1.0 The Financial Year (FY) 2004-2005 was another eventful year for PKSF in terms of expansion, diversification and consolidation of its microcredit program, and its significant contribution to the national and global microcredit movements. During the year, in addition to implementing its mainstream credit program including rural microcredit, microenterprise credit, hardcore poor credit and urban credit, PKSF also implemented five special projects and the Government of Bangladesh (GOB) funded microenterprise and hardcore poor programs for improving the livelihoods and food security of the poor and the hardcore poor. PKSF also signed a project agreement with GOB/IFAD to provide credit and other support to marginal and small farmers. The project will be operational in FY 2005-2006.

In FY 2004-2005, further progress was made towards preparing an enabling regulatory framework for the country's microcredit sector. PKSF continued to support the Microfinance Research and Reference Unit (MRRU) established by the government to draft a microfinance regulatory framework. The Technical Committee of the MRRU, headed by the Managing Director of PKSF, provided input for the report on the proposed regulatory framework. An office for the MRRU has also been established on the Bangladesh Bank's premise with the support of PKSF under its Second Poverty Alleviation Microfinance Project. The draft law for the country's microcredit sector, which was prepared by a consultant hired by PKSF and recommended by the committee, is under review by the government.

Regarding its contribution to the global microcredit movement, the most significant event at PKSF in the FY 2004-2005 was the observance of the "UN International Year of Microcredit 2005". The observance of the year was inaugurated by Begum Khaleda Zia, the Honourable Prime Minister of the People's Republic of Bangladesh in a colourful ceremony held at the Bangladesh-China Friendship Conference Centre in Dhaka on January 15, 2005; and PKSF's Managing Director headed the committee set up by the Government of Bangladesh to observe the year. Since inauguration, a number of activities including rallies, workshops, seminars, press conferences and publications, such as posters and leaflets, have been carried out. The Managing Director of PKSF and a number of microcredit professionals and practitioners from Bangladesh participated in a conference held in New York in October in connection with the observance of the year. The observance of the year in Bangladesh will be ended with the organization of a two-day long Microcredit Mela and a cultural program on February 4 and 5, 2006 in Dhaka.

PKSF's microcredit program has continued to contribute significantly to poverty alleviation, as reported by various independent research studies. The poverty reduction strategy paper (PRSP) of the government also highlighted the role of microcredit and PKSF in the alleviation of poverty.

2.0 Activities of PKSF in the FY 2004-2005

2.1 The over-all objective of PKSF is to alleviate poverty and improve the quality of life of the poor, assetless and landless people of both rural and urban areas. To further this objective, in FY 2004-2005, PKSF continued to support its Partner Organizations (POs) in their effort to organize the poor into groups and create income-generating opportunities through the provision of collateral-free loans. During the year, PKSF enlisted more POs and continued to finance their expansion and diversification; and implemented an institutional development program to enhance its own capacity as well as that of its POs in order to increase efficiency.

2.2 The Partner Organizations' Enlistment

As of year-end FY 2003-2004, PKSF included 195 organizations among its POs. In the FY 2004-2005, PKSF enlisted 17 new POs: as a result, the number of POs at the end of FY 2004-2005 stood at 212. In the FY 2004-2005, PKSF enlisted two NGOs as Pre-PKSF PO; and, at year-end, the number of Pre-PKSF POs became 3.

2.3 Loan Disbursements and Recovery

(a) During the FY 2004-2005, PKSF disbursed Tk. 3,040.35 million to its POs under the mainstream microcredit program. At the end of FY 2004-2005, the cumulative loan disbursement by PKSF to its POs stood at Tk. 22,135.16 million.

(b) Actual loan disbursement represents 178.78% of the budgeted amount of Tk. 1,700.00 million. At the end of FY 2004-2005, the cumulative loan disbursement by PKSF to OOSA category POs stood at Tk. 11,025.05 million. Moreover, each disbursement was made after a thorough assessment of the funding needs of the PO.

(c) During the FY 2004-2005, PKSF budgeted an amount of Tk. 2050.00 million for loan disbursements to BIPOOL category POs; but no loan was disbursed, mainly because of some policy differences, especially with regard to the rate of service charge. At the end of FY 2004-2005, the cumulative loan disbursement by PKSF to BIPOOL category POs stood at Tk. 9196.60 million.

(d) Under the diversified mainstream credit program, PKSF funded eight categories of loans: (a) Rural Microcredit; (b) Urban Microcredit; (c) Microcredit for the Hardcore Poor; (d) Microenterprise Lending; (e) Pre-PKSF; (f) PKSF (PLDP-1); (g) Microenterprise Lending (ME, GOB); (h) Hardcore Poor (HCP, GOB); and (i) Farmers Loan (under PLDP-II and MFTSP) for both OOSA and BIPOOL POs. A component-wise disbursement breakup is shown in Table-1.

