This space had previously highlighted that the pandemic’s peak quarter (Apr-Jun) had been a mixed bag for the country’s microfinance sector – rising deposits and shrinking borrowing. Now with the release of latest data (Jul-Sep) from the Pakistan Microfinance Network (PMN), which is the national association of microfinance providers (MFPs), the trend seems to have cemented in the subsequent quarter.

On the borrowing front, as of September end, active borrowers stood at 6.85 million. This is marginally lower than June-end level, indicating some stability in the credit market, if not growth. However, this figure is down 5 percent compared to a year ago in September 2019 and 6 percent lower compared to March 2020 when the crisis first started. But this sluggishness pre-dates the Covid health and economic crisis.

As the first index chart shows, there has been barely any growth in borrowers over the last couple of years, likely due to macroeconomic instability seeping into the down economy since 2018. The ongoing crisis seems to have further pressed the brakes hard. Before the crisis, the sector was expecting about 8 million borrowers to conclude 2020 with; that target is kicked down the road into 2021 and beyond.

Thanks to loan deferment and restructuring measures, the outstanding credit has remained rather stable. As of September end, the microfinance sector’s gross loan portfolio stood at Rs309.4 billion, showing an uptick of 3 percent over June 2020 and a growth of 4 percent over September 2019. After dipping in Apr-Jun quarter, the portfolio has picked up in Jul-Sep period, crossing the Jan-Mar pre-crisis level.

Looking at the index chart, it is clear that growth in loans has been faster than growth in borrowers over past two years at least. This doesn’t reflect well. One, it suggests that the sector is unable to attract new borrowers, for internal or external reasons. And two, existing borrowers may be getting more indebted. The the sector’s infection ratio – which is the sector’s portfolio at risk for over 30 days – increased from 4.5 percent in June to 4.8 percent in September, with a higher uptick for non-banking players. When deferred loans start coming in due next year, the real scale of infection may become more visible.

The story on savings remains one of triumph, helping the sector underwrite most of its credit operations. As of September end, the number of savers had reached 58.5 million, a growth of 11 percent over June 2020 and a jump of 38 percent over September 2019. That the sector added close to 10 million savers during a pandemic is a source of continuing strength. This is mainly thanks to mobile wallets, which bloat the number of savers. As the second index chart shows, savers had more than doubled since June 2018.

As for the value of savings, the microfinance sector had achieved a peak level of Rs321.5 billion by September 2020, showing a growth of 9 percent over June 2020 and 33 percent hike over September 2019. Between March and September 2020, the sector mobilized Rs58 billion in new deposits, while the loan portfolio increased by less than a billion rupees. It helped that microfinance banks had their branches open amidst the economy-wide restrictions. Savings are picked up mostly from urban areas.

But what went well for the sector in 2020 has accrued mainly to microfinance banks, who can take public deposits, receive regulatory support, and hence were better prepared for a crisis. The more affected lot are the non-banking MFPs (e.g. rural support programs, grassroots organizations and other non-profits working with poor and low-income people in mostly rural communities). They don’t have the mandate to accept public money and are more vulnerable to economic crisis and natural disasters. Background discussions suggest it is these entities and their borrowers that need assistance from the government.

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