This paper presents a structure of a viable Islamic MFI, based on findings of desk review and primary data collected on account of the present state of conventional and Islamic microfinance in Pakistan, preference of Muslim people for Islamic financial products/services, their Shariah compatibility, and operational and financial sustainability. The panel data set of Pakistan Poverty Alleviation Fund1 (apex organization to finance operations of microfinance NGOs) will be used to help determine any impact of conventional microfinance on poverty alleviation. As such, an effort will be made to build the case for Islamic microfinance on two counts, viz. social exclusion and effectiveness of conventional microfinance. The paper intends to suggest viable framework extending scope of Islamic microfinance in Pakistan through product diversification, innovation and necessary linkages. Few recommendations would help to institute mainstreaming and inclusion.
1 Apex organization to finance operations of microfinance NGOs
Pakistan’s Microfinance sector expanded outreach at an average annual rate of 49.6% in the period 2000-2007 while improving its portfolio quality to globally competitive level with Portfolio at Risk for loans overdue for more than 30 days (PAR>30) at 3.1% in 2007. By year end 2008, Pakistan’s microfinance outreach stood at 1.7 million active borrowers but the sector began to witness recovery challenges, specifically in its most microfinance fecund province Punjab. Groups of borrowers of one of Pakistan’s largest microfinance provider (MFP) - referred in this report as MFP-X - refused to repay loans amidst rumors of mass loan write offs. Other MFPs operating in Punjab began to fear deterioration in their borrowers’ repayment behavior as some of their clients tried to replicate the revolt of MFP-Xs borrowers to have their loan obligations towards other MFPs waived off as well. This report is based on the research commissioned by Pakistan Microfinance Network (PMN) to understand the nature, extent and seriousness of the delinquency “problem”. The research is to specifically answer the following questions: 1) Why and how was the “problem” started? 2) What is the extent of the “problem” to date? 3) What are the potential spillovers of the “problem” for the sector, and 4) What are the recommendations for sector stakeholders to contain the problem and prevent similar situation recurring.
The Institute for Development, Evaluation, Assistance & Solutions (IDEAS), with 35 years of work in community economic development, has evaluated dozens of microfinance institutions (MFIs) and thousands of their clients on four continents. As a leader in the field, it has developed tools, designed and led evaluations on the impact of microfinance, poverty assessment, market research, and social performance. IDEAS has become concerned with the lethargic growth, failure rate, and the small percentage of microenterprises that graduate into successful small businesses. One of the strategies to complement microfinance with supportive a business service framework is micro-franchising. A micro-franchise is a proven business with operational and marketing aspects that can be easily replicated by micro-entrepreneurs with technical advice and training by a micro-franchisor. Micro-franchising has benefits for emerging micro-entrepreneurs and those not succeeding well on their own, by making the transition from subsistence to more formal, solid businesses. It also can benefit NGOs and governments who want enterprise development on a less subsidized approach. IDEAS has identified five different types of micro-franchises, along with successful examples, and the presenter will share some of IDEAS’ recent work to introduce micro-franchising to MFIs, enterprise development agencies, and governments in Central America.
This paper reviews literature on the political economy of Palestine to discuss the prospects for poverty alleviation and empowerment through microfinance in the West Bank. This is an important question because the West Bank is a prime location for the burgeoning microfinance movement; lending there has increased exponentially in the last ten years, and it most likely will continue to grow since only 20% of potential clients have been reached so far. Furthermore, the West Bank provides an excellent case study to highlight the importance of the broader conditions in which microfinance is implemented. The fundamental premise of this paper is that we cannot properly assess the prospects for poverty alleviation and empowerment in the West Bank without a deep investigation of the socio-political milieu in which the microfinance institutions (MFIs) are operating. MFIs already have assessed levels of poverty and potential demand, which is important; but we also need to comprehend the legal environment and the political stability of the area, and from there we must delve into more finite details of how gender relations are negotiated on a daily basis, and how class solidarity is (or is not) manifested among microcredit borrowers. Considering the literature on these phenomena, the paper concludes that the prospects for poverty alleviation and empowerment in the West Bank through microfinance are real, but only if lenders reconsider the assumption that access to financial resources can alleviate poverty and empower women without first challenging gender and class relations at the societal level.