Aameer Karachiwalla is the CEO of Khushhali Microfinance Bank Limited (KMBL). With over 30 years of experience, Mr. Aameer Karachiwalla is a Fellow of the Institute of Chartered Accountants of Pakistan and a long-serving Director and Chairman of the Board of Directors of Khushhali Microfinance Bank Limited.

Mr. Karachiwalla was re-appointed the Chief Financial Officer of UBL in July 2016. He joined UBL in 1998 and has previously held the positions of Chief Operating Officer, Chief of Staff and Group Executive Retail Banking at UBL. During this time, he has been instrumental in launching the bank’s branchless banking business, implementing the IT vision of the bank and in developing the bank’s overall restructuring plan which led to its successful privatization. He is also the Chairman of The Board of UBL Insurers Ltd and Director at 1Link. Before joining UBL Mr. Karachiwalla held senior positions at several financial institutions and multinationals including American Express Bank, Citicorp Investment Bank and Artal Group of Companies.

BR Research recently talked with him on Micro, Small and Medium-sized Enterprises (MSMEs) Day. Here is a short excerpt of the conversation with him about the microfinance landscape in Pakistan and how microfinance, through its financial interventions, helps the MSME sector in Pakistan, promoting economic growth and empowering local communities to access finance:

BR Research: What do you think about the current progress and challenges of the microfinance sector in Pakistan?

Aameer Karachiwalla: Microfinance is crucial for developing nations, especially for a country like Pakistan. We have countless examples worldwide that highlight the benefits of microfinance. Bangladesh, for instance, which pioneered microfinance, has demonstrated how empowering communities through small-scale financial interventions can drive economic growth and financial inclusion.

KMBL was the first specialized microfinance bank in Pakistan. We started our operations in 2000, and since then, we have seen remarkable growth in customer confidence in microfinance banks. Currently, the microfinance sector operates in three different segments: Microfinance Banks (MFBs), Microfinance Institutions (MFIs), and Rural Support Programs (RSPs), serving over 9.4 million active borrowers.

While the current macroeconomic challenges in Pakistan are well-known, their impact on microfinance often goes unnoticed. The sector is still struggling with the effects of the COVID-19-related economic slowdown and the floods of 2022. Continuous inflation and growing poverty rates have made the microfinance landscape even more challenging, with reduced loan repayments and negative net income being a significant roadblock to the sector’s growth. As per reports, local microfinance banks (MFBs) suffered a stark loss after tax of Rs8.1 billion in FY23, highlighting the need for healthy policies to support the sector.

As a sector that serves 76 percent of all borrowers from the financial sector, addressing the hurdles faced by microfinance is crucial. MFBs need to strengthen lending models adopt more structured underwriting practices and embrace technological advancements.

The government must also strengthen policies related to providing low-cost funding and credit guarantees for targeted segments, encouraging partnerships between private and public sectors to promote a robust and profitable business model for the growth of the microfinance sector.

BRR: How is microfinance specifically linked with the ongoing economic recovery efforts of the country?

AK: As mentioned previously, microfinance serves 76 percent of all borrowers from the financial sector. This is especially true for local MSMEs and those in the agricultural sector. Small-scale financial interventions and the solutions provided by MFBs to this customer base are crucial for promoting local job growth and empowering local communities.

Microfinance is perhaps the only source of financial access for women in rural and semi-rural areas. In majority of the microfinance products & services are offered at the doorstep. Women, accounting for half of Pakistan’s workforce, often face challenges related to literacy, financial accessibility, and social pressures that hinder their financial inclusion. KMBL has witnessed that investments by female borrowers in enterprises, agriculture, and livestock have greatly increased family incomes and, in some cases, complete financial support for their households. This resilience is vital for encouraging economic recovery. For sustainable growth and development, all segments of society must participate in the financial landscape.

BRR: Where does Khushhali Microfinance Bank Limited (KMBL) stand in the MSME (Micro, Small, and Medium Enterprises) landscape of Pakistan? What specific efforts does KMBL undertake to support local MSMEs?

AK: From my perspective, the MSME sector is Pakistan’s economic cornerstone, with 72 percent of the country’s workforce engaged in micro, small, and medium enterprises. They play a pivotal role in job creation, financial inclusion, and regulating a healthy economic flow in the country.

Unfortunately, Pakistan’s focus on larger businesses has left this potential mainly untapped. As commercial banks seek opportunities with big businesses, MFBs have stepped up to fill this gap.

KMBL has recently increased its loan portfolio to include more secured and semi-secured loans in the MSME sector. Khushhali Bank, which previously had an unsecured portfolio of 80 percent, has shifted focus to MSMEs, recognizing the impact this sector can have on Pakistan’s economic sustainability. KMBL has tailored multiple products aimed at boosting financial solutions for local MSMEs, including our Khushhali Sarmaya, Zamindar Loan, and Karobari Loans.

Through these product suites, we offer lending and other financial and banking services to all sectors and segments engaged in MSME activities. We also have our Khushhali Niswan product, targeted specifically at female entrepreneurs. Through this, we aim to uplift women financially and promote inclusion and support for women entrepreneurs in Pakistan.

BRR: What opportunities does KMBL offer through its microfinance and small-scale financial interventions?

AK: Through our microfinance services, we provide individuals and small businesses with access to essential financial resources that are often out of reach to Microentrepreneurs and to the rural and low-income populace, through traditional banking channels. By offering small loans, savings accounts, and insurance products, phone, and mobile banking services the bank enables individuals to improve their livelihoods, invest in education, and enhance their overall quality of life.

KMBL offers numerous opportunities not just in lending but in the whole set of financial services described earlier through its microfinance and small-scale financial interventions, significantly impacting the economic landscape. For example, 91 percent of its deposits comprised savings of individual small and medium ticket sizes. This achievement was instrumental in our efforts for financial inclusion of local communities. The bank’s tailored financial products and services are designed to meet the unique needs of its MSME clients, ensuring that even the smallest economic player can thrive.

BRR: Can you outline KMBL’s plans and strategies in the microfinance sector?

AK: As of Q1 FY24, Khushhali Bank operates 205 branches and serves an active customer base of over 3 million loan and deposit account holders, primarily in rural areas. In line with our strategy to consolidate old problematic portfolios and grow steadily with high-quality assets, KMBL is committed to strengthening its MSME secure and semi-secured portfolio. Currently, this portfolio has improved to almost 75 percent of our portfolio and it has a history of a loss rate of less than one percent over the past several years. On the deposit side, the focus is to promote a saving culture in low-income individuals.

Our focus extends beyond lending to encompass a comprehensive range of banking services, including savings, insurance, cards, internet, and mobile banking. By educating our customers on these services, we aim to enhance financial inclusion and provide greater access to finance for MSMEs.

At KMBL, we have always prioritized innovation and technological advancements to improve convenience for our customers. Through strategic partnerships and a focus on digitalization, we provide accessible financial solutions and contributing to Pakistan’s sustainable economic development.