Bringing Finance to Pakistan's Poor: Access to Finance for Small Enterprises and the Underserved

Contents......Page 3
Acknowledgments......Page 9
Abbreviations......Page 11
Executive Summary......Page 13
Expanding Access to Finance, Links to Growth, and Poverty Reduction......Page 23
Objectives of the Report......Page 25
Pakistan—A Brief Market Overview......Page 27
1.1 Deposits, Loans, and Assets of the Banking System (Rs billion)......Page 29
Microfinance......Page 36
1.7 Islamic Banking Players......Page 39
Remittances......Page 41
Financial Inclusion and the New Financial Regulatory and Technological Infrastructure......Page 42
Low Overall Access to Finance......Page 53
2.1 Access to Financing, by Service......Page 55
2.4 Product Penetration......Page 60
2.3 Literacy Measures in Rural and Urban Areas......Page 62
2.7 Cost of Bank Access......Page 67
Savings and Investment—Popular, but Mostly Informal......Page 70
2.9 Government/Private Savings Accounts......Page 71
2.7 Rejection Rates for Existing Borrowers......Page 75
2.11 Sources of Funding of Emergency Payment......Page 76
Suggested Strategies for Expanding Access to Finance for the Underserved......Page 78
3 Access to Finance for the Underserved......Page 105
3.1. The Story of Microfinance in Pakistan......Page 106
3.1 Microfinance Penetration across Asia......Page 107
3.3 Distribution of Microclients......Page 111
Sources of Financing......Page 112
3.2 Sources of Financing for MFIs......Page 113
3.4 Key Performance Indicators of MFBs......Page 114
3.4 Cellular Penetration and Projected Mobile Telephone Trends by Province......Page 116
Regulation......Page 119
Growing the Microfinance Sector......Page 120
4 Improving Financial Access for Small and Medium Enterprises (SMEs)......Page 129
Access to Finance for SMEs: Supply-Side Evidence......Page 130
4.4 Credit to the Private Sector: A Profile......Page 136
Constraints to Improving SME Access to Finance......Page 143
Helping Banks Serve SMEs......Page 148
5 Harnessing Remittances for Access to Finance......Page 167
Market Players......Page 168
Distribution of Remittances by Region and Income Level......Page 179
5.5 Share of Remittances in Household Income for the Poorest Quintile......Page 182
Usage Patterns and Service Fees......Page 184
5.7 Cost of Sending $300 to Pakistan through Various Channels......Page 185
Policy and Regulatory Framework......Page 190
Suggested Avenues for Action......Page 194
The Role of the Private Sector......Page 207
The Role of the Public Sector......Page 212
The Role of Public-Private Partnerships......Page 214
A1.1 Indexes of Financial Access: Mean Values by Region and Country......Page 49
A2.1 Determinants of Access to Formal and Informal Financial Services, Probits......Page 83
Annex 4.1 Sample Description of KfW SME Survey......Page 151
A4.5 Average Years of Schooling of Owners of Sampled Enterprises......Page 153
A5.1 Workers’ Remittances by Sector......Page 199
Appendix A Data Methodology and Calibration......Page 217
Variable Description......Page 233
Bibliography......Page 237
Index......Page 247
1.1. Finance and Link to Growth......Page 24
1.2. Household A2F Survey for Pakistan (Demand-Side Data)......Page 26
1.3. Other Programs in Pakistan for Financial Inclusion......Page 45
2.1. Facts about Segmenting Pakistani Female Clients......Page 58
3.2. Lessons from Successful Postal Financial Systems......Page 109
3.3. Case Study: Technology Innovations Have Improved Back-End Processing and Expanded Delivery Channels in the Microfinance Value Chain......Page 124
3.4. Basic Banking in India, Mexico, and South Africa......Page 126
4.3 Results for Selected Small Business Banks (December 2007)......Page 133
4.2. National Bank of Pakistan’s SME Lending......Page 135
4.3. How Big Is the Potential Market for Providing Credit to SMEs?......Page 138
