Integrating The First MicroFinanceBank and Social

Protection

Next Generation Access to FinanceSeptember 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

Experience of AKDN

Poverty in Pakistan Defined

• Rural Poverty: 36% in 1998-99 (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)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

ZakatCash transfer

•Low funding •Poor coverage•Adequacy of support

UshrCash transfer focused on

rural population

•Low funding (US$ 3-17 MM)•Poor Coverage (231K)•Lack of service delivery

Bait ul MalFunding 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 institutionsService

The First MicroFinanceBank LtdNot 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 MFBorrowers

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 childrenSocial

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

PermanentGroup

•Food security•Collaboration with Service Providers•Health Facility •Housing Facility

Temporary Group

•Analysis for development strategy•Interim Strategy•Exist Strategy•Monitoring•Disciplined Implementation

Exit Strategy for Poorest of Poor

• Retraining of earner• Food security• Health Facility

Initial Conditional Investment

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