Pakistan: Microfinance Sector Development Program (Investment Loan)
This paper validates the program completion report (PCR) on the investment loan that was a component of Pakistan’s Microfinance Sector Development Program (MSDP).
The MSDP sought to reduce poverty in Pakistan by developing its microfinance sector. One of its major components was an investment loan of $80 million for expanding microfinance outreach, enhancing community capacity to build social capital and strengthening institutional capacity of implementing agencies.
The paper states that the investment loan was partly successful. It was not very efficient or effective, and was unlikely to be sustainable. Khushhali Bank (KB) was given a credit line of $68 million under the investment loan for outreach expansion. It became the largest provider of microfinance services in Pakistan, but failed to meet outreach targets and mobilize deposits. The paper agrees with the PCR that the loan agreement should have had covenants to ensure KB’s financial sustainability and passed on foreign exchange risk to KB. It recommends that ADB use performance-based funding in future microfinance projects. It recommends that KB:
- Improve corporate governance;
- Intensify development and roll-out of savings products;
- Raise additional equity to address expected liquidity gap;
- Achieve financial sustainability.
