Syed Muhammad Qasim

Microfinance in Pakistan: impact and growth

Rauf and Mehmood (2009) conducted a research on the growth strategy of microfinance in

Pakistan and its impact on the performance of microfinance institutions. The objective of the

research was to focus on growth strategies that were employed by this sector and how it affected

the poverty levels in Pakistan. The theoretical model of six dimensions of outreach were used

which were interlinked. These included the breadth of outreach, depth of outreach, scope of

outreach, worth or value of financial service, cost of outreach or operational self-sufficiency and

length of outreach. These were all linked with the microfinance institutions. Other indicators

used for the research were efficiency and productivity variables. For these variables ratio

analysis was done to study the performance of the microfinance institutions. Intensive growth

strategy was seen as a result of this study as the number of branches increased from 362 to 1165

during the years 2004 to 2007. The outreach variables increased as can be seen in the tables

included in the research and the main findings were that it was due to an increase in the number

of borrowers.

Saba Ahmed (2008) conducted research on microfinance in Pakistan and the government’s

policies in making it a success. The main objective of the research was to retrieve information

from the microfinance providers in order for an improvement in the structure of this activity in

Pakistan. This research was mainly secondary and data was collected from various banking

organizations and various academic papers were also consulted for explanations. The

organizations were mainly contacted through email. This study concluded that microfinance

institutions are not within the proper reach of the people it is built for and the institutional

structure needs to be improved. The sector needs to have good governance, be sustainable

through better business prospects and commercial banks must play an important role in helping

the microfinance sector.

Montgomery, H. and Weiss, J. (2011) conducted a research on whether the microfinance

industry provide in helping achieve millennium development goals which are related to monetary

measures. They provide evidence from Pakistan through observing Khushali bank as their

primary concern. The main reason behind the research is to study the impact of loans on the

levels of income within urban and rural population. For this study consumption expenditures

were looked upon for the impact of microfinance on households. There were three approaches

used in this study; randomized study design, including sample of credit loans who have formed

solidarity groups and the last approach is difference in difference approach. This study shows

that the access to Khushali bank loans leads to an increase in the food expenditures. An increase

in the number of loans also has improved the family dynamics. However overall this research

states that Khushali banks increase in number of loans has not improved the situation of the

people at the bottom however there is some evidence that in rural areas the millennium

development goals are improving and poverty levels are reducing.

Montgomery (2006) carried out a research on the impact of microfinance lending by Khushali

bank on the poverty levels within Pakistan. The purpose of this study was to look at the impact

of microfinance sector development on the poverty levels in Pakistan. A single equation was

made to estimate the impact of loans. Variables which were include consisted of household

characteristics, Village variables, households that participated in the program, and participation

in the microfinance program itself. Three alternative measures for participation were used for the

program. The analysis therefore shows that participation in the khushali banks program has

positive impact on the economic and social conditions of people and improves social welfare

among the society.

Sulaiman (2010) conducted a research on the microfinance challenges and opportunities in

Pakistan. The purpose of this study was to look at the challenges it faces in terms of environment

and regulations by the government and opportunities in terms of expansion in the future.

Secondary data was collected through various sources to look at the microfinance sector in

numerous areas. Also different sectors were distributed according to their contribution.

Economic survey of Pakistan was one of the major sources for the statistical data that was

extracted. The conclusion that can be based upon this research is that microfinance is a sector

that is still growing in Pakistan. Government needs to play a vital role in order for the betterment

of this sector and must eliminate threats to enhance this industry.

Siddique and Gilal (2012) carried out a research on the perception towards microfinance in

Pakistan. The objectives of this study was to ascertain the perception and realities of

microfinance in Pakistan. Today at least 20 banks provide the services of microfinance in

Pakistan under State Bank of Pakistan. The number of respondents in this research was divided

into 80% male and 20% female. Non-probabilistic sampling approach was used and 200

respondents was the sample size. The questionnaires were distributed among the respondents and

only 27 were unable to answer it. Demographic segmentation was done for the questionnaire.

One conclusion that was extracted from the respondents was that they did not like microfinance

because of higher interest rates. They wanted a better structure in the microfinance institutions

and a more reliable system.

Kurosaki and Khan (2009) carried out a research on vulnerability of microfinance to strategic

default and covariate shocks: evidence from Pakistan. The fundamental reason for this research

is to study the behavior of borrowers for microfinance banks. The default behavior is the most

important focus here. A dataset of 45000 installments was investigated from the period of 1998

to 2007 and the reasons behind default were. The hypothesis that was used helped to conclude

that system before 2005 which was stricter was one of the main reasons in repayment of loans.

The new system however showed a different behavior from the borrowers as they were not so

strict. It also shows that tht MFI’s became more cautious in giving away loans and reviewed the

situation more carefully.

Noreen et.al. (2011) conducted a research on the impact of microfinance on poverty: a case in

Pakistan. The main objective of this research was how microfinance improves conditions in a

family which include education of children, housing, security of food, expenditure of households

and assets owned by households. These variables will help to establish the poverty levels and

differentiate them. The sample consisted of 384 respondents from 4 microfinance instituions

where cluster sampling was used. Households were observed through cross-sectional design.

New entrants as well as experienced persons were also interviewed. However in the end it could

not be established that microfinance loans increased household incomes. The results also revaled

a positive relationship between the first hypothesis. Microfinance did not lead an improvement in

housing conditions. Also small loans did not increase the consumption of food. Household assets

also remained the same.

Ahmed (2011) completed a research on the efficiency analysis of microfinance institutions in

Pakistan. The primary objective of this research is too see whether the MFI’s are sustainable and

how can they be in the future. Also we need to see how efficient the microfinance institutions in

helping out the poor are. The data has been focused on from 2003 to 2007 and it is taken from

Pakistan Microfinance Network. The Data Envelopment Analysis (DEA) is used in

methodology. It is a programming approach for the frontier investigation. It was therefore

concluded that out of 12 microfinance banks investigated only 3 were on the efficiency frontier.

Many banks have moved away from the frontier and many have come close to it. The

microfinance institutions need to be profitable in order to be sustainable and efficient.

Ghalib, Malki and Imai (2011) carried out a research on the impact of microfinance and its role

in easing poverty levels of households in Pakistan. The primary objective of this research was to

study how microfinance effects poverty levels through different dimensions and measure the

level of impact it has. 8 MFIs were looked upon for data gathering. The standard approach was

applied with an equation which showed the treatment of effective incomes subtracted by

outcomes. Cross sectional data was used. The conclusion regarding this study stated that the

borrowers had better conditions as compared non borrowers. They were able to carry out their

business activities more efficiently and effectively. Overall the borrowers were seen better off in

70% of indicators that were used in this study.