117, Street 66, F-11/4, Islamabad 44000, Pakistan Tel: , , Fax:

38 

Loading....

Loading....

Loading....

Loading....

Loading....

Full text

(1)

117, Street 66, F-11/4, Islamabad 44000, Pakistan Tel: +92 51 229 2270, +92 51 229 2231, Fax: +92 51 229 2230

(2)

MICROFINANCE PRODUCT

MAPPING AND ADVOCACY

REPORT

A report completed for the ACTED-led project “Improving access, quality and service delivery of the TVET sector to marginalized rural communities through innovative approaches”, funded by the European Union

Disclaimer: This publication has been produced with the assistance of the European Union. The contents of this

publication are the sole responsibility of the authors and can in no way be taken to reflect the views of the European Union.

An action funded by the European Union

(3)
(4)

Disclaimer: This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of the authors and can in no way be taken to reflect the views of the European Union.

MICROFINANCE PRODUCT

MAPPING AND ADVOCACY

REPORT

A report completed for the ACTED-led project “Improving access, quality and service delivery of the TVET sector to marginalized rural communities through innovative approaches”, funded by the European Union

(5)

TABLE OF

(6)

ACRONYMS

EXECUTIVE SUMMARY

REPORT OBJECTIVES

MICROFINANCE LANDSCAPE

TVET SECTOR LANDSCAPE

PROJECT OVERVIEW

SUPPLY SIDE FINDINGS: MICROFINANCE PRODUCTS IN THE MARKET

DEMAND SIDE FINDINGS: PROFILE OF PROJECT BENEFICIARIES

PROPOSED INITIATIVES

01

03

06

08

11

13

15

24

29

(7)

ACRONYMS

(8)

( ii )

Acronyms

Part I ACRONYMS 02

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

ACTED Agency for Technical Cooperation and Development

AJK Azad Jammu & Kashmir

EU European Union

GLP Gross Loan Portfolio

KP Khyber Pakhtunkhwa

MFB Microfinance Bank

MFI Microfinance Institution

MFP Microfinance Provider

PMN Pakistan Microfinance Network

RSP Rural Support Program

PPAF Pakistan Poverty Alleviation Fund

SBP State Bank of Pakistan

TVET Technical Vocational & Education Training

(9)

EXECUTIVE

SUMMARY

(10)

Part II EXECUTIVE SUMMARY 04

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

This microfinance product mapping and advocacy report was drafted for stakeholders of the ACTED-led project

“Improving access, quality and service delivery of the TVET sector to marginalised rural communities through innovative approaches”. The report aims to serve as a guide for stakeholders to effectively link

gradu-ates of various skills/trades to microfinance services.

ACTED, along with the Pakistan Microfinance Network (PMN) and TUSDEC, is implementing an EU funded project to strengthen TVET sector outcomes in seven rural districts across Azad Jammu Kashmir (AJK), Khyber Pakhtunkhwa (KP) and Sindh. The main component of this project is the technical/vocational training of 8000 beneficiaries in 8 different trades, followed by creating linkages for these trained beneficiaries to formal employ-ment and/or opportunities for entrepreneurship through microfinance providers.

In order to devise an effective strategy for linkage creation between microfinance and TVET graduates, the report highlights the following supply and demand side dynamics:

The report outlines the key product features of existing microfinance services in the target regions. The majority of microfinance providers (MFPs) offer enterprise development loans in the form of non-collateralized group loans, though there is a growing emphasis among MFPs to move towards individual lending with higher loan amounts. While a majority of MFPs tend to prefer lending to existing business owners, there are a few exceptions, particularly with MFPs and other financial service providers disbursing government-funded schemes. For non-col-lateralized loans, the first loan amount tends to be between PKR 10,000 to 30,000, though there is usually a gradu-al increase in loan amounts for subsequent loan cycles - once clients are able to demonstrate timely repayment behaviour. Collateralized loans can go up to PKR 150,000. Service charge or interest rates tend to vary dramatical-ly depending on the type of MFP, with some institutions like Akhuwat practicing interest-free lending while others offer loans on an average 25 percent interest.

SUPPLY-SIDE FINDINGS: MICROFINANCE PRODUCTS IN THE MARKET

01

The report highlights the general profile of TVET graduates in an effort to understand their position as potential microfinance clients. Graduates are usually aged 15 to 35 years, with an average education level of matric or higher. These individuals tend to have skills and previous experience in their relevant fields but lack opportunities to either seek formal employment or start-up their own enterprise. According to case studies and a baseline study of ACTED project beneficiaries, the earning potential of graduates is significantly high if they are given access to initial credit - in some cases double their current income. The required loan size for those seeking to start-up their own business is up to PKR 35,000 for female graduates (in embroidery/dressmaking trades) and up to PKR 120,000 for male graduates of various trades.

DEMAND-SIDE FINDINGS: PROFILE OF PROJECT BENEFICIARIES

(11)

Part II EXECUTIVE SUMMARY 05

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

In order to address some of the existing gaps in the supply of microfinance products/services and the demand of the TVET graduates, the report outlines the following proposed strategies for stakeholders going forward:

Scale up services in currently under-served areas through increasing MFP geographical outreach and by using TVET Centres for the promotion of and access to loan products.

Channel a specific portion of government sponsored microfinance schemes, such as the PM Youth Loan Scheme implemented by PPAF partners, to skilled youth at TVET Centers.

Strengthen Islamic Micro-finance models such as Akhuwat by training TVET Centres to act as distribution points for such financial services, and forming savings groups among students of the Centre.

Ensure gender sensitive product development so that resources can be owned and managed by women.

IN THE SHORT-TERM

Create sustainable and efficient Financial Access Point Persons within TVET Centre as a network for exchange of information on products, terms and conditions of loans and experiences with MFPs.

Raise funding for risk sharing mechanisms such as donor-funded credit guarantee schemes which allow MFPs to lend to TVET graduates who have no previous borrower history or existing businesses.

