Micro finance one step ahead in Pakistan

Pakistan is a very abundant country for the yield of microfinance. The main reason is that
the actual population of Pakistan consists of more than two hundred million people,
which is anticipated by experts and acknowledged by almost every Pakistani. But the
concerned departments still believes it is not more than one hundred and sixty million.
Unfortunately, due to a continuous economic instability, governments including present,
could never come out of the jigsaw puzzle of “how to resolve and what should be
implemented”. The bureau chairs could never concentrate even on a reasonably short and
modest period to pursue the core issues of the country, and there is not any serious effort
can be seen for setting or achieving any long term objectives to pull out the country from
the financial crunch. The chaos of terrorism is another Anaconda of international
conspiracy has tightly encircled the innocent people and the system of the country also.
All these issues tightened the poor community of Pakistan to the extant of death. Since
2003 the suicidal rate has been getting as high as inflation. The financial instability has
crushed the will to live. The society where human being becomes ready to kill or die for
the sake of only bread and butter of a few days, one cannot imagine how the life is
difficult for poor in Pakistan. According to a survey (The Access To The Finance Study)
conducted by the Pakistan Micro Finance Network has revealed that the most of the poor
population has trend to save but only for the bread and butter. The same has also
discovered that the majority of the people want to save their money but at the same time
they don’t like to get loans.
For their daily needs they depend upon shopkeepers and borrow the grocery as well as
other things to have both the ends met.
Study exposed the facts and figures about banked and unbanked, the ratio of financial
awareness among different segments and the consumer perception has been done also.
There are lot of aspects require further studies especially about the poor' borrowing
aptitude towards shops and it is necessary to study that whether shop keepers are
charging any extra amount on lending or not.

The poverty line is also needed to redraw for the countries like Pakistan because the
international poverty score card does not match with the rapidly changing level of
scarcity in the country. Mark Schreiner the poverty score card guru, principally agreed on
that in a one on one discussion at Bali, Indonesia on Asia Pacific Regional Micro Credit
Summit 2008. Actually there is not any profound research and study system in the
country to evaluate the sensitivities for resolution and development. That’s why the
relevant departments of the country have nothing to do as such. The country like Pakistan
is no doubt, full of resources including human resource but the futuristic approach among
the leaders to build the nation and the soil seems lacking at all levels.
Who doesn’t know that the whole world is occupied in designing and redesigning the
plans and strategies to meet the economic challenges but the Pakistan is still unaware of
how many people are unbanked in Pakistan.
As the above mentioned survey has been conducted by the Pakistan microfinance
network, named “Access to Finance Study-Pakistan” even reveals very attention-
grabbing and surprising facts and figures about the financial trends of women towards
banking, surprisingly it is as minimum as nothing. This information were represented in a
meeting in Islamabad, arranged by Pakistan Micro Finance Network, Headed by the
Governor State Bank of Pakistan with the companion ship of Swedish Ambassador in
Pakistan and a representative of World Bank. The governor of the State Bank of Pakistan
embedded very high spirits of the State Bank of Pakistan regarding importance and
growth of microfinance in the country. The finance minister has already made many
public announcements to define microfinance sector as an important part of global
economy and Pakistan’s as well. It is the first time that the government of Pakistan taking
very positive steps for the sector but still needed to pay more and bold attention upon this
very area.
Within the sector there is a major deficiency of innovative and customized saving
products, because it has been a culture of savings for centuries. People especially women
have a natural temperament of saving in their housing and with their trustworthy dear
ones. Since last twelve years MFIs were focused only on micro credit but now a days
they are showing their interest in savings. Although this is a good sign but when till the
time they cannot come with creative and tailored saving products while the State Bank of
Pakistan has forbidden MFIs to collect savings. There is another very interesting facet is
that the women are more familiar with MFIs than commercial banks because the
community officers or front line officers of MFIs are working direct with the
community within their well defined place and position. This situation must particularly
be understand for State Bank of Pakistan, because almost 90% clients of MFIs are
women and most of them even don’t know the name of any commercial bank which is
authorized to collect savings from them and MFIs are not according to law. The second
thing is that the premises of commercial banks are usually situated not at the reachable
place for poor and they can not afford to come over to open the accounts and to continue
debit credit activities. Although the commercial banks have potential to dig up this
market and can get a levelheaded share but they have to understand the psycho political
and socio economic conditions as well as requirements of this sector.
After a long time the microfinance gurus have able to come to touch only as social
scientist, but not as economist.
The Pakistan Micro Finance Network has announced the “Code of Conduct”, after
understanding the concerns of self respect of this underprivileged and destitute
community.
Here is the original content regarding “Code of Conduct” released by PMN as mentioned
below,

