MFG en Paper Non Productivity of Microfinance Loans in Pakistan Sep 2010 PDF

Researcher
Muhammad Ahmed Mazher

Supervisor & Examiner
Dr. Hortense Ross-Innerarity
INTERNATIONAL OPEN UNIVERSITY, CALIFORNIA, USA
Abstract
1)
2)
3)
Introduction
a) Background of the Study
b) Research Question
c) Aim of Research
Methodological Approach
a) Research Strategy
i.
Purpose of Study
ii.
Unit of analysis
iii.
Mode of Observation
iv.
Sampling Design
Literature Review & Theoretical Framework

a) What is Microfinance?
10
10
b) Goals and Key Principles of microfinance
12
c) Challenges facing microfinance industry in Pakistan
15
d) Difference between commercial banks & MFIs economic activity

e) What is Microcredit?
17
f) Difference between Microfinance & Microcredit
20
g) 10 tips to help improve in lending intelligence
20
h) Principles for sustainable microlending
22
i) Poverty alleviation, microcredit and its impact in Pakistan

j) Introduction of microlending methodologies
k) Steps to becoming loaner
24
l) Common Microcredit methods
25
Grameen Model
ii.
Banco-sol Progressive Model
30
32
23
24
m) Comparative study of lending methodologies special in Pakistan

i.
16
Non-Productivity of Microfinance Loans in Pakistan
Acknowledgement
30
iii.
Grameen La Riba Model
32
iv.
Islamic Lending Model
36
v.
Akhuwat Lending Model
46
vi.
NYMT Lending Methodology
49
vii.
Farz Methodology
53
n) What is poverty? And who are poor?
55
o) Difference between productive and non-productive loans
4)
57
p) What are millennium development goals?
58
Productive and No-Productive Loans in Pakistan
62
a) Is there any need to check the loans utilization?
62
b) Why do deprived persons tale multiple credits? How it can be holdup? 63

c) Importance of productive loans in poor lives
63
d) Bad impacts of non-productive loans in MFIs
65
e) Conventional MFIs increase liabilities whereas Islamic MFIs increase Assets

f) Horrible effects of non-productive loans in deprived people
5)
Data Analysis & Interpretation
68
71
a) Are microfinance loans productive as per MDGs in Pakistan?
6)
71
i.
Staff behavior of MFIs
ii.
Offering any extra / additional facilities by MFIs
73
iii.
Improvement of business after getting loans
74
iv.
Preference of loan type (Cash based loans or Asset based loans)
75
v.
Improvement in the lives of destitute after getting loans
76
vi.
Are microfinance loans utilizing in business or personal practices? 77
Conclusion
References
72
79
86
Final Thesis: Doctor of Business Administration (DBA)/PhD Researcher: Muhammad Ahmed Mazher
E-mail: mian.mazher@gmail.com , mian.mazher@hotmail.com
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until they change it themselves (with their own souls)..

-Al-Quran, 13.11
A mans work ends upon his death except for the three things:
(a) contribution to knowledge (b) on-going charity and (c) faithful child
Al Hadith
Money, says the proverb, makes money. When you have got a little, it is often easy to get
more. The great difficulty is to get that little.
(Adam Smith)
.Verily never wills Allah change the condition of a people
Let us be clear: micro finance is not the charity. It is the way to extend the
same rights and resources to low income households that are available to
everyone else. It is recognition that poor people are the solution, not the
problem. It is way to build their ideas, energy and vision. It is a way to grow
productive enterprise and to allow communities to prosper (Kofi Annan)
3
This thesis is dedicated to my parents, spouse, family members and my friends, who always
encouraged me in every footstep to accomplish this study.
The realization and completion of this study involved a number of people. First and foremost, I
remain grateful to God Almighty who through His infinite mercies made it possible for me to
finish the work in order to conclude my DBA/PhD programme.
It is a great honor for me to work on the allocated subject and i feel eager to accomplish my
mission. Along with my sincerity and curiosity, there are few people, who really facilitated me
to make this endeavor to be an effective one.

At first, I would like to pass recognitions to my honorable Supervisor, Dr. Hortense RossInnerarity (PhD) for their support and assistance to complete this thesis.
I would like to thank Mr. Farhat Abbas Shah, CEO (Farz Foundation) and his team for
cooperation and providing me with all important and essential information.
I also concede great help from the Microfinance Experts, Especially Mr. Amer Yousaf, Manager of
NYMT Islamic Microfinance Programme, Mr. Aftab Hussain, Manager Operations - Akhuwat
Pakistan. I thank them for reserving his valuable time and effort to answer my questions.
I am very much grateful to my links and supports, who also contributed a lot in finalizing this
piece of work to be an efficacious one. Especially, some of friends who helped me to complete
my field research work from different MFIs in which Kashf MF, Tameer, CSC, Asasah,
Khushhali Bank, First MF bank, Farz foundation, NYMT Islamic MF and Akhuwat included.

3rd June, 2010
Pakistan
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Title:
Author:
Supervisor:
Dr. Hortense Ross-Innerarity (PhD)
Key Words:
Non-Productivity of Microfinance Loans
NO
Doubt, microfinance is very powerful apparatus to alleviate the poverty and
empowerment to women and poor populations. There are numerous NGOs,

alleviation and they are annoying to attain their goals and assignments. State
Bank of Pakistan (SBP), Pakistan Microfinance Network (PMN), Pakistan Poverty Alleviation
Fund (PPAF) and other frames are also working for attaining the Millennium Development
Goals (MDGs) and contributing for the economic development of the nation.
The intention of any loan invention should be to empower the poor and make them capable to
earn money for their family essentials. But unfortunately, it has perceived that most of the
people grabbed loans from various MFIs and expended this money in their individual desires
and never utilize these loan facilities for any business productivity or income generation
approach. It is very risky for all MFIs which are engaged in cash loan business (conventional
MFIs) activities, because of them, poverty is not alleviating but the liability of loans cumulative
gradually on the deprived communities. To eliminate this issue of non-productivity of MF
MFIs, MFBs and other welfare trusts that are operational for the poverty
loans, there is need to modification the lending methodologies and need to adopt the assets
base lending (non-conventional MF) except cash base lending (conventional MF). Now there is
demand of non-conventional MFIs (Interest Free MFIs Islamic Approach) in Pakistani
potential markets and this is only the way to alleviating the poverty, accomplishing MDGs and
getting economic growth with interest free option.
The study has reviewed the success of Islamic Microfinance lending methodology (Farz
Methodology) as compared to conventional lending methodologies in Pakistan and also
analysis of different conventional MFIs, Islamic MFIs in regards of millennium development
goals IMDGs).
a) Background of the Study

Microfinance in Pakistan is at its preliminary or initial stage. The poverty level in Pakistan is
about 33% to 35%. It means one third of the population of 150 Million people of Pakistan is
below the poverty line. These statistics shows situation of the society is very adverse. The
government of Pakistan and some other organizations like Kashf Foundation and Kashf
Microfinance Bank, Tameer Microfinance bank, Akhuwat, First Microfinance Bank, Khushhali Bank
etc. doing their efforts to increase their outreach but there are a large numbers of challenges in
the way in which the one of I will discuss in this thesis that is Non-Productivity of Microfinance
Loans in Pakistan that barrier the outreach as a whole.
It is surveyed that people dig up the money from the microcredit organizations or banks for the
purpose of business expansion, but they mistreatment this money for their individual life needs
like children educational fees or expenses, medicals, home necessaries, house building, children
marriages etc.
Recently, Farz Foundation (The First Islamic Microfinance Organization) has completed its two-year
pilot project in the area of Shalimar Lahore in two phases. The organization has done the
comparative analysis of currency disbursement and the Farz Methodology (asset delivery method )
in which the asset based microfinance shows 80% positive and productive results while the
popular practice of microfinance, which is based on credit in the shape of currency depicted
80 % negative and non-productive results. The study confirms the reports are already being
published in the international journals about the very low impact of currency deals in
microfinance. Although the efforts made by the CGAP and other agencies at the international
level and Pakistan Poverty Alleviation Fund (PPAF) at the national level cannot be ignored but the
speed of the inflation and poverty increase ratio demands more sincerer and creative efforts.
So, in this regard, there is need to analysis that, Are microfinance loans productive or nonproductive?
b) Research Question
Is microfinance loans are showing optimistic impact or productivity in Pakistan regarding of
individuals lives improvement and poverty alleviation as microfinance assure and or as per
Millennium Development Goals (MDG)?
c) Aim of Research
The main or objective of this research is
To analysis about the Non-productivity of microfinance in Pakistan.
Research Strategy
Research design involves a series of rational decision making of choices among different tools
of data collection and data analysis. This will describe procedures and steps that will be
adopted and conduct this research. Research design concludes: Purpose of the study, Unit of
analysis, Mode of observation, Sampling design, and Field data collection.
Purpose of the study
The purpose of the study is to find out that weather Microfinance loans are productive or nonproductive in Pakistan?
Unit of analysis
I will gather data from microfinance organization and microfinance banks staff and through
filed work directly from foundations and banks clients. At individual level that means
collecting data from individual loans clients, so the unit of analysis is the individual. As banks
/ foundation staff officials and direct clients are the information provider. I will compare
responses from each bank / foundation officials, clients and made processing in analysis phase.
Mode of observation
The research technique used is survey which comes under quantitative research. I will use
questionnaire as the mode of observation. I will use two questionnaires; in first questionnaire
(for Banks / Foundations/ Organizations officials or staff members) I have twenty three (23)
questions, while in second questionnaire (for clients of Banks/Foundations/Organizations) I
have twenty five (25) questions.
Logic for using questionnaire as data collection tool is less cost and less time consuming
technique, providing easy accessibility to respondents in which standardized questions are
asked to all respondents.
Sampling design
I will conduct the interviews from higher, middle and lower management officers from
different foundations/organizations/banks (minimum 15 officers from well-known each
institutions) and through randomly screening I will select twenty (20) loans clients of each
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institution and will deliver 150 questionnaires among foundations/banks officers and 200
questionnaires among different organizations clients randomly, using nonprobability sampling

technique.
(i) Sampling Technique
In my research report I will use non-probability sampling as I assume that our population is
divided into different groups like educated and non-educated that belong to different income
groups & life standard (Rural & Urban). Under this head I will adopt method of convenience
sampling.
(ii) Population
Our population consisted of men and women within the age group as per standard loan
eligibility declared by state bank of Pakistan. Field data collection Research will base on selfon the same day. During the process of filing the questionnaire researcher kept staying there in
order to overcome any difficulty face by respondents so that quality of research could be
maintained.
administered questionnaire technique. Questionnaire will be distributed, fill out and receive
a) What is Microfinance?
"Microfinance can be broadly defined as:
The provision of small-scale financial services such as savings, credit and other basic financial services to
poor and low-income people.
According to United Nation (UN)
The term "microfinance institutions (MFIs)" now, refers to a wide range of organizations dedicated to
providing these services and includes non-governmental organizations, credit unions, cooperatives, private
commercial banks, non-bank financial institutions and parts of State-owned banks.
Poor people are not able to access loans from commercial banks normally because of lack in
guarantee and collateral. But there are many other reasons also involved for which commercial
banks were not willing to finance poor. These reasons are included that poor have less
education, no proper experience and training, high expenses on transactions of small loans and
lower rate of profit. Therefore limited option to access loan leads to push poor people in more
poverty. This situation resulted in emerging the idea of micro lending and microfinance.
Microfinance, therefore, a way to finance people, those have no collateral or any property for
guarantee. Microfinance is a way of financing to poor for their business, to alleviate their
poverty, empowering them, giving social benefits on sustainable way. According to Agion &
Morduch, due to microfinance, there are many possibilities have emerged including extending
markets, reducing poverty and fostering social change. But there is wide spread confusion that
microfinance is just lending loan to poor but as we mentioned that microfinance is no more
only loans but covering the issues of poverty alleviation, putting social impact on poor and
educating poor to savings. Therefore, MFIs, today, not only NGOs but serving as a complete
banking system. This discussion lead to us that microfinance is a form of financial services for
poor to help them for their business activities by giving micro credit.
Microfinance is the term of a broad range of financial services such as deposits, loans, payment
services, money transfers, and insurance to deprived and low-income households and, their
microenterprises.
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Microfinance services are provided by three (3) types of sources:

(i) Formal institutions, such as rural banks and cooperatives
(ii) Semi-formal institutions, such as (NGOs) nongovernment organizations

(iii) Informal sources such as money lenders and shopkeepers
Institutional microfinance is defined to include microfinance services provided by both formal
and semiformal institutions. Microfinance institutions are defined as institutions whose major
business is the provision of microfinance services.
(Asian Development Bank)
The concept of microfinance can be best described by the title of F.A.J. Bouman's 1990 book,
"Small, Short and Unsecured";
Microfinance is the provision of very small loans that are re-paid within short periods of time, and is
essentially used by low income individuals and households who have few assets that can be used as
Microfinance is the provision of a broad range of financial services such as deposits, loans, payment
services, money transfers, and insurance to poor and low-income households and, their microenterprises.
Microfinance is the supply of loans, savings, and other basic financial services to the poor.
People living in poverty, like everyone else, need a diverse range of financial instruments to
run their businesses, build assets, stabilize consumption, and shield themselves against risks.
Financial services needed by the poor include working capital loans, consumer credit, and
savings, pensions, insurance, and money transfer services.
Providers of financial services to the poor include donor-supported, non-profit nongovernment
organizations
(NGOs),
cooperatives;
community-based
development
institutions like self-help groups (SHGs) and credit unions; commercial and state banks;
collateral.
insurance and credit card companies; post offices; and other points of sale.
Financial services for the poor have proved to be a powerful instrument for poverty reduction
that enables the poor to build assets, increase incomes, and reduce their vulnerability to
economic stress.
(Pakistan Microfinance Network)
"Microfinance is the supply of loans, savings, and other basic financial services to the poor."
Consultative Group to Assist the Poor (CGAP)
As the financial services of microfinance usually involve small amounts of money small loans, small
savings etc. the term "microfinance" helps to differentiate these services from those which formal banks
provide.
(www.kiva.org)
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Microfinance is the provision of financial services such as loans, savings, insurance, and training to
people living in poverty.
(Opportunity International)
Microfinance may be defined as the financial services needs including credit, savings, insurance and
payment transfers etc., of the poor households and their micro enterprises.
(State Bank of Pakistan)
In the simple and short words, I can define the microfinance in the following words;
Microfinance is the way to alleviate of poverty by providing the micro services (credit, insurance, saving,
health etc.) to the poor or unbanked people.
Economic activities base upon sellers and buyer and their capacity. Sellers, before market their
product, look at buyer intention and capacity. On the other hand, banking activities depend
on both sellers and buyers. Lenders (MFIs) finance both sellers and buyers for their activities.
Commercial Banks invested in projects at large scale while with this, banks invested in
consumer finance also. While MFIs usually dont invest in consumer finance, but give finance
only for micro enterprise. MFIs encourage people to lift up their standards by doing businesses
and earning from them and this is a consistent and sustainable way.
b) Goals and Key Principles of Microfinance

Key Goals of Microfinance
Microfinance, a type of banking service that is provided to unemployed or low-income
individuals or groups who would otherwise have no other means of gaining any financial
services. Ultimately, the goal of microfinance is to give low income people an opportunity to
become self-sufficient by providing a means of saving money, borrowing money and insurance.
The goals of MF banks are the following:
To provide diversified, trustworthy and timely financial services to the economically active
poor.
To mobilize savings for financial intermediation.
To create employment opportunities.
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To provide real avenues for the administration of the micro-credit program of government
and high net worth individuals.
To provide payment services such as salaries, gratuities and pensions on behalf of various
tiers of government.
To engage the poor in the socio-economic development of the country
Key Principles of Microfinance
The poor need a variety of financial services, not just loans
Each one needs a wide range of financial services that should be elastic, suitable and
realistically priced. Poor not always insist only cash loans they also need medical insurance,
saving and cash transfer etc.
It is necessary to provide the access of financial services to deprived people for increasing their
income, building assets and reduced their liabilities and need to empowering against the
poverty.
Microfinance means building financial systems that serve the poor
Poor people constitute the vast majority of the population in most developing countries. Yet,
an overwhelming number of the poor continue to lack access to basic financial services. In
many countries, microfinance continues to be seen as a marginal sector and primarily a
development concern for donors, governments, and socially-responsible investors. In order to
achieve its full potential of reaching a large number of the poor, microfinance should become
an integral part of the financial sector.
Financial sustainability is necessary to reach significant numbers of poor people
Microfinance is a powerful instrument against poverty
Most poor people are not able to access financial services because of the lack of strong Retail
financial intermediaries. Building financially sustainable institutions is not an end in itself. It
is the only way to reach significant scale and impact far beyond what donor agencies can fund.
Sustainability is the ability of a microfinance provider to cover all of its costs. It allows the
continued operation of the microfinance provider and the ongoing provision of financial
services to the poor. Achieving financial sustainability means reducing transaction costs,
offering better products and services that meet client needs, and finding new ways to reach the
unbanked poor.
Microfinance is about building permanent local financial institutions
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Building financial systems for the poor means building sound domestic financial
intermediaries that can provide financial services to poor people on a permanent basis. Such
institutions should be able to mobilize and recycle domestic savings, extend credit, and
provide a range of services. Dependence on funding from donors and governmentsincluding
government-financed development bankswill gradually diminish as local financial
institutions and private capital markets mature.
Microcredit is not always the answer
Microcredit is not appropriate for everyone or every situation. The destitute and hungry that
have no income or means of repayment need other forms of support before they can make use
of loans. In many cases, small grants, infrastructure improvements, employment and training
programs, and other non-financial services may be more appropriate tools for poverty
alleviation. Wherever possible, such non-financial services should be coupled with building
savings.
Interest rate ceilings can damage poor peoples access to financial services
It costs much more to make many small loans than a few large loans. Unless micro lenders can
charge interest rates that are well above average bank loan rates, they cannot cover their costs,
and their growth and sustainability will be limited by the scarce and uncertain supply of
subsidized funding. When governments regulate interest rates, they usually set them at levels
too low to permit sustainable microcredit. At the same time, microlenders should not pass on
operational inefficiencies to clients in the form of prices (interest rates and other fees) that are
far higher than they need to be.
The governments role is as an enabler, not as a direct provider of financial services
National governments play an important role in setting a supportive policy environment that
stimulates the development of financial services while protecting poor peoples savings. The
key things that a government can do for microfinance are to maintain macroeconomic
stability, avoid interest-rate caps, and refrain from distorting the market with unsustainable
subsidized, high-delinquency loan programs. Governments can also support financial services
for the poor by improving the business environment for entrepreneurs, clamping down on
corruption, and improving access to markets and infrastructure. In special situations,
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government funding for sound and independent microfinance institutions may be warranted
when other funds are lacking.
Donor subsidies should complement, not compete with private sector capital
Donors should use appropriate grant, loan, and equity instruments on a temporary basis to
build the institutional capacity of financial providers, develop supporting infrastructure (like
rating agencies, credit bureaus, audit capacity, etc.), and support experimental services and
products. In some cases, longer-term donor subsidies may be required to reach sparsely
populated and otherwise difficult-to-reach populations. To be effective, donor funding must
seek to integrate financial services for the poor into local financial markets; apply specialist
expertise to the design and implementation of projects; require that financial institutions and
other partners meet minimum performance standards as a condition for continued support;
and plan for exit from the outset.
The lack of institutional and human capacity is the key constraint
to be built at all levels, from financial institutions through the regulatory and supervisory
bodies and information systems, to government development entities and donor agencies.
Most investments in the sector, both public and private, should focus on this capacity
building.
The importance of financial and outreach transparency
Accurate, standardized, and comparable information on the financial and social performance
of financial institutions providing services to the poor is imperative. Bank supervisors and
regulators, donors, investors, and more importantly, the poor who are clients of microfinance
need this information to adequately assess risk and returns.
(www.cgap.org)
c) Challenges facing microfinance industry in Pakistan
Microfinance is a specialized field that combines banking with social goals, and capacity needs
There are several challenges which are fronting by MF industry in Pakistan in which few but
significant are discussing in the following;
First of all, need to be observe and clear that in the whole world and especially in
Pakistan that, Is this industry based on NGOs / Non-commercial institutions or
commercial institutions?
Mostly NGOs are serving in MF industry and providing the financial services under
the umbrella of social welfare or development to deprived people. These NGOs / Noncommercial institutions sell out the financial services with the message of poverty
alleviation but results are adverse and reason of creating negativity for MFI industry.
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According to recent survey conducted in Pakistan by Asasah (MFI), Not a single MFI
has even a countable numbers of loyal clients.
Due to role of activist, MFIs are facing helplessness in the field of client management
relationship.
Important challenge in MFIs is delinquency and recovery. Poor people never willing to
accept microfinance as tool of poverty alleviation due to vicious and cruel attitude of
loans officers / recovery officers.
The political disaster is also a big challenge for this industry.
According to an international microfinance expert from ILO (International Labor
Organization), this is international phenomena with this industry, even the donors are unhappy.
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The adaptation of MFIs to Microfinance banks (MB) is also agenda but sustainability
and human resources are main barriers to make it flourish.
Many MFIs are dealing in financial matters without having any legal authority. It is
need of the time that State Bank (SB) takes the serious action against these illegal
institutions. PMN has taken so many steps to align this system, also emphasizing on the
partnership of MFIs and commercial banks.
PMN needs to make IT system for combine the MFIs client data.
PMN has hope to achieve the target of three millions (3000K) active borrowers till 2010.
(Farhat Abbas Shah)
d) Difference between Commercial Banks & MFIs Economic Activity
According to Ledgerwood, there are many activities and characteristics are including in
microfinance in which some are:
Small & Short Term loans.

