Wednesday, May 13, 2009

Fighting Poverty Through Microfinance in Pakistan

During 2002 to 2007, Pakistan's economy grew at an average rate of 7% annually, creating about 2.5m jobs a year, barely keeping up with the number of young people ready to join the work force each year, according to Salman Shah, senior economic adviser to former President Musharraf of Pakistan. However, the current economic slowdown has resulted in significant job losses in almost all private sectors of the economy, increasing visible signs of poverty. According to a BBC report last year, three times a day, hundreds of men, women and children line up outside dozens of Karachi restaurants for meals which are paid for by philanthropists and charity donors. These lines were considerably shorter, or non-existent until early 2008. Many of those lining up are industrial workers who have lost their jobs. Credit crunch has taken its toll on all businesses and consumers, even the microfinance sector helping small entrepreneurs has not been spared. There were about 1.8 million beneficiaries of the microfinance institutions during the financial year 2008. They lent more than Rs. 21 billion to the poor people. The number of active borrowers of microloans has dropped by 7%, while the gross loan portfolio (GLP) has fared even worse, declining by 12%, according to the most recent Microwatch newsletter for the last quarter of 2008. Credit has not been extended to a significant number of previous borrowers as the lenders have not been able to roll-over existing lines of credit.

In response to these declines in small loans, the State Bank of Pakistan has acted to help recapitalize the microlenders in Pakistan. According to a recent report by Microcapital, Pakistan's central bank has launched three microfinance initiatives: the Microfinance Credit Guarantee Facility, the Institutional Strengthening Fund, and Improving Access to Finance Services Fund. The initiatives are part of $75 million Financial Inclusion Program (FIP), a joint venture between SPB and the UK Department for International Development. The objective of the three microfinance initiatives is to provide liquidity to the microfinance providers in response to tighter liquidity conditions and a sudden spike in inflation. In 2008, Pakistan’s inflation rate reached 20.8 percent, primarily due to rising world fuel and commodity prices. The announced initiatives are also in line with the aggressive goals outlined in the Pakistani government’s Poverty Reduction Strategy Paper. In the paper, the government has laid out an evidence based policy and set a target of reaching out to three million microfinance borrowers by the end of 2010 and 10 million borrowers by 2015.

The history of microfinance activities in Pakistan started with the launch of Orangi Pilot Project (OPP) in Kutchi Abadies (shanty towns) of Karachi in early 1980’s, according to a paper published by Abdul Qayyum and Munir Ahmed. In the late 1960s, prior to OPP, a few NGOs in the rural areas of Pakistan began to experiment with microcredit by offering subsidized loans. However, they mostly failed to reach the poor due to abuse and corruption. Now there are more than sixteen Micro Finance Institutions working in Pakistan. The MFIs in Pakistan can be divided into different groups based on their uniqueness that separates them from other financial institutions and makes them similar in terms of the way they function.

The first group consists of financial institutions with microfinance as a separate product line. The share of microfinance related activities of these institutions is up to 10 percent. This group includes Orix Leasing and the Bank of Khyber –both are profit making organizations and consider microfinance as a separate product line.

The second group refers to the specialized MFI’s, which includes two microfinance banks - The Khushhali Bank and First Microfinance Bank Limited (FMBL) - and two NGOs - KASHF Foundation and ASASAH. All these institutions completely focus on provision of financial services and also have commercial focus as well.

Third category MFIs related to activities of the Rural Support Programs which deals with integrated Rural Development Programs with microfinance as one of its activities. These organizations are National Rural Support Programs (NRSP), Punjab Rural Support Programs (PRSP) and Sarhad Rural Support Programs (SRSP). The last group consists of private NGOs. These NGOs are basically integrated development organizations with microfinance as one of their activities. These include Orangi Pilot Project, Sungi Foundation, Taraqee Foundation, Development Action for Mobilization and Emancipation (TRDP), Sindh Agricultural & Forestry Workers Coordinating Organization (SAFWCO) and Development Action for Mobilization and Emancipation (DAMEN), among others.

