FINANCIAL Institutions are organisations that deal with savings, investments, assets, loans, deposits, pensions, salaries etc. of the people and the issues related to them. Examples of financial institutions working in Pakistan include: Public Sector Banks, Private banks, development financial institutions (DFIs), foreign banks, investment banks, microfinance banks, specialized banks and Islamic banks

As their name suggests Microfinance banks are financial institutions which extend small amounts of loans and similar other financial services to poor people. According to the State bank of Pakistan the minimum capital requirement for establishing a micro finance bank nationwide is Rs. 1000 million. Moreover, in order to establish a microfinance bank, an institution must first serve as a microfinance institution for at least three years and then transform itself into a microfinance bank as per instructions laid down in the Section 13 of the Microfinance Institutions Ordinance 2001. Since the role of a microfinance bank before becoming one is that of a microfinance institution some of the functions of Microfinance institutions are listed below just to give a quick view:

1. Offer financial services to the poor especially poor women within the amount determined by the State Bank of Pakistan from time to time.

2. The loan advances can be made either on the presentation of collateral or even without it.

3. Financial assistance can be provided in terms of cash as well for all sort of economic activities except engaging in foreign exchange transactions.

4. The microfinance institution can receive the creditor’s foreign remittances if he/she has an account with it.

5. Accept deposits, pledges, mortgages, hypothecations or any other kind of security so as to avail the credit facilities, and many others etc.

Microfinance banks were established as a result of the prevailing needs of the society and to help out the poor gain access to financial services. Micro financing banks saw a boom in the 1990s. Some of the Micro financing institutions of Pakistan are listed below:

First Micro Finance Bank: First Micro Finance Bank was established by Aga Khan Rural Support Program and the Aga Khan Fund for Economic Development in March 2002. The bank offers small loans in order to encourage development.

Khushhali Bank: Khushhali bank was established in 2000 as a part of government’s Microfinance Sector Development Program (MSDP).

Pak Oman Micro Finance Bank Ltd: Inaugurated in 2006, Pak Oman micro finance bank ltd is a joint venture of the Sultante of Oman and the Pak Oman investment company.

Rozgar Micro Finance:

Rozgar micro finance bank was incorporated as a public limited company in 2005. In 2012, it was acquired by Ufone.

Taamer Micro Finance Bank Ltd: Tameer Micro finance bank was established in 2005. It is Pakistan’s first financial institution other than NGO to have transformed itself into a micro finance bank.

National Rural Support Programme (NRSP)Micro Finance Bank Ltd: The NSRP bank started working in March 2011. The bank provides credit and other financial services to a network of 39 branches all over Pakistan.

Waseela Micro Finance Bank: Waseela microfinance bank was inaugurated in 2012. The bank is committed to provide quality services to the lower income group.

Kashf Micro Finance Bank: Kashf Micro Finance Bank started working on 2nd December 2008 in Lahore. The bank offers savings, loans, remittances, ATM network services to the public.

Apna Micro Finance Bank Ltd: Apna micro finance bank ltd, previously known as the Network Micro Finance Bank Ltd, was established in 2005. The bank provides financial services to the poor with special focus on the agricultural community.

Advans Pakistan Micro Finance Bank: Advans Pakistan has been recently launched in Karachi Pakistan on 3rd January 2013.Advans Pakistan is owned by Advans SA (70pc) and FMO, the Netherlands Development Finance Company (30pc). It offers a range of financial services to small and medium sized enterprises.

According to the Pakistan Economic and Social Review, the potential customers of the microfinance credit range between 25 — 30 million borrowers. Out of this amount 2.4 million are currently being served by the microfinance banks. The microfinance banks have set up their branches in rural and remote of areas as well so as to cater the needs of all sorts of small and medium sized enterprises which formulate 90% of the total business of Pakistan and also to cater the agricultural sector, since it is still the biggest employers of all sectors.

The microfinance sector of Pakistan has shown an incredible growth over the last few years despite of the prevailing economic conditions and their effects in the world. For this reason only, the Economic Intelligence Unit has proclaimed Pakistan among the top countries which have favorable environment for the growth and expansion of the microfinance sector. The top three microfinance banks of Pakistan have registered an average growth rate of 35% annually. According to another report, the micro finance sector of Pakistan has worked hard enough and brought down the number of registered poor families. Recently, Kashf micro finance bank of Pakistan was honored with the Social performance reporting award given by an international organization MIX (Microfinance Information Exchange).

The Pakistan Poverty Alleviation Fund (PPAF) has contributed Rs. 14 billion to the microfinance sector so as to spur the loaning facilities. The distribution of this money among the microfinance banks has resulted in the creation of loans worth Rs. 2545 million which shows a 76% increase in the total loans forwarded by the micro finance sector in a year. Additionally, in order to boost the micro finance sector and the loans forwarded, International Strengthening Fund (1SF) has agreed to provide funds worth Rs. 632 million.

The government of Pakistan has set a target of reaching 10 million micro finance customers by 2015. For this purpose, the State bank of Pakistan keeps on issuing instructions regarding the framework, funds supply and the working of the micro finance banks from time to time. There is still a lot potential in the market for micro financing banks but due to unavailability of funds, the banks are not able to loan out the desired amounts to reach the poverty alleviation target.

The conclusion is that despite the unavailability of funds, the micro finance sector of Pakistan has shown a tremendous growth in its banking activities.