Here’s What Happened in Pakistan’s Microfinance Sector in 2023

The microfinance sector in Pakistan maintained a recovery mode from losses to profitability as major banks suffered huge losses after a series of business challenges due to the COVID-19 pandemic and then floods in the operating areas, which eventually hit hardly their customers, mainly borrowers, and affected their business with a very limited chance of revival.

However, a few banks with operations mainly in urban areas and smart business strategies succeeded in maintaining their competitive edge in the industry, resulting in sustained growth in assets and profitability.

The challenging business climate forced many investors to exit the Pakistani market, but at the same time, it opened doors for opportunities for new investors to explore investment opportunities in this huge untapped market of nearly 240 million people. A few major developments in the microfinance sector are highlighted here.

(1) ABHI, TPL Corp. Express Interest to Acquire FINCA Microfinance Bank

ABHI and TPL Corp. teamed up to express interest in the acquisition of FINCA Microfinance Bank. This is the first time a leading fintech operator and an emerging business conglomerate have collaborated to acquire major stakes in a foreign microfinance bank. The team may also explore the option of a merger. The banking regulator also allowed the entities to do due diligence on the microfinance bank for the next stage.

The microfinance bank is maintaining assets of over Rs. 34.7 billion, with losses surging to more than Rs. 729 million by the end of September 2029. Its presence is spread through a network in more than 120 cities with 125 branches. Any possible deal will be a positive development for the microfinance sector.

(2) Advans Microfinance Bank Plans to Exit Pakistan

Advans Microfinance Bank is all set to exit Pakistan’s market despite its stellar performance in the recent past. The bank is being acquired by MNT Helan, the Egyptian digital payment provider with operations in multiple countries. The deal between the two banks is almost done, with only a few approvals left from the regulatory authority, which is likely to be announced in 2024. At present, Advans Microfinance Bank is operating in Sindh with a provincial license.

The bank had planned to expand its footprint countrywide; however, its losses continued to surge to over Rs. 1.3 billion. As one foreign entity is replacing another foreign microfinance bank, it is hoped that innovative services will be introduced to targeted customers with a segment of experienced staff, and the entire sector will witness advancement and improvement in business and trends.

(3) FINCA Merger with APNA Microfinance

The microfinance sector witnessed a series of deals in 2023. FINCA Microfinance Bank and APNA Microfinance Bank planned to merge their operations to enhance strength and outreach in the microfinance sector. The deal seems promising for both entities facing operational and business challenges, on the one hand, while this merger may bring correction to the entire sector, on the other.

After the due diligence process, the management of the two sides could not conclude the deal on a positive note due to disagreements on terms of engagement. Last year, the microfinance sector also witnessed flop deals as MCB Bank and UBL conducted due diligence exercises of Telenor Microfinance Bank, which unfortunately did not enter the next round.

(4) ASA Bank Gets a License

ASA Microfinance Bank (Pakistan) Limited was officially allowed to commence commercial operations in the country by the State Bank of Pakistan earlier in 2023. The addition of ASA Microfinance Bank was positive news for the microfinance sector at a time when a few banks are struggling to recover from losses and a few are weighing selling out their operations. ASA Microfinance Bank is the 12th microfinance bank to have a license for countrywide operations.

The bank has been operating as a microfinance institution since 2008 as a subsidiary of ASA International, hence it has established its footings in Pakistan. The bank is a part of one of the leading microfinance giants operating in 13 countries with more than 2,000 branches in Asian and African countries.

(5) LOLC Microfinance Bank Renamed from Pak Oman LOLC

Microfinance Bank rebranded its business identity from Pak Oman Microfinance Bank earlier in 2023. The global microfinance provider, with a presence in 25 countries, entered Pakistan and acquired Pak Oman Microfinance Bank in phases.

In 2017, LOLC Holdings PLC acquired the controlling stakes of Pakistan Oman Microfinance Bank and became the joint venture partner of the microfinance bank with 51 percent shares. In 2022, the group acquired 33 percent of the bank’s shareholding from the Ministry of Finance of the Sultanate of Oman and 17 percent from Pak Oman Investment Company Limited at an agreed price of Rs. 10.5 per share.

Later, the bank was rebranded as LOLC Microfinance Bank (Pakistan). In 2023, the bank received a capital injection of Rs. 911 million from the parent company to improve its financial position.

The bank reported a loss of Rs. 369 million by the end of September this year. The bank has 84 branches countrywide. Going Forward The microfinance bank continued to witness a transition in 2024 as new players will be replacing the old shareholders, mostly foreign entities, with an interest in investment along with technology and innovation to offer.

Pakistan’s microfinance market may face further competition due to the growing business of fintech operators, the digital banking services of established conventional banks, and the emergence of upcoming digital banks in the competing market. The sector might also report a merger of two banks and multiple collaborations between banks and microfinance banks, fintech operators, and microfinance banks in 2024.

Other players in the sector included Khushhali Microfinance Bank, U Microfinance Bank, Mobililnk Microfinance Bank, Microcred, HBL Microfinance Bank, Telenor Microfinance Bank, Microcred, NRSP Bank, and HBL Microfinance Bank.

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