Pakistan’s microfinance sector achieved a significant milestone with consistent growth over a period of one decade. However, it missed all major targets for 2020 set by the microfinance banks.
COVID-19 pandemic hit the business as usual of various sectors. It also adversely damaged the growth of the microfinance sector and the small and medium-sized business of the customers, mainly in 2020.
According to data released by Pakistan Microfinance Network, the number of active borrowers surged to over 7 million by the end of 2020 against the target of 10 million borrowers, including 4 million female borrowers.
The economic slowdown, lack of business opportunities, limited awareness among the targeted borrowers, and complicated processes of banks are the main factors behind the missing targets.
ALSO READ
Telenor Microfinance Bank Enters 2021 with Renewed Commitment for a Digital Pakistan
Pakistan Microfinance Network (PMN) conducted an assessment with five major microfinance banks, which revealed that nearly 85 percent of the clients of these banks reported a significant or a somewhat decrease in income, and their businesses had been negatively impacted by the coronavirus pandemic.
Businesses and informal workers doing casual work have been most affected by the lockdown. Out of those whose incomes had decreased, more than half (57 percent) cited market closure as the reason, followed by a decline in market demand (12 percent) and travel restrictions (11 percent) impacting mobility to earn a living.
Only 12 percent reported no change in income, while 3 percent stated that their income increased significantly. Out of those whose incomes increased, most were selling food, essential goods, offering an essential service, or were involved in healthcare.
The business of microinsurance witnessed a relatively slow growth in Pakistan. The number of insurance policyholders stood at 7.3 million against the projected target of 11 million insurance policyholders.
With the negative impact on the businesses of small entrepreneurs and borrowers, the financial performance of microfinance banks is likely to be affected adversely. However, as the business reopened across the country with conditions, a significant number of entrepreneurs became capable to witness the recovery of their businesses.
Microfinance banks with high-profit rates have succeeded in attracting a handsome number of depositors and savers. The profit rates offered by these banks are higher than the profit rate offered by conventional banks.
The number of depositors stood at 64 million against the target of 50 million by the end of 2020, according to the data updated by Pakistan Microfinance Network.
ALSO READ
SBP Removes Charges and Levy for Internet and Mobile Banking Services Permanently
The microfinance sector is one of the priority areas of the State Bank of Pakistan and the government to promote SMEs across the country through financial literacy and financing opportunities to the citizens under the National Financial Inclusion Strategy.
Several microfinance banks, along with various other partners, including Fintech, are working on innovative solutions to enhance the coverage areas of microfinance and digital banking across the country.
Going forward, the small and medium-sized entrepreneurs are likely to bounce back once the businesses return to normalcy across the country.
