State of Microfinance in Pakistan

This report provides an overview of the state of microfinance in Pakistan from the demand and supply side up to the end of December 2008.

Microfinance sector in Pakistan has made significant progress in the last few years. It has grown rapidly, moved towards sustainability, and is operating within a supportive policy and regulatory environment. Challenges, however, remain. They include:

• Slowdown in growth due to rising Portfolio at Risk of some of the main MFIs;
• Limited outreach especially in terms of coverage and actual use of services by women;
• Huge gap between supply and demand;
• Concentration of services in and around the largest urban centres;
• Lending methodologies and client screening systems that exclude the poor;
• Limited range of MFI financial products;
• Loan amounts, repayment schedules and duration of loans that do not meet client requirements;
• Issues of sustainability, interest rates that do not cover costs of delivery, and dependency on donor financing.

Finally, The Pakistan Poverty Alleviation Fund and the Pakistan Microfinance Network have played a commendable role in helping to strengthen institutions, enhance industry standards, and improve transparency and performance.