’s progress and to participate in the Programme Technical
Committee meetings. The Annual Review was based on secondary research and meetings with
Programme stakeholders including the State Bank of Pakistan, participating commercial and
microfinance banks, Pakistan Microfinance network, and DFID-P staff.
12 ]
http://www.microfinanceconnect.info/user_articles_display.php?sno=63&action=article
17
Annex 1
Microfinance Credit Guarantee Facility
(All amounts given in the table below are in Rs)
#
MFB/MFI
Lender
Tenor
Option
BAF
Amount
Sanctioned
50
1
Tameer MFB
5 Yrs
Tameer MFB
KASB
100
3.5 Yrs
3
Tameer MFB
JS Bank
100
3 Yrs
4
MCB Bank
225
2 Yrs
5
Kashf
Foundation
NRSP
1,200
3 Yrs
6
Tameer MFB
(HBL, NBP,
ABL, MCB,
UBL AKBL,
NIB & FBL)
ABL
40%
Partial
40%
Partial
40%
Partial
40%
Partial
25% First
Loss
2
100
5 Yrs
7
Tameer MFB
600
2 Yrs
8
150
1 Year
9
Kashf
Foundation
Tameer MFB
Standard
Chartered
Silkbank Ltd
MCB Bank
100
5 Yrs
10
Tameer MFB
NBP
200
5 Yrs
11
Soneri Bank
100
3 Yrs
12
Khushhali
Bank
Tameer MFB
UBL
300
3 Yrs
13
Tameer MFB
FBL
100
5 Yrs
14
Tameer MFB
BoP
50
3 Yrs
15
Kashf
Foundation
NRSP MFB
JS Bank
300
3 Yrs
JS Bank
500
5 Yrs
Kashf
Foundation
NRSP MFB
Silkbank Ltd
150
1 Year
Standard
Chartered
UBL
650
2 Yrs
300
3 Yrs
Pak Oman
Invest Co.
BoP
100
5 Yrs
50
3 Yrs
500
500
13
months
2 Yrs
500
1 year
16
17
18
19
20
Kashf
Foundation
NRSP MFB
21
Tameer MFB
22
Tameer MFB
23
Tameer MFB
24
NRSP
Redeemable
Capital
Redeemable
Capital
BoP
25
NRSP MFB
AKBL
400
5 Yrs
26
AKBL
400
3 Yrs
Soneri bank
300
4 Yrs
28
Kashf
Foundation
Khushhali
Bank
NRSP
BoP
500
1 year
29
NRSP MFB
POICL
800
5 Yrs
30
Kashf
Foundation
Kashf
Foundation
Kashf
Foundation
Sum
JS Bank
400
4 Yrs
Silkbank Ltd
300
2 Yrs
UBL
300
3 Yrs
27
31
32
10,325
40%
Partial
25% First
Loss
40%
Partial
25% First
Loss
40%
Partial
40%
Partial
25% First
Loss
25% First
Loss
25% First
Loss
40%
Partial
40%
Partial
40%
Partial
25% First
Loss
40%
Partial
40%
Partial
25% First
Loss
40%
Partial
40%
Partial
25% First
Loss
40%
Partial
40%
Partial
40%
Partial
25% F.
Loss
40%
Partial
40%
Partial
40%
Partial
40%
Partial
Issuance
Date
5 Oct, 2010
Max.
