Bringing Prosperity to Pakistan


Pakistan’s microfinance sector is ranked the best in the world. Ghalib Nishtar, President of Khushhalibank chalked the first microfinance policy, in an interview with IBEX talks about  the opportunities of microfinance in Pakistan along with the achievements of Khushhalibank. 


Please tell us about your professional background? How did you get involved with Pakistan’s microfinance industry? 

I did my Masters in Computer Sciences from the Quaid-e-Azam University in 1982. After graduating, I decided to move to banking because in those days the IT sector inPakistanwas not booming like it is today and opportunities were limited. I started my career with Bank of America, which at the time was the largest bank in the world and had quite large operations in Pakistan. I remained in the banking sector for some years but it was in 1997 that I joined National Bank ofPakistanas the Head of the Information Technology (IT) division and Senior Executive Vice President. I was also responsible for the bank’s special initiatives and one such initiative was microfinance.

This is how I got involved with the microfinance sector and was privileged to discover one of the pioneers of microfinance Dr Akhtar Hameed Khan, who I met in Orangi, was a great inspiration for me.  We decided to pilot a program by establishing a small facility with the Orangi Pilot Project inKarachi. Subsequently, 10 to 15 branches acrossPakistanwere selected for National Bank’s micro finance program. Unfortunately, only after a year Akhtar Hameed Khan passed away and there was a change of Government in 1999. However, with this came a silver lining as the new Government was interested in promoting microfinance inPakistanin a big way. I was appointed advisor to the Finance Minister and was tasked to develop a business model & road map for the microfinance sector inPakistan.

Our first milestone was the drafting of a policy statement for the microfinance sector inPakistanwhich was announced with the budget in June of 2000.

Tell us about the origins of Khushhalibank?

Our research showed that while the Government had already established an APEX funding agency for microfinance for on lending to NGO’s but the challenge was really the lack of retail Institutional capacity, innovation, diversity and sustainability within the sector. By and large the business model was the solidarity group though Non-Government NGO’s pursued by the Grameen Bank inBangladeshthat was truly a pioneer of its time. However, we decided to fundamentally change the paradigm and mainstream microfinance within the formal financial service Industry as part of the regulated financial sector of the country. This would address the challenges outlined earlier. We proposed the concept of specialized banks to the government in consultations and   technical assistance of the Asian Development Bank.

This model is regulated and supervised by the central bank which makes operations transparent. There is also sustainability in this model due to deposits mobilization and a range of services can be made available to low income segments. The model was robust and we didn’t follow any other country’s prescription and designed our own policies and frameworks. I must acknowledge the very proactive role of the State bank ofPakistanand its leadership in the evolution of this new framework.

 How did the market react to the microfinance policy?

The first license of micro finance bank was issued to Khushhalibank in August 2000 and I was appointed the President of the Bank.  Initially, private sector was not interested in microfinance due to the perception carried over from a legacy of host of small credit programs of the past that were politically motivated with weak governance and ended up failures where recovery of loans was not be possible. However, sixteen commercial banks at the behest of the Government decided to invest 30 million dollars in Khushhalibank and use this as vehicle to enter the microfinance market inPakistan.

Helped by a credit line of 70 million dollars from the Asian Development Bank, we started operations within a small cluster of districts; namely, D.G Khan, D.I Khan, Jacobabad and Barkhan making presence in all four provinces.

However, within 3 years of establishment, Khushhalibank expanded rapidly and crossed the 100,000 client barrier to become the largest microfinance institution in the country with a 30 branch network.

Currently, how many branches do you have all over Pakistan?

We have 107 branches across Pakistan and are covering almost all districts of the country. Nowadays, we are focusing more on those areas where economic activity is high like southernPunjaband irrigated Sindh besides other provinces and AJK.

What is the size of your portfolio?

There are nearly 3 million loans serviced and our outstanding portfolio is over Pak rupee five billion with half a million active clients.

What is the lending procedure?