Social collateral rather than financial collateral.
Access to larger amount of loan if repayment performance is positive.
Search and access the real poor and their business demand.
Continuous business monitoring.
Loan on higher interest rates due to expensive financial transactions and risks factors.
Easy way to access finance, therefore not too much paper work and easy short
procedures.
Offering saving services even for smallest amount.
Offer training services to borrowers business development.
business problems and its solutions.
Health care, social services and other skill training services to provide borrower a
sustainable base for their business development.
(Akhuwat)
e) What is Microcredit?
Microcredit programmes extend small loans to very poor people for self-employment projects that generate
income, allowing them to care for themselves and their families.
Microcredit is also known as Microlending. This generally refers to the process of extending
small loans to less wealth people, usually in other countries. These loans are primarily intended
to support people in starting their own businesses or expanding an existing one. This practice
Literacy training to borrowers so that they can come up with competence to daily
began in Bangladesh in 1970s. Now it is mostly done in countries outside of the U.S, but the
prospect is expanding.
Technically speaking micro-lending is a scheme of installment credit with fixed payments for
the purpose of creating self-employment and micro-enterprises. Different from ordinary
installment credit, which is mostly used for consumption purposes, microcredit is extended to
people who have no security and no adequate credit history to show that they are able to repay
the loan. The sole security is the expectation of future income through the use of the borrowed
capital. This is why the lender is typically also involved in the investment process of the
borrower, helping to make the business viable through advice, information, opportunities and
links to the business world. Unlike banks, microlenders save on acquisition costs by using very
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simplistic methods of credit scoring but invest time and money into the phases after credit has
been extended.
Micro-lending can be either a core activity as a form of banking or a subsidiary activity to education,
welfare spending, urban development and capital allocation.
"Micro-credit" has: A financial aspect in which banking services on a small scale are extended to people
with moderate means and little to no material security in order to recover the cost of lending as well as of
refinancing the extended amount.
A labor market aspect in which the goal of creating self-employment through credit
extension in intended to reduce unemployment and poverty.
A community development aspect by channeling capital into underserved and deprived

communities or countries seeking to boost the local economy.
A social welfare aspect in which subsidies, normally granted by welfare and labor
administrations in the developed world or through development agencies in developing
countries, should either be replaced by at least partly recoverable credit or made
redundant through the creation of own income, thus reducing cost to the donors, making
use of the subsidies more responsible and its effects more sustainable.
(Micro-Lending by Prof. Dr. Udo Reifner)
Microlending allows poor, unemployed or otherwise incapable people to engage in self-employment and
business projects.
Microcredit programs have brought the vibrancy of the market economy to the poorest villages and the
poorest people of the world. This business approach to the alleviation of poverty has allowed millions of
individuals to work their way out of poverty with dignity.
James D. Wolfensohn, President of World Bank (1996)
Traditional banking sector cannot reach millions of poor for whom small loans could make
huge differences. There are several reasons for this. Most of the poor are rural, and they are
much dispersed. They have low education levels, if at all. As a result, administrative cost of
supplying loans to the poor population is extremely high. Another issue that makes it difficult
to serve these customers through traditional banking is that the poor does not have any assets
to use as collateral. As a result, the poor had access to loans only through local money-lenders
at exorbitantly high interest rates. Micro-credit financing starts with the assumption that the
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poor is willing to pay high interest rates to have access to finance.
In general, the system uses the social trust as the collateral. Although there are different microcredit financing models, the borrowers in the pioneering models are usually members of small
groups. Loans are given to individuals, but an entire group is responsible for the repayment.
Hence, the borrower who does not fulfil his commitment to repay back will lose his/her social
capital. Micro-credit institutions report that their repayment rates are above the commercial
repayment rates, sometimes as high as 97%. Today, there are millions of poor people around
the world who turn to be entrepreneurs through the micro-credit sector.
(Micro-Credit Financing and Poverty Alleviation in OIC Member States 9-11 June 2007, Istanbul, Turkey)
This industry serves to be a secret goldmine for those wishing to generate extra income while
others while you. These people are also able to generate their own income and to be
independent, possibly improving their financial situation. Most of these people also have
families and overdue bills to take care of. When they are able to pay their own bills and
establish a disposable income, the economy reaches a growth spurt or surge.
Their standard of living also improves dramatically. A recent study of this industry revealed
that there are about 10,000 microlending companies in the USA. The study also reveals that
poverty of the customers doesnt determine profitability. The key is to develop loan portfolios
which are designed to keep default rates at a minimum or, hopefully, nonexistent level. The
report forces consolidation of these micro lending institutions as well as downscaling of large
lending institutions.
also helping to stimulate the economy and assist the poor. It is one of the few ways to help
One of the most prominent microlenders is Muhammad Yunus. Yunus has received the
Nobel Peace Prize for his successful and altruistic enterprise, the Grameen bank (GB) investing
only $27 too many women in Bangladesh, Yunus have helped to save women from high
interest rates. These women have been able to use these microloans to jump-start their business
and help support their families. The Grameen Bank has 98% repayment rate. The bank is now
worth over 2.5 billion dollars. Yunus is a prime example of the opportunities available by
giving small loans to poor and allowing them to help themselves.
Microcredit is the extension of very small loans to unemployed, poor entrepreneurs and others living in
poverty that are not bankable. These individuals lack collateral, steady employment and a verifiable credit
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history and therefore cannot meet even the most minimum qualifications to gain access to traditional
credit.
The UN Millennium Project identifies micro-credit as
One of the development strategies that should be implemented and supported to attain the bold
ambition of reducing world poverty by half.
A powerful endorsement of the importance of the micro-finance has come from the United
Nations with the designation of 2005 as the International Year of Micro-credit.
Microcredit is the practice of extending small amounts of credit to the working poor, most
often for the purpose income generating employment. A micro credit loan is quite literally
small loan, from $50 to $150, depending on the geographical location. 2005 was designated by
the General Assembly of the United Nations as the international year of Micro credit.
Micro Credit is defined as provision of thrift, credit and other financial services and products of very small
amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and
improve living standards. Micro Credit Institutions are those which provide these facilities.
f) Difference between Microfinance and Microcredit

Although the terms Microcredit and Microfinance are often used interchangeably, it is
important to recognize the distinction between the two.
Microcredit refers to the act of providing the loan. Microfinance, on the other hand, is the act of
providing these same borrowers with financial services, such as savings institutions and insurance policies.
In short, microfinance encompasses the field of microcredit.
{The Microfinance Revolution: An Overview Rajdeep Sengupta and Craig P. Aubuchon}
g) 10 Tips to help improve in lending intelligence

Lesson from Microcredit Pioneer
Considering lending out your hard-earned money via a Microlending site like Prosper? If it all
seems a bit new, you're not alone. "We are all learners," says Greg Bequette, one of Propers
20
largest lenders. "We only have being doing this for a year. (But) our collective intelligence is improving."
Jane Boon, who has lent around $125,000 to over 800 people on Prosper, offers 10 tips to help
you improve your own lending intelligence.
1. Its OK to be first
Many lenders search for loans that are close to being filled. But don't be afraid to be among
the first bidders/buyer. "If you don't bid, the listing may wind up being overlooked, despite its
merits," says Boon.
2. Focus on the Numbers
"Don't get sucked into storytelling," says Boon. "You will see very interesting things, but
ultimately you will have to make rational choices based on the numbers."
Ask for relevant information if it's not already in the borrower's profile. For example, if
someone has an eBay store, and wants capital to buy more Xbox 360s, ask for their eBay ID
and check their seller rating.
4. Good Intentions Don't Count for Much
"The best intentioned people can face financial difficulties," says Boon, and you shouldn't
necessarily loan money to them. "Some of my disappointing loans, I sent the person e-mails. I felt
really confident they were authentic and well-intentioned, but that didn't necessary mean that they
could pay."
3. Go Beyond Credit Reports
5. Review, Assess, Repeat

"I review my successes and failures month to month," says Boon. "Then I explore to see if I have
common experiences." As a result of these monthly reviews, Boon curtailed making loans to
borrowers with lower credit rating (HR or E-level) -- loans which had performed poorly for
her.
6. Know Your Comfort Level
"If you will freak out if somebody defaults on $200, then only lend $100 amounts," says Boon. Just
like in Vegas, know your limits, otherwise emotion will get the better of reason.
21
7. Network With Other Lenders

"We send each other tips," says Boon. "We trade ideas on lending strategies." She was reassured to
find a large number of financial whizzes on the website, many of whom were happy to help
her.
8. Let It Go
Once you've made a loan, let it be. Propers rules forbid lenders from independently
pressuring borrowers who are not paying. Prosper hires professional collection agencies to
do this, so let them do their job.

9. Group Loans Don't Eliminate Risk
Groups of borrowers can spread out the risk, helping to ensure that you get your money
back, but they don't eliminate risk. Groups, like individuals, vary. Look into groups just as
closely as you'd examine individual loans.
10. Use Filters and Third-Party Sites
What would the payoff look like if you loaned to people with a B-grade credit but only one
delinquency? Use Proper's filters to help determine your tactics and test out different
scenarios. There's also an impressive list of third-party sites that use propers API to do even
more sophisticated slicing and dicing of the data.
(Chaddus Bruce 05.09.07)
h) Principles for Sustainable Microlending

There are following principles for sustainable microlending.
1. Offer services that fit the preferences of low-income entrepreneurs
Give short-term loans
Give small loans
Give repeat loans
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Allow relatively unrestricted use

Be customer friendly
2. Streamline (Make simple or most efficient) operations to reduce cost

Highly streamline operations
Standardize the lending process
Decentralize loan approval
Maintain inexpensive offices
Select staff from local communities
3. Motivate Clients to Repay Loans
Do not require formal collateral
Use incentives for prompt repayment
Develop a public image that signals seriousness about loan collection
4. Charge Full-Cost Interest Rates and Fees
Recover the costs of the loan. Small loan sizes and personalized service result in costs
per loan that require interest rates significantly higher than commercial banks
(although significantly lower that informal sector rates).
Expect repayment. Low income entrepreneurs have shown a willingness and ability to
pay interest rates higher than commercial banks for services that fit their needs.
{Source: AMIR Programme - Sustainable Microfinance Initiative}
Use character references or group lending with joint liability to motivate repayments
i) Poverty alleviation, microcredit and its impact in Pakistan

Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great
difficulty is to get that little
(Adam Smith)
Micro finance is recognized as an effective tool to fight poverty by providing financial services
to those who do not have access to or are neglected by the commercial banks and financial
institutions. Financial services provided by Micro Finance institutions (MFIs) generally include
savings and credit. According to an estimate, currently 67.61 million people around the world
23
have access to micro financing. This number is expected to grow steadily in the future since the
target is to reach 100 million poor people with credit by the end of the year 2005.
The influence of microcredit on the destitute people lives in rural, semi urban & urban area of
Pakistan perceived during the research study period. It has been approved through several
researches that microcredit is very significant tool for poverty alleviation. No doubt,
microcredit is an instrument that is fruitful source giving employment to unemployed, very
operative tool to meet the immediate needs that may be children school fee, medicines etc., it
is time to implement this weapon against the struggle of poverty alleviation. There are some key
factors that validate about poverty decreasing. These aspects (Training & education, housing,
income, saving, food, clean or mineral water etc.) are challenges of the MDGs in which
microcredit plays dynamic role.
j) Introduction of Microlending Methodologies

The practice of Microlending is not new. Credit cooperatives and charities making loans to
young entrepreneurs have been documented from 18th century in Europe. A notable example is
the fund created by 18th century novelist Jonathan Swift. Swift donated 500 of his own wealth
for lending to poor industrious tradesmen in small sums of five, and ten pounds, to be repaid weekly, at
two or four shillings, without interest.
Another interesting historical example of microlending is the Irish Reproductive Loan Fund
Institution, which came into existence following the scarcity in 1822. This fund, which received
donations from charities in London, was established to make small loans (under 10) to
individuals in small towns for relief of the distressed Irish.
Microfinance institutions offer their clients loans using specific lending technologies, or
methodologies. These processes by which loans are delivered, aim to increase the value of the
product to the client, while simultaneously decreasing the risk and the costs to the institution.
MFIs have accumulated strong experience in various methodologies, and there are as many
methodologies and adaptations as microcredit operations.
k) Steps to Becoming Loaner

There are five (5) most important steps to become the loaner.
24
i.
Decide the amount you will be able to loan
ii.
Establish missed repayment policy

iii.
Establish a competitive interest rate
iv.
Make sure that interest and loan amount paid back
v.
Collect money and make profit
l) Common Microcredit methods

Over the past decade, the determinants of the success of microfinance credit methodologies
have received extensive attention from both practitioners and academics. The resulting
literature reflects consensus on the principles for the successful provision of micro financial
services that address the two central problems of all financial markets: imperfect information
problems by developing non-traditional mechanisms to screen applicants, monitor the actions
of borrowers, and create incentives to repay.
Many elements of these technologies impose costs on clients that they would prefer not to pay,
or may result in services that are less than ideal. For example, some customers would prefer not
to co-guarantee loans or participate in group meetings, which are ingredients of group lending
methodologies; for other clients, the initial loan size required by sequential lending may be too
small for the needs of their enterprise. These features have evolved in order to minimize the
risk associated with providing financial services to disadvantaged communities.
Having successfully controlled the credit risk, microfinance methodologies are now entering a
new evolutionary phase as they become more responsive to the demands of the customers. This
and contract enforcement difficulties. Microfinance technologies attempt to overcome these
change in approach reflects the evolving needs of micro entrepreneurs, the maturation of the
institutions, and changes in the markets in which the microfinance institutions (MFIs) operate.
In this new phase, MFIs are struggling to balance three potentially competing objectives: 1) to
reduce the costs of microfinance for both borrower and lender; 2) to widen the range of
microfinance products available to the clients; and 3) to accomplish objectives 1 & 2 without
increasing the credit risk. These three desired objectives are not independent of each other,
and may require trade-offs.
An understanding of this evolutionary process informs the future of microfinance
methodologies. This framework for analysis, summarized in the box below, outlines three
25
important questions about the evolution of microfinance technologies: why do they change;
how do they change; what do they change into.
Currently, different banks / foundations/ organizations are exercise microcredit in the world
with different typologies of strategic management, payment of the credit and financial services.
Some are based on group credit (solidarity), others on associated credit and still others on
individual credit.
A specific microlending methodology is chosen to fit the needs of the target client group,
conditions in the local environment (economic, social, political, and legal), and goals of the
program. As a result, there are no two completely identical approaches to microlending.

However, nearly all microlending programs can be classified as belonging to one of a limited
number of microlending models. The purpose of this section is to introduce the reader to the
methodological variation that exists in the field.
All microlending programs can be divided into two general categories: individual lending
programs and group (or peer) lending programs.
(i)
Associations
This is where the target community forms an 'association' through which various microfinance
(and other) activities are initiated. Such activities may include savings. Associations or groups
can be composed of youth, or women; they can form around political/religious/cultural issues;
can create support structures for microenterprises and other work-based issues.
In some countries, an 'association' can be a legal body that has certain advantages such as
collection of fees, insurance, tax breaks and other protective measures. Distinction is made
between associations, community groups, peoples organizations, etc. on one hand (which are
mass, community based) and NGOs, etc. which are essentially external organizations.
(ii)
Bank Guarantees
As the name suggests, a bank guarantee is used to obtain a loan from a commercial bank. This
guarantee may be arranged externally (through a donor/donation, government agency etc.) or
internally (using member savings). Loans obtained may be given directly to an individual, or
they may be given to a self-formed group.
Bank Guarantee is a form of capital guarantee scheme. Guaranteed funds may be used for
26
various purposes, including loan recovery and insurance claims. Several international and UN
organizations have been creating international guarantee funds that banks and NGOs can
subscribe to, to on lender start microcredit programmes.
(iii)
Community Banking
The Community Banking model essentially treats the whole community as one unit, and
establishes semi-formal or formal institutions through which microfinance is dispensed. Such
institutions are usually formed by extensive help from NGOs and other organizations, who also
train the community members in various financial activities of the community bank. These
institutions may have savings components and other income-generating projects included in
their structure. In many cases, community banks are also part of larger community
development programmes which use finance as an inducement for action.
Cooperatives
A co-operative is an autonomous association of persons united voluntarily to meet their

common economic, social, and cultural needs and aspirations through a jointly-owned and
democratically-controlled enterprise. Some cooperatives include member-financing and savings
activities in their mandate.
(v)
Credit Unions
A credit union is a unique member-driven, self-help financial institution. It is organized by and

comprised of members of a particular group or organization, who agree to save their money
together
and
to
make
loans
to
each
other
at
reasonable
rates
of
interest.
The members are people of some common bond: working for the same employer; belonging to
the same church, labor union, social fraternity, etc.; or living/working in the same community.
A credit union's membership is open to all who belong to the group, regardless of race,
(iv)
religion, color or creed.

