LAHORE: Pakistan’s microfinance industry shrank marginally by 0.7 percent in terms of its gross loan portfolio (GLP) and 4.9pc in terms of active loans during the first half of 2020 because of the impact of the Coronavirus pandemic on the businesses across the country.

The lockdowns enforced to contain the spread of Covid-19 infections affected loan recoveries, increasing the industry’s portfolio at risk (PAR) ratio from 1pc in January to 3.4pc in June, according to a new report on the performance of the microfinance industry.

The country’s microfinance industry serves 7.3 million borrowers from the low-middle-income individuals, and micro and small businesses. It is twice the number of people – 3500,000 – served by the commercial banks.

The overall GLP of the industry declined to Rs309 billion from 311.3bn with non-banking microfinance institutions (MFIs), which are based in the rural areas with a large customer base of four million, consisting mostly of poor women, taking a much bigger hit than the microfinance banks (MFBs), which serve the small urban-based businesses.

The MFIs saw their gross loan portfolio squeezed by 7.5pc to Rs100.9bn from Rs109bn and their market share dipped to 32.6pc from 35pc in six months.

The banks, on the other hand, posted a loan portfolio growth of 2.9pc to Rs208.2bn, according to the report prepared by Tasdeeq-Aequitas Information Services.

Nonetheless, the industry observers say, the fallout of Covid-19 health crisis on the microfinance banks with a client base of 3.2 million borrowers and market share of 65pc is expected to appear when the payments of their restructured or deferred loans become due in the second quarter of 2021 to June.

The loan restructuring under a State Bank of Pakistan (SBP) scheme to protect businesses from the adverse effects of the Covid-19 increased the average ticket size to Rs44,501 from Rs42,837 as the total disbursement in the sector stood at Rs144.5bn during the six months to June. The industry’s write-offs also rose to 1pc from 0.8pc with MFIs witnessing defaults surging to 1.6pc from 1pc.

The industry’s size has contracted sharply by 32.8pc in Balochistan, 12.7pc in Gilgit-Baltistan and 7.6pc in Khyber Pakhtunkhwa. In Sindh, it neither grew nor shrank while posting marginal growth in Punjab, Azad Kashmir and Islamabad, says the report.

The industry felt the major impact during April and May when the economy was shut down over Covid-19 concerns. In June the industry began recovering from the effects of the health crisis and started disbursing new credit. Since defaults and risky portfolio levels remain high, the impact of the pandemic on the microfinance industry is likely to continue.

Published in Dawn, September 25th, 2020