Microfinance - A Poverty Reducing Agent in Pakistan

Abstract

Pakistan is a large country with a population estimated at 180 millions. The economy has a low Per Capita Income of US$ 600 approximately, with an estimated purchasing power parity of $ 2500. Poverty has always remained a major development problem of Pakistan. Many methods have been used in the past to alleviate poverty including Direct Credit Approach, focus on job creation, heightened economic activities etc. Islamic modes of financing included Fitrana, Sadqat, Ijarah, Istisna, Bai Muajal, Salam, Musarakah, Mudarabah, Leasings and so many other things, but the results are not encouraging. The main focus of these approaches was on income redistribution. However, there is immense evidence suggesting that a successful anti-poverty strategy should include a policy regime that promotes inclusive economic growth; investments in human capital, infrastructure, and micro-credit. In fact microfinance encompasses all these important aspects and that is the reason to work on this particular area and analyze broadly its effect on the economy of Pakistan.Microfinance arose in the 1980s as a response to doubts and research findings about US state delivery of subsidized credit to poor farmers. Grameen Bank’s of Dr. Yunus is still considered as the main pioneer in the provision of microfinance. In the 1970s US government agencies were the predominant methods of providing productive credit to those with no previous access to credit facilities. In Pakistan there are many formal, semi-formal and informal channels working for the provision of the micro-credit. In this paper, Pakistan Microfinance Network (PMN) and Aga Khan Rural Support Program (AKRSP) have been chosen for this purpose, and to discuss their maximum outreach including, the First Microfinance Bank, Kashf Foundation, Orangi Pilot Project, Punjab Rural Support Program and The Bank of Khyber. Microfinance has seemed to last a positive impacts on the Economy, culture and Psychology of the area where it was provided. Village organizations in the area of AKRSP seemed to have a positive impact (resulting in wealth creation, better productivity & income, better human resource management and conservation of natural resources). At the macro level provision of microfinance results in alleviation of poverty, female empowerment and development of overall financial system.