Micro finance is
recognized as an effective tool to fight poverty by providing
financial services to those who do not have access to or are neglected
by the commercial banks and other financial institutions.
Today, the world
faces the major challenge of reducing poverty. Of the world's 6
billion people, 2.8 billion live on less than 2 dollar a day and 1.2
billion live on less than one dollar a day. Of these 1.2 billion, 500
million live in South Asia. General Assembly of the United Nations has
also recognized the positive impact of micro finance in poverty
The micro finance
tool has been successfully used to generate economic activity at grass
root level in Bangladesh, Indonesia, Ghana, India, Philippine and
Bolivia. Though the government of the day recognizes significant role
of micro finance in fighting poverty, yet practically speaking, the
government seems focusing more on macro-economic growth which has
rendered the sensitive issue of poverty alleviation as neglected area.
This assessment can be substantiated with the fact that hardly 6
percent of the poor household facilitated by the micro finance schemes
so far as against 94 percent poor families benefited in Bangladesh.
Poverty, one of
the most serious issues faced by Pakistan today, has been identified
as a major contributor for growing street crime, tension and anxiety
which consequently leads to the health problems and behavioral
diseases in the society. People at the helm of affairs would have to
pay more attention on poverty alleviation program instead of using it
as a mere slogan for political gains. Though human memory is short but
not too short to forget the much publicized slogan "Roti-Kapra aur
Makan" raised just to pull the crowd for political gains.
economic managers, excited by the zeal to collect more revenues have
allowed unrealistic government levies and taxes on essential items
like POL products, electricity and gas which have raised the price of
these essentials which consequently generated back breaking price
inflation in the country.
impact studies have demonstrated that it helps poor households meet
basic needs and protects them against risks. The use of financial
services by low-income households leads to improvement in household
economic welfare and enterprise stability and growth. By supporting
women's economic participation, micro finance empowers women, thereby
promoting gender-equity and improving household well being. The level
of impact relates to the length of time clients have had access to
helps in reducing poverty by providing the poor with credit facility
to start a small business. It not only supports the economic condition
of the poor but also has positive impact on their social life through
better standard of living with greater access to education and health
facilities and empowerment to participate in decisions of the society.
The concept of
micro finance in Pakistan is comparatively new and emerging discipline
but it is gaining importance fast as a tool of social mobilization and
poverty alleviation. Though impact of micro finance sector in Pakistan
is yet to be evaluated, yet globally it has shown a positive impact on
poverty reduction that is significant enough to be recognized.
A World Bank study
found that percentage of Grameen Bank, Bangladesh borrowers living in
extreme poverty was reduced within 4.2 years of joining. The study
also revealed that profit from Grameen financed business increased
borrowers' consumption by 18 percent per year. Another study revealed
that more than 91 percent of the borrowers reported positive impact of
Grameen on their living standards.
by the Consultative Group for the poor in Indonesia, found that
micro-credit borrowers increased their incomes by 12.9 percent
compared to 3.0 percent by the incomes of non-clients.
An impact study of
KASHF Foundation, Pakistan revealed that 94 percent of its borrowers
have experienced positive economic and social changes in their
households and 75 percent of them feel that without this loan it would
have not been possible for them to undertake business activities and
to generate employment and income.
Study conducted by
Bunyad Literacy Community Council, Pakistan found that its clients
have increased their income by 63 percent. Beneficiaries of
micro-credit were not only able to increase their earnings, but more
importantly, were able to spend more on the education of their
Hunger an organization in Ghana experienced that its clients in Ghana
were found to have increased their incomes by $36 per annum compared
to $18 per annum for non-clients. Beneficiaries of micro finance were
not only able to increase their earnings, but also to diversify their
Another study of
Bank Rakyat Indonesia borrowers of the island of Lombok reported that
the incomes of clients had on average increased by 112 percent.
Consequently, 90 percent of households had moved out to poverty.
Similar success stories are reported by various micro finance
organizations from India, Bolivia, Bangladesh and Philippines.
The finding of
these studies confirms the positive role of micro-credit in poverty
Although MFIs are
emerging as an important player in Pakistan's banking and financial
system, a substantial segment of the poor population remained
underserved. In Pakistan, only 0.5 million or 7.5 percent of the poor
households were provided with loans out of 6.67 million poor
households through the existing micro-credit schemes so far.
On the other hand,
in Bangladesh 9.79 million or 95 percent of the poor household out of
10.2 million poor households were provided loans through such schemes
so far which seems to have reduced poverty significantly.