A credit union is a democratic, not-for-profit financial cooperative. Each is owned and
governed by its members, with members having a vote in the election of directors and
committee representatives.
(vi)
Grameen
The Grameen model emerged from the poor-focused grassroots institution, Grameen Bank,
started by Prof. Mohammed Yunus in Bangladesh. It essentially adopts the following
methodology:
A bank unit is set up with a Field Manager and a number of bank workers, covering an area of
about 15 to 22 villages. The manager and workers start by visiting villages to familiarize
27
themselves with the local milieu in which they will be operating and identify prospective
clientele, as well as explain the purpose, functions, and mode of operation of the bank to the
local population. Groups of five prospective borrowers are formed; in the first stage, only two
of them are eligible for, and receive, a loan. The group is observed for a month to see if the
members are conforming to rules of the bank. Only if the first two borrowers repay the
principal plus interest over a period of fifty weeks do other members of the group become
eligible themselves for a loan. Because of these restrictions, there is substantial group pressure
to keep individual records clear. In this sense, collective responsibility of the group serves as
collateral on the loan.
(vii)
Group
The Group Model's basic philosophy lies in the fact that shortcomings and weaknesses at the
individual level are overcome by the collective responsibility and security afforded by the
formation of a group of such individuals. The collective coming together of individual
members is used for a number of purposes: educating and awareness building, collective
bargaining power, peer pressure etc.
(viii)
Individual
This is a straight forward credit lending model where micro loans are given directly to the
borrower. It does not include the formation of groups, or generating peer pressures to ensure
repayment. The individual model is, in many cases, a part of a larger 'credit plus' programme,
where other socio-economic services such as skill development, education, and other outreach
services are provided.
(ix)
Intermediatories
Intermediary model of credit lending position is a 'go-between' organization between the

lenders and borrowers. The intermediary plays a critical role of generating credit awareness and
education among the borrowers (including, in some cases, starting savings programmes. These
activities are geared towards raising the 'credit worthiness' of the borrowers to a level sufficient
enough to make them attractive to the lenders.
The links developed by the intermediaries could cover funding, programme links, training and
education, and research. Such activities can take place at various levels from international and
28
national to regional, local and individual levels.
Intermediaries could be individual lenders, NGOs, microenterprise/microcredit programmes,

and commercial banks (for government financed programmes). Lenders could be government
agencies, commercial banks, international donors, etc.
(x)
Non-Governmental Organizations (NGOs)
NGOs have emerged as a key player in the field of microcredit. They have played the role of
intermediary in various dimensions. NGOs have been active in starting and participating in
microcredit programmes. This includes creating awareness of the importance of microcredit
within the community, as well as various national and international donor agencies. They have
developed resources and tools for communities and microcredit organizations to monitor
progress and identify good practices. They have also created opportunities to learn about the
and training programmes.
(xi)
Peer Pressure
Peer pressure uses moral and other linkages between borrowers and project participants to
ensure participation and repayment in microcredit programmes. Peers could be other members
in a borrowers group (where, unless the initial borrowers in a group repay, the other members
do not receive loans. Hence pressure is put on the initial members to repay); community
leaders (usually identified, nurtured and trained by external NGOs); NGOs themselves and
their field officers; banks etc. The 'pressure' applied can be in the form of frequent visits to the
defaulter, community meetings where they are identified and requested to comply etc.
(xii)
Rotating Savings and Credit Associations
Rotating Savings and Credit Associations (ROSCAs) are essentially a group of individuals who
principles and practice of microcredit. This includes publications, workshops and seminars,
come together and make regular cyclical contributions to a common fund, which is then given
as a lump sum to one member in each cycle. For example, a group of 12 persons may
contribute Rs. 100 (US$33) per month for 12 months. The Rs. 1,200 collected each month is
given to one member. Thus, a member will 'lend' money to other members through his regular
monthly contributions. After having received the lump sum amount when it is his turn (i.e.
'borrow' from the group), he then pays back the amount in regular/further monthly
contributions. Deciding who receives the lump sum is done by consensus, by lottery, by
bidding or other agreed methods.
(xiii)
Small Business
29
The prevailing vision of the 'informal sector' is one of survival, low productivity and very little
value added. But this has been changing, as more and more importance is placed on small and
medium enterprises (SMEs) - for generating employment, for increasing income and providing
services which are lacking.
Policies have generally focused on direct interventions in the form of supporting systems such
as training, technical advice, management principles etc.; and indirect interventions in the
form of an enabling policy and market environment.
A key component that is always incorporated as a sort of common denominator has been
finance, specifically microcredit - in different forms and for different uses. Microcredit has been
provided to SMEs directly, or as a part of a larger enterprise development programme, along

with other inputs.
(xiv)
Village Banking
Village banks are community-based credit and savings associations. They typically consist of 25
to 50 low-income individuals who are seeking to improve their lives through self-employment
activities. Initial loan capital for the village bank may come from an external source, but the
members themselves run the bank: they choose their members, elect their own officers,
establish their own by-laws, distribute loans to individuals, and collect payments and savings.
Their loans are backed, not by goods or property, but by moral collateral: the promise that the
group stands behind each individual loan.
(Grameen Bank)
m) Comparative study of lending methodologies special in Pakistan

(i)
Grameen Model
A Grameen Bank branch was comprised of members, groups, and centers. Five members
comprised a group; and four to eight groups comprised a center. All the members of a center
met weekly to repay loans, deposit savings, and propose loans. Centers saved and built a center
house, a simple building that served as their meeting place for center meetings and other
events. At a weekly center meeting, women lined up in their groups of five, with the group with
longest tenure seated in the front. When the center manager (a Grameen Bank employee)
30
arrived by bicycle, the center members greeted him and gave a salute. The center chief (selected
by her peers) brought the meeting to order by leading the group in exercises and slogans. She
reported that all were present and accounted for. Funds were brought forward to the center
manager one group at a time, and he recorded each deposit in his ledger. Once funds were
collected, new loan proposals were brought before the center, and any member could support
or object to an individual loan. If the venture seemed a risky investment, the center debated
the issue and came to a decision. Then the center chief gave the loan proposals to the center
manager. Later that day, the loans proposed and accepted at that meeting were disbursed at the
branch office.
Grameen Bank borrowers had no collateral. In fact, the opposite was required: a candidate
must have sufficiently few assets to be admitted for membership in the bank. A person who was
interested in joining the bank must first find four other people with whom to form a group.
That Group should be comprised of people who knew and lived near each other, were of the
were collectively responsible for each others loans; if one defaulted, the others were required
to repay her portion. The group of five underwent a training program, where they were taught
the rules and regulations of Grameen Bank.
The candidates met several times a week for five to six weeks, learning about loan types,
compulsory and optional savings plans, interest rates, center norms, and Grameen Banks
social slogans, called the Sixteen Decisions. Bank members were expected to be able to recite or
perform the Sixteen (16) Decisions at any time. Candidates attended center meetings and
witnessed the transactions of their peers, making sure that they were interested in the
responsibility and benefits of bank membership. Illiterate candidates learned to sign their name
on their loan documents. Once the branch manager considered a group prepared to be tested,
he called for an area manager to visit with the group. The area manager asked them various
same gender (97% of borrowers are women), and were not of the same family. Group members
questions about their training, quizzed them on the interest rate for savings, etc. Once satisfied
he visited each candidates home to verify that her assets were sufficiently few and that
husbands would support their wives in their borrowing and saving efforts.
Successful candidate groups were admitted to the bank and to their center in a ceremony. After
the next center meeting, they came to the branch office to receive their first loan, usually
totaling around $100. Borrowers began loan repayment the following week by paying the first
of fifty even installments of principal plus 10% interest. Very soon after a loan was repaid, the
borrower proposed a new loan to her group and center at the center meeting. Once approved,
a new loan was disbursed immediately. Loan amounts tended to increase by 10% to 30% each
year. An established borrower could also qualify for a seasonal loan or a home loan.
31
(ii) Banco-sol Progressive Model

Grameen model of microfinance emphasize on lending to villagers and keep loan lending on in
smaller amount. The other core concept of model is formation of groups and these groups are
eligible to take loan, no option of loan for individuals. Idea of progressive lending
(Agion&Morduch, 2005, pp.119) introduced to lend loan to individuals with group lending.
Amount of loan will increase after completion of every repayment schedule. But other
characteristics of Grameen model (Group lending) are included in this method, like targeting
to poor, women, group formation, and public payment. No doubt, progressive lending is an
extension of group lending (Grameen Model) but now many MFIs are adopting this approach.
In this model of Progressive lending, microlenders are flexible about collateral and lend loan
to group with individuals also. This method is very helpful in areas with low population
densities or highly diverse population where group forming is not so easy due to different ratio
of safe and risky borrowers. This model is adopted by Banco Sol in Bolivia. In Bolivia, there
was different situation when populist regime left government and there were high ratio of
unemployment in urban areas. To come to fulfill the need of time, Banco Sol started
operations in microfinance with progressive lending. Therefore we can say that microfinance
approaches are evolved due to different political, ideological and social conditions. According
to Weiss Montgomery (2004, pp.3) Microfinance in Latin America developed under quite
different conditions. In Bolivia, a collapsing populist regime led to widespread unemployment.
Banco Sol, a pioneering microfinance institution in the region, developed to address the
problem of urban unemployment and provide credit to the cash-strapped informal sector. The
notion of commercial profitability was embraced relatively early in this approach.
(iii) Grameen La Riba Model
The Grameen Bank in Bangladesh and other MFIs throughout the world have found the
human portfolio approach (an innovative application of the portfolio theory of finance) or
group lending methodology to be very effective in ensuring high repayment rates, that allow
MFIs to charge lower interest rates and still become profitable (Feroz, 2007).
32
In a group lending strategy, an MFI will provide loans to groups of five borrowers together and
each member shares joint responsibility (risks) with all of the other group members. This
human portfolio approach is used, in part, because poor borrowers (clients) do not typically
have physical collateral to guarantee their own loans, and hence joint group responsibility
(essentially, a pooling of risky clients instead of pooling risky debt securities as it is practiced
in corporate finance) allows them to use social collateral instead as their guarantee. If a
member of the group is not able to make payments, the other members of the group are not
eligible for additional funding until all members of the group are current on their repayments.
Members can either repay the late payments of the delinquent member who is not current or
apply social pressure to the member who is lagging behind on repayments.
In addition to group lending, Armendariz de Aghion and Morduch (2005) find that dynamic
incentives (e.g., making future loan eligibility contingent upon current loan repayment ontime), frequent repayment installations, and public repayment lead to higher repayment rates.
pilot study planned for in Sri Lanka will be successful.
Our financing model is based on the Murabahah (Cost-plus resale with deferred repayment) and
Musharakah (Profit and Loss Sharing Equity Financing) contracts frequently used by Islamic
banks. In the former, the MFI purchases goods requested by the client from vendors and resells
them to the client with a pre-agreed upon markup and receives payments spread over an agreedupon time (usually 52 weeks or less). In the latter, the MFI and client sign an agreement
specifying the business conducted by the client, the profit-sharing ratios, and the buy-out
schedule. Upon signing, the MFI provides the client with money to expand the clients
business and they share profits and losses until the agreement ends with the client gradually
buying the MFIs share of the business. The group structure and financing products will be
discussed in greater detail in the following section.
These incentive mechanisms are included in our model to ensure higher probability that the
Group Lending Methodology

In microfinance environments relying on groups, the group size typically ranges from five to
fifteen {5 - 15}. The Grameen Bank and other MFIs use groups of five (5) women each, which is
what we will use as well. The success of the microfinance program, measured by repayment
rates and number of participants able to expand their businesses, will be dependent upon the
ability of group members to effectively sanction the members who strategically default and
support those that run into financial difficulty if their business is temporarily struggling. One
important determinant of group success is whether the group members can accurately discern
which fellow borrowers will repay on time or whether they will claim hardship and strategically
33
default to avoid the burden of repayment. In addition, group members will be less likely to
strategically default if the group is able to effectively discipline its members for late payments.
Most MFIs only work with self-selected groups on the assumption that group members will only
select fellow group members who they believe have the highest probability of success, will repay
on time and who they believe will respond to social sanctions if they are late in repayments.
Another factor not as frequently mentioned, but possibly an important factor for group
selection, is that members will be drawn to select members who are known to be generous. In
case a member falls behind on payments because their business is unsuccessful or they are hit
with a personal hardship, they would prefer to have fellow group members who will assist them
in making repayments on time.

Murabahah (Cost-plus resale with deferred repayment)
When borrowers form groups and approach the MFI for financing, they will not immediately
be eligible for profit-and-loss sharing Musharakah-based products, but will instead be offered a
Murabahah-based product that has fixed repayment amounts across the length of the financing.
This product is used with new groups to establish a business relationship between the MFI and
the clients. The Murabahah product will function much like it does in Islamic banks around the
world, with the only difference being that it will be distributed to only two members at first. If
repayment is made on time, then two other members will receive financing and, if repayments
continue to be made on-time, the final member of the group (who is also the group leader) will
receive financing.
The financing agreement for each group will operate as follows: the client will submit a request
for items needed to operate the microbusiness to the MFI who will then determine the cost of
the goods requested9. The MFI and the client will then agree upon the profit margin for the
resale of the goods to the client and the client will be presented with the cost of the requested
goods. The MFI and client will sign an agreement specifying:
Description and cost of goods requested.
Profit margin for the resale of goods from the MFI to the client.
Total repayment amount, frequency, number of repayments and repayments date and
amount.
34
Place where the goods will be delivered to the client.

If there is a late fee corresponding to the costs of collecting the repayments (e.g., additional
MFI staff time spent following up with the client), these would be included in the original
agreement. However, for the pilot study we will be undertaking, a late fee will not be charged.
Instead, late repayments will subject the entire group to a cut-off from additional funding until
the late payments are made current. If we find that the costs from late payments are significant
and the denial of future credit does not provide enough incentive for on-time repayment, we
may institute a late payment fee.
When the goods are delivered to the client, the client will retain the right to reject goods that
are damaged or not agreed upon in the initial agreement without penalty. The client and MFI
will sign a document describing why the goods were rejected and the date and place where new
goods will be delivered and any changes to the cost of the goods requested.
After the goods are delivered to the client, there will be weekly group meetings where
group members are current on their repayments, as well as to verify that the MFI staff member
collecting repayments reports to MFI honestly (and does not embezzle part or all of it). During
the meetings, clients will be able to ask MFI staff members for advice on running their
businesses and will be encouraged to discuss lessons learned in the previous weeks business
operations with other members of the group.
Our focus with the Murabahah financing will be to ensure that clients know that on-time
repayment is expected and to help the MFI collect knowledge about groups that it can use in
the future when considering whether to provide future financing, either using Murabahah or
Musharakah. The Murabahah financing is similar to a microloan, but has a few key differences
that provide an advantage to conventional microfinance. The first is that instead of providing a
loan of cash for repayment in the future with interest, the Murabahah product is based on a
repayments are made publicly, both to allow group members to observe whether their fellow
purchase and resale where the markup (a profit on a sale) is agreed upon in advance and does
not depend upon the length of financing or on-time repayment10. The other difference is that
by providing goods instead of money, the MFI will know what is being financed, and will only
need to ensure that the goods are used for business purposes (e.g. by visiting the micro business
throughout the week) instead of consumption.
Musharakah (Profit and Loss Sharing Equity Financing)
If a group successfully finishes a cycle of business with Murabahah financing, then the MFI will
decide whether to offer additional financing and whether this could include Musharakah
financing. If a group becomes eligible for Musharakah financing, then the MFI will work with
the client to describe the types of business activity being undertaken by each member of the
35
group. If the businesses are deemed to have a high likelihood of profitability in the future if an
additional investment is made, then the group will be provided with additional finance. The
agreement between the MFI and the group will specify the following:
Type of business being operated
Amount of investment
Profit and Loss sharing
Investment but out schedule
The restriction placed on the types of business are included to ensure that the MFI knows what
the micro entrepreneur is planning on doing with the investment and to ensure that the funds
are used for a business purpose and not for consumption11. The mix between business and
consumption loans in the extant microfinance industry has made it difficult, if not impossible,
to accurately gauge whether microfinance is meeting its promise to act as an effective tool for
poverty alleviation.
The investment buy-out component of our Musharakah contract is one of the most important
features for creating sustainability and allowing for its expansion. If we were using a typical
Musharakah product, the MFI would make an investment in the micro business and then
realize a stream of profits or losses in the future. The MFI would, however, continue to control
a sizable share of the business without any ability to recover the investment to use for other
worthy ventures. The MFI would instead be forced to use profits (if any) or seek additional
capital to expand its operations. The micro entrepreneurs also would likely avoid Musharakah if
it meant that they would be responsible for paying a share of their profits to the MFI each week
with no end date in sight. Our model provides a happy medium between the MFI recovering
its initial investment plus (or minus) the actual profit (loss) of the business, while freeing the
entrepreneur to receive a growing share of the micro business profits as it buys out the MFIs
share of the business.
(iv) Islamic Lending Model
Programmes that provide credit and savings services have been promoted in recent years by
governments, international development organizations as well as local non-governmental
36
organizations (NGOs) and grassroots bodies as a key strategy for alleviating poverty in lowincome Countries (and increasingly also within poor communities in high income countries)
and helping to achieve the Millennium Development Goals (MDGs).
The different Islamic financing methodologies are applicable according to the nature of
commodity/business and the period for which the project will be financed. Before detailing the
principal Islamic financing practices, however, we should remember that such methodologies
are founded on the core belief that money is not an earning asset in and of itself. There are
some general principles that are of particular importance for Islamic, or perhaps more precisely
termed Shariah compliant, finance and these include:
i.
There must be some risk, whether funds are used in a commercial or productive venture.
ii.
A financial transaction needs to have a material finality, that is, it should be directly or
iii.
The product or service that is bought or sold must be clear to both parties.
iv.
There should be no funding of Haram or sinful activities such as the production of

