1.0 The Financial Year (FY) 2003-2004 was a very eventful year for PKSF in terms of expansion, diversification and consolidation of its microcredit programme and its significant contribution to national and global microcredit movement. During the year, in addition to implementing its mainstream credit programme including microenterprise credit, hardcore credit poor programme and urban credit programme, PKSF also implemented six special projects for improving the livelihoods and food security of the poor and the hardcore poor. PKSF also negotiated with IFAD a project to provide credit and other support to marginal and small farmers. The project will be operational in FY 2004-2005. In FY 2003-2004 PKSF took an initiative to reduce the PKSF POs’ lending rate to microcredit borrowers from 15% to 12½% which, in general, was received positively by POs. This will have a direct poverty reduction impact and help increased investment by the poor borrowers. This step by PKSF has been appreciated by the policy makers and development practitioners.

In FY 2003-2004 further 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. An office for the MRRU has been set up at the Bangladesh Bank’s premises. A consultant, hired by PKSF, has prepared a draft law for the country’s microcredit sector. He was provided technical support by PKSF, Grameen Bank and CDF.

Regarding its contribution to global microcredit movement, the most significant and colourful event of PKSF in the FY 2003-2004 was the holding of Asia Pacific Region Microcredit Summit Meeting of Councils (APRMS) 2004 in Dhaka in February 2004 in collaboration with the Microcredit Summit Campaign. More than 1200 participants including practitioners, policy makers, academics, parliamentarians, and microcredit borrowers from across the world attended the meeting which turned out to be the biggest ever regional meeting on microcredit. The Summit Meeting undoubtedly will give a big boost to the national, regional and global microcredit movement.

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 2003-2004

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 2003-2004 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 2002-2003, PKSF had 189 organizations as its POs. In the FY 2003-2004, PKSF enlisted six new POs. As a result the number of POs at the end of FY 2003-2004 stood at 195. In the FY 2003-2004 PKSF enlisted 3 NGOs as Pre-PKSF POs. The number of Pre-PKSF POs at the end of FY 2003-2004 stood at 14.

2.3 Loan Disbursement and Recovery

(a) During the FY 2003-2004, Tk. 2,940.70 million was disbursed under mainstream Microcredit Programme to PKSF POs. At the end of FY 2003-2004, cumulative loan disbursement by PKSF to POs stood at Tk. 17,181.30 million.

(b) During the FY 2003-2004, Tk. 1,740.70 million was disbursed under mainstream programme to POs under OOSA category against a budgeted amount of Tk. 1,727.90 million. The loan disbursement target thus achieved was 100.74%. Every disbursement to POs, it may be mentioned, is made after thoroughly assessing their funds needs. At the end of FY 2003-2004, cumulative loan disbursement by PKSF to POs under OOSA category stood at Tk. 7984.70 million.

(c) During the FY 2003-2004, Tk. 1200.00 million was disbursed under mainstream programme to POs under BIPOOL category against a budgeted amount of Tk. 2000.10 million. The loan disbursement target thus achieved was 60.00%. The disbursement to BIPOOL POs was less than the target because disbursement to PROSHIKA, a major POs under BIPOOL, was withheld because of loan recovery problems. Moreover, PKSF decided not to concentrate too much on a few big NGOs and as such disbursement to “BIPOOL” POs was carried out slowly. At the end of FY 2003-2004, cumulative loan disbursement by PKSF to POs under BIPOOL category stood at Tk. 9196.60 million.

(d) Under the diversified mainstream credit programme PKSF funded six categories of loans: (a) rural microcredit, (b) urban microcredit, (c) microcredit for hardcore poor, (d) microenterprise lending, (e) Pre-PKSF, and (f) PKSF (PLDP-1) for both OOSA and BIPOOL POs. A component-wise disbursement breakup along with a comparison of loan disbursment between FY 2002-2003 and FY 2003-2004 is shown in table-1.

Table-1: Component-wise Disbursement Breakup of Mainstream Microcredit

In million Tk

(e) In the FY 2003-2004, PKSF also continued to provide loans to the rural poor through its POs under five special projects – (a) Participatory Livestock Development Project (PLDP-I) funded by the Asian Development Bank; (b) Integrated Food Assisted Development Project (IFADEP) funded by the European Commission; (c) Training, Employment, and Income Generation Programme of Jamuna Multipurpose Bridge Authority (JMBA); (d) South-West Rehabilitation Loan Programme (SRLP), (e) Financial Services for the Poorest (FSP) and Micro Finance Technical Support (MFTS) funded by the IFAD. Project-wise disbursement breakup along with a comparison of project wise disbursment between FY 2002-2003 and FY 2003-2004 is shown in table-2.