IN THE LONG TERM

Pilot specific products for lending to sub-sets of TVET graduates and documenting pilot findings for wider dissemination.

(12)

REPORT

OBJECTIVES

(13)

Part III REPORT OBJECTIVES 07

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

This report highlights the potential link between microfinance and graduates from Technical Vocational & Educa-tion Training (TVET) centers supported through the ACTED-led project on “Improving access, quality and service delivery of the TVET sector to marginalized rural communities through innovative approaches”. It

covers the current microfinance landscape and how it is positioned to form linkages with TVET centers (and gradu-ates) in the districts selected under the ACTED project. It attempts to examine whether the microfinance sector is able to serve the needs of the TVET sector, and what advocacy strategy would be required to enable greater micro-finance outreach to the sector.

(14)

MICROFINANCE

LANDSCAPE

(15)

Part IV MICROFINANCE LANDSCAPE 09

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

Pakistan’s microfinance sector has grown significantly over the past decade, with the sector now reaching out to 3 million borrowers with a gross loan portfolio (GLP) of PKR 57 billion. Outreach in terms of active borrowers has been growing steadily through the increase of the number of microfinance providers (MFPs) working in the coun-try, as well as the maturity of existing MFPs. Currently Pakistan's microfinance sector is rated amongst the best in the world in terms of its policy and regulatory environment1. Rapid developments in digital financial inclusion and

branchless banking have led to the country being seen as a "laboratory of innovation."2

The country’s central bank - State Bank of Pakistan (SBP) has carried out a number of regulatory reforms aimed at fostering innovation and growth; for instance, in 2012, SBP revised loan limits for MFBs from PKR 150K to PKR 500K to allow for the microfinance sector to address the growing market demands of the MSME market.3 SBP

manages the Department of International Development (DFID)'s GBP 50 million program on Financial Inclusion aimed at improving the breadth and depth of financial services across the country along with the technical and financial support provided by the Pakistan Poverty Alleviation Fund (PPAF) - the apex lender for microfinance institutions.

Today, there is a diverse set of MFPs providing microfinance services in the country. These can be classified into different peer groups: Microfinance Banks (MFBs) which are regulated by the State Bank of Pakistan (SBP) and offer the full range of financial services including deposits, specialized Microfinance Institutions (MFIs), which only work in microfinance, multi-dimensional non-government organizations (NGOs) and rural support programmes (RSPs).

While the entry of new MFPs and the progressive policy environment have led to innovative product design and alternative service delivery models (such as branchless banking initiatives), significant challenges remain vis-à-vis expanding access to finance for households in remote areas of the country.

1 The Economic Intelligence Unit (EIU) of the Economist magazine has rated Pakistan in the top three consistently now for four years. ‘Global Microscope on the Microfinance Business Environment 2013’, The Economist Intelligence Unit Limited, 2013. http://www.citigroup.com/citi/citizen/community/data/EIU_Mi-crofinance_2013_Proof_08.pdf

2 Branchless Banking in Pakistan: A Laboratory for Innovation, Consultative Group to Assist the Poor (CGAP), 2011. http://www.cgap.org/sites/default/files/CGAP-Brief-Branchless-Banking-in-Pakistan-A-Laboratory-for-Innovation-Oct-2011.pdf

3 Note: The provision of lending up to PKR 500K is granted by SBP on a case-by-case basis following the formal application from an MFB. There are limitations on how much the MFB’s portfolio can be in these loans.

BOX 1: MICROFINANCE OUTREACH

BORROWERS

Active Borrowers = 3 million

Percentage of active borrowers by gender = 56 pc Female : 44 pc Male Percentage of active borrowers by Rural/Urban = 58 pc Rural : 42 pc Urban Gross loan portfolio = PKR 57 billion

Estimated potential market = 27.4 million potential clients

SAVERS

Active Savers = 5.8 million Value of savings = PKR 34 billion

INSURANCE

Insurance policy holders = 3.2 million Sum insured = PKR 42 billion

(16)

Overall, microfinance has only served about 10.2 percent of its potential market, estimated to be close to 27 million clients. Further, while microfinance is widespread across Punjab and Sindh, other regions show little activity. This indicates that there remains considerable room for microfinance providers (MFPs) to enhance their outreach to the underserved through targeted strategies that cater to specific areas of the country, particular target groups and economic sectors. One strategy proposed here is to link microfinance and the TVET sector to identify trained, skilled graduates looking for start-up or running finance for micro-enterprise loans. The following sections will therefore introduce the TVET sector as well as analyzing supply and demand side factors. The final section makes some recommendations on strategies that could be adapted in the short and long-term to foster youth entrepreneurship in Pakistan.

10

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

FIGURE 1 - GEOGRAPHICAL OUTREACH4

4 MicroWATCH - Quarterly Update on Microfinance Outreach in Pakistan, Issue 31: Quarter 1 (Jan-Mar 2014)

THARPARKER BADIN UMER KOT SANGHAR NAWABSHAH KHAIRPUR NAUSHAHRO FEROZE SUKKUR GHOTKI JACOBABAD SHIKARPUR DADU KHUZDAR PANJGUR AWARAN KECH GWADAR KHARAN KALAT MASTUNG BOLAN NASIRABAD JAFARABAD DERA BUGTI KOHLU SIBI RAHIMYAR KHAN BAHAWALPUR BAHAWALNAGAR LODHRAN VIHARI MULTAN MUZAFFARGARH BARKHAN LORALAI ZIARAT QUETTA PISHIN QILA ABDULLAH QILA SAIFULLAH

ZHOB MUSAKHEL DERA ISMAIL KHAN TANK MIANWALI BANNU KARAK ATTOCK NOWSHERA PESHAWAR SWABI BATGRAM DAGGAR MARDAN CHARSADDA MALAKAND CHITRAL KOHISTAN SWAT RAWALPINDI HARIPUR CHAKWAL KHUSHAB JHELUM GUJRAT SIALKOT NAROWAL MANDI BAHAUDDIN GUJRANWALA HAFIZABAD SARGODHA KASUR OKARA PAKPATTAN SAHIWAL FAISALABAD TOBA TEK SINGH