Khushhali Bank was established in August 2000 as part of the Government of the Islamic Republic of Pakistan's Poverty Reduction Strategy. The Pakistan Microfinance Sector Development Program (MSDP) was developed with the technical assistance and funding of the Asian Development Bank, which provided a US$150 million loan to the government of Pakistan, US$70 million being used for micro-loans provided by KB. Headquartered in Islamabad, KB operates under the central bank's supervision (State Bank of Pakistan) with several commercial banks operating as its primary shareholders.

The First Microfinance Bank, established by Agha Khan Foundation in 2002 as the first private sector micro-finance bank in Pakistan, is a premier non-commercial bank licensed by the State Bank of Pakistan under the regulatory framework of the Microfinance Institutions Ordinance 2001, issued by President Musharraf. It was created through a structured transformation of the credit and savings section of the Aga Khan Rural Support Program (AKRSP), an institution that had laid the foundations of the microfinance sector in the country in 1982, beginning in the Northern Areas and Chitral.

To highlight the positive impact of microfinancing on the lives of poor people in Pakistan, Microfinance Connect website has a number of success stories. For example, a Kashf Foundation customer Shehnaz tells the story of how she was able to keep the the business running while dealing with her husband's illness because of health insurance provided through the foundation's microinsurance program. Rashida Bibi, an Asasah customer, succeeded in doubling her dairy business revenue because of the microloan she received. Shopkeeper Mohammad Aijaz tells a similar story of increased business during the holiday season made possible by a Rs. 35000 loan from Tameer.

In addition to microlending for the traditional small businesses, there is a need in Pakistan to expand this effort by emulating the work of Grameen Shakti to empower villagers with electricity, water, sanitation and other necessities. It is one of more than two dozen organizations within the Grameen family of enterprises that is dedicated to improving the quality of rural life in Bangladesh. The lack of electricity results in low levels of human development, low productivity and widespread poverty in the developing world, including Pakistan. The governments of most developing nations, particularly in South Asia, have miserably failed in providing such a basic necessity as electricity to their people. About 40% of the people in both India and Pakistan have no access to electricity, the percentage lacking access in Bangladesh is even higher.

In Pakistan, the total banking sector serves around 6 million borrowers and 25 million depositors, implying a penetration rate of 3.6 percent and 15 percent respectively. In terms of access to microfinance, which means the availability of small loans, micro deposits and micro-insurance services to low income households, the current penetration rate is only 10 percent. In other words, 85 percent of Pakistan's population does not have access to any financial services at all, which inherently creates an uneven and an inequitable economic world, where the majority of people are financially marginalized. This situation drives the poor to rely on informal sources of funding like the unscrupulous moneylender, where the calculus of the relationship works to the detriment of the borrower. A well regulated and highly effective microfinance sector is, therefore, absolutely necessary to give hope to the poor in breaking the vicious cycle of dependence and poverty.

Microfinancing, along with social entrepreneurship, should be an essential component of non-government efforts in Pakistan and other developing nations to empower ordinary people to become self-reliant by lifting them out of poverty and teaching them the right skills to help themselves. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb has guided the efforts of late Dr. Akhtar Hameed Khan, acclaimed Pakistani social scientist and founder of Orangi Pilot Project. All efforts at alleviating poverty should be guided by this proverb that captures the essence of self-reliance.

Here is a Kashf Foundation video clip explaining how microfinance works in Pakistan:

Here is a Skoll Foundation video on social entrepreneurship:

Related Links:

Microfinance Connect

Microfinance in Pakistan: A Silver Bullet for Development?

Microfinance Industry Overview

Pakistan Financial Sector Risks

Akhtar Hamid Khan's Vision

Grameen Foundation in Pakistan

Pakistan's Poverty Reduction Strategy

Grameen Shakti Solar Model For Pakistan

Job Losses Hit India and Pakistan

MicroCapital in Pakistan


administrator web site said...

"Dr. Akhter Hameed Khan - The Pioneer of Microcredit" by Nasim Yousaf

Anonymous said...

