Acknowledgements - TSLab - KTH

Kungliga Tekniska Högskolan - KTH 

Master Thesis Report 

(April 14, 2008) 

Branchless Banking Model for Delivering Microfinance Services in Pakistan 

{Models, Architecture issues, Constraints, Recommendations} 

Status--- Final Version: ----3 

Author: Asif Yaseen asify@kth.se 

Examiner: Björn Pehrson bpehrson@kth.se 

Supervisor: Lena Ramfelt lena@ramfelt.com 

Submitted in partial fulfillment of the requirements for the degree 

Master of Science (ICT Entrepreneurship) 

MSc. ICT Entrepreneurship 

School of Information and Communication Technology 

The Royal Institute of Technology, KTH 

Stockholm, Sweden 


1

Acknowledgements 

This thesis report provides ground realities about current perspective of microfinance 

industry in Pakistan as well as the convergence of technology and micro financial 

services towards transformational branchless banking options in Pakistan. The findings of 

this project can be viewed by any international microfinance agencies, donors, NGOs in 

Pakistan, microfinance banks and Pakistan Microfinance Network. 

The lead researcher is Asif Yaseen who has authored this report under the guidance of his 

supervisor, Lena Ramfelt and examiner, Björn Pehrson for the partial fulfillment of the 

requirements of master degree of ICT Entrepreneurship. 

I wish to express my gratitude to Dr. Rashid Bajwa (CEO, NRSP), Ms. Sadaf Abid 

(`CEO, KASHF Foundation), Ms. Hussan Bano Burki (Senior Consultant, ShoreBank 

International) and Ghalib Nishtar (President, Khushhali Bank) for sparing their precious 

time to infuse their vision about role of technology for the imperatives of outreach and 

sustainability of microfinance. 

Special thanks goes to Faraz Khan, (CEO, Emergen), Mohammad Sohail, (CEO, TPS) 

and Rizwan Shaukat (Independent IT Consultant) for their insightful comments that 

helped me to develop rich understanding about feasible technology options and business 

model. 

I would like to thank Pakistan Microfinance Network for providing logistical support and 

specially to Ms Aban Haq (Research Analyst, Pakistan Microfinance Network) and Ms. 

Sara Saeed Khan (IT and Communications Analyst, Pakistan Microfinance Network) for 

their advices and going out of their ways to accommodate my research requirements by 

unleashing the potential of this network of microfinance providers in Pakistan. 

A special word of thanks goes to Mr. Menin Rodriguez (CEO, Shamrock 

Communications (Pvt.) Ltd.) who provided me an opportunity to participate in first 

international conference on Microfinance and SMEs being held in November as a lead 

delegate to get the holistic view of microfinance sector in Pakistan through the eyes of 

microfinance practitioners and preachers. 

The last but not least, this study would not have been possible without the inputs from the 

microfinance providers in terms of access to their data and specially KASHF, Khushhali 

Bank and NRSP staff who extended generous help to plan my visits to urban, peri-urban 

markets for getting the real insight. 


2

It is not necessary to hope in order to undertake, nor to 

succeed in order to persevere. 

Charles the Bold (1433-1477) 


3

Abstract 

According to the estimates of State Bank of Pakistan, about 25 million people in Pakistan 

have a need of microfinance services. This is hampered by the challenges of scale, 

distance and lack of social and communication infrastructure. Microfinance institutions 

play a vital role in providing access to financial services. The thirty microfinance 

providers that report figures to Pakistan Microfinance Network provides financial 

services to about 1.37 million market putting primary thrust on micro credit services. 

This quality of portfolio is extending consistently at a remarkable rate of 37% since last 4 

years and has places Pakistan in the top quartile of global microfinance industry. This 

dissertation zooms in the detail of current performance of microfinance sector in Pakistan 

by highlighting the statistics about provision of microfinance products like credit, saving 

and insurance. 

Like global microfinance players, microfinance providers in Pakistan are considering the 

use of several technologies like management information systems, smart cards, personal 

digital assistants, ATM networks and remote transaction systems to expand financial 

services to urban as well as marginal areas. This is accompanied by a number of different 

challenges posed by delivery mechanism, business models, wireless technology 

infrastructure in Pakistan and many other social spectrum related issues. This dissertation 

depicts what is the most appropriate branchless banking model for increasing 

microfinance outreach in Pakistan and what kind of business model can help to move 

forward to build their operations. 

This dissertation also provides a detailed overview of regulatory structure in Pakistan 

related to branchless banking. This corroborates that Pakistan appears to be a market of 

opportunities for electronic banking with the poor and soon market will notice a 

paradigm shift from brick and mortar model to branchless banking models striking agent 

led model and mobile banking model initially. 

This dissertation stipulates value configurations for possible branchless banking model in 

Pakistan and highlights the gaps in current electronic banking infrastructure that can 

choke the building of architecture for branchless office in remote areas. This is not the 

intent of this thesis to design applications related to architecture yet to rather leverage off 

the current technologies used for designing branchless office. Detailed information 

related to enabling technologies is presented in this dissertation. 


4

Contents 

Acknowledgements----------------------------------------------------------------------------------2 

Abstract-----------------------------------------------------------------------------------------------4 

1. Executive Summary ........................................................................................................................... 7 

2. Research Methodology ..................................................................................................................... 9 

2.1. Research Question ................................................................................................. 10 

2.2. Research Structure and Tool .................................................................................. 10 

2.3. Research Scope ...................................................................................................... 11 

3. Defining Microfinance ................................................................................................................... 12 

3.1. Microfinance Activities ......................................................................................... 12 

3.2. Elements of Microfinance ...................................................................................... 12 

3.3. Microfinance Providers .......................................................................................... 13 

3.4. Background ............................................................................................................ 13 

3.5. Assessment of Microfinance Program ................................................................... 15 

3.6. Approaches to Microfinance .................................................................................. 16 

3.7. Microfinance Models ............................................................................................. 16 

4. Microfinance Landscape in Pakistan ....................................................................................... 17 

4.1. Informal Financial System for Poor ....................................................................... 17 

4.2. Early Phases of Microfinance in Pakistan ............................................................. 19 

4.3. Growth Highlights ................................................................................................. 20 

4.4. Methodologies prevalent in Pakistan ..................................................................... 22 

4.4.1. The Public Sector Model ................................................................................ 22 

4.4.2. The RSP Model ............................................................................................... 22 

4.4.3. The NGO Model ............................................................................................. 22 

5. Introducing ICT Applications for Microfinance Operations ........................................... 23 

5.1. Technology: Automated Teller Machine ............................................................... 23 

5.2. Technology: Point of Sales (POS) Devices ........................................................... 23 

5.3. Technology: Interactive Voice Response (IVR) Technology ................................ 24 

5.4. Technology: Mobile Banking ................................................................................ 24 

5.5. Technology: Internet Banking ............................................................................... 24 

5.6. Technology: Personal Digital Assistant ................................................................. 24 

5.7. Technology: Management Information System..................................................... 24 

5.8. Technology: Credit Scoring ................................................................................... 25 

5.9. Technology: Mobile Van Banking......................................................................... 25 

5.10. Additional Technologies ...................................................................................... 25 

5.10.1. Technology: Smart Cards ............................................................................. 25 

5.10.2. Biometric Technology .................................................................................. 25 

6. Branchless Banking ........................................................................................................................ 28 

6.1. Evolution of Branchless Banking in Pakistan ........................................................ 28 

6.2. Appropriate Solution for Pakistan ......................................................................... 30 

6.3. Agent-Led Banking [33] ........................................................................................ 31 

6.4. Branchless Banking Value Chain .......................................................................... 31 

6.5. Transaction Infrastructure ...................................................................................... 34 

6.5.1. Existing Transaction Infrastructure [26] ......................................................... 34 

6.5.2. Informal Trading Networks [13] ..................................................................... 34 


5

6.5.3. Check Clearing [26] ........................................................................................ 35 

6.5.4. ATM Networks ............................................................................................... 35 

6.5.5. Point-of-Sale (POS) Networks ........................................................................ 36 

6.5.6. Utility Payment Kiosks and NADRA ............................................................. 37 

6.6. Transaction Infrastructure Gaps [26] ..................................................................... 37 

6.7. Mobile Telecom Infrastructure .............................................................................. 39 

6.8. Core MIS Technology............................................................................................ 39 

7. Regulatory Issues ............................................................................................................................ 41 

7.1. Permissible Activities ............................................................................................ 42 

8. Business Model ................................................................................................................................ 43 

8.1. Delivery Model ...................................................................................................... 45 

8.1.1 Mobile Telephony with SMS Transactions ..................................................... 46 

8.1.2. Credit or Debit Cards with POS terminals ...................................................... 47 

9. Conclusions and Recommendations ........................................................................................ 49 

9.1. Policy Framework .................................................................................................. 50 

9.1.1. Regulatory Requirements................................................................................ 50 

9.1.2. Challenges to Commercialization ................................................................... 51 

9.1.3. Implementation Approach .............................................................................. 51 

9.1.4. Funds and Grants ............................................................................................ 51 

9.2. Infrastructure Concerns .......................................................................................... 51 

9.2.1. Information Sharing ........................................................................................ 51 

9.2.2. A robust MIS system ...................................................................................... 52 

9.2.3. Architecture-related Issues .............................................................................. 53 

9.2.4. Transaction Infrastructure ............................................................................... 53 

9.3. Market-related Issues ............................................................................................. 54 

9.3.1. Product related ................................................................................................ 54 

9.3.2. Selection of telecom Operator ........................................................................ 54 

9.3.3. Structuring the Deal ........................................................................................ 54 

9.4. General Recommendations .................................................................................... 55 

A. Appendix ............................................................................................................................................ 56 

A.1. Sampling Technique ............................................................................................. 56 

A.2. Prevalent Microfinance Models ............................................................................ 57 

B. Appendix ............................................................................................................................................ 60 

B.1. Microfinance Outreach Highlights (All Pakistan) [1] ........................................... 60 

B.2. Microfinance Providers in Pakistan [1] ................................................................. 61 

C. Appendix ............................................................................................................................................. 63 

C.1. Agent Networks..................................................................................................... 63 

D. Appendix ............................................................................................................................................ 64 

D.1. Mobile operators’ growth in Pakistan [27] ........................................................... 64 

E. Appendix............................................................................................................................................. 65 

E.1.Questionnaire .......................................................................................................... 65 

F. Appendix ............................................................................................................................................. 68 

10. References ....................................................................................................................................... 69 

Acronyms ................................................................................................................................................ 71 


6

Executive Summary 

1. Executive Summary 

The growth pattern of the world economy has divided the world into two clubs “Have” 

and “Have-nots”. “Have” Club is marked by advance physical and technological 

infrastructure based economy while “Have-nots” club includes poor countries still 

whipped by massive substance of poverty. “Poor are Poor”, this is not they are poor 

rather they have poor access to financial services. The operating scenario of commercial 

banks does not match with the economic profile (collateral requirements) and financial 

need of low-income groups. The success of Grameen doctrine and ACCION 

methodology has proved that microfinance services are central to solve the riddle of 

poverty in developing countries. Generally after 1950s, but specifically since 1970 

decade microfinance is being considered a key poverty alleviation strategy. The 

developing region in collaboration with international donor organizations (World Bank, 

Asian Development Bank, Consultative Group to Assist the Poor) is crafting new ways to 

increase access spectrum of diversified microfinance services. Pakistan is one of the fast 

growing developing economies in the world and Government of Pakistan is putting 

premium on provision of microfinance services for poverty reduction agenda. The strong 

motivation to undertake this thesis is how can microfinance providers in Pakistan upscale 

their operations in terms of outreach and sustainability nexus by exploiting ICT based 

initiatives. 

This dissertation provides a detailed overview of historical perspective about 

microfinance evolution in the world, growth factors, prevalent microfinance approaches 

and how generically microfinance program are assessed. This also provides a 

comprehensive view about types of microfinance products and prevalent notable model 

in the world. 

This dissertation covers the background of microfinance operations in Pakistan by 

specifying informal financial system prevalent in Pakistan especially for those people 

who cannot provide collaterals for being banked by commercial financial institutions of 

Pakistan. This deliverable details out early phases of microfinance and a rational analysis 

of shades of continuous growth that has placed Pakistan in the top quartile of global 

microfinance industry. This deliverable describes different models (Public sector, RSP, 

NGO) prevalent in Pakistan. 

This dissertation informs the reader about different applications of ICT based initiatives 

used for scaling up microfinance operations in different parts of the world and 

specifically this dissertation focuses on an appropriate remote office solution for 

microfinance providers in Pakistan. This dissertation particularizes agent-led mobile 

banking model for Pakistani microfinance market by explaining the logic of its feasibility 

and possible constraints. 

This dissertation exhibits a particular value chain analysis for proposed model, highlights 

gaps in electronic banking for providing financial services to the unbanked poor 

community in urban as well as in fringe areas of Pakistan. This focuses on core MIS 


7

Executive Summary 

technology issues required to be addressed for implementing agent-led model irrespective 

of the type of technology deployed. 

This dissertation underlines changes in regulatory framework and permissible activities 

for this model as policy brief notes on branchless banking guidelines have been released 

by state Bank of Pakistan in November, 2007 after roundtable discussions along with 

CGAP. 

This dissertation covers the detailed description of business model architecture and an 

action plan for capitalizing this opportunity in Pakistan. 

The last but not least, this document presents bulk of recommendations specifically in 

policy framework areas, technology infrastructure related, architecture related issues and 

market-related to upscale microfinance operations in a sustainable manner. 


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Research Methodology 

2. Research Methodology 

Following methodology has been used to conduct this research. 

1. Bibliographical research for literature review. 

2. Internet search for getting deep insight regarding ICT based microfinance delivery 

mechanisms in different parts of the world, keeping special focus on Brazil, South 

Africa, Philippines and India. 

3. This study requires assessment of local market conditions in Pakistan, due 

diligence on back-office system requirements, review of local service providers 

and a detailed analysis of requirements needed for developing technology based 

micro financial system. Prior to traveling to Pakistan, Asif Yaseen finalized the 

thesis proposal, contacted to Pakistan Microfinance Network for arranging in 

depth study by planning field work with some microfinance providers to review 

the outcomes of this assessment. 

4. Asif Yaseen spent two weeks with NRSP in Multan, Faisalabad, and two weeks 

with KASHF Foundation in Lahore urban areas and two weeks with Khushhali 

Bank in Khanewal. Asif Yaseen also attended first international conference on 

microfinance being held on November 17-18 in Karachi to get the holistic view of 

working of service providers and international service providers. 

5. Focused interview approach was used to capture the insight of top executives of 

different microfinance providers. Snowball sampling 1 technique was used to 

select top executives for detailed interviews. 

(See appendix A.1 for the detail of selection of sample) 

6. Once all requirements for this research were incurred then actual solution was 

proposed that encompassed all previous researches in this regard. 

7. Finally, a workable technology solution was identified then design and 

implementation issues along with possible gaps were identified to prove that 

solution is workable in Pakistan. 

This dissertation is the concluding remark of six weeks practical work exposure in 

microfinance field in Pakistan with three different types of microfinance providers {MFB 

“Khushhali Bank”, MFI “NRSP”, specialized institution “KASHF”} and theoretical 

research over a period of twelve weeks. 

1 Snowball Sampling. Internet Source; http://en.wikipedia.org/wiki/Snowball_sampling 


9


2.1. Research Question 

Branchless banking is a low-cost and viable approach to integrate the existing financial 

system infrastructure for unbanked poor (urban and rural). In Pakistan, microfinance 

providers are evangelizing the use of technology for increasing microfinance outreach, 

providing microfinance clients greater access, lower transaction cost and a diversified 

range of microfinance products. The purpose of this dissertation is to test this assumption 

in Pakistan, proposing a business model by assessing the feasibility of appropriate 

technology and suggesting the most appropriate technology solution for microfinance 

providers in Pakistan. 

The core objectives of this thesis are 

1. The assessment of the feasibility of implementing an appropriate technology 

based financial services solutions for the unbanked poor living in urban and rural 

areas of Pakistan. 

2. Propose the best technology, partners and other requirements for successful 

solutions. 

3. Components, linkages and dynamics for describing business model for branchless 

banking options for delivering microfinance services in Pakistani market. 

2.2. Research Structure and Tool 

This study was conducted in three phases 

Phase 1 

Preliminary study was about getting insight regarding microfinance models in the world, 

different types of the microfinance products and technology based solutions that have 

been implemented in different developing countries. Research tool was article reading 

and internet search to envision a holistic view of ICT enabled products for delivering 

microfinance products in urban and slum areas of transition countries. 

