ROLE OF MICROFINANCE UNDER SUSTAINABLE GROWTH OF PAKISTAN.

Byline: NAZIR AHMED SHAIKH

The microA!nance sector in Pakistan has made signiA!cant progress in the last few years. The sector has grown rapidly, it has changed its orientation to one which is moving towards sustainability and it is operating within a policy and regulatory environment which is supportive. While microA!nance is advocated as a strategy for poverty alleviation, the lending methodologies and client screening systems exclude the poor from many programs. Some MFIs su er from pangs of consciousness about charging high interest rates to poor clients and prefer not to charge any interest rate (for example Akhuwat) or keep their interest rates at levels lower than those required for sustainability. There are very few programs, which have developed a strategy for the ultra-poor or one of cross subsidization of poor clients. Thus there is great ambivalence in the sector about interest rate policy and targeting strategy.

Pakistan is estimated to have a population of around 220.70 million, which is 2.83% of world population, with an annual growth rate of 2.00%. The country's economy has grown at an av- erage rate of over 3.29% in 2019. The annual inflation rate in Pakistan eased to 10.7 percent in March of 2020 from 12 percent in the previous month, reach- ing its lowest level since July of last year. The national poverty ratio, which was 31.3% in June 2018, would sharply jump to over 40% by June 2020. In absolute terms, people living in poverty will in- crease from 69 million in June 2018 to 87 million by June 2020, indicating 26% increase in poverty or an addition of 18 million people.

The poor of Pakistan have generally relied on informal sources for meeting most of their credit requirements. Infor- mal providers serve a predominantly lower income group who are perceived by the financial institutions as "un-bank- able" due to their inability to comply with conventional loan collateral require- ments. The informal credit market is served by a wide variety of providers including predominantly family and friends, landlords, money lenders, trad- ers, or commission agents. Large land- lords usually provide credit to their ten- ants or sharecroppers for the purchase of agriculture inputs and consumption purposes. This is most common in Sindh and Southern Punjab.

Commission agents favor interlinked transactions providing, for example, inputs to farmers and undertaking to sell their produce. It is diflcult to prop- erly assess the actual price of credit in these interlinked transactions. Suppli- ers' credit is common in established markets such as textile, and informal finance is common in the transport sec- tor as well as in the shoemaking, dairy and livestock industries. It is estimated that 65% of outstanding debt of all rural households was provided by non-insti- tutional or informal sources. A Finan- cial Markets Survey found that 82 per- cent of individuals borrowed 69 percent of the total amount of funds at very low or no interest...