alcoholic beverages or gambling, and funds should preferably finance socially productive
activity. In broad terms, Islam forbids all forms of economic activity, which are morally or
socially harmful.
v.
Financial risk must lie solely with the lenders of the capital and not with the manager or
agents who work with the capital. Furthermore, a financial transaction should not lead to
the exploitation of any party in the transaction.
vi.
Interest is forbidden in that it is a predetermined, fixed sum owed to the lender irrespective
of the outcome of the business venture in which the fund is used. This does not imply in
any way that capital is free of charge or that it should be made available without any cost or
that there should be absolutely no return on capital. Rather, a return on capital is allowed,
provided that capital participates in the productive process and is exposed to business risk.
vii.
indirectly linked to a real, tangible economic activity as opposed to financial speculation.
It is not permitted to sell what one does not own therefore short-selling (selling
something that one does not own in the hope that it can be bought cheaper at a later date)
is impermissible.
Basic Concepts of Islamic Banking:
i.
Halal: Anything which is permitted by Islam and Shariah.
ii.
Haram: Anything which is restricted by Islam and Shariah.
iii.
Hadith: Custom, habit or way of life of the Prophet Muhammad (P.B.U.H) other than
the Holy Quran is known and Hadith.
iv.
Hawallah: Literally, it means transfer; legally, it is an agreement by which a debtor is

freed from a debt by another becoming responsible for it or the transfer of a claim of a
37
debt by shifting the responsibility from one person to another contract of assignment
of debt. It also refers to the document by which the transfer takes place.
v.
Hiba: Hiba means gift.
vi.
Ijarah: Letting on lease. It refers to a contract of land at a fixed rent payable in cash and
also to a mode of financing adopted by Islamic banks.
vii.
Mudarabah: A form of partnership where one party provides the funds and the other
party provides the expertise and excellence in the work that the other person wants to
start.
viii.
Murabahah: Literally it means a sale on mutually agreed profit. Technically, it is a
contract of sale in which the seller declares his cost and the profit. This has been
adopted by Islamic banks as a mode of financing. As a financing technique, it can
involve a request by the client to the bank to
a. Purchase a certain item for him. The bank does that for a definite profit over
the cost which is stipulated in advance.
ix.
Musharakah: Musharakah means a relationship established under a contract by mutual

consent of the parties for sharing of profit and losses in the joint business. It is an
agreement under which the Islamic bank provides funds which are mixed with the
funds of the business enterprise and others. All providers of capital are entitled to
participate in management, but not necessarily required to do so.
The profit is
distributed among the partners in pre-agreed ratios, while the loss is borne by every
partner strictly in proportion to respective capital contributions.
x.
Qarz: The literal meaning of Qarz is to cut. It is so called because the property is
really cut off when it is given to the borrower. Legally, Qarz means to give anything
having value in the ownership of the other by way of virtue so that the latter could avail
of the same for his benefit with the condition that same or similar amount of that thing
would be paid back on demand or at the settled time. It is that loan which a person
gives to another as a help, charity or advance for a certain time. The repayment of loan
is obligatory. The Holy Prophet is reported to have said ..Every loan must be
paid But if a debtor is in difficulty, the creditor is expected to extend time or even
38
to voluntarily remit the whole or a part of the principal. Qarz is, in fact, a particular
kind of Salaf. Loans under Islamic law can be classified into Salaf and Qarz, the former
being loan for fixed time and the latter payable on demand.
xi.
Riba: An excess or increase. Technically, it means an increase over principal in a loan

transaction or in exchange for a commodity accrued to the owner (lender) without
giving an equivalent counter-value or recompense (iwad) in return to the other party;
every increase which is without an iwad or equal counter-value.
a. Riba Al-fazl: Riba Al-Fadl (excess) is the quality premium in exchange of low
quality with better quality goods e.g. dates for dates, wheat for wheat, etc. an
excess in the exchange of Ribawi goods within a single genus. The Concept of
Riba Al-Fadl refers to sale transactions while Riba Al-Nasiah refers to loan
transactions.
b. Riba Al-Nasiah: Riba Al-Nasiah or riba of delay is due to exchange not being
increment on principal of a loan or debt payable. It refers to the practice of
lending money for any length of time on the understanding that the borrower
would return to the lender at the end of the period the amount originally lent
together with an increase on it, in consideration of the lender having granted
him time to ay. Interest, in all modern banking transactions, falls under purview
of Riba Al-Nasiah. As money in present banking system is exchanged for money
with excess and delay, it falls, under the definition of riba. A general accord
reached among scholar about its prohibition.
xii.
Salaf (Loan/Debt): The word Salaf literally means a loan which draws forth no profit
for the creditor. In wider sense, it includes loans for specified periods, i.e. short,
intermediate and long-term loans. Salaf is another name of Salam as well wherein price
immediate with or without excess in one of the counter values. It is an
of the commodity is paid in advance while the commodity or the counter value is
supplied in future; thus the contract creates a liability for the seller. Amount given as
Salaf cannot be called back, unlike Qarz, before it is due.
xiii.
Shariah: The term Shariah refers to divine guidance as given by the Holy Quran and
the Sunnah of the Prophet Muhammad (PBUH) and embodies all aspects of the
Islamic faith, including beliefs and practice.
xiv.
Shirkah: A contract between two or more persons who launch a business or financial
enterprise to make profits. In the conventional books of Fiqh, the partnership business
has been discussed under the option of Shirkah that, broadly, may include both
Musharakah and Mudarabah.
39
xv.
Wakalah: A contract of agency in which one person appoints someone else to perform
a certain task on his behalf, usually against a certain fee.
Lending Methodology
Which method(s) is most applicable to extending microfinance? In attempting to answer this
question here I will discuss the lending methodologies adopted by Islamic Reliefs microfinance
programmes in Pakistan. It complements explanations with specific examples of each type of
loan given. Individual microfinance programmes must decide which methodology or
combination of methodologies is most applicable in their own particular environment. This in
turn will depend upon factors such as the type of activities funded by loans, the proximity of
borrowers, etc.
Individual or group loans?
Before discussing loan methodologies, however, it is perhaps appropriate to begin with a word
of clarification between individual or group loans. Poor people often cannot offer traditional
collateral such as property as guarantees for their loans often simply because they have little or
no property to offer. Even when they do have property the cost of offering it as collateral for a
loan may be too expensive, Thus, in Bosnia & Herzegovina for example the presiding court
must assess the value of the property in cases where it is offered as collateral (as is frequently
the case with commercial banks) and charges around 250 Euros for the privilege of doing so. In
cases where the borrower is seeking a loan of just 500 Euros this is obviously unattractive. As a
response to poor peoples inability to offer traditional collateral microfinance programmes have
increasingly focused on replacing the use of physical collateral for individual loans with group
responsibility. With group lending, instead of lending directly to individual borrowers, the
microfinance organization lends to groups of borrowers (commonly small groups of 4-5 people
often called solidarity groups) who are jointly liable for repayment.
Group lending has been widely adopted by many microfinance institutions throughout the
world. What explains the success of group lending? There are several reasons and each many
play a role of varying significance depending upon the context:
i.
Peer Monitoring:
The ability of borrowers to monitor the investment behavior of one another during the
course of a loan, making sure that each borrower only undertakes safe investment
40
projects with the loan toll.

ii.
Social Ties:
The social unity that exists in some communities means that the sanctions that a
borrower would receive from the group for defaulting results in each member wanting
to repay faithfully.
iii.
Group Pressure:
The pressure between borrowers to repay means that the group can expel non-paying
members if they default, thus excluding them from continued access to credit.
(Islamic Microfinance theory, policy and practice Ajaz Ahmed Khan)
Main Rules of Islamic Finance

The rules lie in the principles of Islam's Shariah law, taken from the Qur'an and the Sunnah,
Central to Islamic finance is the fact that money itself has no intrinsic value; it is simply a
medium of exchange. Each unit is 100% equal in value to another unit of the same
denomination and you are not allowed to make a profit by exchanging cash with another
person. A Muslim is not allowed to benefit from lending money or receiving money from
someone.
This means that earning interest (Riba) is not allowed. To comply with these rules, interest is
not paid on Islamic savings or current accounts or applied to Islamic mortgages.
Now, summarizes the possible differences in characteristics and objectives between the
conventional and Islamic microfinance. Differences between Conventional and Islamic Microfinance (Source: [Ahmed 2002]
Item
Conventional MFI
Islamic MFI
Liabilities (source of fund)
External Funds, Saving of client
External Funds, Saving of
(the way) referring to the way in which the prophet Muhammad lived his life.
Clients, Islamic Charitable Sources

Asset (Mode of Financing)
Interest based
Islamic financial instruments
Financing the poorest
Poorest are left out
Poorest can be included by

integrating with microfinance
Fund Transfer
Cash given
Goods transferred
41
Deduction at Inception of
Part of the Funds Deducted as
No deduction at inception
Contract
Inception
Target Group
Women
Family
Objective of Targeting Women
Empowerment of Women
Ease of Availability
Liability of the Loan
Recipient
Recipient and Spouse
Work Incentive of Employees
Monetary
Monetary and Religious
Dealing with Default
Group/Center pressure and
Group/Center/Spouse
Threat
Guarantee, and Islamic Ethic
Secular(nonIslamic)
Religious (includes behavior,
behavioral, ethical, and social
ethics and social)
(Which given to Women)
Social Development Program
development
Islamic Product
Islamic Modes of Microfinance
Partnership Based Mode
o Musharakah
(Equity Participation)
o Mudarabah
(Profit sharing)
Trade Based Mode

o Murabahah
(Cost + Financing)
o Musawama
o Salam
o Istisna
Rental Based Mode
o Ijarah
o Diminishing Musharakah
Modes of Finance
There are two ideal modes which provide an alternative to interest banking and if implemented
42
on a national level will result in much fairer distribution of wealth in society

A.
Musharakah - (Equity finance)
Musharakah literally means sharing. Musharakah is derived from Shirkah which means
Being a partner. Musharakah is a joint enterprise formed for conducting business in which
all partners share the profit according to an agreed ratio while the loss is shared according to
the ratio of investment. It is an ideal alternative for interest based financing with far reaching
effects on the economy.
B.
Mudarabah - (Equity finance - sleeping partner)
a) Partnership wherein one partner provides the funds for another to invest in a
commercial enterprise.
b) The investment comes from the Rabb-ul-Maal (Investor).
c) The management and work is an exclusive responsibility of the Mudharib (Working
e) The capital may be either cash or in kind and in the latter case must be valued.
f) Profit is shared as per agreed ratio of actual profit.
g) Loss of capital is borne by Rabb-ul-Maal [unless Mudharib is negligent], Mudharib loses
his efforts.
There are two not ideal as they replicate the effects of conventional banking but nevertheless are
tolerated in Shariah.
A.
Ijarah - (leasing)
Literally, Ijarah means To give something on rent. The term Ijarah is used in two
situations:
To employ the services of a person on wages e.g. A hires a porter at the airport to carry
his luggage.
d) Partner).
Another type of Ijarah relates to paying rent for use of an asset or property defined as
Land in Islamic economics.
B.
Murabahah - (cost plus pricing)
Murabahah is a particular kind of sale and not a mode of financing in its origin.
Where the transaction is done on a cost plus profit basis i.e. the seller discloses the cost
to the buyer and adds a certain profit to it to arrive at the final selling price.
The distinguishing feature of Murabahah from ordinary sale Musawama is:
The seller discloses the cost to the buyer. And a known profit is added.
Sale at cost price is Tawliyah and sale at a loss is Wadheeah.
Payment of Murabahah price may be
43
i.
At spot,
ii.
In installments
iii.
In lump sum after a certain time.
Hence, Murabahah does not necessarily imply the concept of deferred payment.
Salam
Seller undertakes to supply specific goods to the buyer at a future date in exchange of an
advanced price fully paid at spot. Price is in cash but the supply of goods is deferred.
Purpose
To meet the need of small farmers who need money to grow their crops and to feed
their family up to the time of harvest.

To meet the need of traders for import and export business.
Istisna
Istisna is sale transaction where commodity is transacted before it comes into existence. It is an
order to producer to manufacture a specific commodity for the purchaser.
Instruments of Financing in Islamic Microfinance
Instrument
Mudarabah/
Musharakah
Suitable For
Fixed assets,
Cost of
Risk to
Capital
Borrower
Very High
Low
Risk to
Remarks
Institution
Very high
working capital
Costs of loan administration

and monitoring are high given
the complexity of the
(Declining
repayment
form suitable
for housing
schedule and lack of proper
and equipment
accounting;
finance)
Perceived to be ideal but not

popular in practice
Ijarah
Fixed Assets
Moderate
High
Moderate

and monitoring are low given
simple repayment schedule
allowing for
44
flexibility and customization

based on client preferences;
Popular among Islamic MFIs

and potential for easy
adaptation by conventional
MFIs
Murabahah
Fixed
Moderate
High
Moderate

and monitoring are low given
assets and
simple repayment schedule;
Working
multiplicity
Capital
of transactions in working
capital financing can push up
practice notwithstanding
popular perception of it being a
close substitute of riba-based
lending
Qard
All-purpose
Very low
Very low
Moderate
Charity-based usually combined

with voluntarism; low
overheads; Popular because
perceived to be
the purest form of financing
Salam
Working
High
High
High
of lack of double coincidence;
Capital
Istisna
Fixed
Untried
High
High
High
Working
Capital
Back-to-back nature creates risk

of lack of double coincidence;
Assets
Istijrar
Back-to-back nature creates risk
costs; Highly popular in
Untried
Moderate
Moderate
Moderate
Ideal for micro repetitive

transactions; Complexity not
easily understood by parties;
hence not a popular
mechanism
(Islamic MF Development IDB, S.A)
45
Benefits of Islamic Microfinance

Riba Free Operations
Shift of Focus to TRADING MODE
Better Internal Controls
Reduced Miss utilization of Money in Non-Productive Activities
Overall Benefits to Economic Environment
More Social Acceptability
(v) Akhuwat Lending Model

Akhuwat was established in 2001 with the objective of
providing interest free micro credit to the poor so as to enhance
their standard of living.
Akhuwat is dedicated to improving the lives of the poor;
those
who
are
financially
abused,
abandoned
(neglected) and disregarded by society. As a registered

non-governmental organization (NGO), Akhuwat provides the poor with interest-free loans
(Islamic Loans) so that they may acquire a livelihood and the skills and support they need to
reach their full potential. To this end, Akhuwat raises its funds from Civil Society. It does not
depend on international funding; instead it uses the spirit of volunteerism and the tradition of
giving, a cardinal principle of all religions.
Akhuwat provides the economically poor with interest
free loans so that they may acquire a self-sustaining
livelihood. It also provides the skills and support they
need to actualize their full potential and abilities.
Akhuwat staff also provides technical training to its
clients. They make the latest knowledge and market
information available to the clients so that they become
46
more efficient. Clients who lack expertise are taught and trained in the vocations of their
interest. They may do intern-ships with borrowers who are already running some specific
enterprises and are desirous of imparting skills to others. Akhuwat coordinates activities with
other NGOs and Social Welfare Organizations so that social services can reach their own
clients. Akhuwat focuses especially on education and health because these are basic necessities
and the right of every individual and have benefits beyond the individual himself. Legal aid has
also been provided to the needy by a team of volunteer law students through one of the Board
member who is a lawyer and Principal at a local Law College.
Program Introduction
Individual loans are marketed through awareness campaign in poor localities, market places
and through previous borrowers. An introduction to the program is also given in nearby
mosque or church when people have congregated there for prayers. This has not only
for socio-economic development. It also attaches a moral responsibility to return the loan on
time.
Individual Selection
The loan process starts with the submission of applications by persons interested in getting
financial assistance. The Unit Manager (Loan Officer) then evaluates that whether the
applicant deserves the loan or not i.e. lives below the poverty line, has a reliable social capital, is
not involved in any illegal business and possesses entrepreneurial abilities.
Preparation of Business Plans
tremendously saved the operational costs but has also opened the doors of the religious places
Through the preparation of business plans the business idea of the intended loanee is
evaluated to see if it is viable and whether it can generate income beyond the household
expenses of the individual so that the loan could be repaid easily. The applicants family is also
interviewed to make sure that they know about the loan and support the business idea.
Credit Appraisal
After initial appraisal by the Unit Manager, the
application is forwarded to Branch Manager who
appraises the technical section of the appraisal
process. Then the case is referred to Loan Approval
47
Committee (LAC). The committee comprising of Unit, Branch and Area Mangers which
reviews the credit case. If the committee approves the case loan disbursement is done. The
whole process takes almost 3 weeks.
Guarantors of Loans
Every borrower also provides two individual guarantors who vouch for his/her credentials and
accept the responsibility of monitoring the borrower and give assurance to motivate the
borrower for timely payment of loan. One of the two guarantors may be from the same family.
Credit Disbursement/Capacity Building

Disbursement takes place 2-3 times a month and 100-150 loans are disbursed at one event
usually held at branch office/mosque or church. Every borrower has to be accompanied by one
of the guarantors. Other people present at the time of disbursement include community
members, Akhuwat staff, from the branch and Head Office (HO). Social Guidance events are
also held simultaneously in which the capacity of loanee is built to carry on their work more
efficiently and effectively. They are also apprised of social agenda that includes:
Emphasis on girls education
Serving the community at large
Protection and improvement of environment
Importance of plantation
Observance of traffic rules and local laws
Following highest ethical values in business
Recovery/Follow up
Once the loan has been disbursed, the Unit Manager monitors the client with regular visits to
his residence and place of work. The loan repayment has to be submitted at the branch by the
7th of each month. If a payment is not in by the 10th, the Unit Manager visits the client to
remind and if repayment is still not done then the guarantors are contacted and asked to make
48
the payment.
(vi) NYMT Lending Methodology

Naziran Yousaf Memorial Trust (NYMT) is a 1st ISO 9001 certified Islamic microfinance nongovernment, non-profit, non-political organization in Pakistan working for the social and
economic uplift of deprived, neglected, oppressed communities in the urban & semi urban
areas of Lahore (Punjab) Pakistan above the caste, creed, religion and other group boundaries.
NYMT was established in 2004 and registered in 2005 by a group of volunteers. NYMT has
initiated number of programs/projects aimed at
the
economic,
social
and
political
empowerment on sustainable basis of the
Under the umbrella of economic empowerment

program, NYMT initiated micro credit &
enterprise development program in district
Lahore. This program was leading to poverty
alleviation and empowering marginalized, deprived, oppressed and neglected communities
through Micro Finance.
In social sector development NYMT initiated women empowerment & development, health,
Islamic education and Islamic Silai (Stitching) School, with the strong process of social
mobilization. As an organization NYMT believes that empowerment and social change is only
possible with effective and efficient participation of marginalized communities of the society.
disadvantaged sections of the society.
Vision
To create an environment where development opportunities are available to all the people of
the area without any distinction of gender, creed and religion.
Mission
Empowerment of low-income communities to improve their quality of life on sustainable basis.
Objectives of NYMT
To support initiatives for sustainable community based gender sensitive development with
particular focus on health, education and micro credit.
49
To build and strengthen the technical and management capacity of development

organization (CBOs, NGOs, WOs, and line departments)
To provide micro credit facility with easy installments to such people doing their
enterprises.
Provide access to quality financial services to improve the household living standard.
To build the capacity of target communities in enterprise development, & vocational skills.
Enhanced the capacity of staff for effective service delivery
NYMT Current Programs
Micro Enterprise Development
Health care centers

Education stipends
Water Wells
Sewing Schools
Masjid & Markaz Darul Quran
Micro Credit Programs Executing Methodology
As NYMT is a community oriented organization and working for the economic uplift of
marginalized communities in remote areas of district Lahore. Microfinance program
intervention also depends on an effective and efficient community social mobilization and
participatory approach.
Steps involved in Microfinance and enterprise development before the final disbursement is
as follows;
Area identification and area/poverty profile
Problem Identification through PRA
Contact meetings and identification of activists
Introduction of NYMT programs
Formation of Community Based Groups
Capacity building of CBGs (Community Based Groups)
Potential client identification
50
Loan group formation

Orientation training of loan groups on MF program
Client screening and Credit appraisal
Counter check of credit appraisals

Approval by credit committee
Loan disbursement
Loan monitoring
Loan recovery
Impact Assessment
NYMT Islamic Microfinance Model

1
Baseline
Survey
2
Poverty
Profile
17
M&E
3
Community
Meeting
4
Group
Formation
16
Monthly
Recovery
5
Orientation
of groups
15.
Follow up of Recovery
Target
Community/
Village
14
Loan
Utilization
6
centre
Formation
7
3 days
Orientation
Training of centres/
Groups
13
Loan Dis.
12
Cc Meeting
& Approval 11
S. Appraisal 10
Appraisal
By OM
by BM
8
Application process & submission
9
Appraisal by CO
Medical Services
Basic health check-ups and the provision of general medicines
18
HHF
Injection courses to pregnant women and children.

