Investing in financial inclusion: Pakistan

Introductory remarks
  • Syed MOHSIN AHMED, Pakistan Microfinance Network (PMN)
  • Ali BASHARAT, Pakistan Microfinance Network (PMN)
  • Roshaneh ZAFAR, Kashf Foundation, Pakistan
  • Rashid BAJWA, NRSP, Pakistan
  • Yasir ASHFAQ, Pakistan Microfinance Investment Company (PMIC)
  • Daniel SCHRIBER, Symbiotics


Syed MOHSIN AHMED, from the Pakistan Microfinance Network (PMN), opened the session with an explanation of the financial inclusion context in Pakistan. He indicated that Pakistan is lagging behind India and Bangladesh in terms of formal accounts, formal savings, microfinance borrowers and number of MFIs. Nonetheless, Mohsin Ahmed also argued that Pakistan has good potential for growth. Out of a population of 200 million, Pakistan has 5.5 million active borrowers, 25 million active savers and 6.3 million policy holders for insurance. Mohsin Ahmed added that potential microfinance outreach could amount to 19-21 million clients. In the last five years, outreach has grown in credit, savings and insurance. He also highlighted that the entire microfinance sector is regulated by both the Central Bank and the Security and Exchange Commission (SEC).

Mohsin Ahmed explained that Pakistan is both financially and operationally self-sufficient. Since 2012, portfolios at risk and write-offs have substantially decreased. He nonetheless highlighted a few challenges for financial inclusion in Pakistan: political instability and security issues (related to Pakistan's upcoming election in 2018), climate change (such as flooding and drought), and the absence of a client grievance mechanism.


Ali BASHARAT then asked the panellists to share their own experiences. Rashid BAJWA, of the NRSP, one of the leading microfinance banks in Pakistan, commented that regulatory environment in Pakistan is very supportive and is one of the key drivers for future growth. As micro­finance banks account for the majority of the growth in Pakistan, Bajwa called for clarity on how the Central Bank is regulating these banks to achieve sector growth, so that the SEC can learn from it. The regulatory environment and growth potential prompted commercial banks and international institutions to come into this sector, but international investors still face a problem related to the cost of loans, as interest rates are quite low.

Yasir ASHFAQ, from the Pakistan Micro­finance Investment Company (PMIC), gave a perspective on the macro environment in Pakistan. He explained that, although the country's GDP is growing, 39% of the population lives below the poverty line. He pointed towards several developments that are attracting foreign direct investments, including government strategies to improve doing business in Pakistan. As international investors are coming in, competition for PMIC is growing.

Roshaneh ZAFAR, from the Kashf Foundation, explained that there is strong inclusive growth in Pakistan. The country has a credit investment bureau giving credit scoring, innovation in finance is growing and there is a robust policy framework. She added that, in this context, the Kashf Foundation turns to international lenders to diversify their sources of funding, gain access to new loans and improve transparency. She explained that Pakistan was seen in the past as a high-risk country by many foreign investors. With the recent changes in the sector, foreign investors are more willing to invest in Pakistan.

Daniel SCHRIBER added that Symbiotics recently invested in Pakistan for the first time. Symbiotics works in the micro­finance and SME sectors and found considerable potential to develop the micro segment in Pakistan. Schriber explained that, before investing in a country, Symbiotics looks at the growth potential, level of indebtedness, whether regulations are in place, in what currency they need to invest and how the risk compares to the potential returns.

As NRSP was the first microfinance bank in Pakistan to borrow internationally, Basharat asked about their experience with international investors. Bajwa explained that the financial crisis forced NRSP to diversify and increase its equity. NRSP transformed half of its portfolio into a microfinance bank and the other half into an MFI. He explained that the experience of NRSP has opened the doors to other investors. The Central Bank now safeguards investments of registered investments; investors can obtain subordinated debt and it is easier for microfinance banks to get deposits.

Ashfaq emphasised that anyone wanting to invest in Pakistan is welcome. Although there is risk, good returns are possible: financial, economic and social. Although international investors can be a source of competition, they also add value and improve the quality of institutions in Pakistan. He added that PMIC is an ecosystem builder and its role is not limited to international investors. PMIC invests in institutions, shares best practices and develops new products for the whole sector.

Zafar added that for the Kashf Foundation new investors would need to buy into their mission to support female entrepreneurs. This support improves financial inclusion, job creation and investment in children. Foreign investors are key for the mission of the Kashf Foundation, in the sense that a lot can be learned from their experiences in other countries.

Schriber explained that Symbiotics could only invest in Pakistan in USD dollars, since the State Bank would not allow lenders to issue debt that include a synthetic hedge (or USD-indexed loan). This currency constraint has been an issue for Symbiotics since some of its investors are willing to take the currency risk. As of today, MFIs have to find solutions locally to hedge this risk, which is costly and represents a large burden on the MFI. International investors and MFIs should take this issue up with the State Bank to find a solution to allow for local currency lending.


An audience member argued that, if Pakistan is self-sufficient in terms of funding, the geopolitical risk would increase if MFIs rely on international funding to create market growth. How are the panellists managing this risk? Bajwa responded that investors will come to Pakistan because it is a robust and growing market with high potential.

Zafar explained that it is important to discuss risk thresholds in terms of geopolitical risk. In Pakistan, the microfinance sector is robust and there is a policy framework to manage risks, although there is still a risk related to political economy. The sector has a system to manage credit risks, using credit bureaus and the identification of clients with the national ID card. She argued that the international perception of Pakistan needs to change. Ashfaq added that international ratings of Pakistan are almost at a stable level. He argued that international investors charge a premium of 3-4% which accounts for the geopolitical risk. Moreover, there are significant lines available to repay the loans MFIs borrow from international agencies.

Schriber concluded that there is a negative perception from international investors on the security and political issues in Pakistan. At the same time, the returns are also linked to the risk of investing in Pakistan. As the microfinance sector in Pakistan is improving, investor interest is growing as well.

A member of the audience commented that Pakistan has been a high potential market for the last five years. However, Pakistan is still lagging behind India and Bangladesh. What is the main deterrent that hinders this growth? Bajwa argued that Pakistani MFIs are reluctant to grow, as there are only a few large players in Pakistan. He added that Pakistan needs more patient capital to grow further. Ashfaq argued that microfinance in Pakistan is still relatively new, and has been very cautious due to the low level of regulation. Now that systems are in place, he expects the microfinance sector in Pakistan to grow. Zafar concluded by giving four reasons why growth has been modest: 1) Missing vision for growth; 2) Nature of financing gave little time for institutions to invest in development of the systems; 3) Limited product innovation; and 4) Struggles with data analysis.