Amid macroeconomic turmoil and hyper-inflationary pressures, the microfinance sector continues to post decent growth in its core indicators early on in CY23. Based on the latest data released by the Pakistan Microfinance Network (PMN), it is clear that the headline figures for both the lending (credit) and saving (deposit) areas are resilient, growing in double-digits year-on-year in the first three months of the calendar year to March. Some of the growth is contributed by the digital financial services, as the nano-loans and the mobile wallet-based savings are becoming prominent as the time goes by.

The PMN is the microfinance sector’s prominent body representing about four dozen service providers, including Microfinance Banks (MFBs), Microfinance Institutions (MFIs), Rural Support Programmes (RSPs) and other organizations that provide microfinance services as part of their overall service offering. About two-thirds of the sectors reported ‘active borrowers’ are served by MFBs, about a quarter by MFIs, and about a tenth by RSPs. Some 97 percent of sector’s deposits are held by MFBs, and rest by RSPs.

At the end of March 2023, the number of active borrowers of the microfinance sector had reached 9.25 million, reflecting 13 percent increase (over a million net additions) since March 2022. As of March end 2023, PMN data show that 45 percent of active borrowers were females. Some 42 percent of active borrowers belonged to rural areas. Active borrowers belonged to a number of sectors, the prominent ones being livestock/poultry, trade, agriculture, services sectors, manufacturing/production, and housing.

During the quarter, the sector reached an important milestone, as Gross Loan Portfolio (GLP) crossed half a trillion mark to close at Rs510 billion by March end (growth of 22% YoY). Since the addressable market of micro borrowers is 4+ times larger than existing coverage, there is opportunity to expand the loan book. As of March end 2023, nearly two-thirds of the sector GLP was ‘unsecured’ lending, whereas the remaining was ‘secured’. Micro-enterprises comprised 22 percent of the sector’s Rs510 billion GLP.

In the saving department, too, growth is visible for the sector. The number of savers reached really close to the 100 million mark, standing at 98 million as of March end 2023, growing 17 percent year-on-year. The growth is primarily fueled by mobile wallets, which account for 87 percent of active savers (albeit m-wallets’ share in ‘value’ pie of savings is small, as these are low-value deposits/savings by users). As of March 2023, 31 percent of savers were females and 25 percent of savers lived in rural areas.

The aggregate saving value in microfinance sector reached Rs488 billion as of March 2023, which translates into 14 percent growth compared to March 2022. (This level is, however, 5 percent lower than the Rs514 billion peaks seen at the end of December 2022). The branches (mostly MFBs’) hold 81 percent of deposits by value, with the rest channeled via m-wallets. Public savings provide the MFBs with crucial, relatively cheaper capital to lend onwards. Over time, deposits have become a reliable financing source.

While both those indicators look comparatively better than last year, the loan quality saw relative deterioration. The sector’s overall ‘Portfolio at Risk’ (PAR, greater than 30 days) stood at 5.3 percent at March end 2023, higher than 4.2 percent at March end 2022. (PAR, however, improved from 5.8% seen at Dec. end 2022). Between March 2022 and March 2023, the PAR for MFBs increased from 5.3 percent to 8.8 percent; for MFIs it increased from 3.7 percent to 4 percent; and for RSPs, the PAR actually declined from 4.2 percent to 2.3 percent. Let’s see what the rest of CY23 has in store for the sector.