MICRO loaning is growing fast and microfinance banks seem to be aware of the opportunities for expanding credit outreach rapidly. Yet they have a very long distance to cover.

According to the SBP, the outstanding loans of MFBs have shot up nearly 238pc in four years — from just Rs13.5bn in FY11 to Rs45.6bn in FY15. In FY15, too, microfinancing recorded the highest growth of 36pc compared to other credit vehicles/segments: 19pc for infrastructure financing, 15pc for agriculture, 11pc for housing and just 3pc for SMEs.

If the lending volumes of microfinance institutions other than MFBs are also included, microfinancing would emerge as an even smarter vehicle of development finance, executives of MFBs say.

One thing that remains amiss is the collective voice of the micro borrowers

“What enabled MFBs to make this happen is a strong demand for microloans, appropriate regulatory environment and the use of cellular phone technology,” according to a senior executive of Khushhali Bank Ltd.

A healthier trend seen in MFBs is that they’ve not only been able to lend aggressively to micro loan seekers, their ability to mobilise micro deposits — its growth rate — is also unmatched.

For example, in FY15, deposits of MFBs grew 41pc to Rs52bn from Rs36.9bn in FY14. This is five percentage points higher than the lending growth rate and will provide a cushion to MFBs to sustain their lending growth even in times when deposit mobilisation may slow down. “Besides, this indicates that MFBs are promoting savings among the poor people and making a dent, however small, in expansion of parallel channel of banking,” claims an executive of Waseela microfinance bank.

In FY15, they catered to a little more than 200,000 new loan-seekers raising the total outstanding number of all the 10 MFBs to 1.296m, a growth of 18pc over that of FY14. From Karachi’s sub-urban areas to small villages in all the provinces, one can find a borrower of an MFB.

“I’d applied for a Rs150,000 loan and I got it in less than three months from a Tameer Bank branch in Orangi,” says Muhammad Israr, a young man in late 20s who used this money to expand his business of printing logos on P-Caps for certain companies. Israr, himself a resident of Orangi, now plans to seek another loan to buy instruments for a video-film making shop which he jointly owns with his neighbour.

Micro borrowers, both men and women, in different fields of activity ranging from hens and goats rearing to manual clothe dying to mobile phone repairing to retailing of food items continue to borrow from MFBs.

But to make a significant impact of microfinance on the economy and minimise poverty this industry needs to sustain its rapid growth.

“Incremental number of borrowers must not be in tens of thousands per year, I think it should be no less than half a million a year,” says a senior executive of Tameer Bank pointing out that the number of potential micro loan seekers in the country is no less than 10m. “Secondly, branch-less banking and the use of cellular phone technology ought to be increased rapidly to reach out to new borrowers in the remotest areas.

“And, the annual volumes of incremental lending and deposit mobilisation has to be doubled or tripled from its current levels, if MFBs are really serious in their business growth as well as in making a dent in poverty and boosting economic activity.”

Micro lending seems poised to continue to grow at double-digit rates for some years, central bankers say. But one thing that remains amiss is the collective voice of the micro borrowers. No truly representative body of micro borrowers exists now though print and electronic media keep highlighting the problems being faced by them.

The principal complaint of the people who borrow money from MFBs is the lender’s very high effective rates of return, still ranging between 20-30pc. MFB executives argue that micro loaning involves high operational costs. But many of them privately admit that a strong growing demand for microfinance is the reason number one for high interest rates.

Central bankers say that the issues of collateral and bad loans have been adequately addressed through tailor-made microfinance prudential regulations, removing some excuses of MFBs for charging exorbitant rates.

They say that dearth of properly-trained microfinance bankers, just like Islamic bankers, also adds to high operational cost of MFBs. That is where MFBs must do something.

Published in Dawn, Business & Finance weekly, February 15th, 2016