Appendix 1:
Figure 1: Time line of the evolution of micro-finance in Pakistan.
Appendix 2
Kashf - Grants (1996-2004)
378.97
222.12
180.95
107.14
48.46 67.63
40.63 32.05
0.48 3.42 2.64 5.55 18.85
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Figure 2: All figures are in million PKR.
Kashf - Financing (2002-2008)
3,200
2,653
619 503
8 9 -
2002 2003 2004 2005 2006 2007 2008
Figure 3: All figures are in million PKR. Financing comprises of funds which were not provided as
grants but as loans for onward lending.
Kashf-Financing Breakup (1996-2008)
100%
90%
80% Subsidized Loans
70%
60% Commercial
50% Grants
40%
30%
20%
10%
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Figure 4: Subsidized loans were mainly provided by PPAF and DFID. Commercial sources
included loans and running finance facility provided by HBL, MCB and Citibank.
Kashf - Outreach (1996-2008)
327,000
220,000
126,000
90,069
65,983
45,261
3,604 7,220 15,706
119 265 913
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Figure 5: Shows the number of clients serviced by Kashf each year since 1997.
Kashf Grants Division (1996-2008)
PPAF DFID Agha Khan Foundation
Skoll Foundation CGAP
3% 9%
4% 3%
81%
Figure 6
Kashf-Financing Division (2002-2008)
PPAF MCB PPTFC Citi Opic
9% 6%
14%
70%
Figure 7
Appendix 3
2005 2006 2007 2008* 2009* 2010*
Cumulative 70,000 125,000 205,000 272,000 337,000 401,000
Customers
(Punjab)
Cumulative 1,000 15,000 55,000 115,000 150,000
Customers (South
Region)
Total Kashf 126,000 220,000 327,000 452,000 551,000
New Customers 51,000 94,000 107,000 125,000 99,000
Annual Growth % 68% 75% 32% 38% 22%
Cumulative 2 8 20 25 5
Branches South
Region
New Branches 25 28 20 30 10
(Punjab)
Total Branches 33 59 95 135 190 205
Area Offices 6 11 16-17 22-24 31-32 34-35
Regional Offices 2-3 4 6 7-8 8
New Districts 6 6-7 8 11 2
Total Staff 550 750 1050 1500 1600
Figure 8: Breakup of outreach of Kashf’s operations (2005-2010)
*these figures are expected
2006 2007 2008 2009* 2010* 2011*
GL 1,100 2,000 3,525 5,364 8,162 12,421
EDL 108 605 1,330 2,158 3,501 5,681
HIL 10 41 163 436 1,166
Total 1,208 2,615 4,896 7,685 12,100 19,268
Growth 116% 87% 57% 57% 59%
Figure 9: Breakup of products of Kashf Foundation
2006 2007 2008 2009 2010
PPAF
Guarantee
arrangement-
Syndicated
loan /PPTFCs
Securitization
International
agency
Bonds
Other sources
Figure 10: Expected sources of financing to be used by Kashf Foundation
Appendix 4
Requirements for access to commercial funds
Prerequisites
● In order to have access to commercial funds, the MFI must be registered as a company
under Companies Ordinance 1984
● The audited financial statements for at least the past three years are required to be
submitted to the bank extending the funding. PMN advises MFIs to employ well-reputed
audit firms for this purpose in order to demonstrate the credibility of the financial
statements.
● The MFI must have in place at least a five year business plan and projections so that it
can forecast its future funding requirements, and assess the impact that the portfolio
expansion would have on its financial performance. Any assumptions used in the
projections should be explicitly stated to avoid ambiguities.
● The MFI should have itself as an organization and its portfolio rated by a third party so
that it can demonstrate its credibility and marketability. This would enable an institution
with a high credit rating to ask the bank for more leverage and enable it to negotiate
better terms with the bank
● The MFI should be represented by a legal counsel to help it structure the financing deal
with the bank. The legal council should examine the Facility Acceptance Letter issued by
the bank and explain it to the client so that both transacting parties clearly understand
each other’s roles and expectations.
● The MFI should clarify its legal tax status at the outset. PMN recommends that the MFI
should complete any tax exemption and legal status documentation before submitting
the application to the bank so that legal document issues do not hamper the processing
of the application.
Steps
Stage 1: Submitting an Information Memorandum (IM)
Submitting a relevant, coherent and well-structured IM is key to an MFI’s chances of obtaining
commercial funds. The IM is the first document that the MFI submits to the bank; it would be
reviewed by the relations manager who would give an early signal as to what are the chances of
the transaction being successful.
Due to information asymmetries, the banks do not have a sufficient understanding of the
Microfinance sector. Therefore, the MFI should use the IM to explain to the relations manager
how the microfinance sector functions and what the MFI’s share in the sector is. PMN
recommends that the MFI should approach three to four banks simultaneously to increase its
chances of success and help it retain greater bargaining power and operational flexibility.
The IM should be accompanied by the MFI’s memorandum and articles of association, audited
financial statements for at least the past three years, basic borrower’s fact sheet, and Credit
Information Bureau report.
