Apart from lending, most microfinance programmes also offer a combination of services like saving, training and networking
THE first thing you notice at Yar Mohammad’s furniture-making workshop at the Artisan’s Colony in Bhitshah is a small TV perched on a chair. “It is for these people,” he points to his two sons busy applying various materials to the legs of the bed to give the finished look we see in Sindhi beds, chairs and even the popular and decorative indoor swings (jhoolas).
“For 20 years I did all of this single-handedly, but now I have four able-bodied sons to help me. Life is good. So good, that we eat meat twice a week now.”
It is the loan, he says, that has brought prosperity to their home.
In 2003, he explains, he applied for a loan worth Rs7,000 from the Sindh Agricultural and Forestry Workers Coordinating Organization (Safwco) to expand his business. The following year, seeing the profit he made, he again applied and got Rs8,000. “I made a profit of Rs3,000 and was able to buy wood for myself. This year with a loan of Rs10,000 he bought more raw material as well as a buffalo so that his family [of nine] could have the luxury of consuming milk everyday. “We are even able to sell the surplus.”
Microcredit, the brainchild of Mohmmad Yunus, began in the ‘70s in Bangladesh when Grameen Bank began giving very small loans to the poor, usually in the form of group-lending so that they would then be able to establish a business or invest.
The PPAF was established in 1997 on a similar premise to help the poor gain access to resources for their productive self-employment. It has an endowment from the government of Pakistan of Rs500 million, and a World Bank credit of $90 million, half of which must be used for microcredit and enterprise development. By the end of December 2004, the PPAF had extended its outreach to 95 districts through 45 partner organizations, of which 10 were catering exclusively to women. The PPAF figures show it has provided Rs5.587 billion for microcredit and enterprise development and Rs1.789 billion for infrastructure projects benefiting more than 7.7 million individuals.
Apart from lending, most microfinance programmes also offer a combination of services to their clients. These include savings, trainings and networking.
Giving an overview, Akbar Zaidi, a Karachi-based social scientist who undertakes research on social, economic and development issues, explains that the microfinance landscape in Pakistan changed considerably in 2000 and when the Micro Finance Institutions Ordinance 2001 was promulgated, the government introduced the concept of microfinance bank like the Khushhali Bank and the First Micro Finance Bank (evolved through the AKRSP). The First Women Bank, a commercial bank otherwise, is also active in microfinance as is Bank of Khyber in the NWFP.
Within four or five years, the outreach of the four microfinance banks has reached half a million households, which is still only one-twelfth of the estimated six million households who could access microfinance institutions. The government trends and expectations suggest that by 2010, the outreach will increase to about half of the target population. While the loan is collateral-free, the lending organization, usually a non-governmental organization charges a certain interest.
“What I would sell to the contractor for Rs600, I get straight Rs1,000 for it now. The profit that the contractor was making goes into my pocket,” says Yar Mohammad who has landed himself an order of pegs worth Rs50,000 and is jubilant.
He still remembers those days when there was no work and they slept on empty stomachs. The series of loans have shown him as it has shown so many others a “dignified route out of poverty”. To call international attention, the United Nations has designated 2005, the “International Year of Microcredit”. It is also seen as a major tool in achieving the Millennium Development goals 1 (halve extreme poverty and hunger) and 3 (promote gender equality).
Yar Mohammad fits perfectly the definition of a typical borrower of microcredit. He belongs to a low-income group, is skilled in his craft and self-employed. He also has a stable income. However, there is just one problem. He is not among those who are below the poverty line, the poorest of the poor.
While it is a critical tool in fighting poverty, concedes Zaidi, this “new mantra and new wisdom needs to be seen with caution as it is not meant for the poorest of the poor.”
“The money you borrow needs to be invested to generate income and not for consumption as the basic premise is to repay.”
By this very definition, he says the poorest of the poor are excluded and by not emphasizing this enough incorrect expectations are raised. “It needs to be brought down to scale and tempered a little bit.”
A few other critical issues Zaidi highlights include the cost incurred while carrying on the microcredit programmes. “The cost of managing such programmes — what with setting up of offices, employing staff at steep salaries, and other overheads — seems higher. There needs a thorough evaluation of these NGOs who are running these credit programmes,” he says warily. Another issue is the difficulty in identifying the right candidates for the loans and whether the process is in itself cost-efficient.
Nevertheless, he says, microfinance has been an important and effective instrument in empowering women, both economically and socially. “Empowering women is critical to reducing world poverty and is a solution to most problems,” he says. Most women when asked had not only invested in livestock, once their own businesses — ralli-making, chatai-making (straw mats), tailoring and embroidery business — had expanded. They had also been empowered enough to take part in decision-making.
For Laila, a seamstress in Bhitshah, it has brought contentment and a new found confidence. She’s almost finished making dowry for her eldest daughter who is already engaged. “It’s been a long haul from the time when we didn’t even have enough to eat. We’d borrow crockery from our neighbours if we had guests over for dinner and even clothes if we had to go to the village to attend a family wedding.”
Bashiran, in Tando Adam, running a second-hand clothes business beams and says, “Look at me — totally unschooled and these educated women, quite a few having completed up to Grade 12 even — come to me for advice. Can you imagine? Makes me feel very important and proud of myself.” She has been able to help 13 other groups of seven to eight women each to access these small loans.
Thirty-five-year-old Sakina from Shahdadpur, who sells milk from the six buffaloes she bought from the loan has twice been elected the local councillor. She has not only paid off the loan they incurred due to her late husband’s illness, but has bought a deep freezer so that the milk does not go bad in summer.
Because business has increased manifold, Rassan Khuhro, sub-contracts her chatai-making business to the poorer village women.
While microfinance may not rid any one of them from poverty, it has brought new insight into the poor. While on the one hand it has given the poor opportunities and choice, it has proved, without doubt, that the poor are capable of saving, maybe not in the conventional manner but their investments are in the form of buying assets — gold jewelry, livestock, land, etc. Their idea of saving is to be able to get ready cash in times of emergency.
It has also shown that the poor repay on time. Because they cannot have access to commercial banks, they rely on informal lenders like the area Pathan money lender to whom they pay heavy interest. This dependency on the latter has reduced somewhat with the MFIs.
THE first thing you notice at Yar Mohammad’s furniture-making workshop at the Artisan’s Colony in Bhitshah is a small TV perched on a chair. “It is for these people,” he points to his two sons busy applying various materials to the legs of the bed to give the finished look we see in Sindhi beds, chairs and even the popular and decorative indoor swings (jhoolas).
“What I would sell to the contractor for Rs600, I get straight Rs1,000 for it now. The profit that the contractor was making goes into my pocket,” says Yar Mohammad who has landed himself an order of pegs worth Rs50,000 and is jubilant.
For Laila, a seamstress in Bhitshah, it has brought contentment and a new found confidence. She’s almost finished making dowry for her eldest daughter who is already engaged. “It’s been a long haul from the time when we didn’t even have enough to eat. We’d borrow crockery from our neighbours if we had guests over for dinner and even clothes if we had to go to the village to attend a family wedding.”