KHANEWAL JHANG BHAKKAR LEYYAH DERA GHAZI KHAN

RAJANPUR LAHORE SHEKHUPURA CHAGAI NUSHKI KOHAT HANGU NANKHANA SAHIB KARACHI LOWER DIR UPPER DIR GILGIT AGENCY THATTA HYDERABAD F A T A LAKKI MARWAT LASBELA LARKANA JHAL MAGSI MIRPUR KHAS ABBOTTABAD MANSEHRA ISLAMABAD KASHMIR (DISPUTED TERRITORY)

Part IV MICROFINANCE LANDSCAPE

Scale Active Borrowers

1 - 10,000 10,001 - 25,000 25,001 - 50,000 N/A 50,001 - 100,000 >100,000 LEGEND

(17)

TVET SECTOR

LANDSCAPE

(18)

5 ACTED (2013) Services Assessment and Labour Market Survey of the TVET Sector in 7 Selected Districts of Pakistan. http://www.acted.org/en/tvet-pakistan-i-re-search-and-publications.

Part V TVET SECTOR LANDSCAPE 12

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

As outlined in a report published by ACTED,5 the TVET sector is currently undergoing a structured reform to

harmonize efforts across Pakistan's provinces. The TVET sector is coordinated by the National Vocational and Technical Training Commission (NAVTTC) at the federal, and the Technical Education and Vocational Training Authorities (TEVTAs) at the provincial level. The trainings are provided in district level institutions, with respective TEVTAs managing operational affairs while the curricula, examinations and certifications are managed by provin-cial level boards. Training courses range from 3 to 6 months certificates to 3 year diploma courses on a diverse range of skills and trades.

Pakistan has a relatively large proportion of youth (32 percent), most of whom are not able to acquire the level of education or market-driven vocational skills required to contribute to the growth of the economy. According to UNFPA’s projected population of young people in Pakistan, the population between 15 to 59 years will come to dominate Pakistan population over the next 30-35 years. However, the annual growth rate of the economy is not increasing in proportion to create sufficient jobs for the youth entering the job market. Market-based skills and vocational opportunities are necessary to ensure the integration of youth into the productive labour force, while alternative means of employment (including entrepreneurship and self employment) are needed to cater to this growing segment of the country.

The TVET sector has the potential to act as an engine for economic growth for Pakistan - though the country has not yet been able to fully mobilize this potential for a large proportion of its population. Recent efforts have thus been made to increase the relevance, accessibility and quality of TVET centre education through various initia-tives. The project being conducted by ACTED, as well as other EC-funded partner organizations, aim to address some of the existing challenges to create a sustainable and demand-oriented TVET system.

(19)

PROJECT

OVERVIEW

(20)

Part VI PROJECT OVERVIEW 14

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

ACTED in collaboration with Pakistan Microfinance Network and TUSDEC is implementing the “Improving access, quality and service delivery of the TVET sector to marginalised rural communities through innovative approaches”, an EU funded project aiming at contributing to the socio-economic development of the target rural

areas in the provinces District Muzaffarabad of Azad Jammu Kashmir (AJK), Districts Upper Dir, Lower Dir and Swat of Khyber Pakhtunkhwa (KP) and Districts Jacobabad, Shikarpur and Kashmore of Sindh.

The project has two main components, the first being the technical and vocational training of 8000 beneficiaries, via 80 master trainers in 8 different trades. The second component is linking these trained beneficiaries to the job market, via formal linkages with potential employers, as well as creating opportunities for the beneficiaries to start their own micro-enterprises through microfinance provisions. Microfinance has become an increasingly effective tool, both globally and in Pakistan, for creating access to finance and increasing income generating opportunities for the economically active poor. Within this project, master trainers and beneficiaries will be trained on financial literacy in order to enhance their understanding of the various components of money management, including budgeting, savings, investments, managing debt, accessing financial services and consumer rights and responsibilities.

Through this Note we wish to inform the project stakeholders about the demand and supply side of microfinance provision to TVET sector graduates. The following sections will map out the current products being offered by microfinance providers and also present a profile of the project beneficiaries. This would help stakeholders understand the supply-demand gap and deliberate on appropriate strategies for addressing it.

(21)

SUPPLY SIDE

FIND-INGS:

MICROFI-NANCE PRODUCTS

IN THE MARKET

(22)

6 The report focuses on products and loan providers in ACTED project areas of Jacobabad, Kashmore, Shikarpur, Swat, Lower Dir, Upper Dir and Muzaffarabad.

PRODUCTS OFFERED

FIRST MICROFINANCE BANK LIMITED

01

Part VII SUPPLY SIDE FINDINGS: MICROFINANCE PRODUCTS IN THE MARKET 16

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

This section covers some of the salient microfinance product features that are relevant to TVET graduates, both in terms of the presence of MFPs in the seven target districts, and the needs of the graduates vis-à-vis enterprise lending.6

Enterprise Finance Loan; Agriculture Finance; Livestock Finance (short and medium term); General Purpose

Finance; Micro Pensioner Loan; Low Salary Employees Loan; Individual Loan (against gold). AVAILABILITY

Jacobabad and Shikarpur (Sindh); Muzaffarabad (AJK) ENTERPRISE LOAN FEATURES

Enterprise finance loans are group loans for business owners. These groups have a ratio of 1:3 of start up businesses and existing businesses. The loan size varies from PKR 15,000 – PKR 150,000 and the tenure spans 3 to 18 months. Although this loan charges an interest rate of about 38 percent, the strength of this product is that it is lent to start ups as well, as long as the experienced entrepreneurs in the group are able to provide a credit guarantee for less experienced members of the group. In this way, start up entrepreneurs can have access to a large loan which suits their start-up needs, on the basis of social collateral (rather than hard collateral).

