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PAKISTAN ISLAMIC MICROFINANCE COUNTRY REPORT 2014
Content of this publication cannot be reproduced in any form whatsoever without prior written permission and due acknowledgement to IMFN. IMFN is not responsible for the content reported herein or for the consequences resulting from the use of this information.
©2015 Islamic Microfinance Network
Produced by Design & Printed by
Islamic Microfinance Network WARQ
To bring Islamic Microfinance to the forefront of Poverty Eradication through a concerted, transparent and sustainable effort
PAKISTAN ISLAMIC MICROFINANCE COUNTRY REPORT
Board of Directors
Mr. Syed Khurram Khursheed Program Manager EE&L & Provincial Manager Punjab Muslim Aid Pakistan
Mr. Shahid I Muhammad President Naymet Trust
Mr. Mohammad Adnan Director Microfinance Program Islamic Relief Pakistan
Dr. Muhammad Amjad Saqib Executive Director Akhuwat
Mr. Yasir Tariq C.O.O. Wasil Foundation
Ms. Tabinda Jaffery C.E.O. Asasah
Mr. Ali Qamar Partner, Advisory Services Ernst & Young
Dr. Hafiz Zahid Mahmood Assistant Professor, Department of Management Sciences COMSAT
Mr. Zubair Mughal C.E.O. AlHuda CIBE
Dr. Hafiz Zahid Mahmood Assistant Professor, Department of Management Sciences COMSAT
Mr. Mahmood Shah Khan Director IIB-UMT
Mr. Muhammad Ali Khan Senior Manager A.F. Ferguson & Co.
Mr. Nausher Khan C.E.O. Islamic Microfinance Network
Ms. Sahar Ali Research Associate, IMFN
S Azad Jammu and Kashmir Benazir Income Support Program Corporate Social Responsibility Funds Calender Year Department For International Development Federally Administered Tribal Areas Financial Self Sufficiency Fiscal Year Gilgit Baltistan Gross Domestic Product Gross Loan Portfolio Gross National Income Government of Pakistan Helping Hands for Relief and Development Islamabad Capital Territory Islamic Microfinance Institution Islamic Microfinance Network International Organisation for Standardization Knowledge, Attitude and Practices (Of Islamic Banking) Key Performance Indicators Khyber PakhtunKhwa Low Cost Private School Microfinance Institution Microfinance Practitioner/Provider Micro, Small and Medium Enterprise Non-Governmental Organisation National Rural Development Program National Rural Support Programme Outstanding/Active Loan Portfolio Operational Self Sufficiency Prime Minister Interest Free Loan Scheme Partner Organisation Pakistan Poverty Alleviation Fund Progress out of Poverty Index State Bank of Pakistan Sungi Development Foundation Securities and Exchange Commission of Pakistan Small and Medium Enterprise Water, Sanitation and Hygiene Promotion World Food Programme World Health Organisation
AJK BISP CSR Funds CY DFID FATA FSS FY GB GDP GLP GNI GOP HHRD ICT IMFI IMFN ISO KAP KPI KPK LCPS MFI MFP MSME NGO NRDP NRSP OLP OSS PMIFL PO PPAF PPI SBP SDF SECP SME WASH WFP WHO
has made trade lawful and made interest unlawful...(Ch.2: V.276)
Message From the Chairperson Message From the C.E.O. Islamic Microfinance Network, IMFN Background Microfinance And The Economy Regulatory Environment Public Sector Initiatives Conclusion Islamic and Conventional Microfinance: Analysis Islamic Microfinance Industry Performance Infrastructure Portfolio Funding Borrowers Urban Vs. Rural Gender & Development Lending Methodology Other Financial Services Sustainability Of The Islamic Microfinance Industry Social Performance Indicators Going Forward – Risks And Potential Product Diversification Synergies Use Of Technology Funding Target Setting For The Industry Testimonials HHRD Care Starz Asasah Akhuwat
Annexures Annexure I: IMFI’s Profiles Annexure II: IMFN Member Organisations Annexure III: Data Reporting IMFIs Annexure IV: IMFI’s Individual Data Annexure V: Glossary
5 5 6 7 8
9 11 14 16 20 21 23 24 25 27 30 32 37 38 39 41 41 42 43 44 45 46 47 48 49 56 57 58 59
It is with great pleasure that we present to you the first ever Islamic Microfinance Country Report for Pakistan. A herculean task that the Islamic Microfinance Network’s team undertook a few months ago and thanks to the co-operation of the industry practitioners and some tireless effort from the network team, we were able to collect, analyse and present this data to be used as a benchmark for times to come. The report serves an integral function of providing all those within the Islamic microfinance sector a platform to voice their successes and contribute to the creation of a vision for the industry. It also serves as a strong reference for the all related sectors to get a peak into the operational