go a long way to help set up businesses on modern lines and will also bring with it the necessary experience and technological support for this industry. while development is underway, it is important to recognize the challenges we are beset with. of principal concern is the low coverage of microfinance services. the microfinance institutional framework currently supports barely 600, 000 active borrowers. existing coverage of the formal microfinance sector is only 10 % of the estimated 6 million households in need of microfinance. the requirements clearly are above these norms as currently one fourth of the population of pakistan is below the poverty line. another feature is the high concentration across institutions, in lending and among clients. khushhali bank and pmn provide the bulk of the services given their edge in starting business early on. but these institutions have only provided lending facilities without adequately tapping the deposit base of their clients. also, their lending profiles reflect a degree of concentration in select regions and sectors. as of march 2006, 41 % of loans distributed by the mfbs are for agri - inputs, 24 % for livestock, 26 % for small enterprises and 9 % for other purposes. this is because khushhali bank which accounts for the bulk of this business is rural focused. an analysis of gender - wise loans granted reveals that 84 % of borrowers are male. average loan size of mfbs is rs 9, 300. the microfinance business further faces difficulty in accessing alternative sources of investment particularly equity investment - which is a world wide problem. knowing how to conduct micro - businesses is an additional challenge in pakistan given its low financial and accounting literacy. the newly licensed institutions will not only help in diversifying the institutional risk and provide better coverage, but also introduce the much needed competition in this area. sbp has further developed the legal framework for microfinance institutions. mfis are governed and regulated by the mfis ordinance, 2001, the promulgation of which resulted in a paradigm shift in the microfinance industry, and has laid the foundation for the systematic growth of the sector. microfinance is now seen as a major tool for eradicating poverty. mfis ’ paid up capital requirements are lower than commercial banks at rs 250 million, 3 and to promote flexibility and innovation, sbp has adopted international standards in establishing requirements for capital adequacy, maximum loan size, credit and operational risks, kyc norms etc. the finance bill for 2006

now includes the long awaited amendments and refinements in the mfi ordinance of 2001. among others, the amendments ; ( i ) empower sbp to introduce flexibility and broadening of microfinance institutions to include microfinance banks, ( ii ) give sbp flexibility in the determination of crr and slr with a flexible monitoring system, ( iii ) provide sbp the option of determining the definition / threshold income level of the poor, ( iv ) strengthen provisions to introduce explicit clauses regarding licensing of new mfis, separate licensing requirements for existing ngo - mfis, new start - up mfbs as well as improving provisions related to suspension of licenses, ( v ) bring in line with secp guidelines on corporate governance, the terms of external auditors and extending period of submission of accounts, and ( vi ) strengthen regulatory powers of sbp. these amendments are quite far reaching, are in line with the stakeholder ’ s demands and hold the promise of providing the desired level of flexibility both at the regulatory cum supervisory level, while for provincial level mfb. the minimum requirements are rs 100 million for district level, 500 million for national level. easing constraints of the industry. microfinance institutions will now be able to tailor their products to meet the needs of their customers as they move along the prosperity continuum. the amendments have also made it possible to increase the business viability and diversity of institutions by the emergence of regional microfinance banks that might obtain license for five adjacent districts with the prescribed minimum capital requirements. 4 the enhanced regulatory powers of sbp are aimed to ensure proper regulatory and supervisory oversight of the licensed mfbs. the amendments would also help improve the corporate governance of microfinance banks to become socially responsible and financially sustainable institutions. as an additional feature, mobile banking guidelines have been designed to facilitate mfbs to penetrate their target market. sbp has issued ngos / rural support programs / cooperative transformation guidelines. fit and proper criteria has been laid down for ceos and management of mfbs. guidelines have also been issued for commercial banks interested in engaging in microfinance business. some unfounded myths often complicate the development and understandings of microfinance. recognizing this, in pakistan we need to encourage a paradigm shift in the rapidly evolving operating environment for the microfinance sector. ¾ first, there is a need to move away from subsidization of microfinance services to commercialization of such financial services. this