Integrating The First MicroFinanceBank and Social Protection Next Generation Access to Finance September 18, 2007 Washington DC

Structure of Presentation Situation Analysis; – Poverty in Pakistan – State of social protection in Pakistan Strategy for Improvement; Integrating The First MicroFinanceBank Ltd and Aga Khan Development Network

Poverty in Pakistan Defined Rural Poverty: 36% in (71% population in rural areas) 56% of sample population – vulnerable – 75% of vulnerable are chronic poor 42% of population in households with illiterate heads is poor – Literacy rate among poor is 28% (49%; non-poor) – Literacy in Poor rural women: 9% – Net primary level enrolment is 42% for poor (lowest for rural women) Experience of AKDN Source: World Bank

Poverty in Pakistan Defined Mother and Child Care – Infant and Child Mortality at 82 and 116 per 1000 – 41% of births unattended by trained professionals Built Environment – 59% of poor live in houses with no toilets – 8% poor have access to underground drains Social Protection by The First MicroFinanceBank Ltd

Situation Analysis Social Protection Funding Zakat and Ushr Employee Old Age Benefits Institution Wheat Subsidy Worker’s Welfare Funds Khushal Pakistan Social Action Program Microfinance

Comparative Analysis Poor coverage (1.5 – 2.0 MM) Adequacy of support Poor targeting efficiency Zakat Cash transfer Low funding Poor coverage Adequacy of support Ushr Cash transfer focused on rural population Low funding (US$ 3-17 MM) Poor Coverage (231K) Lack of service delivery Bait ul Mal Funding for range of activities

challenges with design Low Value for Cost Three layers of management Low Outreach Distribution Poor identification; 50% to lowest quintile (World Bank 1995) Insufficient funding per capita Access to the benefit Targeting Efficiency Creates permanent dependency 60% funding to individuals / 40% to institutions Service

The First MicroFinanceBank Ltd Not a profit maximizing institution Permanent Establishment; Bank Corporate Objective: Poverty alleviation while covering inflation adjusted costs Financial Transparency Awards for 2005 and 2006 Non-executive board of directors 20 years rural microfinance experience / 6 years MFB Credit rating ST A1+ and MT A+ for 4 years Year end 2007 branch network of 81 Fully automated branch network

The First MicroFinanceBank Increased funding driven by credibility Low administration cost given cross sell Trained human resource to identify poorest Network with Aga Khan Development Network and other agencies – Aga Khan Health Services – Aga Khan Education Services – Social Welfare institution for food security

poverty as defined by The First MicroFinanceBank Ltd Lack of Access to Education Lack of Access to Finance and BDS No Voices of the Poor Lack of Access to Built Environment Lack of Access to Health

Identification by The First MicroFinanceBank Ltd Poor Area Branch Establishment Income and Non Income Measures Borrowers Credit Appraisal for working capital Poverty profile determination Poorest of the poor Ineligible for loan as determined by FMFB (based on income and access to basic needs) Group identifies

identification mechanism Permanent Subsidy Temporary Assistance Permanent Subsidy Temporary Assistance Permanent Subsidy Temporary Assistance Permanent Subsidy Temporary Assistance Eligible MF Borrowers Eligible MF Borrowers Eligible MF Borrowers

client-fmfb-development agency nexus Aga Khan Health Services Client is provided services against smart card identification Rates are adjusted Aga Khan Education Services Client’s Children school fees are paid against smart card AKES is reimbursed according to fees of children Social Welfare Services Food security is ensured for permanent and temporary families Facilities are provided against smart card

smart card technology Client family data stored Reduced leakage Strong implementation of beneficiary exit strategy Improved efficiency

tailormade Food security Collaboration with Service Providers Health Facility Housing Facility Permanent Group Analysis for development strategy Interim Strategy Exist Strategy Monitoring Disciplined Implementation Temporary Group

Exit Strategy for Poorest of Poor Retraining of earner Food security Health Facility Initial Conditional Investment Start up financing Enterprise Support Income Generation Achieves food security Partially covers health and education Moves completely out from destitute

fund movement Central Funding The First MicroFinanceBank Ltd Card the clients Aga Khan Health Services Pakistan Aga Khan Education Services Pakistan Social Welfare Institution

new structure Institutional Credibility In-built mechanism to filter non destitute Classification of destitute – Permanent – Temporary Temporary protection to latter group Well defined exist strategy Smart card technology