Mother & Child Health care
Growth monitoring of children
Family Planning services
Counseling
Laboratory tests
Quality Education Program
NYMT initiated its Islamic education program in Walton Lahore with the name of NYMT
Islamic Silai School and NYMT Islamic Madrisa (School) (HIFZ, NAZRA). Total recurring
and running cost of that 2 schools is being born by WAJDA group & Yousaf Family.
51
To ensure quality education NYMT has established education committees to and mother
groups to see school performance and quality of education. NYMT has conducted various
teacher training workshops to capacitate the teaching staff.
Human and Institutional Development
NYMT is facilitating to build the capacity of the community leaders, CBGs and its staff because
NYMT believes that capacity building of an individual is very much important to positive
transformation in the society. Therefore NYMT is executing a capacity building
program/Exposure Visits in very organize manner where various sort of trainings conducted
for the capacity building of local community, entrepreneurship trainings, skill development
trainings and staff trainings etc.

HID offers capacity building programs in three significant areas essential for sustainable and
easy survival of organizations and communities:
Organizational development
Enterprise management & Skill development
Professional development
NYMT Working Methodology with CBGs
NYMT
Credit
Education
Health
Others
CBGs
Credit
Loan Groups
52
Education
Sewin g schools /
Hifz,Nazra
Health
Health Care Centers
Others
Water wells,
Rehabilitations
Networking & Linkages

NYMT always concentrates to generate linkages & networking at the local and regional level for
better collaboration with other organization & institutions to learn, share and coordinate on
issues of common concern. In order to meet the skill enhancement requirements of staff NYMT
arranges exposure visit of other development organizations to share the experiences for learning.
(With thanks of NYMT management)
(vii) Farz Methodology

Concept of Farz Methodology
Poverty certainly emerged as the single most problem that lies at the heart of modern day crisis.
It quite recently has assumed alarming proportions. Many efforts were made in the past but
they could not wholly succeed. Among significant tools, the microfinance was also used for
getting rid of poverty which quite recently plagued the whole world. There is always a room for
gains in alleviating it but with sufficient services the amount invested lie in the danger of being
spent on the items of daily use owing to extreme poverty.
What in fact is required is the provision of certain services that may enable the person
concerned to become self-earning unit. So the first and foremost thing in this regard is not to
simply extend credit. It is more advisable to do kind of asset sharing, along with provision of
services which could lead to an economic activity at an individual level.
Certain experiences in this regard bore good results. For instances a woman who was provided
with the necessary material and skill, is successfully running her business of making and selling
artificial flowers. What worked in this case was the fact the instead of extending credit, she was
innovation to be introduced to already existing structures. Though microfinance made some
provided the raw material along with the skill. What could further be added to it is the
provision of health and education facilities to the community so that each individual keeps on
learning during this process.
By adopting this method microfinance becomes a well-organized business as well as a
community services and incidence of default is reduced to the maximum level.
Now this issue of poverty is what upon which the future of political structures rests. It needs
more coordinated and scientific approach. Among the efforts made so far, this method of
empowerment through education and asset based loaning has borne good results. At a time
when world economies are shrinking and people at large losing their jobs worldwide, this
53
method could be used to offset the impact of recession in the poorer world. We have seen that
the government agencies could not come up to the expectations and number of people falling
below the poverty line is growing. The supply side economics or trickle-down theory is being
looked at with suspicion. We need more non-governmental structures to fight this growing
menace.
Owing to shrinking world economy, the poor countries are also being hit hard. The
individuals economies cannot sort this problem out as they have to cut their non-development
expenses. In such a critical period poverty needs to be fought at war footing.
Recently, Farz Foundation (The First Islamic Microfinance Organization) has completed its
two-year pilot project in the area of Shalimar Lahore in two phases. The organization has done
the comparative analysis of currency disbursement and the Farz Methodology (asset delivery
method) in which the asset based microfinance shows 80 percent positive and productive
results while the popular practice of microfinance, which is based on credit in the shape of
currency depicted 80 percent negative and non-productive results. The study confirms the
reports are already being published in the international journals about the very low impact of
currency deals in microfinance. Although the efforts made by the CGAP and other agencies at
the international level and Pakistan Poverty Alleviation Fund (PPAF) at the national level
cannot be ignored but the speed of the inflation and poverty increase ratio demands more
sincerer and creative efforts.
There is another challenge of exploring the new markets which still needs to be addressed
because the process of demand and supply matters even at the level of the micro
entrepreneurship. Home Based Women Entrepreneurs are still in the clutches of the middle
man, who is earning far more than the HBMEs.
Another important issue is trust-building. The development sector has successfully won the
hearts of the community but unfortunately the microfinance sector is losing the trust day by
day particularly in Pakistan and India. Although The SEWA in India and RSPs in Pakistan has
set the milestones remarkably, however, various MFIs have annoyed the poor community.
54
Though the poverty alleviation objective stipulates to support the innovative mechanisms like
Farz Methodology, even at the government level as well as at the institutional level; the
microfinance donors are not encouraging the new and innovative players as per the need and
the requirement of the day. It will be lethal not only for the innovative human recourse of the
sector but also will reduce the impact of the endeavors already being made by the sector of
microfinance.
There is Chinese proverb that says we are living in very interesting times. Indeed we are. Old
economic patterns are directly flying in our face. The ongoing recession has defied most of our
beliefs. What triggered this, to put it brief, was the irresponsible ways of lending that almost
sunk the world economy.
Amid all this there is another effort through lending to alleviate poverty, known as
outcomes betrayed some imperfections. This right up would tend to elaborate the so-called Farz
Methodology, which, in fact, is another attempt to avoid certain negative outcomes. The
irresponsible ways of lending, which we mentioned earlier and which almost sunk the ship of
world economy, may also be one of the factors responsible for certain negative results in the
world of microfinance.
What could not work in the cold world of business could never have done better where the
borrower is a marginalized poor. Here comes the Farz Methodology which enshrines in its
philosophy the passage to the relative well-being of the person concerned through social as we
as economic empowerment.
Another technique that this methodology carries is that of not allowing the direct access to the
microfinance. It began with a justified fanfare and made certain gains as well but the overall
poor and the vulnerable to the hard cash. What is suggested instead is educating the poor
along with providing him with necessary tools such as the stuff he needs to initiate an
economic activity.
Our initial experience was also a clear testimony to the potential that this method carries. Our
success rate in our projects remained 80 per cent which also worked as a spur because we had a
long list of volunteers who were ready to work without compensation in the beginning
What made a clear difference was the realization that microfinance is not a mere business. It
rather needs a business like skill, understanding of the world in which the poor exist and
understanding of their limitations. We achieved this by looking at the world through the eyes
of the poor.
55
Farz Methodology as an innovative economic mechanism ensures the long-term profitability of

microfinance. We need to help the borrower make his business successful. Recovery, of course,
cannot be had from a failed business. MFIs must make certain the recoveries from their profits,
instead of their losses. Recovering from losses defeat the very purpose of the whole exercise.
The micro trade cycle technique of Farz can ensure not only the sustainability of the sector but
the long term profitability as well.
There are many researches that demonstrate that funds spent and efforts made are being
wasted. What our methodology ensures is the maximum possible empowerment through basic
health and education. Because the human resource of external organization (Members or
clients) should also be capable of delivering things well regarding their businesses. A business
cannot be a successful with bad health, illiteracy and skills. As the organizations build the
capacity of their staff to get more and more output. Similarly microfinance sector will have to
train their clients to get more and more output. So the integrated approach of Farz Foundation
emphasizes on a skilled poor community to win the war against poverty to achieve the ultimate
vision of the sector.
Today even the first world is no more unscathed by this recession. But that still has the
advantage of a skilled labor. This fact alone would soon retrieve the falling economy in the rich
countries, may be sooner than later. But in countries like Pakistan we need to initiate this
activity on war footing.
The strategies of Pakistan Poverty Alleviation Fund (PPAF), studies of Pakistan Microfinance
Network, (PMN) efforts of Social Performance Management and Social Performance Task
Force focus on making loans productive through social performance is need of the hour.
Considering our collective past experience, we should not hesitate for a moment to implement
these strategies with collaboration of Farz Methodology because the purpose of the sections is
the same, however the Farz methodology will protect the expected gains. This would even help
retrieve even the failing projects.
The capacity building of clients like training in credit discipline, basic marketing skill, and
feasibility preparation are of paramount importance. This should be carried out the way we
56
train our staff.
Another advantage of this strategy is that it would bridge conventional microfinance and
Islamic banking. That would also allow us in a huge market that still remains untapped.
At a time when Pakistans economy is expected to grow by less than 2 per cent, we should
adopt this measure to enhance the growth. Government is facing many other challenges like
war on terror and perhaps cannot focus on economy as much as the civil society can. In the
ultimate analysis war on terror could only be won through economic and social empowerment
of the people. So the success of microfinance is the success of the forces struggling for peace
and betterment of the country.
The idea of decoupling that was being put forth in the beginning of this recession could only
The task of course is gigantic. But of course the journey of thousands miles begins with one
step. Lets start restructuring existing MFIs methodologies and also begin establishing new
projects to steer out of these testing times.
Changing the economic environment always calls for more innovative response. We, of course,
are living in a time where hosts of events have crowded a comparatively short time span,
particularly in the world of finance. Despite an incorporated world economy, the tools and
methods needed in the so-called Third World would definitely be different from those of
implied in the developed world. For instances the ways to fight poverty in the countries like
Pakistan needs certain changes to suit a constantly aggravating economic situation.
The main emphasis in this approach is that by empowering an individual through services
be materialized by kick starting growth where the impact of the world recession is slightly less.
other than finance, in fact, we secure the money lent and make it productive over a long time.
The most important task that today we face is not only to mitigate the impact of the recession
but also to offset it. The governments in the region are tied with the host of other challenges,
including war on terror. It makes it more important for the civil society to play its role in more
effective and intelligent way. By kick starting an economic activity through incorporating the
poor with provision of non-financial services as well as financial, we would bring them closer to
the institution of microfinance. They own this whole process which in turn is enhancing their
productivity and also inculcates a sense of responsibility among them.
57
The various research and evaluation projects have already unveiled the causes of the breakdown
of the financial services system. So it is imperative to sort out a method which could offer a
viable solution to provide a long-term relief. Undoubtedly the microfinance can provide a
contingency plan in the right direction. Different studies suggest that the week impact of
different microfinance methodologies already in place demand an innovative microfinance
mechanism to be implemented at a large scale. The efforts made to link microfinance with
Small Medium Enterprise (SME) and SME to Medium Enterprise and then macro enterprise
are still in the process of achieving the goals to make any breakthrough. One reason behind not
achieving our goals has been undue compartmentalization and division of work. What is
needed, instead, is the integration. No business or credit or any financial system can be
sustained in isolation. This is the core philosophy of Farz Microfinance Methodology. What
goes without saying is the fact that consumption is the key to all types of production.
Dwindling consumption means a stalled or hampered productive process. Thriving need-based
local markets can become a gateway to micro productivity. At the micro enterprise level there
are a lot of things that need to be addressed like the role of middle man and the whole sellers.
Farz methodology emphasizes providing a just economic system for the productive poor
according to their needs and requirements. The productive poor will have to be facilitated as a
wheel for the international trade cycle. The role of currency should also be minimized and
would have to be replaced by income generating kinds like tools and assets, etc. The artificial
expansion of businesses or trade should be checked through asset providing mechanism. Farz
Methodology as Neo Microfinance has proved through positive outcome as the most effective
system in the given economic milieu. This inference has been made on the basis of results
achieved in the poor neighborhoods like, Chongee Amarsidhu and Meu Colony in Lahore.
Previously about eight MFIs targeted this area and six left by declaring them red (negative)
areas. Two reaming are grappling with their zero tolerance policy and late night recovery
problems. In the same area Farz Foundation has started its pilot to gauge the results and to
observe the effectiveness of Farz Methodology.
First time in Pakistan the microfinance is being customized according to cultural and religious
circumstances simultaneously unlikely the various previous practices. Farz Foundation has also
launched a saving scheme that requires each member to pool a specific amount on monthly
basis which is given to one member or the other on the basis of lucky draw. This is a practice
58
known as committee (community's rotating funds) which develops saving habits and also works
as a trust-building measure. What FF did was that it began, in accordance with Farz
Methodology by conducting free eye camps and also picked some of the poor families and took
the responsibility of paying for their children's education. Through further penetration into the
area it was learnt that previously the borrowers were further lending the money at even a higher
rate of interest, which defeated the very purpose of the whole exercise. They, of course, were
bound to fail. All that Farz Foundation has dealt with so far does not lay bare the whole
panorama of opportunities. In the future FF intends to provide direct market linkages to
eliminate the role of middleman that will further increase the rate of profit of the home-based
women entrepreneurs.
As the first Islamic microfinance organization of Pakistan from its first day with a full fledge
Islamic vision of trade and business Farz Foundation has provided an Islamic solution of the
non-productivity of the micro loans, which not only can cater to a huge Muslim Market but the
level which will initiate an economic activity at the supply side. Even agricultural sectors lie
untapped and the efforts made so far did produce desired results. As mentioned earlier,
through adequate financing, the expectations assigned to the microfinance sector could easily
be fulfilled. At a later stage it wont even involve a great deal of finances as through market
linkages an economic activity would be initiated on the credit bases between the venders and
sellers all that would be required to monitor and guide it to more productive directions.
However currently it needs the support from the institutions which are working for the
promotion of Islamic or conventional microfinance as a poverty reduction tool.
general clientage as well. The main aim of this exercise is to kick start the demand at micro
59
Farz Methodology (System)
60
61
62
An Integrated Approach
63
Client Graduation Strategy
Clients Graduation Strategy
64
To allocate the Area for Social Center (Branch)

To allocate the Potential working areas for social center
Product needs assessment.
o Potential businesses.
o Cash flow of different businesses.
o Size of micro trade.
Staff Hiring
Add for staff hiring in local Newspaper.
Collection of CVs as per given date.
Short listing of CVs and finalize prospective candidates for interview.
Identification of Area for Operation
Sending calling letters to all selected interviewees.

