Apr 28 - May 11, 2008

Prime Minister Yousaf Raza Gillani has unveiled the new governments short term economic and political agenda portraying the economic and political policy directions going forward.

The agenda takes the expected route (terrorism, international relations, power, housing, media, freedom, and employment) but with strategy for execution of objectives yet to emerge, it reinforces that the key task for the new government would be balancing the dual objectives of popularity vs prudence.

Besides other important points, the most ambitious one seems the commitment to generate at least one job per household should bode well for law and order and unemployment, the risk remains imprudent induction of employees in government institutions leading to unwinding of efficiencies achieved through downsizing. Generating employment through micro finance or other innovative ways could however be productive from a domestic demand perspective.

Actually, the gigantic task of generating one job per household sounds attractive but calls for putting the available resources in a methodological and scientific manner to achieve the desired results. In this respect what comes on top in terms of priorities is the concept of human resource development in a way to meet the market requirement, activating the concept of SMEs and above all the effective use of micro-finance which has produced tremendous results in the emerging economies like Bangladesh.


The Central Bank in Pakistan has also come out with a strategic direction for financial sector deepening and broadening of access, the short to medium term strategic plan is to consolidate and build on the existing initiatives in Agriculture finance, SMEs, Mortgage and Microfinance.

The strategy includes strengthening of the exiting microfinance regime and expansion of agriculture credit to small farmers and for livestock. For the SMEs, as an initial step, delivery of credit by banks will be monitored and intermediary/technical support organizations will be encouraged to assist the SMEs in preparing bankable proposals.

In the medium term, the staff of the banks will be trained in program lending and the proposed guarantee scheme by the Government will be established. To pursue this strategy, close coordination will be established with the Small and Medium Enterprise Development Authority (SMEDA).

The SBP will organize itself internally to respond to the needs of SME and Infrastructure Financing by inducting skilled manpower in these areas and train younger staff by sending them for attachments. SME, Housing and Infrastructure Finance Divisions will be strengthened with experts in these areas as well as Securitization and Structured Finance.

One of the initiatives that have not made much headway so far is the Infrastructure/Municipal Bonds that will open up the financing of long gestation infrastructure projects to the private sector in partnership with the public sector or on stand-alone basis. Asset Backed Securitization (ABS) has proved to be quite handy in Oil and Gas, Telecom and Roads and Highway Projects. The SBP will promote and reinforce the ABS and, as and when a critical mass of mortgage loans is accumulated, move towards pooling of these loans and structure them into Mortgage Backed Securities (MBS).


Currently, the pace of micro-finance outreach seems a bit slow as compared to its growth during 2007 in terms of active borrowers which were estimated at 1.5 million. The slow growth seems to have been disturbed due to political uncertainties during last six months however, the new government with its focus to alleviate poverty through micro finance is bound to meet not only the target of 3 million active borrowers by the end of 2010 but it might exceed the target.

Micro-finance certainly an effective tool for poverty alleviation especially in developing economies like Pakistan , serious efforts and attention are essentially required to use micro-finance as an effective tool for addressing the poverty level and unemployment issues. The successful application of micro-finance for poverty reduction is an example for rest of the countries confronted with the similar problems.

In today's global scenario, oil and food crisis have taken over the economies irrespective to their economic standing or status among the comity of the nations. The on-going food crisis has become a nightmare especially for the middle income groups in Pakistan.

The demand for food in the world market was so lucrative that some food exporters especially the rice exporters are dispatching the rice consignments at the asking rate which consequently has brought a price spiral in the domestic market where Basmati rice is being sold at Rs70-75 per kg which is double of the price it was being sold last year in the same period. The wheat prices were also shooting up on the back of its illegal trade with neighboring countries like Afghanistan, Iran and India.

In view of growing demand for food all over the world, Pakistan has a good chance to grab the benefits on the back of its potential to bring more land under cultivation to produce more.

There is a time to exploit export potential of its agro-based sector with renewed efforts especially through enhancing the micro finance network in the rural areas to enable small farmers to produce more. This would require improving yields of major crops by intensifying research and extension, application of right type of seed and other inputs and mechanization.

Besides promoting growth of agriculture produce through microfinance, this effective financial tool can do a magic in other related areas of great potential like live stock and dairy sectors where Pakistan is now the world's fifth largest producer.

CONCLUSION: Having a strong agriculture base, Pakistan has a great scope to emerge as vibrant economy with a will to give economic empowerment to the common man through effective use of microfinance strategy.