Apr 28 - May 11, 2008

The micro credit programmes of community based organizations and non government organizations not only in Pakistan but world over greatly share the state responsibility of strengthening capital base of the informal trade sector. The importance of micro loans in encouraging entrepreneurship increases especially in Pakistan because of the high unemployment rate that can be controlled given that informal sector bottles up its full potential. According to Karachi Development Plan 2000, only in Karachi 75% labour force is employed in informal sector. The main obstacle in the way of its growth is financial constraint or it has to sustain costlier credit lines of unofficial lenders since it has no access to conventional lending.

Compellingly, it ought to accost informal creditor for meeting its monetary needs and entrap into perennial credit life cycle. While there are many effective micro finance programmes operating in the country, loans of Orangi Pilot Project have been internationally acclaimed. OPP owes its foundation to the philanthropic renditions dated back to 1980 that mobilized conscientious of people to seek self help and need based solutions of their civic problems. Started up with the technical guidance, OPP motivated people of the Orangi town vicinity to overcome their basic problems related to sanitation, health, and education with managerial judgments.

Orangi town having population of over 1 million embeds strongholds of multifarious informal traders like transporter, saari (outfit) maker, shoe maker, oil trader, etc. According to an estimate, there are 23,000 small businesses in Orangi employing more than 120,000 labours. Generally, OPP identified four major problems in suburban areas that are sanitation and housing quality, employment, health, and education. Basically, it initiated micro credit programmes in 1987 under the umbrella of OPP in order to improve the economic conditions of the people living in suburban as well as in rural areas. While talking to the PAGE during an interview, M. Anwer Rashid, Director Orangi Charitable Trust said OCT distributed Rs. 2 crore loans on an average every month among its patronized CBOs and NGOs around Pakistan to financially assist self employed segments of the society. OCT provides three kinds of patronages to CBOs and NGOs. Firstly, it gives training; over 80 CBOs and NGOs have received trainings in more than 26 cities so far. Out of 42 organizations that were nourished by the OCT, 7 have already been certified by government-run Pakistan Poverty Alleviation Fund Project. This affiliation entitles access to fund on 8% interest rate unlikely to minimum 12% featured in the traditional credit lines. Second, it also delivers them core funding supports to meet their operational expenses. Lastly, OCT has credit line linkage with these organizations; that implies that it sanctions credits on certain mark up.

Anwer Rashid said normally OCT charges 12% markup over credits from CBOs and NGOs in spite of that it gets loan on the same rate from commercial or scheduled banks. Replying to a question, he said presently OCT is not receiving any local or international donations and mere contingent upon bank over-drafts and credit lines. At the end the micro finance is issued at 18% markup and ranges in between Rs. 1,000 to 50,000. He attributed high cost of loan with relatively high cost per transaction.

Dispelling the impression that micro finance hauls people living below poverty line up, he clarified OCT corroborates credits in established businesses that require outlays fro expansion. They are not the famine-hit people. "And, I reiterate micro finance programme is not for the poorest of the poor," he firmly remarked saying absorption of the poor may take place subsequently. He is a protagonist in augmenting the outreach of OPP beyond town horizon and got many social scientists on OPP bandwagon. He said OCT keenly goes after initiators, who aspire to take calculated risk and are unable to do so due to pecuniary restraint. We release credits only to businesspersons, who have know-how of market mechanism and can service their debts out of invested capital. His experience of sponsoring dilettante perhaps has not been pleasant enough therefore OCT has repudiated new business support practice, which it has been engaged in for five years. Anwer recalled that for five years OCT had been godfathering nascent entrepreneurs to enable them operate independently. Referring to an example, he said we have supported considerable numbers of housewives in earning their livelihoods from the scratch. We have streamlined small scale manufacturers and exporters links. Now, we are no more in such engagements since OPP makes walk through only. It presents viable models to be followed, he said.

Micro finance is becoming an alternative source of capital accumulation for informal sector because it fulfills business money needs of [conventional] non bankable business community, and that is so without collateral. Micro loans of OPP prefer individual lending on the back of social collateral. Explaining the point, Anwer said borrower is supposed to bring guarantees of his two mates. Programme's surveyors have knowledge about the borrowers. The process is confined in the close knitted group that occupies interpersonal affinity. Certainly, which is why, default rate of OCT's micro loans is quite negligible. He said 98.3% credits are recoverable that means default rate accounts for mere 1.7%. We have proper loan tracking system in place and efficient appraisal techniques, following standardized procedure. When asked why has OCT not availed legal space especially endowed in Micro Finance Ordinance 2001 of being transformed into financial institution? He replied it has both advantage and disadvantage. While SBP regulation would come up with capital security, it equally shifts our focus from lending to collecting deposits in the course of maintaining minimum paid-up capital. About the necessity of vocational training institutes in promoting micro finance, he said technical institutes may not be giving as much skilled workforce as mechanical workshops do. He emphasized on the need to manage on-sight resources instead of to waste money on creating anew. Unquestionable may be his notion, in fact government should directly involve in the upkeep of the informal trade sector.