Conduct 1st interview
Capacity Building of Staff
To deliver the orientation of FARZ FOUNDATION to final candidates for jobs.
To deliver three days Step-in-Training to all Selected staff.(In house)
o Islamic banking & finance. Conventional microfinance
o Farz Methodology
o Basic Selection criteria of FARZ FOUNDATION
65
o Area survey
o Effective Mobilization skills
o Clients appraisal training
o Cluster formation steps
o Conduct of community meetings
o Customer relationship management
o Social performance management
o Delinquency management
o Monitoring
Three days on the job training to the staff.
o Basic Selection criteria of FARZ FOUNDATION
o Area survey
o Effective Mobilization skills
o Clients appraisal training
o Cluster formation steps
o Conduct of community meetings
o Customer relationship management
o Social performance management
o Monitoring
o Islamic banking & finance. Conventional microfinance
o Farz Methodology
Interview and selection for one month internship
Selection for 11 month on a contract.
After 11 month, contract extension / permanent employee.
Social Center (Branch) Opening
66
Social Center Opening Ceremony

Mobilization
Kicking of Operation
Branch Structure
Social (Branch) Manager
Social Officer
Social Officer
Social Officer
Social Officer
Small
Murabaha
Small
Murabaha
Small
Murabaha
Medium
Murabaha
Office Boy
Community Cluster Structure
Cluster
Manager
Group
Leader
Group
Leader
Group
Leader
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Accountant
Member
67
Delivery Process
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6
Step 7
MOBILIZATION
COMMUNITY MEETING CONDUCTED BY SOCIAL OFFICER (SO)
TO FINALIZE THE CLUSTER MANAGER AND GROUP LEADERS
HOME SCREENING
BUSINESS SCREENING
FINAL FORMATION MEETING
SALE AGREEMENT AND DELIVERY OF ASSET & STOCK
Step-1 Mobilization
Objective
To mobilize the target customer who is able, willing and independent
Purpose of Mobilization
To inform people about the objectives of the organization
To know about the needs of the people through question answer session
To introduce the facilities extended by the organization
Step-2 Community Meeting Conducted by Social Officer (SO)

Objective
To introduces Farz Foundation in detail
To finalize the group leaders and cluster managers
To inform about the existing and upcoming facilities of the foundation
Detail of the duties of all participants
To tell about the method of installment and meeting
To tell about the documents
The Method of Community Meeting
68
After the mobilization, gather all the members at place, address their objections and after
resolving them form groups consisting of five members and then let them choose their group
leaders and afterwards their cluster manager.
Step-3 Community Meeting Conducted by Social (SM)

To finalize the cluster manager and group leaders
Step-4 Home Screening
Objective
To visit the final members homes after community meeting

To fill the KYC and home screening forms at each members home
The Method of Home Screening

On visiting the potential members home for verification, home screening form is to be filled.
To fill KYC form after the member fulfills the home screening criteria
Objective
After the community meeting and home screening, to check the home and business of
final members
To fill the business screening form at the place of business of the members The Method
of business screening
The Method of Business Screening
At the place of the potential members business first of all business screening form is to be
filled
The KYC form is to be filled after the potential members place of business is verified
Note: The business details will only be obtained from the businessman.
Note: The 100 per cent screening of cluster will be done after or during the filling of KYC
form
Step-5 Business Screening
Direction for Filling the Form

Cluster SO will work according to the laid down method
The screening of cluster manager and filling of the form should be done in the
presence of group leader
The screening of group leader and filling of the form should be done in the presence of
cluster manager
The screening of the members and screening of the form should be done in the
presence of the group leader
Forms are to be filled after question answer session.
Form and the copy of the original documents should be signed as original seen.
Home screening, business screening and KYC forms should be filled at the home of the
members
69
KYC form should also be filled along with them
Step-6 Final Formation Meeting

Objective:
To tell the cluster manager, group leader, members about the responsibility of the
cluster
To verify the home visit by the cluster committee
The Method of Final Formation Meeting
If a member exit during the filling the form , new member should be introduced to the
cluster
Cluster committee and members to be apprised of principles and agenda of the Farz
Foundation
After the completion of all the five clusters all the members and their heads should be
gathered in the social center to approve according to the agenda given bellow
Step-7 Sale Agreement and Delivery of Assets & Stock

Objective
To buy the required things to the members

To sign the agreement about the things agreed to verify all the things bought by the
members
The Method of Sale Agreement

Method 1
FARZ FOUNDATION staff will go with the members to a selected vender to buy the stuff and
sign the agreement at the time of delivery.
Method 2
To buy the stuff according to list and handover it to the member after signing the agreement.
Method 3
An agent with the confidence of the community to be sent to buy thing, to bring them to the
branch to hand over after signing agreement.
Monitoring & Evaluation
70
Daily, weekly, monthly, quarterly and six monthly reports system.

Field visits of bottom to top Management.
Fortnightly Meetings with 100% Clients.
Social Performance Management.
Assets Building
Farz Committee: Rotatable community saving
Farz Foundation has developed a market driven, need based and innovative product having
deep cultural roots. The product is known as Committee (Rotating savings) in Pakistan. The
people usually build their assets by this rotating saving activity at a street or a market level
informally and without any proper bookkeeping. However, Farz Foundation has not only made
it formal but uses it as another source of income by providing the service of investment in
Murabahah as a partner. Farz Foundation in Pakistan proposes this partnership concept-based
approach to encourage community savings and profitability to sustain its clients. Members of
the committee have regular meetings in order to save and borrow from a communitys pool of
one member takes the whole amount by a lucky draw. The idea is for transparency of the entire
saving, lending, borrowing, process and generating another source of income. The foundations
role is that of a manager, monitor and trainer as well as a bookkeeper. Farz Foundation also
takes part in this Committee as a member by contributing its money to the pool and gets first
Committee. According to a cultural rule manager gets the privilege of taking the first Committee.
It is a triple edge financial service because of its participatory, saving and investing features.
Features of FARZ Committee
HEADS
FEATURES
Committee Size
Min= PKR:100 and Max=unlimited
Period of Committee Cycle
11 Month
Participants of Committee in Each Group
10 Members + 1 Farz Foundation=11
Number of Committee Groups under One

Cluster
Min=1 and Max=3
Frequency of Committee Installment
Fortnightly
Frequency of Committee Draw (lucky draw)
Every Month
money. Each member contributes equal amount of money to the pool and at each meeting,
Health Care
The biggest reason for the low productivity according the WHO is the poor health all over the
world. The Farz Foundation pays keen attention to this aspect and conducts health awareness
workshops and health camps.
71
Awareness Program
The greatest problem in the area we work is the water borne diseases and we teach them to boil
water before drinking. The general principals of cleanliness for instances, washing hands before
taking meals are emphasized during the training.
Eye Care
Farz Foundation has launched its eye care program by starting a free eye care camp for poor
peoples of the branch area. In this camp Farz Foundation provide eye checkup facility and
provide spectacles to the poor home based micro entrepreneurs with any cost.
Future Protection Program

This program deals with educating the clients to provide education to their children apart from
picking the kids of the most vulnerable members and provide expenses for their education.
This is done to ensure the better future of the community.
Entrepreneur Development Program
Clients Capacity Building Strategy
350
346
300
235
250
200
177
160
150
Trained for Murabaha Medium

Trained for Murabaha Larg
172
151
150
127
109
100
102
80
74
58
62
50
34
50
23
16
0
1st
Year
2nd
Year
3rd
Year
4th
Year
5th
Year
6th
Year
7th
Year
8th
Year
9th
Year
72
Personal
Internal
External
Lack of Fund
Lack of Research
Lack of Market Linkages
Lack of Networking
Lack Product Demand Value
Lack Business Management
knowledge
Problems of Mobility
lack of Access to Market
Client Satisfaction
Delayed payments
Distance to Wholesaler
Market
Exploitation by Middleman
Lack Guarantee
Low profit Margin
Bad debts
Unwilling Employees
HBMEs
Lack of Health
Lack of Business Education
Lack of Skills
Family & Business (Both sides
Management)
Families Restrictions
73
Health Care Awareness

Business Training
Skill Development Training
Takaful (Islamic Insurance)
Personal
Internal
External
Murabaha
Book keeping training
Other Source of income
Business Development
Training
Market Linkages
Networking
Guarantee
74
Business
Education
Long term
Profitabilit
y of Micro
Finance
Sector
Sustained Clients
Health
Care
Future Plan
Scalable, Sustainable & Profitable
Financial
Service
Farz SME Village Plan
(With special thanks of Farz Foundation authorities)
75
n) What is poverty? And who are poor?

Poverty is generally determined on the basis of income and consumption levels, but poverty has
many dimensions: Poverty means hunger, lack of medical treatment, and poor access to basic
services such as electricity and water supply. It means being unable to send children to school,
and often needing them to work instead. Poverty means a lack of assets such as land and
savings and thus extreme vulnerability to shocks due to economic downturns, family illness
or natural disasters.
We could also use the term bottom poor, extreme poor, chronic poor, and hard core poor.
An important feature to keep in mind is that ones poverty classification is not fixed, for
many people it is likely to change over time, for better or for worse.
People who are not among the poorest can easily fall within that category if they experience
a shock or economic stress.
For example, people may become bonded laborers or put their children in work because
they need money to pay for a health crisis or even to pay for wedding or religious ceremony.
It is necessary to understand the local factors that create poverty because you will want to
develop a safety net of sorts that will reduce the likelihood that people fall back into the
bottom poor.
A person or member is considered to have moved out of poverty if his/her family fulfills the
following criteria; {1.00 USD = 69.4500 BDT Approximately}
(i)
The family lives in house worth at least {TK. 25,000} or a house with a tin roof, and
each member of the family is able to sleep on bed instead of on the floor.
76
(ii)
Family members drink pure water of tube-wells or boiled water.
(iii)
All children in the family over six years of age are going to school.
(iv)
Minimum weekly loan installment of the borrower is TK. 200 or more.
(v)
Family uses sanitary latrines
(vi)
Family members have adequate clothing for everyday use (warm for winter etc.)
(vii)
Family has sources of additional income, such as vegetable garden, fruit bearing trees
etc. so that they are able to fall back on these sources of income when need additional
money.
(viii)
The borrower maintains an average annual balance of TK. 5,000 in his/her saving
account.
(ix)
Family experiences no difficulty in having three square meals a day throughout the year.
i.e., no member of the family goes hungry anytime of the year.
Family can take care of the health. If any member of the family falls ill, family can afford to
take all necessary steps to seek adequate healthcare.
(Dr. Muhammad Yunus Grameen Bank)
The definition of poverty needs to be clarified, as this has been one of the more controversial
issues in poverty studies. (Tennakoon, 2000:16) Poverty in this thesis is defined according to
the World Bank definition,
(World Bank, 2005)
The character of poverty is not only the material aspect where the daily survival is a struggle,
but it also covers a wider dimension where the access to public goods and the vulnerability are
accounted for. These entire components are important, as they affect the individuals behavior
and the perceptions of their own situation. (World Bank, 2005) The general agreement on
poverty is
A condition of relative deprivation of basic human needs, reflected in unacceptably low living standards,
chronic under-nutrition, persistent illiteracy, and low life expectancy
(Tennakoon, 2000:45)
The Department of Census and Statistics in Colombo defines poverty as any barrier to
prosperity and is a lack of resources and opportunities, feelings of being disenfranchised from
various support systems, and diminished feelings of empowerment to obtain these resources
and opportunities. (Department of Census and Statistics, 2002) This multidimensionality that
Poverty is pronounced deprivation in well-being
today is accepted raises the standards for more complete and complex strategies of poverty
reduction.
o) Difference between productive and non-productive loans

Non-Productive Loans
A loan that does not increase an economys total output, but may increase the economy's total spending
power. One of the most common examples of a nonproductive loan is leveraged buyout. Nonproductive
loans are made by commercial banks.
(Financial Dictionary)
A loan with securities pledged as collateral, but which is not to be used in securities trading or transactions
is called non-purpose loan.
77
Type of commercial bank loan that increases the amount of spending power in the economy but does not
lead directly to increased output is called non-productive loans.
(www.answers.com)
The loans amounts which are using for the purposes other than business growth or
development are called non-productive loans. It may be utilization in paying educational fees,
paying relatives/friends loans, private lender loans and/or marriages expanses of beloved sons
or daughters and any family member medical expanses etc.
Productive Loans
It is reciprocal of Non-productive loans.
A loan that boosts an economys total output, but may decrease the economys total spending power is
called productive loans.
What is Leveraged Buyout?
The acquisition of another company using a significant amount of borrowed money (bonds or loans) to
meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the
loans in addition to the assets of the acquiring company. The purpose of leveraged buyout is to allow
companies to make large acquisitions without having to commit a lot of capital.
p) What are millennium development goals?

The Millennium Development Goals (MDGs) are eight goals to be achieved by 2015 that
respond to the world's main development challenges. The MDGs are drawn from the actions
and targets contained in the Millennium Declaration that was adopted by 189 nations-and signed
by 147 heads of state and governments during UN Millennium Summit in September 2000.
Goal 1: Eradicate extreme poverty and hunger
Goal 2: Achieve universal primary education
Goal 3: Promote gender equality and empower women
Goal 4: Reduce child mortality / death
Goal 5: Improve maternal health
Goal 6: Combat HIV/AIDS, malaria and other diseases
Goal 7: Ensure environmental sustainability
78
Goal 8: Develop a Global Partnership for Development
Towards achieving the goals the United Nations General Assembly adopted 2005 as the
International Year of Microcredit to address the constraints that exclude people from full
participation in the financial sector. At the World Summit at the United Nations in
September 2005, Heads of State and Government recognized the need for access to financial
services, in particular for the poor, including through microfinance and microcredit. The
Monterrey Consensus that Heads of State and Government adopted at the International
Conference on Financing for Development in 2002 explicitly recognized that microfinance
and credit for micro, small and medium enterprisesas well as national savings schemes are
important for enhancing the social and economic impact of the financial sector. They further
recommended that development banks, commercial banks and other financial institutions,
finance, including equity financing, for such enterprises. It should be noted here that access
to credit, savings, or other financial services is only one of a series of strategies needed to
reduce poverty and achieve the MDGs. Financial services need to be complemented by access
to education, health care, housing, transportation, markets, and information. The following
are MDGs goals and examples of potential measures of access to financial services.
(Islamic MF Development IDB, S.A)
Millennium Development Goals

1990
1995
2000
2005
2008
Employment to population ratio, 15+, total (%)
48
47
47
49
51
Employment to population ratio, ages 15-24, total (%)
39
36
36
40
43
GDP per person employed (annual % growth)
Income share held by lowest 20%
8.1
8.7
9.1
..
..
..
Goal 1: Eradicate extreme poverty and hunger
Malnutrition prevalence, weight for age (% of children under 5)
39.
0
10.
0
..
31.
3
Poverty gap at $1.25 a day (PPP) (%)
23
12
..
Poverty headcount ratio at $1.25 a day (PPP) (% of population)
65
48
29
23
..
Prevalence of undernourishment (% of population)
22
18
..
23
..
Vulnerable employment, total (% of total employment)
..
65
64
61
62
Goal 2: Achieve universal primary education
whether independently or in cooperation, can be effective instruments for facilitating access to
79
Literacy rate, youth female (% of females ages 15-24)
..
..
43
53
58
Literacy rate, youth male (% of males ages 15-24)
..
..
67
77
79
Persistence to last grade of primary, total (% of cohort)
..
..
..
70
..
Primary completion rate, total (% of relevant age group)
..
..
..
61
63
Total enrollment, primary (% net)
..
..
57
67
66
Proportion of seats held by women in national parliaments (%)
10
..
21
23
Ratio of female to male enrollments in tertiary education
58
..
81
88
85
Ratio of female to male primary enrollment
52
56
68
76
82
Ratio of female to male secondary enrollment
48
..
..
78
76
6.6
7.5
7.4
9.7
Immunization, measles (% of children ages 12-23 months)
50
47
56
78
80
Mortality rate, infant (per 1,000 live births)
102
93
84
76
73
Mortality rate, under-5 (per 1,000)
132
119
106
95
90
Adolescent fertility rate (births per 1,000 women ages 15-19)
..
57
52
47
46
Births attended by skilled health staff (% of total)
19
18
23
31
39
Contraceptive prevalence (% of women ages 15-49)
15
18
28
30
30
..
..
..
320
..
27
26
43
36
61
32
..
..
25
25
..
..
..
..
..
..
..
..
..
..
..
..
..
Incidence of tuberculosis (per 100,000 people)
181
181
181
181
181
Prevalence of HIV, female (% ages 15-24)
..
..
..
0.1
0.1
Prevalence of HIV, male (% ages 15-24)
..
..
..
Prevalence of HIV, total (% of population ages 15-49)
..
0.1
0.1
0.1
0.1
Tuberculosis cases detected under DOTS (%)
..
38
67
0.5
0.5
0.5
0.4
..
Goal 3: Promote gender equality and empower women
Share of women employed in the nonagricultural sector (% of

total nonagricultural employment)
10.
7
Goal 4: Reduce child mortality
Goal 5: Improve maternal health
Maternal mortality ratio (modeled estimate, per 100,000 live

births)
Pregnant women receiving prenatal care (%)
Unmet need for contraception (% of married women ages 15-49)
Goal 6: Combat HIV/AIDS, malaria, and other diseases

Children with fever receiving antimalarial drugs (% of children
under age 5 with fever)
Condom use, population ages 15-24, female (% of females ages 1524)
Condom use, population ages 15-24, male (% of males ages 15-24)
80
Goal 7: Ensure environmental sustainability

CO2 emissions (kg per PPP $ of GDP)
CO2 emissions (metric tons per capita)
0.6
0.7
0.8
0.9
..
Forest area (% of land area)
..
Improved sanitation facilities (% of population with access)
33
40
48
58
58
Improved water source (% of population with access)
86
87
88
90
90
Marine protected areas, (% of surface area)
..
..
..
..
Nationally protected areas (% of total land area)
..
..
..
8.5
8.5
10
10
14
23
24
21
10
Internet users (per 100 people)
0.0
0.0
1.4
6.7
Mobile cellular subscriptions (per 100 people)
53
Telephone lines (per 100 people)
Fertility rate, total (births per woman)
6.1
5.3
4.4
4.1
3.9
GNI per capita, Atlas method (current US$)
400
490
490
720
980
43.
59.
67.
112
162
.9
.9
18.
18.
17.
19.
21.
Life expectancy at birth, total (years)
60
61
63
65
65
Literacy rate, adult total (% of people ages 15 and above)
..
..
43
50
54
108
122
138
155
166
.0
.4
.1
.8
.0
38.
36.
28.
35.
34.
Goal 8: Develop a global partnership for development
Debt service (PPG and IMF only, % of exports, excluding workers'

remittances)
11.
1
Other
GNI, Atlas method (current US$) (billions)
Gross capital formation (% of GDP)
Population, total (millions)
Trade (% of GDP)
Aid per capita (current US$)
Source: World Development Indicators database
81
a) Is there any need to check the loans utilization?

People inquired most of time that, Are loan utilization checks necessary? The vibrant reaction
should me YES. Because, its essential to check all the MFIs which are engaged in micro
financing amenities. The intention should be scrutiny of the organization but not censure.
Most of MFIs in all over the world checks loan utilization as essential, but as per field officers
(particularly in conventional MFIs), clients do not usually use loans for the purpose stated in
the loan application forms. They exploit the loan money in their isolated purposes and just pay
the loan installments. The intention of MFIs never been to extend the loans in poor
communities, but to make the persons or family able to earn as per their essentials and spend
their lives in the society with self-honor and respect. Loan utilization checks may seek to
prohibit use of loans for non-business purposes that may have a higher rate of return than
the business purpose for example, retiring expensive debt or buying medicine for a wageearner.
There is no doubt that lending is essentially a relationship of trust, but loan utilization checks
force the client to lie and cheat in the very first interaction with the MFI after getting the loan.
Most MFIs making small loans are helping clients household to diversify sources of income,
reduce risks, smooth seasonal troughs in income availability and successful MFIs across the
world do not tie their loans to specific types of utilization. It is therefore difficult to understand
the rationale behind the continued use of loan utilization checks.
Hence, I can say finally that, loan utilization checks are however necessary for larger, individual
and enterprise development loans. These loans are sanctioned on the assessment of credit
officers analysis of the cash flow of that business, on the other hand, most of staff members in
Pakistani MFIs are not trained as per requirements and consequentially they cant accomplish
their events as per microfinance philosophies and guidelines. So, it is necessary to check and
ensure that loans utilize only for the stated purpose in the loan application form and should be
82
used for productive purposes.
b) Why do deprived persons tale multiple credits? How it can be holdup?

