MICROFINANCE BANKS AN OVERVIEW My greatest challenge has been to change the mindset of people. Muhammad Yunus March 2015
ABSTRACT Pakistan s Microfinance Sector comprises 45 Microfinance Providers (MFPs) including 10 Microfinance Banks (MFBs). Given relatively low penetration, Microfinance has huge growth potential. Consequently, MFPs have been able to garnish consistent expansion 3.1mln active borrowers and 8.5mln depositors at end-dec14. MF Banks are gradually achieving significant presence; contributing 55% in total Gross Loan Portfolio (PKR 66,761mln) that represents 38% of active borrowers at end-dec14. Lately, SBP has further incentivized [60% guarantee under MFCG] funds channelization towards MFBs. Affiliation of certain MFBs with country s leading mobile communication operators has opened up Branchless Banking (BB) as a key pillar in overall strategy. This, while adding diversification to income streams, should provide support to deposit mobilization. BB has registered sizeable growth of ~ 22% in CY14. Substantial potential, regulatory support, and political significance are likely to keep the outlook on MF sector positive. Nevertheless, key challenges include (i) scarcity of skilled human capital, (ii) competition, and (iii) high business costs.
MFPS SECTOR SNAPSHOT
MFPS REGULATORY FRAMEWORK Licensing Framework Regulatory Authority No. Microfinance Ordinance 2001 SBP 10 Voluntary Social Welfare Agencies Ordinance, 1961 [Ordinance No. XLVI] Provincial Government Societies Registration Act [1860 Act XXI] Provincial (The Societies Act) Government 15 The Companies Ordinance 1984: Section 42 SECP 13 The Trust Act 1882 Provincial Government 2 Total 45 5
MFBS KEY PRUDENTIAL REGULATIONS Maximum Exposure of Borrower: General loan: Limit PKR 150,000 can be extended to individuals having annual income of PKR 300,000 Housing loan: Limit PKR 500,000 can be extended to individuals having annual income of PKR 600,000 Micro-Enterprise: Limit PKR 500,000 Permission from SBP required CRR: 5% SLR: 15% (Fortnightly submission) Statutory Reserves: 20% of PAT till it reaches paid-up capital of the MFBs [Thereafter not less than 5% of annual profits] MCR: National: PKR 1,000mln Provincial: PKR 500mln Regional: PKR 400mln District: PKR 300mln CAR: 15% of RWA
MFBS KEY PRUDENTIAL REGULATIONS Provisioning Requirement: SPECIFIC: OAEM Overdue >30days but <60days NIL Substandard Overdue >60days but < 90days 25% Doubtful Overdue > 90days but < 180days 50% Loss Overdue > 180days 100% Write-off after 210days GENERAL: 1% of outstanding advances Investment Avenues: - Government Securities - A rated debt securities - Equity investments (limited scope) Max. Limit: lower of 1) 10% paid-up capital of the company 0r 2) 5% of MFB s own equity Corporate Governance: Board Composition: 1) Minimum of seven members 2) Not more than 25% of the members from the same family 3) At least 2 independent members 4) No more than 25% of the members as paid executives of the MFB 5) Chairman who is not the CEO of the MFB.
Sr. # Microfinance Banks MFBS SUPPLY SIDE PROFILE Operational Licence Date of Commencement Major Sponsor of Operations 1 Tameer Microfinance Bank Limited Nationwide Sep-05 Telenor: 51% Current Rating Dec14 Rating Agency A+ PACRA Feb-14 A+ JCR Apr-14 2 Khushhali Bank Limited Nationwide Aug-00 UBL: 67% A JCR Apr-11 3 The First Micorfinance Bank Limited Nationwide Jan-02 AKDA : 100% (Agha Khan) Last Rating Change A JCR Apr-12 4 FINCA Microfinance Bank Limited Nationwide Oct-08 FINCA Int'l: 83% A- JCR Apr-14 5 NRSP Microfinance Bank Limited Nationwide Mar-11 NRSP: 52% A- JCR Apr-14 6 U Microfinance Bank Limited Nationwide Apr-05 PTCL: 100% A- JCR Apr-14 7 Pak Oman Microfinance Bank Limited Nationwide May-06 Govt. of Oman: 67% BBB+ JCR Not changed 8 Waseela Microfinance Bank Limited Nationwide May-12 Vimplecom: 100% BBB+ +ive PACRA Not changed 9 Advans Microfinance Bank Limited Provincial Nov-12 10 Apna Microfinance Bank Limited LISTED Provincial Jan-05 Advans SA: 70% FMO: 30% UIG: 36% GoI: 53% BBB+ JCR Apr-14 BBB +ive PACRA May-11 MFBs are viewed STRONG by CRAs Ratings clustering: A Category
