With the help of foreign donors, the Pakistan Poverty Alleviation Fund (PPAF) is going to set up the Pakistan Microfinance Investment Company (PMIC), a statement said.
The PPAF said it would provide the new entity with Rs3 billion as equity while two other shareholders would contribute approximately Rs3.1 billion.
The Department for International Development (DfID), which is the UK government’s department responsible for administering overseas aid, will extend £15 million for the venture. Frankfurt-based KfW, which is a development bank owned by the German government, has pledged to contribute €7 million towards PMIC.
Representatives of the PPAF, DfID-funded Karandaaz Pakistan and the KfW signed a shareholders’ agreement to establish PMIC as a non-bank finance company (NBFC) on Friday at a ceremony attended by Finance Minister Ishaq Dar.
“The establishment of the PMIC, a private-sector investment finance company, was identified as one of the key milestones in the National Financial Inclusion Strategy (NFIS) launched by the finance minister in May 2015,” the statement said.
The PMIC will invest in microfinance providers on behalf of its shareholders. As a result, microfinance providers will get access to liquidity, which will enable them to better serve the poor, micro and small enterprises in Pakistan.
It is estimated that financing the PMIC will support nearly 300,000 new job opportunities every year, the statement said.
Speaking on the occasion, PPAF CEO Qazi Azmat Isa said it was a watershed moment for the microfinance sector, as the PMIC would build upon the foundations it laid 15 years ago by providing responsible financial services to the millions of poor and financially excluded individuals.
“The new company is expected to commence operations by July 1 after completing regulatory requirements. Fifty per cent of the loans by the PMIC will be directed to women and rural areas,” he said.
The PPAF has been providing revolving funds to microfinance institutions and building capacity of organisations to become more effective and efficient. Currently, approximately three million individuals in Pakistan are accessing microfinance services out of the estimated potential market of 20.5 million.
The sector expansion is constrained due to limited financing. The PMIC will provide the much-needed liquidity to the microfinance sector to reach out to 10 million clients by 2020, a target set by the industry to improve the state of financial inclusion in the country, the statement said.
The microfinance sector is divided in peer groups – such as 10 microfinance banks, 16 microfinance institutions, six rural support programmes and 16 ‘others’ – based on their regulatory structure and nature of business.
The gross loan portfolio of the microfinance sector increased 39.3% year-on-year to reach Rs93 billion at the end of 2015.
The penetration rate of the microfinance sector increased only marginally from 13.3% to 13.7% over the last quarter of 2015, the latest period for which data is available.