Due to appearance of too many MFIs in this sector of lending in Pakistan, race has increased
among the MFIs for clients. Almost all MFIs are working in a specific poor community and
clients are borrowing from the multiple sources just for without any ambition. All these clients
are utilizing these loans in non-productive purposes and increasing their liabilities which show
results in the form of too many installments that clients cannot pay naturally and converts
debtors and creates troubles for him as well as for their families. It is very difficult to stop this
incident of multiple borrowing from different MFIs but it can be reduced by putting the
combine efforts to establish the authority in MFI sector which collect and record the whole
any MFI before sanction of new loan from any MFI. There are many reasons for taking
multiple loans by clients in which some most important are;
Due to unsatisfactory amount for business enlargement, buying equipment etc.
For paying their loans to local money lenders, friends or relatives.
For their friends or relative needs.
For purchasing jewelry and other home appliances.
For home maintenance and for medical expenses like sickness, injury etc.
For marriage, memorial services, old age etc.
For disaster or tragedy such as floods, fire, cyclone or war etc.
MFIs clients data and provide the complete details of clients who have any other loans from
c) Importance of productive loans in poor lives

I strongly believe that we can create a poverty-free world, if we want to.... In that kind of world, [the] only
place you can see poverty is in the museum. When school children will be on a tour of the poverty museum,
they will be horrified to see the misery and indignity of human beings. They will blame their forefathers for
tolerating this inhuman condition to continue in a massive way....
(Dr. Muhammad Yunus)
It is observe through field survey that people use money for their personal uses not for
business. They borrow the money from MFIs and pay their loans and other liabilities. When
people use this money for their personal substances, infect, they use MFI money in nonproductive means. The importance of productive loans can be show from the following point
of views;
83
Living Standard
Life standard always play dynamic role to judge the productivity of microloan in any
community. Life standard has direct relationship with loan productivity. If standard of living is
showing positively impact its means that customer is utilizing his loan in productive way. On
the other hand, if living standard is not increasing its means utilization of loan is nonproductive.
Optimistic reputation
Optimistic reputation is the major cause of any persons respect in any society. If anybody is
utilizing the MFIs loan for his/her business expansion, repayment will be also timely and
result will be in the shape of good or respective reputation in community.
Development of Positive Credit History
If loan utilizing in productive manners, automatically repayment will be timely and credit
history of the client will be satisfactory. Satisfactory credit history shows positive impact for any
MFI.
Encouraging Awards by MFI
Most of MFIs arrange the rewards in the form of cash money, relaxation in the loan tenor,
relaxation in mark-up, certifications etc. if clients use their loans in productive purposes. MFIs
also offer big loans for their businesses if customer not utilizing loans in non-productive
purposes.
MFI can train for different MF product like saving etc.
For the clients who are using their loans in productive purposes, MFIs also arrange different
training workshops, seminars and get-togethers etc. for their basic educational needs and their
business related fields for their betterments.
MFI can give Interest Rebate
If loans showing optimistic impact for any client business, MFIs also offer interest rebates on
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their loans.
Poverty Mitigation
A productive loan shows very positive impact in the field of poverty mitigation. Due to
productive utilization, client income increase as well as his / her business also expands. When
any business move to expansion, people gets jobs and also production increase. When people
income increases, their purchasing power also increases, they purchase goods & services for
fulfillment their living needs and producers increase their production. Result of all these above
processes becomes in the form of poverty alleviation.
Accomplish the Non-Productive Needs
Clients can satisfy their non-productive needs if they use loan in productive field. The amount
that clients earns through investment in productive manners, can use for satisfaction of their
Safety from Local Moneylenders & Activist

Clients will be save himself and his / her families from local moneylenders and activists if
he/she will use the loans in productive or constrictive works. No one can exploit anybody
rights etc.
Educational and Health Improvements
Through productive loan, clients can take advantages and benefit in the shape of his/her kids
educational and health betterments and improvements.
d) Bad impacts of non-productive loans in MFIs
non-productive needs.
Any MFI face the bad effects in case of any loan non-productivity. Not only client affected by
utilizing any loan in non-productive manners, MFI also get affected itself. The important bad
effects that can be faced in this regards are following;
Bad Reputation or Image of MFI
When any customer utilize the MFIs money which he/she borrow for his/her business
purposes in his/her life for meeting their individual requirements like loan of local
moneylender, home utility bills, children school/colleges fees, disease or medicines overheads
etc. client use that money in non-productive way. At the consequence, client becomes nonpayer
because he/she incapable to pay back. When debtor increase in any MFI, its reputation in
prospective market becomes bad.
85
MFI Tolerate High Operational Cost

One more bad effect for any MFI of non-productive loan is that MFI tolerate the high level of
operational cost. MFI staff works for collection of bad debt not for new clients.
Opportunity Cost
When any loan becomes non-productive in any community. Due to this non-productive loan,
the targeted community is getting affected negatively and subsequent, MFI lose the opportunity
of new clients in that community. So, this bad effect also confronted by any MFI.
Other client also effected

When recovery officer of any MFI dialog with debtor for retrieval of loan amount, the people
of that area feel immoral due to officers negative attitude. This practice of bad attitude put the
adverse impact on other clients of the MFI. Finally, due to non-productive of one loans cause
the negative impression for others clients.
MFI objectives not meet
Every MFI always declare their objectives of work. The core objective of any conventional MFI
is to earn maximum profit at any cost. In case of non-productive loan, MFI lose their
profit/interest and finally fail to meet their objective.
Delinquency rate increased
When MFIs increase their loan facilities to the people who never invest their loan money to
enhance their businesses and use it for their private purpose, ultimately get default the loan,
So, delinquency rate can also by non-productive loan.
Negative impression of MFIs
Comprehensive sketch of any MFI always demonstrate negative impression when any loan
transfer to debtor list. Its shows that anxiety of MFI is just giving the loan but not with
productive intention.
People avoid taking facility from MFI
86
Deprived groups expect the self-honor from the MFIs and never try to become defaulter. They
borrow the money from local lenders some times for paying their installments even. When
recovery teams push them for repayments, they fed-up from their side and next time avoids
taking loan from that MFIs.
e) Conventional MFIs increase liabilities whereas Islamic MFIs increase Assets

From the commencement of microfinance services in Pakistan, very well-known MFIs are
working in this field and providing the conventional microfinance financial services. The goal
of every MFI was to alleviate the poverty level, to empower women and the poor community.
But unfortunately, all conventional MFIs fail to attain these goals. It is now only in their files
or missions but not in the real fields. Its due to race among the MFIs for making the profit up
to extreme level. There is no doubt that these NGOs not having the object to earn the profit
In conventional MFI sector, the intention is absolutely transformed and switched to making
interest. Every MFI is signing the number of staff members and assigning them enormous
monthly targets of loan disbursements. To achieve these massive targets, MFI loans officers are
just issuing the loans without checking the customers reputation and his credit behaviors,
resulting of these actions shows that MFIs clients liabilities are increasing gradually and people
are facing the dilemmas concerning the payments and also their businesses and lives are
thrilling downhill. There are number of roots and key one is that the loan is offering in CASH
mode. Cash loan stimulate the clients to exploit the money in their private or non-productive
purposes.
On the other hand, an innovative revaluation in this arena of MF, introduced from earlier few
but to alleviate the poverty and sustainability in deprived lives.
ages. It is the system which is under the law of Islamic Shariah. Before Islamic banking system
was introduced in commercial banking system that is working in Pakistan effectively. Islamic
Microfinance Institutions (IMFIs) are in tiny figures but they have started their operations in
microfinance sectors. Islamic MFIs having collection of products for deprived community in
which Qard-e-Hasna, Murabahah, Mudarabah, Ijarah, Salam, Istisna, Istijrar & Takaful are
included. Islamic MFIs have started initially Qard-e-Hasna (Interest Free Loan) & Murabahah
(Cost plus Pricing) products with Takaful (Interest Free Insurance) in targeted areas of MF. Islamic
MFIs are also contribution for extra facilities other than lending facilities in form of social
services in which basic free education, health care centers, business & environmental
87
education,
sewing schools, building mosque (masjids), markaz darul Quran (Quran
educational institute), water wells etc.

In interest free option (Islamic MFIs), cash amount is not disbursed. Only ASSEST based
lending is permitted. In Pakistan, currently Qarz-e-Hasna & Murabahah is offering in
Microfinance sector.
f) Horrible effects of non-productive loans in deprived people

Poverty is not created by poor people. It has been created and sustained by the economic and social system
that we have designed for ourselves; the institutions and concepts that make up that system; the policies
that we pursue.
(The Nobel Foundation, 2006)
According to my views about above statement, there are many other reasons that are causes of
poverty. Poverty has different terrible effects in which I will discuss about the major and
important effect or harm that is utilization of finances in luxuries of life and other needless,
infertile and unproductive etiquette. It is truth that poor communities are getting the
microcredit facilities from different MFIs at same time and utilize this money in their house
building, for marriage of their beloved sons or daughters etc.
The bad effects that poor community faces after using the money in non-productive purposes
are following.
Poor people need to build up their assets, by using loans in nonproductive ways, they are
unable to increase or even sustain their assets.
Productive loans are playing vital role in any economy to increase their import, export and
employment level; if loans will be non-productive then all above these benefits cannot be
achieved.
By using the loans in non-productive manners, financial system can destroys.
Deprived community living standard can move down.
Real story of conventional microfinance borrower
Muhammad Akram was doing his powers looms business very well and upholds his family in
good style when he was not creditor of any MFI.
Before, he was businessman and doing well because that time he was the owner of his business
88
with 10 powers looms machines (as per his information cost of each one used machine is
Rs.60, 000 to Rs.70, 000 approximately). He employed 4 men including his son. He is also
expert in his business. Meanwhile, his bad luck period start when his one friend told him
about the some MFIs, which were offering the loans

to the poor self-employees. He got some money from
different MFIs for expansion of his business and
used that money for their self needs (he admit that
loan officers told him that he can use this money
even for their home needs etc.). With the passage of
time, the huge interest of that MFIs increase
gradually and he feel that his business also going down due to some circumstances in his family
and business environment in the market. First he sold out his land of piece one third of its
original price because the recovery officers were sitting all the day at his home for installments
Story of non-productive loans not stopped here. After one and half month, again he faced big
trouble more than before for paying installments when he offer his 6 powers looms machines
for sale. Non-productivity still was playing the role to destroy his family life when again he was
unable to pay installments, then he decide to mortgage his remaining 4 machines to an
investor (who promised with him for paying his installment) and now is working on same place
as employee on daily wages. One more, he tried to pay the complete loan but never success to
achieve this target.
Conclusion of the Story
The MFIs which are given the loan without any purpose of business always creates burdens
and problems on the loanee. Poor people not too much educated about this system so most of
time they utilize loan amount in his personal needs. Resulting they do not invest the amount
collection.
for further business expansions and become debtor and fall in the depth of poverty badly.
89
Are microfinance loans productive as per MDGs in Pakistan?

To encounter the prime aim of MDGs (Poverty Eradication) by 2015, World summit evaluates
progress in 2005. This meeting held in New York, USA where head of 151 nations get together
under the ridge of United Nation General Assembly. Microfinance was top of the agenda in
this momentous summit. The importance of the microfinance shows very well as per outcome
statement of this world summit;
We recognize the need for access to financial services, in particular for the poor, including through
microfinance and microcredit.
These aims are applied by the internationally for reducing the poverty by 2015. These MDGs
address to;
Income poverty
Hunger
Disease
Lack of education
Infrastructure & shelter
Gender exclusion
Environmental degradation
With the access of capital, a good financial sector accomplishes the assets. But low income
people need access of financial assistance to manage their assets and economy. Microfinance
only deals in micro not in macro. But the impact of micro can be macro, if the utilizations
of these financial services in the appropriate business extension and evolution.
In this current world, no one can beat this poverty issue without aid of others. Now its
compulsion of time to fight collectively against poverty not partially. The poor needs access of
90
financial for meeting their daily needs also. They need employment, schooling, health etc. most
of time they need instant money for their provisions of life. No doubt, these financial services
help to reduce the poverty but the attractiveness of MFIs is to attain and sustain for poverty
alleviation.
If we investigate the MDGs with esteems of microfinance financial services contributing in
Pakistan particularly in conventional MFIs point of view, the outcomes that are originate by
me throughout the grass root survey in Kasur & Lahore zones, no MFI which are providing any
additional communal amenities like children basic education, health, poverty alleviation
activities etc. every MFI have their own missions, visions and objectives as MF principals but
they are not following these rules and the resulting figures showing the negative impact in the
potential markets of microfinance. MFIs are just doing business like commercial banks and
are not utilizing these facilities in productive purposes but their aim is only to show huge
figures of disbursed loan amount with high mark-up returns. These MFIs are not doing any
constructive job in the deprived societies other than earning high interests.
These MFIs Impact should be positive with constrictive aim in the right way as per MDGs to
empower the women and poor people to increase their business activities. During the survey I
have asked questions to the people, does microfinance improve their lives and business? Most
of them say NO. The reason behind of this no is that people are not using these loans for
making or earning money or sustainability for their families lives.
The main issue that makes the MFIs fails to accomplish the MDGs or microfinance aptitude
as per rule is only and only that the deprived people utilize their money in non-productive
commitments, not for productive behaviors.
trying to hunt more clients at very high rate of interest while they knows very well that people
The following are some key finding during the survey from the targeted area, which shows that
conventional MFIs loans are utilizing in non-productive purposes whereas, in Islamic MFIs
(which are just starting their operations in the potential market in Pakistan) are showing most
positive impact comparatively.
NOTE
Following graphs, in which GREEN presenting the conventional, BLUE represent the Non-Conventional
(Islamic) and DARK RED represent overall cumulative results in each discussions.
91
(i) Staff behavior of MFIs

Conventional Results - (A)
51%
Non-Conventional
Results-(B)
51%
Cummulative Results-(C)
47%
40%
30%
29%
23%
20%
9%
Microfinance deals with deprived population and they need more care as compare to rich
population. The staff behaviour in conventional MFIs also not well as per needed in
microfinance sector. Most of people protest about immoral insolence of the staff members in
which few cleints tell that during the loan processing, staff behaviour was negitive and most of
them tell that recovery staff not behave like human.
For deprived people, who have already utilized their loan money in their individuals needs,
some times feel very trouble to pay their loan installments intime and recovery staff, even bank
management never give them any time release or relaxation for paying their insallments. The
above graph of conventional MFIs shows that 29% clinets compalin about bad behave, 51%
tell that behave of staff (branch & recovery) is satisfactory and only 20% clinets provide feed
back of good or very good staff behave.
In Islamic MFIs figure shows that only 9% staff attitude is bad, 40% satisfactory and remaining
51% showing the good/very good behaviours.
Here is also need to review and trained to conventional MFIs staff members in regards to
customer relationship especial for microfinance sectors.
One more side need to check and attempt to crack this issue. Durning the interveiw to cleints
of conventional MFIs, few customers also complian of field / sales staff that they demand the
money before disburcement of loan. This is heppening due to cash loan disburcement.
92
On the other hand, in Islamci MFIs, there is no way for the staff memebers to demand about
the money because Islamic MFIs not deals in cash matters then in assets. So, MFIs needs to
resolve this problem as per their policies.
(ii) Offering any extra / additional facilities by MFIs
Non-Conventional Results (B)
Conventioanl Results (A)
Cummulative Results(C)
89%
68%
100
%
32%
0%
No
Yes
No
Yes
No
It is very significant and essential to be evaluation by the conventional MFIs establishments or

upper level management that no one MFI is contributing any extra or additional facility for the
deprived people in the targeted community. Here, any extra or additional facility means
Services that are providing by the MFI to their clients against very few cost or free of cost only for purpose
of encourgement, growth or development.
Facilities may include free education, any medical facility, any welfare work, free business
consultancy, schools, sewing school or related work or job etc.
The above graph of conventional MFIs showing that 0% additional services are offering by
them. All conventional MFIs are challenging for their better services for growth and
development with slogon of poverty alleviation but, not a single conventional MFI is providing
Yes
11%
any facility like that for the empowerment and poverty alleviation & development of targeted
people. Poverty can not alleviate by cash distribution among poor but enabling them earn from
their works or businesses for their families.
In non-conventioanl graph 32% clients are getting any type of additional facilites by the Islamic
MFIs. As I have discuss ealier, the non-conventional (Islamic) MFIs are on prime stage and if
they are providing these social services even 32% of their clients, it shows good impact for
future. According to MDGs, these facilities are also including in the targets of microcredit.
93
(iii)
Improvement in business after getting loans

Non-Conventional
Results-(B)
Conventional Results-(A)
23%
41%
79%
58%
43%
19%
16%
12%
Yes
Commulative Results- (C)
No
Same
Yes
No
9%
Same
Yes
No
Same
The vital role of microfinancing in the MFIs sector is only to enhance or improvement in the
business of poor people and alleviate the poverty level through microcredit facilities and enable
them to eaarn the sufficent money for the development of their families. Deprived people get
loans with aptitude that they will use these loans for their business development and growth
only but, reality is entirely adverse.
Only 23% peoples business improve after receiving the loan from diffeent conventional MFIs
while 19% people respond that their life and business not show any imrovement and remains
same, 58% response stright farward that their businesses not get improved after utilizing the
microloans. Overall analysis shows the negitive impact and unsustainablity after utilizing the
loan facility by the conventional MFIs clients. It also demonstrate that mainstream of the
clients respond the MFIs loans in negitive although 23% clients is positive.
The main reasons behind this serious issue is illitration or less-educated community, lack of
knowledge to utilization of MFIs facilities, not motivating for removing their poverty, negitive
intentions of loans, no check and balance from MFIs side, high rate of interest, MFIs
intentions for business only, lack of proper guidance etc.
This is danger alram for the conventional MFIs in the market. If people will remains utilize
their loans in non-productive purposes, altemately, conventional MFIs will fail to achived their
aims and fails to alleviate the poverty and economic growth in poor cumminities as per their
94
missions.
(iv)Preference of loan type (Cash based loans or Asset based loans)

Conventional Results(A)
Non-conventional Results(B) 79%
Cummulative Results(C)
70%
66%
34%
30%
21%
Cash Loan Asset Loan
Cash Loan
Cash Loan
Asset Loan
Asset
Loan
loans or asset based loans are very necessary to findout the potentional market trends. People
who like to take cash loans as per conventional method are 34% and other segment which like
asset loans are 66% that shows very well movement of the clients towards islamic microfinance
organizations which offer asset based loans. Only 21% clients wants cash loans and remaining
shows satisfacion in non-conventional MFIs. it means, the over all big trend of cleints in
Pakistan microfinance sector are motivated to convert their facilities from conventional
microcredit to non-convetional microcredit (interest free).
There is always room in the potentional markets for expansion. In this affections, conventional
MFIs needs to revised and monitors the policy matters for the implementation as per market
trends. Most of existing clinets of MFIs are attracted in asset loans as compare to cash loan.
Preference of loan analysis for finding the cleints behaviour that they like to take cash based
Cleints alo realized very well that they are utilizing these microloans for non-productive drives.
Mainstream of clinets dont want to do like this. So, their intentions are moving rapidly to
asset loans, which are offering by non-convetional MFIs (Islamic MFIs).
95
(v) Improvement in the lives of destitute after getting loans

Conventional Results - (A)
67%
Non-Conventional Results - (B)

76%
33%
24%
Yes
No
Yes
No
Cumulative Results - (C)

53%
47%
Yes
No
The main intentions of microfinance is the improvement of deprived people but unfortunatily,
due to the aim less race and and intentions of earning high interest (which is not aim of
MFIs), generates too many hitches in this sector.
Loan productivity continuously shows positive impact and inclinations to moveing upward in
the poor people survives. But the above results showing that conventional MFIs not success to
improve their clients lives. Only 33% clients admit that their lives improve after loans getting,
while, 67% clients told that their live makes miserable after getting loans.
On the other side, when I asked same question to islamic MFIs clients, they pride feedback
that only 24% clients lives not get improved while, 76% clients lives improve after getting
loans. It is important to clear that this (24%) percentage is only due to the cash loan in Islamic
MFIs (Qarz-e-Hasna) because in Pakistan, poor people habitual to utilize the MFIs money for
their personal needs.
Again it shows that islamic MFIs are also performing well as compare to conventional MFIs to
improve the poor people lives.
96
(vi)Are microfinance loans utilizing in business or personal practices?