Table-2: Project-wise Disbursement Breakup

In million Tk.

(f) Total microcredit disbursement to POs in FY 2003-2004 under mainstream credit programme and projects was Tk. 3,393.21; and the cumulative disbursement at the end of FY 2003-2004 was Tk. 18,390.41 million.

(g) At the end of the FY 2003-2004, cumulative loan disbursement (mainstream + projects) of the POs at field level stood at Tk. 1,30,616.80 million and the cumulative number of borrowers was 5.10 million (90% female and 10% 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 2003-2004, PKSF under institutional development loan programme, disbursed Tk. 12.41 million for 93 motorcycles, 116 bi-cycles, 28 computers, and 4 training complexes. The total cumulative amount disbursed up to FY 2003-2004 under this programme was Tk 84.72 million. The recovery rate of this loan was 97.61%.

(j) During the FY 2003-2004, 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. 461,13,29,718.65 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 2003-2004 was Tk. 24,83,45,491.82.

2.5 Training and Workshop

Training:

In FY 2003-2004, PKSF provided training to 2110 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 2003-2004 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 9212 at the end of FY 2003-2004.
During the year, PKSF provided training to 182 of its officers.

Seminars/Workshops/Study Visits:

International Seminar

In FY 2003-2004 PKSF in collaboration with the Microcredit Summit Campaign organized the Asia-Pacific Region Microcredit Summit Meeting of Counsels (APRMS) 2004, in Dhaka, Bangladesh during 16-19 February 2004 preceded by field visits to microfinance programmes during February 14-15, 2004. The core themes of the summit were:

a) Reaching the poorest
b) Reaching and empowering women
c) Building financially self-sufficient institutions
d) Ensuring a positive measurable impact on the lives of clients and their families.

The Summit Meeting was inaugurated by Begum Khaleda Zia, the Hon’ble Prime Minister of the Government of the People’s Republic of Bangladesh. More than 1200 participants from 47 countries attended the meeting. Sheikh Hasina, the Former Prime Minister of Bangladesh and the Honorable Leader of the Opposition in the Parliament of Bangladesh attended the closing session as special guest and addressed the session.

Workshops for Exchanging Views with POs

In FY, 2003-2004 PKSF organized 6 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.
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 2003-2004, PKSF hosted study visits for 15 microcredit professionals and policy makers from Nepal, Pakistan and Uganda. 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 completed the following research studies:

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.

2.6.1 Maps on Microcredit Coverage

In June 2003, PKSF prepared Maps on Microcredit Coverage in Bangladesh which has been refined and revised recently including upazila level information on microcredit coverage. 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.

2.7 Management Information System (MIS)

In FY-2003-2004, PKS procured computers for its office and provided computers to its POs through the Institutional Development Loan programme. During the year the Financial Management System for POs (POFMS) has been implemented in 34 POs. The implementation process will be continued for the remaining POs. User Requirements of Integrated POMIS and POAIS have been completed and the development of relevant softwares have been started also.

In FY-2003-2004 Technical Specifications and System Design have been finalized to set up a Credit Bureau Database (CBDB) at PKSF. The development of the Database will be completed soon. The Database will have information upto borrower level of all Microcredit Organisations of the Country.

2.8 Accounting and Auditing Systems

Palli Karma-Sahayak Foundation (PKSF) puts emphasis on maintaining a good accounting system. A substantial work has been done in maintaining 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 FY 2003-2004 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. Finance and Accounts section has been separated 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.

2.9 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, seven Assistant General Managers, fourteen Managers, sixteen Deputy Managers inclusive of one Librarian, forty nine Assistant Managers, thirteen Officers, one Microenterprise Specialist, one Programme Associate, two Associates along with seventy five other staff members for logistic support. Besides, one Project Coordinator, one Deputy Project Coordinator, two Project Associates, one MIS Officer are employed in the Financial Services for the Poorest (FSP) Project. One Livestock Coordinator, two Training Officers, one Monitoring Officer, one Officer and one supporting staff are also engaged in MFTS project. One Project Director, one Deputy Project Director, one Project Manager, one Financial Analyst, one Training and livestock Improvement Specialist, two Livestock Improvement Officers, two Accountants and three Supporting Staffs are engaged in Second Participatory Livestock Development Project, including one legal adviser, one part time lawyer, one part time Research and training consultant, and one medical retainer, the total manpower of PKSF at present is 214.

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 2003-2004 PKSF received US $45.67 million as loan for microcredit programme and US $0.40 million as grant for institutional development under this project from IDA.

