1.0 In the Financial Year (FY) 2002-2003, PKSF, in addition to expanding and consolidating microcredit programmes, made significant contribution to strengthen the country’s microcredit sector as whole and the global microcredit movement. The implementation of the Financial Services for the Poorest Project was launched during the year. The preliminary findings of this pilot project suggest that, like the other poor, the hardcore poor are also bankable. In pursuance of the goal of making microcredit more growth-oriented, special emphasis was given on microenterprise development in FY 2002-2003 – a microenterprise cell was opened at PKSF and the necessary preparations were taken to appoint a microenterprise specialist in the cell. Negotiations were conducted with the IFAD to take up a project for improving the livelihoods and food security of the hardcore poor with special focus on livestock-based income generating activities. The project was launched in November 2003.
In FY 2002-2003 significant progress was made towards preparing a user-friendly regulatory framework for the country’s microcredit sector with substantial contribution from PKSF. PKSF as in the past, took active part in the deliberations of meetings of the Microfinance Research and Reference Unit (MRRU) set up by government for preparing microfinance regulatory framework. The Technical Committee of MRRU, headed by PKSF Managing Director, provided with several formats and other inputs for the report on the regulatory framework. The report is being reviewed by the Government.
Globally, PKSF model of financial intermediation and institutional development support has become quite well known as the apex or wholesale fund. A large number of microcredit professionals and practitioners from across the globe visited PKSF to learn from PKSF experiences. PKSF very cordially received the foreign visitors and provided them necessary briefings.
To facilitate the global sharing of information, knowledge and experiences about microcredit operations, PKSF in FY 2002-2003 organized an international seminar in Dhaka in February 2003. A big step farther in this direction, PKSF has accepted the challenge of organizing the Asia Pacific Regional Microcredit Summit Meeting-2004 in Dhaka in February 2004.
PKSF’s microcredit programme has been contributing significantly to poverty alleviation which has been reported by various independent research studies. The interim poverty reduction strategy paper (IPRSP) of the government entitled “A National Strategy for Economic Growth, Poverty Reduction and Social Development (March 2003)” also highlighted the role of microcredit and PKSF in the alleviation of poverty.

2.0 Activities of PKSF in the FY 2002-2003

2.1 The over-all objective of PKSF is to alleviate poverty and improve quality of life of the poor, assetless people of both rural and urban areas. To attain this, PKSF, in FY 2002-2003 continued its support to the Partner Organizations (POs) in their effort to organize the rural poor into groups and create income-generating opportunities through the provision of collateral free loan. During the year, PKSF enlisted more POs, and continued to finance the POs for expanding and diversifying their programmes and implement institutional development programme for enhancing its own capacity and that of its POs for increasing its efficiency.

2.2 The Partner Organizations Enlistment

Up to the close of the previous FY 2001-2002, PKSF had 181 organizations as its POs. In the FY 2002-2003, PKSF enlisted eight new POs. As a result the number of POs at the end of FY 2002-2003 stood at 189. In the FY 2002-2003 PKSF enlisted 6 NGOs as Pre-PKSF POs. The number of Pre-PKSF POs at the end of FY 2002-2003 stood at 12.

2.3 Loan Disbursements and Recovery

(a) During the FY 2002-2003, Tk. 2814.30 million was disbursed under Microcredit Programme to PKSF POs. At the end of FY 2002-2003, cumulative loan disbursement by PKSF to POs stood at Tk. 14240.595 million.

(b) During the FY 2002-2003, Tk. 1164.30 million was disbursed to POs under OOSA category against a budgeted amount of Tk. 1357.20 million. The loan disbursement target thus achieved was 85.77%. Every disbursement to POs, it may be mentioned, is made after thoroughly assessing their funds needs. At the end of FY 2002-2003, cumulative loan disbursement by PKSF to POs under OOSA category stood at Tk. 6244.00 million.

(c) During the FY 2002-2003, Tk. 1650.00 million was disbursed to POs under BIPOOL category against a budgeted amount of Tk. 2722.30 million. The loan disbursement target thus achieved was 60.61%. The disbursement to BIPOOL POs was less than the target because disbursement to PROSHIKA, a major PO under BIPOOL, was withheld because of loan recovery problems. At the end of FY 2002-2003, cumulative loan disbursement by PKSF to POs under BIPOOL category stood at Tk. 7996.60 million.

