December 9, 2002	Monday	Shawwal 4,1423

One of the key areas where the Musharraf government could not deliver during the last three years was unemployment. There had been, of course, tall claims made by the authorities to address the issue but the fact remained that not much success was achieved in providing jobs to thousands of young educated unemployed people.

Since the public sector had been squeezed, and the private sector remained shy to invest, the government had lately been relying on Khoshhali Bank and Micro Credit Bank of Agha Khan to extend small loans to the people including unemployed educated youth.

But most micro finance programmes were unable to attain sustainability because of sufficiently high interest rates. There had been various suggestions that this interest rate should be reduced but the officials of the Khoshhali Bank and Micro Credit maintained that since they did not seek collateral, they were constrained to charge higher interest rate, ranging from 15 to 20 per cent.

Another organisation - Pakistan Poverty Alleviation Fund (PPAF) which was created by the government in the private sector, has also been involved in poverty alleviation by extending loans through some credible non-governmental organisations (NGOs). It was the first private sector organisation which was offered $100 million by th World Bank and was promised more funds by the Asian Development Bank (ADB) and the International Fund for Agricultural Development (IFAD).

The government also provided funds for Rural Support programme (RSP) which is an experiment with models of participatory development based on institution building, which incorporates micro finance. Micro finance service providers in Pakistan generally work with and through community-based groups that they have helped to form, building the leadership, management and credit capacity of these groups before commencing lending.

Generally, it is observed that micro credit in Pakistan is still unable to extend coverage to the vast majority of the poor, and efforts like RSPs tend to be concentrated in the Northern Areas, with the rate of penetration being especially low in Sindh and Balochistan.

The World Bank and the Asian Development Bank (ADB) had been saying that for the long term sustainability of micro credit and the creation of conditions conducive to scaling up these programmes, links between micro finance institutions and formal markets must be strengthened. In keeping with this objective, the State Bank has envisaged licensing three categories of micro credit institutions at national, provincial and districts levels, as public or private limited companies. These will enable them to raise capital, and generally exploit opportunities in the formal sector.

These institutions will, however, not be subject to the same degree of surveillance by the State Bank as other banking institutions, allowing them the needed flexibility in the operations. In this context, the World Bank seeks to develop a regulatory framework that addresses the situation of such enterprises, while promoting transparency and financial accountability.

The government claims it has increased Public Sector Development Programme (PSDP) from Rs 116 billion to Rs 161 billion, the purpose of which was also to alleviate poverty. However, so far, the government has disbursed Rs 1 billion for micro credit and the Khoshhali Bank was asked to mobilise on its own finances both internationally and internally.

There is said to be $2 billion to $3 billion market in Pakistan for micro credit and the Khoshhali Bank is trying to secure funds to offer them to the people. The Agha Khan Micro Credit Bank is not facing problems of finance for lending to the poor people but then it was concentrating in Northern Areas. This bank has not been able to establish its branches in other areas of the country except to have one branch in Islamabad.

It is said that a number of people in the private sector are interested to set up micro credit banks because of higher interest rates attached to it for loan seekers. However, the government is said to be reluctant to allow more such banks to be opened.

Now the elected government has assumed power, it is expected that the issue of job creation will take prominence. The reason is that elected representatives will be constrained to oblige their voters, many of them, will be unemployed including educated youth.

So far the economic ministries had relatively been performing well due to various checks and balances - some say due to the army monitoring teams. But now it would perhaps not be possible for army monitoring teams to get involved in the affairs of economic ministries.

Concerned official do concede that it was not possible to hurt the financial and economic system, that has been put in place after three years, to oblige people to get jobs so easily. However, they said that nothing could be said as to how the new government deals with the issue of unemployment.

Some of the new ministers including Liaqat Jatoi, Aftab Sherpao and Humayon Akhtar met Prime Minister’s Advisor on Finance Shaukat Aziz and were told that no financial irregularity will be tolerated. In this behalf, the message of the President was conveyed to the effect that transparency and accountability should continue to be the hallmark of the new government.