When 40-year-old Salma Bai wanted to set up her own tea shop in Faisalabad, her main worry was obtaining the capital that was required to start an entrepreneurial venture. She had been supplying snacks to a tea shop at discounted rates since her husband’s death and realising her niche, had decided to establish her own tea shop. Fortunately, she met a female microfinance field officer who guided her to apply for a small group loan through a microfinance bank, instead of a hefty credit line, which would be sufficient enough to kick-start her business. “The banker advised me to first repay my previous loans and then apply for larger amounts gradually, till I could afford a hefty individual loan needed to expand my business,” Salma explained.
Salma followed the officer’s advice, and today she owns a well-established tea shop which she runs with her sons and offers exclusive catering services to as many as 10 clients per month. “Hopefully, with my savings and monthly profits, I would be free of loans soon,” she says.
Microfinance, a source of monetary services for entrepreneurs, has a great potential to increase women’s access to a wide range of simple financial products and services like microcredit, Karobar Qarz, insurance products and Ibtida-i-Karobar Qarz. It bridges the gender gap in the workforce, increases productivity, and creates employment opportunities for semi-literate or illiterate women, thus leading to better living conditions.
Microfinance schemes are giving women a chance to explore their entrepreneurial skills
Salma isn’t the only woman who changed her life through entrepreneurship with the help of microfinance. Rehana, 50, earns her living by supplying 400 hand-made dolls per week to a contractor in a small town of Ghotki district. She has even employed 10 to 12 women from the neighbourhood, introducing social capitalism in the ecosystem. “I took loan from a microfinance bank and bought raw materials to stitch dolls. I repaid and applied for a second loan in a group. Since then, I’ve employed a few women to help because the demand has increased steadily. This way, their financial conditions have improved, while my business continues to grow,” she said.
Salma and Rehana are examples of a very small, budding segment of women entrepreneurs in Pakistan. Women entrepreneurship is crucial for our country’s economic growth and social inclusion agenda; however, the first and the most challenging step towards starting a business remains access to finance. This is where the role of micro-financing institutes (MFIs) and microfinance providers (MFPs) becomes extremely important.
|Microcredit programmes can raise living standards and alleviate poverty|
Nadeem Hussain, Board Member of Pakistan Microfinance Network (PMN), an organisation which supports retail microfinance providers, and CEO Tameer Bank, is a strong supporter of women empowerment via microfinance. He explained, “MFPs make it easier for women to obtain loans through various financial products. They can benefit from group-lending structures to take loans independently without involving male members. Group-lending enables women to become each other’s guarantors. They support and motivate each other to make profits and repay their loans on time.”
Though Salma and Rehana were fortunate in the sense that they could accomplish their goals through micro-financing, the picture isn’t all rosy and the microfinance sector is not without some grave downsides. The World Bank Report, Are Pakistan’s Women Entrepreneurs Being Served by Microfinance Sector?, published in 2013 shows strikingly low figures for women entrepreneurs and a limited outreach of microfinance to females who need it. Less than one per cent women have established businesses as compared to 8.4pc of men and only 3.4pc of women own a start-up as compared to 14.4pc of men. It states that only 5.5pc of women have access to banking facilities as against 21.1pc of men, while out of 15.6pc of total female labour force, only 0.1pc fall under “employers” category. MFP clients commonly start their business with Rs10,000 to Rs30,000.
One serious drawback is that women borrowers often pass their loans to male family members and are usually not the end beneficiaries of the capital. It is estimated that at least 50pc of women borrowers pass their loans to male family members, and there are no measures to keep a track of the finance.
“Terms and conditions of individual loans, limited market exposure and insufficient knowledge about best business practices, problems in mobility, low literacy, repaying conditions and fear of failure keep many women from applying for micro-finance for entrepreneurial ventures,” explained a field worker from Karachi.
Secondly, group-lending models, despite being very viable as quoted by Hussain, are not suitable for all women, especially those who wish to expand their businesses. The model leverages small loans to women and certainly enhances community cohesion, but women often feel liable for other members’ loans as well, like Rehana did. “You become responsible for other’s repayment too. It was stressful because I struggled with my repayments, and had to worry about my beneficiary’s repayment too,” she recalled.
|Female clients represent 85 per cent of the poorest microfinance clients|
Meanwhile, individual loans require guarantees of male family members, who can be wary of female empowerment. “Terms and conditions of individual loans, limited market exposure and insufficient knowledge about best business practices, problems in mobility, low literacy, repaying conditions and fear of failure keep many women from applying for micro-finance for entrepreneurial ventures,” explained a field worker from Karachi.
When asked about high interest rates charged by MFPs, which is a common concern in everyone’s mind, Hussain maintained that an MFP must charge interest rates high enough to cover the costs of its loans. “But these rates are far lower than what village money-lenders charge from poor people. Besides, these interest rates do not routinely increase like that of individual money-lenders; therefore, many women are attracted to the MFPs operating near their towns. The re-payment rate is almost 99pc,” he argued.
Unfortunately, only a few women can adapt to the deficiencies of a non-holistic micro-finance programme like Salma and Rehana, while the majority remain deprived, unsupported and subjected to either being unemployed or taking jobs as domestic staff.
Though the government, State Bank of Pakistan, Pakistan Poverty Alleviation Fund (PPAF), MFIs and MFPs have definitely taken notice of the short-comings of the system and have designed a number of women-focused products, policies, strategies and structures, they are still in the process of figuring out an effective implementation of their plans.
And while they are busy devising what they call ‘effective execution measures’ of microfinance programmes, a handful of donors, NGOs and Foundations have become a ray of hope for women who aren’t benefitting from microfinance schemes. These organisations are stepping forward to empower women mainly by enriching their skills, instead of providing finance, so women can make the most of the available resources.
“We don’t provide loans, but improve women’s income and social status by providing them training in first aid and veterinary services for rudimentary livestock ailments so they can boost their livestock productivity; we believe that skills can take them much farther than money, ensuring sustainable growth. So far, we have trained 300 village women who charge for their skills and services, and earn their living,” said Monezza Ahmed from Engro Foundation.
Published in Dawn, Sunday Magazine, January 25th, 2015