MICRO-FINANCE & ECONOMIC DEVELOPMENT IN PAKISTAN

Abstract

Pakistan is a large country with a population estimated at 135 million. The economy still has a low income of US$ 470 per capita, 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 activity etc. Islamic modes of financing included zakat, fitrana and sadqat. The main focus in either of the 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 and all these important aspects and that is the reason I chose 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 Dr. Yunus s 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, semiformal and informal channels working for the provision of the micro-credit. I have chosen to work on Pakistan Microfinance Network (PMN) and Aga Khan Rural Support Program (AKRSP). PMN consist of 12 members falling in different categories of formal and informal credit providers. I have chosen to discuss a few of them with the maximum outreach including, the First Microfinance Bank, Kashf Foundation, Orangi Pilot Project, Punjab Rural Support Program and Bank of Khyber. Later the impact assessment of AKRSP and Kashf Foundation has been discussed in detail. 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).Similar results were observed in the area of operation of Kashf Foundation. At the macro level provision of microfinance results in alleviation of poverty, female empowerment and development of overall financial system.