Impact of Microfinance on Income Generation and Living Standards A Case Study of Dera Ghazi Khan Division

• Author: TAHIR MAHMOOD, MUHAMMAD FAROOQ ARBY TAUQIR HUSSAIN AND ABDUL SATTAR

Abstract

This paper analyzes the role of microfinance in poverty alleviation and improving the living standard of poor households. A survey of 400 active clients of the Khushhali Bank (a Microfinance Bank) in Dera Ghazi Khan and Layyah districts of the Punjab (Pakistan) has been undertaken for this purpose. Statistical and econometric techniques are used to explore the impact of the microfinance. It is found that microfinance credit positively affects income generation and consumption level of poor; and the impact on productive activities is higher than the consumption.

Keywords: Microfinance, Living standard, Khushhali Bank

1. INTRODUCTION

   Positive impact of microcredit on poverty reduction and equitable economic growth is well documented by a number of studies, some of which have been reviewed in the next section. The small loans provided by micro financial institutions not only improve social conditions of poor people through better standard of living with greater access to education and health facilities, but also empower them to participate in decision making activities in the society.

   The concept of microcredit was first introduced in Bangladesh, which have been followed by many countries to address the issues of financial exclusion and poverty. In Pakistan, microfinance activities date back to 1990s with NOGs providing financial assistance to underprivileged segments of the society to make them earn their livings. However, more rigorous efforts for financial inclusion started in early 2000s. The government and State Bank of Pakistan have made many rules and regulations for the promotion and growth of the microfinance sector. Microfinance Bank Ordinance was passed in 2001, which not only regulated but also helped the private sector to contribute to uplift the living standards of poor by removing their financial constraints.

   At present, ten micro-financial institutions (MFIs) are working in the country with the total assets of more than Rs. 70 billion. There are about 1.2 million borrowers of these financial intuitions (as on December 2014), who are spread across the country. Khushhali Bank (KBL), established in 2000, is the largest of these MFIs in terms of asset base and clientele. It is an important partner of Government of Pakistan's Poverty Strategy and Microfinance Sector Development Programme (MSDP), which is developed with the support of Asian Develop Bank (ADB).

   The trading and agriculture sectors continue to dominate the distribution of microcredit, together accounting for more than 50 percent of the borrowers. These are followed by livestock with a share of 16 percent, and manufacturing with a share of 9 percent.

   This study focuses on the districts of D. G. Khan and Layyah, which have very low level of development, compared with other districts of the Punjab (The Human Development Index (HDI) ranking of these districts is 0.63 and 0.68). The microfinance is expected to be very helpful for raising the income level and living standards of people living in these districts. The remaining part of the study consists of a literature review in section II, methodology and results in section III, and concluding remarks in the last section.

2. LITERATURE...