Table-1: Component-wise Disbursement of Mainstream Microcredit (in million Taka)

* The hardcore poor program was funded from the GOB allocation. Therefore there was no disbursement for this program under the mainstream program.
** Funding under PLDP-I ended in FY 2003-2004.

(e) In the FY 2004-2005, PKSF also continued to provide loans to the rural poor through its POs under five special projects - (1) Second Participatory Livestock Development Project (PLDP-II) funded by the Asian Development Bank (ADB); (2) Integrated Food Assisted Development Project (IFADEP) funded by the European Commission; (3) South-West Flood Damage Rehabilitation Loan Program (SRLP); (4) Financial Services for the Poorest (FSP) project; and (5) Micro-Finance Technical Support (MFTS) project funded by IFAD. Project-wise disbursement is shown in Table-2.

Table-2: Project-wise Disbursement (in million Taka)

* Funding under PLDP ended in FY 2002-2003.
** The JMBA revolving loan fund is being replaced with PKSF's rural microcredit fund. Therefore, there was no disbursement under JMBA in FY 2004-2005.

(f) Total microcredit disbursement under the mainstream credit program and projects in FY 2004-2005 was Tk. 3,605.55 million; and the cumulative disbursement at the end of FY 2004-2005 was Tk. 21,995.96 million.

(g) At the end of the FY 2004-2005, the cumulative loan disbursement (mainstream credit program and projects) of the POs at the field level stood at Tk. 165,368.93 million; and the cumulative number of borrowers was 5.52 million (91.14% female and 8.86% male).

(h) During the financial year, it was observed that the POs maintained a loan recovery rate above 98.77%. In turn, the POs made repayments of loan installments, including service charges, to PKSF as per loan repayment schedules; and the recovery rate of PKSF was maintained around 97%.

(i) In the FY 2004-2005, under the institutional development loan program, PKSF disbursed Tk. 19.67 million for 156 motorcycles, 225 bi-cycles, 56 computers, one training complex, two photocopiers, 52 refrigerators and 30 mobile phones. Up to FY 2004-2005, the total cumulative amount disbursed under this program was Tk 104.40 million and the recovery rate was 97.91%.

(j) During the FY 2004-2005, Tk. 34.80 million was disbursed from the disaster management fund.

(k) During the FY 2004-2005, the credit program of PKSF, in collaboration with its POs, covered all the districts of Bangladesh.

2.4 Repayment of Loan under Poverty Alleviation Microfinance Project-I

PKSF borrowed Tk. 4611.33 million for its microcredit program from the IDA-assisted Poverty Alleviation Microfinance Project. Repayment of the loan began as of September 2002 and the total amount repaid, including interest, in FY 2004-2005 was Tk. 325.49 million. During FY 2004-2005, PKSF also repaid loans amounting to Tk. 15.90 million under the Participatory Livestock Development Project (PLDP). The cumulative repayment of loans up to June 30, 2005 was Tk. 406.55 million under the Poverty Alleviation Microfinance Project and Tk. 7.48 million under PLDP. The cumulative amount of interest paid under the two projects was Tk. 239.13 million.

2.5 Training and Workshop

Training:

PKSF provides training to the officers of its POs under its mainstream credit program, as well as its projects, in order to enhance their capacity to implement their microcredit programs efficiently. The training courses cover financial management, supervision and monitoring, savings and microcredit management, accounts keeping, group dynamics, savings, microcredit management and livestock and poultry rearing, among other topics. PKSF also provides training to microcredit borrowers under its projects. The progress of the training program is shown in Table-3.

Table-3: Progress of the Training Program

* Training is not provided to beneficiaries under the Mainstream Training Program.

During the FY 2004-2005, PKSF also provided training to 91 of its own officers.

Workshop/Seminar/Study Visit:

Inaugural Ceremony of the Observance of the "UN International Year of Microcredit 2005"

The inaugural ceremony of the Observance of the "UN International Year of Microcredit 2005" was held on January 15, 2005 in Dhaka at the Bangladesh-China Friendship Conference Centre. As the Chief Guest of the ceremony, the Honourable Prime Minister of the People's Republic of Bangladesh Begum Khaleda Zia delivered the inaugural speech and the ceremony was also addressed by the Finance and Planning Minister, Mr. M. Saifur Rahman; the Foreign Minister, Mr. M. Morshed Khan; the Managing Director of Grameen Bank, Professor Muhammad Yunus; UNDP Resident Representative, Mr. Jorgen Lissner; and the then Managing Director of PKSF, Dr. Salehuddin Ahmed. The Honourable Prime Minister also released two commemorative postal stamps on the occasion.

