A pioneer in Pakistan’s burgeoning microfinance industry, Ghalib Nishtar remains the definitive authority on microfinance in Pakistan. As President of Pakistan’s largest microfinance Bank, Khushhali Bank, Ghalib has been a critical force in demonstrating the success of microfinance in Pakistan with Khushhali Bank as a leading benchmark.
Since its inception in 2008, Khushhali Bank has been dedicated to improving the lives of people mired in poverty with a client base exceeding 1.5 million. Committed to educating and empowering the underprivileged, in association with USAID, Khushhali Bank has awarded two students from the Federally Administered Tribal Areas (FATA) scholarships at the prestigious Institute of Business Administration. Since 2008, Khushhali Bank
Ghalib reflects on the vast strides Khushhali Bank has made over the last eight years and Pakistan’s emergence as an international model for microfinance.
You’ve been involved in microfinance since its inception in Pakistan. How do you feel about its development over the years?
GN: “I think microfinance has worked well as far as Pakistan is concerned and it is doing well globally because the major thrust now as far as the financial sector is concerned is to upscale and outreach beyond traditional population segments. These new population segments are low-income households but extremely credible and in huge numbers, especially in our part of the world. The innovation in terms of Pakistan in the last seven or eight years when we started has been the commercialization of microfinance. I think this is something which is particularly notable in terms of Pakistan where we are trying to position microfinance as a commercially sustainable proposition: creating institutions which are owned by the private sector and driven as the financial sector should be. Looking back, in the last seven or eight years we have been very successful in that context. Khushhali was the first public-private partnership but now you have more coming up all regulated by the State Bank of Pakistan. I think Pakistan has been spotlighted. If you look at the major players in the world, they are all here including BRACand ASHA. Pakistan is suddenly a model for microfinance because of the environment that has been created which has attracted all the international players. Microfinance banking is something that we’re certainly very proud of for Pakistan.”
Over the last eight years that Khushhali Bank has been operational, it has achieved a great deal of milestones including the Citi PPAF micro entrepreneurship award which was won last year. Can you elaborate on the great strides Khushhali Bank has made over the years?
GN: “Over the years established Khushhali as the largest institution in Pakistan in terms of presence spanning ninety districts across Pakistan including Azad Kashmir and FATA. I think it has all been possible because everybody has contributed to it — all the stakeholders — and I think one of the most important stakeholders are our clients and the spirit of entrepreneurship within them. PPAF came up with a programme in partnership with Citibank to recognize such people. Our clients have been winning this award consistently and most of them have been women. The amount of confidence they have in themselves and their businesses is very promising to see. We are a regular partner with this programme and we are also partnering with another programme called Tameer which is a Shell local programme for entrepreneurship and our clients have won that as well. It is very important to recognize them. Last time our client got Rs 100,000 for this award. The more important part of it is when they go back to their communities, the recognition they get is amazing. This year’s award was very tragic because the house of client who won was struck by a missile a few days later. These people cannot do without work because they work on a daily wage basis so they are hit by something but they have to keep working. They have a tremendous spirit and you see this all over Pakistan.”
Khushhali Bank has been recognized globally as one of the most effective microfinance banks. What has it achieved in terms of poverty reduction and gender empowerment in the last eight years?
GN: “I think the ultimate objective of these microfinance institutions is to integrate small businesses into the formal economy thorough the banking system and obviously providing them capital to increase business. We have done a number of surveys and independent third party evaluations including one with the Asian Development Bank and the outcomes of these surveys have been very positive. They have concluded that it does improve income and help reduce poverty. The results are particularly encouraging in terms of gender empowerment also. I think the very first priority is to enlist in education the minute there is a little surplus followed by health. They can do without basic health amenities because they believe education is a way out for them and for their children and therefore it’s very important the kind of education they get, because they’re investing their hard-earned money. It should be of quality so these people can be employed later.”
