List of microfinance banks in pakistan

list of microfinance banks in pakistan



Tasawwur Waraich

Financial Analyst

Wavetec (Pvt.) Ltd

Date: 10 March 2012


This repot includes the understanding of Microfinance Institution (MFI) and list of different types of microfinance providers working in Pakistan and the methodologies adopted by the MFI in Pakistan, and different legislations for registering a MFI in Pakistan, and a detailed procedure of establishing a MFI under Companies Ordinance 1984.


Microfinance is often defined as financial services for poor and low-income clients offered by different types of service providers. Microfinance typically refers to a range of financial services including credit, savings, insurance, money transfers, and other financial products provided by different service providers, targeted at poor and low-income people

In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs)

Microfinance Institutions (MFI)

A MFI can be called Non Bank Finance Institution (NBFI) or a Specialized NGO. Purpose of MFI is to provide financing services to small and medium sized entities and to the under privilege individuals in order to alleviate the poverty from the society including providing loans to individuals for education and other social purposes, and other services like savings accounts, insurance, leasing, money transfer. In Pakistan NGOs and Rural Support Programs are also providing microfinance services.

MFIs are registered as Not for Profit NGOs. The only MFI registered as for profit organization is ASA Pakistan Limited. Generally NGOs have multi objective and provide many services to the society including Microfinance but Microfinance Institutions are registered as Specialized NGOs with the only objective to provide Microfinance services to the underprivileged society.

Following are some of the Operating features of MFI

Taxation Rules

Since MFIs are registered as Not for Profit NGOs hence they are tax exempt organization. But they have to apply at Central Board of Revenue for the tax exemption certificate in order to become a tax exempted organization. No exemption is granted for income from property, capital gains and business activities. To be eligible for these benefits a charity must register with the Central Board of Revenue.


Microfinance should provide services on sustainable basis. A microfinance institution is said to be financially sustainable if it without the use of subsidies, grants, or other concessional resources, it can profitably provide finance to micro enterprises on an acceptable scale.

Higher Interest Rates

MFI charge their clients a higher interest percentage than the market rates and the reason for higher percentage is that they have to cover the salaries of their employees and also the transaction cost of issuing loan and because of the need to remain sustainable.


The Pakistan Poverty Alleviation Fund (PPAF) is the only apex wholesale funding body in the country established by the government. Currently there are six multilateral, bilateral and international institutions, which are funding PPAF activities in the country. The PPAF has been making disbursement through its different windows of operations such as lending for micro credit and enterprise development, community physical infrastructure, health and education, human and institutional development, social mobilization and rehabilitation and reconstruction. The main beneficiaries of PPAF funding are Rural Support Programs (RSPs), MFIs and NGOs

The primary funding sources for MFPs in Pakistan are grants or concessional loans, commercial loans and client deposit with significant dependence on donor funding mostly from PPAF, ADB and DFID

NGOs and RSPs are prohibited from mobilizing deposits for on-lending as they continue to remain unregulated. However, they also remain free to operate as they prefer, determining their own client segment, pricing, money sources and sizes of the loan

Credit Rating of MFIs

The only microcredit rating company in the country is the JCR-VIS which is a joint venture between Japan Credit Rating Agency Limited (JCR) and Vital Information Services (Pvt.) Limited (VIS) and which provides ratings for the MFBs and MFIs. MFBs under the regulation of the SBP have to rate themselves in order to ascertain their standing relative to standard benchmark. Some MFIs also rate themselves to improve their transparency and to have access to commercial funding

Credit Lending Model

Asasah Org. is a MFI working since 2003 has replicated the Grameen bank’s approach as it’s lending model. The Grameen model emerged from the poor-focused grassroots institution, Grameen Bank, started by Prof. Mohammed Yunus in Bangladesh. It essentially adopts the following methodology:

A bank unit is set up with a Field Manager and a number of bank workers, covering an area of about 15 to 22 villages. The manager and workers start by visiting villages to familiarize themselves with the local milieu in which they will be operating and identify prospective clientele, as well as explain the purpose, functions, and mode of operation of the bank to the local population. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to rules of the bank. Only if the first two borrowers repay the principal plus interest over a period of fifty weeks do other members of the group become eligible themselves for a loan. Because of these restrictions, there is substantial group pressure to keep individual records clear. In this sense. collective responsibility of the group serves as collateral on the loan.

