May 14, 2006	Sunday	Rabi-us-Sani 15, 1427

KARACHI, May 13: The First Women Bank earned a profit of Rs1 billion during the last five years from business in microfinance and small and medium enterprises that are bank’s ‘biggest revenue generator’ and showed an enviable recovery rate of 98 per cent.

In a presentation on “Bridging the gap between microfinance and SME finance, Zarine Aziz, President of the First Women Bank, on Saturday attributed the success of her bank with SMEs to the government that provided an enabling environment in 2003.

She made the presentation in the second working session of the two-day Dawn Asia Finance Conference.

Pre-2003, she recalled, commercial banks were simply not interested in SMEs or microfinance. “The corporates were then charged three to six per cent, retail clients paid seven to nine per cent, SMEs paid 11 to 13 per cent, while micro borrowers had to pay 20 per cent.”

Micro borrowers, the FWB president said, were the poorest or of the poor, usually women. The loan amounts are paltry and are usually used for subsistence purposes. The SMEs on the hand are “not so poor” gender desegregated and business oriented.

The micro borrowers and SMEs operate in the informal sector, with little or no documentation and hence these suffer from information deficiency. Given these deficiencies, the micro borrowers and SMEs largely depend on private savings for their financings.

She quoted a State Bank survey according to which out of 1,000 SME manufacturers, only one per cent borrowed from formal sources and that too for working capital requirement. Only seven per cent of the manufacturers with less than 100 employees utilized credit from formal financial institution.

She said that SME remained the large untapped business area for banks which contributed 30 per cent to the GDP.

Mohammad Ashraf Khan of SME department of the State Bank informed the audience of the prudential framework set in place by the central bank for the major players that are six micro finance banks with 92 branches, leasing companies and NGOs and the rural support programme.

The SBP regulations define the ownership structure and functions of micro finance banks, while the prudential regulations define precisely the capital adequacy, loans loss provisions, depositor protection fund, maximum loan size, cash reserve and statutory liquidity fund requirements, audit and disclosure requirements and credit rating.