PESHAWAR: Security, high cost impede financial services in Fata
Bureau Report
PESHAWAR, March 25: Security, high operating costs, non-extension of certain regulations, low capacity and lack of market knowledge are the primary constraints in extension of financial services to the Federally Administered Tribal Areas.
This was the crux of day-long deliberations at a seminar on “Expending Financial Services in Fata”, organised by the Shore Bank International here on Tuesday.
Experts from financial sectors, officials from the State Bank of Pakistan, Fata Development Agency and executives of commercial banks shared their views on the issue.
Daniel Gies, senior consultant for the Shore Bank International, gave a presentation on SME and microfinance services in Fata in terms of assessment of demand and supply.
According to him, market demand exists in Fata for micro and SME lending products as well as other services, including deposits taking, payments and remittances.
Banks, he said, could address micro-entrepreneur and SME credit demand in Fata with business assistance and targeted loan products supported by local authorities.
Giving an overview of the existing financial sector of Fata, Mr Gies highlighted that at present only three banks with limited lending and deposit services were operating in the region. Only one of the banks, Khushali Bank, was a microfinance lender in the tribal area, he said.Against the estimated Rs5 billion credit demand in Fata, he said, 300 million, or 6 per cent of the demand, was currently being provided.
On microfinance side, Fata had an estimated demand of Rs216 million, of which Rs11 million was currently being given to tribal people that made hardly 0.8 per cent of the demand, he maintained.
Citing findings of a survey, Mr Gies said that security, on-time loan repayment, excessive operational costs to lend, loan monitoring costs and lack of knowledge of micro and SME business in Fata were the main constraints to the growth of lending activities by financial institutions.
Syed Sardar Ali, a consultant to the Khushali Bank, shared findings of a baseline survey conducted in five tribal agencies to assess the existing state of financial services offered in Fata.
He said 40 per cent of the household in tribal areas had limited savings, 74 per cent of which was kept in homes, 16 per cent in banks and five per cent in saving pool, also known as committees in local lingo. Only 17 per cent people in tribal areas had bank accounts, he said.
He was of the view that saving were mostly made for human contingencies such as births and deaths.
Tribal people, he said, usually borrowed up to Rs15,000 mostly, from family members and friends, 20 per cent out of which was invested in commercial areas.
He said loan demand in tribal areas ranged between Rs60,000 to Rs100,000, which made Fata a middle market where preferred choice of tribesmen would be commercial banks.
Allaudin Achakzai, joint director of the SBP, said regulatory framework for commercial banks for operating in Fata were clear, but still a lot needed to be done for expending financial services to the backward areas.
He conceded that security constraints and non-extension of most of financial laws to Fata were the main issues to be tackled.
Industrial Association of Peshawar president Nauman Wazir suggested that existing laws such as the Frontier Crimes Regulations could be applied to extension of lending facilities to Fata.
He maintained that banks were reluctant to provide lending facilities in Fata mainly because regulations related to mortgage and recoveries had not been extended to tribal areas. In his views, section 40 of the FCR, which deals with tribal guarantees, can be applied to loan recovery in Fata.