If the government
aims to reduce poverty, it should also focus on the expansion of
micro-credit schemes to poor since economic growth alone is not enough
for poverty reduction. Along with expansion of the micro finance
services to the poor, the need to monitor and examine the impact of
its existing schemes on the living standards of the poor cannot be
In Pakistan, micro
finance is gaining importance as an effective tool of social
mobilization and poverty alleviation. Currently a variety of
institutions ranging from Non-governmental Organizations (NGOs) to
private and government sponsored rural support programs are delivering
micro finance services to the poor. Two commercial banks i.e. First
Women Bank and Bank of Khyber are also providing lines of credit for
the micro finance sector.
This sector has
the largest potential clientele base, comprising of 6.5 million poor
households. However, the micro finance service market in Pakistan
remains underdeveloped and serves only 7 to 8 percent of these
potential clients. If micro finance is to serve a large share of the
market, practitioners must improve their programs by enhancing their
outreach access to the potential clients. The Pakistan Micro finance
Network (PMN) is an effort to address these issues by arranging
specialized training and creating awareness among policy makers.
It is unfortunate
that a large majority of the poor household usually acquire loans from
informal sources in the absence of access to commercial banks which
generally extend advances to the moneyed people, political, industrial
and business lords who were responsible for the biggest financial scam
to the banking sector in Pakistan. Lack of income and resources force
the poor to take loans to met basic necessities of life and the hurdle
of collateral leave them at the mercy of the informal lenders.
According to a
survey, friends and relatives are the major sources of loan followed
by shopkeepers and landlords. Thus, there remains a great need and
potential for growth of micro finance sector in Pakistan.
have already been taken by the non-profit organizations to provide
small loans to the poor to enable them to start small business.
Poverty Alleviation Fund (PPAF) was also established to provide credit
and loan to partner organizations of NGOs for further lending to the
poor individually or in groups.
Program (RSP) launched by the government aimed at modifying the entire
economic system in a way that the poverty alleviation becomes the
focus of all development activities. RSP create, promote and support
effective and disciplined community organizations to manage rural
development and work toward self-reliance and poverty alleviation. RSP
in South Asia opted for the strategy of social mobilization and thus
they not only provide financial support to the poor but also guide
them towards the effective use of resources by including them in the
decision making process.
groups in Pakistan like Aga Khan Rural Support Program (AKRSP) was
established for small farmers of northern areas in Pakistan living at
subsistence level and having marginal access to financial and
technical support. During 1980s, such farmers required an average
Rs250 as a crop loan. But banks were unable to afford millions of such
small loans and later recover them. However, AKRSP took an initiative
by forming local institutions such as Village and Women's
Organizations to facilitate provision of financial services to poor
farmers. This policy has been quite effective and there are now a
thousand village organizations with around 90,000 members in the
northern region of the country. The pay back rate on the loans has
been impressive at approximately 98 percent.
SARHAD RURAL SUPPORT PROGRAM
This program was
founded in 1989 with the assistance received from the provincial
government of NWFP, AKRSP and USAID. It follows the successful
strategy of Aga Khan Rural Support Program by focusing on improving
the quality of life of the most vulnerable social groups by providing
them financial assistance in the form of micro finance. Currently it
operates in the rural regions of Peshawar, Abbottabad, Mansehra, and
Kohat and covers 12 districts reaching 6,000 community organizations.
provided by Micro Finance Institutions (MFIs) generally include
savings and credit. According to an estimate, currently 67.6 million
people around the world have access to micro financing. This number is
expected to grow steadily in the future since the target is to reach
100 million poor people with credit by the end of the year 2005.
The United Nations
is currently observing the decade (1997-2006) for the eradication of
poverty while the UN General Assembly has proclaimed 2005 as the
international year of micro finance or micro-credit to recognize its
contribution to poverty reduction.
In order to
commemorate 2005 as micro credit year, a resolution targets to reach
100 million of the world poorest families, especially women of those
families, with credit for self-employment and other financial and
also stressed on the fact that people living in poverty in rural and
urban areas need access to micro credit and micro finance to enhance
their ability to increase income, built assets and mitigates
vulnerability in times of hardship. The resolution invited the member
states, relevant organizations of the UN system, NGOs, the private
sector and civil society to collaborate in the reparation and
observance of the year and to raise public awareness and knowledge
about micro finance.
The year of micro
finance provides an opportunity to the international community to
raise awareness about the importance of micro-credit in eradicating
poverty by enabling people below the poverty line to undertake micro
enterprises so as to generate self-employment and contribute to
achieving empowerment, especially for women folk.
PAKISTAN MICRO FINANCE NETWORK
The Pakistan Micro
Finance Network is a network of organizations engaged in micro
financing and committed to improving the outreach and sustainability
of micro finance in Pakistan. This network was established to resolve
the issues and problems related to the sector, which prevent micro
financing from achieving its true potential.
