MICROFINANCE IS THE BEST TOOL FOR POVERTY ALLEVIATION
MICROFINANCE ORGANIZATIONS NEED TO FOCUS FOR EXTENDING ITS SERVICES TO WOMEN
July 30 - Aug 5, 2012
In simple words, microfinance is the provision of financial services such as loans, savings, insurance and training to people.
Microfinance is one of the great success stories in the developing world in the last 30 years and is widely recognized as a just and sustainable solution in alleviating poverty.
Microfinance organizations need to prioritize extension of its services to the particular needs of women, since majority of all those living in extreme poverty are female. Women are often excluded from education, the workplace, owning property and equal participation in politics. They produce one half of the world's food, but own just one percent of its farmland.
Despite the success of life-transforming microfinance services, the World Bank says that the industry is not close to meeting the demand. Five hundred million people living in poverty could benefit from a small business loan and only one-third of the world's population has access to any kind of bank account. The lack of access is particularly severe in sub-Saharan Africa where the World Bank estimates that microfinance is reaching only a small percentage of the economically active population. In sub-Saharan Africa's poorest countries, less than 10 percent of the population has an account with a financial institution.
As the microfinance industry continues to mature, there is a danger that it will drift toward a more secure client base. It is critical that microfinance organizations continue to focus on those with the greatest needs-those who have been displaced, those in rural areas, those who traditional institutions consider unbankable-the most marginalized people. Maintaining that focus, microfinance can help create a world in which the underserved have fair access to economic opportunities and the hope to move beyond poverty
Broadly, there are two types of institutions in Pakistan providing micro credit/microfinance services to the poor households/micro enterprises the formal microfinance banks providing a range of financial services to the poor and micro enterprises including micro credit, savings, payment transfers etc.
In Pakistan, it is estimated that over 6 million households need microfinance services but these services reach only to less than 1 percent, most probably because of the absence of commercial banks from the microfinance sector.
One criticism over involving the commercial banks in microfinance is that commercial banks will charge higher interest rates, further lower the standard of living and will exploit the public.
Established in the year 2005, Tameer Microfinance Bank has increased its operations and business throughout the country with innovative products and an advanced business model.
A spokesperson of the bank said that they have a vision to lead the bank as Pakistan's first nationwide, private sector, commercially sustainable microfinance bank.
According to her, Tameer Microfinance Bank has outclassed all banks in its sector with maximum number of loans and deposits in the country. Its lending amount is the highest in the industry whereas deposits volume is also on the rise.
She said Tameer Microfinance Bank is playing a leading role in its growth. The bank is striving for enhancing its market share and utilise various options increasing borrowing from commercial banks and TCF to enhance its deposits so a large number of account holders will be given loans for various purposes, she added.
She said the microfinance banks are successful because their borrowers are not defaulters as compared with commercial banks. The micro-finance banking system is trying to penetrate small cities and rural areas, because of its continuous business strategy to invite investors and borrowers are based on easy conditions and lesser risk products. The microfinance banks provide loans to people having monthly income less than Rs 15,000. No one above this level could apply for loans and the bank can lend maximum amount of Rs 150,000 to lenders, she added.
On the other hand, Islamic microfinance sector is aggressively making progress by effectively addressing the deficiencies and challenges faced by the traditional microfinance industry.
A spokesperson of Islamic Microfinance Islamic Microfinance Network (IMFN) said as many as 300 Islamic microfinance institutions are effectively operating around the globe. Seeing the tremendous performance of Islamic microfinance institutions, now conventional microfinance institutions are opting for Islamic financial practices for success in poverty alleviation. In order to address all the challenges and opportunities in Islamic microfinance, IMFN was launched in 2010 with the aim to provide a unique and common platform for national and international Islamic microfinance institutions (MFIs). The activities of IMFN include coordinating the efforts of its members in jointly addressing the poverty alleviation, establishing best practices in Islamic microfinance, developing guidelines and the implementation thereof so as to comply with Shariah law. Now the membership is being opened for national and international organizations, which are serving in the Islamic microfinance sector. The membership is available for practicing Islamic microfinance institutions (in operation) as permanent members while others like conventional microfinance institutions are also welcomed as observer members, so as to enable them equipped with Islamic microfinance system and practices. It is not only for the institutions while the academicians and advisors can also become the member of this network.
Over 17,000 million people live below the poverty line in the entire world of which 44 percent live in the Muslim majority countries, which become the prime reason behind Islamic microfinance. Currently 300 Islamic microfinance institutions in 32 countries, including Indonesia, Kenya, Afghanistan, Bangladesh, Sri Lanka, Yemen, Egypt, Sudan, Tanzania, Mauritius, South Africa, Malaysia and Pakistan, are working on poverty alleviation. Due to its more effective role in poverty alleviation, Islamic microfinance is rapidly gaining popularity in those countries where Muslims are in minorities, the spokesperson added.