MICRO FINANCE AND POVERTY ALLEVIATION
WHO WILL TELL US WHAT'S GOING ON?
Apr 28 - May 11, 2008
Government claims that poverty level, during 2001-04, has been reduced from 33% to 23% The World Bank and Asian Development Bank, by taking the claim with a pinch of salt, have asserted that the reduction has been to a level of 28%. While the claim and "correction" have now become a norm, one really feels disturbed at not having access to poverty info after 2004. In the face of a killing food inflation and soaring fuel prices, one needs not to be an economist to conclude that the poverty level has significantly risen during the black-out period spreading over four years after 2004.
The donor agencies, showing their oft-repeated lack of confidence in public sector, have decided to hand over the job of funds utilization to micro finance sector and NGOs. The leading and the most prominent micro finance market player, Khushhali Bank, boasts of having disbursed Rs.1.5 billion to 1.5 million households in 100 districts of the country. The disbursements include $150 million provided by the Asian Development Bank. With 0.3 million clients on its list, Khushhali Bank is said to be the 16th largest micro finance bank globally. The president of Pakistan Poverty Alleviation Fund (PPAF) disclosed having availed from the World Bank soft loans to the extent of $700 million. With the loaning agency having shown its satisfaction over PPAF's work, the president expects further such assistance in near future. According to the president of Khushhali Bank, poverty has been reduced to some extent. The PPAF president says that the income of micro borrowers has increased from 12 to 20 percent. In the absence of any government figures on the influence of micro finance on poverty alleviation, we are caught up in a state of limbo. Who will relieve us from this situation?
ARE WE CLEAR ABOUT OUR OBJECTIVE?
The pricing of micro finance is reported to be in the range of 20 to 25 per cent. If this is correct then we better call it Shylock-lending rather than micro finance. How on earth you can expect to help the poor under such an unjust pricing structure. Are we so devoid of sensibilities as to develop a system that is bound to increase the misery of those already in the grip of death - and that too from the money meant to be used for their well being? Our commercial banks are already busy in doing that. The micro finance sector will do well to leave the job of commercial banking to the commercial banks. The reason for what is happening is not difficult to trace. The huge paid up capital of Khushhali Bank has been contributed by countryÝs commercial banking sector. So if Khushhali Bank operates like a commercial bank, we have no reasons to feel disillusioned. Our micro finance sector is quite clear on its objective ˝ profit maximization.
The sector is still in the infancy stage; corrections can still be made. We do not need typical bankers to manage this delicate sector. Rather we need economists who are able to run the affairs with a human touch. They can take lead from the work of the Nobel peace prize winner Muhammad Yunus of Grameen Bank, Bangladesh, who believes and has proved that micro finance is a tool to fight poverty. His Struggling Members" (beggars") program is one of the most beautiful thoughts that can come to the human mind. Under this program, a member beggar is provided with an interest / collateral free meager sum of Rs.500/- to buy and carry with him such small items as sweets, toffees, toys etc. He is not exhorted to give up begging straightaway. Rather he is asked to do some selling besides his core business of begging. The process continues and at some stage, the member finds himself in a position to give up begging and shift to small scale vendor business. The selling for profit enables him to pay back the loan on time.
READ BETWEEN THE FIGURES
While bankers are trained to produce figures, economists can be relied upon to "read between the figures". A simple table containing meaningful data is reproduced below. Read between the figures and you will know what micro finance is all about.
GRAMEEN BANK, BANGLADESH (ESTABLISHED IN 1983)
Total Assets (Million Takas = MTs)
Number of offices
Number of branches
Number of employees
Number of loan officers
Number of members
% of women members
Number of active borrowers
Average loan balance per borrower (Takas)
Total loans o/s (MTs)
Current performing loans (MTs)
% of portfolio at risk
Return on equity (%)
Yield on gross portfolio (%)
Operating self sufficiency (%)
Financial self sufficiency (%)
Capital adequacy ratio (%)
Cost of funds (%)
Bank's summarized balance sheet as of November, 2007 is as follows:
(All amounts in million Takas)
Cash & Bank balances
Paid up capital
Loans & Advances
Deposits & Funds
The bank has grown keeping its capital and borrowings at a very low level with the result that the average cost of funds is as low as 7%. Add to this the nominal spread of 3 to 4 per cent and you will get the average lending rate. Now, how do you compare this rate of 11% to our rates of 20 to 25%? In the low "portfolio at risk" ratio of below 3% and women's 96% representation on the customer list, there are many lessons for those interested in the subject of micro finance.