Microfinance Banks outperform conventional banks in customer outreach
Despite challenging macroeconomic conditions, Microfinance Banks (MFBs) are
expanding their financial services to the low-income population, now serving
more account holders and borrowers than conventional banks.
The State Bank of Pakistan (SBP) reported that in CY23, branchless banking
(BB) accounts increased by 18.1 percent, reaching 114 million, with 64.1
million active accounts. MFBs contribute to about 80 percent of all BB
accounts, while conventional banks have around 85 million account holders.
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with stakeholders helping expand operations: CEO Khushhali Microfinance Bank
In the Financial Stability Review-2023, the SBP noted that MFBs pose a low
systemic risk, representing only 1.3 percent of total financial sector assets.
However, due to their extensive customer base, MFBs are essential for the
National Financial Inclusion Strategy.
MFBs have significantly advanced financial inclusion through branchless
banking, providing accessible and cost-effective services to the unbanked and
underserved populations. The SBP stated that MFB borrowers totaled 5.7 million,
surpassing the 4.0 million borrowers of conventional banks. Approximately 58
percent of MFB loans are unsecured, based on personal guarantees and expected
cash flows, which has boosted financial service usage but also increased credit
risk.
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Bank accords approval to ASA Microfinance Bank (Pakistan) to start operations
Factors contributing to this risk include a lack of data-driven credit
models, economic vulnerability of borrowers, and the agriculture sector’s
exposure to climate risks. The future performance of MFBs will depend on their
ability to build resilience against such disruptions, particularly by restoring
post-pandemic borrower relationships, enhancing loan recoveries, and reducing
credit risk to protect their solvency.