PKSF also received Tk. 470.71 million from the Asian Development Bank (ADB) for "Participatory Livestock Development Project" (PLDP-I), Tk. 32.51 million from GOB for IFADEP, Tk. 448.20 million from GOB for SRLP, and Tk. 94.41 million from IFAD for Microfinance and Technical Support (MFTS) project.

5.0 The Governing Body

Up to June 2004, a total number of 124 meetings of the Governing Body were held, 8 of which were held during the FY 2003-2004.

6.0 The Appointment of Auditors

a) According to the relevant section of the Articles of Association of PKSF, Hoda Vasi Chowdhury & Co. (Chartered Accountants) was appointed as the auditors of PKSF for the year 2003-2004. PKSF also appointed ten different firms: Aziz Halim Anwar & Co. (Chartered Accountants); Howladar Yunus & Co. (Chartered Accountants); Ahmad & Ahmad (Chartered Accountants); M. A. Quader Kabir & Co. (Chartered Accountants); K M Alam, Khaleque & Co. (Chartered Accountants); Masih Muhith Haque & Co. (Chartered Accountants); ACNABIN & Co. (Chartered Accountants); M. Huque & Co. (Chartered Accountants); J R Chowdhury & Co. (Chartered Accountants); and J U Ahmed & Co. (Chartered Accountants) to audit the PKSF POs’ accounts.

b) For the FY 2003-2004, 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 2004-2005

As in the previous year PKSF's plan for 2004-2005 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) and FSP project under the IDA funding and other projects under ADB and IFAD and direct GOB funding will help diversification and expansion of PKSF’s microcredit and institutional development programme. The GOB, it may be pointed out, provided PKSF a direct grant funding of Tk. 1500 million, Tk. 1000 million for hard-core poor programme and Tk 500.00 million for micro enterprise programme from its regular budgetary allocation.

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. 5986.54 million has been set for FY 2004-2005. This target will enable PKSF to provide a cumulative credit support of Tk. 21780.14 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 2004-2005, an amount of Tk. 2700.00 million has been allocated for the POs under OOSA category and an amount of Tk. 2050.00 million for the POs under BIPOOL category.

c) In the budget set for FY 2004-2005, an amount of Tk. 1 million has been allocated for Pre-PKSF POs.

d) In FY 2004-2005 PKSF will implement eight 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); (g) Micro-Finance and Technical Support (MFTS) Project and (h) MicroFinance for marginal & Small Farmers Project Tk. 1164.48 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. 71.06 million has been allocated for the Institutional Development component for FY 2004-2005.

f) 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 2004-2005, training will be imparted to 50 personnel of PKSF and 3000 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.

g) In FY 2004-2005, PKSF will strengthen its in-house research capacity and undertake research studies on microcredit management and operations and current issues of microcredit.

h) PKSF will take further measures to set up an Institute of Microfinance Development.

i) 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 2004-2005.

j) In Fy-2004-2005 PKSF will (a) take steps to complete the implementation of POFMS software, (b) Integrated POMIS and POAIS software and (c) continue to work on Credit Bureau Database (CBDB) development and it’s implementation.

k) The plan of disbursing an amount of Tk. 5986.54 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. The Government of Bangladesh in its budget of 2004-2005 has already sanctioned Tk. 100 crore and Tk. 50 crore for hardcore poor and microenterprise respectively. PKSF, in its hardcore programme, is giving emphasis to minimize the effects of “MONGA” in the northern part of Bangladesh.

l) 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

PKSF’s continued success is explained by combined and collaborative efforts of its officers and staff, and its POs; generous support of the GOB and donors; and able and judicious guidance of the honorable members of the General Body.

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. 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 the contributions of the personnel of the POs and of the beneficiaries of the POs' credit programmes. The Governing Body also express its 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, especially, the Finance Ministry 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’s) assistance for expanding the operations of PKSF. The Governing Body also expresses its appreciation to USAID, Asian Development Bank, International Fund for Agricultural Development (IFAD), Ministry of Women & Children Affairs, European Commission and Jamuna Multi-purpose Bridge Authority for their support to achieve the difficult task of eradicating poverty. 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.

PKSF has sustained the tests of its initial phase and passed an ‘age’ marked by continued success. It has become a “world model of apex fund” and other countries are trying to follow the principles and working procedures of PKSF. The future ahead is full of challenges as well opportunities. PKSF is confident that with support from all quarters, it will be able to face the challenges and seize the opportunities to serve the poor. Our committment to serve the poor remains as strong as ever.