OPINION: Reinventing microfinance in Pakistan

By Farhat Abbas Shah

Feb 3, 2010: Poverty certainly emerged as the single most problem that lies at the heart of modern day crisis. It quite recently has assumed alarming proportions. Many efforts were made in the past but they could not wholly succeed. Among significant tools, the microfinance was also used for getting rid of poverty which quite recently plagued the whole world. There is always a room for innovation to be introduced to already existing structures. Though microfinance made some gains in alleviating it but with sufficient services the amount invested lie in the danger of being spent on the items of daily use owing to extreme poverty.

What in fact is required is the provision of certain services that may enable the person concerned to become self-earning unit. So the first and foremost thing in this regard is not to simply extend credit. It is more advisable to do kind of asset sharing, along with provision of services which could lead to an economic activity at an individual level.

Certain experiences in this regard bore good results. For instances a woman who was provided with the necessary material and skill, is successfully running her business of making and selling artificial flowers. What worked in this case was the fact the instead of extending credit, she was provided the raw material along with the skill. What could further be added to it is the provision of health and education facilities to the community so that each individual keeps on learning during this process.

By adopting this method microfinance becomes a well-organised business as well as a community services and incidence of default is reduced to the maximum level.

Now this issue of poverty is what upon which the future of political structures rests. It needs more coordinated and scientific approach. Among the efforts made so far, this method of empowerment through education and asset based loaning has bore good results. At a time when world economies are shrinking and people at large losing their jobs worldwide, this method could be used to off set the impact of recession in the poorer world. We have seen that the government agencies could not come up to the expectations and number of people falling below the poverty line is growing. The supply side economics or trickle down theory is being looked at with suspicion. We need more non-governmental structures to fight this growing menace.

Owing to shrinking world economy, the poor countries are also being hit hard. The individuals’ economies cannot sort this problem out as they have to cut their non-development expenses. In such a critical period poverty needs to be fought at war footing.

Recently, Farz Foundation (The First Islamic Microfinance Organisation ) has completed its two-year pilot project in the area of Shalimar Lahore in two phases. The organisation has done the comparative analysis of currency disbursement and the Farz Methodology

(asset delivery method ) in which the asset based microfinance shows 80 percent positive and productive results while the popular practice of microfinance, which is based on credit in the shape of currency depicted 80 percent negative and non-productive results. The study confirms the reports are already being published in the international journals about the very low impact of currency deals in microfinance. Although the efforts made by the CGAP and other agencies at the international level and Pakistan Poverty Alleviation Fund at the national level cannot be ignored but the speed of the inflation and poverty increase ratio demands more sincerer and creative efforts.

There is another challenge of exploring the new markets which still needs to be addressed because the process of demand and supply matters even at the level of the micro entrepreneurship. Home Based Women Entrepreneurs are still in the clutches of the middle man, who is earning far more than the HBMEs.

Another important issue is trust-building. The development sector has successfully won the hearts of the community but unfortunately the microfinance sector is losing the trust day by day particularly in Pakistan and India. Although The Sewa in India and RSPs in Pakistan has set the milestones remarkably, however, various MFIs have annoyed the poor community.

Though the poverty alleviation objective stipulates to support the innovative mechanisms like Farz Methodology, even at the government level as well as at the institutional level; the microfinance donors are not encouraging the new and innovative players as per the need and the requirement of the day. It will be lethal not only for the innovative human recourse of the sector but also will reduce the impact of the endeavors already being made by the sector of microfinance.

(Disclaimer: The opinion expressed here is sioley that of the author and do not necessarily reflect any views of Microfinance Focus — Editor)

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