Phase 2 

Field study was conducted in Pakistan by planning field trips with three different types of 

microfinance providers by making arrangements with Pakistan Microfinance Network. 

Research tool was direct observation studies to get insight about working methodology of 

microfinance providers in Pakistan , borrower’s behavior and semi-structures face to face 

interview tool was used to appraise demand side for technology based financial solution 

for poor community in Pakistan. 

Phase 3 

Meetings were arranged with top management of different microfinance providers. 

Research tool was focused interview to get vision and working interest in proposed 

technology based solution. This was coupled with participation in international 


10


conference on microfinance that was held on November 17-18 to get insight about 

commercialization and outreach of microfinance operations in Pakistan not only from 

practitioner but also from donors also like Pakistan poverty Alleviation fund (PPAF). 

2.3. Research Scope 

This dissertation only focuses on proposing a viable technology solution for delivering 

financial services to poor in Pakistan. This also covers business model for offering 

branchless banking services to tap bankable poor niche market. This dissertation also 

highlights architecture related issues for offering financial services but not the core 

technology architecture as this is beyond the scope of this research because the major 

intention was assessment of feasibility of branchless banking suitable option and 

suggesting business model for technology based initiatives to expand banking for the 

unbanked segment. 

The study was limited to Punjab (Lahore, Multan, Khanewal), Pakistan to evaluate the 

feasibility of technology solution. These areas were easily accessible, convenient to get 

data, least social security concerns and better telecom infrastructure is available but this 

can be replicated to other areas of Pakistan also. Another reason to select these areas was 

also that there is good concentration of microfinance providers. 

Participating Organization 

1. National Rural Support Program (NRSP), Urban Poverty Alleviation Program 

(UPAP) 

2. KASHF 

3. Khushhali Bank 

Facilitating Organization 

1. Pakistan Microfinance Network 

2. Ms. Hussan Bano Burki (Senior Consultant) on behalf of Shore Bank 

International 


11

Microfinance: An Overview 

3. Defining Microfinance 

Microfinance is the provision of a broad range of financial services (deposits, loans, 

payment services, money transfers, insurance services) to poverty ridden areas 

comprising low-income households and micro enterprises [5] [6]. 

In developing economies, microfinance is acknowledged as a development tool for 

financial intermediation and social intermediation. Financial intermediation aims at 

providing financial services like credits, deposits, insurance , leasing, pension funds and 

remittances to poor communities and social intermediation refers to group formation, 

developing entrepreneurial capabilities, spreading financial literacy and instituting selfconfidence 

to help poor to come out generational poverty [6]. 

3.1. Microfinance Activities 

Broadly speaking microfinance includes following activities [7]. 

1. Disbursement of small loans for micro entrepreneurship activity or providing 

working capital. 

2. Peer pressure in a closely formed group or compulsory savings or detailed 

information about client serve the purpose of collateral requirements. 

3. Realistic appraisal of borrowers and investment status. 

4. Payment history determines the subsequence of a loan in a group. 

5. Streamlining loan disbursements and monitoring of loan payment history. 

6. Microfinance product diversification based on regulatory framework, target 

market profile and delivery mechanism. 

3.2. Elements of Microfinance 

Followings are the important products of microfinance in a generic substance [6] [8]. 

Micro Credit 

A small amount is disbursed to individual using detailed information as collateral or to 

one member of a group keeping peer pressure as a collateral requirement. This is the most 

common microfinance service rendered by all types of microfinance providers. 

Micro Saving 

This is an asset creation activity that is used to support future consumption with the 

difference of current consumption. This is based on the logic of self-support. This 

element is also used as a collateral requirement in group lending methodology. 

Micro Insurance 

This element is used for asset protection supporting asset creation activity. Poor people 

share their unanticipated risks by paying a small amount corresponding to probability and 

cost factor for the forthcoming risks. In microfinance scene, micro insurance enables 

people to focus on their entrepreneurial programs while extenuating personal risks like 

health issues. 


12


Micro Leasing 

This refers to designing financial lease, operating lease and supply chain lease products 

aiming at micro-entrepreneurs based on the substance of contractual arrangement 

between two parties. One party is the Lessee (user of an asset) and the other is Lessor 

(owner of asset).Both parties decide payment schedule for a fixed period of time. 

Micro Pension 

Micro-employees are vulnerable to risk due to non- saving attitude and this is subject to 

unstable working conditions so a micro pension plan is devised to lessen the pressure of 

stability during old age. 

Remittances 

This refers to channelizing domestic and international funds from people who have 

migrated in pursuit of better life from one place to another and then funds are remitted to 

home. 

3.3. Microfinance Providers 

There are three types of institutions that provide microfinance services [9]. 

Formal: This layer is subject to state rules and regulatory statutes. Banks (Commercial, 

Specialized), Co-operatives, insurance companies, finance companies. 

Semi-formal: Such institutions are supervised by government office, though not subject 

to direct control of rules and regulations. Credit unions, village banks, employee saving 

funds, self-help groups, NGOs 

Informal: Non-registered committees, traders, shopkeepers, NGOs. 

3.4. Background 

International politics was attuned to economic development of ruined infrastructure of the 

world after the end of Second World War. The Marshal Plan of United States was a 

pertinent step in this context to rebuild Europe and then United States extended this aid 

program to other regions of the world also. The primary motive of these foreign aids were 

of political nature but later on these foreign aids were categorically serving the secondary 

motives of developing socio-economic infrastructure of the developing regions by 

supporting mega public projects and also combating the natural calamities or disasters on 

humanitarian basis. Later on, advanced countries started providing aids to alleviate 

poverty to developing countries [6]. 

Poverty reduction is an overarching objective of many developing countries and 

international donors since a long time. Despite the dazzling performance of international 

agencies, poverty remains the pressing problem of today’s world. Soft loans and 

donations in the name of foreign aid to harness poverty have raised criticism whether it 

really supports or harm the recipient country. Empirical studies substantiate the opposing 

position due to following main reasons [6]. 


13


On donor side, 

1. Disguised political interest of donor countries 

2. Hidden economic interest of donor countries 

On recipient side, 

1. Substitution effects rather supplement effect on domestic saving of a recipient 

country. 

2. This makes deficit of balance of payments more vulnerable. 

Though aids and donations work enough during the time of crisis yet another approach 

that has a value to combat poverty is “Microfinance”. Initially this philosophy was started 

as a fringe activity and a buzz word for NGOs sector but the performance of this 

fragmented industry during the last four decades has proved that it is becoming a viable 

commercial opportunity for banks, NGOs, MFIs and many other specialized institutions. 

In the start, this approach has a lot of skepticism but with the course of time enough 

hopes have raised this voice throughout globe to alleviate generational poverty. 

History reveals three notable attempts to develop a model for extending uncollateralized 

loan to extremely poor borrowers. 

1971--- Opportunity International (NGO) started lending to finance rural poor in 

Colombia. 

1973--- ACCION International (NGO) started micro loans to poor in Brazil. 

1976--- Grameen Bank in Bangladesh started micro credit operations by offering to 

women in small groups. The extra-ordinary famous Grameen Bank solidarity model 

envisioned by Prof. Muhammad Yunus became an archetype for microfinance providers 

throughout the world. 

An interesting thing to note is that microfinance industry is so fragmented in terms of 

services, number and grounds for working. This service encompasses giving alms to poor 

up to commercial bank’s offer for extremely poor people. Moreover, we cannot exactly 

enumerate how many institutions are working in the world. Based on regulatory 

framework criteria, Indonesia alone has more than 60000 institutions that are providing 

micro credit services to poor people [9]. Social success implies “outreach” of 

microfinance services and commercial success entails “profit seeking” behavior that in 

turn reinforces “operationally sustainable”. Outreach and sustainability nexus is 

intertwined or free standing is yet an area of strategic disagreement [9]. This would 

further affect methodology (Individual lending or group lending), interest rates (market 

based or capped), typology of poor (poor, very poor, poorest of poor), product offering 

(concentration or diversification strategy) and status of services (financial services or a 

combination of financial and social services like health, education and emergency). 


14


Growth factors [6] 

1. This is a promising solution to tap the market of low-income households on 

continuing basis. 

2. This offers self-sufficiency and sustainability for micro-entrepreneurs. 

3. This is similar to traditional system of borrowing for poor but based on help and 

empower rather exploitation factor. This is apparent in its flexibility in terms of 

collateral requirements and pricing of microfinance products. 

4. It strengthens formal banking system in developing countries to tap sachet 

purchasing segment of society who size is significant to be served. 

5. Innovation is driving this sector in terms of collateral requirements (peer 

pressure, information) and outreach (branchless banking options as technology is 

slashing physical barriers and reducing cost of operations). 

3.5. Assessment of Microfinance Program 

A good microfinance program contains a combination of outreach and sustainability 

nexus. This refers to quality, cost, depth, breadth, variety of outreach (Mark Schreiner) 2 

[10]. 

1. Quality of outreach: This refers to value of microfinance products for particular 

clients, 

2. Cost of outreach: This refers to price of loan and transaction cost. 

a. Price: Interest rates + fees 

b. Transaction cost: Time cost + Infrastructure cost + Transportation 

expenses + documentation cost + other indirect expenses. 

3. Depth of outreach: How many different microfinance products are valuable for a 

target group? 

4. Breadth of outreach: This refers to actual number of potential clients and how 

long financial services are provided to a target niche. 

5. Variety of outreach: This refers to offering product range to potential clients on 

permanent basis. 

2 Schreiner, Mark. June 1999. A Framework for the discussion of social benefits of microfinance. Page 03 


15


3.6. Approaches to Microfinance 

There are two main approaches prevalent in this world [10]. 

Poverty Approach 

This approach aims to serve poor who are living in the marginal areas of Pakistan and are 

neglected by mainstream banking industry due to lack of collaterals and social 

imperatives like lack of education. This approach is based on continuous supply of funds 

and donations. 

Self-Sustainability Approach 

This aims to target less poor people though start-up is based on donations but in the long 

terms enough revenues are generated to cover the cost of supply. 

Though both approaches are operational in developing worlds yet in the long time, 

microfinance industry usually work on self-sustainability approach. 

3.7. Microfinance Models 

The term model refers to “service delivery methods and microfinance products”. 

There are certain models which are widely known and practiced round the globe [5] [6]. 

1. Grameen Solidarity Model 

2. Latin American Solidarity Group. 

3. Village Bank Model 

4. Loan and Saving Associations 

5. Self-Help Groups Model 

Note: For the detail of microfinance models, see appendix A.2. 


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Microfinance Landscape in Pakistan 

4. Microfinance Landscape in Pakistan 

The economic survey reveals that economy of Pakistan is growing 7% 3 annually and this 

trend is persistent over the past 5 years resulting in a cumulative growth of 30%. Though 

the urban areas have gained more yet development of semi-urban peripherals is also 

evident. But rural areas which comprise 65% of the poor do not seem to get benefit from 

this robust growth. Still, 23.9% 4 of population lives below poverty line. Government of 

Pakistan has considered microfinance as a critical tool for alleviating generational 

poverty 5 so microfinance sector development program (MSDP) 6 has been launched in 

2000 to expand sustainable financial services to poor and as a result healthy competition 

was infused and microfinance institutions started broadening their resources by 

mobilizing savings and other services. Let we analyze the performance of microfinance 

sector but it is important to have a look at strong presence of informal financial system 

prevalent in Pakistan as poor cannot fulfill the requirements of documented economy ( 

particularly credit requirements) 7 . 

4.1. Informal Financial System for Poor 

In Pakistan, informal financial markets exist despite long term reforms induced to offer 

financial services to people. These long term reforms include emergence of competitive 

banking, privatization, increased transparency, regulatory framework and tightening 

supervision, introducing modern information system and strengthening human resource. 

These changes played a vital role to change the face of commercial banking in Pakistan but 

the poor regardless they are living in urban premises or marginal areas, usually fulfill their 

financial needs from informal financial markets because outreach of formal financial sector is 

insufficient in terms of presence and also in terms of range of products. So, it is also 

pertinent to understand the extent, diversity, mechanisms and operations of rural 

financing practices prevalent in Pakistan [12] [13]. 

4.1.1. Overview 

Since its inception, Pakistan has observed a remarked growth of informal finance market 

both in rural and urban peripherals. As Pakistan is marked by subsistence economy, 

greater rural population ( 65%), lack of education and perpetuated poverty so a strong 

tendency of exploitive class to develop undocumented and underground economy has led 

to develop a nexus of informal financial markets in Pakistan. Lack of collaterals, little 

access to banking infrastructure, lower sundry expenditures on information supply, 

enquiry, negotiation agreement, guarantee and assessment cost, the nativity of banking 

bureaucracy , the desire to evade taxes , speed and efficiency of funds intermediated by 

local lenders and flexible systems are prime reasons for the evolution and growth of 

3 Economic Survey of Pakistan. 2006-2007. Ch 04, Page 53. Internet Source; 

http://www.finance.gov.pk/survey/survey.htm 

4 Economic Survey of Pakistan. 2006-2007 Ch 04, Page 62 

5 Lewis, Oscar. Culture of Poverty. Internet Source: http://en.wikipedia.org/wiki/Culture_of_poverty, p.1. 

6 Economic Survey of Pakistan. 2006-2007 Ch 04, Page 62 

7 Qadir, Adnan. Dec 2005. A study of informal finance markets in Pakistan. Pakistan Microfinance 

Network 


17


informal finance markets in Pakistan. This informal financial sector functions without 

state guidelines and publicly institutionalized infrastructure. 

4.1.2. Diversity 

A large number of informal finance markets are operating as lending and borrowing 

among relatives, committee systems, money lending, interlinked financing and supplier’s 

credit. Lending and borrowing among relatives, neighborhoods, friends and socially close 

persons is very common in Pakistan. This is primarily used for regulating consumption. 

This is interest and collateral free financing. The sustainability lies in the principal of 

reciprocity 8 . In committee system, participants pool money and after a specified period, 

draw system is used to select one member for giving demand deposits and every member 

has to wait for his or her turn. This is primarily used to mobilize savings. 

Money lending is a big source of informal credits in rural areas and this system works 

through commission agents and manufacturers. Interlinked financing is an arrangement 

where credit is given with condition to purchase some other commodities or exchanging 

supplies. 

4.1.3. Mechanism 

Personal guarantee (parchi) 9 is considered an important cliché while borrowing in rural 

and sub-urban fringes of Pakistan. This is accompanied with no documentation, no 

screening, no monitoring system, and no tax liabilities so the convenience and flexibility 

of this system led to practice it for a long time since its history dating. Surprisingly, the 

default rates are very low due to following reasons 

1. Intertwined social relationships 

2. Individual goodwill 

3. Group and social pressures 

4. Threat or use of force in extreme cases 

4.1.4. Saving System 

Though Pakistan is consumption- oriented 10 society yet savings are considered necessary 

to mitigate risks pertaining to rural informal enterprises. In rural areas, low income 

households invest their savings largely in livestock and it is considered a good strategy to 

supplement their income and also a shield for unanticipated events and social ceremonies. 

Livestock is also kept through shared leasing arrangements {Lessor is landlord and lessee 

is land worker (Muzara)}. 

Keeping gold in rural areas is also considered a good saving strategy. This is usually 

utilized on marriages of daughters. 

8 

Qadir, Adnan. Dec 2005. A study of informal finance markets in Pakistan. Pakistan Microfinance 

Network. 

9 

The word “Parchi” refers to the promise of known or financially strong person as a bankroll. 

10 

Since last 40 years, economic policies focus on short cut economic boom by boosting consumption 

oriented economic bubble. In addition to this, Lack of institutional channels for tapping savings and selfdoubt 

of people in government policies squeeze the willingness of saving so Pakistan has become a 

consumption-oriented society. 


18


4.1.5. Money transfer systems 

Trust based exchange system is dominant in market, commonly known as Hawala 

system. This is marked by low commission, fast transaction as chain of Hawala 11 is 

developed and this is deeply rooted in areas, little documentation and anywhere, anytime 

kind of operational set-up. 

4.2. Early Phases of Microfinance in Pakistan 

The development of microfinance in Pakistan through different times is as follows [13] 

1961---- Start of Government lending services to poor rural community by establishing 

Agricultural Development Bank of Pakistan. 

