By Muhammad Soban ISLAMABAD, Feb. 08(INP-WealthPK): The concept of microfinancing is relatively new and innovative as compared to conventional financing. It targets the low-income groups of society, which are unable to access conventional financing. The microfinance industry in Pakistan is rapidly growing. Microfinance industry experts say the potential of microfinancing in Pakistan is to serve 30 to 40 million people. According to the latest numbers released by Pakistan Microfinance Network (PMN) at the recently held Annual Microfinance Conference, the number of active borrowers had reached 8 million in the country in 2020. The total amount of Gross Loan Portfolio (GLP) has crossed Rs356 billion. The microfinance sector provides financial services to all those who cannot access conventional financing. The main aim of microfinance is to elevate poverty. It also provides opportunities for entrepreneurs to start their own businesses. According to PMN, the microfinance sector is covering 137 districts all over Pakistan. The numbers show that 50% of loans are provided to women, and the default rate among all the borrowers is less than one percent. Microfinance is different from conventional financing as the latter requires collateral and evaluation projects before financing, and the motive is to earn profit. In contrast, microfinance provides loans backed by social collateral, especially targeting women, farmers, and entrepreneurs without any physical collateral. There are 40 institutions working in the microfinance sector in Pakistan. These are categorised into three segments as their model and products offered for financing are different from each other. They include microfinance banks, microfinance institutions and rural support programmes as shown in the following table.

Microfinance Industry in Pakistan
Industry Segment	Regulator	Quantity
Microfinance Banks	State Bank of Pakistan	11
Microfinance Institutions	Securities and Exchange Commission of Pakistan (SECP)	22
Rural Support Programs	Securities and Exchange Commission of Pakistan (SECP)	5
Others	-	2
Source: Pakistan Microfinance Network Review		40

  There are 11 microfinance banks currently registered with the State Bank of Pakistan. They are providing their services in different areas along with differentiated products. Microfinance banks are legally allowed by the State Bank to accept deposits from the public. The second category contains 22 microfinance institutions. These institutes are non-banking, and thus registered with the SECP. These microfinance institutions only provide financial loans. The third category contains five rural support programmes. They are also working under the regulations of SECP. These programmes are specially designed to provide microfinancing in remote areas. The three categories of microfinance institutes provide three types of microfinance loans: conventional microfinancing, Shariah-compliant microfinancing, and Qarz-e-Hasna.  In both conventional and Shariah-compliant microfinancing, both the cost of capital and delivery are charged from the borrower. While in Qarz-e-Hasna, no cost is charged from borrowers, and it is totally free of any cost.

	Pakistan	Bangladesh	India
Borrowers (In million	8	30	138
Gross Loan Portfolio (in billion)	356	800	2326
Source: Pakistan Microfinance Network Annual Review 2020

  Though the microfinance sector is growing in Pakistan, it is still having somewhat low numbers in both the number of borrowers and the number of loans disbursed when compared with other countries of the region, as shown in the above table. According to industry experts, the total microfinancing potential in Pakistan is around 30 to 40 million people. The statistics show that the microfinance sector is still working at less than 75% to 80% of its total potential in the country. Secondly, the table also shows that the gross loan portfolio of Pakistan is significantly lower than that of some neighbouring countries. The government has also started the Kamyab Jawan Programme to provide loans to people to help them start their own businesses. The initiative will help speed up the growth of the microfinancing sector in the country. The government also needs to create a more enabling environment for private microfinance institutions by providing them relief in taxes.