Types of Micro Credit Providers in Pakistan

Currently there are four types of microfinance institutions working in Pakistan and these are as follows.

1. Microfinance Institutions (MFI or Specialized NGO)

2. Rural Support Programs (RSP)

RSP are established to alleviate poverty in rural areas. RSPs are running microfinance operation as part of multi-dimensional rural development program.

3. Non Government Organizations (NGOs)

4. Commercial Financial Institution (CFI)

CFI are commercial institutions providing microfinance services to the small and medium sized entities.

Organizations providing Microfinance in Pakistan

Following are examples of some of the Microfinance institutions working in Pakistan and their respective legislation under which they are registered.

Examples of Non Bank Finance Institutions (NBFIs) or MFIs are Specialized NGOs

1. Akhuwat

2. Asasah (Registered under The Companies Ordinance, 1984 ( Non-Profit Company; Section 42)

3. Kashf Foundation (Registered under The Societies Registration Act, 1860)

Examples of Other MFI

4. Taraqee Foundation (Registered under SECP Comp Ord. 1984)

5. Helping Hand for Relief and Development (HHRD) (Registered under Trust Act 1982)

6. Jinnah Welfare Society (Registered under The Voluntary Social Welfare Agencies Ordinance, 1961)

7. The Pakistan Microfinance Network (PMN)

8. Orangi Pilot Project

9. Sindh Agricultural and Forestry Workers Coordinating Organization

10. National Rural Support Program

11. Punjab Rural Support Program

12. Sarhad Rural Support Program

13. Orix Leasing Pakistan Ltd.

Microfinance Institution can be established under following legislative frameworks,

1. The Voluntary Social Welfare Agencies Ordinance, 1961 ORDINANCE No XLVI (the “Social Welfare Ordinance”)

Basic Understanding

This Ordinance defines permissible purposes within the social welfare field. Registration under this legislation is mandatory if organization wish to receive government funding.

A voluntary social welfare agency means an organization, association, or undertaking established for the purpose of rendering welfare services in a wide range of activities including the fields of education, health, family planning, child welfare, etc. Organizations registered under this regulation are financially dependant on public subscriptions, donations, or Government aid.

Regulating authority Provincial Government

2. Societies Registration Act 1860 Act XXI (the “Societies Act”)

Basic Understanding

This Act requires the registration of literary, scientific, and charitable societies. The object of the Act as stated in the preamble is to make

provisions for improving the legal condition of Societies established for the promotion of literature, science, or fine arts, or for the diffusion of useful knowledge, or for charitable purposes. Thus, under this Act microfinance is covered as a ‘charitable activity’.

Regulating authority Provincial Government

3. The Trust Act 1882

Basic Understanding

Under this Act a Trust may be created for any lawful purpose, including microfinance. The purpose of a Trust is considered lawful unless it is prohibited by law, or is of such a nature that it would defeat the provisions of any law in the country, or the court regards it as immoral or opposed to public policy.

Regulating authority Provincial Government

4. The Trade Organization Ordinance, 1961

5. The Companies Ordinance 1984 Section 42 (the “Companies Ordinance”)

Basic Understanding

The main and basic objects of Associations are precisely provided in section 42 of the Ordinance, which are for promoting commerce, art, science, religion, sports, social services, charity or any other useful object. An Association after it has been incorporated in the Ordinance becomes a body corporate just like any other company. The Association is generally a guarantee limited company having no share capital.

Regulating authority Securities and Exchange Commission of Pakistan (SECP)

A detailed procedure of establishing a specialized NGO under section 42 of Companies Ordinance 1984 is described in three steps as follows.

Step 1:- Company Name Search

The first step is to seek availability of the proposed name for the company. The application for availability of name can be made online through eServices OR offline through physical filing to any one of the Company Registration Offices (CROs) of the Commission.

For online submission of application, the fee is Rs. 200/-, which is much cheaper than the manual submission of application.

For offline, an application is to be made to the Company Registration Office along with the original Bank challan of Rs. 500/-, paid as application fee, in the authorized branches of MCB Bank Limited or along with a Bank Draft/ Pay Order of the same amount, drawn in favor of the “Securities and Exchange Commission of Pakistan”.

