Microfinance in Pakistan

By

Acknowledgement

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.Abstract

This paper attempts to analyze the extent to which microfinance has been able to penetrate into the roots of the Pakistani rural setup, to gauge the success of the structural and social transformation it has been aiming to achieve, and to assess its impact on the overall poverty alleviation objective of the sector itself. The researcher aims to present the outcomes in a model format which highlights what can be adopted and what can be avoided while carrying out microfinance in Pakistan.

Table of Contents

CHAPTER # INTRODUCTION1

Issues of Microfinance3

Effectiveness of Conventional Microfinance4

Quantification of the Impact of Microfinance on Poverty Alleviation5

Inclusive Role of Islamic Microfinance7

Aims and Objectives10

Research Questions10

Significance of the Study10

CHAPTER # 2 LITERATURE REVIEW12

The Mission of Microfinance Institutions18

Microfinance to Local Banking19

Microfinance in Pakistan20

CHAPTER # 3 METHODOLOGY26

Research Design27

Research Sample and Data collection28

CHAPTER # 4 ANALYSIS29

Interview Analysis35

CHAPTER # 5 CONCLUSION36

Recommendations36

Limitations of the Research41

REFERENCES43

Chapter # Introduction

Although various reports stipulate different magnitudes of population characterized as poor, there is firm understanding that sizable proportion lives in poverty in Pakistan. It is also recognized that magnitude of poverty is much greater in rural than urban areas. Micro financial services have been recognized vital to enhance capacity of the poor to utilize human effort for income generation and empowerment. However, access to financial services is as low as 11% while 56% are financially excluded, the rest having resort to informal sector. The women have even lower access (4%) than men (19%). Such state calls for to carryout situational analysis of poverty alleviation effort in Pakistan to see the impact of microfinance programs, if any, and to make a case for Islamic microfinance in view of inclusion and just effort to develop poor. Over 40 institutions (microfinance institutions, rural support programs, microfinance banks, and microfinance units of commercial banks and leasing corporations) represented through Pakistan Microfinance Network (PMN) provide bulk of microfinance in the country. The Pakistan Poverty Alleviation Fund (PPAF) is entrusted to provide whole sale funds to microfinance institutions (MFIs) and multi-sectoral organizations for a variety of development interventions including microfinance. According to Economic Survey (2007), microfinance institutions were estimated to have provided Rs. 6.6 billion to 1.0 million active borrowers by 2005-06 which worked out to less than 3% of total population living under poverty line. On the other hand, PMN records microfinance outreach to 18% of the estimated potential 8.3 million households in Pakistan. Micro watch indicates coverage to the extent of 13%. Disregarding difference in estimates, it can safely be concluded that substantial efforts are required to extend the current achievement in terms of funds, outreach, scale and commercialization PMN has forwarded an estimate requiring US$ 600 - 700 million i.e. Rs. 49 - 57 billion to be invested in debt, deposit, and equity to reach 3.0 million target. Appreciating short age of microfinance sector in Pakistan, some issues need ...