Outreach real challenge for microcredit market, says Ghalib Nishtar

Islamabad : The entry of more and more players may have made the microfinance market competitive during the last two decades but the country's pioneer microcredit financial institution still considers outreach to be a challenge.

"It is really encouraging to see the number of microfinance banks in the country increase from one in 2000 to 11 now, as the competition causes the market to grow and thus, benefitting the common man. However, we've a long way to go as most of our microcredit market is still unbanked. The market penetration has reached only 20-22 percent in the last two decades and therefore, reaching out to the other potential clients is our real challenge and not the growing competition," founding president of the Khushhali Microfinance Bank Ghalib Nishtar told 'The News' in an interview.

Ghalib Nishtar said his bank, the country's first licensed one exclusively dealing in micro lending, was founded in 2000 as part of the government's Poverty Reduction Strategy and Microfinance Sector Development Programme to offer credit and other financial services to micro enterprises and low-income households.

"At that time, banking penetration in the country was as low as 10-12 per cent with major lending by commercial banks going to the public sector and enterprises and so, traditional banking services were virtually off-limits to majority of population. The circumstances brought about first a comprehensive policy by the government on microfinance development and relevant regulation by the State Bank of Pakistan and then the launch of our bank to benefit the unbanked common people," he said.

According to the Khushhali Bank president, the bank's founders studied the Bangladeshi, Cambodian and Indonesian microcredit business models before coming up with a 'sustainable, progressive' model for Pakistan.

"In our model, the State Bank of Pakistan had an oversight role, while the funding was to come from deposits to ensure sustainability unlike donor-dependent model, which is vulnerable. Ours was a sustainable, progressive, transparent and regulated model, which met with huge success and thus, bringing foreign direct investments to the microfinance sector."

Claiming to have a strong shareholding, Ghalib Nishtar said his bank, which was sponsored by the government but was later privatized in 2012, had around two-thirds foreign shareholders, including American, Dutch, Swiss and Belgian people, while the rest was locals, including the United Bank Limited, one of the country's largest private banks.

He also credited the Khushhali Bank for higher banking penetration in the country, saying his financial institution has facilitated the provision of banking services to large unbanked segment of population, which wasn't part of the banking system.

The Khushhali Bank president said of the 6.5 million direct microfinance beneficiaries in the country, around 40 per cent were women, who mostly got loan for livestock trade in rural areas and for opening schools, boutiques and beauty parlors in urban centres.

According to him, the Khushhali Bank is bound by regulation to lend money up to Rs0.5 million to the people, whose income isn't taxable and are generally turned away by commercial banks, but it accepts funding from all sources, including financial institutions.

"In terms of assets, network and clientele, we are the country's largest microcredit bank. Our countrywide offices total around 200, clients around two million and annual lending around Rs50 billion. One can judge our success by the persistent 40 per cent annual growth rate in the last five years" he said.

Ghalib Nishtar strongly felt that if talented, hardworking people were given access to e-financial services and proper guidance, they could lift themselves out of poverty to live good life and that had been demonstrated by his bank's borrowers totaling over six million, over the years.

As the Khushhali Bank offers credit to the people on personal guarantee without asking for any tangible collateral, he said the loan recovery rate was high.

"We face no difficulty in getting back our money from borrowers. With the loan recovery rate being almost 98 per cent, we've seen litigation not in a single case during 18 years of operation. I strongly feel if the loan reaches the right person, we'll certainly get back on time," he said, adding that the bank was committed to implementing the national policy of financial inclusion.

The Khushhali Bank president said most of the bank's operations were based in rural areas, where borrowers were engaged in agriculture and livestock business or other small enterprises.

He said the bank was also active on the front of corporate social responsibility as it regularly held skill enhancement training programmes for farmers and launched initiatives for women's empowerment, promotion of micro-enterprises and environmental conservation.

"Two decades of success have given us strength, confidence and ability to explore new customer segments and territories and extend innovative products and services. We'll continue pumping entrepreneurial lifeblood into the national economy," he said.