PRODUCTS OFFERED

KHUSHHALI BANK LTD

02

Khushhali Karza – EMI (group based lending); Khushhali Karza – Bullet (group based lending); Khushhali Cash Sahulat Gold-Bullet; Khushhali Cash Sahulat Gold-EMI; Khushhali Cash Sahulat Land-Bullet; Khushhali Cash Sahu-lat Paper Security-Bullet.

AVAILABILITY

(23)

PRODUCTS OFFERED

SUNGI DEVELOPMENT FOUNDATION

03

Enterprise Finance Loan; General Loan; Murabaha Loan

AVAILABILITY Muzaffarabad (AJK)

ENTERPRISE LOAN FEATURES

Enterprise Development Loan First is an enterprise loan focusing groups of women with businesses. The loan size varies from PKR 20,000 – PKR 29,000 and the loan tenure spans 12 to 18 months. The average interest charged on these loans is 20 percent. Because of the lower loan size, repayment of these loans is easier for clients, and it can benefit women who have shared businesses. The loanees are linked to Sabah Pakistan, which could further act as their marketing and trade linkage for business expansion and showcasing their work both nationally and interna-tionally.

PRODUCTS OFFERED

SINDH RURAL SUPPORT ORGANIZATION

04

Enterprise Loan; Agri-Inputs Loan; Livestock Loan

AVAILABILITY

Jacobabad, Shikarpur and Kashmore (Sindh) ENTERPRISE LOAN FEATURES

Khushhali Karza – EMI are group loans targeting both business and agriculture sector. The loan size varies from PKR 10,000 – PKR 50,000 and the tenure spans 03 to 12 months. The average interest charged on these loans is 31 percent on declining balance. Although the loan size does not extend to larger credit needs, loans from the bank give clients the opportunity to develop a working relationship with the bank and further access to larger loans, since banks usually have the capacity to lend larger amounts once they have established the client’s credit discipline.

17

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

(24)

PRODUCTS OFFERED

AKHUWAT

05

Family Loan (general purpose loan for housing, education, health, marriage, emergency) AVAILABILITY

Swat (KP)

ENTERPRISE LOAN FEATURES

Family loan is a general purpose group loan targeting men and women, including those with micro-businesses. The loan size varies from PKR 10,000 – PKR 30,000; with no interest or service charge. The loan tenure is from 12 to 18 months. Although entailing a smaller loan size, family loan is an Islamic interest-free loan, thus addressing the religious concerns of people in Pakistan.

PRODUCTS OFFERED

ASA PAKISTAN

06

Small Business Loan

AVAILABILITY Shikarpur (Sindh)

ENTERPRISE LOAN FEATURES

Enterprise loan is a business focused loan that is offered in a group format to both men and women (mostly women). The loan size varies from PKR 10,000 – PKR 30,000, with an average interest of 26 percent. The loan tenure is 12 months. Along with the loan, clients are given technical assistance and basic business training, which is particularly helpful for start-up entrepreneurs.

18

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

(25)

PRODUCTS OFFERED

BANK OF KHYBER

07

Khud Kifalat Scheme AVAILABILITY

Swat, Lower Dir and Upper Dir (KP) ENTERPRISE LOAN FEATURES

Khud Kifalat scheme is a government initiative channeled through Bank of Khyber catering to all poor people with businesses. The loan size varies from PKR 50,000 – PKR 200,000 and spreads over a tenure of 10 to 24 months. No interest is charged on these loans. In terms of product features, this scheme would suit the needs of ACTED bene-ficiaries (considering the loan size, flexibility of tenure and no interest) but government loans are difficult to access given the volume of application, and often entail a selection process that is based on luck (balloting).

PRODUCTS OFFERED

AJK RURAL SUPPORT PROGRAMME

08

Working Capital Finance; Agriculture Loan; Livestock Loan; Consumption Loan

AVAILABILITY Muzaffarabad (AJK)

ENTERPRISE LOAN FEATURES

Small business loan is a group loan targeting both men and women. The loan size varies from PKR 30,000 – PKR 70, 000. The loan tenure is 11 months and interest charged is 42 percent. The loan size is considerably larger than the average loan size in the sector, which allows ASA to cater to businesses and entrepreneurs looking to expand their business. However, the reduced tenure and the interest charged, may make it difficult for the clients to pay off the loan in time. This product could cater to those beneficiaries who have a regular stable income and have comparatively established businesses.

19

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

(26)

KHUSHHALI BANK LTD

01

ENTERPRISE LOAN FEATURES

ENTERPRISE LOAN FEATURES

Working capital loan is a business loan, catering to women who are interested in expanding their businesses. The loan size is PKR 30,000 with no interest charged, whereas the tenure expands over 6 to 18 months. The loan size may not be suitable for all business owners, particularly start-ups requiring large capital investments. The loan tenure offers women flexibility and ample time to give timely repayments.

In order to share details of the project with MFPs (particularly the focus on targeting marginalized communities in the seven districts outlined under the ACTED project), as well as to gauge the appetite and interest of microfi-nance providers in lending to TVET graduates, PMN conducted a round of lobbying visits with senior management of the MFPs working in project districts. The discussions are summarized below to offer perspective of the MFPs.

Khushhali Bank Ltd (KBL) was set up in 2000 by the Government of Pakistan under its Microfinance Sector Devel-opment Program. KBL has since been privatized, with a number of commercial banks and social investors now being key shareholders. KBL is the largest provider of microcredit in the country, currently working in 71 districts. KBL currently offers two types of loan products, group loans and individual loans. Group loans cater to a group of 3 to 5 borrowers, who either live in the same vicinity, or have business in the same market place. These are gener-ally small loans between PKR 10,000 to 15,000 and are based on the principle of social collateral (cross guarantees from group members). The loan eligibility criteria includes an age bracket of 18 to 58 years, a total annual income of less than PKR 300,000 per group member, permanent residence and a valid national identity card.