Over the last eight years, has the success of Khushhali Bank surpassed your expectations?
GN: “In many ways yes, but I think when we moved from a formal commercial area this was something very new to us so it was a great learning curve for us and we learned a lot of things as we went along. In many ways it was very encouraging. The idea was that this should grow and flourish as a sector. Your success is that you have many more banks which will come. For example now microfinance banks are one of the fastest moving in terms of the banking industry — In that way it has been good. In terms of targeting the right people, we should focus on the people that we were catered to focus on. In terms of the impact, yes I’ve been very glad to see the kind of impact these small loans have had. There was a perception that these small loans wouldn’t make a difference to a person but it is amazing to see the kind of effect they have had. There have been many positives beyond our expectations. Putting together a skilled team, attracting skilled people into the microfinance sector was a major challenge. They weren’t sure if this industry will grow or not, but now basically this is a very successful segment in the banking industry. It is very encouraging that people are now moving into the microfinance sector. Even commercial banks now pick up people from us. When big commercial banks move into rural areas, their first choices are people from Khushhali. We lose people, but then we get new people, so it’s not an issue. We have been able to break into territories by partnering with universities. We have a university programme in which we introduce microfinance, we talk about Khushhali, we have a scholarship programme, so the response is very encouraging. As the market is huge, no matter what you do, you are only still covering a little part of the market. The challenge is scaling up which can be frustrating at times. But more institutions are coming because it is an estimated ten million client marketplace and all of us combined are just under two million. We’ve come a long way since we started when it was only 100,000 clients in the sector and now it’s two million — but even when you reach ten million, you realize that there is a lot more to be done. I think that challenge is still daunting but hopefully with more institutions and more expansions we will overcome that. Another challenge which has recently emerged is we are trying to explore what kind of impact high inflation has on our clients and our portfolios. Generally in Indonesia and other parts of the world, the microfinance banks did better as compared to banks of the other institutions so hopefully our clients will also fare well through this period of economic depression. If you look at our portfolio performances they’re really outstanding, basically because of the client.”
Do you see more acquisitions of microfinance institutions of the kind that we saw with Telenor and Tameer?
GN: “Yes I think that is a possibility. The telecom sector is moving very fast has a high growth curve and combining the two could be an attractive proposition.”
What about the regulatory framework governing microfinance in Pakistan?
GN: “Credit must be given to the State Bank of Pakistan which really went out of its way to develop these regulations which fostered growth and the outcomes are there in front of you. If they were not conducive or encouraging there would not be more players coming into microfinance. Secondly it has been a consultative process. We have got a consultative group with the Central Bank where we debate and discuss because it is something which is evolving.”
A common charge leveled against microfinance was the risk involved which didn’t make it sustainable. But with the current financial crisis in mainstream banking do you think this has altered perceptions against microfinance?
GN: “think generally the portfolios have performed very well so think there is a lot more confidence in terms of microfinance. I am going to take the case of Khushali. When we were starting, obviously the information and data was not there now that we have now and the level of confidence within the microfinance sector has grown tremendously. A recent example is the new facility which as been set up last month. A new fund has been set up by the Central Bank and is a guarantee fund and commercial banks will also be contributing to. I think they now see it as more viable business proposition where on the basis of track record data and experience they would be able to invest in this.”
What is your vision for the future of Khushhali?
GN: “It still has a very long way to go in terms of its outreach and scale. We have consolidated over the last two years from the lessons that we have learned and we are also analysing the emerging challenges which are there in the market. But I think Khushhali would again be expanding next year onwards. We have positioned ourselves in the market, we’re expanding the scope of our services — we started microinsurance last year. We were not taking deposits initially because we had a large credit line available to us but we have started taking deposits as well, so expanding the range of our services to our clients while giving them better quality service is what we are trying to do. We have strengthened our internal environment through risk management and other units so Khushhali is comfortably positioned for acceleration for the future.”
