KARACHI: Two of the smaller players in the microfinance industry are considering merging their operations to create a “more efficient” single entity.

Apna Microfinance Bank Ltd said on Friday it’s signed a memorandum of understanding with FINCA Microfinance Bank Ltd, which may lead to a combined entity that’ll generate “significant benefits” for all stakeholders through economies of scale.

“The increased market share and cost competitiveness will strengthen the bank’s financial position to better serve the low-income segments across Pakistan by providing flexible micro-financing and saving schemes,” it said.

The two micro-lenders have received conditional approval from the State Bank of Pakistan to start reciprocal due diligence, another name for a comprehensive appraisal of each other’s businesses.

The microfinance penetration rate — which shows the share of the relevant population that has used microfinance products at least once in their lifetime — was 42.7 per cent at the end of September 2022 versus 41.3pc a quarter ago. This means almost six in every 10 potential customers in the country still can’t access microfinance services.

There’re 12 microfinance banks, including the two entities that’re considering the merger. In addition, 31 non-bank microfinance companies and five rural support programmes also operate in the micro-lending space.

Apna Microfinance Bank reported a net loss of Rs1.93 billion in 2021, the latest year for which complete data is available. Its deposit base declined 15.6pc to Rs22bn at the end of 2021 from a year ago.

The bank has been battling a capital inadequacy challenge even though the sponsors injected fresh capital of Rs150 million in 2021. The micro-lender was non-compliant with the minimum capital requirement — which is the amount of paid-up capital net of losses that every bank must maintain — as well as the capital adequacy ratio at the end of 2021.

“There has been material uncertainty related to events and conditions, which may cast significant doubt about the bank’s ability to continue as a going concern and, therefore, the bank may not be able to realise its assets and discharge its liabilities in the normal course of business,” it said in its latest annual report.

Published in Dawn, January 28th, 2023