Exposure
20.0
Outstanding
Amount
18.8
Current
Exposure
7.5
5 Oct, 2010
40.0
Loan Repaid
NIL
3 Nov, 2010
40.0
Loan Repaid
NIL
14 Dec, 2010
90.0
Loan Repaid
NIL
29 Jun, 2010
300.0
Loan Repaid
NIL
26 Feb, 2011
40.0
43.8
17.5
17 Mar, 2011
150.0
Loan Repaid
NIL
5 May, 2011
60.0
Loan Repaid
NIL
23 May, 2011
25.0
50.0
25.0
17 Aug, 2011
80.0
112.5
45.0
21 Sep, 2011
40.0
Loan Repaid
NIL
14 Nov, 2011
75.0
50.0
50.0
14 Nov, 2011
25.0
55.6
25.0
10 Jan, 2012
12.5
16.7
12.5
17 Apr, 2012
120.0
100.0
40.0
4 Jun, 2012
200.0
300.0
120.0
27Jun, 2012
60.0
Loan Repaid
NIL
20Jul, 2012
162.5
162.5
162.5
9th Aug, 2012
120.0
150.0
60.0
12 Sep, 2012
40.0
70.0
28.0
17 Sep, 2012
12.5
25.0
12.5
25 Sep, 2012
200.0
Redeemed
Redeemed
25 Sep, 2012
200.0
500.0
200.0
28 Dec, 2012
125.0
Loan Repaid
NIL
28 Dec, 2012
160.0
320.0
128.0
26Apr, 2013
160.0
266.7
106.7
14 May, 2013
120.0
Withdrawn
NIL
23 Mar, 2014
125.0
500.0
125.0
12May, 2014
320.0
800.0
320.0
26 May, 2014
160.0
400.0
160.0
26 May, 2014
120.0
300.0
120.0
11 Jun, 2014
120.0
300.0
120.0
3,522.5
4,541.4
1,885.2
18
Annex 2– Credit Guarantee Scheme Utilization
(All amounts given in the table below are in Rs)
Total Exposure
limit
SBP Guarantee
Limit
No. of
Cases
Total Amount
Sanctioned by
Bank
SBP
Guarantee
Cover
provided
Allied Bank
500,000,000
200,000,000
406
476,309,000
204,793,600
43%
41,759,439
Askari Bank
75,000,000
30,000,000
30
68,890,000
34,646,000
50%
11,641,444
Burj Bank
100,000,000
40,000,000
74
82,554,958
33,021,983
40%
16,567,113
Faysal Bank
525,000,000
210,000,000
352
392,825,000
157,130,000
40%
90,898,664
Habib Bank
2,200,000,000
880,000,000
6,028
2,599,135,000
1,039,654,000
40%
541,322,166
MCB Bank
1,750,000,000
700,000,000
1,308
1,608,586,000
643,434,400
40%
330,534,355
NBP
500,000,000
200,000,000
1,034
425,816,480
170,326,592
40%
120,299,211
Tameer MFB
75,000,000
30,000,000
83
26,635,256
10,654,102
40%
10,654,102
Bank of
Khyber
700,000,000
280,000,000
383
589,120,000
236,902,000
40%
26,658,124
United Bank
135,000,000
54,000,000
125
58,503,000
23,401,200
40%
16,998,687
40%
1,207,333,305
Bank Name
SBP
Guarantee
Cover (%)
Total
6,560,000,000
2,624,000,000
9,823
6,328,374,694 2,553,963,878
Note:
1. Total Exposure Limit: SBP Guarantee Limit / 40%.
2. SBP Guarantee Cover: SBP Guarantee Cover Provided / Total amount sanctioned by Bank.
Total
Guarantee
Cover
Outstanding
19
Annex 3
Risk Matrix
New Risk: To ensure long-term sustainability of the financial inclusion agenda, FIP needs to transition
into the recently approved DFID-P ‘Enterprise and Asset Growth Programme’ (EAGR) over a certain
period of time. The transition will require an overlap between the two programs. The roles and
responsibilities where there is an overlap between the two need to be clearly demarcated. This should
be clearly defined in the Log Frame, Workplan, and revised Budget for Extension of FIP 1 till March
2017. The transition, if not well managed, can result in reversing the progress achieved on the financial
inclusion agenda.
#
1
Risk
Institutional capacity
among financial service
providers does not
increase
Original
Rating
low risk,
medium
impact
Revised
Rating
Rationale for Rating
Revision
-
-
Proposed Mitigation
Strategy and Safeguards
The ISF should not leave out
the small firms, especially
those that are willing to
implement institutional
structural changes and adopt
good governance practices.
An institutional assessment
survey of small MFIs should
be carried out to help develop
institutional strengthening
packages customized to the
needs of smaller MFIs.
