Mar 5 - 11, 20

Microfinance, with the core objective of provisioning of financial services to the poor segments of the society, plays its role in the form of financial developments with primary focus on poverty alleviation.

Most of the people perceive microfinance in narrow sense that it is about microcredit for poor people but it has broader dimensions including micro-insurance, transactional services, and most importantly mobilizing savings.

Improvement in living standard of the poor people of the developing countries is achieved by enhancing their income level or purchasing power. This phenomenon helps in achieving poverty alleviation objective gradually. Poverty alleviation and income level enhancement are similar in nature.

The impact of poverty in developing countries results in short and long run social and economic effects. In the last two decades, there are too many changes in the microfinance sector like introduction of micro insurance, diversification of products and flexible loan fit to the cash flow of the borrowers.

Microfinance is efficiently serving the poor by increasing their income level. The objective behind the concept of microfinance is to generate financial service for those who are away from financial services and to help poor people in coming out of the vicious circle of poverty.

The main purpose of microfinance is to lift the poor segment of the society from the circle of poverty and enable them to participate in the economic activities and developments.

The microfinance campaign started when Professor Muhammad Yunus (a Bangladeshi economist) first time granted a few dollars to an impecunious basket maker in the year of 1974. These little loans granting campaign to the poor persons enabled them to run their small businesses that would help them to come out from the poverty circle.

The Grameen Bank is one of the successful examples of micro financing. In this reorganization, Professor Muhammad Yunus was awarded the noble prize in the year 2007.

Experts told PAGE that microfinance is the most appropriate and better means to empower the poor people and raise their income generating ability. The significance of microfinance is increasing with the passage of time in Pakistan.

Microfinance sector faces many problems and challenges in Pakistan. The thought behind the microfinance services is to provide financial help to the poor persons and people at their doorstep at very easy terms and conditions.


The following principles of microfinance can be defined as follow:

1. Deprived segment of the society needs a diversity of financial services not only loans;

2. It is powerful weapon to wage war against the poverty;

3. It is a source to build financial systems useful to serve poor;

4. It is about building perpetual domestic financial institutions;

5. Microcredit is not a suitable instrument for everyone or in every situation;

6. Mark-up must be low to enable people to get credit;

7. The task of a government is to facilitate financial services, not to provide them;

8. The funds of the donors should be supported to private capital not to compete with it;

9. It is performed well while it is measured and opened.

The common misconception is that the microfinance is the modern shape of charity. But, there is an apparent difference between microfinance and charity.

Normally charity is given for fulfillment of needs while microfinance facilities are given to the poor to start business, generate own source of income and become economically independent.

The first microfinance institute in Pakistan was Orangi Pilot project in Karachi and then Aga Khan Rural Support Programme (AKRSP).

AKRSP spawned the rural support movement that accounts for approximately 70 per cent of NGO outreach in microfinance and includes some of the largest providers in the country.

In Musharaf regime (1999 to 2008), the government firmly focused on poverty alleviation program. In this era, microfinance network increased very sharply because the government has selected microfinance as a tool to fight against poverty. For this purpose, Pakistan government has established Pakistan Poverty Alleviation Fund (PPAF) with the help of World Bank in the year of 2000.

Another initiative of the government in which microfinance has been used as a tool of poverty alleviation was Khushhali Bank which has provided and diversified the microfinance product like housing finance, personal loans, leasing, insurance and remittance services all over the country specially in the rural areas of the country.

According to Khushhali Bank's annual report, a good number of the investors have shown their interest in microfinance because the rate of return in microfinance is much higher than in conventional banking system. According to the several reports and studies, risk in microfinance sector is lower and it will be dominant in private sector by the year of 2015.

Experts believe that the microfinance network is increasing very sharply in Pakistan. At present, poverty is the most significant issue in Pakistan and microfinance is the main instrument to reduce poverty. Microfinance is not only the main instrument to poverty reduction but it may be useful to diversify income sources for low-income group. Microfinance has some positive impacts which are as under:


There are many positive impacts of microfinance on physical capital and social capital like health and education.


Microfinance is also useful in unexpected crises such as business risks and adverse supply shocks. Microfinance provides cushion against these shocks. It protects them from crises and puts them on stability.


Through the microfinance, women can have an opportunity to start business as we have seen in the example of Bangladesh. Most of the microfinance institutes prefer to provide loans to women because the recovery rate from the women is very high. In a way, microfinance increases women empowerment in a male dominated society.

Microfinance is a magic stick, which can suddenly change the economic and social scenario. Economic and social turnarounds can be expected by tapping on the real potential of this sector. The government needs to play its vital role to accelerate this sector and provide essential facilities to minimize challenges.