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Micro credit sector witnesses a robust growth

Published on 21st Sep, Edition 38, 2015


Despite having vast population of young people, the country is not tapping true potential of human resource due to many reasons. Non-availability of adequate credit has been one of the major impediments to the growth of the country’s industrial and agriculture sectors.

Pakistan’s financial system currently reaches only a fraction of huge informal sector. Microfinance providers — that segment of the financial services industry focused on the needs of the lower-income brackets — currently serve an estimated two million micro entrepreneurs.

Microfinance is premised on the belief, borne out by decades of experience all over the world, that with the right financial tools, low-income entrepreneurs can transform their businesses from survivalist affairs into job-creating prosperous businesses.

The poor of Pakistan have generally relied on informal sources for meeting most of their credit requirements. Informal providers serve a predominantly lower income group who are perceived by the financial institutions as “un-bankable” due to their inability to comply with conventional loan collateral requirements. The informal credit market is served by a wide variety of providers including predominantly family and friends, landlords, money lenders, traders and commission agents.

Small Scale facilities

The provision of microfinance services was initiated on a small scale by several NGOs running development programs when they realized that credit was an essential input for enhancing productivity and incomes. The Aga Khan Rural Support Program (AKRSP) in the Northern Areas, the Orangi Pilot Program in urban Karachi, Akhuwat in Lahore and Kasf Foundation were among those which are regarded in the country. Akhuwat had provided loans to a large number of people and return of these loans is about 100-per cent. Kashf’s approach is based on targeting women from low-income communities. The women are asked to form into centers comprising of core groups of five, who then take responsibility for each other repayments. The entire centre ensures both the timely repayment of loans and provides a key resource for managing businesses and sharing information.

At the government level, concerted efforts for the promotion of the sector began in the year 2000 when an apex funding body, the Pakistan Poverty Alleviation Fund (PPAF) was established for poverty alleviation. As an apex organization, the role of PPAF is to act as a wholesaler and intermediary of funds, while it’s Partner Organizations (POs) perform the actual retailing function of loaning funds and implementation of projects on the ground. PPAF provides its partner NGOs three types of facilities, which consist of (i) extending lines of credit for expansion of poverty targeted micro credit programs (ii) grants for Community Physical Infrastructure (CPI) schemes and social sector services on a cost sharing basis and (iii) grants to strengthen the human and institutional capacity of POs.


There is widespread belief that there is a large unmet demand for financial services, especially among the poor. Estimates of demand internationally and nationally present a wide gap in the demand and supply of micro-finance services in general and credit in particular.

One of the most broadly shared perceptions about microfinance is that it is beneficial; therefore, everyone needs and demands it. As a result, there has been very little questioning about the benefits of microfinance and until recently, little interest in trying to measure its precise impacts. The microfinance sector in Pakistan also leaves much room for innovation despite the fact that micro credit sector has witnessed a robust growth in Pakistan, which has been ranked among top countries for offering conducive environment for microfinance sector growth.

Considerable progress

According to a report, micro credit sector has registered a considerable progress in Pakistan. Pakistan Poverty Alleviation Fund (PPAF) is in the driving seat to control the trajectory and disbursed billions of rupees. Currently, almost half of Pakistan’s microfinance market share is financed by PPAF through over 50 microfinance banks, microfinance institutions and other civil society organizations in 92 districts across the country. On the other hand, the demand of Islamic microfinance is rapidly increasing in order to serve poverty alleviation and social development. Its active client size have exceeded to 2 million now from which more than 700,000 belong to Sudan and more than 400,000 clients of Islamic Microfinance Institutions are from Pakistan. Yemen, Indonesia and Bangladesh also have a good number of clientage and Islamic microfinance has satisfactory demand in Morocco, Senegal, Nigeria, and Tunisia.

There are lots of challenges faced by Islamic microfinance i.e., squeezed volume of organizations, lack of technical expertise and quality HR, lack of standardisation of the products etc but the main hurdle is lack of funds for Islamic microfinance institutions, this is why the growth is not so constant of this influential system. Microfinance graduated to a billion dollar business in Pakistan last year. Gleaning the Pakistan Microfinance Review (2014), which was recently released by the sector’s representative body and data-aggregator Pakistan Microfinance Network (PMN), the year gone by, can be classified as the sector’s best in recent years. The sector saw notable expansion in 2014. Microfinance branches had increased by 27 per cent year-on-year to reach 2,026 establishments in 2014. Hiring kept pace with physical expansion, as total staff increased by 23 per cent to reach 21,516 employees.

Pakistan has one of the best regulatory environments in the world for microfinance and one of the fastest-growing microfinance sectors with 3 million borrowers. Given the present scenario, future of the country’s microfinance is bright with plenty of room for expansion and growth despite challenges.


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