1. Housing Microfinance Seminar Karachi, September 06, 2012
Regulatory Framework of Housing Microfinance Qazi Shoaib Ahmad Agricultural Credit & Microfinance Department State Bank of Pakistan
Housing Microfinance Seminar
Karachi, September 06, 2012

2. Legal & Regulatory Framework
Microfinance Institutions Ordinance 2001
Prudential Regulations for MFBs
Microfinance Licensing Criteria
NGO Transformation Guidelines
Branchless Banking Regulations
Guidelines for Commercial Banks to undertake Microfinance Business
Guidelines for Islamic Microfinance Business by Financial Institutions
MFIs Ordinance authorize SBP to make rules and regulations to govern affairs of MFBs.
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3. International Recognition
In 2010 & 11 Consecutively Pakistan has been Ranked First in Overall Regulatory Framework and Practices for Microfinance; Ranking Improved in Other Categories.
The Economist Intelligence Unit (EIU) of The Economist Magazine has issued its latest Annual Study (2011) ranking the Microfinance business environment in 55 countries and provides a perspective on both country-specific and global trends. It evaluates the counties on following distinct microfinance criteria:
Sr.
Criteria
Ranking
2010
2011 1
Overall regulatory framework and practices
1st 2
Overall microfinance business environment ranking
5th
3rd 3
Supporting institutional framework
12th 4
Stability/Investment Climate
20th
31st
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4. Strategic Framework for Sustainable Microfinance (2011-2015)
Deposits (deposit protection, clearing house etc)
Remittances
Insurance
Up-scaling MF services through trainings and regulatory guidelines on enterprise lending
1. Inclusive Financial Services
Governance
Management Development Programs
Trainings on HR capacity development on all levels and sharing international best practices
Robust MIS
2. Institutional Strengthening
National BB Consultative Group
Develop Supervisory Mechanism for Agents Network
Development of Retail Agents Network
Trainings / Seminars
3. Alternative Delivery Channels
Credit Enhancement Mechanisms (MFCG, PPAF-PRISM etc.)
Pakistan MF Fund
FCY Borrowing
Deposits Mobilization
4. Funding
Regulating MFIs
Consumer Protection and Financial Literacy
Establishment of MF Credit Bureau
5. Sector Discipline / Transparency
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5. Financial Inclusion Programme (£50m)
FIP aims to promote inclusive growth through provision of market based financial services to mostly the poor, small entrepreneurs, women and marginalized communities
Microfinance Credit Guarantee Facility (£10m)
Institutional Strengthening Fund (£10m)
Financial Innovation Challenge Fund (£10m)
Small and Rural Guarantee Facility (£10m)
These facilities were envisioned to address specific challenges in mind.
1. Credit enhancement for mobilization of Commercial credit to resolve funding constraints
2. Institutional Strengthening Fund for addressing capacity constraints, developing systems and controls and organizational development and use of Technology
3. Financial innovation challenge fund to promote innovation for cost reduction and breaking the geographical barriers to access through branchless banking
4. TA was to leverage to all these areas
Leverage technical assistance, surveys and technology across all facilities
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6. Branchless Banking Models in Pakistan
Tameer Microfinance Bank Limited (Easy Paisa)
Partnership of Telenor and Tameer
Largest agent networking in Pakistan
Retailers Acting as Agent
MCB Bank Limited (MCB Mobile)
Recently obtained BB License. Offering services to existing customers since long
Extended Services
United Bank Limited (Omni)
Three Telco companies are registered with UBL Omni
Direct Agent
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7. Advances & Deposits Growth
Advances and deposits have been on increasing trend over the years. Initially the deposits were on the lower side, but after 2008 it has increased sharply and by 2011, deposits have almost caught up with the advances. Advances of MFBs have increased to Rs 15 billion whereas the deposits have risen to approximately Rs 14 billion in 2011.
MF sector of Pakistan constitute approximately 2 million borrowers. MFIs constitute around 1.2 million whereas MFBS constitute 0.8 million borrowers.
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8. Portfolio Quality Pakistan MF Sector
Portfolio at Risk of the industry has remained below the international benchmark of 5% over the years but has remained a bit high compared to the Asia’s benchmark of 2.1% over the last three years. PAR in 2010 was highest among 5 years due to devastating flooding in the country.
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9. Yield on Loan Portfolio
The nominal yields on GLP have been increasing over the years which at start were quite low due to low interest rate scenario and reluctance to charge high rate. SBP-led MF Strategy 2007 encourage MFBs to commercialize their operations to grow and become sustainable. The increase in the yield on GLP has been sustainable as PAR also remained within limits.
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10. Profitability
Operational Self Sufficiency of MFIs is higher than the MFBs. This is due to high operating cost of MFBs. But over the passage of time, the OSS of MFBs has come close to MFIs which shows that MFBs take some time to become operationally self sufficient.
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11. Housing Finance Regulation
Regulation 10: Maximum Loan Size and Disclosure of Basic Terms & Conditions of Financial Products: (Revised through MFD Circular No. 02 of 2009 dated August 27, 2009) “Housing Loans: Maximum Loan size up to Rs. 500,000/- to a single borrower with household annual income up to Rs. 600,000/-. However, at least 60% of housing loan portfolio of an MFB should be within the loan limit of Rs. 250,000/- or below.”
MFBs’ HF Portfolio as of 30 June 2012
GLP as of 30th June 2012: Rs billion
Housing Finance Portfolio: Rs. 168 million
Tameer has 98% share in Housing Finance
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12. Financial Exclusion
The Formally Served
The Financially Excluded
56% of the adult population does not have access to financial services
The Informally Served
Pakistan has one of the lowest financial penetration in the world with only 12 percent adult population formally served.
Source: Access to Finance Survey 12

