ISLAMABAD, Dec 8: Long acclaimed in other parts of the developing world for improving poverty through targeted lending to the poor, microfinance is finally taking root in Pakistan.

But when Ghalid Nishtar gave up his career in private banking two years ago to take the helm of what is now the leading microfinance retailer in the country, it had barely made inroads.

“Pakistan was a late starter,” said Nishtar, president of Khushali Bank, a private institution run with the support of Pakistan’s government and 150 million dollars in loans from the Manila-based Asian Development Bank.

“Pakistan has been doing microfinance for the last 20 years, but on a very small scale. There was some donor money coming in, doing some intervention, but the client outreach was not there.”

“The requirement of microfinance in Pakistan is huge — two to three billion dollars per year — but this was only being met through informal means,” Nishtar explained.

This meant encounters with rapacious money lenders typically charging rates of 60-150 per cent and locking them into a punitive cycle of debt.

“It bonds the whole family, and once you get into it you’re never able to service this loan.”

Enter Khushali. Set up by the former military government in August 2000, its mandate is to provide retail microfinance and act as a catalyst in stabilizing and leading the sector.

The bank has spread speedily, making loans of around 15 million dollars to some 65,000 households in the past year, and shooting for 42 million dollars next year.

Most borrowers take out loans of 100 to 150 dollars, usually to purchase assets to help them start or improve their businesses. One-third of the bank’s clients are women.

Although the bank plans to open street-front offices in all of Pakistan’s 96 districts by next year, most of the work is carried out in the field, where Khushali officers build relationships with communities.

“These people are shy. They have not spoken to a bank ever in their lives,” Nishtar said.

Despite offering no collateral, they have proved excellent credit risks, with a repayment rate of nearly 98 per cent.

The World Bank, meanwhile, is playing a role as microfinance wholesaler.

Three years ago the bank introduced a 90-million-dollar poverty alleviation fund, with half slated for microfinance and half for related infrastructure, capacity building and training.

“The bank was the first to start with some big money. There were others doing it, but this required a leap of faith,” said the World Bank’s Qazi Azmat Isa.

“It’s been doing very well. This was a five-year project and it has already dispersed nearly 90 per cent of the money.”—AFP