Banking sector’s problem child

For the most part, Pakistan’s financial services industry is quite boring, at least when it comes to designing products that customers need. But for anyone who cares to look, their books are a treasure trove. The recent episode of taxes is a great reminder, showing how banks engaged in window dressing at a scale that was unimaginable not long ago. While that story became mainstream, thanks to the underlying magnitude and some lobbying, others usually get buried in the countless data tables of official documents. Particularly those of the sector’s problem child, ie microfinance banks (MFBs). For years, the industry’s been consistently deepening its rot but manages to avoid public or media scrutiny. The outgoing year was another stark reminder of just how awful things are and continue to deteriorate, as the microfinance banking capital adequacy ratio further slipped to 2.6 per cent by December 2024, down five percentage points compared to the end of 2023.