The microfinance sector needs social business-oriented investment.

Byline: AKRAM KHATOON

Despite the fact that microfinancing emerged and flourished basically in South East Asia and African countries as an effective tool by microfinance bank for economic empowerment of disadvantaged segments of the population, poverty concentrates in this part of the globe where almost 4 billion people are living below the poverty line. The reason is that the investment needed in this particular financial sector falls far short of what is needed.

According to data released by Consultative Group to Assist the Poorest (CGAP) total global investment in the Microfinance sector has just reached $30 billion by the end of 2007, whereas now the market size of microfinance has reached $207,349 million in 2022 and is likely to reach $447,764 million by 2028 while funding needed for unbanked poor is not less than $300 billion.

In recent years the majority of Micro Finance Institutions (MFIs) have been transformed into regulated Micro Finance Banks (MFBs) and cooperative banks, which pursue the social objective of empowering the poor economically and at the same time achieving investment viability, but due to much higher administration and operation cost involved for enhancing accessibility of their services to poor and compulsion of providing poor friendly saving and credit products to them prevent investments to come forward because of lack of sustainability with regard to the financial performance of these entities as normally financial performance of MFBs and MFIs go far below market financial returns in the face of commercial funding obtained with the condition of risk-adjusted returns.

However, there is a silver lining for this sector. Dr. Muhammed Yunus - founder of Grameen Bank of Bangladesh and a Noble Prize winner sees during his tenure as founding president has coined a new term 'Social Business Entrepreneurs'. According to him "they are not interested in profit maximizing. They are totally committed to making a difference in the world. They want to give a better chance in life to other people." No doubt this class of entrepreneurs/investors have a due concern for the sustainability of their projects for providing employment, credit and low-cost products to disadvantaged segments of the population, but never for accelerating their profits at the cost of economic discomfort to the masses. Accordingly, micro financing sector particularly in developing countries needs social business-oriented investments.

In Pakistan, MFIs and...