Year: May to June, 2009
Locale: Bahawalpur, D.G Khan and Rawalpindi
Microfinance is now an increasingly important tool for poverty alleviation in the world. The global outreach of microfinance schemes has increased significantly in the recent past. The World Bank estimated that the total number of microfinance institutions worldwide approximated 7000, with a total outreach of about 16 million borrowers, and lending of about $2.5 billion. Currently, Pakistan’s total microfinance outreach is around 1.3 million active borrowers. The single largest provider is the NRSP, with close to 0.46 million borrowers. Khushhali Bank, which was established through a public-private partnership as a result of the Microfinance Bank Ordinance, 2001, caters to approximately 0.35 million active borrowers with an average loan size of Rs.10,500. The hypothesis/research question that we addressed in the study had a two-fold but related dimension, namely:
- Micro credit generates household income and asset growth
- Social mobilization enhances these in-come and asset benefits
The literature on the subject, refers to this linkage as micro credit plus. In other words, we reviewed the empirical evidence in favor of and against the proposition that sustain-able microfinance needs to be viewed as a development, as opposed to a commercial activity. The presumption implicit in our hypothesis, was that micro credit in and of itself generated income and asset benefits as did social mobilization. However, the combination of social mobilization and micro credit leveraged the best income and asset out-comes. The intent was to demonstrate that, in fact, the combination generated a synergy rather than a mere additionality.
The overall objective was to assess the economic impact of the program in terms of income generation, increase in income and assets of its borrowers / clients. The study was a combination of quantitative and qualitative methods.
Our study indicated that micro credit has, in-deed, produced the anticipated benefits. They did not, however, bear out the second part of the hypothesis. In other words, the micro credit plus presumption was not sup-ported. The finding had interesting organizational implications. The key implication was that development and microfinance were two structurally disparate activities which needed to be addressed separately. This finding was very different to an earlier study we con-ducted on micro credit impacts on women (Khan et al, 2008). We concluded in that study that social mobilization empowered women socially and culturally, enabling them to utilize micro credit more effectively. However, these two findings are not necessarily incompatible. Women were both poor and socially and culturally marginalized. The RSPs instilled in them a self-awareness and confidence that was key to their undertaking economically productive activities in an inherently repressed environment. This over-rode considerations of organizational incompatibility. Also, at the end of the day, commercial and development functions could not be separated in a RSP controlled environment. The presumption was that the highest management tier would not allow commercial considerations to depreciate their original social and development mandate. In fact, the NRSP had preempted our survey findings and had already established its first microfinance bank.