By definition, microfinance refers to the provision of small-scale financial services to economically active people, often with multiple sources of income. Therefore, all targeted interventions would implicitly include if not explicitly depending upon it.

An economy with abundant micro finance activities especially at grass-root level and with minimum possible cost of capital can bring the poor into an organised fold, upgrading and reactivating their dormant and suppressed managerial, productive and cooperative skills.

Moreover, generation of capital through the discipline of savings and provision of micro credit may accelerate economic activities. The governments of many developing countries, including Pakistan, now consider micro finance as an important component of the country's financial system and recognize the private sector's role in the poverty reduction strategy.

The sustained commitment exhibited by the government to ensure a conducive policy environment for the development and growth of the sector has started yielding results in the form of gradually increasing outreach and the increased investor interest in the sector.

The government is now supporting financial service access to the majority of the population to advance and provide economic opportunity and access for the poor, especially, those who work in micro enterprises.

The ultimate objective is the reduction of the poverty level among the micro enterprise owners, workers and their families and access to credit is required to enable them to achieve this.

Bangladesh has been able to make important break-through in poverty reduction activities, under micro credit programmes. The micro finance industry in Bangladesh has been able to provide access to credit to around 13 million poor households.

There are around 1200 micro finance institutions (MFI) currently in Bangladesh, although the industry is heavily concentrated in a handful of large organizations -- Grameen Bank, BRAC, ASA, and Proshika.

These four cover around 11.5 million or 90 percent of all clients. Over the last three decades, this access to micro-credit grew in several distinct phases. The origins of the current micro-credit model in Bangladesh can be traced back to action research in the late 1970s.

Through various government and non-government agencies concrete steps were taken in Bangladesh to reduce the impact of poverty. Sri Lankans have also tried to tackle it through accelerated literacy drive and rural development projects.

Nepal and Bhutan were tussling with this poverty problem, as a synergistic approach, which was needed to first alleviate the poverty and later uproot the same. Micro credit was reported to have positive impact in reducing poverty in some SAARC countries. Micro credit in Bangladesh for instance was directed mostly toward rural landless and capital-less poor, and towards the womenfolk.

So many crowded slums that were previously deprived of all civic amenities have become well-lit neighbourhood in Bangladesh. A skill development programme and micro credit facilities have enabled the women in Bangladesh to augment the family income and gain new confidence in themselves.

The Grameen Bank (Bangladesh) was 'no doubt the harbinger of micro credit revolution not only in Bangladesh but also in so many poor developing countries. Its model of uplifting the economic condition of the poor and the downtrodden triggered new hope for survival with dignity. The governments and the NGOs in the SAARC countries were busy emulating its strategy and programmes to fight the mighty poverty monster.

However, unprecedented success and reputation achieved by the Grameen Bank and other micro credit banks, witnessed in the 1980s and the 1990s in Bangladesh appears to be slowly diminishing mainly due to two factors namely; very high lending rates ranging from 20-30 percent and frequent and devastating natural disasters, like the recent floods, which have broken the backbone of million of poor and small clients, reducing their entrepreneurial capability and their repayment capacity.

Moreover, fear of imminent termination of the special privileges, hitherto enjoyed by the textile manufacturing and garment exporters (quota-free exports), in January 2005 have created some uncertain business environment in Bangladesh also affecting her micro credit programmes.

Pakistan may have some advantages over Bangladesh to address her poverty-related issues in a coherent and consistent manner through micro credit programmes. Unlike Bangladesh, Pakistan is least prone to natural disasters like floods, cyclone etc.

although it has to face cyclical draught problem every after three to five years. Pakistan has recorded strong economic growth in 2002-03 and 2003-04 which caused decline in poverty level .

To further reduce poverty level in Pakistan and accelerate economic growth, micro credit programmes can play an important role in future.Realising various constraints, the Government of Pakistan has opened two specialized micro-credit banks namely, the SME Bank and Khushhali Bank (KB).

The Small and Medium Enterprises Development Authority (SMEDA) is actively developing programmes for managerial skill development and technical and informative support to the SMEs. The Khushhali Bank (KB) is the lead institution within the MSDP framework and plays an important role in the development of the sector.

The government has also created a microfinance social development fund (MSDF). The Khushhali means well being and that's exactly what the bank promotes among poor families in 30 districts. It has established the largest microfinance delivery system in Pakistan, providing small loans to poor people. In a country where social norms limit women's access to credit facilities, more than 30 percent of the bank's clients are women.

Remarkable progress in micro finance sector in Bangladesh was attributable to a number of specific factors namely; visionary leadership of Grameen Bank and BRAC which created decentralised structure with high staff performance; the government of Bangladesh created a macro environment and implemented a hand-off regulatory policy; donors also played a pivotal role by providing resources at appropriate time; high population density and relative ethnic social and cultural homogeneity made micro credit model less difficult and significantly propelled its expansion and the public private micro credit wholesaler PKSF was able to take advantage of already established retail capacity to scale up the micro credit industry.

Pakistan's micro credit sector does not have such advantages like in Bangladesh. In Pakistan people belong to diverse cultures, traditions customs and live in scattered and far-flung areas.

A visionary leadership is not yet visible; the role of donor agency is not so prominent although ADB has been showing keen interest. Hence Pakistan's micro credit sector has to pass through a rocky path.

Only a dynamic and dedicated management cadre, which is yet to be seen can create the required awareness, impetus and sense of participation in the micro credit programmes.

So far only about 0.4 million people had been given loans by the Khushhali Bank as compared to around 13 million in Bangladesh. Therefore, a lot of work needs to be done. Micro credit sector should also undertake human development programme to create efficient work force and entrepreneurs in the country.

It may be pertinent to mention here, that there is a scope of 0.3 million additional jobs for women in the garment sector of Pakistan alone. Pakistan has scarcity of skilled labour force in other vital sectors also, which could be fulfilled by the huge number of idle but willing work force among the men and the women in Pakistan.

The micro credit sector should create an environment of trust and cooperation between the lenders and the borrowers. The loopholes and inefficiency prevalent especially in the rural credit system should be rooted out. The most common complaints against the rural credit system are; commission mafia's manipulation, wadera culture and nepotism.

The poor but efficient farmers and prospective entrepreneurs do not get credit easily unless they satisfy the concerned authority through middlemen, and paying high commission from their loan money.

The micro credit sector should create visionary and efficient management cadre who must be fully acquainted to the tradition, culture and other local conditions. Moreover, the lending rate should be affordable to the poor households.