(d) Under the diversified mainstream credit programme PKSF funded four categories of loans:

(i) rural microcredit, (ii) urban microcredit, (iii) microcredit for hardcore poor, and (iv) microenterprise lending for both OOSA and BIPOOL POs. A component-wise disbursement breakup is shown in table-1.

Table-1: Component-wise Disbursement of Microcredit: In million Tk.

(e) In the FY 2002-2003, PKSF also continued to provide loans to the rural poor through its POs under five special projects – (i) Participatory Livestock Development Project (PLDP-I) funded by the Asian Development Bank; (ii) Integrated Food Assisted Development Project (IFADEP) funded by the European Commission; (iii) Training, Employment, and Income Generation Programme of Jamuna Multipurpose Bridge Authority (JMBA); (iv) South-West Rehabilitation Loan Programme (SRLP) and (v) Financial Services for the Poorest (FSP). Project-wise disbursement breakup is shown in table-2.

Table-2: Project-wise Disbursement: In million Tk.

(f) In the FY 2002-2003, PKSF disbursed an amount of Tk. 0.2 million under its Pre-PKSF programme to 12 Pre-PKSF POs.

(g) At the end of the FY 2002-2003, cumulative loan disbursement of the POs at field level stood at Tk. 97,486.79 million and the cumulative numbers of borrowers was 41,72,595 (89% female and 11% male).

(h) During the financial year, it was observed that the POs could maintain a loan recovery rate above 98% at the field level. The POs in their turn, made repayments of loan installments including service charges to PKSF as per loan repayment schedule. The recovery rate of PKSF was maintained above 98%.

(i) In the FY 2002-2003, PKSF under institutional development loan programme, disbursed Tk. 10.496 million for 89 motorcycles, 226 bi-cycles, 12 computers, 4 photocopiers, and 3 training complexes. The total cumulative amount disbursed up to FY 2002-2003 under this programme was Tk 72.31 million. The recovery rate of this loan was above 98.80%.

(j) During the FY 2002-2003, the credit programme of PKSF in collaboration with the POs covered all the districts of Bangladesh.

2.4 Repayment of Loan under Poverty Alleviation Microfinance Project-I

PKSF borrowed Tk. 505,88,29,719.00 under the IDA assisted Poverty Alleviation Microfinance-I for its microcredit programme. PKSF started repayment of the loan from September 2002 and the total amount, including interest repaid in FY 2002-2003 was Tk. 6,34,24,384.00.

2.5 Training and Workshop

Training:

In FY 2002-2003, PKSF provided training to 1343 personnel of its POs for enhancing their capacity to implement their microcredit programmes efficiently. The training courses covered financial management, supervision and monitoring, savings and microcredit management, accounts keeping on accrual basis, group dynamics savings, and microcredit management. In the FY 2002-2003 PKSF organized six inter PO study/experience sharing visits as a part of its training for the POs’ staff. The cumulative number of POs’ staff receiving training from PKSF was 7102 at the end of FY 2002-2003.

During the year, PKSF provided training to 86 of its officers.
In the FY 2002-2003, PKSF also provided training to 101 personnel of non-PO microcredit organizations. Through its training PKSF helped its POs to introduce accrual system of accounting in line with the requirements of the International Accounting Standards (IAS).

Seminars/Workshops/Study Visits:

International Seminar

PKSF in FY 2002-2003 organized an international seminar titled “Attacking Poverty with Microcredit” on January 08-09, 2003.The objectives of the seminar were to:

a) Enumerate and disseminate the achievements of microcredit programme,
b) Identify the current issues of microcredit and discuss them objectively and
c) Based on (i) and (ii) above, make recommendations for future

The seminar was inaugurated by Begum Khaleda Zia, the Hon’ble Prime Minister of the Government of the People’s Republic of Bangladesh. Policy makers, practitioners and researchers from 9 countries, 13 international organizations, 4 embassies, 9 ministries of Bangladesh, 60 different institutions and 152 PKSF partner organizations attended the seminar.
A report on the international seminar has been printed and the papers presented in the seminar will be printed in a book to be published by the University Press Limited (UPL), Dhaka.
Workshops for Exchanging Views with POs

