Micro finance banks suffer huge losses


Most of the micro finance banks have posted losses in 2006 as their administrative expenses remained higher than the interest and non-interest income, said a State Bank report on “Financial Position of Micro Finance Banks-2006” issued on Wednesday.

All the balance sheets of the six micro finance banks showed high administrative expenses and even the two banks - that made profits - spend most of their income to meet the administrative cost.

Khushali Bank declared a profit-after-tax at Rs23 million and spent Rs626 million for administrative expenses. Its total interest and non-interest income were Rs925 million.

Network Micro Finance Bank posted a loss of Rs7.3 million as its administrative expenses went beyond the income. The administrative expenses of the bank were Rs25 million while the interest income were Rs17 million and non-interest income Rs5 million.

Pak Oman Micro Finance Bank also posted a loss of Rs11.2 million as its administrative expenses reached Rs43.6 million while the total income was Rs41.7 million.

Rozgar Micro Finance Bank and Tameer Micro Finance Bank posted losses of Rs7.9 million and Rs50.1 million, respectively. Both the banks have shown their high administrative expenses making their income unable to bring a balance in their accounts.

The second profitable bank was ‘The First Micro Finance Bank’ which declared a profit of Rs19.4 million also showed high administrative expense of Rs144.5 million while its total income was Rs220.5 million.

Micro finance banks were established to extend small loans to the poor people, who can not afford to produce any collateral for the borrowing. The aim was to follow the footsteps of the Grameen Bank of Bangladesh but the high administrative expenses showed that the banks were being run on the pattern of corporate banking.

Professor Yonus, the father of Grameen Bank, in his address at the State Bank head office few months before had advised Pakistani banks not to run the micro finance banks like corporate banks and it should not be taken as another money making avenue.

“The balance sheets of the small banks expressed a serious situation for micro lending in the country,” said Aamir Saleem, an analyst. He said the micro financing would be a failed venture if the loss making trend was not arrested immediately.

Analysts were of the view that a cultural change was required to make the micro financing a successful project. “Employees should be hired from the area where a micro finance bank branch is opened. This could give the real picture of potential of the banking in any area,” said another analyst.

Banking experts said that while most of the banks had been making record profits, the micro finance banks moved in reverse direction showing failure of the skills of these bankers

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