MICROFINANCE PROGRAMMES VITAL FOR REDUCING POVERTY, PROMOTING ECONOMIC GROWTH

KANWAL SALEEM, LAHORE
Oct 29 - Nov 04, 2007

Microfinance Institutions (MFIs) continue to account for the largest number of female borrowers, followed by Rural Supports Programmes (RSPs) and Microfinance Banks (MFBs). In past few years the emergence of banks in microfinance scenario has played a pivotal role in enhancing its activity, sources in the banking sector told PAGE.

According to them, the micro-credit outreach in the first quarter of year 2007 crossed one million borrowers in which Khushhali Bank and National Rural Support Programme (NRSP) remained the largest providers of the credit with the market share of 25.2 percent and 25 percent of active borrowers, respectively. In Pakistani microfinance milieu, there has been constant growth as new initiatives are being launched and methodologies developed.

They said microfinance programmes can reduce poverty, promote economic growth, support human development and improve the status of women. By March 2007, female clients accounted for 46 percent of the total outreach.

Microfinance Institutions (MFIs) continue to account for the largest number of female borrowers, followed by Rural Supports Programmes (RSPs) and Microfinance Banks (MFBs) respectively. In past few years the emergence of banks in microfinance scenario has played a pivotal role in enhancing its activity, they said, adding, Pakistan is among the few countries in the world, which has a separate legal and regulatory framework for Microfinance Banks.

The framework allows microfinance and commercial banks to extend range of microfinance services to poor and low income people through various arrangements.

STATE BANK GUIDELINES-State Bank of Pakistan (SBP) has formulated guidelines to broaden the coverage of microfinance products and services to low income segments of the society in a Shariah compliant manner. These guidelines stipulate four types of institutional arrangements for offering Islamic microfinance to their clients.

With the growing popularity of Islamic Banking in the country, the Central Bank deemed it necessary to provide options for provision of Islamic microfinance services by microfinance and commercial banks as well as allowing full fledged Islamic microfinance banks in the country. First, to establish full-fledged Islamic Microfinance Banks (IMFBs), second, Islamic microfinance services by full-fledged Islamic Banks, third, Islamic microfinance services by conventional banks, and fourth, Islamic microfinance services by conventional microfinance banks (MFBs).

The SBP advised banks that they must take into account that the criteria mentioned in these guidelines shall be in addition to the requirements already issued by SBP under respective category of financial institutions. These regulations and guidelines, by any means, are not replacing the regulations and guidelines already issued by SBP from time to time in this area.

Commercial and microfinance banks interested in building Islamic microfinance portfolio should review the different institutional, organizational arrangements and select, one or the combination of more than one mode, based on their organization structure, capacity and overall objectives

According to President & CEO Pak-Oman Microfinance Bank, the bank will focus on training and development of its staff and capacity building of its customers to create value addition in their product and services. The bank would continue to focus in rural areas and maintain the target of more than 60 percent of lending in the rural areas where we feel is the concentration of poor population.

He said the bank started deposit mobilization from January 2007, the objective of this scheme being to open doors of modern banking services for those who are deprived of these facilities and inculcate the saving culture in the poor people.

According to financial experts, the Microfinance loans are highly beneficial for the poor segment of the society, as it provides an opportunity to the common man to get small loans for earning livelihood in a respectable manner.

They said the system of microfinance loans was gaining strength in Pakistan and it may greatly help to bring about positive change in the lifestyle of the people with special regard to the poor lot.

They said South Asia is the only region in the world with an adverse female-male gender ratio and few women are fortunate enough to receive formal education. Individually women can be a little entity but collectively they can become a big component to play major role in the development of any country, they added.

They said small loans are playing a major role in the up bringing of the poor people enabling them to earn livelihood in a respectable manner. They said the government was also encouraging such activities here in Pakistan to help the poor segments of the society

According to a spokesperson of the Pakistan Microfinance Network (PMN), a network of organizations engaged in microfinance, if microfinance achieves its potential, and serve a large share of the microfinance market, there could be significant change in our economy.

Compared to some other countries, the microfinance sector in Pakistan is taking roots and estimates suggest that around 6 million households in Pakistan need microfinance services, but services reach only a tiny fraction of this population, she said, adding, the PMN has built greater awareness among policy makers, launched comprehensive capacity building initiatives, and established standards and benchmarks for transparency in MFIs.