Strategic Framework for Sustainable Microfinance in Pakistan

This strategic framework provides a road map for sustainable growth of the microfinance sector in Pakistan.

Microfinance in Pakistan has progressed, and is gradually mainstreaming into the formal banking system. Changes over the last few years include the establishment of microfinance banks, MFI transformation, and commencement of operations of two of the world's largest MFIs. These changes reflect private sector participation and institutional diversity. Nonetheless, Pakistani microfinance has yet to make major breakthroughs to become a dynamic participant within the overall financial sector and reach millions of underserved people. Current outreach of two million borrowers represents only seven percent of the potential market.

Causes for the recent slow-down in microcredit growth in Pakistan include constraints such as funding, high operating costs, credit risk and a challenging macroeconomic environment. The framework suggests that the microfinance sector can address these challenges by becoming more innovative, efficient and transparent. It provides a road map that focuses on:

• Diversity;
• Innovation;
• Funding;
• Enterprise lending;
• Institutional growth;
• Consumer protection and empowerment;
• Corporate governance;
• Minimum regulation of MFIs.