The mission of
Pakistan Micro Finance Network is to support the sector provide
financial services to the poor with particular focus on retail micro
finance institutions. This network pursues its mission through three
Enhancing the capacity of retail Micro Finance Institutions (MFIs)
through specialized training and strategic planning.
Establishing a use of performance measures and promotes financial
transparency. For this purpose, PMN members self report their
performance indicators that is published biannually as a performance
Helping to create a policy environment that is conducive for retail
micro finance institutions. To achieve these objectives, PMN is
actively involved in arranging policy seminars and conferences, which
provides an opportunity for a range of stakeholders to present their
views at a common platform. Moreover, PMN has representation on the
State Bank of Pakistan's consultative group in order to participate in
the development of a regulatory framework for micro finance.
were initially financed through grants from the Asia Foundation and
Aga Khan Foundation, but now it supports its operations not only
through grants but also revenues earned through training courses and
thus increasing its sustainability.
POVERTY ALLEVIATION FUND
Poverty Alleviation Fund (PPAF) was established in 2000 to alleviate
poverty and empower the rural and urban poor by providing them with
access to resources and services.
There are five
project components which include Micro-credit, Community
infrastructure, Capacity building of partner organizations, Capacity
building of the PPAF and Endowment from the government.
The credit and
enterprise development unit of PPAF has been focusing on the
identification of credible partner organizations to expand its
facility of loan disbursement and guidance of the deprived group for
utilization of their resources over the time period of almost four
years. It has maintained a diversified portfolio giving special
consideration to gender. Under its mandate it can finance any legally
established entity in government or private sector and its criterion
for selection is based on the strength of the organization by
analyzing its past trends and the proposal submitted by the
organization. Partner organizations are disbursing credit on quarterly
basis subject to satisfactory performance that is evaluated through
periodic on-site visits. It may be recalled that by the end of
financial year 2003, PPAF funding had been disbursed in 72 district of
the country, to 37 partner organization, of which ten are catering
exclusively to women. Almost 300,000 individuals had availed of PPAF
financing by end of financial year 2004 with an average loan size of
Rs8,816 with 44 percent of the loan going to women. PPAF has recently
extended lines of credit to three year instead of the previous
NGOS INVOLVED IN MICRO FINANCE
Amongst the active
organizations involved in micro finance, KASHF seems to be the most
efficient as its client base is the largest along with the lowest
operational efficiency ratio. It is working with a network of 30
branches and more than 50,000 clients. Its major lending products are
general loan and emergency loan, along with flexible, open access
savings products and accidental and life insurance products.
KASHF is followed
by DAMEN but its portfolio risk is greater. Orangi Pilot Project (OPP)
borrows from commercial banks without any concession and lends it to
asset-less families on trust basis rather than collateral. At the
beginning, bad debts were high but in third year the recovery rates
began to rise. About 11-20 percent operations of Sungi are related to
empowerment people through micro-credit though it was not basically
aimed at micro-credit to the poor.
According to SBP
report, presently two Micro finance Institutions i.e. First
Microfinance Bank Ltd (FMFBL) and Khushhali Bank (KB) is operating in
the country. As awareness about the MFIs framework grows, micro
finance banks are likely to be established in the foreseeable future.
In this regard licenses have already been issued to "Network
Microfinance Bank Ltd" and "Rozgar Bank" by State Bank of Pakistan.
Though these license holders are expected to start their operations in
the near future, yet the requirement of paid-up capital from the
intended companies is said to be too high to encourage a culture of
such institutions in Pakistan. Financial experts are of the view that
the minimum paid up capital needed to be revised downward to promote
micro finance culture on humanitarian grounds.
However, there are
encouraging operational reports from MFIs which have reportedly
enhanced their outreach by increasing the number of branches in
different geographical areas in addition to a considerable increase in
their active client base.
Khushhali Bank has
a major share of 95 percent in loaning activity. This institution has
expanded its outreach vertically as well as horizontally throughout
the provinces of the country including Azad Kashmir. The network of
Khushhali Bank consists of 40 branches and 70 service centers across
41 districts where as FMFBL network consists of 20 branches in 12
districts. The advances by MFI increased by Rs389 million during the
first half of 2004. A break up of advances shows that the loan
portfolio of MFIs is relatively diversified. The major share of the
advances belongs to the livestock sector followed by micro enterprises
and agricultural inputs.
alleviation is the most crucial human issue which calls for concrete
and result-oriented measures in the interest of the national economy
as well building up social, economic and political values in the
society. "The dearer the bread, the cheaper the flesh and blood", it
is the poverty which is a root cause for crime and disease, said a