Pakistan: Aid Effectiveness Initiative Country-Level Effectiveness And Accountability Review With A Policy Diagnostic
by Eric Duflos, Alexia Latortue, Rochus Mommartz, Graham Perrett, Consultative Group, Assist the Poor
Aid Effectiveness Initiative Country-Level Effectiveness And Accountability Review With A Policy Diagnostic Pakistan
By Eric Duflos, Alexia Latortue, Rochus Mommartz, Graham Perrett , Consultative Group to Assist the Poor CGAP
Publisher: CGAP
Number Of Pages: 64
Publication Date: May 2007
Binding: pdf
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PAKISTAN CLEAR WITH A POLICY DIAGNOSTIC—EXECUTIVE SUMMARY
At the request of eight development agencies (through the informal donor group) and the governor of
the State Bank of Pakistan (SBP), CGAP conducted a Country-Level Effectiveness and Accountability
Review (CLEAR) combined with a Policy Diagnostic in Pakistan in November and December 2006.
CLEARs and Policy Diagnostics have been carried out in over a dozen countries separately; both
methodologies were combined for the first time in Pakistan. The CLEAR with Policy Diagnostic for
Pakistan resulted in recommendations for two separate, but closely linked, types of actors: international
funding agencies and government agencies.
Recent developments in the banking sector. Pakistan implemented an impressive privatization of
the banking sector in the 1990s. State participation in the sector decreased from over 80 percent in
1990 to less than 20 percent today. The financial sector is now relatively stable and is a driving force
of economic growth. However, penetration of financial services remains low: only about 3 percent of
the population has access to the banking sector.
Evolution of pro-poor finance. Since the establishment of the Agricultural Development Bank (now
ZTBL) in the early 1970s, the Government of Pakistan (GoP), civil society, and later the private
sector have been interested in extending financial services to poor and low-income Pakistanis. This
was often done with support from international funding agencies and focused mostly on credit. In the
early 1980s, the Aga Khan Rural Support Programme (AKRSP) and the Orangi Pilot Project (OPP)
were launched. These, and the Rural Support Programs (RSPs), were general support institutions that
provided a wide variety of social services, including financial services. By the mid-1990s some RSPs
created specialized microfinance units—one of which became Kashf Foundation, a key microfinance
provider (MFP) in Pakistan today.
In the early 2000s, the GoP stepped up efforts to develop microfinance, with considerable funding
from large donors like the World Bank and the Asian Development Bank (ADB). The wholesale
facility Pakistan Poverty Alleviation Fund (PPAF) made its first loan to MFPs in 2002, and it now
dominates the refinancing market. One year later, the GoP facilitated the creation of Khushhali Bank.
Today, Khushhali Bank is the largest retail institution specialized in microfinance. However, it was a
specific microfinance ordinance created by SBP in 2001 that marked the beginning of a new era for
microfinance: by 2007 six microfinance banks (MFBs) had received licenses. The Pakistan
Microfinance Network (PMN) emerged in parallel. PMN is now a strong industry association
committed to transparency.
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