Convetional Results (A)
Cummulative Results (C)
89%
60%
40%
81%
19%
11%
Business
Business
Personal
Personal
Business
Personal
is observed during the survey of sample clients, taken from all famous and well-known
conventional MFIs in the selected research study areas that people are taking loans from
multiple MFIs with any business or productive aims.
People are getting the loans (Cash Loans) from the different conventional MFIs for business
purposes, but they are utilizing these loans for their personal practices 81% and for business,
they are consuming only 19%. (See Green graph)
In Islamic MFIs, people cant get the cash loans. These MFIs offer only asset based loan
facility, in which client cannot get the hard cash but the MFI purchase the product/items
which client needs for expansion business. During the survey of Islamic MFIs, I have founded
that 11% people still utilizing the loans product in non-productive purposes. But remaining
Are microfinance loans utilizing in business or personal practices? The reaction is categorically YES. It
89% clients are utilizing these facilities of credit in the productive purposes. (See Blue graph)
The enormous difference between conventional and non-conventional (Islamic or Interest Free
approach) showing by graphs that the cash loan facility is not favorable for the deprived clients
of MFIs. If any MFI offer them cash loan, they always utilize these amounts in their personal
needs but Islamic MFIs never offer cash loans. Due to this reason, they cant utilize those
goods for their personal needs but for their business purposes.
According to MDGs, the intention of microcredit loans should be to make sustainable the
targeted community in regards of their business and their personal lives. The above graph show
the opposite of this goal, which is due to high competition among the conventional MFIs in
the race of earning more and more high interests. It is natural dilemma that poor are most of
time uneducated in the sense of utilizing the money. They think that MFIs are giving these
97
loans for their personal needs fulfillments; it is the duty of loan officer or branch manager to
guide or educate them for utilizing these facilities for their business enlargement. During the
interviews of different MFIs loan officer / field officers, most of them, admitted that (with
promise that their name should be secrets) they knows very well, even management also know
about the loan utilization of the poor people. But they cant stop them because of clients
personal decisions. So, the aim or goal of the microcredit is fail here due to utilization in non-
productive or personal uses.
98
Microfinance authority conducted many researches and intended many different lending
elements for accomplishing the mission of poverty alleviation and economic sustainability in
the poor lives. But, still no one MFI is in the situation for conquering this target. Infect, there
is prerequisite to understand the actual target of microfinance.
The main misperception in conventional MFIs is to recognize the philosophy and target
customers of microfinance. Many MFIs are doing business like commercial banks. Their
attitude of work does not indicate that they are involved in the business of poverty alleviation,
like other commercial banks in Pakistan. The reality is totally adverse in this regards, the object
of any MFI should be very clear as per microfinance ambiance. The aim should be only and
only that to help the poor, to boost up and empowerment of women, to protect health issues,
education and getting the self-respect in the society by earning with their efforts. Now it is
moral responsibility of concern departments to regulate the microfinance rules and regulation
as per state bank of Pakistan. Anton Simanowitz, Director Social Performance Network, once said
that:
Microfinance practitioner must have a mind of banker and a heart of a social worker.
The key of success in this field of work is to build up any MFI trust in the roots of poor
communities. This trust can build up only when these MFIs will behave courteously with the
economic sustainability in the poor lives and their business growth. Even these MFIs behave
clients, aim changed their systems. There should be strategy for the unbanked and deprived
person who really needs financial facilities or services for their businesses and surviving for
their families. These financial services should be offered as per preferences of low income
entrepreneurs.
Now, there is necessity of time to coordinate globally for economic and social development to
eradicate this problem. To exterminate this matter, MFIs needed to adopt positive boldness
and struggles mutually but not in small portions. It is truth; microfinance offers the solution of
these issues. Fatefully, the practices which are adopted by different conventional MFIs in this
esteems are not as per obligatory. The contest of earning the anomalous interest targets
detracted conventional MFIs from their motives of poverty alleviation and social welfare in
99
Pakistan. Concerns can control if track of conventional MFIs change from making high
interest to poverty alleviation, education, medical amenities, public welfare and business
evolution in poor communities that are the real passion of microfinance philosophy. The
significant change will be exposed in large measure and productive for the worthy deprived
people. A good microfinance foundation should be the following characteristics;
The loan officer should have accurate idea of repayment capability of clients.
MFIs aim should be to grow of business not earning profit.
MFIs needs to create high level of transparency for checking loan productivity.
Aim of any MFIs should be to support the deprived people not just lending.
If any MFIs clients default, risk should be animated.

MFIs concerned with be only with poor people not for others.
According to the Human Development Index (HDI), 60.3% of Pakistan's population lives on
under $2 a day, some 22.6% live under $1 a day.
Now, it is realized by the great world powers that it is very essential to alleviate poverty for the
world amity. In the past time period, too many efforts made but not successes entirely. Dr.
Yunus introduce the microfinance and challenge that this is the powerful instrument to
alleviate the poverty. But unfortunately, the conventional microfinance also fails desperately to
attain this goal. It is truth that, there is always room for innovation to be introduced in any
surviving organization structure. It is very important regarding the conventional MF sector, the
most important thing in this regards is not simply extend the credit. It is more advisable to do
asset base lending along with provision of services that could lead to an economic activities at
an individual level as well as state level. The additional services like medical, education, insurance
and saving etc. should be the obligatory package with microloans. By implementing these
services in any MFI can become well organized business.
It is assumed that conventional MFIs are participating to empowerment the poor by granting
monetary or cash loans and sharing efforts to alleviate the poverty from the society. Remember,
its only assumption, truth is something else. It is observed in grass root field survey that
deprived people lives are full with problems all the time. They always not need only hard cash
100
money or cash loan. Most of time they use the cash money (loans) in their individual needs in
which fee of their children, utility bills, health, paying loan of local money lenders, relatives
and friends. They also need some additional facilities from MFIs side in which health,
education, saving also should be necessary. The problem in the poor lives creates due to
utilization of resources in non-productive substances. People acquired money from the multiple
MFIs and use it for their personal needs. They never capitalize these loans in their business
growth or expansion and gradually, installments liability increases and poors life become more
miserable. Result of these activities shows when MFIs demand their loan installments and
client always unable to pay them. So, there is need to educate the clients about the utilization
of microloans in productive means.
The microfinance expert introduced new approaches of lending in which the most admirable is
Islamic lending methodology. Islamic method of lending created on ASSETS base lending
microfinance sector, utilization of resources can be turn in productive ways. Asset based
lending increase the assets of the clients and help to become the reason of increase in income
and sustainability in the business activities and it is excellent technique to eliminate the poverty
element in the deprived communities.
Farz Foundation (First Islamic Microfinance Organization) is another effort to avoid certain
adverse outcomes of the unreliable ways of lending in Pakistan. This methodology is totally
based on Islamic Shariah (law) and providing credit services in good manners. This
methodology is an innovative economic mechanism ensures long-term profitability of
microfinance. The aim of Farz is not only to help the poor borrowers and make them
successful business individuals in the society furthermore ensure in the maximum possible
except CASH base lending (Interest Free Loans). By adopting Islamic methodology in
empowerment through education and health. As per Farz mission, A business cannot be
successful with bad health, illiteracy and skills. So, there is now more need for conventional
MFIs to proficient their staff as well as clients to get more productive. It is truth that no one
MFI can achieve the MDGs by individual efforts. So, there is need of time for all the
conventional MFIs to adopt innovative lending methodologies with aim of not earning profit
only, also facilitates to deprived people with health and education supplements. It is also
necessary for all Islamic MFIs in Pakistan to make sure the communication of their positive
experiment and also need of Pakistan Islamic microfinance network for the improvement of
Islamic microlending and development.
101
It is already discussed that poverty is big challenge that the whole world is facing. Microcredit is
very powerful tool to eliminate it. The MFIs attitude should be to fulfill the goals according to
MDGs, not earning profit. It has been proved by the various data analysis (2.16) that the most
of conventional MFIs are not on the track to achieve these goals. These conventional MFIs
left their path of poor welfare and start work like commercial banks or institutions.
Innovation in the field of microfinance introduced by the Farz Foundation (First Islamic MFI)
in Pakistan that is according to Islamic Shariah. Islamic Microfinance also has a social
performance motivation. FARZ Foundation has a strong notion that the ultimate financial
sustainability cannot be availed without social sustainability. However, the dream of changing
the lives of poor cannot become a reality without fulfilling the aim of social performance. No
doubt, microfinance is a tool which can change not only the individual lives of the poor, but
also can bring a social revolution in poor countries towards greater productivity. Social
performance based microfinance is not a commercial based industry. It has a belief on socio
productive profitability, which occurs as a result of prominent social change at a larger scale.
In this perspective FARZ (duty) Foundation was established to accomplish the real goals and
objectives of the microfinance sector, which are currently neglected to an enormous extent. It is
a social performance based non-governmental organization with highly committed, selfmotivated, innovative and enthusiastic grassroots experts as its founding members. They are
also very experienced microfinance practitioners.
FARZ Foundation is registered under Societies Act 1860 by its legal status. FARZ Foundation
is an organization in Pakistan aiming towards achieving millennium development goals
(MDGs) with a holistic approach. It is simultaneously addressing health, education, and the
financial vulnerability of poor populations to ease their burdens while systemically alleviating
poverty.
There is need to implement Farz methodology for poverty reduction and attaining the goal of human
prosperity with the additional benefits of health, education and environment betterment.
Farz Foundation is a social performance based poverty alleviation organization with a unique
and innovative Islamic microfinance model and business design. It has "Partnership with the poor
102
and, profit and loss sharing" as its prior investment methodology. As far as demoted poor and
deprived are concerned, Farz Foundation provides them "Productive Zakah (donations)" and
"Qarz-e-Hasna (interest free loan)" to start their business after giving them the basic business
training.
It has the strong belief that the sustainability of client is the sustainability of the organization. It
makes them able to Zakah payer but not the Zakah receiver. It serves its clients with asset based
products instead of giving cash directly to them.
Farz Foundation brought innovation in microfinance industry by introducing asset based
products including "Murabahah" and "Ijarah" instead of providing cash to clients. So it is
following the Farz methodology instead of Grameen methodology. Apart from providing
financial services, it also serves its clients with educational and health facilities. It also has a very
meeting, home screening, business screening, final formation meeting, asset purchasing, sale
agreement and disbursement.
Target Market
Goal of Farz Foundation is a peaceful social and economic
revolution to generate the opportunities of business partnership
among poor and microfinance facilitators through the four
components of micro-productivity, social performance, integration
and social change. Its target markets are Home Based Workers,
particularly women that are low income entrepreneurs, People living with HIV, Sex workers,
Transgender Persons, Destitute and handicap Beggars.
FARZ Foundation has a faith that without empowering these population groups, the
convenient cluster formation process which has seven steps including mobilization, community
microfinance industry cannot achieve its long terms goals. FARZ Foundation has determined
the huge untapped market of home based low income workers to be a very fertile client base
for microfinance in Pakistan, which could also benefit from enhanced productivity through the
power of microfinance focused on social performance.
Objectives of FARZ
To become a model organization in social performance focused microfinance.
To enhance the productivity of home based entrepreneurs disabled persons, HIV people,
sex workers and transgender persons.
103
Provide grants and interest free loans to the poorest while building their capacity for
sustainable livelihoods. We will prepare them for a business loan product within one year
of program entry.
To graduate the home based entrepreneurs into micro-enterprise cooperatives.
To provide basic education, particularly business education to the poor.
To provide basic preventative health education and first aid facilities to the poor.
To offer environment awareness and education at grassroots level and motivate
environmental clean-up and conservation efforts.
To provide a stimulating and professional work environment to the staff and build their
capacity on continuous basis.

To support the entrepreneurial modernization and technology development of Pakistan.
Dynamics of Farz
FARZ Foundation supports a social performance movement
for socioeconomic prosperity and building a new sphere of
integration. From inception, it has focused on translating the
social mission of microfinance into practice.
Vision
"To bring the social change through poverty alleviation by
improving productivity and capacity of clients and staff"
Mission
"Empowering the poor through innovation and diverse business opportunities, by integrating
social performance focused microfinance with collaborative community health and educational
partnership"
SWOT Analysis of Farz Foundation:
Strengths:
First MFI organization which offers asset based products to its clients instead of giving cash.
It brought innovation in MFI industry by introducing asset based products including
104
Murabahah and Ijarah.

It has cooperative and friendly staff towards clients.
It offers educational and health facilities even to non-clients.
It has a very convenient and fast cluster formation process.

It has less risk as compared to other MFI companies because it deals in assets, not cash.
Weaknesses:
Lack of funds availability is its major weakness.
It has fewer clients as compared to other MFI companies which directly provide cash to
their clients.
Communication gap is also its main weakness because they are lacking in making the
people aware about camp, scheduled to provide health facilities in the community.
Opportunities:
It has the potential of growth because its clients are informing their neubours and relatives
about Farz Foundation, in a very positive manner.
Its clients are willing to take finance in future also.
It has a very positive image in its target market.
Threats:
Threat of new competitors.
Risk associated with its doubtful customers.
It has niche target market which is not served by any other competitor.
105
1. Grameen Bank Bangladesh

2. Asian development bank
3. UNO
4. Pakistan Microfinance Network (PMN)
5. Consultative Group to Assist the Poor (CGAP)

6. (Opportunity International)
7. State Bank of Pakistan (SBP)
8. Farhat Abbas Shah (Farz Foundation)
9. (Micro-Lending by Prof. Dr. Udo Reifner)

10. James D. Wolfensohn, President of World Bank (1996)
11. (Micro-Credit Financing and Poverty Alleviation in OIC Member States 9-11 June 2007, Istanbul,
Turkey)
12. UN Millennium Project
13. {The Microfinance Revolution: An Overview Rajdeep Sengupta and Craig P. Aubuchon}
14. (Chaddus Bruce 05.09.07)
15. AMIR Programme - Sustainable Microfinance Initiative}
16. Adam Smith Founder of Economics
17. (Islamic Microfinance theory, policy and practice Ajaz Ahmed Khan)
18. (Islamic MF Development IDB, S.A)
19. Dr. Muhammad Yunus
20. World bank
21. (Financial Dictionary)
22. (www.answers.com)
23. (Islamic MF Development IDB, S.A)
24. World Development Indicators database
25. The Nobel Foundation
26. Kashf Foundation & Kashf Microfinance Bank
106
27. Tameer Microfinance bank

28. Community Support Concern (CSC)
29. Asasah
30. Khushhali Bank

31. Akhuwat (Pakistan)
32. Farz Foundation
33. First Microfinance bank
34. NYMT Islamic Microfinance

35. www.google.com
36. www.ezineArticles.com
37. Microfinance focus
107

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Researcher

Muhammad Ahmed Mazher

INTERNATIONAL OPEN UNIVERSITY, CALIFORNIA, USA

a) Background of the Study

Literature Review & Theoretical Framework

b) Goals and Key Principles of microfinance

c) Challenges facing microfinance industry in Pakistan

d) Difference between commercial banks & MFIs economic activity

f) Difference between Microfinance & Microcredit

g) 10 tips to help improve in lending intelligence

h) Principles for sustainable microlending

i) Poverty alleviation, microcredit and its impact in Pakistan

l) Common Microcredit methods

Banco-sol Progressive Model

m) Comparative study of lending methodologies special in Pakistan

Non-Productivity of Microfinance Loans in Pakistan

Grameen La Riba Model

Islamic Lending Model

Akhuwat Lending Model

NYMT Lending Methodology

n) What is poverty? And who are poor?

o) Difference between productive and non-productive loans

Non-Productivity of Microfinance Loans in Pakistan

p) What are millennium development goals?

Productive and No-Productive Loans in Pakistan

a) Is there any need to check the loans utilization?

b) Why do deprived persons tale multiple credits? How it can be holdup? 63

d) Bad impacts of non-productive loans in MFIs

e) Conventional MFIs increase liabilities whereas Islamic MFIs increase Assets

Data Analysis & Interpretation

a) Are microfinance loans productive as per MDGs in Pakistan?

Staff behavior of MFIs

Offering any extra / additional facilities by MFIs

Improvement of business after getting loans

Preference of loan type (Cash based loans or Asset based loans)

Improvement in the lives of destitute after getting loans

Are microfinance loans utilizing in business or personal practices? 77

until they change it themselves (with their own souls)..

Non-Productivity of Microfinance Loans in Pakistan

.Verily never wills Allah change the condition of a people

to make this endeavor to be an effective one.

Muhammad Ahmed Mazher

Non-Productivity of Microfinance Loans in Pakistan

Muhammad Ahmed Mazher

Dr. Hortense Ross-Innerarity (PhD)

Non-Productivity of Microfinance Loans

Doubt, microfinance is very powerful apparatus to alleviate the poverty and

empowerment to women and poor populations. There are numerous NGOs,

Non-Productivity of Microfinance Loans in Pakistan

a) Background of the Study

Non-Productivity of Microfinance Loans in Pakistan

Non-Productivity of Microfinance Loans in Pakistan

To analysis about the Non-productivity of microfinance in Pakistan.

Non-Productivity of Microfinance Loans in Pakistan

questionnaires among different organizations clients randomly, using nonprobability sampling

Non-Productivity of Microfinance Loans in Pakistan

Non-Productivity of Microfinance Loans in Pakistan

Microfinance services are provided by three (3) types of sources:

(ii) Semi-formal institutions, such as (NGOs) nongovernment organizations

(Asian Development Bank)

Non-Productivity of Microfinance Loans in Pakistan

(Pakistan Microfinance Network)

(State Bank of Pakistan)