Individual loans vary from loan size of PKR 25,000 to PKR 150,000. This loan product is collateralized through a range of acceptable securities, including gold, national saving certificates, KBL term deposit certificates and land documents. A major portfolio of individual loans are collateralized by gold. The loan may be utilized to expand micro-enterprises or small businesses (to meet working capital requirements or purchase of assets) and offers free imbedded credit life insurance. The individual enterprise loan targets entrepreneurs with at least two years experience in business, with a proven credit history (if relevant) through the Microfinance Credit Information Bureau (MFCIB). Enterprise lending does not apply to start-up businesses in the case of KBL, because of the risks associated with such ventures.

While KBL ran a pilot for start-up loans in 2010, the uptake of that product remained low, primarily because both family members and independent guarantors found it risky to provide assurance for an inexperienced business owner. The volume of loans given out under this pilot were not deemed profitable for KBL to consider up scaling to all branches. At the same time, KBL has maintained standard loan features within its product range, as opposed to developing a sector-specific approach to product development. Given the current untapped market that exists in Pakistan with regards to microfinance, there remain opportunities to target the economically active poor population without a specific target for each product - unless there is an evident business case to target certain specific sectors and communities.

20

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

(27)

FIRST MICROFINANCE BANK LTD

02

First Microfinance Bank Ltd (FMFB) emerged as a regulated microfinance bank in 2001, out of the credit services department of the Aga Khan Rural Support Program (AKRSP). It remains under the umbrella of the Aga Khan Agency for Microfinance (AKAM) along with several other banks across the developing world. FMFB has a presence across the country, with over 130 branches and more than 60 sub-offices at Pakistan Post Office (PPO) outlets. Since 2010, the main focus of FMFB has remained consolidation - given the macro-economic environment and natural disasters (floods) that have plagued several parts of the country. FMFB has stalled fresh lending in a few locations in Sindh due to a focus on recovery efforts following the floods; branches in those districts focus on recovery of loans that were affected by floods, and in some cases lend to old or existing clients.

FMFB has shown flexibility on internal rules and regulations, particularly in efforts to support marginalized and under-served poor communities as per its vision. However, the management is aware that any flexibility must be in line with the prudential regulations set by the State Bank of Pakistan (SBP). FMFB offers an enterprise loan product which caters to both start-ups and established businesses. Enterprise loans are group loans, where the group comprises of members that either live in the same vicinity or have business in the same market. Within those groups, those who are planning to start a business need to be together with at least three group members who use the loan for their existing business. This system shall ensure that experienced business owners provide guidance and insurance for the inexperienced start-up entrepreneurs. Enterprise loans are primarily clean loans, that is, collateral free. The loan size varies from PKR 25,000 to PKR 150,000. In order to graduate to a higher loan amount, a client with two years of clean credit history with FMFB (as well as a clean credit history record on the MFCIB), can take an enterprise loan on an individual basis.

Start-up entrepreneurs with no previous history with FMFB can also take enterprise loans individually, in order to avail a higher loan size. However, those loans must be backed by collateral, which can include saving certificates, property and gold.

SARHAD RURAL SUPPORT PROGRAMME

03

Sarhad Rural Support Programme (SRPS) is part of a network of region-specific rural support programmes (RSPs) operating in Pakistan. Like other RSPs, its mission is to provide a multi-dimensional set of services, including health, education, water and sanitation along with micro-credit programs to improve the livelihood of local communities, through community mobilization. SRSP focuses on the Khyber Pakhtunkhwa (KP) region in the North of Pakistan, which exhibits similarities in its social culture and environment to the rural communities of neighboring Afghanistan. Given the social and geo-political risks associated with this region, most MFPs do not see it as potential market for interventions. Lending in most parts of KP is rare due to the local subsistence econo-my and highly thin and scattered population, which increases the cost of delivery by 4-5 times as compared to lending in populated areas. At the same time, locals frequently raise issues with the service charge or ‘interest’ charged by MFPs, which is considered in contradiction to Islamic lending practices.

SRSP has worked with local community members to establish ‘village banks’ - which consist of women from these localities. An initial grant is injected into the village bank, and this fund, along with saving from members of the

21

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

village bank are internally managed and lent to borrowers. Given the context of the region, SRSP does not intend to expand into conventional microfinance provision. SRSP has a prime focus on women empowerment, which is why the village banks are specifically for women. Although women are the main focus, SRSP do not distinguish its target group on any other indicator - youth and persons with disabilities are eligible for a loan if they fit the criteria, but are not specifically targeted.

(28)

Sarhad Rural Support Programme (SRPS) is part of a network of region-specific rural support programmes (RSPs) operating in Pakistan. Like other RSPs, its mission is to provide a multi-dimensional set of services, including health, education, water and sanitation along with micro-credit programs to improve the livelihood of local communities, through community mobilization. SRSP focuses on the Khyber Pakhtunkhwa (KP) region in the North of Pakistan, which exhibits similarities in its social culture and environment to the rural communities of neighboring Afghanistan. Given the social and geo-political risks associated with this region, most MFPs do not see it as potential market for interventions. Lending in most parts of KP is rare due to the local subsistence econo-my and highly thin and scattered population, which increases the cost of delivery by 4-5 times as compared to lending in populated areas. At the same time, locals frequently raise issues with the service charge or ‘interest’ charged by MFPs, which is considered in contradiction to Islamic lending practices.

SRSP has worked with local community members to establish ‘village banks’ - which consist of women from these localities. An initial grant is injected into the village bank, and this fund, along with saving from members of the

village bank are internally managed and lent to borrowers. Given the context of the region, SRSP does not intend to expand into conventional microfinance provision. SRSP has a prime focus on women empowerment, which is why the village banks are specifically for women. Although women are the main focus, SRSP do not distinguish its target group on any other indicator - youth and persons with disabilities are eligible for a loan if they fit the criteria, but are not specifically targeted.