1982---- Start of private NGO program, Orangi Pilot Project, focus was on infrastructure 

development by wide rural participation. 

1982---- Start of Agha Khan Rural support Program (Focus was irrigation development 

and village community infrastructure development) in northern areas of Pakistan. 

1991---- Start of rural support programs by establishing National Rural Support Program. 

1996----- Establishment of specialized NGOs. KASHF (Diversification towards exclusive 

microfinance services). 

1998----- Establishment of Pakistan microfinance Network, a representation forum for 

microfinance providers in Pakistan. 

1999---- Microfinance was regarded as critical element for poverty reduction agenda. So 

State Bank of Pakistan amended financial services regulatory setup and drafting a special 

ordinance. 

2000---- Restructuring of Pakistan Poverty Alleviation Fund sponsored by government of 

Pakistan and funded by World Bank to focus on microfinance by providing funds to 

MFIs. 

2000---- Establishment of microfinance sector development program. 

Though Government of Pakistan has started microfinance services to provide poor rural 

people with access to credit in 1960s yet the modern microfinance industry emerged in 

1982 when a local NGO launched Orangi Pilot Project (OPP) in Karachi. In addition to 

this, during the same year, Agha Khan Foundation initiated Agha Khan Rural Support 

Program (AKRSP), an integrated rural development program that became the most 

important microfinance model in Pakistan. Until 1990, microfinance movement focused 

on developing village infrastructure programs and re-engineering irrigation system as 

more than 70% people of Pakistan reside in rural areas and their source of income was 

agriculture related services. The decade of 1990 led to the proliferation of those NGOs, 

who clearly focused on microfinance services. In 1991, rural support programs were 

launched and the first two are National Rural Support Program and Sarhad Rural Support 

Program. Later, in 1996, specialized 12 NGOs like KASHF came into market to clearly 

focus on women as a potential candidate for microfinance services. This is pertinent to 

note that many microfinance providers in Pakistan are imitating the doctrine of Grameen 

methodology based on social collateral and group lending technique. 

11 Hawala refers to relatives’ community. 

12 PMN usually describes KASHF as specialized NGO. 


19


Pakistan Microfinance Network, a network of MFIs was established during late 1998 to 

increase outreach in sustainable manner. Since 1999; with the onset of military regime in 

Pakistan, a new agenda was formulated to uplift the economic landscape of Pakistan and 

poverty alleviation was one of the key drivers for this new agenda. So, microfinance is 

considered the most critical standpoint to achieve poverty alleviation in Pakistan. In 

observance with this draft, a special ordinance was passed by State Bank of Pakistan that 

led to the establishment of Khushhali Bank and also seven other microfinance banks has 

been granted license under this ordinance, six has already started their operations and 

NRSP Bank will start its operation during the year 2008. This led to addition of another 

layer, “microfinance banks” to existing microfinance providers. 

In Pakistan, this is also significant issue that for a long time and even up till now, 

microfinance industry is largely focused on micro credit services only. Credit products 

include loans for agriculture, livestock, trading and consumption and also loans for 

emergency conditions. The credit methodology is a bit different in rural areas as well as 

urban areas of Pakistan. In rural fringes, a hybrid model having the overwhelming effect 

of group lending methodology pioneered by Grameen Bank but loans are made to 

individuals and are tracked individually. In urban areas, usually Grameen solidarity group 

model is used. Now, microfinance institutions are adopting diversification strategy for 

product and services offering like savings, insurance and leasing services. Rural Support 

Programs in Pakistan are catalyst for mobilizing savings by intermediation strategy. 

These savings are mobilized towards banks as per SBP rules and regulations. 

4.3. Growth Highlights 

Since 1999, Pakistani microfinance industry is facing an unprecedented growth rate in 

terms of outreach and institution’s sustainability nexus. This progress is multi pronged as 

generating growth in client outreach, minimizing cost and ensuring repayments 13 . 

According to a survey 14 , 40 MFIs are working in Pakistan but it is quite interesting to 

note that 15 institutions capture 99% of microfinance market in Pakistan [2]. Though low 

market coverage yet Pakistani microfinance industry is growing at a striking rate of 37% 

since last four years continuously and this has placed Pakistan in the top quartile of 

global microfinance industry [1]. 

Growth rates in microfinance outreach [1]. 

2007--- Total outreach by all formal, semi-formal and informal microfinance institutions 

is 1371004. Percentage increase as compared to 2006 is 37%. 


is 997,778. Percentage increase as compared to 2005 is 66%. 


is 597,537. Percentage increase as compared to 2004 is 36%. 

13 Source: USAID-WHAM Project, Microfinance Performance in Pakistan, 2006 

14 A survey of microfinance in South Asia, 2006. Microfinance Information eXchange, Inc (MIIX) 


20



is 441,160. Percentage increase as compared to 2003 is 35.7%. 


is 332,548. 

It is estimated that if same growth rate is continues for coming three years then in 2010 

the microfinance industry will cross the target of three million. According to Pakistan 

Microfinance Network (PMN) that on average monthly increase is approximately 20000 

borrowers [1]. 

Year Microcredit Micro-Savings Micro-Insurance 

Active 

Borrowers 

Value 

(PKR 

Million) 

Active 

Savers 

Value 

(PKR 

Million) 

2007 1,371,004 13,767 1,492,381 3701 3 rd 


Policy Holders Value 

(PKR Million) 

Quarter 

2 nd 

566,559 

3 rd Quarter 

387902 2 

Quarter 

nd Quarter 5819 

Increase 46% Increase 23% 

2006 997,778 10,743 1,259,051 2,260 ------------- ------ 

Increase 

(Net) 

373226 3024 233330 1441 -------------- ------- 

Increase 

(%) 

37 28 18 64 ------------- -------- 

Table 1: Snapshot of Microfinance Performance in Pakistan [1] 

This is clear from the table that 37% increase in terms of active borrowers indicates the 

same pace of growth as we have observed since last five years. Microfinance banks are 

the largest providers of microcredit services followed by rural support programs due to 

their larger branch network. In the sphere of micro-savings, 18% increase till third 

quarter of 2007 is showing that microfinance institutions are paying attention to tap this 

potential segment. Rural support programs are dominant players with 89% market share 

(see appendix B.1.).This dominance is due to their presence in rural areas. An important 

thing to note is that male ratio is 66% as compared to 34% female ratio in saving because 

many MFIS provide lending services to women exclusively but these have no saving 

programs (see appendix B.1.).Though micro insurance services have been offered late in 

Pakistani market yet the growth is exceptional as market has observed 46% increases 

only in one quarter (3rd quarter to 2 nd quarter of year 2007). This shows that 

microfinance institutions should come up with different kind of insurance market to 

capture this segment that is clearly visible. 

Note: For the detail of microfinance outreach highlights, micro credit, micro saving and 

micro- insurance provision, see appendix B.1. 

7,130 

21


4.4. Methodologies prevalent in Pakistan 

According to rural finance committee of SBP, following methodologies are usually used 

for microfinance operations in Pakistan. [14] 

4.4.1. The Public Sector Model 

In rural areas, government institutions are engaged in agricultural loaning in terms of 

micro credit to farmers. Government institutions use pro-collateralized policy. This is a 

proven fact that Pakistani public sector is running typical rent seeking behavior of poor 

people by using subsidized initiatives and not taking sustainability measures into its 

account. 

Example: Zari Taraquiati Bank Ltd., Khushhali Bank Ltd. 

4.4.2. The RSP Model 

The thrust of this model is on role of community organizations (COs) for channelizing 

loans. Community organizations are fully responsible for identifying and assessing the 

repayment capacity and behavior of borrowers. COs deposit repayments in RSP offices 

rather client themselves. So, collateral in this case is CO , s social pressure for repayments 

schedules of clients. This social pressure from COs side for clients serve as a guarantee 

for RSPs. The rate of service charges is directly correlated to the assessment COs 

regarding repayment capacity of borrowers. 

Example: NRSP, PRSP 

4.4.3. The NGO Model 

In Pakistani microfinance sector, NGOs are pro-lobbyist of Grameen methodology. Some 

are also using solidarity group lending approach. Usually, NGOs are working in urban 

areas and focus is women gender. 

Example: KASHF 

Note: For the detail of types of microfinance providers in Pakistan, see appendix B.2. 


22

ICT applications for Microfinance Outreach 

5. Introducing ICT Applications for Microfinance Operations 

The zenith of technology advancements is heralding a new era for microfinance 

operations in terms of outreach and financial sustainability. The proper exploitation of 

information and communication technologies for microfinance operations aims to 

achieve growth efficiency by removing repetitive tasks and lowering cost of operations, 

scaling-up operations by eliminating costly procedures, better monitoring and decision 

making. Steve Whelan in his series of articles for Consultative Group to Assist the Poor 

(CGAP) discusses various ICT technologies that are being used and may be used for 

microfinance operations (Whelan, 2003). 

Here is a brief technical detail of ICT applications in microfinance context [4] [17] [18]. 

5.1. Technology: Automated Teller Machine 

ATM 15 option is used when financial institutions intend to focus on personalized banking 

so a broad range of generalized services like account balance information, money transfer 

and information about financial products are automated. This provides ample time to loan 

officers to cater personalized services. This technology is suitable for those institutions 

that accept savings and offer other services like remittances also. In addition to that, 

upfront investment for ATM installation is so high that this is not suitable for lending 

activities only. 

Benefits: 

• Increased outreach and market coverage 

• Fast and convenient services to clients 

• No cash handling by staff outside branch setup 

• Time savings related to transaction 

5.2. Technology: Point of Sales (POS) Devices 

This device includes card reader, a computer and in some cases mobile phones for cashin 

and cash-out transactions at different retail locations or at bank correspondent. There 

are three models to describe the range of services offered by POS devices. These can be 

used in three different ways, 

1. Smart cards are used to make payments to agents. Loan processing, cash deposits, 

withdrawals and account management should be managed in a microfinance bank. 

So, no cash handling by retail outlets. 

2. Transaction processing like withdrawals, deposits, money transfer should be 

performed by engaging agents while term loan applying, smart card applying or 

any other complicated transaction should be centralized in microfinance bank. 

3. All cash handling and customer services should be managed by agents while loan 

appraisals and monitoring activities should be performed by a microfinance 

provider. 

15 Whelan, S. (2003), Automated Teller Machines, CGAP IT Innovation Series, viewed 2007/12/04. 

 


23


5.3. Technology: Interactive Voice Response (IVR) Technology 

IVR 16 is used on fixed lines and mobile lines for following services like account balance 

information, money transfer, information about financial products and branch location 

information. 

5.4. Technology: Mobile Banking 

Mobile banking can be used in place of branch banking infrastructure by making alliance 

with telecom operator or offering a special SIM card to customer for plugging to their 

mobile phones. 

Benefits 

• Saving time for personalized services so better staff management 

• Building database of transactions 

• Greater quality of transaction data 

• Putting premium on convenience 

5.5. Technology: Internet Banking 

If microfinance institutions have online branch setup and socio-communication 

infrastructure is so high in a country then microfinance clients can use internet for 

account balance information, money transfers, information about microfinance products 

and other kind of financial services. 

5.6. Technology: Personal Digital Assistant 

If a country has state of art wireless communication infrastructure then PDAs 17 can be 

used for services like loan application processing, reviewing client past history by 

accessing and payment monitoring status. Moreover, tailored-made information can be 

disseminated to customers without time delay. 

Benefits: 

1. Time saving for loan transaction 

2. Building electronic database of clients in terms of profile and performance 

3. Better loan monitoring by accessing MIS system in remote areas visits 

5.7. Technology: Management Information System 

Benefits: 

Greater quality of performance and profile of clients 

Efficient management of operations and quick decision making due to better financial 

analysis 

16 

Frederick, L.I. 2003. Interactive Voice Response (IVR) Technology, CGAP IT Innovation Series viewed 

2007/11/30. 

17 

Waterfield, C. (2003), Personal Digital Assistants (PDA), CGAP IT Innovation Series, viewed 

2007/11/30. 


24


5.8. Technology: Credit Scoring 

Credit scoring 18 technology analyzes client’s behavioral and historical data that may be 

effectively used for collection strategies, client retention policies and regulating loan 

amount for group lending methodology. 

Benefits 

1. Provide qualitative consideration for decision making 

2. Better reflections of client behavior and credit history 

5.9. Technology: Mobile Van Banking 

This mobile unit 19 refers to specially designed van that contains tracking devices, solar 

power or car battery for laptop working, VHS/ GSM communication facilities and cash 

safe. This mobile van is specially designed for banking operations as different windows 

serve the purposes of deposits, cash withdrawals and other transactions. Client database is 

loaded on the laptop to work in remote areas. Transactions can be completed in offline 

status and then these can be uploaded to central database of microfinance institutions. 

Though cost of operations may be high yet it is highly suitable if communication 

infrastructure and social spectrum of the country is at its base level and microfinance 

institutions intend to streamline different kinds of transactions. 

5.10. Additional Technologies 

5.10.1. Technology: Smart Cards 

Smart cards 20 are chip based debit or credit cards that may be used for managing different 

types of financial services based on different modes of identifications like biometric 

technologies or fingerprints. Chip based or magnetic strip based cards bots are used on 

ATM machines or point of sales devices. 

Benefits 

1. Saving time as no repetition of tasks 

2. Better account management as built in limit of credit and past performance 

3. Cashless transactions that improves security of user identity and account 

information 

5.10.2. Biometric Technology 

Biometric technology 21 is used for client identity purpose based on individual’s unique 

physical characteristics. This is also used on ATM networks or POS networks. 

18 

Salazar, D.G. (2003), Credit Scoring, CGAP IT Innovation Series, accessed 2007/11/30. 

 

19 

Source: Micro Save. October 2004. Innovative Models to Address Rural Needs: Technology 

Innovations, SEEP Annual Meeting 

20 

Whelan, S. (2003). Smart Cards. CGAP IT Innovation Series accessed 2007/11/30. 

21 

Whelan, S. (2003), Biometrics Technology, CGAP IT Innovation Series, viewed 2007/11/30. 

 


25


How these technologies are instrumental for microfinance operations, the detail is as 

follows (Reille & Ivatury, 2003) 22 

Functions 

Processing 

loan 

application 

data 

Recording 

payment 

transactions 

Disbursing 

cash 

Money 

transfer 

between 

accounts 

Taking 

deposits 

Account 

balance 

information 

Financial 

analysis 

Credit risk 

assessment 

PDA Smart 

Cards 

Mobile/internet 

banking 

MIS Credit 

Scoring 

Figure 1: ICT initiatives used for different microfinance operations [18] 


ATM/POS 

PDA: This technology is helpful for direct input of information from remote location, 

and if synchronized with back-end then client payment status can be checked and time 

saving method to update central database from remote locations. Adoption of this 

technology may pose challenges like data synchronization, flexibility of existing 

infrastructure to adapt this technology and staff understanding to use it efficiently in field. 

Example: ACCION has adopted this solution with custom software application. The 

name of product is PortaCredit 23 . 

Smart Cards: This is an additional technology and used in combination with ATM or 

POS network or for kiosk activities. 

22 

Source: Hishigsuren, Gaamaa. Feb 2006. ICT and Microfinance: Options for Mongolia. ADB Paper 

Series. 42 

23 

“PortaCredit: Increasing MFI Efficiency with Technology,” ACCION Insight No.9, http:// 

www.accion.org/insight/ ( Date: November 26, Time: 11:15) 

26


Mobile/Internet Banking: Mobile banking facilitates banking operations like balance 

information, recording transactions and money transfers on phones. This may pose 

challenges for providing competitive services to those with no bank accounts. 

Example: WIZZIT 24 has provided mobile phone based text application in South Africa. 

Internet kiosks and telecenters provide cheaper phone services (VOIP) related to 

transactions and money transfers and also information related to products and services. 

This poses challenges to build infrastructure in remote areas for a viable solution. 

Example: COW 25 telecommunications has offered this service in India. The service name 

is internet access. 

MIS: This is considered a backbone for every type of ICT application. This is 

instrumental in loan processing application, risk assessments and financial analysis. 

ATM/POS: This increases operational efficiency in terms of greater number of service 

points and core financial services. This puts emphasis on issues like reduction in 

processing cost, secure access to cash and increase in number of products offered. 

Example: Ferlo 26 is providing this service in Senegal by managing a network of 

interlinked ATMs and POS. The name of product is Kalpe--- electronic payment system. 

Prodem 27 is providing in Bolivia. The product is multilingual smart 28 ATMs. 

