Small steps

Micro-financing is helping people establish their own small businesses

By Nazakat Hussain

The government seems to have realised the importance of micro-finance in reducing poverty across Pakistan. It is providing facilities to the micro-finance banks (MFBs) and the micro-finance financial institutions (MFIs) to reach the untapped poor population. It is important to empower the poor living under abject poverty and facing huge economic challenges.

The State Bank of Pakistan (SBP) is providing guidelines to MFBs and MFIs. It is also in the process of amending rules to stabilise these institutions. The aim is to eradicate poverty by creating economic opportunities for the poorest sections of society by broadening their outreach. Micro-financing should be corresponding to its potential. The key indicators of micro-financing are signaling rapid growth but the share of women is not growing, an aspect which should be taken seriously. Poverty will continue to haunt the masses unless women are made earning member of a family.

MFBs and MFIs have so far covered only 10 percent of the poor. Depositors, corporate bodies, and the government agencies fund them, whereas foreign donor agencies have been major contributors. The capital base and deposits of local micro-finance sector cannot meet credit needs of untapped 40 million populations.

During the last two years, lending has jumped to over 90 percent while the number of borrowers has increased around 46 percent but the number of female borrowers remained at 26 percent. The rest of 72 percent loans go to male borrowers. Among the poor, the ratio of women stands at 71 percent.

The micro-finance business got a shot in the arm recently when SBP granted them the permission of raising foreign currency loans from abroad through international financial institutions (IFIs) that would help them. However, some experts suggest that instead of relying on foreign funding, local MFBs should design saving products to meet their financial requirements.

The MFBs that stand to benefit from the SBP moves include Khushhali Bank Limited, NRSP, Micro Finance Bank Limited, the First Micro Finance Bank Limited, Pak Oman Micro Finance Bank, Rozgar Micro Finance Bank, Tameer Microfinance Bank Limited, and Kashaf Micro-finance Bank. These banks have 269 branches across Pakistan that needs to be doubled in a short span of time. Three dozen micro-finance NGOs are also operating in the country.

The new breed of investors is not interested in maximizing profits only; they are also concerned with sustainability of their projects for providing employment, credit, and low-cost products to the disadvantaged segments of society. Banks that provide micro-financing facility can expand their outreach by seeking credit lines from commercial banks, raising capital by issuing share and by floating Term Finance Certificates (TFCs), which can be taken up by socially oriented business houses etc.

Small size of borrowings and high repayment rate did not affect the liquidity position. Micro-finance culture everywhere motivates borrowers to repay loans in time to ensure renewal and enhancement to meet their future credit needs.

Small businesses could be a blessing for some women which help them become financially secure while staying at home. Growth in the number of MFIs provides an opportunity for women to enhance their standard of living. They can try their luck in the business of jewelry, cotton fabrics, carpets, handicrafts, traditional shoes, and bags, embroidered fabrics, silverware, pottery, etc.

Ishrat, 35, is running her tailoring business in Krishan Nagar, Islampura, Lahore. She took a loan of Rs 12,000 from Khushhali Bank Limited (KBL) in two installments to buy sewing machines. Now she has a monthly sale of 20,000 and earns around 14,000 a month. She is now a breadwinner for the family, not only caring for her three dependents but also helping seven other employees feed their families.

KBL has also contributed in the economic uplift of many micro-entrepreneurs. One of them is Shakeel Ahmad Khan, 34, who runs embroidery business in Green Town, Lahore. Khan has become a role model for the entire locality by providing job opportunity to ten people. Khan did it by getting a loan of 20,000 in six installments. He has not only improved his own living standard but also contributed in the economic growth of others. He is a valued customer of KBL for the last six years.

Ghalib Nishtar, President KBL, is a strong believer in micro-finance. He says it is a simple yet effective tool employed to combat poverty while raising the standard of living. Micro-financing has over the years shown a lot of promise as far as poverty alleviation and women empowerment is concerned.

Micro-finance institutions have even-handedly facilitated the impoverished to pull them out of poverty. It aims to increase the income generating capacity of the masses whereby small loans are granted to them based on the potential they display as hardworking enterprising individuals capable of being successful micro-entrepreneurs.

At a time when inflation is high, there has been a slight shift in attitudes as more and more women aspire to contribute to the family's finances by earning a livelihood. KBL has over the years taken numerous initiatives for the uplift of women, and has focused on the excluded segments of society to provide financial access to them. Mr. Nishtar believes in facilitating the poor through greater financial access, guidance and training so that they can learn certain skills no matter how far they may reside from the city centre.