The current government has now been in power for over six months. How do you see Pakistan evolving under the Pakistan Tehreek-e-Insaf (PTI) government?
Change is imminent with the new government’s vision. It is still very early stages but I believe that the PTI brings a lot of hope for Pakistan, which is positive but also a challenge because the people have high expectations. The government will need to fulfill the policies that have brought them into power and give a better image of Pakistan on a global scale.
The Microfinance Industry has seen an impressive growth in few years and you have now over 6 million borrowers in Pakistan using micro-finance services. Please give us an overview of the micro-finance space in Pakistan and how can it be improved?
We are the pioneers; we were the first bank in Pakistan to start micro-finance banking back in 2000. Over the past 18 years the sector has done well and I believe it has attracted a lot of Foreign Direct Investment (FDI). Today there are 11 banks in the sector and they also have managed to entice FDI, so that shows confidence in Pakistan and confidence in the sector. Over 6 million people have access to micro-finance services and it keeps on growing. It is a highly innovative sector with plenty of new services and products being launched, such as digital banking.
Khushhali is the leading micro-finance entity in Pakistan with a 25% of market share and an outreach of over two million clients. In terms of products, revenues and other financial indicators, Khushhali is the best performing bank and it has received the best micro-finance bank award last year in the prestigious Pakistan Banking Awards 2018.
Khushhali Microfinance Bank goal is to retail micro-finance services and to act as a catalyst in stabilizing the country’s newly formed micro-finance sector in order to address the challenges of poverty and access to finance. What are your objectives for 2019?
Taking a step back, the framework for micro-finance banking started with a policy, which came from the government, we then got a specialized framework from the Central Bank and then the bank was established.
We have a large population and most of it is unbanked, the financial penetration was very low in Pakistan and is still only 22% so there is still a massive gap to breach in terms of people getting access to financial services. This was the reason we introduced micro finance banking in Pakistan. Over 90% of the population is involved in micro, small or medium enterprises and commercial banks do not provide them access to banking services. It is currently a priority of the new government to support the MSME (Micro Small Medium Enterprises) and integrate them into the mainstream economy. Asian countries such as China, Japan and Korea are actively helping SME’s as they see it as a focal point of their economy. We are now able to reach out to a high number of consumers while as well attracting blue chip investments from all over the world. 70% of our funding comes from abroad while United Bank Limited (UBL) a leading Pakistani Bank has a 29% stake in our business. We have investments coming from Belgium, Switzerland, the Netherlands and the US, which is very promising for the sector.
Khushhali Microfinance Bank has the primary objective of contributing to the economic development of Pakistan, through the investments in productive sectors. In which of these sectors do you see the most investment opportunities?
I believe Pakistan presents opportunities in almost all sectors but from Khushhali’s perspective, we are mostly investing in agriculture. I believe there is a lot of promise within this sector for two reasons; firstly, Pakistan has a huge population which means food security is a priority. Secondly, if you look at all of our neighbors, Iran, India, China, Afghanistan, they are all food deficit countries, which is a huge opportunity for Pakistan. Improving the agriculture productivity of the country is key from a trade balance perspective. Our average lending to small businesses goes from $500 to $5000, in total we lend almost half a billion dollars per year.
You provide clients with a range of banking services including loans, savings, insurance, and remittances. With this in mind, where do you see the highest growth potential and how are you innovating and providing new or more specialized services to your clients?
Rural markets present huge growth potential and there are a lot of opportunities to lend there, especially to small and tenant farmers as there are a lot of fragmentation of land. We do not have large corporate farms like in the US. We are trying to provide them with facilitations services and ease of business.
We are investing heavily within our bank, to upgrade our technology and digital services. We want our clients to have access to services we propose such as markets, pricing, weather and cropping patterns, at their place of work through mobile devices and better customer experience through digital channels.
The bank is currently investing in its technological infrastructure and partnering with leading digital providers to adopt the digital technology wave that will define the future of financial transactions. Can you please explain us your digitalization strategy? How can digitalization change the life of some of your clients?