In August, 2003 PKSF organized three workshops with its POs to exchange views to strengthen its microcredit programmes. Held at different regions of the country the workshops were participated by POs’ chief executives and credit coordinators.
Orientation Workshops for Youths

In May and June, 2003 of the FY 2002-2003 PKSF organized six workshops for the youths interested in making career in microcredit organizations. A total of 389 persons participated in these workshops. PKSF has published a booklet containing a list of the youths who participated in the training course. The booklet has been distributed among the PKSF POs to help them recruit good professionals. Thus, PKSF has contributed to creating employment opportunities for the educated youth.

Launching workshop for Micro-Finance and Technical Support (MFTS) Project
PKSF organized a workshop on need assessment for Microenterprise programme on October 15-16, 2003 and a launching workshop for Micro-Finance and Technical Support (MFTS) Project on November 22-23, 2003.

Study visit at PKSF:

In FY 2002-2003, PKSF hosted study visits for 61 microcredit professionals and policy makers from the Philippines, Srilanka, Nepal, Papua New Guinea and India. They came to PKSF to learn from PKSF and share experiences of PKSF POs.

2.6 Research

Despite shortage of sufficient number of qualified staff in the research cell, PKSF undertook the following operation-oriented research:
a) Determining Appropriate Loan Loss Provision Policy
b) Drop-out from Microcredit Programme, Causes and Remedial Measures
c) Profitability Analysis of Micro-enterprise
d) Current Interest Rates and Financial Sustainability of PKSF”s Partner Organizations
e) Effect of Microcredit Loan Increases on Some Selected Socio-economic Conditions of Borrowers.
Draft reports on the research studies ‘a’ to ‘d’ have been prepared. The field work on ‘e’ is progressing.

2.6.1 Maps on Microcredit Coverage

In June 2003, PKSF prepared Maps on Microcredit Coverage in Bangladesh. The effort, the first of its kind in Bangladesh, is expected to contribute to the process of policy making and taking initiatives for further improvement of microcredit sector. It will also help in formulating other programmes (health, education, housing etc.) of various agencies (GOs/NGOs) for poverty alleviation. PKSF is working on revising the Maps to include upazila level information on microcredit coverage.

2.7 Management Information System (MIS)

In FY 2002-2003, PKSF has procured computers for its office and provided computers to its POs through the Institutional Development Loan Programme. During the year PKSF developed a software for Financial Management System for its’ Partner Organizations. A process of implementation of the software was started in FY 2002-2003. Recently a decision has been taken to integrate PO MIS system and PO AIS system for POs’ branch offices.
In FY 2002-2003, user requirement has been finalized to set up a Credit Bureau Database at PKSF. System design of Credit Bureau Database will be completed soon. The database will have information up to the borrowers level of all microcredit organizations of the country including PKSF POs and Grameen Bank.

2.8 Facilities Available at PKSF Bhaban

PKSF has been operating from its own office complex ‘PKSF Bhaban’ since June 2002. In addition to office accommodation, PKSF Bhaban has other facilities as follows:
Auditorium and Conference Rooms: The Auditorium equipped with modern facilities is designed for conference/meeting and other programmes for 350-plus participants. The conference room-1 attached to the auditorium with a capacity of 80 participants also can be used for conducting seminars/meetings. The conference room-2 has a capacity of 60 participants and there are sufficient modern facilities for conducting workshop/seminars/meeting. These venues are supported by un-interrupted power supply round the clock.
A nearby spacious dining hall supports the auditorium and conference halls. Arrangement of modern equipment such as multi-media projector, overhead projector, TV, camera, cordless microphone set can be made on request.

Library: PKSF has a library with books/journals on poverty alleviation and microcredit so that PKSF staff members can keep themselves updated about the latest development in these areas. Besides the PKSF staff, researchers and scholars interested in poverty alleviation and microcredit can also use PKSF library.

Computer Lab: A computer lab, consisting of 12 latest Compaq Pentium IV computers and a multi-media projector, has been established in PKSF for training on basic computer package (such as MS Word, Power point, Excel, and Access), PO MIS software, and others like SPSS, to both PKSF and POs’ personnel.

