In this insightful video, Mr. Zafar Masud, Chairman of Pakistan Banks’ Association and President & CEO of The Bank of Punjab, sheds light on his ambitious vision for advancing the microfinance industry at the Annual Microfinance Conference.
He highlights the pivotal role of microfinance in achieving financial inclusion and empowering marginalized communities with greater access to financial tools. His approach aims to reshape the financial landscape, driving sustainable economic growth across Pakistan. Tune into the full video to hear his complete insights!
Mr. Zafar Masud on Enabling Microfinance Industry
Ladies and gentlemen, esteemed leaders, and colleagues, it is both an honour and a privilege to discuss a vision for the future of Pakistan’s microfinance sector. A sector that holds tremendous potential to drive financial inclusion and economic empowerment across the nations. As we gather to explore this vision, we must recognise the magnitude of the task ahead.
Financial inclusion is not simply an economic issue; it is a matter of social justice and equality. We must strive to create a system that empowers individuals regardless of their socioeconomic status or geographic location to access financial services that can transform their lives. This calls for a comprehensive and bold vision tailored to the unique challenges of Pakistan while harnessing the opportunities we have at our disposal.
While significant strides have been made, we must acknowledge that we are far from reaching our full potential. The outreach of Pakistan’s microfinance sector currently touches the lives of 10.5 million borrowers. However, this number pales in comparison to the needs of our population, which exceeds 230 million. This stark gap demands a strategic recoloration of how we deliver financial services.
Financial inclusion should not merely be about providing credit. It must be about creating lasting and sustainable change in the lives of individuals and communities.
The journey to achieve this vision will require us to address multiple challenges, scale our efforts, and bring transformative products to the market that respond to the unique conditions of Pakistan.
One of the most pressing challenges is the multifaceted capacity of microfinance institutions to serve Pakistan’s vast and diverse population.
Despite having over 50 institutions operating across the country, many remain undercapitalised, constrained by outdated systems, fragmented operations, and insufficient skill sets and workforce capabilities. This makes it difficult for these institutions to scale their services in a meaningful way.
This calls for a microfinance-accelerated program.
I see this conference as one such endeavour in that direction. The microfinance-accelerated program should focus on access to subordinate credit, upgrading technological infrastructure, streamlining operations across MFIs, and developing a unified platform that all institutions can leverage.
Such a platform would not only standardise procedures but also drive efficiencies by reducing operational costs and minimising the complexities that currently shackle service delivery in an impactful way.
Ladies and gentlemen, we must invest in human capital by offering targeted training in collaboration with academic institutions. These programs should focus on building a workforce which is not only technologically focused but also understands the nuances of servicing low-income populations and addressing the unique financial needs of underserved communities. This is indeed a specialised area.
Another key challenge we are confronted with is the limited demand for microfinance products, especially among critical segments like women and youth.
In Pakistan, cultural norms, limited mobility, and lack of asset ownership remain significant barriers that prevent women, particularly in rural areas, from fully participating in the formal economy.
While various women-focused initiatives exist, they are often limited in scope and have not reached their full potential. Only 22% of women and Pakistan are part of the former workforce. A percentage that lags behind our regional peers, such as India, where the number is closer to 30%. The global average is 38%, by the way, and if we only achieve that number, the impact on our GDP would be substantial.
To address this, we need a targeted approach focused on empowering women economically. A dedicated women’s financial empowerment program should be developed to focus on sectors where women play a dominant role, such as home-based businesses, agriculture, and livestock.
By providing tailored financial products coupled with nonfinancial support like mentorship, business training, and digital literacy, we can help women overcome the barriers they face in accessing financial services.
Similarly, we must tap into the potential of our youth by offering youth-specific microcredit programs. By linking these loans to vocational training and entrepreneurial development initiatives, we can create opportunities for young people to start their own businesses, especially in the informal economy, where most of them currently do not find employment.
At this stage, I would also like to emphasise that microfinance must look at educational loans. I am very well aware of the total constraint in the amount a microfinance institution can offer as funding, but nevertheless, that would still be a big support for the youth than not having access to any educational loans otherwise.
The lack of sufficient funding and weak linkages between MFIs, government bodies, and international donors remain persistent hurdles that limit the scalability of microfinance in Pakistan.
While large institutions may have access to various funding sources, smaller MFIs struggle to secure the capital; they need to expand their reach.
Establishing a national microfinance invocation fund would help bridge this gap. This fund, supported by international organisations like the World Bank and the ADB, could offer grants and matching funds to MFIs that propose innovative solutions tailored to the needs of rural and low-income populations.
Such innovations could include digital financial services, green finance initiatives, and gender-specific lending schemes. Furthermore, we could explore blended finance models where concessional funding from international donors is combined with commercial bank financing. This would also help in de-risking financing to the microfinance sector and provide MFIs with access to more affordable credit. A risk sharing mechanism, co-developed by the State Bank of Pakistan and leading commercial banks, would be instrumental in this regard, allowing for greater coordination between MFIs and larger financial institutions.
