Pakistan: Microfinance Sector Development Program

This report seeks to validate the program completion report (PCR) of Pakistan’s Microfinance Sector Development Program (MSDP).

The MSDP aimed to reduce poverty in Pakistan by helping develop the country’s microfinance sector. The report agrees with the PCR rating that the program was partly successful and that the loan it provided was relevant, but not very effective, efficient, or sustainable. It was able to set in place a conducive policy and regulatory environment for the development of the microfinance sector. It also facilitated the licensing of additional microfinance banks and restructured two development finance institutions. However, the lead institution Khushhali Bank limited its services to credit and failed to reach operational self-sufficiency. The Microfinance Social Development Fund, the Community Investment Fund, the Risk Mitigation Fund, and the Deposit Protection Fund did not achieve their objectives.

The PCR recommends diversification of institutions providing financial services to ensure competition and efficiency. Lessons from the PCR highlight the importance of:

• Measures to ensure program sustainability;
• Savings mobilization in operating sustainable microfinance programs;
• Amendments to loan agreements pertaining to the four funds.