Types of MFIs
Presently the microfinance sector has microfinance providers (MFPs) categorized into five peer groups by the industry network PMN as MFBs, RSP, specialised MFIs, multi-dimensional NGOs providing microfinance services, and others.
The MFBs are licensed, supervised and regulated by SBP and are part of the formal banking industry and therefore are licensed, regulated and supervised by the central bank. The central bank has issued separate prudential guidelines for the MFBs. The prudential regulations are issued under the guidance of the Pakistan Microfinance Ordinance 2001 and have set different criterion for microfinance banking operations with respect to paid-up capital, CAR and maximum exposure to single borrower, group etc. The SBP has allowed a separate set of parameters to establish microfinance banks such as:
- Nation-wide MFBs with minimum paid up capital of Rs 500 mn (USD 5.88 mn)
- Province-wide MFBs with minimum paid up capital of Rs 250 mn (USD 2.94 mn)
- District-wide MFBs with minimum paid up capital of Rs 100 mn (USD 1.18 mn)
Out of total 8 MFBs, Rozgar Microfinance Bank and Network Microfinance banks are district wide institutions while the rest are in country wide operations.
The non-bank MFPs (Specialized MFIs, NGO-MFIs and RSPs), are registered with SECP under the Companies Ordinance 1984 or Societies Registration Act 1860 or Trust Act 1882. The non-bank MFPs largely remain unregulated and for this reason are prohibited from providing a full range of financial services. They cannot mobilize deposits from the general public. There is no specific notification by SECP or SBP forbidding non-bank MFPs to mobilize savings from member, and non-bank MFPs are indeed offering saving services to their members, however, the SBP have in recent past have take a negative view of this practice. Non-banks MFIs are negotiating with the SBP to allow them to take deposits, but so far SBP is reluctant to give such permission to non-bank MFIs. The SBP has encouraged these institutions to transform into MFBs and recently two of the largest MFPs have transformed as MFBs, Kashf has already completed the process while NRSP in underway.
Moreover, the SBP has issued guidelines pertaining to NGO-MFIs transformation to full-fledged MFBs and guidelines for commercial banks to start microfinance business along with credit guarantee facilities for commercial banks for onward lending to MFIs in the industry. However very few commercial banks provide microfinance services, with First Women Banks and the SME bank among exceptions. The SBP has issued regulations allowing banks to open microfinance windows, but no banks have yet demonstrated an interest in extending their services down-market.
Among PMN members, 8 are MFBs, 5 RSPs, 8 are specialized MFIs and rest 12 are in other categories.
As per their legal status, all MFBs, 4 RSPs , three specialized MFIs are registered as Section 42 companies. The rest are registered under Societies or Trust acts under various provincial registration authorities.
Under section 42, the institutions are allowed to register as NGO or NBFIs. The later called for specialized operations such as insurance, leasing or investment companies while registration under NGO section allow to carry on multidisciplinary operations along with microfinance. Also NBFIs by regulation are not allowed deposit mobilization and non-specialized activities other than those for which they are registered for.
As per latest data available for March end 2010, RSPs lead in number of savers and insurance policy holder while MFBs have largest share in active borrowers. However, there would be significant shift in the market share of MFBs from 45% to 55% when NRSP’s transformation to MFB is complete. The shift in favor of the MFB peer group would continue in the following years culminating in a final 60-40 split in market share by 2015 between MFBs and non-MFBs.