About 1400 guests, including Ministers, Members of the Parliament, senior government officials, representatives of various microcredit institutions and members of civil society, attended the function.

Workshops for Exchanging Views with POs

In FY 2004-2005, PKSF organized 8 workshops: one on "Microenterprise" and 7 on "Capacity Building of Microcredit Practitioners." Held in different regions of the country, the workshops were attended by the chief executives and credit coordinators of the participating POs.

Workshops under Second Participatory Livestock Development Project (PLDP-II)

1. Orientation Meeting

In order to provide orientation to the implementing POs about the project and its activities, a meeting was held on November 8, 2004 at PKSF Bhaban. Fifty-eight participants from PKSF and POs attended the meeting.

2. Start-up Workshop

The start-up workshop of the project was held at RDRS auditorium in Rangpur during December 8 to 9, 2004. Forty-one participants from PKSF and POs attended the workshop. The workshop also discussed the problem of monga.

3. Implementation Coordination Committee Meeting

Two meetings in this connection were held at PKSF Bahaban on February 24, 2005 and June 26, 2005. Thirty-two persons from different ministries, Department of Livestock (DLS), Local Government and Engineering Department, PKSF and POs attended the meetings.

Workshop under Micro-Finance & Technical Support (MFTS) Project

A regional workshop under the Micro-Finance & Technical Support (MFTS) Project was held on May 4, 2005 at AETI, Faridpur. Sixty persons from DLS, other government offices, PKSF and POs attended the workshop.

Study visit at PKSF

In FY 2004-2005, PKSF hosted study visits for 18 microcredit professionals and policy makers from India, Sri Lanka, Zambia and Eritrea. They came to PKSF to learn from the institution and share the experiences of its POs.

2.6 Research

During the year, the following two studies were completed:

a)A follow-up study on Monitoring and Evaluation System.

b)An evaluation study on Financial Services for the Poorest (FSP) project.

An anthropological study on monga was also started during the year. The study will be completed in FY 2005-2006.

2.6.1 Maps on Microcredit Coverage

PKSF prepared maps of microcredit coverage in Bangladesh that have been recently revised and up to the upazila level. This effort, the first of its kind in Bangladesh, is expected to contribute to the process of policymaking and initiatives for further improvement of the microcredit sector. It will also help in formulating other programs (health, education, housing etc.) of various agencies (GOs/NGOs) for poverty alleviation.

2.7 Management Information System (MIS)

In FY 2004-2005, PKSF procured computers for its office and provided computers to its POs through the Institutional Development Loan program. During the year, the computerized Financial Management System for Partner Organizations was implemented in 60 POs; and the implementation process will be continued for the remaining POs. Development of the Integrated POMIS and POAIS was completed and the implementation of the software has begun on a pilot basis.

In FY 2004-2005, the Credit Bureau Database (CBDB) has been completed and it will be implemented soon. The database will have information up to the borrower level of all microcredit organizations of the country including PKSF POs and Grameen Bank.

2.8 Accounting and Auditing Systems

PKSF emphasizes the importance of a good accounting system and substantial work has been done in maintaining the standard of accounts. International Accounting Standards (IAS) are followed in account keeping and International Financial Reporting Standards (IFRS) are used in all reporting. PKSF's audits also conform to International Standard of Auditing (ISA). In FY 2004-2005 the Financial and Accounting Manual of PKSF was reviewed and revised by a consultant; the Accounting Manuals for Partner Organizations, loan loss provisioning policies for PKSF and its POs were also reviewed and revised; the modification of accounting software was undertaken; and the computerization of Partner Organizations' Accounts has also progressed. The Finance and Accounts section has been separated from the 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. In short, the overall endeavor of PKSF is to maintain a computerized accounting system and a good internal control system.

2.9 Policy Guidelines

PKSF prepared a number of policy guidelines and set standards for the efficient operation of the apex fund and its POs based on the needs expressed by several levels of practitioners - PKSF staff members and POs representatives and officials. These guidelines are now being implemented.