2
3
4
5
The commitment of banks
and other financial
institutions to provide
accessible financial
services does not continue
to grow
low risk, high
impact
-
-
Diminishing acceptance by
stakeholders of the
leadership role and
responsibilities of SBP in
relation to financial
inclusion
Commitment to financial
inclusion by SBP
management diminishes
medium risk,
medium
impact
-
-
low risk, high
impact
-
-
Reduced cultural
acceptance and popular
support for the principles
underlying the FIP
medium risk,
high impact
-
-
The Commercial Bank
response following guarantee
restructuring has been
encouraging.
Pakistan Microfinance
Network needs to create
awareness among MFBs and
commercial banks on the
incentives being offered
through the Programme,
reforms completed and being
undertaken by the SBP under
the Programme, and how they
can access and benefit from
these incentives and reforms.
Transition FIP to EAGR over
the extension period.
SBP can provide regulatory
cover and support to financial
inclusion. However, there
should be wider government
commitment to this policy in
other strategic policy
instruments such as currently
drafted NFIS.
The mitigation strategy for
cultural acceptance needs to
focus on the target population
or final beneficiaries. MFI/MFB
would be key instrument for
this.
SBP should hold the third
20
Challenge Round for
promoting innovation is Islamic
Finance.
6
7
8
9
10
Reduced commitment by
the Government of
Pakistan to implement
financial sector reforms
Insignificant improvement
to adult literacy rates in the
rural areas
The legal and regulatory
framework fails to evolve to
provide an enabling
environment for the growth
of new financial sector
products and services
Growth in the financial
sector slows and/or there
are major crises
Major constitutional and
political disruption occurs
low risk, high
impact
-
-
high risk, low
impact
-
-
low risk, high
impact
-
-
-
medium risk,
high impact
-
-
-
high risk,
medium
impact
medium risk,
high impact
-
-
-
-
-
-
Lower growth rates,
high inflationary
pressures, and
natural shocks have
significantly eroded
the gains from the
economic growth and
resultant poverty
reduction achieved in
early 2000s. The
trend has been
reversed.
Macroeconomic
conditions remain
unstable and weak
and the government
borrowing from
commercial banks
high coupled with a
severe ongoing
energy crisis.
-
11
Deterioration in the security
and law and order situation
12
Effective business policies
are not in place to support
a favourable business
environment for micro
enterprises and small
enterprises
Low risk,
medium
impact
Medium risk,
medium
impact
13
Macroeconomic instability
and weak GDP growth
High risk,
medium
impact
-
Creating awareness at the
highest level of the
Government through senior
SBP management.
-
Assessment of the impact of
externalities should be
assessed while assessing and
awarding a project.
21
Annex 4 - FIP Transition Plan
FIP’s Steering Committee in its meeting held on 2 May 2014 recommended FIP’s extension. Based on
current review and decisions taken by the Steering Committee, FIP’s extension up to March 2020 will
follow a Transition Plan on following lines:
MCGF Immediate
i)
The MCGF will immediately issue new guarantees to MFPs against the deals in
pipeline to minimize disruption.
ii)
MCGF will add a risk sharing option offering higher risk coverage to
enable weaker MFPs’ and MFIs’ access to commercial credit.
iii)
Upon activation of the Pakistan Microfinance Finance Investment Company
(PMIC), MCGF will phase out its support to top tiered MFPs to migrate these institutions
to MDF.
iv)
CGS
ISF
FICF
TA
MCGF to continue supporting the weaker MFBs and MFIs.
Post Annual Review 2016
SBP/DFID will make an assessment of the pipeline and decide to phase-out
MCGF with minimum market disruption to support the larger financial inclusion
agenda supporting NFIS (based on results/milestones triggers) and EAGR.
Immediate
i)
CGS to transition from general lending to small businesses to a
cluster/sector based approach whereby commercial banks and MFPs will serve
specific financially excluded small business clusters to enhance CGS’s
development impact.
ii)
EAGR may also identify small business clusters for CGS to facilitate
financing through partnerships with banks.
iii)
Modified CGS will be able to issue guarantee limits immediately.