13. Financial Inclusion Number of Deposit Accounts = 30 million
Inclusion and Access are likely to radically change in future as a result of growth in areas of microfinance and branchless banking.
Number of Deposit Accounts = 30 million
Number of M-wallets = million 13

14. MF Industry Infrastructure
Industry Players and their
market share in terms of GLP
Infrastructure
10 Microfinance Banks (MFBs)
5 Rural Support Programs (RSPs)
9 Specialized Microfinance Institutions (MFIs)
9 NGOs
Outlets: 1739
Clients
2.2 M
MFB
54%
MFI 22%
NGO 6%
RSP
18%
MFBs growth is likely to further accelerate, and they would become dominating players. 14

15. Journey of Microfinance
Micro Credit to Microfinance
Brick and Mortar to Branchless Banking
Non Licensed to SBP regulated
Social safety net to Access to finance
Legal & Regulatory Framework
Features
Global recognition
National MF strategies (I&II)
Financial Inclusion Program (FIP)
BB models creating space for com. banks and telcos in MF space
Industry Consultative Groups – MFCG/BBCG
Coordination among regulators (SBP- SECP-PTA)
Financial Literacy / Capacity Development Programs
MF-specific Bureau
Historical Trends
loans & deposits
Portfolio at Risk (PAR)
Loan yields
Profitability
There have been broadly three phases i) Pre-2000, ii) , and iii) 2007-onward.
The MFIs Ordinance 2001 marked the beginning of a new era in microfinance, which allowed creation of micro-banking industry in Pakistan and allowed commercialisation of microfinance.
The MFIs Ordinance provides multi-institutional approach by encouraging not only setting up of new MFBs at District, Regional, Provincial, and National level with varying capital requirements, but also an opportunity to NGOs/MFIs to transform into a Microfinance Bank.
EMO Strategy 2007 accelerated SBP’s role in promoting growth and innovation in the sector. 15

16. Types of Micro-Credit S.No. Type Cap (Rs.) Eligibility 1 General Loan
150,000
Household annual income up to Rs. 300,000. 2
Housing Loan
500,000
Household annual income up to Rs. 600,000. 3
Microenterprise Loan
Self-employed or employ few individuals not exceeding 10 (excluding seasonal labor).
Loan classification / provisioning
partnerships
Funding – no restriction
Note:
At least 60% of housing loan portfolio of an MFB should be within the loan limit of Rs. 250,000/- or below. 16

17. How are Micro Housing Loans Different from Micro Enterprise Loans?
Individual Liability
5-10 years loan
May or may not be secured
Size is larger
Usage can be better tracked
Enterprise loans
Joint Liability
1 Year loan
Unsecured
Size is smaller
Loan usage is fungible 17

18. SBP Regulation (basic) Market Response Regulatory Adjustment
Conclusion
SBP Regulation (basic)
Market Response
Regulatory Adjustment 18

19. Thank you!