In addition to this it is necessary to discuss G-cash 29 product of Globe Telecom in 

Philippine and the Remote Transaction System 30 led by a consortium of HP and USAID. 

G-Cash: This m-commerce facility is a link between mobile phone and a virtual account 

of customer that is operated by PIN. This is based on The Text-A-Payment (TAP) facility 

and this is a true example of non-bank led model based on SMS application. This offers 

cash- in, cash-out, remittances, and bill payment services. This is a joint project of Sevak 

Solutions and HP in collaboration with USAID. 

The Remote Transaction System: This refers to POS device; a java based specialized 

software application, a smart card and a back office system. This can be capitalized on 

existing IT infrastructure. Different financial transactions are recorded in real time on 

RTS server then information flows to respective information system of any microfinance 

institution. Software is an open source; clients use a smart card on RTS handheld device. 

Transactions can be recorded in remote areas. In addition to this, information about 

activities of clients is captured in a way that can be used by much different kind of 

financial institutions. 

24 

http://www.wizzit.co.za ( Date: November 26, Time: 13:15) 

25 

“Computer on Wheels for people centered development”, iConnect-Online. http://www.iconnectonline.org/Stories/Story.import5162/view?searchterm=COW 

( Date: November 26, Time: 14:30) 

26 

“FERLO” The Stockholm Challenge, 2005-2006. http://stockholmchallenge.se/data/ferlo 

27 

“ What works: Prodem FFP,s multilingual smart ATMs for microfinance”, 

http://www.digitaldividend.org/pdf/prodem.pdf 

28 

Smart is used as these ATMs can provide services in regional languages and voice driven services to 

illiterate customers. 

29 

Micro-payment systems and their application to mobile networks, An InfoDev Report, January 2006. 

30 

http://www.sevaksolutions.org/prototypes/rts.uganda.html ( Date: November 30, Time: 20:08) 


27

Branchless Banking Solution for Pakistan 

6. Branchless Banking 

Branchless banking means delivery of financial services using ICT infrastructure in a 

franchise set-up. This is relatively cheaper alternative to brick and mortar branch banking 

set-up. This supports expansion of delivery channels for financial services to a large 

segment of society. This has different forms like use of retail agents, electronic banking, 

mobile banking and ATMs & POS network etc. 

There are two models of branchless banking [3] 

Bank-led Model: Any licensed bank can deliver financial services by using ICT 

infrastructure and retail network to push the access to finance by considering the 

prudential regulatory framework of country. This may be transformed by developing 

venture between bank and a telecom operator or bank and market agents or both. But 

account must be opened in bank and cash related (cash-in, cash-out) transactions may be 

handled by bank itself or market agents. Bank or telecom operator or both can act as a 

gateway. 

Telco-Led Model: Telecom network operators and prepaid card issuers use agent network 

to offer micropayments. This facilitates financial transactions through a virtual account 

on a non-bank server. This may be transformed by understanding telecom operator as a 

virtual bank or a partnership between telecom operator and market agents. Only telecom 

operator is a gateway and virtual accounts are opened and maintained by Telecom 

Company but clients can access it directly from telecom service or through market 

agents. 

This is important to note that proliferation of mobile phone operators in developing 

countries has made it possible to use the power of mobile networks to catch “sachet 

purchasing” ( a practice of purchasing goods in small quantities) for financial services in 

developing countries. Though different types of branchless banking model and ICT 

enabled functionalities have been introduced to reengineer our understanding delivery 

mechanism for microfinance services yet G-localization 31 (Think global, act local) 

paradigm is necessary to envision for developing ICT solution for a particular market. 

6.1. Evolution of Branchless Banking in Pakistan 

Pakistan can be characterized as a later mover not only for adopting privatization policy 

for commercial banking but also embracing electronic banking for providing financial 

services. Privatization and financial reforms were adopted in 1991 to strengthen existing 

public sector banking set-up [19]. Though ATM switches were installed during 1999 yet 

since 2000 electronic banking became operational in Pakistan. In year 2002, SBP took 

interest to promote E-banking in Pakistan and regulatory changes were made to give 

serious attention towards this. So, in commercial and retail set banking set-up, 

31 Robertson, Roland. Comments on the Global Triad and Glocalization. Internet Source: 

http://www2.kokugakuin.ac.jp/ijcc/wp/global/15robertson.html. p.1. ( Date: Dec 08, Time: 10:22) 


28


interconnected ATM switches, utility bills payment system, credit card facilities, account 

management, phone-banking are fully operational [20]. 

Branchless banking is also an appropriate option for increasing access to financial 

services by the poor to make this world sustainable. CGAP has initiated a number of 

projects to learn about high potential technology approach to reach the unbanked 

communities of the world. Broadly speaking, CGAP is working on following categories 

of branchless banking options [21]. 

• Agent-led model 

• Shared Information system 

• Mobile phone banking 

• Credit cycle management 

• ATMs and Point of Sales 

Another important factor to consider is that one model cannot be applied to other country 

context as economic & socio-cultural context, regulatory framework and technology 

infrastructure is different form one part to another part of the world. (Robertson, Roland) 

Now, a mesolayer consisting of telecom operators and microfinance providers is 

interesting to increase scalability of microfinance operations. Though the commercial 

banks have established ATM and POS networks, until recently no microfinance banks or 

institutions were integrated into these networks (ATM, POS). Only Tameer Microfinance 

Bank has planned a project with CGAP to test the delivery of financial services to 

potential poor using mobile banking and an agent network [22]. Within the past year, 

Tameer Microfinance Bank bought its way into these networks by installing ATM. Now 

their customers can access most of the ATMs and POS devices in the country. 

In Pakistan, only Tameer Bank is testing different infrastructures to test what can be done 

in this regard like Tameer Bank tried ISDN at first then DSL network for operations in 

Karachi (Sindh) and in Punjab, Tameer Bank has tried VSAT infrastructure but due to 

latency factor Tameer Bank is intending to use Wi-Max technology as Wi-Max 

infrastructure is being deployed by Wateen telecom in Pakistan. Tameer Bank also 

aspires to use DVB-RCS (Return channel over system). As state-of-art communication 

infrastructure (GPRS, GSM) is available in Pakistan so mobile banking and agent 

network options of branchless banking sounds to be good for increasing outreach in a 

sustainable manner. The real scene is this that nothing is in its final stage for pilot 

implementation. Due to infrastructure cost constraints of building the requisite solutions, 

the microfinance players in Pakistan should consider collaborating on infrastructure and 

seek to understand what is required to enable them to participate in the already 

established and emerging solutions. 

The analysis that follows is meant to help microfinance institutions in Pakistan for 

mapping a course of action for capitalizing technology based initiatives as they seek to 

move beyond the traditional “brick and mortar” branch model to a lower transaction cost 

alternative, and as they seek to rapidly grow from their current combined client base of 

1.3 million to reach ten million customers in the next 5 – 10 years. It is critical to 


29


remember that innovations around technology and business process go side by side. One 

can’t be accomplished successfully without the other. 

6.2. Appropriate Solution for Pakistan 

Before discussing the suitable solution for Pakistan, this must be considered that certain 

ICT products cannot be used in Pakistani environment due to lack of technology 

infrastructure, proper use of that technology, education level of unbanked community and 

high cost of building that technological solution. For example, 

1- PDAs are a suitable option for accessing institutions remotely and offering 

customized services but in Pakistan this is not appropriate as MFPs have not 

sophisticated MIS for synchronization, wireless infrastructure is not deployed in 

Pakistan ( Though Wateen Telecom has started but it will take time to be 

marketed on commercial scale) and moreover, recurrent problem of session drop 

out will be encountered if detailed information ( 1600-1800 fields) would be 

entered on such slow system and as considerable information are necessary to 

collect because of collateral requirements. 

2- ATMs are also not suitable solution for Pakistani microfinance institutions due to 

following reasons. 

• Microfinance market in Pakistan is primarily focused on microcredit products so a 

greater extent of lending activities is not feasible for offering ATM to automate 

some services for microfinance clients. 

• Though ATM banking has taken off in Pakistan due to two interlinked switches 

(M-Net, 1-Link) yet cost constraints and operational constraints 32 pose limits for 

particularly microfinance sector. 

• A large portion of microfinance market is covered by rural support programs and 

a specialized NGOs like KASHF and according to financial regulatory framework 

these are not authorized to mobilize savings rather these can only intermediate 

savings. 

• Pakistan is a consumption oriented society while this option is suitable for saving 

oriented 33 developing countries. 

3- Use of smart cards is not appropriate as majority of microfinance clients are 

illiterate and they themselves cannot use PIN and particularly English driven 

menu on ATM or on POS network. 

4- Internet banking cannot be expedited due to following reasons, 

• No real time settlement system is available in Pakistan. 

• Access to internet is very limited in rural areas of Pakistan. 

• In urban areas as dial up and DSL connections are available but as greater number 

of clients of microfinance providers are illiterate so they cannot use it. 

32 In Pakistan, some currency notes have two forms due to different printing quality of same note. This 

oddity leads to wrong cash dispensing and as larger number of microfinance clients are not literate so they 

do not know how to deal with such problems. 

33 This refers to attitude of people for spending, societal norms and public institutional infrastructure for 

tapping savings. 


30


5- A complete Telco-led model cannot be used due to limitations and conditions 

posed by regulatory framework for providing financial services in Pakistan. 

What can be done in Pakistan? 

In Pakistan, this is important to note that regulatory framework and socio-cultural context 

advocate only “bank-led model” through agent-led banking is appropriate for increasing 

microfinance outreach services regardless of what kind of E-banking (ATM, POS, 

internet) and mobile banking (SMS,GPRS) technologies are deployed. Important things 

to consider are provision of service level, operating procedures and risk mitigation 

strategies. 

Bank-led model can be used as 

Venturing between a regulated bank and a telecom company 

& 

Agency arrangements for service level between Bank and agents 

6.3. Agent-Led Banking [33] 

For the microfinance client, a major benefit of a branchless banking approach is the 

flexibility and proximity of banking services. The opportunity for a bank to work close to 

home is a key value from the customer’s perspective. Since critical microfinance 

services, such as loan payments and savings deposits, involve cash exchange, most 

branchless banking options for microfinance are going to require cash-in and cash-out 

points. To achieve a low-cost and pervasive landscape of cash-in/cash-out points, a 

network of “agents” will be required. This is true regardless of the type of technology 

solution deployed like point-of-sale (POS), mobile phone or a combination of both. 

Agents can either be employed by the financial institution or they can be independent 

third-parties, such as agents or gas station attendants. This approach, where “agents” 

serve the role of a “virtual bank” or bank is referred as the “agent-led model”. In 

Pakistan, there are a number of different networks that could serve as agent locations for 

branchless banking. Some of the options are listed in the table below. 

There are different networks that can function as virtual banks in Pakistan subject to 

regulatory framework drafted by SBP. 

Note: for the detail of potential agent networks, see appendix C. 

6.4. Branchless Banking Value Chain 

In order to provide branchless banking services there are a number of services that need 

to be considered. The range of services can be simplified a bit by breaking them down 

into four key areas, each of which needs to intersect with the microfinance institutions. 

These four service areas are: data capture, access points, transaction processing, and 

customer management. 


31


These service areas can be described as follows 

Data Capture 

This area refers to the hardware, software applications, and other elements that are 

required to interface with the end customer. Cell phones, POS devices, ATMs, smart 

cards, debit cards, scratch cards, cellular connectivity, and the application software that 

runs on these devices connecting them to back-end servers. Some of the services required 

in this area include hardware procurement and support, software upgrades, maintenance, 

and support, and card management. 

Agent Network 

The locations where customers access their financial services are the access points. These 

could be bank branches, independent agents, kiosks, technology centers, and so on. A 

number of services are required to establish, manage, and integrate these access points 

into the overall financial network. 

Transaction Processing 

When a customer uses an access point to perform a financial transaction and that 

information is captured electronically, the information must flow to back-end systems 

were the transaction is captured, recorded, and transmitted to an appropriate financial 

MIS system where the transaction can be reconciled. This process becomes more 

sophisticated when multiple financial institutions are using the same access points. When 

this occurs, clearing and settlement services need to be added to the mix. 

Customer Management 

Often overlooked, the relevance of financial services to the financial customer’s needs is 

critically important, particularly when innovative products are introduced. The services 

delivered through branchless banking need to be considered as new product offerings. As 

such, there should be initial market research to confirm the appropriateness of products, 

marketing and advertising of new products to attract customers, and adequate training. 

These four areas and the services required in each are further described in the diagram 

below. 


32


Customer Management 

• Card issuer services 

• Marketing and sales 

• Risk management and fraud 

prevention 

Data Capture 

• Connectivity (online/offline) 

• Software and technical support 

• Hardware and technical support 

• Card management services 

Microfinance 

Providers 

Transaction Processing 

• Networking and switching 

services 

• Settlement Services 

• Regulatory and SBP requirements 

• Fiduciary responsibility to the 

system 

• Deposit security 

Figure 2: A conceived value configuration chart for branchless banking 

Regardless of the branchless banking option that is chosen by the microfinance 

institutions, there are a number of requirements that must be in place before an 

organization can consider integrating these solutions into their business. The following 

discussion describes these various requirements and their status in Pakistan. 


Agent Network 

• Agent value proposition 

• Agent acquisition services 

• Independent sales organizations 

• Risk management and fraud 

prevention 

33


6.5. Transaction Infrastructure 

The transaction infrastructure includes the hardware, application software, service 

providers, financial institutions, switches, clearinghouses, and all the other elements that 

are part of the branchless banking or electronic banking value chain described earlier. In 

order to reliable, the transactions that flow across, and are managed by, this infrastructure 

needs to be: 

Authentic: The transaction needs to be linked back to a specific person. Authentication 

can be handled through a simple visual check of a photo id or through a sophisticated 

combination of PIN number and biometrics (fingerprinting). 

Secure: Security is built into the system at many levels, both from a technical and 

operational perspective. Encrypted data is a form of secure data. 

Non-Repudiated: Repudiation refers to the concept that transactions must be accepted, 

if they were properly formed and submitted. This ensures that the agent has to bear only 

those risks that they can control (e.g. getting proper identification). Non-repudiation 

means bank can’t deny to the customer that transaction occurred and likewise the 

customer can’t deny to the bank that a transaction occurred. 

Auditable: Accuracy and audit-ability go hand in hand, with accurate transaction 

amounts backed by the ability to know who was involved in creating, handling, and 

modifying the transaction. To date we have seen that many microfinance customers still 

want a receipt as an audit trail. It is important to keep this in mind as a requirement for 

electronic banking. There are even some precedents to suggest that microfinance clients 

do not like mobile solutions due to the lack of receipt. 

Private: Privacy appears to be not that important in Pakistan law and public perception. 

Given the move to electronic records, this issue should be addressed. Another key aspect 

of a reliable transaction infrastructure is the reliability of the connectivity infrastructure 

across which it operates. Connectivity is discussed in the next section. 

6.5.1. Existing Transaction Infrastructure [26] 

While not comprehensive, the transaction infrastructure that exists in Pakistan today has a 

robust base. Check clearing, ATMs, and POS networks abound in the cities and major 

towns. In addition, there are new entrants to the market such as mobile phones and 

kiosks. The elements that exist today are described below. 

6.5.2. Informal Trading Networks [13] 

For the better part of the past thousand years, traders along the great roads of what is now 

modern day Pakistan have utilized a form of “I Owe You” to transfer funds and provide 

business liquidity via trusted relationships. These are now often associated with criminal 

elements and aren’t part of any microfinance operation. Nonetheless, it is common 

knowledge that the transporter “union” provides money transfer services, for a hefty fee, 

and it is likely that many customers of microfinance also use these informal services. 

Even if such networks could be utilized for microfinance, they would make poor agents 

for delivering transactional services, except for long-distance funds transfer. Needless to 

say, they are not compliant with regulations. 


34


6.5.3. Check Clearing [26] 

Pakistan has a well-developed check clearing mechanism that currently functions without 

the use of a real-time gross settlement (RTGS) system. The banks have corresponding 

bank relationships and hold overnight liquidity in each other's accounts to ensure that 

checks clear against each other. To minimize risks, this is a highly regulated process and 

there are limits to the size of checks that can be drawn. Checks are cleared by the State 

Bank. In those few cases where microfinance institutions participate in this system, they 

do so through a connection to another bank that is a member of the check clearing 

consortium. For example, CresBank provides this service to Tameer Microfinance Bank 

and Habib Bank to First Microfinance Bank. The State Bank is now automating this 

process through a switch called PRISM. It will cost banks $125,000 to join the switch. At 

this price, it will probably remain too expensive for microfinance institutions to 

participate more fully than they do today. 