Post Annual Review 2016
iv)
Assessment of pipeline and demand in 2017.
i)
ISF will be immediately closed for new proposals.
ii)
Existing grant recipients will be managed for disbursement and
completion before December 2014 except support to PMN.
iii)
Support to PMN for operational activities and microfinance impact
assessment study have been categorized as strategic. These two will be
transferred to TA component and will be allowed to be continued up to March
2017.
iv)
The balance funds, if any, will be transferred to TA account for support to
NFIS (based on results/milestones triggers).
i)
Round 1 grant recipients to drawdown disbursement by September 2014
and project completion before December 2015.
ii)
Round 2 disbursements will start in July 2014, subject to the condition
that 75% of implementation (and 100% of disbursement) must be completed by
December 2014, with all activities completed by March 2015.
iii)
Demand for 3rd round (Islamic Finance) assessed and launched, if
feasible.
iv)
The balance funds, if any, may be transferred to TA account for support
to NFIS (based on results/milestones triggers).
i)
TA component to remain open to new proposals deemed of strategic
value either to EAGR or NFIS until March 2016 including capacity building needs
to cater to restructured MCGF and CGS
ii)
All grants will be disbursed and projects completed no later than
December 2016.
22
Annex 5 – FCPD Advice on FIP Extension and Use of Funds
Draft Note (FIP Discussion Only) of telecom with FCPD
Date 07 August 2014
Present from FCPD
Charles Harper
Rob Davis
Present from DFID-Pakistan
Vicky Hendry
Waqas ul Hasan
Sohail Wajid
Guarantees funded under the Financial Inclusion Programme
Brief:
DFID Pakistan is supporting a £50million pounds “Financial Inclusion Programme” (FIP) in partnership with the
State Bank of Pakistan (SBP) (central bank such as Bank of England). The FIP aims to transform the financial
market and enables it to provide equitable and efficient market-based financial services to the poor and
marginalized including women.
In addition to other technical assistance to build the capacity/ training of financial institutions to become regulated
institutions and enhance their ability to increase their microfinance/SME lending, the programme funds two types of
guarantees:


A Microfinance Credit Guarantee Facility (MCGF) (DFID Investment £15 million) which provides a risk
cover of 40% pari passu (or 25% first loss) to underwrite lending from commercial banks to microfinance
providers for lending to poor and marginalized population across Pakistan.
The Credit Guarantee Scheme for small and rural enterprises (DFID investment £13 million) provides risk
cover of up to 40% to underwrite lending from commercial banks to small/medium businesses.
The funds disbursed to the SBP against the guarantees are invested by SBP in risk-free public securities and the
interests earned are reinvested in the same guarantee structure thus increasing their size. There have been no
calls on MCGF whereas loss claims of Pak Rs 1.8 million (equivalent £10,736) have been filed against CGS.
Query
DFID provided resources for these guarantees which have accrued interest as well, the programme has largely
achieved its results however market demand still exists, should we continue to maintain advisory and programme
management oversight over use of these funds?
Response
DFID should continue to maintain advisory and programme management oversight till the funds are fully
exhausted. The financial assets cannot be treated as physical assets e.g. a school building the ownership of which
can transferred to the recipient government at the end of the programme. Considering the markets needs and the
trajectory of achievement of results to-date, an extension to the programme with a refocus of the guarantees or for
other components in line with programme objectives is acceptable provided:
i)
ii)
DFID’s advisory and programme management is maintained through the extended phase and results
reported to us; and
break-points are included at suitable intervals to review the structure and make mid-course
adjustments within the programme.
Whilst designing the extension approach for FIP, DFID may consider transition from a ‘direct oversight’ to ‘oversight
under the new Enterprise and Assets Growth (EAGR) programme’. However, once the FIP programme reaches its
extended end date, it will be advisable that DFID should have switched to FIP’s oversight through EAGR
programme and reflect results in EAGR’s logframe.
23