Call to make microfinance a viable instrument

Consolidated strategy along with proper regulatory framework is needed in the aftermath of devastating floods to make microfinance a viable instrument for the welfare of the downtrodden and poor segment of society.
This was the consensus of different private and public sector micro-finance institutional heads at the 'Fourth Pakistan Microfinance Country Forum 2010' organised by Shamrock International to reshape the regulatory framework in the aftermath of devastating floods here on Thursday.
The main speakers were convinced that microfinance could not reduce poverty in countries like Pakistan alone where it was increasing with each passing day. The panel was unanimous on improving the state of governance, as it was one of the major tools in implementing rules and regulations needed for poverty alleviation.
"We are lagging behind as time is rife for the next generation reforms within the financial services industry ie, technology advance to make it possible for the ordinary rural masses to access financial services at their doorstep without any hassle, said Ghalib Nishtar, President & CEO, Khushhali Bank Limited in the opening session.
"Some of the major changes in technology, the microfinance sector witnessed is easy access to Internet and mobile phone. The expansion and growth of mobile phone industry has given tremendous boost to mobile banking making these services more affordable and accessible to millions of people in even the remote areas of the country".
Saqib Mohiudin of Business Support Fund, shared an example that an organisation established a peach farm where 12 thousand peach growers were given training in enterprise development, market practices and better market access and within four to five months they earned handsome amount. It is one of the success stories of microfinance but gives a very comprehensive message that with sound planning one could achieve everything.
He said that State Bank of Pakistan (SBP) has planned that graduated micro-group lending be introduced through commercial banks so that the small farmers have access to easy credit for developing their business ventures.
Cluster financing has also been offered by SBP to the First Women Bank, which is also an effective tool, adding that cost effective financing be provided to micro/small enterprises to expand their businesses, he added. He said lack of regulatory framework on the part of the government was necessary to recover the loans advanced by the commercial banks; these measures would definitely help in mitigating the lot of poor.
Farhat Abbas Shah, CEO Farz Foundation, the first Islamic microfinance institute of Pakistan based in Lahore has introduced an Islamic tool of microfinance "Musharka". Under the programme the foundation would bear 90 percent of the credit cost whereas the lender would contribute one percent in the initial phase of business. After establishing the business the entrepreneur would have to increase its share to 20 percent in next year, while the remaining 80 percent would be paid by the foundation.
Every year his/her contribution would increase by 10 percent, while the remaining funds would be provided by the organisation. After a ten-year period, the foundation would be able to recover the principle amount and the lender would be free to carry on its business independently. In some of the cases, a small business was established by a poor person has achieved tremendous success and they were independently running their businesses and feeding their families.
Similar views were expressed by Nadeem Hussain, President and CEO of Tameer Microfinance Bank Limited as he highlighted how a range of services through branch-less banking have successfully changed the lives of millions of people. Replying to a query with regards to financial literacy, he said, "It is not an issue as far as the future of providing access to microfinance through technology is concerned; the masses are already using cell phones for communication without any difficulty, this tool must be extended to the far flung areas to educate poor masses and offer them new range of financial services as most of the people in rural areas are unaware of such institutions."
In his opening remarks, Menin Rodrigues, President and CEO, SHAMROCK Communications and convenor of the conference said, "Pakistan's economy has recently encountered plethora of turbulent setbacks and they have to make herculean efforts to meet enormous challenges, which are threatening sustainability in several sectors. To steer the country out of the quagmire they would have to completely change economic dynamics and economic managers have to revisit the laid down priorities.
Such adverse conditions could only be tackled through a well thought-out microfinance system, keeping in view our geo-cultural set up and gender disparity. A well-co-ordinated microfinance sector could only be in a position to offer a robust long-term solution to this national crisis and ultimately its repercussions.
A well thought-out policy based on the felt needs of the target groups of the society calls for triggering fresh ventures in the shape of small industries and commercial enterprises across the country depending on the availability of the raw material at the nearest possible sites along with unhindered market access to the products carved through the untiring labour of the poor as well as low middle class as need for microfinance arose mostly in under developed and developing countries to give the much needed impetus to their economic growth trajectory."
Dr Shabbir Hussain, Managing Director, HHRD Pakistan, said, "It is high time that the outreach of microfinance be enhanced both vertically and horizontally to expand its area, which will ultimately help in group lending promotion making it affordable to the target beneficiaries being cost-effective. Islamic mode of microfinance has greater potential for an effective outreach particularly in the rural areas of Pakistan." Shafqat Sultana, President & CEO, First Women Bank Limited, one of the pioneering institutions engaged in offering microfinance, stressed the need for entrepreneurial skill development and training to the borrowers before disbursement of loans and laid emphasis on effective regulatory monitoring framework for recovery of the disbursed loan.
Most of the people commit crime due to poverty, she said adding that crimes grow gradually through poor policies of the economic managers. The reality is that poverty claims more lives than wars every year. Lasting peace cannot be achieved unless this large population finds ways to break the shackles of poverty," she concluded.