Home / This Week / Cover Stories / Microfinancing for better future

Microfinancing for better future

The 2018 Economic Survey revealed that in Pakistan the percentage of people living below the poverty line has fallen over the decade but still stands worryingly at 24.3% in 2015-16. The adverse economic and social effects of poverty are well-researched and used as basis for many social welfare programs across the globe.

This article specifically discusses the adverse impact of poverty on children education and how microfinance can help. It highlights the inter-generational vicious cycle that emerges from lack of education that translates into life-long struggles for individuals and their families. Ample fieldwork by rural support programs has established an inextricable relationship between poverty and education. In simple terms, families living below poverty line may not be able to afford education for children and rather employ children to daily wage work to survive, which leaves the children without literacy skills essential for well-earning jobs in the future. These children, then as adults are in a similar situation and with few options but to send their children to work rather than school as well.

Within the South Asian region, Pakistan has one of the lowest literacy rates. The current state of education specifically elementary education in Pakistan is alarming, to say the least. There are almost 22.8 million children out of school between the ages of 5 and 16 years and 49% of all out of school children are girls.

Education plays a considerable role in boosting socio-economic growth in developing countries. Good quality education can be the catalyst needed to end the cycle of intergenerational poverty and put families above the poverty line. It has an inherent uplifting effect on other aspects of society as educated adults are better equipped to make day-to-day life decisions related to nutrition, healthcare and other social issues for themselves and their children.

State plays an important role in combating education sector by formulating economic and social policies that tackle issues such as access to good quality education. However, in 2017, only 2.76% of GDP of Pakistan accounted for the education spending. This low share effects both the quantity of schools and the quality of education provided in these public schools. Research in education sector has found structural gaps on supply side such as increasing fiscal pressures, increasingly unmet demand for education, poor management of the education infrastructure and decreasing quality of education in public schools given the limited budget.

 

Public sector has been the dominant player in the education industry but in last decade given the large number of out of school children and poor performance on learning indicators, there is a strong case for private sector intervention needed at the service delivery level. It can be in the form of public-private partnership for sustainable expansion of education sector in Pakistan.The study (2014) on A2Ffor LCPS reported that in Pakistan about third of the students attend private schools and the number has grown to over 50% recently. The availability of good quality education help relieves pressure on government that is already strained with other economic and social issues. Thus, this rapid emergence of low-cost private schools (LCPS) that cater to economically marginalized groups has the potential to be the solution to Pakistan’s educational crisis.

However, the growth of these Low-Cost Private schools is hindered by external conditions such as lack of technical resources and precarious funding. A report by Ilm Ideas (2014) reported that almost 62% of LCPSs rely on informal funding resources. This is where Microfinance Institutions (MFIs) have a role to play.Reported in 2017, microfinance institutions in Pakistan served almost 5.2 million borrowers with a portfolio worth PKR 184 billion. Out of these, over 50% of loans were made to women borrower and almost 55% focused on borrowers from rural areas.

Microfinance has been identified as an effective tool to fight poverty based on its bottom-up approach for local economic and social development. It achieves this goal through the provision of financial services such as savings account and credit to those who do not have access or are neglected by commercial banks and formal financial institutions based on their inability to show collateral. In 2017, there were40 microfinance providers in Pakistan operating in over 100 districtsincluding a range of institutions from NGOs to private institutions and government sponsored programs being used as a tool for social mobilization and poverty alleviation.

Microfinance institutes are different from commercial banks as they are substitutes for informal credit, require no or minimal collateral, simpler documentation and no tedious procedures, flexible repayment schedules and encourage group lending and learning. Microfinance can offer loan products that respond to the unique needs of LCPS.

Conclusively, lack of education perpetuates poverty and poverty limits the access to good quality education. Hence, poverty can be seen as both a cause and an effect of inadequate access to good quality education. Though, lack of education might not be the only cause of poverty but it is considered as an element that reduces risk of the incidence of high poverty as it helps individuals make healthier and smarter decisions for themselves and their children. In developing countries like Pakistan that have limited public school infrastructure, low-cost private schools often have better quality education than public schools, hence, need to be supported. Education allows individuals to understand the world and live with dignity, protect their rights and actively participate in building a more inclusive society.

The contributor is Research Associate, Sustainable Development Policy Institute (SDPI)

Check Also

An undivided GCC is in Pakistan’s favor

An undivided GCC is in Pakistan’s favor

In June 2017, Saudi Arabia, the UAE, Bahrain and Egypt broke off diplomatic and transportation …

Leave a Reply