Despite the challenging macroeconomic conditions, floods-related devastations in many rural districts, and rising costs of running business across the country during 2022, the country’s microfinance sector appeared to weather the storm. Based on the latest sector statistics released by the sector’s representative body, the Pakistan Microfinance Network (PMN), the service providers together posted double-digit yearly growth in both the credits and savings-related indicators during CY22.
By CY22 end (as of December 2022 end), the number of active borrowers stood at 9.1 million, showing a year-on-year growth of 12 percent. The three dozen Microfinance Providers (MFPs, including Microfinance Banks-MFBs and Non-Banking Microfinance Companies-NBMFCs) that the PMN reports data on collectively added a million net borrowers during CY22 (almost the same addition as in CY21). Two-thirds of active borrowers were with MFBs and the rest with NBMFCs, as of December 2022 end.
As the PMN estimates the potential market size at 40 million microfinance customers, the current coverage is close to a quarter of the addressable market. The loan book will need to significantly expand in coming years. During CY22, the sector’s gross loan portfolio (GLP) grew at a comparatively higher rate of 25 percent year-on-year to reach Rs491 billion, marking the strongest growth year since at least CY19. The GLP is led by MFBs, which control 77 percent of the pie, with the remaining being held by NBMFCs.
Over on the deposit front, there was 19 percent year-on-year growth in the ‘number of savers,’ reaching 94 million by December-end 2022. Meanwhile, the ‘value of savings’ increased by 22 percent year-on-year to settle at Rs514 billion at CY22 end. In absolute terms, the sector is keeping up with its recent robust growth trend in this department. The MFBs are mainly the leaders in this department, as most of the NBMFCs cannot legally accept public’s deposits. At CY22 end, the branches controlled 84 percent of the deposit-value pie, whereas m-wallets dominated the ‘number of savers’ with 86 percent share.
The sector’s loan quality wasn’t drastically reduced during a tough year, but it did get affected. At December-end 2022, the sector’s overall ‘Portfolio at Risk’ (PAR, greater than 30 days) stood at 5.6 percent, higher than 4.9 percent at CY21 end. This infection ratio increased sharply for MFBs from 5.1 percent in CY21 to 8.8 percent in CY22. Among the NBMFCs, this ratio at CY22-end stood at 4.2 percent for Microfinance Institutions (CY21: 2.9%) and 2.3 percent for Rural Support Programs (CY21: 7.4%).
Going forward, as the historic inflation hits the low-income segments disproportionately hard and further erodes their purchasing power, the microcredit customers and enterprises are likely to find it more difficult to manage their liquidity. In addition, with the discount rate scaling new heights, the cost of borrowing is expected to becoming even more forbidding. While the sector skirted 2022 and its many crises quite well, it remains to be seen how the sector’s main business indicators and financial soundness will be impacted in what looks certain to be an even more challenging year.
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