BANK OF KHYBER

04

Bank of Khyber (BoK) no longer has a functioning microfinance section - therefore there is no fresh lending at this point in time. Having said this, BoK has been recently began to channel government grants and loans for the poor, particularly over the past few years. Under the present government, BoK has is leading the application process for the youth loan scheme. This may be relevant to youth who graduate from TVET trainings, though lending under the youth loan scheme has not yet been activated. Another scheme managed by the BoK which may be relevant to trainees is the Khyber Pakhtunkhwa government loan scheme called Khud Kifalat scheme. Under this scheme, BoK will lend to all poor with existing businesses, where the loan size will be PKR 50,000 – PKR 200,000 and no interest will be charged.

AZAD JAMMU KASHMIR RURAL SUPPORT PROGRAMME

05

Like other rural support programs (RSPs), the Azad Jammu Kashmir Rural Support Programme (AJKRSP) was estab-lished for the purpose of community mobilization for a multi-dimensional set of interventions, including health, education, water and sanitation, as well as micro-credit services. Compared to other RSPs, the micro-credit function of AJKRSP is limited - though there are expansion plans in the pipeline (depending on availability of funds for onward lending). Currently, AJKRSP is looking into government projects, such as the ‘one village, one product’ scheme. Under this project, government agencies will train people in various skills depending on the dynamics and existing resources in the different communities. AJKRSP then supports the trained groups with loans of up to PKR 50,000. Many of the young trainees from ACTED's project are familiar with the community mobilization efforts of AJKRSP in their villages, with some youth (and their parents) being members of the community organisa-tions (COs) which were set up by AJKRSP as savings groups. A possible linkage may be established between training Centres and groups of students as an entity rather than only providing grants to communities. This would lower the costs of service provision and ensure that outreach to far-flung areas increases.

22

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

(29)

SUNGI DEVELOPMENT FOUNDATION

06

Sungi Development Foundation (SDF) has a strong history in the KP region, and works on a variety of interventions for skills trainings, human rights, education, health and microcredit provision. SDF is further considering expan-sion to Azad Kashmir having noticed a high demand for entrepreneurship loans.

The focus of SDF’s current microcredit program is primarily women, with a standard group loan product for groups that comprise at least 5 females. SDF does not have any special products focusing on youth or persons with disabilities.

SDF lends up to PKR 30,000 but this volume is mostly for repeat clients. The loans given to first time clients gener-ally start at PKR 10,000 with a mark-up of 20 percent. If the loan is repaid within 6 months, the mark-up is reduced to 10 percent for the next loan cycle.

One of the recent developments influencing SDF's prospects is the government initiated youth loan scheme. In KP, people are starting to show an interest in these government initiated programs. Many of SDF’s experienced clients (who have graduated to their 5th or 6th loan cycle) have shown an interest in applying for the youth loan scheme, as these loans are of a much higher loan amount that SDF is able to provide. Because of the larger size of the loan, the longer tenure for repayments, and the fact that there is no interest, MFPs working in the region expect the government subsidized youth loan scheme to distort the market and perhaps create expectations of interest-free lending among the clients. This represents a concern for many MFPs, including SDF, who are planning to continue to charge interest to ensure the sustainability of their services.

Nonetheless, SDF also has some unique strengths. SDF’s training function has been very successful, particularly following CIDA-funded projects for women embroidery. The training function has spun off into a sister organiza-tion known as Sabah Pakistan. Sabah Pakistan is supported by SAARC, and focuses on training women in various income generating skills, as well as refining existing skills in local embroidery. Many trainees from Sabah are also clients of SDF’s micro-credit program, while some have also expanded into successful businesses and no longer fall under the ambient of microfinance.

23

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

(30)

DEMAND SIDE

FINDINGS: PROFILE

OF PROJECT

BENEFICIARIES

(31)

AGE RANGE: MOST STUDENTS ARE AGED 15 - 25 YEARS

Students targeted by TVET training are usually aged 15 to 35 years. The average age of enrolled students is 22 years, with 81% of students (both male and female) aged between 15 - 25 years. Not surprisingly, young people thus represent a large group of students in the sector.

EDUCATION: MOST STUDENTS ARE EDUCATED TO MATRIC OR HIGHER LEVELS

The average level of education varies not only depending on the geographical regions, but also depending on the nature of the trade or skill being taught. The trainees of the solar panel technician course, for example, have stronger academic backgrounds compared to other courses which require less technical understanding. Graduates from districts in AJK tend to exhibit higher levels of education because of the socio-economic norms and greater educational opportunities of that region. Nonetheless, education levels are generally high with an average 81% of students are educated to matric levels or higher.

SKILL LEVEL OF STUDENTS: STUDENTS ARE HIGHLY SKILLED BUT WITHOUT OPPORTUNITIES

Unlike other borrowers, students of TVET courses acquire a range of unique skills, in line with the latest market demands and teaching techniques. Further, students trained under ACTED's project and other EU funded projects are often supported through additional skill sets such as financial literacy training, life-skills training and entrepreneurial training. For example, all courses taught under the project implemented by ACTED, PMN and TUSDEC include financial literacy trainings and entrepreneurial training alongside technical training. However, once graduated, these skilled young people often lack the social and financial capital to enter the labour market.

SOURCE OF INCOME: THE MAIN INCOME SOURCES ARE FARMING, WAGE LABOUR AND THE SERVICE SECTOR

The main sources of income for TVET graduate households are related to the service sector, wage labour or farming. Due to the semi-urban location of TVET Centres, a large part of the student population comes from surrounding peri-urban environments.

OVER ONE THIRD OF HOUSEHOLD LIVES OFF PKR 10,000 OR LESS PER MONTH

The monthly income of households varies given the different economic and social opportunities prevalent in each target region. The average monthly income is estimated to be around PKR 15-17K for the students currently profiled by the project. However, this average masks a large percentage of households that send their young people to TVET Centres who live off 10,000PKR or less per month.