6.5.4. ATM Networks 

There are roughly 2,000 Automated Teller Machines (ATMs) in Pakistan. Unfortunately, 

these ATMs are quite unreliable and are reputedly unable to dispense cash accurately 30- 

70% of the time. Those interviewed seem to agree that ATMs on bank premises were 

most reliable, which those at other sites worked –at best - 30% of the time. According to 

one source, the main problem relates to cash-currency issues. Pakistan has two forms of 

the common 1,000 rupee note, both of which many issues related to printing quality. 

These differences in consistency of the rupee notes cause the machines to fail when they 

dispense cash. Several people say they were cheated out of thousands of rupees and no 

longer use ATMs. This reputation does not bode well for microfinance customers’ 

willingness to use similar machines. 

There are two ATM networks in Pakistan, MNet and 1-Link. MNet was started by the 

Muslim Commercial Bank. It currently has about 9 members including Citibank, AMEX, 

Standard, First Women Bank, MCB. This company is structured as a wholly owned 

subsidiary of these banks. 1-Link, a public guarantee company, started in 1999 with 2 

members and has since grown to 19 members with 75% of the market. It is considered 

the better of the two switches. More than 1 million transactions per month are processed 

through 1-Link. The technology network behind 1-Link is provided and managed by 

TPS, which sells its services and software across the Middle East, North Africa, and 

South Asia. TPS also has extended relationships with microfinance institutions in the 

region, most especially BRAC Bank in Bangladesh and, recently, Tameer Microfinance 

Bank in Pakistan. TPS provides a switch and clearinghouse solution as well as a complete 

turnkey card-issuance service, known as IRIS. 


35


The 1-LINK price structure is as follows: 

• One time membership fee: $25,000 

• Software modification to HSM standard: $60,000 

• Monthly maintenance fees: $1,500 per branch per month 

• If a transaction occurs within the 1-LINK network, then there is a 15 rupee fee to a 

member bank. If the transaction has to pass through MNET, then there is an additional 15 

rupee fee for a withdrawal, 7 rupees for a balance inquiry. 

Tameer Microfinance Bank has, via a subsidy, purchased a membership in 1-Link 

network. As a result, their customers can now use Tameer Microfinance Bank issued 

cards at any participating ATM in the network. Hurdles still exist for Tameer 

Microfinance Bank. The bank has offered to provide other microfinance institutions with 

access to the ATM network through their membership. In such a scenario, another 

microfinance institution could use the ATM network as a means of disbursing loans to 

their customers. Tameer Microfinance Bank is also building an ATM network of its own, 

specially crafted machines. It is possible that these could also be part of a service offered 

to other institutions. 

The State Bank (SBP) has said all banks in Pakistan must connect to one of the shared 

ATM networks. The two networks are in the process of connecting more reliably. The 

networks are already connected, but errors can take up to 3 months to correct. There is 

also discussion within the SBP of granting just one network license, which would likely 

be 1-Link, given its greater market penetration. 

6.5.5. Point-of-Sale (POS) Networks 

There are two major POS networks in Pakistan, one of which is managed by a 

combination of Orix Leasing and the Access Group. This is an independent network that 

any bank can join. The other network owned by a group of banks and is managed by a 

company called Marshall. Both networks have approximately 10,000 POS terminals in 

place for a total of 20,000 terminals. Most of these are located in hotels, gas stations, or 

with other high-end agents primarily in urban and peri-urban areas. Since there are two 

separate switches, agents often need to have more than one POS terminal at their 

establishment. Sometimes agents even swap out the phone line from one POS to another, 

depending on which they are using. The central bank has given some target dates for 

integration of the switches, but it is unclear whether these objectives will be met. TPS 

predicts that it will be more than two years until all of the various networks (ATM and 

POS) are integrated. At present the microfinance institutions are not linked into existing 

networks. Although the Access Group has expressed interest in working with 

microfinance institutions, the appropriate financial models have not be articulated to them 

in enough detail for the company to see the business value in this sector. Usually debit 

cards and ATM cards are the same, but in Pakistan a fragmented banking infrastructure 

had led to multiple switches and Debit Cards – which can be used on specific POS 

terminals for purchases, but cannot be used in ATMs or for cash-out purposes. The 

volumes of these types of transactions are around 2.5 million transactions per year. The 

main provider of this solution is the Access Group. 


36


6.5.6. Utility Payment Kiosks and NADRA 

A relatively new entrant in the branchless financial services space is kiosks that are being 

placed by the National Database and Registration Authority (NADRA) to enable citizens 

to pay their utility bills. The kiosks are found in major cities and towns throughout 

Pakistan. NADRA is reputed to be the largest and most sophisticated centralized database 

of information in Asia about a country's citizens. That technical sophistication may pose 

a high barrier for Microfinance providers to connect to the NADRA infrastructure. 

6.6. Transaction Infrastructure Gaps [26] 

Although there are strong check clearing, ATM, and POS networks in Pakistan, 

microfinance institutions and microfinance banks are, for the most part, not included. 

Entrance fees and other requirements for participation are too high for these 

organizations. Geographic overlap between microfinance customers and existing network 

do not match. And the financial models and business case for the local technology and 

service providers to reach to the microfinance customer has not been made. 

More explicitly the gaps that currently exist in financial transaction infrastructure are, 

• Electronic access points between microfinance institutions and their clients 

• Linkages between microfinance institutions and banks that are part of the ATM and 

POS networks 

• Connections to mobile phone based financial payment systems 

This has been elaborated by following diagram. 


37


Domestic Banks Network 

Automated 

Teller Machines 

Retail outlets (POS) 

Global Network 

Low-Cost Channels 

Microfinance Providers 

Unbanked Poor Community 

Online Payment Systems 

Figure 3: Financial Structure showing gaps for building branchless banking model [26] 

Note: 

• Double arrow lines depict a well-developed technology infrastructure. 

• Straight lines show gaps for delivering microfinance services by using branchless 

banking model in Pakistan. 

A transacting solution for microfinance institutions is likely to contain multiple elements. 

For instance, a microfinance institution may use a check to issue new loans and a telecom 

transfer linked to a POS switch to accept payments on that loan. In the latter case, the 

institution would need to be connected to the existing systems or it would need to create 

its own network. Since switching is a highly commoditized process, there is no reason for 

the sector to create their own solution, but there is a reasonable case for having a separate 

switching implementation (using one of the existing tools) and business model that pools 

and allocates costs appropriately. If the microfinance institutions collaborated together in 

this way, then as each institution build out its agent network, that agent could become a 

provider for clients of other microfinance institutions as well – and vice-versa. 


Payment Options 

(Mobile phones, smart 

cards, Internet banking) 

38


6.7. Mobile Telecom Infrastructure 

The telecom sector in Pakistan is liberalized and there are already six mobile phone 

operators with more planned. The current landscape of telecommunication is dominated 

by Mobilink. 

Note: For the detail of telecom sector performance, see appendix D.1., for mobile density 

in Pakistan see appendix D.2. 

The telecom sector in Pakistan is experiencing rapid growth and is heavily into a “lossleader” 

34 approach to gain market share. Consolidation is likely two to three years away, 

given the enormous market size and growth potential. Even though value-added services 

are the new “buzz-words” in the market, the cellular providers are usually referring to 

commodities such as ring-tones, photo sharing, and email access. Provision of 

microfinance may be a new business opportunity but the telecom companies will consider 

both a stable volume of initial transactions as well as a high growth potential as this is a 

volume business. 

.Qualitative impressions gathered during this research suggest that, 

• All the telecom providers in Pakistan are struggling to keep up with exponential 

growth and the opportunity constantly new customers for their existing products 

and services. 

• Dropped calls and/or the inability to get a dial tone do occur about 5% of the time. 

• Cellular reliability is still quite poor however, reliability and predictability of the 

cellular systems is increasing every year. The current problems are likely to be 

relatively short-lived. 

• SMS is not currently a frequent application type, and extended GPRS was 

recently introduced and is still unreliable and moreover large chunk of mobile 

users are not so familiar about the usage of EDGE services. 

• A new company, Wateen telecom has entered the market and testing Wi-Max 

product. Wateen is sister company to Warid, the cellular provider. Both are 

owned by the same parent company. 

6.8. Core MIS Technology 

The foundation of any information system is Management Information System (MIS) 

and in microfinance industry, detailed information is used as a substitute for collateral 

requirements so ‘innovation and optimization’ are two important drivers for designing 

MIS system for microfinance delivery operations. A simple MIS system has two parts 

[29]. 

34 This is a marketing term and used as a kind of sales promotion. in which products are sold at very lower 

prices (sometimes even below than below the cost) to boost sales. The company who offers lowest price in 

market is known as loss leader. Internet Source: http://en.wikipedia.org/wiki/Loss_leader. ( Date: Dec 15, 

Time: 16:20) 


39


Database: Data Structure 

Application Software: User interfaces, business processes, procedures, reports and 

queries, 

Management information systems for microfinance should cover the features like 

portfolio management, client management, field officer productivity, and cash 

management. In addition, the MIS should support multiple products, interest rate 

schemas, permissions driven roles, and integration into accounting. User interfaces 

should be easy to use, and understand. For deposit taking institutions, there is a need to 

have the same transaction information as well as clear, auditable systems that track how 

the deposits and withdrawals are handled. The extent to which the core MIS supports a 

variety of workflow processes in a flexible and extensible manner is a case of vital 

importance for the status of MIS as a transport layer in branchless banking model[29] . 

In cases where the microfinance institution is not handling cash, MIS may face following 

challenges [30], 

1- Collection and optimization of information about clients from remote areas. This 

will affect processing time for application. 

2- Built-in support for modifications for enhancing product line. 

3- Conducting financial transactions ( payments and disbursement) in franchise setup 

MIS is also needed to track the position of the portfolio like what payments, 

disbursements, or withdrawals apply to which loan or savings accounts. Even as the 

microfinance provider gets out of the business of transacting, handing portions of that 

task over to agents, the institution will still need to maintain transaction records. This 

would be in according to how applications are developed for agent based banking 

scenario. 

Currently, many microfinance providers are using manual MIS systems or using MS 

Access or excel sheets for information management. Only NRSP, Khushhali Bank and 

First Microfinance Bank are using developed MIS systems that have a capacity to be 

integrated for branchless banking. Emergen, a system integrator solution in Pakistan is 

providing the complete IT backbone to Tameer Microfinance Bank for branchless 

banking market experiments funded by CGAP. 

Pakistan Microfinance Network has just launched a project to study the core issues for 

inter-connectivity to generate electronic customer information bureau report (ECIB). This 

report will be instrumental to provide a realistic view about loan taking and repayment 

history of clients so to make better decision. 


40

Regulatory Framework for Branchless Banking 

7. Regulatory Issues 

In Pakistan, scheduled banks are regulated by SBP [SBP Act (1956), Banking Companies 

Ordinance (1962)] and other non-bank financial institutions 35 are regulated by Securities 

and Exchange Commission of Pakistan. Primarily, the regulatory guidelines are related to 

internal and external audit, liquid reserves, record keeping and other financial 

disciplinary requirements. As poverty alleviation was one of prime agenda drafted in 

1999, so keeping in view the importance of microfinance for poverty alleviation, SBP has 

drafted Microfinance bank Ordinance 36 in 2000. This provides requirement structure for 

opening new microfinance banks and allowing commercial banks to start microfinance 

operations. 

Government stakeholders (SBP and MoIT) are showing strategic interest in mobile 

banking and micro payment systems to improve poor people’s access to financial 

services. The Consultant Group to Assist the Poor (CGAP) analyzed the regulatory 

regime for branchless banking in Pakistan along with the representatives from SBP, PMN 

and MoIT by arranging a Roundtable Discussion on April 30, 2007 [3]. There are certain 

issues of financial regulations summarized by a report from DFID 37 related to agent-led 

model and mobile banking model for increasing outreach of microfinance operations. 

Issue----1: Availability of adequate protection covers for fraud, loss of privacy and loss 

of financial service through mobile phone for clients. These are pertinent in case of agent 

involvement, less financially literate clients. So, clear guidelines should be available for 

security and privacy. 

Issue----2: How mobile payment system will work? This is a key question pertaining to 

stability of banking system. So, core principles for mobile payment systems are necessary 

to draft as it indirectly will affect timing for penetration and importance of m-payment 

system. 

Issue----3: This issue is related to clear legal difference between payments and deposits. 

In Pakistan, according to banking companies’ ordinance 1962 38 , deposit has implicit 

meaning, not showing a clear difference between payment and deposits. 

Issue----4: This is related to legal permission of e-money issuance. E-Money 39 has been 

defined in new banking Act, 2006 but yet to be approved and enacted in Pakistan. 

35 

Non-banking Finance institutions are investment banks, leasing companies, mutual fund companies, 

modaraba, insurance companies of Pakistan. 

36 

Microfinance-bank Ordinance, http://www.sbp.org.pk/l_frame/MF_Bank_Ord_2000.pdf. 

37 

Porteous, D. 2006.The enabling environment for mobile banking in Africa. DFID 

(www.bankablefrontier.com/assets/ee.mobil.banking.report.v3.1.pdf) 

38 

According to ordinance 1962, banking means “the accepting, for the purpose of lending or investment, 

of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, 

and order or otherwise.” 

39 

According to Basel Committee’s definition, E-money is “a stored value or prepaid product in which a 

record of the funds or value available to the consumer for multipurpose use is stored on an electronic 

device in the consumer’s possession.” 


41

Regulatory Framework for Branchless Banking 

Issue----5: This issue is a question about legal permission for different types of agents 

for cash-in and cash-out activities. The existing banking ordinance 1962 does not allow 

agents to handle cash activities (in and out). The law40 states that banks are allowed to 

pay commission to cashier-contractors41. 

Issue----6: This issue is related to effect of AML/CFT regulations for account opening 

and cash transactions. This requires a risk based initiatives for customers’ due diligence 

(CDD) requirements. In Pakistan, SBP has allowed it for only microfinance operations42 

but proper guidelines are proposed in bank act 2006 that is yet to be enacted. 

7.1. Permissible Activities 

The Draft Banking Act (2006) has redefined the meaning of “branch” in broader 

spectrum. This explicitly covers virtual places (mobile place and electronic means) as a 

substitute of brick and mortar branch set up but still this does not cover non-bank agents 

for cash handling activities and conducting KYC checks. This banking bill has offered no 

provision for mobilizing public deposits to non-bank agents. Banking regulatory 

framework allows following activities for branchless banking model. [3] 

Opening and maintaining Account: Account must be opened in a bank branch, this 

may be operated to a branchless banking unit considering KYC procedures and 

corresponding to CDD (customer due diligence). 

Account-to-account Fund transfer: Customers may transfer funds to and from their 

account from and to their other pre-registered accounts (current/saving bank accounts, 

loan limit accounts, credit card accounts etc.). 

Person-to-person Fund Transfers: Customer can transfer funds from their branchless 

account to another branchless account or regular accounts of other customers of same or 

some other bank. 

Cash-in and Cash-out: Deposit and withdrawal of money can be expedited through 

ATMs and other authorized agent locations. 

Bill Payments: Utility bills can be paid through branchless accounts. 

Agent Payments: Sachet purchasing can be facilitated by branchless account. 

Loan Disbursement/Repayment: MFBs can use branchless bank accounts for loan 

disbursements and repayments of loan installments from customer side. 

40 

Section 11 (1) of Banking Companies Ordinance, 1962. 

41 

This term is not clearly explained so it may permit to develop agency relationships with agents for cash 

handling on behalf of bank. 

42 

SBP has allowed microfinance institutions to use other means for fixing identity particularly in remote 

areas where women do not have their national identity cards. 


42

Core competencies 

Business Model for Branchless Banking in Pakistan 

8. Business Model 

During introduction stage, business model for branchless banking can be characterized as 

a fusion of info-mediary and utility model into franchise set-up. Retail gents may collect 

valuable information about customers as regulatory framework allows changes in KYC 

standards----- info-mediary 

Transactions are metered and microfinance providers pay to agents for the services as 

they it is used by clients. Utility 

Figure 4: Business model for possible branchless banking solution in Pakistan [32] 

Partner Network 

Value 

Configuration 

Cost Structure 

Value 

Proposition 

Success or Failure 

Customer Relationship 


Distribution 

Channel 

Revenue Model 

Target 

Niche 

43


Core Competencies: This is a combination of giving differentiation and extendibility. In 

this case, 

Differentiation: Offering place and time utility as due to the power of agent network 

(complementary asset) microfinance providers can reach clients easily. 

