A high level conference in Islamabad last week discussed on how the micro-credit reach could be extended to the maximum possible poor households. The focus was on "innovating and mainstreaming" micro-credit financing.

The founder of the Grameen Bank Muhammad Yunus briefed the delegates with his experience spread over three decades. Set up in 1983, Grameen has four million borrowers, 96 per cent of whom are women. The average lending is of $200. Loan recovery rate is 99 per cent. Yunus says half of the bank clients have come out of poverty in the last few years.

In the elitist system in Pakistan, the experience with micro-credit has not been successful in the past. Most of the credit has been actually misdirected without benefiting the targeted income groups. Now, a fresh effort has been mounted through dedicated micro-finance banks and special windows in specialized banks.

Growing poverty has combined with excess money to open up new outlets for productive investment. Many economists look at poverty as an opportunity for a wide range of economic activities.

A major disruptive risk facing the country nay, the world is a narrow- based economic growth and its shrinking benefits. The ILO employment report 2004-2005 says that 49.7 per cent of the workers in the world in general and 58.7 per cent in developing countries, make less than two dollars a day.

There were 185.9 million unemployed in 2003. Three times that number were working but making less than one dollar a day which has been described the ILO as" more troubling."

Micro-credit can help the poor households earn a living rather than look for handouts from a shrinking welfare state based on the concept that "less government is the best government." It is time for workers to start looking at life time employment rather than depend on life-time jobs being squeezed by trimming corporates.

So far, the State Bank has given licences to four banks of which two have gone into operation, the state-run Khuhhali Bank and the First Micro-finance Bank sponsored by the Aga Khan.

The opening ceremony of the Rozgar Micro finance Bank, according to its sponsors, is expected to be performed sometime this month. The Zarai Tarqiate Bank and the First Women Bank have also opened micro-finance windows. An application of Pak-Oman Company is being processed by the State Bank.

Perhaps, more companies may have applied for licences if the minimum capital requirement for micro finance bank would have been lower than prescribed by the central bank. The IMF says that the requirement of Rs500 million for a national licence is high and would discourage entry. Lower capital requirements apply to district level banks (Rs10 million) but they are still high.

Rising equity capital for micro-financing is not so easy. Lower capital requirement could encourage development of community banks. A major area where micro-credit is badly needed is housing for the low income groups, so far not on the agenda of the commercial banks.

One estimate is that this sector has an untapped demand for micro-credit of Rs9 billion annually for which interest rates on loans have to be lower than the market rates. Micro-financing of the housing sector has the potential to turn massive dead assets into living capital for the benefit of the low income groups as well as for the entire economy.

The first micro-credit institution, the state-run Khushahli Bank, set up in 2000, has disbursed credit worth Rs2 billion to 250 clients and operates in 50 out of a total of 100 districts in the country.

The recovery rate for micro- credit is 98 per cent despite the highest rate of interest of 18-20 per cent charged by any banking institution. In fact, global studies have revealed that successful micro-credit banks make more profits than commercial banks.

Ultimately, the high interest rate may not turn out to be a prudent policy. The credit cycles may be reduced by many borrowers. The NGOs have also been involved in micro-credit lending. The Pakistan Poverty Alleviation Fund has disbursed Rsfour billion through its NGO partners.

The Fund has also spent some Rstwo billion on a large number of small infrastructure projects as well as capacity building programmes. Besides, PPAF has just been completed its second phase of operations with the support of some $250 million from the World Bank, says Prime Minister Shaukat Aziz.

Micro-financing is an empowering instrument particularly for women and more so when combined with other social development interventions, say financial analysts. Micro-credit has a strategic value. Some of the excess money locked in speculation in stocks, currency, commodity could be diverted towards productive investment for alleviation of poverty.

Combined with education including imparting of skills required by a diversifying economy, micro-credit empowers the poor to improve their livelihood by themselves. With the trimming of the state and the corporates, the workers have to develop over time various skills to manage permanent employment either through changing jobs or though self-employment.

In the transitional period, it is primarily the job of the government to focus on education which cannot be left to the private sector or joint public-private partnership. It is high investment in education by the state in India that led to outsourcing and services boom in that country.

Micro-financing is one of the many vehicles which would facilitate the sharing of the state's social responsibility by the private sector and the community. The process can be accelerated by granting financial and administrative autonomy to the districts and shifting some of their responsibilities to the local communities.

Any government's performance is ultimately be judged by how it has treated its less privileged citizens. It is time to focus on pro-poor economic growth through non- traditional ways.