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Pakistan: Microfinance Sector Development Program
Apr 2010, ADB
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Reducing poverty by expanding reach of microfinance

This report seeks to validate the program completion report (PCR) of Pakistan’s Microfinance Sector Development Program (MSDP).

The MSDP aimed to reduce poverty in Pakistan by helping develop the country’s microfinance sector. The report agrees with the PCR rating that the program was partly successful, and that the loan it provided was relevant, but not very effective, efficient or sustainable. It was able to set in place a conducive policy and regulatory environment for the development of the microfinance sector. It also facilitated the licensing of additional microfinance banks and restructured two development finance institutions. The lead institution, Khushhali Bank, however, limited its services to credit and failed to reach operational self-sufficiency. The Microfinance Social Development Fund, the Community Investment Fund, the Risk Mitigation Fund and the Deposit Protection Fund did not achieve their objectives.

The PCR recommends diversification of institutions providing financial services to ensure competition and efficiency. Lessons from the PCR highlight the importance of:

Measures to ensure program sustainability;
Savings mobilization in operating sustainable microfinance programs;
Amendments to loan agreements pertaining to the four funds.

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24 Aug 2010
Clear Conclusions on Disappointing Support to Microcredit

The evaluation report clearly demonstrates that making money easily available for lending to people for socio-political objectives (i.e. poverty reduction) did not help reduce poverty in a sustainable manner; the poor were not helped and the microcredit organization did not become self-sustainable nor was it able to diversify its services to include deposit mobilization and the development of savings products. The subsidies could not support broad and sustained social mobilization and ultimately, also helped to destroy the widespread cooperative banks. Indeed support, including financial, is needed to build an inclusive financial sector that can integrate the poor and facilitate sustained economic growth. However, support must be well-designed and not focus exclusively on grants or subsidies. In 2008 it was decided that the central bank (SBP) should play a central role in disbursing large donor funds (especially from British DFID). I expect that this will further undermine the sustainable development of deposit-led MFIs. Furthermore, this massive subsidy fund bears the risk of politicizing a credible institution that in Pakistan is known for neutrality and expertise.

Peter van Dijk Indonesia

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Publisher(s):
Asian Development Bank