"Remembering Dr. Akhtar Hameed Khan" (October 9, 2009)

Riaz Haq said...

Here's a ranking of ease of doing business in South Asia that puts Pakistan well ahead of India:

Bangalore: The business environment in Pakistan and Bangladesh is far better than in India. According to the latest 'Doing Business Index', India's business environment has become tougher during the years compared to other nations.

Economies are ranked from one to 183 on the basis of their regulatory environment being conducive to business operations. All of India's neighbors except Afghanistan have been ranked better. While India is ranked 133, Pakistan is ranked 85th followed by Sri Lanka (105), Bangladesh (119) and Nepal (123).

"India is a consistent reformer for the past many years. A country's rank in the index is an average of 10 indicators, each with 10 percent weight in the index. India increased the number of judges in the specialized debt recovery tribunals, which led to a major removal of blockages. While India reformed in the area of insolvency, other countries reformed in more than one area," World Bank's Senior Strategy Advisor, Dahlia Khalifa told Economic Times explaining why India has been overtaken by other nations.

The 2010 Doing Business Report prepared by World Bank and the International Finance Corporation averages a country's percentile ranking on 10 topics, made up of a variety of indicators. This includes examining a country's business environment in terms of starting a business, dealing with construction permit, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

The first place is occupied by Singapore, which is followed by New Zealand, Hong Kong and the U.S.

To see complete rankings and report, click here:"

Riaz Haq said...

Here's a news brief from the BBC about honors for the founder of BRAC, which also operates in Pakistan:

The founder of one of the world's largest non governmental organisations, the Bangladesh Rural Advancement Committee, has been honoured in the UK.

Fazle Hasan Abed - who holds dual British and Bangladesh citizenship - will be knighted by Queen Elizabeth in 2010 for services in tackling poverty.

He has also been awarded for empowering the poor in Bangladesh and globally.

Mr Abed's name was included in the Queen's New Year's Honours List released on Thursday.

'Multi-dimensional approach'

"I feel very humbled to receive this award," he told the BBC from his office in Dhaka, "which I am delighted to accept on behalf of all Bangladesh Rural Advancement Committee (Brac) workers across the world.

"I now want to build on this success to continue Brac's fight against poverty not only in Bangladesh but in eight other countries in the world where we are involved - Afghanistan, Uganda, Tanzania, Southern Sudan, Pakistan, Sierra Leone, Liberia, and Sri Lanka."

Brac also has plans to expand into Haiti.

Mr Abed says that Brac's success was because of a "multi-dimensional approach" to fighting poverty such as improving education, healthcare and financial services.

Riaz Haq said...

Here are excerpts from an interesting article on Chowk about financial systems:

A financial system is a structure that channels funds from agents with surplus to those with a deficit. Financial systems are crucial for the allocation of resources in a modern economy. A powerful question to ask then in the context of developing countries is what the relationship between growth and
the financial system is. Does growth lead to the development of the financial sector or do financial systems create growth? What can be concluded is that there is a positive correlation between growth and financial structures. The more important debate lies in the relative contribution of banks and financial markets in stimulating growth.

The modern financial system debate can be broken down into two opposing views. The first is that of Gerschenkron, who holds the view that bank based finance plays the key role in development. It is open to state intervention. This view was largely held throughout the 1960-1970’s. Stiglitz was another supporter of this bank based system. However during the 1990’s a new point of view emerged that wanted to remove the distinction between bank based and market based systems and proposed the need for a “modern financial system” for development. This argument was in favor of a market based system which took precedence in the 1990’s. It became associated with modern finance. Thus modern finance closely resembled market finance. This as we will see later can have quite a detrimental affect on the process of development for developing countries as is supported in the Singh 1997 paper which states that, “general financial liberalization and the associated expansion of stock markets in DCs is likely to hinder rather than assist their development.

