A Home Grown Solution for a Greater Challenge – 10 Years and Beyond
By Ayesha Baig, FMFB
Since 200 B.C, the Silk Route has promised a business route for the carriage of silk and spices from China to the western world. Today, this region with the largest concentration of the high mountainous peaks in the world, gushing rivers and mirror lakes amid scenic glacial valleys, exotic Mediterranean fruits provide serenity and peace to a number of holiday-makers and mountaineers. Yet, the combination of elevation, steep terrain and extreme precipitation gradient in the region where mountain building is still occurring creates a very fragile environment within which women and men exist.
This extreme environment which was the habitat of small pockets of communities in the valleys was unknown to the world till almost three decades ago. The mountainous people survived on local subsistence farming and livestock in extreme poverty, and had little hope for a better future. This plight of the rural poor in the northern crescent of the country gave rise to a dream – a dream to create a positive impact on the lives of the poor in Pakistan.
Profound impact of micro-finance in the development of an individual!Daulat Habib from Karachi was a single mother with three children who had faced many hardships during the early years of her life. Undeterred by the tough task of fending for her young children, she started as a small caterer and would sell items cooked by her at home. However, she faced many health problems early in her life and had to sell off all her assets and savings on numerous occasions to cover her medical expenses. She approached The First MicroFinanceBank (Bank) for a small loan and managed to start a new catering business to support her family. Daulat soon started earning a fairly good income and when she found out that Bank opened a saving account with a small amount of Pkr 5 only, she opened her first ever bank account with a deposit of Pkr 100. Today, she enjoys all the basic necessities of life and has improved the overall quality of life for her household.
AKRSP instituted a credit program to make credit available to a large number of small farmers. Initially, small loans were extended to farmers for agri inputs. With time, the size and types of loans requested for by the WOs/VOs members kept on multiplying. With the establishment of credibility and high recovery rates, a number of international development partners entered the arena to support AKRSP’s unique development structure; and it made the Aga Khan Development Network (AKDN) consider the need for a long term sustainable model to continue supporting the evolving financial needs of the poor at a nation-wide level in Pakistan.
Shifting Gears: The First MicroFinanceBank Ltd
In 2002, the Credit and Saving program of the AKRSP, which had achieved Pkr 450 million in savings by the poor and micro-credit disbursement of Pkr 1.8 billion, was transformed into The First MicroFinanceBank (Bank) – the first private sector, national level microfinance bank in Pakistan. The Bank was established with a purpose to reach out those who are currently not able to receive adequate financial services, throughout the country, in rural as well as urban areas, to address the multi-dimensional and generational causes of poverty, and to improve the quality of life of clients as per the philosophy of the AKDN. The Bank’s goals are:
- Outreach: Provide a range of well targeted financial services to the extreme and moderate poor populations residing in Pakistan’s urban and rural areas, particularly women
- Sustainability: To cover inflation-adjusted costs through revenues and to generate a modest surplus that can contribute to expanding the range of services and geographical coverage
- Impact: Through careful targeting, monitoring and evaluation, the Bank works to maximize the impact on poor communities.
- Transparency: To introduce good practices, ethical precepts and the highest standards of rectitude in the conduct of business.
Creating a Unique Blend: Microfinance Banking
Aspiring to develop a unique model of providing mainstream financial services to the poor as a regulated and supervised legal entity with highest performance standards while not maximizing on profitability, the Bank set out on ‘institutional building’ as its core focus for the first few years. In view of the social and cultural dynamics of the poor and the nature of diverse economic activities both in the rural and urban areas, the Bank has developed a combination of customer-oriented services. The Bank believes in tackling the issue of poverty by providing a range of targeted micro finance services, developed on the basis of its extensive research and experiences in the country as well as lessons learnt internationally, and blending it with modern banking practices. Unlike other institutions, the Bank has a deep-rooted social objective rather than a profit maximizing commercial motive – it is here to carry the dream forward…the dream to create an impact on the lives of the poor and give hope for a better future.
