Microfinance and Enterprise Development Programme

NRSP’s Microfinance and Enterprise Development Programme has been providing micro credit since 1992. We presently offer a full range of micro finance products, including Savings, Micro Credit – through NRSP and its affiliate the Urban Poverty Alleviation Programme – and Micro Insurance. MEDP covers both men and women in rural areas and the UPAP provides credit to women in urban areas. NRSP works mainly in rural areas, satisfying the credit needs of farmers through crop-related loans.

NRSP established the Micro Finance Bank in March 2011. www.nrspbank.com. As one of the largest MFIs in Pakistan the MEDP programme has the following market share (as of September 2016):

• 16.6% of savers (No. 3 position).
• 16.3% of insurance policy holders (No. 2 position).
• 15.3% of active borrowers (No. 1 position).

Data and Transparency: NRSP is an active member of the Pakistan Microfinance Network. It also reports its data for publication in the Mix Market. To further ensure transparency, NRSP microfinance is audited separately from our other operations. The transition to the online Oracle system over 2011-12 means that information from all Regions will be updated and accessible without delay in real time. Efficiency has been increased with the integration of the system with the NRSP Finance section, meaning that all transactions are reconciled.

MEDP’s Role: MEDP’s responsibilities include product development, staff capacity building and ensuring that credit funds are available to poor households through the COs. NRSP has successfully accessed funds from Commercial Banks and donor funds. MEDP’s complementary responsibility is developing information systems: the successful implementation of these systems has resulted in increased efficiency, out-reach capability, repayment behaviours and financial viability of the programme.

Micro Credit for Individuals

The men and women who belong to the Community Organisations want and need credit for income generation. Without material collateral, farmers, micro-entrepreneurs and home-based labourers have no way of accessing affordable credit. Instead they must rely on money-lenders who often charge usurious rates of interest. NRSP provides credit for activities that generate revenue and build assets. The majority of our clients need credit for agricultural inputs such as seed and fertilisers, so they can increase their yields. Credit for livestock is also in high demand. A major sector that has been increasing in importance over time is enterprise development in urban and rural areas. In a few situations, when conditions have warranted it, we have provided credit to individuals for lift irrigation, land-leveling and other productive infrastructure.

Credit alone is not enough to provide the opportunity to enhance incomes: we offer skill development through vocational training and enterprise development training. In addition we offer training in financial management, business development, natural resource management and livestock management to our credit clients.

Our Guiding Principles

MEDP’s core values are:

• Transparency for accountability
• Minimal transaction and operational costs
• Community participation and monitoring

A set of principles embodies internal checks and balances to ensure compliance with our established policies and procedures. These principles and procedures ensure that the Rural Credit programme is fully independent of social mobilization. These are:

Ceilings: First time clients can borrow up to Rs 30,000. This amount is increased for subsequent loans if the repayment is according to the agreed schedule. The ceiling is a maximum of Rs 75,000. NRSP tries to keep the credit size at the lowest limit so that the credit programme covers the maximum number of poor households and the risk to those households is minimized.

Collateral: No material collateral is required, but the COs bring social pressure to bear to prevent loan default. Because each loan request is signed by at least 75% of the CO members, each member acts as a guarantor for all other members.

Savings: CO members are required to save regularly, even if the amount is very small. This is intended to inculcate the habit of saving and is an indicator of an individual’s self-discipline. Savings mobilization works as a risk management fund to meet unforeseen expenditures such as sudden illness, job losses or natural disasters. To ensure that the poorest members are not excluded the ceilings for mandatory savings are flexible. The savings are deposited in the COs’ bank accounts. In some NRSP Regions, a potential credit client who seeks a “bullet loan” (one that will be repaid when a crop is harvested) is required to save 10% of the loan amount before receiving the loan. This results in savings that the client would not have, otherwise. Many clients use this to enhance the investment value of the amounts borrowed, by adding some of the savings to the credit amount. Some clients have accumulated enough savings to become eligible to open commercial bank accounts.

Internal lending: If the CO members want to, they can lend their savings to other members. The procedure begins with a unanimous Resolution recording the decision. The CO then forms a Credit Committee, which appraises loan requests. The CO sets its own terms and conditions. NRSP trains the COs in accounting and financial management.