3.0 Management

The Governing Body provides overall policy guidance and supervision; and day-to-day activities of PKSF are executed by the Managing Director, 2 Deputy Managing Directors, 1 General Manager, 5 Deputy General Managers, 8 Assistant General Managers, 13 Managers, 15 Deputy Managers (including one Librarian), 48 Assistant Managers, 14 Officers, 1 Program Associate, and 6 Associates, along with 74 other staff members for logistic support. In addition, 2 Project Associates, 1 MIS Officer – and 1 supporting staff are employed in the Financial Services for the Poorest (FSP) Project. One Livestock Coordinator, 2 Training Officers, 1 Monitoring Officer, 1 Officer and 1 supporting staff are also engaged in the Microfinance Technical Support (MFTS) project. One Project Director, 1 Deputy Project Director, 1 Project Manager, 1 Financial Analyst, 1 Livestock Improvement Specialist, 2 Livestock Improvement Officers, 1 Monitoring, Evaluation and MIS Specialist, 6 Field Monitoring Officers, 2 Book keepers, 2 Accountants, 3 Computer Operators and 6 supporting staff are engaged in the Second Participatory Livestock Development Project (PLDP-2). One Technical Coordinator, 1 Training Officer, and 1 Monitoring Officer are engaged in Microfinance for Marginal and Small Farmers Project (MFMSFP). Including 1 legal adviser, 1 part time lawyer, and 1 medical retainer, the current staff of PKSF is 231.

4.0 Funding

The management of PKSF is mandated 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 the IDA-assisted Second Poverty Alleviation Microfinance Project (Microfinance-II) at a total cost of US $181 million, of which US$172.64 million will be used for microcredit and US $8.36 million for institutional development. Under the IDA project, PKSF received a US $24.49 million loan for its microcredit program and a US $360,000 grant for institutional development in FY 2004-2005.

PKSF also received Tk. 470.71 million from the Asian Development Bank (ADB) for the Participatory Livestock Development Project (PLDP), Tk. 32.51 million from the GOB for IFADEP, Tk. 448.20 million from the GOB for SRLP, and Tk. 167.57 million from IFAD for the Microfinance and Technical Support (MFTS) project.

5.0 The Governing Body

Until June 2005, a total number of 132 meetings of the Governing Body were held, 8 of which were held during the FY 2004-2005.

6.0 Appointment of Auditors

(a) In accordance with the relevant section of the Articles of Association of PKSF, Rahman Rahman Huq, Chartered Accountants were appointed as the auditors of PKSF for the financial year 2004-2005. PKSF also appointed 12 different firms - Aziz Halim Anwar Khair & Co., Chartered Accountants; M. A. Quader Kabir & Co., Chartered Accountants; Masih Muhith Haque & Co., Chartered Accountants; J R Chowdhury & Co., Chartered Accountants; J U Ahmed & Co., Chartered Accountants; Habib Sarwar & Co., Chartered Accountants; Khan Wahab Shafique Rahman & Co., Chartered Accountants; Mosharraf Hossain & Co., Chartered Accountants; S K Barua & Co., Chartered Accountants; Toha Khan Zaman & Co., Chartered Accountants; A. Wahab & Co., Chartered Accountants; and M I Chowdhury & Co., Chartered Accountants - to audit the accounts of PKSF's POs.

(b) Audited accounts of PKSF's financial activities have been attached to this report for examination by the members of the General Body at the Annual General Meeting.

7.0 PKSF's Plan for the FY 2005-2006

As in the previous year, our plan for 2005-2006 aims to substantially expand our activities by financing the diversified and expanded microcredit programs of our POs, enlisting new POs, and enhancing institutional capacity of PKSF and its POs. Efforts will be made to increase the number of POs and to expand the microcredit programs of the POs.

The continued implementation of the Second Poverty Alleviation Microfinance Project (Microfinance-II) and FSP project under IDA funding and other projects under GOB, ADB and IFAD funding will contribute to the further diversification and expansion of PKSF's microcredit and institutional development programs.

Given the large unemployed labor force and low growth rate of Bangladesh, the role of microenterprise and small enterprise development is significant, especially in rural areas. PKSF will make a concerted effort to expand and diversify its activities in this sector.

PKSF has made significant progress in addressing the credit needs of the hardcore poor, especially those in the monga-affected northern districts of the country. With GOB funding, as well as its own funds, PKSF will further expand and intensify the hardcore poor credit program.

In order to attain the objectives of PKSF, the following specific actions will be undertaken in FY 2005-2006:

(a) A loan disbursement target of TK. 7,316.82 million has been set for FY 2005-2006. This target will enable PKSF to provide a cumulative credit support of Tk. 29,347.58 million to its POs to expand their microcredit programs among the urban and rural poor and among the progressive microcredit borrowers for microenterprises.

(b) In the budget for FY 2005-2006, amounts of Tk. 6,816.82 million and Tk. 500.00 million have been allocated for disbursement to the POs under the OOSA and BIPOOL categories, respectively.