Extendibility: It is extended to any geographical area subject to availability of 

infrastructure and any microfinance product variant can be offered and particularly to 

remittance services that are difficult to offer in brick and mortar branch set-up. 

Value configuration: Data capture, agent network, transaction processing, customer 

management. (It is already described in detail above, see page 35-41). 

Partner Network: Team-up strategy (venturing and strategic alliances between 

microfinance providers, telecom operators, donors). Co-opetition (competition with 

cooperation) 

Business model Appraisal level 

Fluid Stage: Number of lead users + Volume of transaction 

Transitional Stage: Growth rate + market share 

Stability stage: Run strategy, pricing factor. 

Cost Structure: 

Upfront cost for building infrastructure like cost for acquiring software and hardware for 

developing application 

Call center establishment cost. 

Hardware/software maintenance cost 

Value proposition: Low cost + Focus on urban areas in the start+ cannibalization 

strategy for product extension and diversification (micro credit ( lower interest rates 

charged due to low transaction cost + micro saving ( cash needs, timely receipt of 

amounts , security need) + micro insurance ( Death risk + Health risk) + liquidity + 

proximity + ease of access. 

Distribution Channel 

Critical verification of customers, information and promotional material, confirmation 

about customer status, vouchers for payments should be done by different types of 

agents. 

Note: for agents’ detail, see appendix C. 

Customer Relationship 

Centralized call centers can facilitate transaction related and technical problems. It may 

pose flexibility of services and cost related issues. This also includes risk mitigation 

strategy on customer part by educating them how to use mobile phones for this. 

This may include security concerns for making PIN, changing PIN and personal 

information publically open, how to validate authorized transactions and keep a track 

record of transactions, care consideration for mobile devices. And in the case of credit 

cards, always authenticate it by signing and in case of loss, send a request for cancelling 


44


it immediately. Moreover, educate them about card scamming, how to shield the keypad 

while entering code. 

Revenue Model 

Profitability is correlated to range of participants as described in value chain. 

Consideration of opportunity cost for agents is necessary. It must include considering 

first time cost to acquire infrastructure, average transaction volume based on usage and 

also average revenue streams per customer for agents. It is difficult to justify costs unless 

there is a strong indication that very significant transaction volumes will be flowing 

through the infrastructure in a short even time that the companies involved in the service 

delivery can sustain their businesses until they reach a break-even point. In addition 

payment space is a volume business. There is not enough transaction volume to 

encourage entrepreneurs to build payments businesses, especially as it relates to the 

microfinance market, but at the same time transaction volumes cannot grow until some 

players come into the market. This challenge can be tackled by the credit card entry 

model. When credit cards were introduced, it was realized that the only way to build 

profitable opportunities was to coalesce around shared technologies and a form of 

competition by cooperation in which financial institutions cooperated around 

infrastructural and commodity elements, while competing on products and services. In 

this case, this is a viable strategy to cross the chasm in a short time. Profitability can also 

be determined by 

• Customer affordability matrix (interest rates charged and amount charged for the 

use of this service) 

• Comparison with substitute products. 

• Service outsourcing cost 

Target Niche: 

First phase: micro-entrepreneurs living in the urban premises of Lahore, Karachi, 

Faisalabad, Multan 

Second Phase: Peri-urban areas of Punjab and Sindh + Those northern frontier areas 

where technology infrastructure exists. 

Third Phase: Rural areas of Punjab, Sindh and also northern areas of Pakistan. 

8.1. Delivery Model 

In an agent-led model, the agents may do this financial transaction as a primary business 

activity or a side-activity as part of an existing business. For example, pay-phone 

operators in Pakistan are performing dozens of transactions per day, all of them in cash. 

If such operators became authorized agents of a microfinance institution, the use of 

technologies such as POS devices or smart-cards helps resolve many of the operational 

and credit risks associated with the model. In addition, post offices in Pakistan have quite 

extensive network (12343 branches) and new recruits are quite familiar with the use of 

technologies so it may become easy to develop bank-post office partnership. 

This model relies on third party agents, shared infrastructure, and arrangements between 

the participating banking institutions. The cardholder is issued the card from the “issuing 


45

Product 

SIM embedded 

with bank 

account toolkit 


bank” but may use it at any bank agent place. Such agents have been pre-approved by 

bank to follow certain procedures, for example, e.g. customer identification checks. 

The agent sends a request for authorization of a transaction, which is transmitted over a 

phone line or internet connection to the bank which has issued the POS device to agent. 

The agent's bank sends the request via the switching network to the card issuing bank for 

approval and then the response comes back by the same path. 

Deliver model can be illustrated in following two possible ways, 

1. Mobile telephony with SMS transactions 

2. Credit or debit cards with POS terminals 

8.1.1 Mobile Telephony with SMS Transactions 

Here is a schema for providing mobile banking service to microfinance clients. 

Action plan for 

working 

Bank 

application 

must be stored 

on SIM, as over 

the air service 

cannot be used 

due to illiteracy 

factor. 

Network 

Infrastructure 

SMS or USSD 

transport channel 

can be used 

Possible mobile banking schema for Pakistan [23] 

Facilities for 

clients 

Phone + 

particular SIM 

for clients 


Implementation Cost 

Proper Clients as well as 

agents education is 

necessary to use this. 

Loan Disbursement (Cash-out) 

The customer is approved for a loan by the field officer per the methodologies of the 

microfinance institution. The field officer communicates this to the branch and the 

customer account balance is updated in the back-office systems. 

1. Choice A: The field officer sends a message via SMS to the back-office system 

which is SMS enabled. This approval transaction creates a log entry in the backoffice 

database and updates the approved amount in the customer's account (credit 

line or debit account). 

2. Choice B: The field officer takes paper forms to office and data is entered directly 

there. 

3. Choice C: The field officer sends the SMS as in option A, and then follows up 

with data entry to verify all customer information, and conforms to other controls. 

The customer can then use SMS via their mobile phone (or SIM card in an 

available phone) to transfer the amount to a third party who also has a bank 

account and sufficient cash on hand to provide the cash. The third party provides 

46


the funds at the same time that the customer transfers the amount online. This 

process may involve additional levels of authorization. For example, the customer 

may need to provide a special code to the agent who then enters that as part of the 

message, which becomes part of the record maintained by the telecom on behalf 

of the agent. 

Loan repayment or Savings Deposit (Cash-in) 

The customer purchases "cash-in" tokens from a verified third party agent in some readily 

available form. These agents will be authorized by the mobile phone carrier on behalf of 

the microfinance institution to carry specific cash-value scratch-style cards. Alternatively, 

the agent may merely have the ability to take cash and transmit, on behalf of the mobile 

telecom, the value to the phone of the client/customer. 

The customer must show evidence of account with the specific microfinance institution 

and the agent must make a "sales record" of cash-in transaction. This record will also 

need to be communicated by SMS to the mobile carrier to enable a cash reconciliation 

and recording for regulatory purposes. In the scenario where the cash is transmitted into 

the mobile phone account of the customer and thence from the customer to the 

microfinance institution, there is an additional issue of ensuring that the customer 

actually carries through with that transaction and has a receipt to show. The customer 

then enters the codes on the scratch card and the token amounts (can be done on premises 

of 3 rd party agent) are then physically transferred from the mobile carrier to the 

customer's account. This account can be either held by the microfinance institution or the 

telecom provider. The scratch cards serve as a kind of control - providing traceability of 

cash payments on loans and deposits – but are not an essential component. Securing 

scratch cards could actually introduce an entirely new set of issues around tying up 

capital in issued cards and regulatory concerns over that float. 

8.1.2. Credit or Debit Cards with POS terminals 

Loan Disbursement (Cash-out) 

The loan is approved by existing procedures of microfinance institution. The institution 

issues the authorization, which updates the agent network (cache servers). When the 

customer arrives at an authorized agent location with a POS device, the customer presents 

proper identification and swipes their magnetic-stripe card or inserts their smart card and 

authenticates with a PIN or transaction confirmation code that has been sent to customer 

via SMS service. The agent's POS, part of a network, dials up the network’s switch and 

requests confirmation for a transaction of specific amount. The transaction confirmation 

code is confirmed to the agent's POS. The agent hands over the cash and generates a 

receipt. The receipt may also need to be signed by the customer as a control for record. 

Loan repayment or Savings Deposit (Cash-in) 

The customer arrives at the agent location with a microfinance institution (MFP) account 

number and personal identification. The agent enters the MFP number as part of an 

account number and the amount to be paid. The customer hands over the cash and the 

agent creates a receipt either directly from the POS or manually. The receipt must have 

the transaction confirmation code to be valid. 


47


Another way to use POS terminal option is as, 

Microfinance clients approach agents with an authorized smart card and their 

identification card. The client inserts their smart card into the POS terminal on agent 

location and then on POS screen type of transaction (savings deposit, loan payment) and 

payment amount is selected. Agent and client both have to confirm the transaction type, 

account number and amount. As the transaction is confirmed, two receipts are generated 

for customer and agent record. 

This process can be completed in real-time environment or offline way depending upon 

the sophistication of the system. Offline solution may be better due to erratic electricity 

and connectivity. The transaction data is stored on the POS device until it is uploaded at 

the end of the day. At the end of the day, the agent performs a series of processes that 

include reconciling their cash on hand with a summary report. The microfinance 

institution’s accounting personnel dial into the transaction server to capture the 

transactions that occurred during the day so the MIS can be updated. 

Spotlight 

Business model is not static. As technology infrastructure becomes more sophisticated 

and microfinance providers shift from mobile banking technology and partner-led model 

to any technology model like internet banking and use of PDAs and enabling 

environment becomes changed, definitely business model is to be changed accordingly. 

In addition to all the interest and excitement about the potential of branchless banking 

and mobile payment systems it is easy to overlook the primary reasons for considering 

this opportunity: the business drivers within the microfinance institution and the value 

proposition for the microfinance customers. Before a microfinance institution launches a 

branchless banking initiative, it is critically important that the organization perform the 

requisite market research to determine how their customers would use the service, 

whether their customers see value in the service, and what they would be willing to pay. 

These questions will answer important aspects of the product development and financial 

modeling processes. Business drivers must be well articulated in advance of any 

initiatives and a cost comparison between the current ways of achieving outcomes and 

the cost of these new solutions should be compared. Definitely there are intangible 

benefits for the integration of branchless banking that cannot be quantified but that 

certain rational analysis are necessary for every microfinance provider before capitalizing 

this new model. 


48

Conclusions and Recommendations 

9. Conclusions and Recommendations 

This is a good time for microfinance industry players to capitalize this new opportunity 

for increasing outreach in a sustainable manner. ICT driven bank-led and non-bank led 

model both have greater potential but risk/return analysis of Pakistani environment 

emphasizes the adoption of agent-led banking in the first phase and non-bank model in 

some later phases. Let we have a recap of strengths and weaknesses of this sector before 

providing concrete recommendations for branchless banking model. For future 

perspective, the strengths of this factor are as follows, 

High upscale potential 

According to SBP report, total potential market size for microfinance operations is 25 

million in Pakistan while all microfinance providers are covering only 1.37 million active 

borrowers 43 . In addition to this, a skewed distribution for capturing market as only fifteen 

MFIs cover 99% microfinance operations 44 in Pakistan. As 95% of microfinance market 

is to be untapped so GoP is highly concerned with this sector for poverty alleviation. 

Low intermediation cost 

Regional benchmarks show that operational cost per borrower in Pakistan is $33 45 that is 

the lowest delivery cost for microfinance services in the world. This is due to running low 

cost operations in terms of overhead cost, field staff and offices. 

Increased productivity and efficiency 

Lower cost of operations and solid loan repayment (97%) 46 are main drivers for efficient 

performance of MFP in Pakistan. 

High portfolio quality 

According to PPAF sources that microfinance sector has a resource base of 826.17 

million dollar 47 that has driven a growth from 60000 to 1.37 million active borrowers 

during last seven years. 

Different lending methodologies (individual and group based) 

Many institutions are using group lending methodology but some institutions like Tameer 

microfinance bank and Kashf bank are using individual lending methodology also. Both 

methodologies are showing productive results in Pakistan. 

But this sector is facing certain weaknesses also, these are as follows 

43 

Chen, Gregory& Shah, Mehr. 2007. MicroWatch, Issue 5: Quarter 3 *July-Sep 2007*. Pakistan 

Microfinance Network 

44 

Stephens, Blaine & Tazi, Hind. 2006.Performance and Transparency, A survey of microfinance in South 

Asia, Page no. 68, Microfinance Information eXchange (MIX). 

45 

Microfinance Performance in Pakistan (1999-2005), Page 10,figure 05.USAID-WHAM Project 

46 

The leading five institutions quote 99% recovery so on average for the whole industry it is assumed and 

also it is mentioned that loan repayment is not a problem for microfinance growth in Pakistan 

47 

Akhtar, Shamshad. June 2007. Building inclusive financial system in Pakistan. Page 05, Internet source, 

http://www.sbp.org.pk/about/speech/governors/dr.shamshad/2007/Draft-Agriculture-PRs-18-04-05.pdf 


49


Least asset utilization 

Most of the growth is led by unsustainable microfinance institutions due to no proper 

business model, lower interest rates charged for services, and putting more emphasis on 

microcredit only. 

Low market penetration 

Pakistan is a late mover for adopting microfinance as a generational poverty reduction 

instrument so until unless less than 5% market has been captured by all 40microfinance 

institutions. 

Power of retail capacity has not been unleashed 

No one has paid attention to tap the potential of retail capacity of some institutions. For 

example, post offices have a network of 12,343 branches in Pakistan and already it is 

managing 4 million saving accounts and 70% of which has a denomination greater than 

10000 rupees 48 . More number of these saving accounts is in rural areas. 

Legal constraints on rapid expansion 

Regulatory restrictions for Know-Your-Customer requirement and collateral 

requirements by SBP and many other legal constraints that have been discussed above 

(See module 07) are major obstacles for expanding microfinance activities. 

Limited geographic outreach 

Growth in urban/rural areas and growth across different provinces is highly uneven. Only 

RSPs are working in some rural areas while most of poor people are living in sub urban 

and rural areas. 

It has become necessary to combine new delivery models with existing ones to keep the 

same pace in a sustainable manner. Industry players are thinking to consider branchless 

banking options as new means to increase strengths and minimize the effect of 

weaknesses. The purpose of this thesis was a detailed study about what can be done in 

Pakistan for branchless banking. 

This section exhibits a bulk of recommendations related to policy matter, market factors, 

and building technology infrastructure and security concerns. 

9.1. Policy Framework 

9.1.1. Regulatory Requirements 

Enabling regulatory framework is necessary. State Bank of Pakistan is vigilant in this 

regard as many changes has been made in Banking Act 2006 in this regard but still 

certain regulatory changes are needed for the take-off of agent-led and mobile banking 

models for microfinance operations. 

48 Akhtar, Shamshad. June 2007. Building inclusive financial system in Pakistan. Page 05, Internet source, 

http://www.sbp.org.pk/about/speech/governors/dr.shamshad/2007/Draft-Agriculture-PRs-18-04-05.pdf 


50


Following are the suggestions in this regard. 

1. Minimum requirements are needed for security of cash-in and cash-out 

transactions processing system. 

2. Least possible requirements related to Know-Your- Customer (KYC) compliance 

(broadening the option of personal introduction as an alternative to CNIC) are 

necessary to induce branchless banking model fully operational). 

3. Legal protection covers for loss of money due to inappropriate service rendered 

by agent or mobile operator. 

4. No limit for amount of transactions. 

5. Particular guidelines for selection of bank agents 

6. Banks should be fully responsible for the actions of their agents 

7. Particular legal requirements for cash-in and cash-out operations and credit 

operations through agents 

8. SBP should take the responsibility to review agents related bank transactions as a 

practice of external audit. 

9.1.2. Challenges to Commercialization 

Role and attitude of policy makers, sustainability timeline, perception of men and 

women, transparency issues (double entry accounting system, external audits) are 

necessary. A vigilant approach is needed to meet these challenges from public sector 

officials. Moreover, it is a dire need of time to shift thrust from micro-credit to other 

product like micro-insurance, micro-leasing and remittances also. 

