SBP may issue 4 new licences to set up micro finance banks in private sector

ISLAMABAD — Pakistan's central bank is expected to issue four more new licences in the private sector to help set up micro finance banks aimed at extending small loans to the needy people.

By A Correspondent

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Published: Mon 19 Mar 2007, 8:57 AM

Last updated: Sat 4 Apr 2015, 10:53 PM

Informed sources said the State Bank of Pakistan (SBP) is currently processing around ten applications but not more than 4 new micro finance banks were likely to be allowed to operate at least in the near future.

However, some officials have reportedly advised the government to follow the Indian example to get the prevailing 20 to 30 per cent interest rate reduced for extending small loaning to the poor and deserving households both in urban and rural areas.

The Indian cabinet has approved the idea and now the issue is in the Indian parliament which is expected to also approved it.

"In fact they (Indians) capped the interest rates attached to micro financing and this could be followed here as well", said a concerned official. However, he said that Pakistan's first macro finance institution — Khushallibank — is charging the lowest markup up which is maximum 20 per cent and in some cases it is less compared to other such banks operating in the country.

However, the question generally asked is whether small loaning has put certain effect to cut poverty which many people believe is still rising despite government's claim of 10 percentage point reduction. The World Bank says that only 5 per cent reduction in poverty has been witnessed. It does not agree with the government on its claim of 10 per cent reduction in poverty.

A senior official of the ministry of finance believes that a lot more was still be done to cut poverty across Pakistan and that this job could be done through micro financing to the poor people. He agreed that outreach to poor should be increased substantially for expecting better results.

Microcredit continues to receive global attention for being an effective tool for poverty reduction and more recently the award of Nobel Peace Prize to Professor Younus and the Grameen Bank of Bangladesh has brought about a realisation that there can be no peace without eradicating abject poverty provided increasing impetus to the effort of the world community for the development and expansion of micro credit.

In November last year at the Global Microcredit Summit in Halifax, Canada was recognised in terms of landmark legislation for microcredit and the supporting framework as well as the release at the Summit of the 2005 MIX Global League report featured Kushhali prominently in terms of achieving growth in a short span of time.

Currently there are five micro credit banks, beside Khushhali bank which are operating in Pakistan and include Agha Khan microfinance bank, Pak Oman microfinance bank, Tameer micro finance bank, Rozgar microfinance bank and Network microfinance bank. "But certainly there exists increased possibilities for more microfinance banks", he said.

Generally, it is said that there is sufficient evidence to show that microfinance works and the challenge is to build a financial system, which caters to the needs of the majority of the population and provided equal opportunities in terms of access to an array of affordable financial services. But the important task is to secure global commitment to developing such a system where people irrespective of their economic threshold have access to services they require to make the best possible use of their human potential. In this context a number of measures are required to underscore the effectiveness of these initiatives.

The Asian Development Bank (ADB) had provided $150 million to the government to help extend increased small loaning to the Pakistani people. In this behalf the Bank is likely to offer $320 million to the government within this year.

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