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Microfinance for the Poorest (Financed by the Japan Fund for Poverty Reduction)

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Microfinance for the Poorest (Financed by the Japan Fund for Poverty Reduction) Grant Assistance Report Project Number: 40145 January 2007 Proposed Grant Assistance Islamic Republic of Pakistan: Microfinance for the Poorest (Financed by the Japan Fund for Poverty Reduction) CURRENCY EQUIVALENTS (as of 13 December 2006) Currency Unit – Pakistan rupee/s (PRe/PRs) PRe1.00 = $0.01643 $1.00 = PRs60.88 ABBREVIATIONS ADB – Asian Development Bank BRAC – Bangladesh Rural Advancement Committee CSPU – country strategy and program update EA – executing agency FMFB – First Microfinance Bank IA – implementing agency IGVGD – Income Generation for Vulnerable Groups Development JFPR – Japan Fund for Poverty Reduction JICA – Japan International Cooperation Agency Kashf – Kashf Foundation MFB – microfinance bank MFI – microfinance institution MOF – Ministry of Finance MSDP – Microfinance Sector Development Program NGO – nongovernment organization PMI – participating microfinance institution PMU – project management unit RFSDP – Rural Finance Sector Development Program SBP – State Bank of Pakistan TOR – terms of reference ZTBL – Zarai Taraqiati Bank Limited NOTES (i) The fiscal year (FY) of the Government ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2006 ends on 30 June 2006. (ii) In this report, “$” refers to US dollars. Vice President L. Jin, Operations Group 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director N. Siackhachanh, Governance, Finance, and Trade Division, CWRD Team leader S. Lewis, Financial Economist, CWRD Team member M. Hashimi, Project Implementation Officer, CWRD o 64o 00'E 73 00'E PAKISTAN MICROFINANCE FOR THE POOREST . R Project District ar un K National Capital Mastuj Provincial Capital Chitral City/Town NORTH - WEST FRONTIER Airport Dir . Dasu R t o Port a o 35 00'N w 35 00'N S National Road Saidu Sharif Batgram Malakand Other Road Buner Mansehra Batkhela Railway Charsadda Mardan Tarbela Dam Kabul R. Swabi Abbottabad River Nowsehra Peshawar Haripur Parachinar District Boundary Kohat Attock ISLAMABAD Hangu Rawalpindi Provincial Boundary AFGHANISTAN Karak Gujar Khan Mangla Dam International Boundary Bannu Talagang Chakwal Jhelum Boundaries are not necessarily authoritative. Mandi Bhauddin Gujrat Federally Administered Mianwali Tribal Areas Lakki Sialkot . Bhalwal Gujranwala Tank R s u Khushab d Hafizabad In Sargodha . Narowal R R. Lahore Dera Ismail Bhakkar m nab u Khan l Che Sheikhupura e h Faisalabad Zhob J Jhang Shorkot M.K. Bazar Layyah PUNJAB Kasur R. Toba Tek Singh vi Pishin Ra Okara Chamman Sahiwal Kot Addu Khanewal Ziarat Barkhan Loralai Multan Pakpattan Quetta Dera Ghazi Khan . Muzaffargarh Vehari ej R Kohlu Sutl Mastung Lodhran Bahawalnagar Nushki Sibi Hasilpur Dadhar Bahawalpur Kalat Dera Bugti Rajanpur Kharan Liaqatpur Jhapat Jhal Magsi Jacobabad Rahimyar Khan Jafarabad Shikarpur BALOCHISTAN Khuzdar Ratodero Ghotki I R A N Larkana Sukkur Washuk . R Ranipur Kakar s . u R d Khairpur l a In Panjgur N Dadu SINDH Naushahro I N D I A Nawabshah Turbat Awaran Sanghar 26 o 00'N Dasni R. 26 o 00'N Uthel Jamshoro Mirpur Khas Umarkot Gwadar Pasni Hyderabad Badin Karachi Mithi Thatta Port Qasim N A R A B I A N S E A 0 50 100 200 Kilometers 64o 00'E 73o 00'E 06-3599 HR JAPAN FUND FOR POVERTY REDUCTION (JFPR) JFPR GRANT PROPOSAL I. Basic Data Name of Proposed Activity Microfinance for the Poorest Country Pakistan Grant Amount Requested $2 million Project Duration 3 years Regional Grant {Yes / √ No Grant Type { Project / √ Capacity building1 II. Grant Development Objective(s) and Expected Key Performance Indicators Grant Development Objectives (GDO): The objective of the project is to promote the development of microfinance by expanding microfinance outreach and services to the poorest. Expected Key Performance Indicators : 1. Two savings product and at least three mobile banking pilot tests completed and evaluated. 2. One pilot scheme for deepening microfinance outreach completed and evaluated. 3. At least 15,000 clients serviced by mobile banking units and at least 2,000 clients participated in savings pilots. 4. At least 1,000 participants trained for functional and financial literacy. III. Grant Categories of Expenditure, Amounts, and Percentage of Expenditures Category Amount of Grant Percentage of Allocated in $ Expenditures 1. Equipment, Materials, and Supplies $412,410 21 2. Training, Workshops, Seminars, Project $392,400 19 Administration, and Audits 3. Consulting Services $854,000 43 4. Travel $137,000 7 5. Contingencies $204,190 10 TOTAL $2,000,000 100 1 As part of capacity building efforts, pilots will be undertaken. Lessons and experiences from these pilots will support the development of microfinance policies and programs in Pakistan. The investment items for the mobile banking pilot include vehicles and equipment necessary for bringing financial services to rural areas. 