MICROCAPITAL STORY: Grameen Foundation and Women’s World Banking Express Concern Over the Potential Crisis in Punjab, Pakistan’s Microfinance Sector

According to the Business Recorder (a Pakistani Daily Newspaper), the Grameen Foundation (GF) and Women’s World Banking (WWB), recently urged Punjab Chief Minister Mian Shahbaz Sharif to take swift action to support the microfinance sector and help curtail inappropriate interventions by local politicians. While detail regarding the exact cause and nature of the elected representatives’ involvement is currently unspecified, President Alex Counts of GF in Washington DC and Mary Ellen Iskenderian, President and CEO of WWB in New York City, expressed concern. The letter states that heads of the two U.S. non-profit support organizations for microfinance are “concerned that the microfinance sector in Pakistan is under threat. The intervention of some local elected representatives has given rise to a crisis, a situation, which has damaged the reputation of the microfinance sector in Pakistan and could lead to a major crisis with national as well as international implications.”

One possible reason for serious concern that certain local representatives have given rise to a crisis, potentially damaging the reputation of the microfinance sector in Pakistan, is the issue of general amnesty. According to Roshaneh Zafar of Kashf Foundation, elected representatives of Punjab (a province of Pakistan) have recently made statements claiming general amnesty from micro-loans. The viewpoints of the elected representatives are such that they have created an environment of poor credit discipline across the sector. Zafar believes that political impartiality, rule of law and contract enforcement is necessary for microfinance to properly operate. If the government does not intervene “we could see a wave of credit indiscipline that could negatively affect the quality and the outreach of the sector, along with the credit-worthiness of low-income borrowers.”

The Grameen Foundation and Women’s World Banking have also requested that Chief Minister Sharif ensure security for the staff at the Kashf Foundation, as the organization has been making repayments of its loan to the Pakistan Poverty Alleviation Fund (PPAF) to fulfill its loan obligations, interact with clients and maintain its credit standing. GF and WWB also note that Kashf has received commercial funding from Pakistan Banks. If elected representatives of Punjab claim amnesty from micro-loans, Kashf may not meet its debt obligations. The effect would potentially negatively impact the banking sector, which in turn would cease support for microfinance activities in Pakistan. In addition, all of the poor in Pakistan would be affected, including the 300,000 clients that the Kashf Foundation serves.

The Business Recorder also notes that GF has worked closely with Kashf Foundation and National Rural Support Programmes urban microfinance project to support expansion of financial services to the poor in Pakistan. The foundation has also arranged USD 20 million in financing for Kashf Foundation in local currency by providing a guarantee of USD 5 million to the banks. In addition, WWB recently purchased a 10 percent stake in Kashf Micro Finance Bank (KMB), valued at USD l million.

Microfinance Insights reports that Pakistan has faced multiple challenges including a large fiscal deficit, a gap in the balance of payments and an exchange rate that is plummeting with very steep inflation in energy and food prices. The Sensitive Price Index (SPI), which measures the weekly cost of living, increased 31% the last six months of 2008. The Kashf Foundation projects that low-income households are spending on average 66% of their household income on food. Thus, the citizens of Pakistan spend a larger proportion of their incomes on basic consumption needs.

Grameen Foundation, based in Washington DC, was founded in 1997 and operates under the mission, “to empower the world’s poorest people to lift themselves out of poverty with dignity through access to financial services and to information.” According to the Grameen Foundation, their global network includes 58 microfinance institutions with their Growth Guarantee partners having reached more than 45 million individuals in 23 countries. Additionally, the foundation has introduced technology initiatives (Mifos and Village Phone) in Camerron, Kenya, Rwanda, and Uganda. The foundation reports that their total country outreach for their technology initiatives is at 28.

Women’s World Banking (WWB), based in New York City, was founded in 1975. The organization mission is to “improve the economic status of poor families in developing countries by unleashing the power inherent in women.” The organization provides support, information, advice and training to more than 50 microfinance institutions and banks that offer credit/financial services to 21 million low-income people, (primarily women) spanning 30 countries worldwide. According to the WWB, 70 percent of their network members rank among the top three MFIs in their respectively countries (roughly 75 percent of their clients are women). WWB reports that their network members are growing their financial resources (and hence their customer base) at a rate of 30 percent per year, and have a loan portfolio of over $1.4 billion.

According to the Mix Market, Kashf Foundation began in 1996 as an “action research” program focusing to provide cost effective microfinance services to poor women to enhance their economic role, decision making capacity and increase in their income. By 2007 Kashf has closed over $36 million in commercial deals with key local and international banks. Their main funding sources are grants and loans. As of December 2007, the number of active borrowers was at 295,396. The average loan balance per borrower is USD 175 dollars with the number of savers estimated at 266,366 customers. Gross Loan Portfolio (GLP) is USD 51.6 million with GLP to Total Assets at 78.22 percent. Return on Equity is reported at 29.67 percent.

The Pakistan Poverty Alleviation Fund (PPAF) is sponsored by the Government of Pakistan and funded by the World Bank and other leading donors. The PPAF was incorporated under section 42 of the companies act 1984, under regulatory requirements of the Securities and Exchange Commission of Pakistan. As of June 26, 2008, PPAF’s resource base is reported at USD 1.030 million.

By Zoran Stanisljevic

Additional Resources

Business Recorder, April 2009: Punjab micro-finance sector sinks due to political intervention: GF and WWB show grave concern

Microfinance Insights: Vol 11, March 2009: A Very Political Economy: The Ill-advised Political Interference in Pakistans Microfinance Sector

The MixMarket: Kashf Foundation Profile

Kashf Foundation: Homepage

Pakistan Poverty Alleviation Fund: Homepage

Grameen Foundation: Homepage

Women’s World Banking: Homepage