Appraisal: Credit-worthiness for initial and subsequent loans depends in large part on the character and trustworthiness of potential clients. Previously, our appraisal process focused primarily on the financial feasibility of the proposed activity and the CO’s guarantee. However, we have learned from experience that the character of a client plays a greater role in his or her repayment performance than his or her ability to generate a profit from the business or activity for which the loan is taken. Character assessment includes whether the client is “honest” and “responsible”, as well as confirmation of his or her whereabouts.

A Technical appraisal follows. It confirms the accuracy of the information in the Social Appraisal, then assesses the financial viability of the proposed activity. If necessary, Engineers, enterprise development staff or others are called in to assess the likely viability of the proposed income-generating activity. The primary focus is on the assessment of the potential client’s behavior and reputation for honesty. This double appraisal helps our staff get to know the borrower and lets his or her family members know about the client’s obligations to NRSP.

Village Branches: To make it easier for rural clients to access credit related services we have established one-room Village Branches at appropriate locations, typically at the centre of one or more Union Councils. The establishment of these Branches depends on the population density. The Branch is responsible for coordinating with the CO members on a daily basis. It is also a credit recovery-collection hub. The Village Branches staff allocate times for CO meetings, recovery follow up, appraisals and recovery collection. Where it is feasible the Village Branch staff visit COs and clients on foot. Otherwise the male staff travel by motorcycle and the women in vehicles. Link to Village Bank success story

Community Investment Fund: Initiated in 2009, this revolving fund is administered by an LSO. The CIF is used to provide small loans to CO members. LSO members are trained in CIF Management and in maintaining and utilizing the credit database provided to the LSO. This is to ensure that clients and loans are tracked throughout the loan cycle. As of November 2016, Rs. 289.65 million was provided to LSOs for loan disbursement through PPAF funding. As of November 2016, Rs. 429.35 Million has been disbursed to LSOs.

CO Dera Jawan’s Collective Investment

NRSP first contacted people in village Jewan Abad (Khushab, Punjab) in January 2008. At that time 11 village men formed CO Dera Jewan Abad. Most people in the area have little or no formal education. Income levels range from Rs.10,000 to 18,000 per month derived predominantly from farming and livestock rearing. We extended a credit line to the CO three months after its formation, when deemed to be ‘mature’. In the first year the CO was operational, the members used the credit to purchase maize seed. The following year, the CO decided to use its loans collectively to purchase a second hand thresher machine. After informal discussions the idea was raised and approved in the CO’s monthly meeting. Each member applied for a loan of Rs.10,000, for a total of Rs.110,000. They used Rs.85,000 to purchase the machine and Rs.25,000 for fuel. Each member pays a share of the maintenance which they earn from their percentage of profits. They also loan money to non CO members on a commercial basis. When the crops are harvested each member receives 1/20th of the maize crop and 1/14th of the threshed wheat.

This initiative proved to be highly successful, raising productivity levels and enabling a greater margin of profit. Following this, the CO took further initiatives, leasing 50 kanals (4.5 acres) of land. The CO members collectively contributed inputs and labour and the profits were distributed among the members. Now they plan to purchase a tractor on a collective basis. Five CO members have also taken individual loans from the CO. Some will open grocery shops and others tire repair centres. The CO is now working with a women’s CO on a project to line 3,880 feet of watercourses.

Innovative Product Development: The Micro Finance Innovation Outreach Programme

MEDP is keen to explore new partnerships and new ideas. Several innovations have strengthened our capacity to focus on outreach, enterprise development and rehabilitation programmes following the 2010 floods. One of these is an affiliation between NRSP, the Pakistan Poverty Alleviation Fund and the International Fund for Agriculture Development, which resulted in a number of innovative projects that serve as opportunities to test a variety of new ideas and combinations of activities. Depending on the specific project, PPAF and IFAD provide technical and financial support. The programme goals are: poverty reduction particularly for the rural poor, some of them women; promotion of economic growth and improving the livelihoods of rural households. These goals were achieved through the provision of equity injections, cash collaterals, letters of credit and guarantees provided by the PPAF to ensure on-lending by commercial organizations.