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Micro-credit banking
in Pakistan
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The
first Micro-Finance Bank is now operational
BY
FARAZ SIDDIQUI
Aug 14 - 20, 2000
Micro-credit
banking has been proven as an effective and popular measure to address
the creeping affliction of poverty and unemployment the world over.
Following the glorious example of Grameen Bank of Bangladesh, Pakistan
has also started its first Micro-inance Bank (MFB) last week. Although
Pakistan came later but it can lead to a revolution if sustain and
properly implemented.
Establishment
of MFB is actually part of 4-point agenda of Chief Executive for poverty
alleviation issues that included provision of integrated public works
programme, food stamps scheme, revamping of Zakat-Ushr system and
establishing a sustainable micro lending for the poor.
Pakistan's
first MFB has started its operation in Dera Ghazi Khan on 11 August, the
initial capital of bank is Rs 1 billion, the bank would effectively
cater the credit at grass root level.
Bank has authorized power to allow credit with or without any
collateral security for all economic activities except activities in
foreign exchange transactions. The main objective of MFB to buy, sell
and supply on credit to poor person for industrial and agricultural
inputs, livestock, machinery and raw material etc. It will also act as
an agent for borrower to purchase these things.
Ghalib
Nishter, President MFB said that bank would run on non-profit, cost
recovery basis. MFB will
provide credit to 100,000 people by 2001, bank will start its full
operation by January 2001, aiming
at to develop the economic conditions at grass root level. He further
said, bank will perform commercial as well as social banking operation
and will strive to develop pro-poor financial system which will ensure
collateral-free lending to the people at grass root level.
MFBs
would carry out survey and research to issue publications and statistics
of poor peoples. MFB will also provide professionals advice to borrower
in order to generate income by investing their money in a right
direction. This will also encourage investment in cottage industry and
income generating projects for poor persons.
MFB
is also having its focus on poor women, the overall lending programme of
bank will cover 30 per cent women.
In countries like Pakistan women are playing a very important
role through households business. The experience of Grameen Bank also
reveals that the most effective way to get the benefits through
micro-credit is the massive participation of women. Women should be
provided loans for purchasing sewing machines, raw material for
household business etc. In our country large number of women are
contributing their families through this way. And it is also a general
experience at grass root level women are more effective entrepreneurs
than men.
The
main objective of the bank is to provide
credit ranging Rs 5000-30000 through peer pressure concept to the
poverty stricken segment of the society. Besides providing loans it must
also make sure to use the loan for income generating purpose rather than
personal consumption. Sound policies regarding non-recoveries should
also be formed to avoid possibility
of poorer to become more poorer. Effective
advisory and guiding services should provide to the borrower to use the
loan in a right direction.
Ghalib
Nishter further said, Asian Development Bank (ADB) is having talks here
with government to finalize the modalities of soft-term $150 million
loan to be provided to the micro finance bank in installment of 1 per
cent to 1.5 per cent markup with repayment period of 33 years.
The core way to make this project successful is to provide basis
for its long run existence and success.
Strong financial base is prerequisite for the long run success of
any organization, initially bank has raised 1 billion from commercial
banks. As operations matures, saving mobilization and support from
international agencies and donors would also be utilized for institution
building. But here government should also think to allocate
funds from its own resources because MFB takes long span to give
output and flourish, as Grameen's present position has 20 years of
strategy and proper planning. So government funding is necessary for its
long run existence as government already established Poverty Alleviation
Fund.
It
must also keep in view that only having separate financial institution
is not enough because Pakistan is already having excessive numbers of
banks. Banking paradigm is shrinking and on downswing, so government's
decision should be coupled with highly motivated and skilled leadership
and effective policies in order to run the MFBs in Pakistan. Gradual
development of MFBs' an infrastructure with the help of existing banking
is a good decision despite
of having totally new infrastructure in prevailing circumstances.
It is
evident from world over experience that micro-financing is the most
effective way to generate income with bringing down the poverty level of
the countries with highest recovery rate. The process of borrowing
should be simple with less paper work, relax terms of repayment,
efficient staff to deliver quick services for desired results. But
reforms in education, population and other areas of major consideration
should never be overlooked.
Grameen's
philosophy should remember in this context: "Micro-credit should be
perceived as a socially responsible business, not as charity or social
work. It is difficult to incorporate a successful micro credit into an
institution that has a relief, social service or paternalistic approach
to helping the poor".
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