9.1.3. Implementation Approach 

A holistic and flexible implementation strategy should be adopted. Rapid inch-up policy 

should be adopted. Pakistan should take the benefit of later mover advantage in 

technology based initiatives. 

9.1.4. Funds and Grants 

Funds gap is a big challenge faced by this sector to unleash the power of agent network 

and mobile banking model. Grants from international donors (CGAP, USAID,ADB) and 

capital investment from public-private sector partnership is necessary to push technology 

companies and local service providers that intend to deploy or will deploy state-of-art 

infrastructure to provide these services to microfinance institutions are a critical and still 

relatively unheralded. 

9.2. Infrastructure Concerns 

9.2.1. Information Sharing 

This is pertinent that a holistic approach should be adopted for infrastructure sharing. The 

important milestone in this context is sharing of National Database and Registration 

Authority (NADRA) database. This is the most sophisticated database of people in the 

whole Asia. NADRA is reluctant to share its database due to high degree of 

sophistication and security concerns so the biggest problem is information sharing and 


51


transaction integrity system. If this issue is resolved then costly and time come 

consuming process of customer verification can easily be re-engineered and elapsed time 

for processing can be reduced. This will also be instrumental to strengthen the use of 

individual lending methodology along with group lending methodology. 

Consider a sector-wide solution that allows several microfinance institutions, banks, 

and/or other financial providers to share the costs of deploying and maintaining the 

infrastructure. This approach also allows the agent network to grow more rapidly, which 

increases the value to existing and new customers. 

9.2.2. A robust MIS system 

MIS system is a backbone to improve the connectivity between their branches and heads. 

Encourage MFIs to develop MIS strategy that move their institutions toward core 

banking quality backend systems. This will enable them to interconnect with existing and 

emerging branchless banking payment systems. A roust MIS system is necessary to meet 

the challenges of delivery microfinance services for branchless banking model like 

collection and optimization of information about clients and collection, disbursement and 

repayments scenarios. In addition to this, Microfinance institutions should also estimate 

the total cost of ownership between the different MIS options like internal development, 

buy, license, share (open source), or out source. Currently, share (open source) seems to 

be a workable strategy. 

The MIFOS Project, a freely available open source solution initially developed by 

Grameen Foundation, was designed to operate as a web-enabled application [31]. This 

allows a separate technology firm to provide the backend system to a microfinance 

institution via an online connection and simple web-browser machines – rather than 

expensive servers at each branch. Emergen, a system integrator firm in Pakistan is ready 

to provide back-end services in Pakistan using the MIFOS software. This sounds good if 

this model can be explored further irrespective of branchless banking model. Local 

service providers by using open source architecture can compete on services but use of 

open source software may lower entry barriers and removing key challenges in MIS 

development. Open source software should have a lower total cost of ownership than 

either build-it-yourself or licensed strategies. 

An advanced core MIS is a dire need for considering any option of branchless banking 

(ATM, POS, mobile banking) because MIS must be capable of connecting to technology 

infrastructure and switching mechanism that sit behind those networks. For real time 

payments and settlements, the microfinance institution’s central database will need to be 

available on demand. This is not possible if that server is plagued by power failures, 

unreliable connectivity, or unsophisticated systems architectures. For many microfinance 

institutions in Pakistan, these requirements are beyond their current capabilities. As a 

result, the organizations will either have to undergo significant technology overhauls or 

transformations in order to meet the requirements of network providers. Or the 

microfinance providers will need to outsource all, or part, of their MIS management. The 

requirements become even more challenging for those microfinance providers that use 

decentralized approaches to their data management, where each branch maintains its own 

records. In these cases, the payment network provider would either need to work with the 

microfinance institution to build links to every branch server, or the microfinance 


52


institution will need to shift to a centralized approach to data management. All of these 

technology issues need to be considered as part of a strategy to integrate ATMs, POS 

terminals, of mobile banking into a microfinance institutions’ business. Currently, many 

small scale providers are using manual system while some big players are using custom- 

built applications so if branchless banking model is to consider for delivering 

microfinance services then a centralized approach to database management and 

automation of entire process is a key challenge. 

9.2.3. Architecture-related Issues 

Perform an analysis on the transaction speeds and reliability across a range of telecom 

options, such as SMS and GPRS. In Also investigate the pricing structure and volume 

requirements for each of these options. Another important factor is that GSM 

infrastructure is being used for mobile communication in Pakistan. Though GSM 

technology has built-in security for authenticity and encryption issues yet it is subject to 

some risks like side channel attacks on physical access or unauthorized access to stored 

PIN on application server may pose certain serious issues so it must be resolved properly. 

Proper identity management on remote location, SIM based encryption and PIN system is 

necessary and mechanism how to save system from malicious practices of any employee. 

This is highly recommended that Open Source service oriented Architecture (Linux 

based) should be used because it is easy for sharing and portal based (JAVA, PHP based) 

system is a desirable solution for applications development. 

9.2.4. Transaction Infrastructure 

Piggy-Backing 49 strategy is an appropriate solution for connecting to commercial banks 

for check clearing system or using existing POS and ATM network rather independent 

membership that is a bit costly. NRSP and KASHF are also using same strategy by 

linking with Muslim Commercial Bank (MCB). 

49 A self subsidizing strategy based on shared cost approach 


53


9.3. Market-related Issues 

9.3.1. Product related 

Do not reinvent the wheel; adds-on strategy is an optimal option for designing 

microfinance products. Liquidity, proximity, ease of access and concerns for saving are 

prime factors while designing microfinance products for Pakistani market. Certain key 

marketing objectives like trust, awareness and promotion of diversified products are 

necessary while offering microfinance products. In essence, key considerations in 

product designing are technically feasible, manageable, and viable for offering, cash 

needs and flexibility for designing products attributes. 

9.3.2. Selection of telecom Operator 

This seems to be a better strategy that microfinance providers should negotiate with 

smaller cellular providers because they have more incentive to experiment and to provide 

a range of services that their competitors are not considering at this time. Though this 

may pose a problem of reach but definitely the incentives will invite the big players in the 

market. Work with them to provide appropriate pricing and geographic reach for the 

agent-led model. Mobilink and Telenor are not showing active interest but Warid has 

demonstrated keen interest in this opportunity and should be pursued. Moreover, Wateen 

telecom, a sister concern of Warid Group is deploying Wi-Max technology and this can 

further be negotiated for communication infrastructure due to its low latency factor and 

high throughput. 

Moreover, reliable connectivity between the customer-facing devices through to MIS 

systems is critically important for a successful branchless banking implementation. This 

is the transport layer for transactional information. Although cellular coverage can 

appear pervasive, that is not a guarantee of reliability or quality, particularly when it 

comes to data transmissions. Therefore, it is important that the data transmission quality 

in Pakistan be tested from a variety of locations prior to making a final decision about 

appropriate technology. 

9.3.3. Structuring the Deal 

An enabling regulatory framework is necessary to clearly define the roles and 

responsibilities of mobile phone operators, type and number of agents to enable savings 

deposits, cash withdrawals, and other higher risk financial services through independent 

agents. At this stage, active and strong participation of Pakistan Microfinance Network in 

the MoIT-SBP (Ministry of IT and State Bank of Pakistan) working group is necessary 

because Pakistan Microfinance Network is an association of different microfinance 

providers so their active participation can be endorsed by involving Pakistan 

microfinance Network. 


54


9.4. General Recommendations 

• The detailed analysis emphasizes that microfinance sector should focus on agentled 

branchless banking models to ensure that there are cash-in and cash-out points 

for microfinance clients. 

• A multi-sectoral approach is needed to build financial, human and physical 

capacity for microfinance provision. Financial literacy of clients is necessary. 

• In public sector of Pakistan, E-Commerce division is working on deploying 

infrastructure for telecenters that in future may be used as retail outlets for 

microfinance operations or as information dissemination and educating about 

micro-entrepreneurship practices. 

• Ensure that the technology solution leverages the rapidly growing cellular 

infrastructure, but do not assume that the reliability of that infrastructure will be 

high enough for online real-time connections in the shorter term – particularly in 

rural areas. As a result, build a strategy for today that can enable transition to 

online, real-time as the connectivity improves. 


55

Appendix 

A. Appendix 

A.1. Sampling Technique 

Microfinance providers identified for this research were based on snowball sampling 

(Convenience Sampling) method. This method was used as in this particular research as 

the prime purpose was to explore a feasible ICT based initiative for increasing 

microfinance outreach so it was not important to identify many organization based on 

random sampling rather it was more important interest factor of a particular microfinance 

institutions to undertake this research. Though this approach does not reflect the true 

participation of the whole sector yet this research is not meant to test any quantitative 

hypothesis rather develop an in-depth understanding of a feasible technology based 

solution and business model to capitalize this solution 

The sample consists of three microfinance providers each from a specific category of 

microfinance providers in Pakistan. NRSP represents rural support program, KASHF 

represents specialized institution (NGO), and Khushhali Bank represents scheduled 

microfinance bank. Pakistan Microfinance Network has directed towards selection of 

these microfinance organizations because their top management seems to be enthusiastic 

to adopt ICT based initiatives for u 

Another important thing is the selection of areas for study. Multan, Khanewal, Faisalabad 

and Lahore were selected. This selection is based on time, cost and social mobility 

constraints factors, consent for working of employees and top of that all leading mobile 

phone operators are working in these areas. 


56

Appendix 

A.2. Prevalent Microfinance Models 

Ledgerwood provides a detailed description of features, products. [5] [6] [15] 

Model Name Operation Approach Products Examples Clients 

Grameen Bank 

Solidarity Group 

Latin American 

Solidarity Group 

Lending Model 

1- Self-formed peer group of 5 

unrelated members. 

2- Group members mutually 

guarantee each other’s loan 

and are held legally 

responsible for repayment by 

other members. 

3- No collateral is required. 

4- Two members receive loan 

initially. After a period of 

successful repayment period, 

the final member receives 

loan. 

5-No further loan becomes 

available if all group members 

do not pay in time. 

6- Mandatory weekly 

meetings 

7- Transactions completed 

during mandatory weekly 

meetings 

8- Mandatory saving 

contributions, insurance 

payments, group fund 

contributions. 

9- Continuation of savings 

throughout loan period. 

10- Loan appraisal by group 

members in coordination with 

group leader. 

1- Female market vendors 

who need small amount of 

working capital. 

2- Self formed group of four 

to seven. 

3- Cross guarantee of loan 

Loan Amount: 

$100-$300 

Period: 6 months to 

1 year. 

-Weekly Quittance. 

-Mandatory savings 

Loan Amount: 

$100- $200. This 

amount may be 

increased based on 

repayment history. 

Saving: This is 

Grameen 

Bank. 

(Bangla- 

Dash) 

BRAC 

(Bangla- 

Dash) 

ACCION 

Affiliates. 

(Nigeria, 

Uganda, 

Bolivia, 

Mexico) 


Usually poor women 

from sub-urban and 

rural areas pursuing 

income generating 

activities. 

Low to middle income 

men and women from 

urban areas. 

Rural women with low 

57

Village Bank 

Model 

Appendix 

Saving and Loan 

Associations 

from each member. 

4- Continuation of loan is 

subject to timely repayments. 

5- Loan officer handles 200 to 

400 clients. 

6- Economic analysis of loan 

request is made by loan officer 

. 

1- A management committee 

is formed by MFIs; training is 

imparted to that committee. 

2- Initially external account 

(seed capital by sponsor) then 

internal accounts (savings and 

interest earnings) are used for 

financing. 

3- Collective guarantee system 

is used 

4- Loans are provided in a 

cycle 

5- The ultimate goal is to 

mobilize savings to that extent 

that the committee may 

become self-sufficient for 

subsequent loans. 

6- Market interest rate is 

charged for seed capital while 

interest rate on internal 

account is set by committee 

members themselves. 

7- Usually capped interest 

rates and shorter loan terms 

are used for internal account 

financing. 

8- Saving deposits, loan 

disbursements and 

administrative issues are 

settled during regular weekly 

meetings of committee. 

1- Village community 

establishes this by themselves. 

2- Strong social cohesion is 

necessary to build such type of 

village banks. 

3- No external credit source 

required as a portion 

of loan. Some 

Voluntary savings 

are few. 

Establishing 

intergroup 

emergency funds 

Loan Amount: $50- 

$100. 

Term: 4-6 months 

and weekly 

quittance. 

Savings: at least 

20% of the loan 

amount per cycle as 

subsequent loaning 

totally depends on 

internal account that 

is based on 

member’s savings. 

Dividend Policy: 

Amount of dividend 

is directly related to 

the amount of saving 

contributed by each 

member of 

committee. 

Loans: Usually 

working capital 

loans. 

Saving: Current 

accounts and term 

deposits. 

No linkage between 

PRODEM 

(Bolivia) 

FINCA 

(Mexico) 

CARE 

Guatemala). 

Freedom 

from Hunger 

(Thailand, 

Bolivia) 

Pays Dogon 

(Burkina 

Faso, 

Gambia) 


income and good 

saving capacity. 

Usually marginal areas 

are targeted. 

Target areas are 

sparsely populated but 

socially cohesive rural 

areas. 

A mix of men and 

women in a 

58

Appendix 

Self-Help Group 

[15] [16] 

4- A kind of rural saving bank. 

5- Sponsor organization may 

provide technical and 

assistance and trainings for 

being self-reliant. 

6- Interest rates are set by 

member consensus. 

Group Formation: 

Prime promoters are NGO, 

bank or government agencies. 

An affinity group having same 

socio-economic profile of 10- 

20 members is formed. 

SGH members set rules 

through consensus. 

Fixed membership is 

necessary for each member. 

Accumulation of group 

Savings: 

Group opens a saving account 

and three members are 

authorized to operate this 

account. 

Group decides about saving 

schedule to maintain financial 

discipline. 

Internal Lending: 

After 3 months, saving 

account is used for micro 

credit activities to members of 

group. 

Loan proposals, repayment 

schedules and interest rates 

are decided about group 

members. 

On-lending of bank loans: 

Bank staff evaluates the 

performance of SHG 

members. 

Bank gives loans to groups not 

to individuals. 

loan amount and 

saving capacity. 

Collateral: Trust 

and social pressure 

are primary means 

for collaterals. 

Repayments in one 

installment. 

Training to micro 

entrepreneurs by 

external sponsor. 

Loans: group saving 

are initial means for 

loans and then bank 

loans are re-loans. 

Saving: Savings are 

necessary for every 

member. 

Collateral: Group 

liability, peer 

pressure and group 

savings are used as 

collateral 

requirements. 

India 


committee. 

Low income people 

having good saving 

capacity. 

Usually women 

(90%). 

