MICRO-CREDIT BANKING IN PAKISTAN
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".