Since its inception in 1990 as a company not for profit under the Company’s Act 1913 as amended, PKSF has been significantly contributing to poverty alleviation by providing microcredit to the poor through its Partner Organizations (POs). As of June 2000 PKSF disbursed a total amount of Tk. 7937 million to 2.13 million poor borrowers through 177 POs, which include small and big NGOs including BRAC, ASA and Proshika and Ansar VDP Bank. Ninety percent of PKSF beneficiaries are female. PKSF has been able to maintain a loan recovery rate above 98 percent. The microcredit program of PKSF has been found to have improved the quality of life of poor people; helped diversification and strengthening of their survival strategies; enhanced their security giving them access to assets and rights and augmented their self-respect providing them choice and independence.

The World Bank, through the Government of Bangladesh (GOB) provided US$ 105 million for credit and technical assistance to PKSF under Poverty Alleviation Microfinance Project (PAMFP) to finance its microcredit program. PKSF was able to utilize this fund six months ahead of the project closing date. PKSF needs more fund to finance the increasing demand of microcredit in rural and urban areas and for covering the hardcore poor and financing more growth oriented and employment promoting microenterprise activities of the poor.

In this context, the GOB requested the World Bank to provide further assistance to PKSF through a second project to implement its microcredit program in an expanded and diversified form. The World Bank responded to GOB request and fielded a mission, which undertook a very intensive and detailed pre-appraisal of the proposed Second Poverty Alleviation Microfinance Project (Microfinance II). Having been satisfied with the findings of the pre-appraisal, World Bank waived the appraisal of the project and decided to go for negotiations directly.

2. Project Objective

The broad objective of Second Poverty Alleviation Microfinance Project (Microfinance II) is to make further contribution to poverty alleviation. Its specific objectives are to:

Increase outreach

Enlist new POs

Continue to provide fund to POs – both OOSA (small) and BIPOOL (big) categories to implement their microcredit programs

Diversify (a) Loan and (b) Clients

Enhance PKSF and its POs’ capacity through institutional development programs

Achieve operational, financial and institutional sustainability of PKSF POs’

Support smooth and efficient growth of microcredit sector of the country.

3. Project Scope

The Microfinance - II project activities are classified under two broad categories: (a) Microcredit to POs; (b) Institutional development for enhancing the capacity of PKSF and its POs.

4. Project Components

The project will have two broad components – microcredit and institutional development. The microcredit components will have four sub-components viz;
(i) Rural microcredit;
(ii) Microcredit for progressive borrowers for microenterprise;
(iii) Urban microcredit; and
(iv) Microcredit for hardcore poor. The institutional development component will consist of a number of sub-components including expansion of PKSF office complex-cum-training center.

5. Project Cost

The project will involve a total cost of US$ 181.00 million of which US$ 172.64 million will be used for credit and US$ 8.36 for institutional development. Of the total credit amount US$ 113.21 million will be for rural microcredit; US$ 18.84 million for urban microcredit; US$ 19.23 million for hard core poor microcredit and US$ 21.36 million for microenterprise for progressive microcredit borrowers. Of the US$ 8.36 million for institutional development, US$ 1.88 million will be used for procuring goods; US$ 4.11 million for services and US$ 2.37 million for works (expansion of PKSF office complex cum training center).

6. Project Funding

Of the total project cost of US$ 181 million IDA will provide US$ 151.00 million, GOB US$ 15.10 and PKSF, POs and beneficiaries US$ 14.90 million. Of the total IDA contribution of US$ 151.00 million, US$ 5.5 million will be for institutional development which will be given as grant to PKSF by GOB.

7. Project Duration

The project will be implemented in 4½ years – from 2001 through June 2005.