Digital penetration remains another critical issue, especially in rural areas where the majority of Pakistan’s unbanked population resides. While mobile phone penetration has increased significantly, internet access and the adoptability of digital financial services are still lagging behind. To address this, we must create a microfinance digital highway, a comprehensive digital platform that enables the delivery of financial services in low-connectivity areas.
By collaborating with telecom companies and fintech start-ups, we can create a platform that integrates offline services with digital solutions, allowing people in remote areas to access microfinance products without needing internet connectivity.
The use of USSD technology is a perfect example of how we can bridge this gap, as it allows for simple text-based transactions that do not require a data connection. Coupled with financial literacy campaigns tailored to the unique needs of rural communities, this approach will not only broaden access but also ensure that the individuals are empowered to use these digital tools effectively.
To effectively enable the microfinance industry to meet Pakistan’s financial inclusion objectives, a comprehensive and multifaceted strategy is an absolute must. targeting product diversification Regional Outreach digital transformation Sustainable Solutions and Partnerships. Let me repeat, and the most important one is the partnerships.
This demands a shift from the current narrow focus of the finance microfinance sector to a more holistic and inclusive framework that addresses the evolving needs of underserved populations across the country. By integrating new products, expanding geographic reach, leveraging digital innovation, and fostering partnerships with commercial banks, this approach will significantly enhance the ability of microfinance institutions to contribute to economic development.
One of the fundamental pillars of this vision is product diversification. Currently, the product range offered by microfinance institutions remains limited, typically focused on short-term microcredit credit loans designed to meet immediate liquidity needs. However, for the microfinance sector to truly uplift underserved communities and drive long-term financial empowerment, this product portfolio must be expanded to include a broad array of financial services.
For instance, longer-term loans should be made available for essential items like homes, motorbikes, cars, and mobile phones by connecting the recovery of loan repayments and debt servicing with utility bills. A structure on which the banking industry, under the leadership of PBS, is currently working with the government of Pakistan.
These larger long-term financial commitments can significantly improve the quality of life for low-income households by facilitating access to assets that improve productivity, mobility, and connectivity. Furthermore, beyond credit, MFIs must offer a wide array of complimentary services, such as savings accounts, microinsurance, and, very importantly, remittance services.
Providing formalised savings options will help individuals build financial security over time, allowing them to cope better with the economic shocks. Microinsurance can protect against unforeseen events, whether they are health-related or linked to a natural disaster that disproportionately affects low-income communities.
Remittance services are crucial, especially given the large number of Pakistanis working abroad who regularly send money back home.
Integrating the services within the microfinance sector ensures a more comprehensive financial safety net for low-income populations, enabling them to manage and grow their financial resources more efficiently. With the rise of the gig economy, particularly in the freelance sector, specialised products catering to freelancers must also be developed.
These could include short-term working capital loans, health insurance, and saving products tailored to irregular income streams, helping freelancers manage their finances in a sustainable manner. Equally important is the need to expand microfinance services beyond their current geographic limitations.
At present, MFI primarily focuses their operations in Punjab and Sindh, leaving other regions undeserved. This geographic imbalance means that large segments of the population are excluded from the benefits of microfinance. To rectify this situation, MFIs need to expand their footprint from the conventional two provinces, tailoring products and services to meet the specific cultural, social, and economic context of each region.
In many cases, this may involve establishing partnerships with local organisations or community leaders to better understand the needs of populations and building trust within these communities. A more balanced geographic distribution of microfinance services would not only promote financial inclusion but also help address the economic disparities between different regions of the country.
By creating opportunities for entrepreneurship, income generation, and asset building, MFIs can play a critical role in promoting regional development stability. In addition to expanding geographically, the microfinance sector must embrace digitalisation as a key enabler of financial inclusion.
Digital financial solutions, including mobile wallets and the integration of credit and debit card systems into microfinance platforms, offer immense potential for bringing financial services to those currently excluded from the formal banking system. Mobile wallets, in particular, have already revolutionised financial access in many parts of the world, enabling individuals to make payments, transfer funds, and manage their accounts through their mobile phones without needing access to a physical bank branch.
In fact, in this context, I’m very thankful to Irfan Ali sb., who mentioned and discussed with you the Kisan card that the bank of Punjab and the government of Punjab are launching very soon; in fact, it’s planned for the 15th of October.
Whereby we have actually practiced what we are preaching right now, and we must encourage you all to watch that space very closely as there may be lots of learnings there. This whole proposition is especially important in rural and remote areas where traditional banking infrastructure may be lacking or difficult to access.
These financial mobile wallets can be linked to microfinance products such as savings insurance and credit, offering a seamless and convenient financial experience. The introduction of credit and debit cards as part of microfinance offerings would further empower users by giving them greater control over their financial transactions and access to a wider range of goods and services.
These digital tools not only increase convenience and accessibility but also help improve financial literacy as individuals become more familiar with managing their finances in a digital ecosystem.
To achieve this partnership with fintech, mobile network operators and payment service providers will be crucial, as they can provide the technological expertise and infrastructure necessary to drive the adoption of financial services at scale.