Step 2:- Application For Grant Of License

An application by the promoters or members of an association desirous of obtaining a license under section 42, is submitted through duly authorized representative with the subject: “Application for Grant of License under section 42 to M/s „…… <Association>………‟ (Proposed)”, is addressed to:

The Chairman,

Securities and Exchange Commission of Pakistan,

63-Jinnah Avenue,

NIC Building, Blue Area,


The following information/documents are required to be submitted along with the application:

1- Original Bank challan of Rs. 10,000/-, (Rs. 5,000 if submitting online) paid as application fee, in the authorized branches of MCB Bank Limited or a Bank Draft/Pay Order of the same amount, drawn in favor of the Securities and Exchange Commission of Pakistan.

2- Copy of letter showing that the proposed name is available.

3- Three (3) printed copies of Memorandum and Articles of Association.

4- A list of promoters of the association with their occupations and addresses;

5- A statement about the names of companies, associations and other institutions in which the promoters of the proposed association holds any office stating the office held (position/designation) in each case ;

6- A declaration by a person of the effect that he has scrutinized the application and the accompanying documents, and that he is satisfied that the same are drawn up in conformity with the provisions of the Ordinance and fulfill the conditions for the grant of license laid therein and the rules;

7- An undertaking on the stamp paper of appropriate value from each promoter to the effect that they have sufficient skills, expertise and resources for the attainment of object of the proposed association. Moreover, the said undertaking should indicate that each promoter shall contribute a reasonable amount as start up donation having regard to the circumstances of the case. The amount shall be deposited in the company’s account within a period of six months of the date of its incorporation which shall be used for the attainment of the object and should not be Refundable to the promoters, directly or indirectly through any means.

8- An estimate of the future annual income and expenditure of the proposed company, specifying the sources of income and objects of expenditure. The statement should also reflect the aforesaid startup donation of the each subscriber.

9- A brief statement of work already done (if any) and the work proposed to be done after incorporation as a company specifying salient features of the project(s) e.g. their location, size, duration, etc. to be undertaken in pursuance of object of the company.

10- Power of Attorney (Authority Letter) on Stamp Paper of appropriate value made by all the promoters in favor of a person to present the application before the Commission on their behalf, and to make other amendments, additions, corrections etc. in the documents and also to collect license.

11- Resume of all promoters.

12- Affidavit on Stamp Paper of appropriate value duly attested by an Oath Commissioner made by all the promoters affirming that they are not defaulter of loans, etc.

13- Affidavit on Stamp Paper of appropriate value duly attested by an Oath Commissioner affirming correctness of contents of the Application.

14- The application needs to indicate whether the association is already in existence or not. If the association is already in existence, the Further information/documents relating to the existing entity also to be furnished

Please Note:

A copy of application along with its enclosures are also required to be forwarded by the applicant to the Company Registration Office concerned

Step 3:- Registration Of Association As A Not For Profit Ngo:

After obtaining license from the Commission, the Association must be incorporated under provisions of the Ordinance, within a period of three months from the date of the license.

Documents for registration of a Not for Profit NGO,

The following documents are required to be filed with the registrar concerned for registration of a Not for profit NGO:-

I. Copy of national identity card or passport, in case of foreigner, of each subscriber and witness to the memorandum and article of association.

II. Memorandum and articles of association,

Four printed copes of Memorandum and Articles of Association in case of offline submission and one copy for online submission, duly signed by each subscriber in the presence of one witness

III. Form - 1

Form 1 in triplicate duly filled and signed. This form is the declaration of compliance with the pre-requisites for formation of the Company. Form 1 is also required to be witnessed by one person and it should be affixed with a stamp of Rs. 50/-.This declaration can be made by any one of the following persons:

a) An advocate entitled to appear before a High Court/Supreme Court

b) A Chartered Accountant/ A Cost and Management Accountant practicing in Pakistan.

IV. Registration/filing fee

A copy of the original paid Challan of Rs. 50,000/ (Rs. 25,000 if submitting online) in any branch of MCB Bank Limited or a Bank Draft/Pay Order drawn in favor of the Securities and Exchange Commission of Pakistan of the prescribed amount.

V. Authorization by sponsors

The authorization of sponsors in favor of a person to make good the deficiencies, if any, in memorandum and articles of association as may be pointed out by the Registrar concerned, and to collect the certificate of incorporation.

I hope that this report will be very helpful for understanding Microfinance Institution’s operations and registration procedure. If you need any further information in this regard please do ask me.


Category: Payday loans

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