Penetration Rate for Microfinance in Pakistan Reaches its Highest Ever Level at 30%

Pakistan’s microfinance banking sector has achieved the highest ever penetration rate of 30%, with a marked expansion of operations and businesses being carried out by foreign and local banks catering to the largely untapped local market.

According to the statistics provided by the Pakistan Microfinance Network, penetration rate of the microfinance sector stood at 30.4 percent by end of March 2018. The number of operating branches by various microfinance banks reached 3,861 at 137 different locations.

Microfinance banks have geared up their operations in different cities in the past couple of years, which showed accelerated growth in major indicators, reflecting the progress in the industry.

In 2017, emerging microfinance banks such as Mobilink Microfinance Bank and U Microfinance Bank witnessed a record growth in profits including their assets, branches, depositors’ base, borrowers and etc.

Currently, the industry stands at around 6.23 million active borrowers with a gross loan portfolio (GLP) of Rs. 224 billion. Whereas the potential market size for microfinance in Pakistan is estimated to be around 20.5 million using the loan size range of Rs. 10,000 to Rs. 150,000, and 17 million using the loan range of Rs. 20,000 to Rs. 150,000.

The number of savers increased to 28 million, with their deposits value surging to Rs. 190 billion by end of March 2018.

The Pakistani microfinance sector has been consecutively termed as one of the best in the world due to its enabling business and regulatory environment by the Economist Intelligence Unit (EIU).

Over the years, microfinance providers have been at the forefront of providing financial access to excluded segments by offering a range of customized financial products and services such as credit, savings, insurance, and remittances.

The industry has evolved and adapted to the changes in market demand and segmentation. It has been considered a valuable tool for poverty alleviation as well as for financial inclusion. Microfinance, through its unique business model community-based approach, holds the potential to change the socio-economic growth of developing nations.

The gap in market penetration presents an opportunity for microfinance providers to tap into unexplored markets. However, bringing microfinance services to the field has been costly since it is a labor-intensive process, thus, limiting the ability of providers to rapidly expand scale along with increased margins of errors and fraud.