Like any other retail bank, we assess the business plan, cash flows and debt servicing ability of the client and business but the difference is that we target only low income segments. We give loans for 1 year and pre-dominantly operate in the rural areas where the lending pattern is cyclical according to crop seasons.

How much interest rate do you charge?

Our interest rates vary from product to product – currently ranging from 15% to 30%.


How is Khushhalibank benefiting the poor?

We offer a range of financial services to our clients that include loans, deposits, payments, transfers etc to support income generation but regulations restrict us to lend to low income groups with incomes less than the taxable income limit.  We have a sales force of 700 to 800 boys and girls who introduce our program to the clients at their door step every day. These people can avail our services to support and expand their business and the impact study on Khushhali undertaken by the Asian Development Bank Institute evidenced positive impact on household income and indicators of social well being in terms of women empowerment, expenditure on children education and health.


 What is the size of your work force and how is it distributed?

We have around 2000 people out of which majority are within our sales and distribution function.


Is Khushhalibank a government- owned entity?

As mentioned earlier when we started out, the private sector was reluctant to invest and it was the Government that supported the bank. However, subsequent to the success of Khushhali and the supportive regulatory environment the private sector did become interested and today all banks inPakistanare owned by the private sector.

How do you think the microfinance industry is faring in the country at present?

It is a 30 million people market and more & more bank’s are being established to cater to this segment. Some bank’s are doing extremely well while mergers or acquisitions are taking place for those not doing too well. In either case it reflects the trust of the Investor.  Today, the number of microfinance banks is rapidly expanding in the country. Nine banks are operational and more are coming. As a sector, microfinance growth rate has been amongst the highest – at one point CAGR at 45% was one of the highest in the region.


What is your view on government policies regarding the sector?

Microfinance sector has been well supported by the Government.

The microfinance business environment inPakistanwas recently ranked amongst the top three countries of the world by the Economist Intelligence Unit of the Economist magazine. Recently, Khushhali moved from a predominantly government owned Institution to a private sector entity through a process of divestment. We are now a public limited company and received overwhelming response from blue chip domestic and international investors and Khushhali is the one of the few examples in the financial sector in the last few years where shares were sold at a premium.

Today, we have UBL with nearly 30% stake as the lead investor and rest includes top ranked investors fromU.S.A.,Switzerland,NetherlandsandBelgium.

Recently, the State Bank issued a policy of branchless banking that has invited investment from all the mobile telecom operators inPakistanand our own divestment is an example of the success of the regulatory and business environment inPakistan.

How do you compare your model with the Grameen model?

The figures speak for themselves.Pakistanis ranked at number 3 and in terms of overall microfinance business environment whereas the regulatory environment is amongst the best. Our business model is more progressive, regulated and sustainable. We generate public deposits to fund our lending and are gradually moving from a solidarity group to individual lending model.

How do you compare Khushhalibank with other microfinance banks in Pakistan?

Khushhali is a market leader with a 20% share.


Is microfinance a potential business opportunity for the private sector in Pakistan?

Yes, it is a great opportunity given the large size of the potential market. Almost every year a new microfinance bank is opening. Most multinationals are investing in the sector despite some challenges. Almost all microfinance banks’ today have been able to attract investment from both the domestic and International Investors and the bulk coming from the Telecom sector.


How has microfinance been affected by the recession?

Microfinance is generally immune from such crises because the clients in this sector are resilient and work on daily basis to generate livelihood relying largely on their skill and meager resource.  Growth has slowed down a bit because of economic recession and security related challenges but more so in terms of the fact that 3rd year in a row the country has been hit by floods and rains.


Where do you see this sector in the next 4 to 5 years?

 This sector presents great opportunities over the next 4-5 years. While there is an overall recession in the global financial sector there is opportunity in emerging markets likePakistan particularly within the segment that we serve i.e. the Micro, Small and Medium Enterprises. We are planning to expand our business over the period by pursuing a proactive and aggressive strategy.


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