59

Appendix 

B. Appendix 

B.1. Microfinance Outreach Highlights (All Pakistan) [1] 

Province Offices Micro- credit Micro-Saving Micro-Insurance Potential 

Microfin 

ance 

Fixed Mobile Active 

Borrowers 

Gross 

Loan 

Portfolio 

(PKR) 

Active 

Savers 

Value of 

Savings 

(PKR) 

B.1.1. Micro-Credit 

Summary of Micro Credit Provision (All Pakistan) [1] 

Policy 

Holde 

rs 

Sum 

Insured 

(PKR) 


Market 

Baluchistan 29 ----- 19268 137241719 38215 5447167 

8 

4555 56803703 2242467 0.86 

N.W.F.P 130 ----- 121997 122800868 11057 1861848 58234 85456405 4083817 2.99 

6 0 95 

3 

Punjab 861 ----- 889348 900493167 83962 1001561 36355 49064065 1498053 5.94 

6 8 990 2 07 6 

Sindh 279 3 299396 281071068 39115 1789287 10995 71448916 6357795 4.71 

6 4 657 3 4 

AJK 24 ----- 15348 87579765 79223 2577101 

7 

5994 96167487 ---- ---- 

FANA 11 ----- 21128 442672942 22021 2691980 21128 44267294 ---- ---- 

00 

2 

FATA 2 ----- 973 7171063 ---- ---- 366 3810000 ---- ---- 

ICT 9 ----- 3546 48402412 11570 3737155 

63 

2777 54237731 74750 4.74 

Grand 1345 3 1371004 137667189 14923 3700190 56655 71291515 2928087 4.68 

Total 

49 81 800 9 87 6 

Indicator Total Lending 

Methodology 

Peer Group 

Group Individual MFB MFI RSP NGO CFI 

Number of Branches 1348 -------- ---------- 264 197 796 70 21 

Active Borrowers 1371004 1279410 91594 494686 322296 466015 71287 16720 

Gross Loan portfolio ( 

PKR Millions) 

13767 12385 1382 4861 2850 4960 767 328 

Average Loan 

Balances ( PKR) 

10041 9680 15088 9826 8844 10644 10761 19621 

Number of Loans 

Disbursed 

376728 360476 16252 92114 135031 130365 15815 3403 

Penetratio 

n rate (%) 

60

Appendix 

B.1.2. Micro-Savings 

Summary of Micro-Savings Provision (All Pakistan) [1] 

Indicator Total 

B.1.3. Micro-Insurance 

Summary of Micro-Insurance Provision (All Pakistan) [1] 

Indicator Total Type of Insurance Peer Group 

------- ------- Health Life MFB MFI RSP NGO CFI 

Number 

of Policy 

Holders 

566559 311172 255387 158977 63608 311172 30139 2663 

Sum 

Insured 

(PKR 

Millions) 

7130 ------- ------ 1784 407 4676 215 48 

B.2. Microfinance Providers in Pakistan [1] 

Saving Methodology Peer Group 

------- ------- Intermediation Mobilization MFB MFI RSP NGO CFI 

Number of Savers 1492381 109858 1382523 109858 25945 1321715 34863 00 

Value of Savings ( 

PKR Million) 

3701 2534 1167 2534 5 1144 18 00 

Average Saving 

Balances ( PKR 

Million) 

2480 23066 844 23066 178 866 512 00 

Microfinance Banks 

These are licensed and regulated by the State Bank of Pakistan to provide exclusive 

services to microfinance markets. Following banks have got license and prudentially 

regulated by SBP. 

1. Khushhali Bank 

2. Pak-Oman Microfinance Bank Ltd. 

3. Tameer Microfinance Bank Ltd. 

4. First Microfinance Bank Ltd. 

5. Rozgar Microfinance Bank Ltd. 

6. Network Microfinance Bank Ltd. 

7. NRSP Bank Ltd. (Operations yet to be started in 2008). 

Microfinance Institutions 

This layer is providing specialized microfinance services. Following microfinance 

institutions are serving Pakistani market. 


61

Appendix 

1. Akhuwat 

2. Asasah 

3. Kashf Foundation 

4. Orangi Pilot Project 

5. Sindh Agricultural and Forestry Workers Cooperatives organization 

Rural Support Programs 

These are multi- dimensional rural development programs that also support microfinance 

operations as a part of their strategy to serve poor community. 

1. National rural Support Programs 

2. Punjab rural Support Programs 

3. Sarhad rural Support programs 

4. Thardeep Rural Development programs 

Non- Government Organization 

These organizations are running multi dimensional development programs including 

microfinance operations. 

1. Community Support Concerns 

2. Development Action for Mobilization and Emancipation. 

3. Organization for Participatory Development 

4. Rural Community Development Society 

5. Save the Poor 

6. Sindh Rural Support Programs 

7. Taraqee foundation 

Commercial Financial Institution 

These are those commercial financial organizations that are putting emphasis on 

microfinance and providing microfinance services as a separate function. 

1. ORIX Leasing Pakistan Ltd. (OLP) 

2. Bank of Khyber (BOK) 


62

Appendix 

C. Appendix 

C.1. Agent Networks 

Possible Agent Networks to be used for microfinance operations in Pakistan. 

Target Centers Number of outlets Position in market Remarks 

Drink Corners/ 

General Stores 

More than 625,000 

shops 

Public Call Offices Approximately 

353,000 shops 

Mobile Companies 

Franchises 

Postal Service 

Offices 

Approximately 

425,000 formal and 

informal retailers 

for Mobilink, 

100,000 retailers for 

Telenor, Warid, 

Paktel, Ufone. 

Approximately 

12,343 sites in 

Pakistan 

Oil Stations About 1200 POS 

enabled stations out 

of total 3700 

stations and still this 

number is growing 

POS Network Approximately 

20000 that is 

divided between 

two primary 

providers 

Orix &Marshall 

In every vicinity 

throughout the 

country. 

Almost all part of 

the country 

Depending upon 

mobile phone 

service of a 

particular provider 

in vicinity. 

However, A broader 

network on district 

level is present 

throughout Pakistan. 

Located in all cities 

, town and in some 

large villages 

Availability on main 

roads 

Availability in big 

markets 


As such kind of shops are 

present everywhere so this 

option can be considered to 

a larger extent but it may 

face capacity building, 

power supply and wireless 

connectivity deployment 

challenges. 

These are small business so 

liquidity issues, potential 

alliance of microfinance 

institution with PCO 

providing company issues 

Sometimes a retailer 

possesses products of many 

mobile service providers so 

it may cause hurdle. 

Microfinance education 

issues. 

Capacity building issues, 

efficiency issues due to 

institutional bureaucracy and 

may pose liquidity concerns 

also. 

As POS devices are already 

working and employees are 

well trained to handle cash, 

transaction management and 

cashless transactions so may 

be best suitable. 

Some legal constraints and 

capacity building issues 

63

Appendix 

D. Appendix 

D.1. Mobile operators’ growth in Pakistan [27] 

CELLULAR SUBSCRIBERS 

Mobilink Ufone Paktel Instsphone Telenor Warid Total Growth 

Rate 

2000 114,272 80,221 112,000 306,493 15.39 

2001 309,272 116,711 96,623 220,000 742,606 142.29 

2002 800,000 350,000 218,536 330,000 1,698,536 128.73 

2003 1,115,000 550,000 319,400 420,000 2,404,400 41.56 

2004 3,215,989 801,160 470,021 535,738 5,022,908 108.90 

2005 7,469,085 2,579,103 924,486 454,147 835,727 508,655 12,771,203 154.26 

2006 17,205,555 7,487,005 1,040,503 336,696 3,573,660 4,863,138 34,506,557 170.2 

2007 26,466,451 14,014,044 1,024,563 333,081 10,701,332 10,620,386 63,159,857 80.70 

July-2007* 27,165,868 14,772,911 1,024,512 336,052 11,272,023 11,079,242 65,650,608 

Aug-2007 27,829,625 15,336,740 1,035,374 336,157 11,981,809 11,484,386 68,004,091 

Sep-2007 28,571,845 15,421,459 1,232,613 337,422 12,578,459 11,866,664 70,008,462 

Oct-2007 29,152,747 15,487,129 1,056,742 335,398 13,253,767 12,239,363 71,525,146 

Nov-2007 29,784,724 15,934,811 1,777,288 329,743 13,913,267 12,845,819 74,585,652 

Dec-2007 30,660,000 16,161,936 1,980,587 329,743 14,596,382 13,205,677 76,934,325 

CELLULAR MOBILE DENSITY 

Year Mobile Density 

2000 0.22 

2001 0.52 

2002 1.16 

2003 1.61 

2004 3.29 

2005 8.30 

2006 22.21 

2007 39.94 

July-2007* 41.51 

Aug-2007 42.64 

Sep-2007 43.60 

Oct-2007 44.51 

Nov-2007 46.58 

Dec-2007* 48.61 


64

Appendix 

E. Appendix 

E.1.Questionnaire 

As this thesis project is focused at rich understanding about appropriate technology based 

solution for increasing microfinance outreach in sustainable manner so no quantitative 

assessment is required for testing hypothesis. Focused interview was used as a tool to 

envision what can be done in this regard. 

Following is the questionnaire that is used for this research project and this contains a list 

of possible questions that were either asked in a direct way or explored through 

observation in indirect manner in order to complete this research. 

E.1.1.List of Questions 

1. What kind of policy issues, regulatory framework factors and market related 

concerns that may affect ICT uptake decision for microfinance operations? 

2. In what way, government of Pakistan and international donors are instrumental to 

build financial, human and physical capacities for providing microfinance? 

3. What are challenges for microfinance operations in Pakistan both in urban as well 

as rural areas? 

4. What are different initiatives taken by government of Pakistan to commercialize 

microfinance in Pakistan? 

5. What are different challenges faced by MFP shifting towards commercialization? 

6. How microfinance products are designed and deliver in Pakistan currently? 

7. What is different important product attributes needed to capture target market? 

8. As the sector is facing a paradigm shift from philanthropic to commercialization, 

this required consideration of marketing, what will be the marketing objectives? 

9. What is existing infrastructure for ICT applications regarding microfinance 

activities? 

10. Is there any existing model for ICT initiatives in Pakistan? 

11. How microfinance institutions will combat the cultural and social challenges like 

illiteracy if a new model becomes workable? 

12. What are the top most security concerns in this regard and how these challenges 

will be harnessed? 


65

Appendix 

13. What is the feasibility matrix for Telco-led model and bank-led model in 

Pakistan? 

14. What are the networking technology issues in this concern? 

15. What are the important parameters for distribution channel, financial model and 

value configurations for developing ICT based model for providing microfinance 

services? 

16. What are the possible choices regarding client requirements for building 

technology based model? 

17. If branchless banking model becomes operational then how do you attract your 

agents? 

18. What is the current investment portfolio and cost structure for providing 

microfinance services and what sort of changes are needed if the new model 

becomes operational? 

19. Is technology based model is suitable for all microfinance products and lending 

methodologies or is this specific one? 

20. What are core MIS technology issues to be addresses while implementing this 

new model as it will be a backbone for back office operations? 

21. What is existing transaction infrastructure and possible gaps for building new 

delivery model based on ICT? 

22. What is current and future ICT-based scenario to perform information exchange 

in remote office set-up, core MIS for information processing and disbursement & 

collection model? 

23. How technology can upscale microfinance outreach, likely scenario? 

24. What is the current state of connectivity; infrastructure building expertise to 

capitalize ICT based initiatives? 

E.1.2. Questions from selected Clients 

1. Name, Sex 

2. Where do you live? City, Town, Village? 

3. How many people live with you? 

4. Do you have access to telephone, mobile phone, computer, and internet? 


66

Appendix 

5. What is your education status? 

6. Do you know how to send messages on mobile phones? 

7. Do you know how to check emails? 

8. Can you use your PINs on mobiles? 

9. What kind of barriers you are facing to get loans from commercial banks? 

10. Have you obtained any loan from any MFP? 

11. If yes, how you have used this loan. 

12. What kind of difficulties you have faced while getting this loan? 

13. Have you ever been got loans from different MFPs and what sort of problems you 

have faced to manage this situation? 

14. What do you consider that peer pressure is enough collateral or some other 

sources should be used by microfinance providers? 

15. What sort of problems you have faced regarding group dynamics? 

16. What are different sources of your income and income of other household 

members? 


67

Appendix 

F. Appendix 

F.1. Important Contacts 

Following is the list of persons who were interviewed for this research. 

Organization Persons Met Designation 

Pakistan Microfinance Aban Haq Research Analyst 

Network 

Sara Saeed Khan IT and Communication 

Analyst 

National Rural Support 

Program 

Dr. Rashid Bajwa Chief Executive Officer 

KASHF Sadaf Abid Chief Executive Officer 

Khushhali Bank Ghalib Nishter President 

ShoreBank International 

Limited 

Hussan Bano Burki Senior Consultant 

Tameer Microfinance Bank Imad Uddin Chishti Assistant Director, Head of IT 

and Special Projects 

Akhuwat Dr.Amjad Saqib Executive Director 

Ministry of IT Muddassar Hussain Director ( Telecom & 

Wireless) 

Emergen Faraz Khan Chief Executive Officer 

TPS Mohammad Sohail Chief Executive Officer 

--------- Rizwan Shaukat Independent Consultant 


68

References 

10. References 

[1] Chen, Gregory and Haq, Aban. 2007. MicroWatch (A quarterly update on 

microfinance outreach in Pakistan). Issue 5: Quarter 3 (July-Sep 2007). Pakistan 

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survey of microfinance in South Asia. Microfinance Information eXchange, Inc. (MIX). 

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Banking Policy and Regulations Department, State Bank of Pakistan. 

[4] Thompson, Cale & Rodriguez, Jon. May 22, 2006. ICT Applications Preliminary 

Benchmark Report, A review of innovations in development projects. 

[5] Cornford, Robyn. “Microcredit”, “Microfinance” or “access to financial services”, 

what do Pacific people need. The Foundation for Development Cooperation. 

[6] Ledgerwood, Joanna. 1999. Microfinance Handbook. An Institutional and Financial 

Perspective. Sustainable Banking with the Poor. Washington, D.C. World Bank. 

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and the Pacific. Volume 2. 

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$100 change an economy? 

[9] The Economist. November 03, 2005. The Hidden Wealth of the Poor. 

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University, St. Louis. Page: 3-9 

[11] Gonzalez-Vega, Claudio. October 1998. Microfinance: Broader Achievements and 

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Ohio State University. Page: 2-3. 

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[13] Duflos, Eric, Latortue, Alexia, Mommartz, Rochus, Perrett, Graham, Staschen, 

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[15] Nair, Ajai. Feb 2005. Sustainability of Microfinance Self-help Groups in India: 

would Federating help? World Bank Policy Research Working Paper 3516. World Bank. 

Page 9-11. 

[16] Green, Anke. 2005. Combining Strength: Synergies between Cluster Development 

and Microfinance. SME Technical Working Paper No. 14. United Nations Industrial 

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[17] Mathison, Stuart. Increasing the outreach and sustainability of microfinance through 

ICT innovations. The Foundation for Development Cooperation. 

[18] Hishigsuren, Gaamaa. Feb 2006. ICT and Microfinance: Options for Mongolia. 

Asian Development Bank Paper Series. 42. 

[19] http://www.sbp.org.pk/ (Accessed date: November 15, time: 21:45) 

[20] http://www.sbp.org.pk/bpd/2002/C20.htm (Accessed date: November 16, time 11:2) 

[21] http://cgap.org/portal/site/Technology/ (Accessed date: Oct 22, time15:35) 

[22] http://technology.cgap.org/projects/ (Accessed date: Oct 22, time16: 22) 

[23] Ivatury, Gautum and Pickens, Mark. 2006. Mobile Phone Banking and low-income 

customers: Evidence from South Africa. CGAP, UN foundation, Vodafone Group. 

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mobile networks. IFC. 

[25] Hoffman, Jenny. Nov 2006. Mobile Banking: Implementation Choices. Working 

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(Accessed date: Jan 18, time: 22:42) 

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70

Acronyms 

Acronyms 

ICT ----- Information & Communication Technologies 

CGAP ----- Consultative Group to Assist the Poor 

USAID ----- United States Agency for International Development 

ADB ----- Asian development Bank 

PMN ----- Pakistan Microfinance Network 

PPAF ----- Pakistan poverty Alleviation Fund 

NRSP ----- National Rural Support Program 

UPAP ----- Urban Poverty Alleviation Program 

OPP ----- Orangi Pilot Project 

AKRP ----- Agha Khan Rural Support Program 

MFP ----- Microfinance Providers 

MFB ----- Microfinance Bank 

MFI ----- Microfinance Institutions 

NGO ----- Non-Government Organization 

RSP ----- Rural Support Program 

SBP ----- State Bank of Pakistan 

BOK ----- Bank of Khyber 

NADRA ----- National Database and Registration Authority 

MoIT ----- Ministry of Information Technology 

CNIC ----- Computerized National Identity Card 

KYC ----- Know Your Customer 

CDD ----- Customer Due Diligence 


71

Acronyms 

ECIB ----- Electronic Customer Information Bureau 

RTGS ----- Real Time Gross Settlement 

MIS ----- Management Information System 

ATM ----- Automated Teller Machine 

POS ----- Point of Sales 

IVR ----- Interactive Voice Response 

PDA ----- Personal Digital Assistant 

DSL ----- Digital Subscriber Line 

ISDN ----- Integrated Services Digital Network 

VSAT ----- Very Small Aperture Terminal 

DVB-RCS ----- Digital Video Broadcasting---Return Channel over System 

GPRS ----- General Packet Radio Service 

GSM ----- Global System for Mobile Communications 

SMS ----- Short Messaging Service 

PIN ----- Personal Identification Number 

CO ----- Community Organizations 

Currency Equivalents (As on Jan 10, 2008) 

PKR refers to Pakistan Currency Unit, $ refers to U.S. Dollar 

Currency Conversion Ratio = $ 1.00: 63.19 PKR 

The Fiscal year of Pakistan ends on June 30 


72

Acknowledgements - TSLab - KTH

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