OPINION: Reinventing microfinance in Pakistan — II

By Farhat Abbas Shah

Feb 11, 2010: There is a 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 known as microfinance, which aims at poverty alleviation through lending. It began with a justified fanfare and made certain gains as well but the overall outcome betrayed some beliefs. Now the Farz Methodology has been adopted, which in fact, is another attempt to avoid certain negative outcomes. The irresponsible ways of lending, which almost sunk the ship of world economy might 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 marginalised poor. Here comes the Farz Methodology which enshrines in its philosophy the passage to the relative wellbeing 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 poor and the vulnerable to the hard cash. What is suggested instead is educating the poor along with providing them with necessary tools such as the stuff they might need 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 percent, 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 realisation 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.

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 made from a failed business. MFIs must make certain the recoveries from their profits, instead of their losses. Recovering from the 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 organisation (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 lack of skills. The organisations 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 emphasises 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 the skilled labour. This fact alone would soon retrieve the falling economy in the rich countries, maybe 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 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 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 Pakistan’s economy is estimated as growing by less than 2 percent, we should adopt this measure to enhance the growth. The 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 this recession could only be materialised by kick starting the growth in the sectors where the impact of the world recession is slightly less. The task of course is gigantic. But of course, the journey of thousands of miles begins with one step. Let’s start restructuring existing MFIs methodologies and also begin the establishment of new projects to steer out of these testing times.

Related Posts:

• OPINION: Reinventing microfinance in Pakistan
• Opinion: Need of the day – Bridging development and microfinance
• Pakistan Microfinance Network to set up credit bureau
• Opinion: Reinventing Microfinance in Pakistan – Part III
• Opinion :The Methodologies and Products of Microfinance both need refinement –II
• Farz Foundation and Akhuwat signed MOU to work jointly on Islamic microfinance
• Telenor Pakistan, Tameer Bank launch ‘easypaisa’
• Pakistan’s microfinance bank celebrates International Women’s Day

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