modalities, the outreach, the impact and the impediments of Islamic microfinance industry. I am of the strong belief that collectively, we can alter the socio-economic fabric of our society, we can create a change so vast that inequality and disparity no longer would have a place in our communities. The sector has achieved great successes in the preceding years, yet the targets we have set for ourselves for the future are even more ambitious than the milestones we have already achieved. With the collective consensus of the industry, the undying commitment for change displayed by the practitioners, the growing demand for Sharia-compliant financial inclusion and generous philanthropic support, we aim to not only meet but to surpass the aforementioned targets.
The fundamental pillars of hope, empathy, sustainability and equality upon which the industry is developing are values that we hope to further propagate in the coming years and embed deep in the communities within which we work. The strengths and impediments to progress of the industry are presented to you in the following report. Under the development auspices of the Islamic Microfinance Network, we intend on developing the capacities of the individual organisations and of the industry as a whole so that we may see the sector flourish and extend to the far corners of the nation.
It has been a landmark year for the sector and we intend on creating an even larger impact over the course of the coming year. Prime Minister Interest Free loan Scheme (PMIFL) under the auspices of PPAF augurs well. We are also grateful to SBP which is keen to support sharia compliant finance with a special focus on micro finance. This is how we all can nurture financial inclusion. I would like to thank the board members for their active participation in the actualization of this dream and the various organisations that are members of the network for their support. Thank you and God bless.
Message From the Chairperson
Dr. Muhammad Amjad Saqib Chairman IMFN
Message From the C.E.O.
It is an honour to present to you the inaugural report of the Islamic Microfinance Network. A pioneer report documenting the standing of the Islamic Microfinance industry in Pakistan. The sector currently is budding out of the infancy stage and we believe that with the appropriate guidance and support from the practitioner and regulatory community, it can blossom to extend the impact of its operations to all financially excluded individuals in the nation. The report before you is a combined effort of the IMFN team, the network board of directors, the network members & the reporting organisations who have provided their unwavering assistance and co-operation in the realization of this effort.
The sector has made due progress over the last 15 years, with an exponential increase in its outreach being experienced only in the last 5 years. As of July 2014, the total value of loans disbursed stood at PKR 10.28 billion through nearly 327 branches, the total borrowers served were in excess of 618,767 with the industry recovery percentage at 98.3% These figures in and of themselves are a testament to the viability and need of Interest-free microfinance in our poor borrower communities. The sector is generating significant attraction from external parties due its low operational cost, high rate of return based on equitable profit-sharing models and tremendous social impact. The sector personifies the implementation of the double bottom line in its operations. This interest has also gone from the field to echelons of the federal government that has established an interest-free microfinance portfolio of their own being implemented through the auspices of the Pakistan Poverty Alleviation Fund. It is our contention that with adequate advancements in the areas of product and revenue stream diversification, a proliferation and strengthening of industry practitioners is inevitable. These factors can converge to help the sector achieve the 5 year targets without much hindrance.
Being on the pinnacle of the Islamic finance and the microfinance sectors, we require constant introspection, review and adaptation to ensure maximal borrower impact. The sector is progressing towards the direction of self-sustainability, both on an organizational and on an institutional level. It is the distinct pleasure of the Islamic Microfinance Network to facilitate the attainment of this directional objective. Through capacity building, partial standardization of practices, institutional advocacy and