Another essential component for the development of the sector is the promotion of climate-related and sustainable financial products. As Pakistan faces increasing challenges related to climate change, such as rising temperatures, unpredictable rainfall, and frequent natural disasters, it is imperative that the financial sector contribute to climate resilience. MFIs can play a pivotal role by offering products that support the transition to a green economy.
For example, microfinance could be used to finance the purchase of electric vehicles such as electric motorcycles and rickshaws, which offer cleaner and more affordable transportation options for low-income individuals.
Similarly, loans for solar power installation can help households and small businesses reduce their reliance on conventional energy sources, lowering both their carbon footprint and energy cost in the long term. By integrating climate-friendly products into their portfolios,
MFIs not only contribute to environmental sustainability but also create new business opportunities that benefit both the borrower and the broader community and give them access to cheaper funding sources, which remains the biggest impediment to the growth prospects of MFIs. Targeting specific segments within the population is also crucial for achieving greater financial inclusion.
To support the expansion and sustainability of the microfinance sector, linking MFIs with commercial banks is essential. Partnerships between these two sectors can provide MFIs with access to greater sources of capital, allowing them to increase their lending limits and offer a wider range of products. Commercial banks can also support MFIs in terms of risk management compliance and operational expertise.
The future of microfinance in Pakistan lies in its integration with formal financial institutions. The microfinance sector must build stronger linkages with commercial banks, not just for funding but also to offer more advanced products and risk management services.
A robust MFI Bank cover strategy could enable commercial banks to partner with MSIs on large-scale lending for M&SMEs, with MFIs acting as the ground agents handling smaller disbursements. It doesn’t necessarily mean that the MFI has to extend funding as well, but they can perhaps provide the necessary foot support to the banks for lending to this M&SMEs sector.
Introducing shared risk management Frameworks supported by the State Bank of Pakistan’s credit bureau and the other private credit bureaus would improve credit assessments and make lending less risky for commercial banks. These partnerships can also help bridge the gap between informal microfinance services and the formal banking sector, facilitating the inclusion of underserved populations into the broader financial system.
Private-public partnerships, another area of my personal interest, represent another avenue for supporting the growth of microfinance. Through collaboration with government entities and private sector players, MFIs can access the resources, including funding technology and expertise, needed to scale their operations and improve service delivery.
I must quote here the example of Akhuwat, which has achieved this collaboration in a very effective fashion both with the government and with large government entities like OGDCL. PPPS could focus on areas such as infrastructure development, digital inclusion, financial literacy, and promotion of green energy solutions. For instance, partnerships between the government and the microfinance institutions could help promote solar energy adoption in rural areas with financing provided by MFIs and technical expertise offered by the private sector.
The creation of a centralised data repository and another constituency that I am in love with these days, modelled on the national integrated data archive Nida, or it could also be called a data exchange, is a key innovation that could greatly enhance the efficiency and reach of microfinance services in Pakistan. By partnering with agencies like NADRA and PITB, such a system would provide microfinance institutions with real-time access to critical client information. This access would simplify the lending process, reduce fraud, and cut down on the cost associated with verifying borrower credentials.
The establishment of Nida would offer numerous advantages, particularly in enhancing transparency and streamlining processes for MFIs. By integrating the data of key entities such as NADRA, FBR, power utilities, Telos, and banks, it would provide a unified, up-to-date source of information, enabling MFIs to conduct more accurate risk assessments and tailor products to specific client needs. This system would also improve governance by reducing data duplication and ensuring that only authorised entities have access to sensitive information, thereby strengthening trust between borrowers and financial institutions. Additionally, Nidas or data exchanges data analytics capabilities would allow MFIs to generate reports, identify trends, and make data-driven decisions, ultimately driving efficiency and expanding financial inclusion.
I have huge satisfaction in sharing with you that as PBA we have already started working on this jointly with karandas to develop something around Nida whereby we could see some kind of activity being housed at one place and an excess of data could be provided for improving financial inclusion, as I just said.
In conclusion, the future of Pakistan’s microfinance sector lies in its ability to move beyond providing basic credit services and evolve into a holistic financial ecosystem that empowers all citizens. By leveraging technology, forming strategic alliances, and focusing on underserved populations, we can build a system that not only expands financial inclusion but also strengthens the very fabric of our economy. It is time for Pakistan’s microfinance sector to realise its full potential. The path forward may be challenging, but with vision, commitment, and collaboration, we can create a future where every citizen has the opportunity to build a secure and prosperous life.
At this end, it’s all about collaboration, collaboration, collaboration, and collaboration between banks and microfinance entities, between governments and microfinance organisations, between international DFIS and microfinance, between society and microfinance, between industry and microfinance, between academia and microfinance, and the list of opportunities to connect goes on and on and on. It’s all about ecosystems; it’s all about developing and nurturing ecosystems in the business of microfinance. I would strongly recommend PMN consider it as a theme for the conference next year. I wish you all the very best and success.
Thank you very much.
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