4.4. China SME Lending Project......Page 147
5.1. A Closer Look at Habib Bank Unlimited......Page 172
5.2. Innovative United Bank Unlimited Products......Page 173
5.3. Zarco Exchange: Branching Out, Including Online......Page 174
5.4. Indian Nongovernmental Organization Helping Domestic Remittances......Page 186
5.5. Mobile Banking: G-Cash (Philippines) and M-Pesa (Kenya)......Page 188
5.6. Kiosks to Help Rural Outreach......Page 193
1.3 Trends in Saving Rates......Page 31
1.4 Banking Sector Penetration......Page 33
1.5 Banking Sector Performance......Page 34
2.1 Pakistan Access Strand......Page 54
2.3 Women and Microfinance......Page 57
2.5 Cash-Based Income across Sectors......Page 64
2.6 Product Penetration......Page 65
2.8 Reasons for Participating in a Committee......Page 69
2.6 Factors Considered before Taking a Personal Long-Term Loan......Page 74
2.13 Means of Receiving Income......Page 77
4.1 Access to Finance for SMEs in Pakistan, India, and Bangladesh......Page 137
4.3 External Sources of Fixed Capital......Page 140
4.6 Business Development in the Past 24 Months, by Firm Size (Number of Employees)......Page 141
4.5 Bank Access Increases with a Wider Range of Acceptable Assets to Secure a Loan......Page 144
5.2 Remittances—International Comparison......Page 169
5.3 Top Domestic Remittance Channels......Page 177
5.4 Regional Distribution of Remittances......Page 180
5.6 Remittance Growth......Page 183
5.7 Mobile Penetration by Province......Page 187
1.1 Basic Financial Indicators, International Comparison......Page 28
1.2 Breakdown of Loans (Domestic Operations) by Sector......Page 30
1.3 Comparative Position of Number of Branches in Pakistan (June 2008)......Page 35
1.6 Microfinance Outreach in Pakistan......Page 37
1.8 Credit to Private Sector and Growth in Lending......Page 40
2.2 Financial Literacy......Page 61
2.4 Formal and Informal Borrowing......Page 72
2.5 Purpose of the Loan......Page 73
3.2 Market Players......Page 108
3.5 Mobile Telephone Subscribers......Page 115
3.6 Interest Rates Charged in the Informal Market in Pakistan, 2005......Page 118
4.2 Breakdown of Lending to SME by Type of Facility......Page 131
4.7 Demanded Loan Product Features......Page 142
4.8 SME Application Process for Bank Loans......Page 146
5.1 Snapshot of the Main Channels of International Formal Money Transfer......Page 170
5.2 Percentage Post Offices by Province and Rural/Urban Areas......Page 175
5.3 Proportion of Rural vs. Urban Bank Branches......Page 178
A1.3 Trends in Inflation......Page 52
A2.2 Determinants of Access to Formal and Informal Financial Services, Multinomial Logits Marginal Effects......Page 86
A2.3 F-Statistic Comparisons of Likelihood for Financial Access......Page 88
A2.4 Determinants of Interest in Financial Matters......Page 89
A2.5 Determinants of Willingness to Enter the Financial Sector......Page 90
A2.6 Determinants of Access to Banking......Page 91
A2.7 Determinants of Access to Formal and Informal Borrowing......Page 93
A2.8 Determinants of Access to Formal and Informal Savings......Page 95
A2.9 Determinants of Access to Specific Formal and Informal Financial Products......Page 97
A2.10 Religious Considerations as a Determinant of Access to Finance, for a Range of Products......Page 99
A2.11 Determinants of Access to Finance of the Self-Employed......Page 101
A2.12 Reasons for Saving......Page 102
A2.13 Reasons for Borrowing......Page 103
A4.3 Legal Status of Sampled Enterprises......Page 152
A5.4 Rural vs. Urban Split of Bank Branches in Provinces......Page 200
A5.5 Workers’ Remittances to Pakistan by Fiscal Year and Country......Page 201
A5.7 Remittances, Contribution to Household Income, and Poverty Ratio......Page 203
A5.8 Determinants of Remittances in Pakistan......Page 204
A5.9 Organizations That Are Helping and Funding the Global Remittances Market......Page 206