Training facilities at PKSF Bhaban: PKSF has a 5-storeyed training center attached to the main building. For residential training courses, there is accommodation for 28 trainees at a time. The capacity for non-residential training is up to 40 persons at a time. Various modern training equipment viz. multi-media projector, overhead projector, slide projector, TV, video camera, photographic facilities, are used to conduct the training effectively.

2.9 Accounting and Auditing Systems

Palli Karma-Sahayak Foundation (PKSF) puts emphasis on maintaining a good accounting system. A substantial work has been done in keeping the standard of accounts. International Accounting Standards (IAS) are followed in keeping the accounts and International Financial Reporting Standards (IFRS) are used in all reporting. PKSF audits also conforms to International Standard of Auditing (ISA). In 2002-2003 financial year the Financial and Accounting Manual of PKSF was reviewed and revised by a consultant. Accounting Manuals for Partner Organizations were also reviewed and revised. Computerization of Partner Organizations’ Accounts is progressing. Decision has been taken to separate Finance and Accounts section from administration. The internal control systems were revised during the year and necessary policy instructions were issued. The Computerized Financial Management System of PKSF is also being continuously reviewed to cope with the demand of changes in the accounts. The overall endeavors of PKSF is to maintain a good internal control system and to maintain a computerized accounting system.

2.10 Micro-Finance and Technical Support (MFTS) Project

PKSF is implementing the Micro-Finance and Technical Support (MFTS) Project with the assistance from IFAD & GOB.
The major objectives of the project are the improved livelihoods and food security of moderate and hard-core poor households and the empowerment of women. The project will give emphasis on the adoption of sustainable income generating activities and livestock technologies by the moderate and hard-core poor and the acquisition of livestock knowledge by PKSF and the POs. The project’s objectives will be met through the financing of three components designed to assist the target groups: (i) microcredit; (ii) technical support, with four sub-components namely training for the beneficiaries, PO staff, PKSF and other government staff and research and development; and (iii) project implementation support with three sub-components namely project coordination, monitoring and evaluation and support to partner organizations.
The project will be implemented in 7 years – from July 2003 through June 2010.
The project area will cover the districts: Faridpur, Madaripur, Shariatpur, Bhola, Barisal, Jhalokati, Pirojpur, Gopalganj, Sylhet, Moulvibazar, Habiganj, Kishorganj and Brahmanbaria. These 13 districts have 97 upazilas.
Of the total project cost of US $20.17 million, IFAD will provide a loan of US $16.30 million. The remaining amount of US $3.87 million will be provided by PKSF and POs.
Overall responsibility for executing the project will rest with PKSF under the terms and conditions of the Subsidiary Loan & Grant Agreement between PKSF & Ministry of Finance which was signed on 25th August, 2003.
PKSF will use its regular administrative and management arrangements to implement the project through its POs. Besides, the Project Co-ordination Unit will be the focal point for management of all activities. A total of 27 small/medium sized POs have been selected by PKSF for the project.

2.11 Policy Guidelines

Earlier PKSF prepared a number of policy guidelines and set of standards for efficient operation of its own and its POs microcredit programme based on the felt needs involving the practitioners - PKSF staff members and POs representatives and officials. These guidelines are now being used.

3.0 Management

The overall policy guidance and supervision is provided by the Governing Body and day to day activities of PKSF are executed by the Managing Director, two Deputy Managing Directors, one General Manager, five Deputy General Managers, six Assistant General Managers, twelve Managers, Fourteen Deputy Managers inclusive of one Librarian, thirty four Assistant Managers, twelve Officers, one Microenterprise Specialist, one Programme Associate, six Project Associates along with seventy three other staff members for logistic support. Besides, one Project Coordinator, one Deputy Project Coordinator, one Qualitative Research Specialist, one Quantitative Research Specialist, one Project Associate, one MIS Officer are employed in the Financial Services for the Poorest (FSP) Project. One Livestock Coordinator, two Training Officers, one Monitoring Officer and one Officer are also engaged in MFTS project. One Associate and two supporting staff are engaged in IDA assisted “Poverty Alleviation Micro-finance Project (Microfinance-II)”. Including one legal adviser, one part time lawyer and one medical retainer, the total manpower of PKSF at present is 185.