2 JAPAN FUND FOR POVERTY REDUCTION JFPR Grant Proposal Background Information A. Other Data Date of Submission of 1 November 2006 Application Project Officer Sukanda Lewis, Financial Economist Project Officer’s Division, Governance, Finance, and Trade Division, Central and West E-mail, Phone Asia Department, [email protected], 632 6304 Other Staff Who Will Need N. Siackhachanh Access to Edit/Review the Director, Governance, Finance, and Trade Division Report Sector Finance Subsector Microfinance Themes Sustainable economic growth, capacity development Subthemes Developing rural areas, organizational development Targeting Classification Targeted intervention (income poverty) Was JFPR Seed Money used Yes [√ ] No [ ] to prepare this grant proposal? Have SRC comments been Yes [√ ] No [ ] reflected in the proposal? Name of Associated ADB Improving Access to Financial Services Program (Phase I) Financed Operation(s) Executing Agency Ministry of Finance (MOF) Grant Implementing Ministry of Finance Agency(ies) Mr. Muhammad Iqbal Hussain Senior Joint Secretary (Investment) Q Block, Pakistan Secretariat Islamabad Phone + 92 51 920 1962 Fax + 92 51 921 3705 Email [email protected] B. Details of the Proposed Grant 1. Description of the Components, Monitorable Deliverables/Outcomes, and Implementation Timetable Component A Component Name Innovative and Demand-Driven Products and Delivery Channels for the Poorest2 Cost ($) $841,240 (excluding contingencies) Component Description Development phase: (8 months) This component will conduct market research on the demand for savings products that microfinance institutions (MFIs) can offer to help the poor save. Based on the outcomes of market 2 In 2002, the Microcredit Summit Campaign adopted a revised definition of the poorest people. The definition of the poorest now includes people on less than $1 per day, on a purchasing power parity basis (i.e., adjusting for differences in the cost of living in different countries), as well as people who are in the lower half of the population below the poverty line in each country. 3 research, the demand will be converted into product concept and product costing. The product prototype will also be developed. For each product prototype, a protocol will be developed documenting policies, procedures, and projections for the pilot test. The outcomes of the market research will be disseminated to all microfinance banks (MFBs). First Microfinance Bank (FMFB) and Kashf Foundation (Kashf)3 are identified as potential participating microfinance institutions (PMIs). The savings product pilot of FMFB will be implemented in districts in the Northern Areas, 4 while the savings product pilot of Kashf will be implemented in Lahore. To lower transactions cost and improve the poor’s access to financial services, delivery channels such as mobile banking and mobile phone-based technology will be explored. Support will be open to all MFBs. In addition, support for investment in new equipment and infrastructure, including vehicles, necessary for the pilots of mobile banking services will be provided. Vehicles are essential to the pilots, since they will bring financial services to the poor. The project management unit (PMU) will develop the selection criteria for MFBs, draft a request for proposals from MFBs, and evaluate the proposals. The names of the selected MFBs to conduct the mobile banking pilots will be submitted to the Asian Development Bank (ADB) for approval. Pilot sites are envisioned to be in different areas. FMFB is identified as a potential PMI for mobile banking pilot. FMFB will implement the pilot in three areas: districts in North-West Frontier Province, the Northern Areas, and the Lower Sindh.5 The districts in North-West Frontier Province and the Northern Areas are in mountainous regions where poor people live. People living in the two districts of Lower Sindh are also poor, and are dependent on rain-fed agriculture. Most farmers have very small plots of land. Differences in local conditions, in particular, with respect to indigenous people, will be taken into account when designing and implementing pilots. Pilot phase: (12 months) The pilot tests will be monitored quarterly, and then evaluated financially at the end of the pilot phase by PMIs and the consultants. Criteria and a monitoring and evaluation plan to evaluate microfinance product innovations and delivery channels will be developed based on existing research, 3 Kashf is now an MFI and is in the process of applying to be a licensed MFB with SBP. It expects to be granted the license by the end of 2007. Kashf will participate in the savings pilot when it is an MFB. 4 Districts to be covered under the savings product
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