Syed Muhammad Qasim

Microfinance in Pakistan: impact and growth

Rauf and Mehmood (2009) conducted a research on the growth strategy of microfinance in
Pakistan and its impact on the performance of microfinance institutions. The objective of the
research was to focus on growth strategies that were employed by this sector and how it affected
the poverty levels in Pakistan. The theoretical model of six dimensions of outreach were used
which were interlinked. These included the breadth of outreach, depth of outreach, scope of
outreach, worth or value of financial service, cost of outreach or operational self-sufficiency and
length of outreach. These were all linked with the microfinance institutions. Other indicators
used for the research were efficiency and productivity variables. For these variables ratio
analysis was done to study the performance of the microfinance institutions. Intensive growth
strategy was seen as a result of this study as the number of branches increased from 362 to 1165
during the years 2004 to 2007. The outreach variables increased as can be seen in the tables
included in the research and the main findings were that it was due to an increase in the number
of borrowers.
Saba Ahmed (2008) conducted research on microfinance in Pakistan and the governments
policies in making it a success. The main objective of the research was to retrieve information
from the microfinance providers in order for an improvement in the structure of this activity in
Pakistan. This research was mainly secondary and data was collected from various banking
organizations and various academic papers were also consulted for explanations. The
organizations were mainly contacted through email. This study concluded that microfinance
institutions are not within the proper reach of the people it is built for and the institutional
structure needs to be improved. The sector needs to have good governance, be sustainable
through better business prospects and commercial banks must play an important role in helping
the microfinance sector.

Montgomery, H. and Weiss, J. (2011) conducted a research on whether the microfinance industry
provide in helping achieve millennium development goals which are related to monetary
measures. They provide evidence from Pakistan through observing Khushali bank as their
primary concern. The main reason behind the research is to study the impact of loans on the
levels of income within urban and rural population. For this study consumption expenditures
were looked upon for the impact of microfinance on households. There were three approaches
used in this study; randomized study design, including sample of credit loans who have formed
solidarity groups and the last approach is difference in difference approach. This study shows
that the access to Khushali bank loans leads to an increase in the food expenditures. An increase
in the number of loans also has improved the family dynamics. However overall this research
states that Khushali banks increase in number of loans has not improved the situation of the
people at the bottom however there is some evidence that in rural areas the millennium
development goals are improving and poverty levels are reducing.

Montgomery (2006) carried out a research on the impact of microfinance lending by Khushali
bank on the poverty levels within Pakistan. The purpose of this study was to look at the impact of
microfinance sector development on the poverty levels in Pakistan. A single equation was made
to estimate the impact of loans. Variables which were include consisted of household
characteristics, Village variables, households that participated in the program, and participation
in the microfinance program itself. Three alternative measures for participation were used for the
program. The analysis therefore shows that participation in the khushali banks program has
positive impact on the economic and social conditions of people and improves social welfare
among the society.

Sulaiman (2010) conducted a research on the microfinance challenges and opportunities in

Pakistan. The purpose of this study was to look at the challenges it faces in terms of environment
and regulations by the government and opportunities in terms of expansion in the future.
Secondary data was collected through various sources to look at the microfinance sector in
numerous areas. Also different sectors were distributed according to their contribution. Economic
survey of Pakistan was one of the major sources for the statistical data that was extracted. The
conclusion that can be based upon this research is that microfinance is a sector that is still
growing in Pakistan. Government needs to play a vital role in order for the betterment of this
sector and must eliminate threats to enhance this industry.
Siddique and Gilal (2012) carried out a research on the perception towards microfinance in
Pakistan. The objectives of this study was to ascertain the perception and realities of
microfinance in Pakistan. Today at least 20 banks provide the services of microfinance in
Pakistan under State Bank of Pakistan. The number of respondents in this research was divided
into 80% male and 20% female. Non-probabilistic sampling approach was used and 200
respondents was the sample size. The questionnaires were distributed among the respondents and
only 27 were unable to answer it. Demographic segmentation was done for the questionnaire.
One conclusion that was extracted from the respondents was that they did not like microfinance
because of higher interest rates. They wanted a better structure in the microfinance institutions
and a more reliable system.

Kurosaki and Khan (2009) carried out a research on vulnerability of microfinance to strategic
default and covariate shocks: evidence from Pakistan. The fundamental reason for this research
is to study the behavior of borrowers for microfinance banks. The default behavior is the most
important focus here. A dataset of 45000 installments was investigated from the period of 1998
to 2007 and the reasons behind default were. The hypothesis that was used helped to conclude
that system before 2005 which was stricter was one of the main reasons in repayment of loans.
The new system however showed a different behavior from the borrowers as they were not so
strict. It also shows that tht MFIs became more cautious in giving away loans and reviewed the
situation more carefully.

Noreen et.al. (2011) conducted a research on the impact of microfinance on poverty: a case in
Pakistan. The main objective of this research was how microfinance improves conditions in a
family which include education of children, housing, security of food, expenditure of households
and assets owned by households. These variables will help to establish the poverty levels and
differentiate them. The sample consisted of 384 respondents from 4 microfinance instituions
where cluster sampling was used. Households were observed through cross-sectional design.
New entrants as well as experienced persons were also interviewed. However in the end it could
not be established that microfinance loans increased household incomes. The results also revaled
a positive relationship between the first hypothesis. Microfinance did not lead an improvement in
housing conditions. Also small loans did not increase the consumption of food. Household assets
also remained the same.

Ahmed (2011) completed a research on the efficiency analysis of microfinance institutions in

Pakistan. The primary objective of this research is too see whether the MFIs are sustainable and
how can they be in the future. Also we need to see how efficient the microfinance institutions in
helping out the poor are. The data has been focused on from 2003 to 2007 and it is taken from
Pakistan Microfinance Network. The Data Envelopment Analysis (DEA) is used in methodology.
It is a programming approach for the frontier investigation. It was therefore concluded that out of
12 microfinance banks investigated only 3 were on the efficiency frontier. Many banks have
moved away from the frontier and many have come close to it. The microfinance institutions
need to be profitable in order to be sustainable and efficient.

Ghalib, Malki and Imai (2011) carried out a research on the impact of microfinance and its role
in easing poverty levels of households in Pakistan. The primary objective of this research was to
study how microfinance effects poverty levels through different dimensions and measure the
level of impact it has. 8 MFIs were looked upon for data gathering. The standard approach was
applied with an equation which showed the treatment of effective incomes subtracted by
outcomes. Cross sectional data was used. The conclusion regarding this study stated that the
borrowers had better conditions as compared non borrowers. They were able to carry out their
business activities more efficiently and effectively. Overall the borrowers were seen better off in
70% of indicators that were used in this study.