4.0 Funding

PKSF mandate authorizes PKSF management to mobilize funds in the forms of grants, loans and contributions from a wide variety of sources, which include the Government of Bangladesh (GOB), private individuals and organizations, foreign governments, international donors and lending agencies and capital markets. PKSF is implementing IDA assisted Second Poverty Alleviation Microfinance Project (Microfinance-II) involving a total cost of US $181 million of which US $172.64 million will be used for microcredit and US $8.36 for institutional development. In FY 2002-2003 PKSF received US $40.52 million as loan for microcredit programme and US $0.21 million as grant for institutional development under this project.
PKSF also received Tk. 453.11 million from the Asian Development Bank (ADB) for "Participatory Livestock Development Project" (PLDP-I), Tk. 32.51 million from GOB for IFADEP and Tk. 213 million from GOB for SRLP.

5.0 The Governing Body

Up to June 2003, a total number of 116 meetings of the Governing Body were held, 6 of which were held during the FY 2002-2003.
6.0 The Appointment of Auditors
(a) According to the relevant section of the Articles of Association of PKSF, M/S S. F. Ahmad & Co. (Chartered Accountants) was appointed as the auditors of PKSF for the year 2002-2003. PKSF also appointed seven different firms : Messers A. Quasem & Co. (Chartered Accountants); Hawlader, Yanus & Co. (Chartered Accountants); Aziz Halim Anwar & Co. (Chartered Accountants); Qadir Kabir & Co. (Chartered Accountants); Masih Muhith Haq & Co. (Chartered Accountants); Khaleque & Co. (Chartered Accountants); and M. Haque & Co. (Chartered Accountants) to audit the PKSF POs accounts.
(b) For the FY 2002-2003, audited accounts of PKSF’s financial activities have been placed separately for perusal and approval of the members of the General Body in the Annual General Meeting.

7.0 PKSF’s Plan for the FY 2003-2004

As in the previous year PKSF's plan for 2003-2004 aims at substantially expanding the activities of PKSF by way of financing the diversified and expanded microcredit programmes of the POs, selecting new POs, and enhancing institutional capacity of the POs and PKSF. Efforts will be made to increase the number of POs and to expand the microcredit programmes of the POs.
The continued implementation of the Second Poverty Alleviation Microfinance Project (Microfinance-II) under the IDA funding will help diversification and expansion of PKSF’s microcredit and institutional development programme.
In a country where a huge unemployed labour force exists and which has a low GNP growth rate, the role of microenterprise and small enterprise, especially in the rural area is quite significant. PKSF is considering to expand and diversify its activities in these sectors.
Some specific actions for the future are as follows:

(a) To attain the objective of PKSF, a loan disbursement target of TK. 4489.62 million has been set for FY 2003-2004. This target will enable PKSF to provide a cumulative credit support of Tk. 15793.60 million to its POs for expanding their microcredit programmes among the urban and rural poor and among the progressive microcredit borrowers for microenterprises.

(b) In the budget set for FY 2003-2004, an amount of Tk. 1727.80 million has been allocated for the POs under OOSA category and an amount of Tk. 2000.00 million for the POs under BIPOOL category.

(c) In the budget set for FY 2003-2004, an amount of Tk. 1 million has been allocated for Pre-PKSF POs.

(d) In FY 2003-2004 PKSF will implement seven special credit projects: (a) Participatory Livestock Development Projects (PLDP-I & PLDP-II) funded by the Asian Development Bank (ADB); (b) Integrated Food Assisted Development Project (IFADEP) funding by European Commission through the Directorate of Women’s affairs; (c) Training, Employment, Income Generation Programme of Jamuna Multipurpose Bridge Authority (JMBA); (d) South-West Rehabilitation Loan Programme (SRLP); (e) Financial Services for the Poorest (FSP); (f) Sundarban Bio-diversity Conservation Project (SBCP); and (g) Micro-Finance and Technical Support (MFTS) Project Tk. 723.20 million has been allocated for these special credit projects.