MFPS DEMAND SIDE Population expected to use financial services Employed Labor Force Nos. in mln Total % Labor Force % Employed Labor Force % Rural 114.4 62% 41.2 69% 39.2 70% Urban 69.8 38% 18.5 31% 16.8 30% 184.2 59.7 32% 56.0 94% Source: Economic Survey of Pakistan (highlights 2013-14) Number of Borrowers and Depositors in Pakistan At end-jun14 No. In mln Total Banks / DFIs MFBs / MFIs Number of Depositors 45.2 37.9 7.3 Number of Borrowers 5.4 2.3 3.1
MFBS DEMAND SIDE PENETRATION Potential Microfinance Makret Active Borrowers end-dec14 Penetration Rate Province No. in mln No. in mln %age Punjab 15.23 2.29 15.0% Sindh 6.36 0.68 10.7% KPK 4.08 0.09 2.2% Balauchistan 1.66 0.00 0.2% ICT 0.08 0.01 11.2% Others - 0.07 - Total 27.4 3.1 11.5% MFBs Industry Penetration Number of Borrowers (mln) 1.2 37% Amount of GLP (PKR mln) 37,017 55% Number of Depositors/Savors (mln) 5.3 63% Amount of Deposits/Savings (PKR mln) 41,603 96% Branches 643 25% Penetration (borrowers in mln) 1.2 4.3%
MFBS ASSET GROWTH Significant growth highlighting potential Growth trend: Likely to be sustained
MFBS PORTFOLIO @ RISK Dec-11 Dec-12 Dec-13 MFPs MFBs MFPs MFBs MFPs MFBs Write-off to Avg. GLP (%) 2.6 2.8 2.3 2.9 1.5 1.8 GLP (PKR bln) 28.8 15.4 38.2 21.1 52.1 28.1 High asset quality PAR remains range bound
MFBS FUNDING STRUCTURE Funding structure mainly deposits Increasing acceptability healthy growth trend in deposits
MFBS PERFORMANCE REVENUE & INCOME Expanding Revenue Base Significant Growth in Profitability
MFBS PERFORMANCE SPREADS & SUSTAINABILITY High Spreads Sustainable profits will nurture further growth payback has started
BRANCHLESS BANKING INDUSTRY SNAPSHOT Key Indicators CY13 9MCY14 Growth* (YTD) Number of Accounts 3,475,458 4,713,145 81% Number of Active BB Agents 100,813 151,448 100% Branchless Deposits (PKR mln) 2,639 5,652 186% Number of Transaction* (No. in mln) 191,876 207,535 44% Value of Transactions* (PKR mln) 805,352 983,977 63% *Annualized 69% 68% Sep14 Sep14 COMMET 2/3 rd of BB share is held by MFBs
BRANCHLESS BANKING GROWTH Sr. # Modes of Transactions Volume of Transactions (Number in mln) Value of Transactions (PKR mln) CY13 9MCY14 Growth* (YTD) CY13 9MCY14 Growth* (YTD) 1 Agents transfer for liquidity 9 12 71% 338,078 427,581 69% Fund Transfer 70 77 48% 285,383 322,979 51% 2 a. Funds transfer through M-wallets 2 2 3% 7,008 5,841 11% b. Fund transfers through CNIC 68 76 49% 278,375 317,138 52% Bulk Payment 7 15 170% 28,269 51,892 145% 3 a. Government to Person Payments 6.9 14.2 175% 26,426 49,575 150% b. EOBI Pensioners / Salary Payments 0.4 0.5 74% 1,844 2,318 68% 4 Cash Deposit & Withdrawal 14 19 75% 44,489 64,602 94% 5 Bill Payments & Top ups 88 81 23% 97,830 98,979 35% 6 Loan 2 2 16% 6,653 5,700 14% 7 Others 1 2 153% 4,651 12,244 251% Total 192 208 44% 805,352 983,977 63% *Annualized
MICROFINANCE GLOBAL SURVEY OF RISKS Microfinance Banana Skin (2014) Transparency of objectives Income volatility Technology management Funding Liquidity Overindebtedne ss 8 7 6 5 Credit risk Competition Risk management Governance Strategy Client relationships Macroeconomic risk Political interference Management Product risk Financial capability Staffing Regulation
Microcredit has shown how you can reach out to people that conventional banking cannot. It has demonstrated that it is a doable option. Muhammad Yunus
Analysts Rana M. Nadeem nadeem@pacra.com Saira Rizwan saira.rizwan@pacra.com Rehan Alam Khan rehan.alam@pacra.com Contact Number: +92 42 3586 9504 DISCLAIMER PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentation should not be relied upon as professional advice.