(c) In the budget for FY 2005-2006, Tk. 1.00 million has been allocated for disbursement to Pre-PKSF POs.

(d) In FY 2005-2006, PKSF will implement six special projects: (a) Second Participatory Livestock Development Projects (PLDP-II), funded by the Asian Development Bank (ADB); (b) Integrated Food Assisted Development Project (IFADEP), funded by the European Commission through the Directorate of Women's Affairs; (c) South-West Flood Damage Rehabilitation Loan Program (SRLP); (d) Financial Services for the Poorest (FSP); (e) Micro-Finance and Technical Support (MFTS) Project; and (f) Micro Finance for Marginal & Small Farmers Project. Tk. 1,904.82 million has been allocated for these special credit projects.

(e) In the budget for FY 2005-2006, Tk. 87.81 million has been allocated to the Institutional Development program to provide loans to the POs to strengthen their microcredit program.

(f) The on-going training program of PKSF, proven to be effective in the capacity building of PKSF and its POs, is now based on 22 training modules. PKSF has formulated an implementation plan for the training of the staff of PKSF and its POs using the course curriculum. According to the plan, training will be imparted to 50 personnel of PKSF and 2000 personnel of its POs during FY 2005-2006. PKSF will also continue to provide training to POs' staff and beneficiaries under different projects. Some officers of PKSF will be sent abroad for training/study tours/seminars as needed to gain insight and skills on microfinance activities.

(g) In FY 2005-2006, PKSF will strengthen its in-house research capacity and undertake research studies on microcredit management and operations and current issues of interest in the sector.

(h) PKSF will take further measures to set up the Institute of Microfinance (InM).

(i) The supervision and evaluation system of PKSF will be further strengthened in 2005-2006 for the sustained expansion of the credit program, monitoring of in-house management and auditing.

(j) In FY 2005-2006, PKSF will complete the implementation of POFMS, Integrated POMIS and POAIS software and continue the implementation of Credit Bureau Database (CBDB).

(k) The plan to disburse Tk. 7,316.82 million under the mainstream microcredit program, the hardcore poor program and targeted-projects is a significant step towards the goal of poverty alleviation. PKSF will also expand its microenterprise lending which contributes to economic growth and assists the poor to escape the poverty trap. In the national budget for FY 2005-2006, the GO has sanctioned Tk. 1,000 million and Tk. 500 million for hardcore poor and microenterprise lending, respectively. Furthermore, the program for the hardcore poor emphasizes the importance of minimizing the effects of monga in northern Bangladesh.

(l) The utmost priorities of PKSF are financial discipline and loan recovery. 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 program. To implement the expanded program, PKSF may need to further decentralize its management, create new divisions, and appoint more management staff.

(m) As an apex financial organization, PKSF will continue to set standards and formulate guidelines for microcredit institutions in Bangladesh. PKSF will also continue to contribute to the global microcredit movement to the best of its ability.

8.0 Acknowledgement

As in the past, the officers and staff members at all levels of PKSF 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 accomplishments of PKSF's microcredit program. The Governing Body expresses its sincere appreciation of the contributions of the personnel of the POs and of the beneficiaries of the POs' credit programs.

The Governing Body expresses thanks to its well-wishers at home and abroad for their continued support and assistance to PKSF.

The Governing Body also gratefully acknowledges the cooperation and contributions of various ministries, agencies and individuals that helped PKSF in fulfilling its mandate. The Governing Body also expresses its appreciation to the IDA (World Bank) for assistance to expand the operations of PKSF, USAID, the Asian Development Bank, IFAD, DFID, the Ministry of Women & Children Affairs, the European Commission and the Jamuna Multi-purpose Bridge Authority for their support to PKSF. The Governing Body expresses its gratitude and thanks to the Government of the People's Republic of Bangladesh for its continued and strong support and cooperation.

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.

Today, the services of PKSF are increasingly demanded at home and abroad. The Government of Bangladesh, members of the international donor community, and microcredit practitioners at home and abroad are now asking PKSF to play an increasingly larger role to further expand and strengthen microcredit programs as well as various other programs aimed at poverty alleviation. This is a serious 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, we shall successfully confront this challenge.

[Professor Wahiduddin Mahmud, Chairman, Governing Body, PKSF (center) visiting the hardcore poor program of ASOD, a PKSF partner organization, at Gazaghanto under Gangachara upazila in Rangpur. Also present, Mr. Taskinur Rahman, Executive Director, ASOD (second from left); and Mr. A.K.M. Nuruzzaman, Manager, PKSF (fourth from left).]