TMBL to open Islamic microfinance window as part of expansion plan

KARACHI: Telenor Microfinance Bank Limited (TMBL) plans to set up an Islamic window to attract faith-based customers and help improve access to financial services in the country, a top official said on Saturday.

Currently only NRSP Microfinance Bank is offering Shariah-compliant services and products.

“We intend to start from an Islamic window. I cannot give a timeline. We will do it at some point in time. It is very important because there is a very big segment that doesn’t want to deal with conventional banks,” Shahid Mustafa, chief executive officer of TMBL, told The News in an interview.

“We are constantly expanding. We will continue to expand. We are upgrading our branches, not adding new branches. We need to improve the quality of the branches but next year we will see if we need more branches. We are adding agents, locations where we offer our services and franchises all the time.”

The bank has 177 business locations and it gives 40,000 plus loans in a month. Easypaisa is also doing very well. The TMBL is also trying to add more and more products to its flagship M-Wallet.

The State Bank of Pakistan is also coming up with Asan Bank Account which will allow the microfinance lender to use Unstructured Supplementary Service Data (USSD) menu on any SIM. Using this menu, people can make many transactions like paying for a ticket, or making a donation or sending money to friends.

In March, the bank signed a deal with China’s ANT Financial, which would invest $184.5 million dollars to buy 45 percent equity in the TMBL. This deal would add more capital and bring Chinese giant’s expertise and value in terms of IT, products, and business development.

Mustafa said they were proud that after a long search, ANT Financial chose us to be their partners in Pakistan. “We are happy that they will be bringing the best technology and systems in the world to Pakistan and will support the growth of commerce and e-commerce. All of this will benefit the Pakistani economy,” he added.

He said the bank believes itself as a Fintech with a banking license. “Fintech is something that simplifies financial technology and that improves quality, reduces risk or makes it easier or makes it cheaper to do those financial transactions,” the official explained.

The Easypaisa account can be opened at 40,000 locations just by putting a thumb on a fingerprint reader and this is Fintech. The Easypaisa is offering online payment service to many microfinance institutions, which can use the service to disburse and collect their loans as well as other things.

However, Mustafa sees some challenges and controversies related to this.

“I think there are a lot of challenges. The initial controversy was the fact that controls were weak to begin with. There was money that was being transferred and some of the money could have been misused and could have gone for illegal purposes,” he said adding but, now the central bank has introduced this biometric verification system and made it mandatory, so it was now very difficult to do that.

Now controversies have been to a large extent addressed as far as anti-money laundering was concerned.

He thinks getting the solution and the services to the customers at a good price is a challenge, scaling the business so that it is not limited to just 15 percent of population of Pakistan is a big challenge. The bank also plans to address these challenges to grow fast.

Replying to a query, Mustafa said housing was not in microfinance at all. “You cannot really do housing finance in Rs1 million. Therefore, housing is mostly out of our purview. We do individual and group lending so in a way you can call it consumer lending. Our entire business is linked to individual lending. We don’t lend to corporates and our focus is lending to small business people who take our loan,” he said.

The TMBL official said in the commercial banking side there had not been a lot of focus on mortgage on housing.

“Pakistan has a total mortgage loan size of about 700 million dollars, which is very small. It is even smaller than Bangladesh. So, they have not been focusing on it,” Mustafa said and added that the commercial banks have their own business for doing that and the TMBL was focused on lending to small businesses.

Mustafa said the operational or the administrative cost of the bank was very high and the amount of profit earned very low.

“We are the cheapest microfinance bank in Pakistan and we are in the process of reducing our rates further and we will continue to reduce them as we scale up in size and business.”

He went on to say that they have different rates. “We have some secured lending products like against gold jewelry which is very inexpensive at 18 percent…. We have other lending products that are unsecured, these are more expensive. If you take all the loans it adds up all the profit that we charge the customers. Our pricing is actually under 28 percent. Now compare it to what you pay through a credit card which is between 39 and 45 percent,” he said.

The bank has just started handling of international remittances through Easypaisa M-Wallet. It does a few thousand transactions in a month.

He also sees acquisition and merger activity in the microfinance sector.

“In the entire financial sector, as the industry changes, it will be difficult for some of the small players so they will have to merge together to survive. So I think mergers are real possibility,” Mustafa said.

When asked if it was because of an increase in capital, He said no, this was because of the fact that many small banks did not have any real scope of growing business.

“With the advent of the expected Digital Banking License by SBP, the chances are bright that international big players will come to Pakistan,” the TMBL chief said.