Inheriting a network of 16 locations in the Gilgit-Baltistan-Chitral (GBC), the Bank has expanded predominantly in Punjab and Sindh over the last ten years, and currently has 79 full-service branches in GBC, Punjab and Sindh and is providing financial services (micro credit) to 158,239 clients amounting to Pkr 3.515 BN . The total number of depositors of the Bank is 245,617 with total deposits amounting to Pkr 6.196 BN. The Bank takes pride in pioneering a unique banking model as it is the only MFB in Pakistan and amongst a few in the world that funds its entire loan book through self-generated deposits.
Addressing one of the major challenges faced by microfinance institutions across the globe of reaching out in a cost effective manner to the remotest rural areas where the most unbanked vulnerable poor reside, the Bank was the pioneer in exploring the concept of branchless banking in Pakistan by identifying an alternate delivery channel. In 2009, the Bank forged a unique partnership with the Pakistan Post for provision of credit services through their extensive network of Sub Offices (SOs), and hence has been able to expand and deepen its outreach in an accelerated and more cost-effective manner. In 2011, the Bank has partnered with the Habib Bank Limited under a similar model.
To enable the vulnerable segments to capitalize on economic opportunities, and to allow access to basic social services and facilitate capital formation, the Bank offers a range of targeted loan products catering to the diverse financial needs of the poor all across Pakistan. Micro credit for economic activities ranging from farm (agriculture and livestock) and non-farm based activities, manufacturing and trade services are offered to micro-entrepreneurs. Loan products are available to low salary employees of public and private sector organizations and pensioner. Housing improvement loans and short term social loans for education, health and domestic needs are also offered by the Bank. Cognizant of the needs and dynamics of micro-business, the Bank has adopted a cash flow based lending methodology that takes into account both the amount and frequency of the borrower’s cash flow to determine and structure the repayment schedule. All borrowers benefit from life and credit insurance. In the event of death of permanent disability of the borrower, all outstanding dues of the borrower are adjusted by the insurance company. In addition, the family is assisted with Pkr 10,000 for emergency costs.
A wide range of saving facilities including checking accounts, savings accounts and term deposits are offered for all income groups. Individuals may establish accounts with as little as Pkr, pay no transactional charges and need not retain a minimum balance. Competitive rates of return are offered on all saving schemes, with extra benefits for small savers (those saving less than PKR 25,000).
The Bank offers health insurance facility to its loan clients. In case of hospitalization, the borrower and his/her family is covered up to a maximum amount of Pkr 50,000 per annum. Additionally, the Bank offers domestic fund transfer/remittance service, pay order and demand draft facility and online banking facility.
As part of its entrepreneurship development interventions, the Bank has developed a comprehensive entrepreneurship and business development trainings for new and existing microfinance clients and has tested the product in rural and urban locations. Recognizing the importance of developing value system and supply chains for overall development of the dairy sector, the Bank collaborated with Engro Foods (Pvt) Ltd. in 2005 to support poor women and men farmers to enhance their supplies of milk. The Bank provided financing to the milk suppliers to enhance milk production and income, while Engro provided market access to the farmers, thus setting in a model for integrated supply chain development for the first time in the microfinance sector.
In 2010, FMFB completed the Social Performance Research project which had been undertaken in partnership with the Kennedy School of Government, Harvard University to develop a set of standard, verifiable social indicators and poverty scorecard to segment poverty and to monitor the impact of the Bank’s services on the lives of the poor. The indicators are being integrated into the FMFB MIS so that the Bank can develop targeted products and easily track the changes in the livelihood of the poor vis-à-vis its services.
Moving Beyond: Securing the Future
Expanding its frontiers from the villages in the Karakoram to the urban slums of Korangi in Karachi, the Bank has established a solid platform in all the four provinces of the country and is expanding fast. With a team of 1,054 members of professionally qualified management and trained field staff, the Bank is bringing its home grown solutions to the poor in the remotest villages in the rural areas and the thickly populated slums in the urban cities, creating new growth platforms as it moves into the next generation.
The Bank is committed continue reaching out to the poorest segments of society and enabling them to build a sound and secure future with dignity and pride and not merely to survive; alleviation of poverty through sustainable economic development.