7 It is important to note, however, that the current dataset is limited to a sample of 1083 students and that the profile of TVET graduates may vary across all provinces as well as different service providers.

Part VIII DEMAND SIDE FINDINGS: PROFILE OF PROJECT BENEFICIARIES 25

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

Having analyzed the products accessible in the market, let us turn to the potential clients. The focus of the follow-ing section will be on TVET students and their overall skills and profile.7 A baseline study conducted on a rolling

basis for students enrolling in TVET Centres supported under the current project revealed the following basic profile information on students:

(32)

PREVIOUS AND EXISTING EXPERIENCE WITH LOANS

According to baseline data, TVET students from AJK have the most experience in taking a loan, while students from the selected districts in Sindh have had the least exposure to lending.

Previous experience with loans is lower among female students in Sindh and KP while in AJK loan experiences of females are slightly higher, perhaps due to specific programmes targeting female borrowers or savers. Very few students have had lending experience with a formal financial service provider, such as commercial banks, MFBs, RSPs and so on. Instead, the more common sources for loans were relatives/friends, rural development saving schemes (in the case of AJKRSP’s internal lending mechanism from savings groups), and government schemes. Similarly, few students have experiences of saving money. More effort would need to be made on the part of MFPs to encourage students to use formal savings products. ACTED is supporting such efforts together with PMN through delivering financial literacy trainings to students of the technical courses.

OVER TWO THIRDS OF THE STUDENTS IN AJK AND KP ARE PLANNING TO TAKE UP A LOAN

An important finding for MFPs from the baseline study is the willingness of students to take loans, or future plans to take loans. Of the students surveyed in AJK, 69% were interested in taking a loan, while in KP, 68% had plans to take loans. Sindh has the lowest number of students planning to take a loan in the future.

Previous and existing experience with loans and savings groups Interest in taking up a loan upon completion of course

Average loan amount needed

ACTED also collected the following microfinance related information during the baseline study:

26

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

FIGURE 2 - PERCENTAGE THAT HAVE TAKEN A LOAN

73% 27% 87% 13% 92% 08% AJK KPK SINDH Yes No

(33)

200 250 300 350 400 450 150 100 50 0 Yes No

FIGURE 3 - NUMBER OF STUDENTS PLANNING TO TAKE A LOAN

LOAN AMOUNTS NEEDED TO START A BUSINESS RANGE FROM PKR 25-35,000 FOR FEMALES TO 80-120,000 PKR FOR MALES

Loan sizes demanded by males and females differ considerably. However, in both cases, individually envisaged loan sizes are generally higher than the commonly offered start-up and initial amounts. This is an important point to note for MFPs - as current average loan sizes for first-time borrowers are usually lower, ranging from PKR 20K to PKR 50K for a standard group loan product.

INDIVIDUAL CASE STUDIES SHOW THAT MANY YOUNG GRADUATES HAVE THE SKILLS BUT LACK THE SOCIAL CAPITAL OR COLLATERAL TO START A BUSINESS

In addition to profile information, the project team was able to gain detailed insights from case studies developed by ACTED and other implementing agencies within the EU-funded TVET initiative. Case studies of TVET graduates have highlighted some of the main challenges with regards to access to finance (particularly start-up finance) for target beneficiaries.

In terms of loan requirements, the case studies revealed that graduates require loan amounts of around PKR 70K to 100K and also that these graduates are able to quantify their expected increase in income after taking up a productive loan to set up their enterprise. Graduates interviewed expected their income to rise considerably, from as little as PKR 50 per hour to PKR 500 per hour when running their own business. However, it is difficult for gradu-ates, especially young people, to find guarantors or present the necessary collateral and experience for these loans.

The case studies also reinforced some of the gender differences found in the profiling exercise. For example, female case studies reveal the need for relatively smaller loan amounts (compared to male graduates) of around PKR 30K. Another important issue highlighted from case studies is the need to establish local level savings groups which could be managed internally by the female members within the group - and would not require frequent travel of females to bank branches.

27

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

AJK KPK SINDH

Finally, the distance of banks and their outreach remains an important issue. In Sindh for example, graduates from remote and thinly populated districts are not able to find financial service providers that are willing to incur the additional costs of working beyond a 3-km radius from their branches.

To conclude, TVET project partners are working with the most marginalized segments of the population, in some

of the most marginalized districts and remote areas. The earning potential of graduates is relatively high if they are given access to initial credit. However, the required loan size (for male graduates) is around PKR 70K to 100K, while most MFPs continue to offer much smaller loan sizes for first-time clients and/or for non-collateralized loans. Geographical access also remains a challenge in the project areas. Small MFIs are present but lack the needed bandwidth (HR capacity and funds) to reach the project beneficiaries. Finally, stakeholders are not willing to take a risk on start-up loans without collateral or a strong guarantor. However, some Government schemes require grade 18 officials to act as guarantors - which is not feasible for project beneficiaries.

Regarding gender, female graduates and home based workers have different needs to male graduates and tend to request lower loan sizes and be more interested in accessing local savings groups in their areas.

(34)

LOAN AMOUNTS NEEDED TO START A BUSINESS RANGE FROM PKR 25-35,000 FOR FEMALES TO 80-120,000 PKR FOR MALES

Loan sizes demanded by males and females differ considerably. However, in both cases, individually envisaged loan sizes are generally higher than the commonly offered start-up and initial amounts. This is an important point to note for MFPs - as current average loan sizes for first-time borrowers are usually lower, ranging from PKR 20K to PKR 50K for a standard group loan product.

INDIVIDUAL CASE STUDIES SHOW THAT MANY YOUNG GRADUATES HAVE THE SKILLS BUT LACK THE SOCIAL CAPITAL OR COLLATERAL TO START A BUSINESS

In addition to profile information, the project team was able to gain detailed insights from case studies developed by ACTED and other implementing agencies within the EU-funded TVET initiative. Case studies of TVET graduates have highlighted some of the main challenges with regards to access to finance (particularly start-up finance) for target beneficiaries.

