FAISALABAD - Banks and Development Finance Institutions (DFIs) are being encouraged to provide liberal funding to viable Microfinance Banks and NGO Microfinance Institutions in order to achieve the outreach targets, said Sajjad Ali Shah, Chief Manager State Bank of Pakistan. He was addressing a NGO Conference arranged by Federal Ministry of Finance-based organization, Trust for Voluntary Organization, here. He underlined the importance of the role of microfinance for the development of economy and said that funds have been provided only to some MFBs/MFIs. However, commercial banks are yet to explore the local currency lending opportunities with MFBs/MFIs in order to incentivise the channelling of funds to the Microfinance Sector. He said SBP has designed a Microfinance Credit Guarantee Facility (MCGF), which is expected to facilitate banks/DFIs to play a leading role in easing credit constraints of MFBs/MFls. This facility is expected to achieve the required objectives; he said and added that guarantees are expected to help in building links between micro borrowers and formal financial institutions. The familiarization of the bank with the client should eventually lead to the graduation of the borrower. SBP is providing Partial Guarantees (pari passu) to cover the principal amount in default or First Loss Default Guarantees to cover the first loss, limited to a certain percentage on the principal amount only, he said and added that the banks and DFIs would minimize the perceived risk premium by covering part of the losses incurred on funds made available to MFBs/MFIs with the advantage of leveraging the guarantee fund. According to their internal due diligence criteria, Banks/DFIs will evaluate the prospective recipient MFBs/MFIs. He said that this way the credit enhancement facility will serve the banks/DFIs to develop their own sense of the risks involved in microfinance. The guarantee will facilitate resolution of regulatory issues that limit unsecured lending by banks/DFIs and would bring the loans to MFBs/MFIs under compliance with banking regulations. Muhammad Rafiq, Director Micro Credit SBP, said that literacy programs (financial) and basic conducted by or on behalf of financial services providers for clients and potential clients to improve access to financial services and the utilization of finance. Initially the fund will support capacity building initiatives of MFBs and MFIs which are undergoing a visible transformation. He said the fund will assign priority to the Development of Resource Mobilization Strategy specially savings, product innovation and new product development. The chair of conference, Azhar Nasim, Chief Manager TVO, extended warm gesture to SBP for acquainting the participants about Micro Credit facilities.