December 31, 2003
Prepared for the PAKISTAN MICRO FINANCE NETWORK
by Maliha Hussein and Shazreh Hussain
LIST OF ABBREVIATIONS
AKRSP CGAP DFID PMN PPAF PRSP NRSP NGO OCT SEWA
Aga Khan Rural Support Programme Consultative Group to Aid the Poorest Department for International Development Pakistan Micro Finance Network Pakistan Poverty Alleviation Fund Punjab Rural Support Programme National Rural Support Programme Non-Governmental Organisation Orangi Charitable Trust Self-Employed Women’s Association
Overview 1. There is increasing reliance on micro finance as an instrument of poverty alleviation in Pakistan. The Government of Pakistan’s current Poverty Reduction Strategy emphasises the provision of micro credit as a key aspect of its poverty reduction strategy. The establishment of the Pakistan Poverty Alleviation Fund with World Bank financing and the Khushali Bank with Asian Development Bank financing are based on the underlying expectation that these initiatives will help to reduce poverty in Pakistan. Micro-finance has been an important aspect of the poverty alleviation strategy of the NGO sector since the 1980s. The Rural Support Programmes have placed a strong emphasis on helping the poor initiate micro-finance programmes as an essential part of their poverty reduction strategy. Women have been a participant in these efforts and, following the example of Grameen Bank, some programmes have focused exclusively on women. Despite this excessive reliance on micro-finance to be the panacea for poverty in Pakistan there has been surprisingly little work undertaken to assess the impact of micro-finance on poverty and gender equity. 2. This background paper has been written with the primary purpose of assessing the impact of micro finance on poverty and gender equity in Pakistan. The paper has been commissioned by the Pakistan Micro-Finance Network (PMN) for presentation at a seminar being hosted by the Network in December 2003. The main purpose of the seminar is to publicly examine the research and empirical evidence and analytical work available in this regard in the Pakistan context and outline the parameters that are useful to examine in the future to understand the impact of micro-finance on poverty alleviation. It is expected that this exercise will help in sharing different approaches and experiences, assist in forming a realistic expectation of the impact of micro-finance and assess the extent to which micro-finance programmes may need to be redesigned to enhance their impact on gender equity and poverty. 3. The paper is not based on any primary research but attempts to assess the different approaches taken to this critical issue by various micro-finance practitioners and the evidence that has been collected in Pakistan in this respect. The report also scans the approach to impact assessment that has been taken at the regional and international level and the evidence that is available from the region in terms of the impact on poverty and gender equity, particularly in Bangladesh. The main focus of this study was expected to be on micro-finance. However, the major focus of microfinance institutions in Pakistan has been on providing loans and most are exclusively providing credit. A few NGOs, particularly the Rural Support Programmes have also initiated savings services but this has not been the main focus of MFI services, and most, like the Orangi Charitable Trust (OCT) challenge the rationale of savings given the current economic and financial environment. While a few MFIs have initiated other financial services, such as micro-leasing, insurance, remittance services, etc the volume and scope and outreach of these services is so limited that it does not make much sense to assess their impact, at this stage. Furthermore, informal financial markets have played a major role in...