Pakistan's Microfinance Sector

Microfinance institutions offer financial services to low income and underprivileged people in order to reduce poverty in the society. This research sheds light onto microfinance providers in Pakistan and the impact of COVID-19 on the sector.

Highlights

• Gross Loan Portfolio clocked in at PKR~300bln - June’20, down by ~2% (CY19), majorly attributing to MFIs recording a negative growth of ~7%, while MFBs sustaining a positive growth at ~3%. MFBs’ gained market share by ~4% recording at 74% in June’20 (70% CY19).
• Active borrowers stood at ~6.9mln – June’20, a decline of 5% (CY19) with MFIs reducing by ~4% while MFBs gaining by ~7%. MFBs share stood at ~54%, as their average ticket size is higher than MFIs.
• Credit quality continued to suffer on the backdrop of economic fallout due to Covid-19. Regulator’s Relief Package to defer outstanding receivables, however, came handy to the sector. PAR>30 days remained under control at ~4.3% (4.8% CY19).
• Fresh disbursements plunged down in 2QCY20 owing to the lockdown situation in the wake of Covid-19. Collections, likewise, fell below ~50%. Most of the outstanding installments due in the months of April and May were deferred to prevent eruption in asset quality.
• With lockdown situation easing in the country, overall disbursements and recoveries have begun to improve. Preference is focused towards securitized lending and repeat customers. Optimal disbursement strategies are necessitated to keep risk profile stable.
• On a positive side, deposit base grew by ~10% clocking in at PKR~294bln, despite the critical scenario. ADR improved to ~75% (~80% CY19) attributed to low portfolio growth.
• Performance indicators represented a distressed outlook with low profitability majorly owing to high provisioning costs.
• Despite situation moving towards normalization, aftermaths are expected to show their signs in the short horizon. Overall KPIs are expected to remain distressed for CY20, particularly for the MFIs where funding avenues are limited.