Microfinance Needs to Connect to The Capital Market to Meet its Growth Trajectory

It is essential to connect the microfinance sector with the capital market to enable the sector to meet its growth trajectory and to support the government’s vision of creating jobs and expanding financial inclusion and by consequence alleviate poverty, Aamir Khan, Executive Director SECP, said while addressing the Microfinance Conference 2018, on Thursday.

The conference, titled “Accelerating financial inclusion through microfinance”, was jointly organized by the Pakistan Microfinance Network (PMN) and the UK Department for International Development (DFID).

Public sector representatives, microfinance entrepreneurs, and professionals were there to compare notes on key issues and future policy initiatives.

“Microfinance, financial inclusion and poverty alleviation go hand in hand,” he emphasized. “However, the right to ongoing access to credit must be earned through good credit behavior and this is where financial prudence and regulatory oversight permeate.”

The SECP has said that it is committed to improving access to finance for the poor people and micro businesses. In this connection, Aamir said, the SECP has been regulating these entities from 2015 after amendments to the NBFC regulatory framework.

Since then, both PMN and PMIC have been the SECP’s dependable partners in its endeavors to focus on financial inclusion.

Through PMIC’s financial support as a responsible wholesale lender as well as PMN’s role as a communication conduit between the SECP and its members, 26 entities have now been licensed to carry out microfinance activities in Pakistan.

“Today,” he informed the participants, “these 26 NBMFCs have over 3.2 million borrowers representing almost 50% market share, being serviced through over 2,500 branches.”

He said that the microfinance industry has recorded a very solid growth in recent years, but if the sector wishes to achieve the ambitious growth levels it has set for itself, then it needs to tap into private capital by establishing a deep relationship with the capital market. Hence, the steps to connect microfinance with capital markets would need to be taken at the earliest. He assured the audience that the SECP would fully support the initiatives to help build the bridge between microfinance and the debt capital market.

Secondly, he said, the sector needs to accelerate the pace of digitization. Disbursements, collections, distribution of cross-selling products, accounting systems, records, risk management and reporting, all need to be digitized on an end-to-end basis.

Aamir assured the microfinance institutions of SECP’s full commitment to play a positive and catalytic role in ensuring the growth of the sector and the protection of the consumers. He also said that the SECP is open to ideas, suggestions and deliberation.