August 1, 2005

A BANK FOR WOMEN CLEANS HOUSE

Eric Ellis, Karachi

The First Women Bank of Pakistan may well be every banker’s dream: With a 96.1% loan-recovery rate, it has next to no bad debtors. It’s certainly a feminist’s dream. That’s because the Karachi bank lends mostly to women, without collateral.

As the bank’s president, Zarine Aziz, sees it, the two go together. “Pakistani women are very honest and hard-working,” says Aziz, 51, who has headed the bank since 2001. “They are the backbone of this country.”

So too, she says, is a strong banking sector. But through much of the 1990s, Pakistan’s banks—hers included—were burdened by mismanagement and corruption. In 1996 a rogue trader speculated the wrong way on foreign-exchange markets. The following year the bank lost $4.5 million, which wiped out its paid-up capital. Then, in 1999, General Pervez Musharraf’s military coup installed former Citibank executive Shaukat Aziz (no relation) as Finance Minister. Now Pakistan’s Prime Minister, Aziz set about reforming Pakistan’s banks, including First Women, which is jointly owned by several state banks under the Finance Ministry’s control. Their problems, he told FORTUNE, “had nothing to do with the underlying business, which was very sound. It was bad management, lack of control.”

Aziz needed a troubleshooter, and he turned to Zarine Aziz, who was running First Women’s operations in Punjab, Pakistan’s biggest province. Aziz gave her 18 months to fix the bank. “I needed to run the bank like a bank, not simply as a facility for women,” Zarine Aziz says. She purged the errant management and modernized the bank’s accounting systems. First Women was transformed from a micro-credit lender to a commercial bank with a grassroots ethos. By 2002 profits had increased fivefold.

“We modernized,” she says,“but we have never once lost sight of why we are here.” Aziz has been with the bank since it was founded in 1989 by Pakistan’s only female Prime Minister, Benazir Bhutto, as a vehicle of female empowerment. That culture is evident in its motto—“The World’s Only Bank For Women”—and its charter, which aims to correct Pakistan’s entrenched gender and income imbalances. When First Women lends to private companies, it demands that at least a 50% stake be owned by women. It also requires that those companies have a woman in the top management job, such as Nadia Raja’s Kitchen Cuisine group in Islamabad. Raja got a $3,000 loan in 1993 to set up a bakery in the capital. Now she is CEO of a popular nine-outlet national chain boasting about $3 million in annual sales and employing 220. “They have been crucial to our growth,” the 42-year-old Raja says.

The bank is not one of Pakistan’s biggest—it has assets of about $160 million—but it has 35 branches penetrating deep into the heartland, where it has clients like 42-year-old Ishrat Bibi. Last year she borrowed $166 from First Women to buy wool, which she wove over eight months into a carpet that she sold for $2,900. Reinvesting the surplus, Ishrat now runs a thriving carpet-making business in Punjab, employing a score of village women. “There is so much more to be done for our women,” says Aziz. “We have barely come 5% of the way.”

First Women posted pretax profits last year of $3.5 million—up from $433,000 in 2000, the year before Aziz took over. But operating in a country not known for its liberal attitude toward women, she faces challenges beyond the usual financial ones. The literacy rate among Pakistani women is barely 30%, about half that of men. Just 10% of Pakistani women participate in the non-domestic workforce, and when they do, their salaries are half that of men. The life expectancy of a Pakistani woman is about 60, some five years less than a man’s. “It’s about religious discrimination and so-called traditional values,” says Kamila Hyat, director of Pakistan’s Human Rights Commission. “This bank is a positive force in correcting that.”