(e) PKSF will continue to provide loan to its POs under institutional development programme to strengthen their microcredit programme. An amount of TK. 37.62 million has been allocated for the Institutional Development component for FY 2003-2004.

(f) PKSF is considering the possibility of providing fund for microcredit in the Chittagong Hill Tracts Rural Development Project (CHTRDP) of ADB in FY 2003-2004.

(g) PKSF's ongoing training programme has been implemented satisfactorily and is effective in capacity building of PKSF and POs. This training programme is now based on 21 training modules. PKSF has formulated an implementation plan for the training of the staff of PKSF and the POs using the course curriculum. According to the plan, during 2003-2004, training will be imparted to 50 personnel of PKSF and 2090 personnel of its POs. Some Officers of PKSF will be sent abroad for training/study tours/seminars on need basis to gain insight and skills on microfinance activities. Representatives of POs will be included in the study tours abroad.

(h) In FY 2003-2004, PKSF will strengthen its in-house research capacity and undertake research studies on microcredit management and operations and current issues of microcredit.

(i) PKSF will take the necessary measures to set up a Centre for Microcredit R&D and Training at PKSF.

(j) For the sustained expansion of the credit programme, monitoring of in-house management and the audit, supervision and evaluation system of PKSF will be further strengthened in 2003-2004.

(k) MIS Development: In 2003-2004 PKSF will (a) take steps to implement PO MIS and AIS (b) purchase hardware's for MIS; and (c) Continue work on credit bureau data base.

(l) The plan of disbursing an amount of Tk. 4489.62 million under the mainstream microcredit programme and the hardcore and ultra hardcore poor targeted-projects will be a significant step forward towards the goal of poverty alleviation. PKSF will also expand its activities in microenterprise lending which provides a better opportunity to contribute to the growth of the economy and also to help the poor to come out of the poverty trap. PKSF places the highest priority on financial discipline in both disbursement and recovery of loans. The Governing Body hopes that after consolidating this process and giving it a firm base, PKSF will avail the opportunities to further expand its credit programme. To implement the expanded programme PKSF may need to further decentralize its management, create new divisions, and appoint more management staff.

(m) PKSF, as an apex financial organization will continue to set standards and formulate guidelines for microcredit institutions (MCIs) in Bangladesh. PKSF will also continue to take active part in the preparation of “regulatory framework” for microcredit programmes in Bangladesh.

8.0 Acknowledgement

As in the past, the officers and staff members of PKSF of all levels have carried out their responsibilities with tireless efforts and dedication. As a result, PKSF has become a model organization in Bangladesh and abroad. The Governing Body recognizes the commitment and devotion shown by the PKSF staff.
PKSF strongly believes that its partner organizations and the poor borrowers share equally the success and accomplishment of PKSF's microcredit programme. The Governing Body expresses its sincere appreciation of contributions of the personnel of the POs and of the beneficiaries of the POs' credit programmes. The Governing Body also express it's thanks to its well-wishers at home and abroad for their continued strong support and assistance to PKSF.
The cooperation and contributions of various ministries, agencies and individuals which helped PKSF in fulfilling its mandates are gratefully acknowledged by the Governing Body of PKSF. It appreciates IDA’s (World Bank) assistance for expanding the operations of PKSF. The Governing Body also expresses its appreciation to USAID, Asian Development Bank, IFAD, DFID, Ministry of Women & Children Affairs, European Commission and Jamuna Multi-purpose Bridge Authority for their support to PKSF. The Governing Body of PKSF expresses its gratitude and thanks to the Government of the People’s Republic of Bangladesh for its continued and strong support and cooperation to PKSF.
The Governing Body expresses its sincere thanks to all the members of the General Body for their guidance and support in carrying out the activities of PKSF.
To-day PKSF’s services are being increasingly demanded at home and abroad. We are now being asked by the Government of Bangladesh, members of the international donor community, and microcredit professionals and practitioners at home and abroad to play increasingly larger role to further expand and strengthen the microcredit programmes and as well as various other programmes of poverty alleviation. This is a big challenge indeed. We are confident that with the continued support of the General Body, the Governing Body, PKSF Management, PKSF POs, the Government of Bangladesh, the international community, and above all, the poor people, we shall be able to face this challenge successfully.