The emergence of the stock markets has been a major new development in the financial systems of developing countries but its impact has been less than ideal. In an attempt to assist with the liberalization process developing countries have seen a remarkable growth in their stock markets. Stock markets allow financial services in addition to banks. Not only is risk reduced in areas of long term risk but they are also supported by the transparency argument. This has very important implications on developing countries, where corruption, crony capitalism and lack of accountability institutions lead to inefficient financial systems. Stock markets provide information on what a company is and how it is performing. This creates transparency of information for investment decisions.

So far the poor have been excluded from lending within this modern financial system. This is a very important area of discussion when designing the financial system for developing countries. The majority of the population in these countries is poor. They remain excluded despite the deregulation of finance because transaction costs are very high in lending to the poor. These transaction costs include on part of the lender screening costs, disbursement costs, monitoring and ensuring payment. For the borrower these costs involve the cost of lodging applications, obtaining and securing loans. These transaction costs are pronounced with the absence of institutions such as tax collection systems, legal systems, rating agencies, insurance systems and education. The poor form the majority of the population in most developing countries. Thus this may be an oversight on part of the financial system proposed for these countries. One solution put forth is that of micro finance. The precursor to this system was the ADB. These suffer from the problem of sustainability and the result of such efforts has been disappointing based on the results in the last few decades. The answer then is still greater formal involvement and not MFI’s.

Riaz Haq said...

Moderated by Saad Khan, a partner at CMEA Capital, there was a social entrepreneurs panel at Open Forum 2010 that featured Salman Khan of Khan Academy, Leila Janah of Samasource, Tabreez Verjee of Kiva, and Misbah Naqvi of Acumen Fund.

The panelists described what they do as social entrepreneurs and what led them to it. Salman Khan started at a hedge fund before he was inspired by a cousin and her friends to create Khan Academy for tutoring math and science via his Youtube channel.

Leila Janah of Samasource went to work for the World Bank in Washington to fight poverty, but she was soon soured by the bank bureaucracy whose focus was on self-interest rather than the interest of the world's poor which it is supposed to serve. Her first day at the World Bank was spent at a seminar advising bank employees on financing a second home. She quit her job to found Samasource, which is a non-profit service that seeks contracts from companies in the West, and slices large contracts into microwork tasks like data entry, software testing, transcription and research outsourced to the poor, but educated, workers abroad.

Tabreez Verjee serves on the board of Kiva, a Silicon valley startup that combines microfinance with the Internet to create a global community of people connected through lending. The company allows lenders to lend amounts as small as $25 and choose who to lend to via the Internet. The funds are disbursed to small entrepreneurs and loans repaid using existing microfiance companies operating in different parts of the world. Kiva is working with Asasah microfinance in Pakistan.

Misabah Naqvi is the business development manager of Acumen fund which invests in social enterprises. She was originally a banker in Pakistan before joining the Acumen Fund. The fund is a business rather than a charity, and puts all of its returns back into the fund to support more social efforts based on sustainability, scale and social impact. In addition to investing in microfinance, the Acumen fund has invested in Saiban which is building low-cost housing in Pakistan.

Riaz Haq said...

A recent ODI report highlighting India's progress toward MDGs and putting India in the top 20.

Looking at the detailed report, however, it clearly highlights Pakistan along with China in the top 10 in achieving poverty reduction goal MDG1, the most important of MDGs. There is no mention of India on this list in table 4.

Riaz Haq said...

Here's an Express Tribune report on philanthropy doubling in Pakistan in the last decade:

KARACHI: Inflation is not the only thing that is on the rise. The amount contributed towards philanthropy in Pakistan has almost doubled over the past decade, said Anjum R Haque, Executive Director, Pakistan Centre for Philanthropy (PCP), an Islamabad-based organisation focussed on streamlining social development.

While a total of Rs70 billion had been donated in 2000, she said that the figure was likely to reach Rs140 billion this year. With donations carrying such a massive potential, she said, there is a growing need to make direct cash flows strategically.

She also spoke about the PCP certification programme under which 162 non-governmental organisations (NGOs) have been certified.

The PCP’s aim, she said, is to create awareness and sensitise society about current issues affecting growth in the social sector and create an enabling environment for the certified NGOs.

