million program funded by the uk department for international development ( dfid ) with several initiatives aimed at improving access to financial services for poor and marginalized groups and for small enterprises in pakistan. ( ii ) state bank has issued branchless banking regulations, which is the regulatory framework to promote banking in remote areas using technology. ( iii ) sbp encouraged microfinance institutions to transform into regulated entities. ( iv ) sbp encouraged partnerships between the post office ( po ) network and mf providers. post offices already manage over 4 million savings accounts, mainly small accounts below rs 10, 000, through more than 12, 000 branches. there is scope for the post office and mf providers to join forces with the latter acting as intermediaries for funds raised by pos, especially as mf providers are constrained by limited funding. ( v ) sbp is encouraging new international players including brac and asa who have already started microfinance operations in pakistan. ( vi ) sbp has set up a special micro finance focal group with an independent head and qualified staff to support these and other financial inclusion initiatives. 4. many of these initiatives are recent and have yet to demonstrate effect vis - a - vis improved outlook for microfinance. however, the effectiveness of some of these initiatives may be improved in light of inferences drawn from microfinance industry trends. broadly, the current outlook for microfinance remains optimistic, but we must examine emerging trends with caution. • first, the industry is still young and continues to be largely dependent on donor assistance to grow, which though necessary at infancy stage is an unsustainable approach to long - term development. it is, however, critical that mfbs move toward deposit mobilization to increase funds for on - lending to achieve of the national strategy of reaching 10 million clients by 2015. • second, cost - efficiency is especially important in the current environment of the global financial crisis where rising cost of borrowing will eventually impact cost of lending for mfis and mfbs as they move towards commercial funding. hopefully, the introduction of international players may encourage local organizations to develop cost efficient structures and improve the quality of available human resource. • third, resource deficiency exists for microfinance not only in the form of funding. human resource capacity must also be strengthened to provide quality microfinance services. capacity building will take time as human resource development will primarily have to come from organic means given the unique nature of the microfinance industry. •

expected to help raise local currency funds for eligible mfis / mfbs. the loans portfolio under the guarantee scheme will be administered by banks. the facility will also help build links between micro borrowers and formal financial institutions. the familiarization of the bank with the client should eventually lead to the " graduation " of the borrower. the facility shall provide partial guarantee to minimize the perceived risk premium by covering part of the losses incurred on funds made available to mfbs / mfis with the advantage of leveraging the guarantee fund a number of times while keeping the incentive for banks / dfis to collect the loan. the lending of mcg facility will help these institutions to play their role in the growth of micro credit more effectively. the institutional strengthening fund 10. this fund is designed to build capacity of the microfinance sector. the fund is expected to enhance potential for growth and create depth in outreach by improving human resource quality, service delivery and increasing service availability to potential microfinance clients. the fund is established at the state bank under the uk government ’ s financial inclusion program that involved funds equivalent to pound sterling 10 million for institutional strengthening. the fund will provide grants for capacity building to generate on - lending resources through commercial sources, equity investments or deposit mobilization strategy through improvement in management, governance, internal controls and functions. the fund will also provide grants for employing cost reduction mechanisms for increasing outreach in rural and remote areas through product innovation, development or use of technology. in addition, the fund will provide grants for business development services to mfi clients or improving quality of services ; and developing capacity for transformation of mfis into licensed microfinance banks. 11. sbp has developed detailed guidelines, selection criteria and application format for isf. the fund will primarily focus on institutions that are already regulated, or are in the process of seeking a license or have solid plans for restructuring in the near future. sbp regulatory oversight will ensure transparency and good governance practices, which will ultimately lead to greater investment in the microfinance industry. moreover, isf is capped at us $ 1 million per year per grantee and subject to at least 25 % matching grant from the grantee. grants may be made on an annual basis and institutions that qualify for funding in a year may also qualify for funding in another year subject to good performance and submission of another successful proposal through the approved application procedure. improving access to financial services 12. this component is designed to enhance capacity of the micro