Expanding Microfinance Outreach to the Poorest in Pakistan

MANILA, PHILIPPINES - A US$2 million grant from ADB’s Japan Fund for Poverty Reduction (JFPR), financed by the Government of Japan, will test ways to expand microfinance outreach and services to the poorest in Pakistan.

The project will develop innovative savings products, complete with policies and procedures that will be disseminated to all microfinance banks. The First Microfinance Bank (FMFB) will test the new products in Northern districts of the country, while the Kashf Foundation, after obtaining a license to be a microfinance bank, will test them in Lahore, benefiting around 2,000 clients.

“The poorest have fewer assets, fewer job opportunities, and greater vulnerability to economic shocks,” says Sukanda Lewis, an ADB Financial Economist. “They generally remain outside conventional microfinance programs. This project specifically targets that segment of the population.”

To lower transaction costs and improve the poor’s access to financial services, mobile banking and mobile phone-based technology will be explored as delivery channels. FMFB will pilot these in the North-West Frontier Province, the Northern Areas, and the Lower Sindh, to reach about 15,000 people. All microfinance banks are eligible to submit their proposals to develop such innovative delivery channels.

Another microfinance institution will be selected to pilot a system for targeting the poorest, where safety nets are provided in the form of food stamps and skills training are provided, along with access to savings and credit.

The project will also support financial literacy training for at least 1,000 people, with a special focus on women. It aims to increase the knowledge, skills, and attitudes necessary for the poor to manage their household finances.

The poor need deposit services to better manage emergencies, smooth consumption, meet expected demands for large sums of cash, and take advantage of investment opportunities. The demand for savings products may even far outstrip the demand for loans among poorer households.

The project complements the Improving Access to Financial Services Program, approved in December 2006 with a $320 million loan from ADB.

The Government will contribute $100,000 equivalent toward the project’s total estimated cost of $2.85 million, while $750,000 will be supported by grantees. The Ministry of Finance is the executing agency for the project, which will be carried out over about three years.

The JFPR was set up in 2000 with an initial contribution of $90 million, followed by additional contributions totaling $155 million in 2002, and annual contributions up to 2006 bringing the total amount to $360 million.

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