In terms of loan requirements, the case studies revealed that graduates require loan amounts of around PKR 70K to 100K and also that these graduates are able to quantify their expected increase in income after taking up a productive loan to set up their enterprise. Graduates interviewed expected their income to rise considerably, from as little as PKR 50 per hour to PKR 500 per hour when running their own business. However, it is difficult for gradu-ates, especially young people, to find guarantors or present the necessary collateral and experience for these loans.

The case studies also reinforced some of the gender differences found in the profiling exercise. For example, female case studies reveal the need for relatively smaller loan amounts (compared to male graduates) of around PKR 30K. Another important issue highlighted from case studies is the need to establish local level savings groups which could be managed internally by the female members within the group - and would not require frequent travel of females to bank branches.

Finally, the distance of banks and their outreach remains an important issue. In Sindh for example, graduates from remote and thinly populated districts are not able to find financial service providers that are willing to incur the additional costs of working beyond a 3-km radius from their branches.

To conclude, TVET project partners are working with the most marginalized segments of the population, in some

of the most marginalized districts and remote areas. The earning potential of graduates is relatively high if they are given access to initial credit. However, the required loan size (for male graduates) is around PKR 70K to 100K, while most MFPs continue to offer much smaller loan sizes for first-time clients and/or for non-collateralized loans. Geographical access also remains a challenge in the project areas. Small MFIs are present but lack the needed bandwidth (HR capacity and funds) to reach the project beneficiaries. Finally, stakeholders are not willing to take a risk on start-up loans without collateral or a strong guarantor. However, some Government schemes require grade 18 officials to act as guarantors - which is not feasible for project beneficiaries.

Regarding gender, female graduates and home based workers have different needs to male graduates and tend to request lower loan sizes and be more interested in accessing local savings groups in their areas.

28

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

(35)

PROPOSED

INITIATIVES

(36)

8 See for example PPAF's report "Targeting Energy Poverty Through Microfinance" where a system of village based loans in Punjab is described that has been piloted to provide sustainable energy supply to off-grid villages.

Part IX PROPOSED INITIATIVES 30

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

Based on the profiles of students, current microfinance landscape and products, it is clear that a concerted effort is needed to bridge the supply-demand gap. Incentives for MFPs to lend to this sector are currently limited given the perceived risks associated with start-ups. On the other hand, a large percentage of TVET graduates are interested in accessing loans for business purposes. The project team thus proposes the following short-, medium and long-term strategies:

Scale up services in currently under-served areas through increasing geographical outreach and by

using TVET Centres for the promotion of and access to loan products - branchless banking can play a

potential role in reaching out to the under-served districts. Further, in most MFPs, credit decisions are made at the branch level. TVET Centres offer a great opportunity for local branches to promote their products and services to skilled clients. PMN is also in process of identifying and strengthening a Financial Access Point Person within each TVET center who can guide students looking to engage with MFPs and MFPs looking to advise potential future clients.

Channel microfinance through TVET institutions - Government sponsored schemes such as such as the PM

Youth Loan Scheme implemented by PPAF and the government sponsored schemes in KP could be targeted more effectively at skilled youth to utilize the full potential of these trained young people for Pakistan's econo-my.

Strengthen Islamic Micro-finance: In some districts, MFPs like Akhuwat and SRSP are offering interest free

loans. Although currently these too rarely lend to start-ups, there may be options for expanding their loan products to encompass such models. Potential areas of interest are the training of TVET Centres as distribu-tion points for financial products as well as the formadistribu-tion of savings groups among students of the Centre.

Ensure gender sensitive product development so that resources can be owned and managed by

women - Need for keeping realistic gender perspective on outreach of schemes. Women generally demand

for lower loans as they are often not managing finances in the household. They are generally more inclined to access savings groups where they can administer the money rather than larger loans which are often not owned by them.

IN THE SHORT TERM, THE FOLLOWING OPPORTUNITIES CAN BE SEEN FOR MICROFINANCE

PROVIDERS:

Pilot specific products for lending to sub-sets of TVET graduates: In collaboration with interested

partners PMN will help pilot lending to TVET students and document those findings for wider dissemination. In addition, some sectors, such as the alternative energy sector would provide ample opportunity for gradu-ates of solar panel technician or similar courses. A range of models have been explored, where solar techni-cians take up loans and recover the loan through charging a community or individuals for services provided through a solar energy system installed with the loan.8

(37)

The government is keenly interested in stimulating job creation for youth in the country. It has rolled out huge youth workforce development programs with its own resources as well as through support from local and international donors. These programs put a strong emphasis on strengthening and developing the TVET sector and ultimately linking it to the job market and creating self employment.

PMN's own objective of increasing access to finance for youth ties in well with TVET sector as most of the students tend to fall within the youth segment. In the long term, which extends beyond the current project PMN aims to:

31

MICROFINANCE PRODUCT MAPPING

AND ADVOCACY REPORT

Create sustainable and efficient linkages between TVET centers and MFPs: Investing time and effort into

training the Financial Access Point Persons within TVET Centres and creating a network for them which will allow for exchange of information, experience sharing and continuous research on the latest market trends. This would also allow students to have access to updated product information, terms and conditions of loans and previous experiences with a particular MFP.

Raise funding for risk sharing mechanisms if needed: Based on the initial lending and pilot outcomes,

donors can be approached for creating a risk sharing mechanism which allow MFPs to lend to TVET graduates who have no previous borrower history or existing businesses. Such credit guarantee schemes have been used for other sectors previously such as lending to MFPs by commercial banks and are being contemplated by MFPs for lending to sectors such as low cost private schools in Pakistan.

IN THE LONG TERM:

(38)

Figure

Updating...

References

Updating...

Related subjects :