Stage 2: Submitting a detailed proposal
A well-structured detailed proposal explains to the relations manager that the MFI’s current
position and ability to repay the loan. PMN recommends that the following components should
be a part of the detailed proposal:
Sector and Management Profile
The purpose of sector profile is to give the RM an insight into the performance of the
Microfinance sector in Pakistan. The purpose of management profiling is to establish the MFI
project sponsor’s credibility with the bank. This includes:
Sector Analysis:
This includes the overall growth rates, sector penetration rates and projected growth rates of
the Microfinance sector.
Peer Analysis:
This describes the MFI’s current competitors
Organization Analysis:
This comprises a detailed analysis of the MFI including and management and sponsor profile,
succession planning etc.
Proposed Facility Structure:
This includes information of volume of funds required, proposed collateral, tenure, and
proposed pricing of the facility.
Financial Analysis:
The purpose of financial analysis is for the bank to judge the MFI’s ability to repay the loan by
analyzing its financial statements. This analysis broadly includes the institution’s compliance
with SBP benchmarks, and a detailed financial statement analysis.
Compliance with SBP Benchmarks
Current Ratio
The current ratio of the MFI should be greater than 1:1 to ensure that the MFI has sufficient
liquidity to allow for unforeseen circumstances that may affect its liquidity.
Ratio of Funded Borrowing to Equity
The MFI’s equity sets a maximum limit on the extent to which the total amount of commercial
bank funding an MFI can avail. SBP requires that this ratio should not be more than 4:1.
Ratio of funded + non-funded borrowing to equity
This ratio pertains to MFIs who have given Letters of Guarantee it has issued to beneficiaries.
SBP requires that this ratio not be greater than 10:1.
Analysis of Financial Statements
This includes various income statement, balance sheet and statement of cash flows ratios that
are used to help identify the MFI’s performance against certain benchmarks. Significance is
attached to overall trends in the past and benchmarking the ratios with industry and
competitors. The types of ratios used are given in the table taken from PMN in the appendix.
Stage Three: Establishing Adequate Collateral or Security
According to PMN, establishing an adequate collateral is the most complicated part in the loan
approval process because the MFIs do not usually have large tangible assets against which they
can obtain the funds. There can be many types of collateral for MFIs. Some of them are
mentioned below:
Bank Guarantee
The bank issuing the guarantee assures the lending bank that it will be responsible for the
repayment of the financial obligations of the MFI in case of the MFI’s default. PMN says that
when beginning their loan arrangement, the MFIs will need to have a guarantee backing at least
some portion of the funding obtained.
Charge on Fixed Assets
A charge documents the right of the lending bank to take over an MFI’s fixed assets in case it
defaults on its financial obligations. Therefore, it acts as a security for the lending bank.
Charge on Current Assets
A charge on current assets gives the lending bank the right to liquidate the MFI’s current assets
in case it defaults on its financial obligations. Essentially, this gives the lending bank a right over
the assets generated by the borrowed funds, which is the MFI’s loan portfolio.
Pledge of Loan Portfolio
This form of security is similar to a charge on current assets except that this entails the charged
assets, in this case the loan portfolio, to come under the physical possession of the lending bank
in case of default. A negative implication of such a security for the MFI is that the MFI would
have to revert to the lending bank for each transaction for a No Objection Certificate.
Personal Guarantee
The sponsor of the project guarantees that he or she would be personally liable for the MFI’s
financial obligations in case of default. This form of security is based on the integrity of the
sponsor and assures the lending bank that the sponsor has confidence in MFI’s future success.
Stage 7: Modes of Structuring a Financing Facility
There are different ways in which the financing facility can be structured.
Asset-Liability Matching
The principle of asset-liability matching states that the maturity of the liabilities that an MFI
takes on (the borrowed funds) must match the maturity of the assets it intends to invest in (the
products). This is to ensure that the MFI does not face a liquidity crunch due to duration
mismatch. The MFI should have a clear strategy in terms of what products will the borrowed
funds be invested, so that the maturity of the loan should match its cash recovery cycle.
Loan Pricing
This usually includes a variable benchmark rate, such as KIBOR, plus a fixed spread as
negotiated between the MFI and the lending bank.
Loan Structuring: Short Term Financing
A loan facility that is structured for a period of less than one year. Such facilities are usually
used to meet working capital requirements. A common example of short term financing is the
running finance facility.
Loan Structuring: Long-term
A loan facility that is structured for a period of one year or more. Such facilities are usually used
to finance capital expenditures for overall expansion. A long-term loan facility typically has
strict repayment schedules that must be adhered to. Long term facilities can be structured by
issuing bonds, or obtaining a loan through a consortium of banks.
Stage 8: Documents Required for Disbursement of funds
After credit approval, the lending bank prepares a series of documents to be signed by the
MFI’s representatives:
Registration of Security Charges with SECP
This constitutes formal proof of the transaction and brings to the public’s notice that certain
assets of the MFI have been securitized. This record is obtained by the lenders when
considering to lend further funds to the MFI.
Facility Acceptance Letter
This documents the MFI’s acceptance of the loan facility and allows for the funds to be
transferred to the MFI’s bank account