We are working on developing lending products through mobile phones. We just updated our banking system and we are investing in technologies such as artificial intelligence and data analytics in order to be able to give quick and easy response to our clients. Our partner and digital finance advisor is the International Finance Corporation (IFC), we are working with the IFC office in China.
One of your main goals of your organization is the empowerment of women. What policies is KMBL putting in place in order to empower women?
The biggest challenge is to reach out to these women. Currently 35% of our clients are women but we would like it to be 50%. Women are very heavily involved in agriculture and livestock but they need to be recognized and offered the right products and services. To reach out to them, we have a mobile women workforce who can easily reach remote places across Pakistan and work with these women for them to understand and adopt our services.
Would you like to share with us any other projects or expansion plans?
In terms of improving customer experience and engagement, digitalization is the way forward. When it comes to the sector, we are extremely invested in agriculture but another sector we are also focusing on is alternate energy. We are working with two US based companies and they are using our platform of distribution network from Gilgit-Baltistan down to Sindh and to provide solar energy products designed for these households. Another area we are looking at is low-income housing finance. The interest rate of our loans ranges from 20%-30%.
You signed a memorandum of understanding with Greenlight Planet, an international chain of domestic solar energy products in order to support their solar system’s project. You also received the green office certification from WWF. How important is Corporate Social Responsibility (CSR) for Khushhali Microfinance Bank and in which CSR projects are you involved with, lately?
Our CSR program is very effective and broad based focusing on Financial Literacy, Health, Educational/Vocational Trainings, Environment, Gender and Youth. For example we have teams, which physically go to villages and provide farmers information about farming, weather patterns, seeds, pesticides etc. We are also cross selling products to our clients such as micro insurance for health services so that they can have access to our clinics at a very affordableetc.
Are you looking for potential partnerships outside of Pakistan? How are you trying to reach out to these potential partners or future shareholders?
We are growing and looking for new partnerships and investors can also reach out to us. We are on the map when it comes to micro-finance banks.
Talking about foreign investors, we call them socially responsible investors as they bring investments as well as good practices and values. For instance, there is a global campaign called the Smart Campaign, and we got a certification from them for our best practices in terms of client protection. Consumer protection and looking after their interest is what we focus on most as we are dealing with clients with low level of literacy. Environment is another area that we are very conscious of, our own office is a certified green office.
Prior to founding Khushhali Microfinance Bank in the year 2000, you had over 20 years of management experience commencing with Bank of America in 1982 and concluding with the National Bank of Pakistan, as its Senior Executive Vice President. Under your leadership Khushhali Microfinance Bank has emerged as Pakistan’s largest micro-finance institution with a nationwide presence. The Institute of Bankers Pakistan (IBP) has honored you with the ‘Certificate of IBP Fellowship’. What do you feel most proud of?
I have been in banking for a long time and I felt that we were not doing enough for the people of Pakistan by not giving them access to any financial services. My biggest pride is that I founded micro- finance banking in Pakistan. Prior to this, I was advisor to the finance minister, which is where I started implementing a micro-finance policy. I also worked with the Central Bank in order to support the development of regulations for the industry and they told me that if I could pull it off, they would be giving me the first micro-finance banking license.
Secondly, there have been many programs in Pakistan for the promotion of small loans and employment opportunities but they all failed, this is the only plan that has succeeded and I am proud of that. There are many reasons for the success but the most important one is that we designed it well in terms of governance. We defined roles; the Finance Ministry should design policies, it should not be the one running the banks and the Central Bank makes regulations. I let the government know that they should not get in the business of running banks, it is the role of the private sector and they listened to me. We now have 11 micro-finance entities which have investments not only from Pakistan but from around the world. Hopefully my legacy will go on for many years to come.
What is your final message to the readers of USA Today who consider Pakistan as a potential investment destination?
The financial sector has always done well in Pakistan so there are great opportunities to invest. We have a huge market and the majority of the population is unbanked. Micro-finance has all the reasons to flourish; US investors should come and invest in Pakistan.
