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

2. 2 Background Need for Microfinance Expansion of outreach by all market participants A viable business Model Already developed in some countries on sustainable basis Definition  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

3. 3 Government Initiatives 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 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.

4. 4 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) 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 Policy Formulation through Consultative Mechanism Guidelines for Commercial Banks to undertake MF – an effort to increase outreach through multi-institution approach.

5. 5 The Sector-Outreach (Microfinance Banks) As of 30-06-2006 Nation-wide MFBs 4 District Based MFBs 2 Total MFBs 6 Total Branches of all MFBs 112 Service Centers 141 Loans Outstanding Rs. 2,739 m Deposits Rs. 746 m Active Borrowers 266,720 Active Depositors 35,888

6. 6 Expansion of outreach- Why Commercial Banks? Large Branch Network across the Country- especially 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

7. 7 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

8. 8 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

9. 9 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 Office-as per bank’s discretion

10. 10 Mode II- Standalone MF Branches 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.

11. 11 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.

12. 12 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

13. 13 The way forward- 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

14. 14 THANKS