Commitment Statement
In keeping with the fundamentally consumer-centric nature of microfinance services,
microfinance organizations operate with the purpose of creating social benefits and
promoting financial inclusion for the low income and previously disenfranchised
population. The past few years have seen the microfinance industry grow to become more
complex and more closely linked with the mainstream financial sector in Pakistan. As a
result of this growth, competition in the sector has increased which is a positive
development but can also lead to the use of unethical and illegal practices by
organizations in order to gain competitive advantage. Such situations often lead to
government intervention to impose stringent regulations in order to curb such practices.
However, in the case of microfinance, regulations of this nature often do more harm then
good; and invariably detract from the basic goal of microfinance by impeding the
creativity and flexibility required for the provision of such services. This – added to the
characteristic vulnerability of recipients of microfinance – highlights the increasing
importance for microfinance institutions to self regulate and ensure that best practices in
terms of consumer protection and consumer rights become institutionalized.
Therefore, Pakistan Microfinance Network (PMN) has developed a voluntary code of
conduct for its members centered on the core values necessary for the provision of
microfinance services.
By becoming signatories to this code, we, the members of PMN commits to:
1. Adhere to both the letter and spirit of the values and practices outlined in this
code.
2. Apply this code
a. In all categories of member organizations regardless of their constitution
(microfinance banks, NGO MFIs, RSPs or CFIs).
b. To all types of microfinance activities carried out by us.
3. Promote and strengthen the microfinance movement in the country by providing
low-income clients access to mainstream financial services.
4. Conduct our activities by means of fair competition, and not seek competitive
advantage through illegal or unethical practices.
5. Display this code prominently in our premises; make copies of it freely and
readily available for stakeholders, and put measures in place to ensure
compliance.
Core Value # 1: Transparency
The dissemination of transparent and truthful information to clients is at the heart of
microfinance services. Clients deserve to be provided with complete, accurate and
understandable information regarding the products offered to them.
To adhere to this core value we agree to:
1. Provide the terms and conditions of all our financial services in writing in a
language that is understood by the client, avoiding technical and legal
terminology to the extent possible.
2. Before provision of services, disclose to clients:
a. Written terms and conditions related to opening and operating a deposit
account, how it works and the costs to be incurred while using it.
b. Written terms and conditions related to a loan, including the Effective
service charge applicable, the repayment schedule detailing the period and
amounts to be paid in fees, principal and mark-up, and any affiliated
products.
c. Details related to any and all extra fees and charges that may be applicable
to the services (loans, deposits, insurance and payment transfers) provided.
 d. Details of potential factors which may induce changes in fees and service
charges, especially where these changes may impact the repayment
schedule.
3. Inform clients if and when there is a change in fees and service charge. This
information may be conveyed:
a. By letter, phone calls, emails or other personal notices.
b. By putting notices in strategic places such as branches, newspapers,
notices etc.
4. Educate clients about their responsibilities towards us as clients (payments and
otherwise), as well as any and all facets of our services.

Core Value # 2: Fair Practices

In order to fulfill their core objectives, we believe that microfinance services should be
completely devoid of unethical, illegal and/or unfair practices. It is our duty to provide
these services to our clients in a manner that is legal, ethical, nondiscriminatory and free
of deception.
To adhere to this core value we agree to:
1. Incorporate ethical and nondiscriminatory values into our daily operations and act
fairly, responsibly and reasonably while conducting microfinance activities.
2. Ensure that our services are provided using the most efficient methods possible to
enable access to financial services by low income households at a reasonable cost.
3. Act as competent and responsible lenders and make sure that all loans are made
based on a sound and thorough assessment of
a. Ability of borrowers to repay the loan
b. Proof of identity
c. Legal borrowing age
4. Never pressurize a client into an agreement if, based on the aforementioned
assessment, they feel the client will be unable to fulfill the payback terms of the
loan.
5. Carry out energetic pursuit of defaulters but remember to treat customers with
dignity and make every attempt possible not to deprive them of their basic
survival capacity as a result of loan repayment.
6. Market our products and services in an ethical and legal manner and avoid using
illicit, fraudulent and misleading advertisements to wrongfully influence clients.

Core Value # 3: Dignified Treatment

We are cognizant of the need to be fair, disciplined and respectful in the provision of our
services. We realize the necessity of preserving our clients’ dignity at all times as well as
being respectful of cultural and gender differences.
To adhere to this core value we agree to:
 1. Provide microfinance services to low income clients regardless of gender (unless
so stated in our vision and mission), religion, race, sect or language.
2. Avoid inappropriate occasions such as bereavement in the family or other such
calamitous occurrences for making calls/visits to collect dues, and waiting for a
period of no less than 7 days before making these calls/visits.
3. Interact with clients in an acceptable language and dignified manner and spare no
efforts in fostering client confidence and building long term relationships.
4. Maintain decency and decorum during a collection of dues visit to a client and
scrupulously avoid any demeanor which would indicate any kind of threat or
violence.
5. Be considerate of a client’s need for privacy when they come to us with any
queries or problems.

Core Value # 4: Privacy and Fair Disclosure

We realize that, given the nature of our business, it is our responsibility to safeguard
client information provided to us and maintain client privacy and uphold fair disclosure.
To adhere to this core value we agree to:
1. Keep personal client information strictly confidential, implement privacy
measures with respect to information disclosure and not pass it on to external
users – including fellow members – for use in marketing or other such purposes.
2. Explain the purpose of obtaining this information to the client prior to collection. .
3. Not divulge client information to a third party, except in any of the following
circumstances:
a. client has been informed about such disclosure and permission has been
obtained
b. it is legally required to do so
c. the party in question has been authorized by the client
d. this practice is customary amongst financial institutions and available for a
close group on reciprocal basis (such as a credit bureau)

Core Value # 5: Governance

We realize that in order to provide our clients with services that are fair transparent and
efficient we must act in accordance with the highest standards of governance and
management.
To adhere to this core value we agree to:
1. Practice high standards of governance within our organizations and strive to
maintain an environment of fairness, integrity and transparency.
2. Ensure that all officers and employees of our organizations are aware of, and
adhere to, the values and practices outlined in this code.
3. Mandate our respective internal audit department/division to audit compliance
with this code of conduct and submit a report to our Board of Directors at the end
 of every financial year detailing the extent of compliance, specifically indicating
any deviations and reasons thereof.
4. Include a compliance requirement certificate as part of our external audit.

Core Value # 6: Client Satisfaction

We feel that in order for microfinance services to capitalize on their full potential, formal
channels of communication should be in place for clients to provide their feedback and
for us to track client satisfaction.
To adhere to this core value we agree to:
1. Establish effective and efficient feedback mechanisms.
2. Inform clients about the existence of these mechanisms and how to access them.
3. Make our telephone numbers easily accessible for clients in case they have
complaints and/or suggestions.
4. Set up complaint handling systems which will take steps to correct any errors and
handle receive complaints speedily and efficiently.
5. Provide details of the external complaint handling process as well as contact
numbers for the complaint handling body to the clients in cases where we are
unable to resolve the complaints.
6. Conduct a biennial client survey in order to gauge the effectiveness of our
practices and client satisfaction levels.

No doubt this is a tremendous effort to strengthen the sector in Pakistan but till
the true and sincere implementation, it is just a peace of paper. There must be an
appellant court where the accusers and complainant can appeal for their rights. In
spite of all haphazard the sector is seemed be on the verge of making progress by
leaps and bounds]

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