“Regularisation of NGOs is a very sensitive issue and the PCP tries to promote this culture through a voluntary approach,” she said.

Certification Manager Malik Babur Javed said that the certification programme was recognised by the government and was the country’s only system that reinforced and promoted internal governance, financial transparency and programme delivery in the non-profit sector.

He said that civil society organisations (CSO) certification not only created sector-wide standards but also promoted the government’s agenda of strengthening the civil society in terms of administration, documentation, disclosure, transparency, accountability and effective service delivery.

With additional information from APP

Riaz Haq said...

Here are some excerpts from a Businessweek story on microfinance in India:

Savita Ramesh Rathore stands at the door of her dimly lit workshop in Mumbai's Dharavi slum, filled floor to ceiling with bundles of old clothes, and talks about the cost of her son's wedding last year. "Jewels, clothes, food, the town hall," says Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($647) from moneylenders charging 60 percent interest and took additional loans from friends. Three months ago she got a 10,000-rupee loan from urban lender Hindusthan Microfinance at an interest rate of just over 20 percent to repay some of that debt.

Rathore is one of 25 million Indians who have taken so-called microfinance loans, often without adequate documentation or collateral, according to research firm Micro-Credit Ratings International. As Hyderabad-based SKS Microfinance plans to become the first microlender in the country to go public, an industry credited with helping alleviate poverty is suddenly provoking comparisons to subprime lenders in the U.S.

"Globally, microfinance is showing characteristics of the Western financial markets before the collapse," says Sanjay Sinha, managing director at Micro-Credit Ratings in Gurgaon. "In the U.S., homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises."

Microfinance firms make loans in poor areas largely shut off from traditional banking services. The past two years have been marked by surging defaults in some countries. Microfinance markets in Nicaragua, Morocco, and Pakistan have seen default levels climb to more than 10 percent, the threshold that marks a "serious repayment crisis," according to a February report from policy and research firm Consultative Group to Assist the Poor.

India, where more than 600 million people live on less than $1.50 a day, is the world's largest microfinance market. Most microfinance loans in India range from 5,000 to 20,000 rupees ($108 to $431), with interest rates ranging from 18 percent to 33 percent. Although Indian microfinance firms have reported bad-loan ratios of about 2.5 percent on average, levels may be higher because some lenders roll over loans to struggling borrowers to avoid defaults, says Micro-Credit's Sinha.

Microfinance lending in India may surge by about 40 percent annually over the next few years, says Sinha. SKS, betting the potential for growth will attract investors, is seeking regulatory approval for an initial public offering. Basix Group, which focuses on poor households in rural areas and provides loans averaging about 3,000 rupees, may sell shares in an IPO next year, says Chairman Vijay Mahajan. Others are likely to follow. Until now, microfinance companies have relied on loans and grants from banks, insurers, and foundations for funding, he says.

Micro-Credit's Sinha worries that growth in the microfinance market is masking an erosion of lending standards that may spark rising defaults. India doesn't have a nationwide system for tracking borrowers' credit histories, making it hard for lenders to check whether clients have multiple loans. "There is significant investor interest in microfinance companies' public issues, but it's being driven by irrational exuberance," says Sinha.

Riaz Haq said...

CK Prahalad's theory on the purchasing power at the 'bottom of the pyramid' (BOP) has set the MBA circles buzzing about the big corp making money off the poor people in India by selling products to them.

Recently, Indian govt tried giving away cell phones to the poor in India who wondered out loud what they'd do with them. They'd rather have food rotting in govt warehouses given away to them so they can fill their hungry stomachs to survive.

Michigan professor Aneel Karnani calls Pralahad's BOP theory "at best a harmless illusion and potentially a dangerous delusion".

His new working paper, Fortune at the bottom of the pyramid: a mirage, really takes late Professor Pralahad to task.

Karnani argues that "the best way for private firms to help eradicate poverty is to invest in upgrading the skills and productivity of the poor, and to help create more employment opportunities for the poor".

Riaz Haq said...

Here is a NY Times report on Khosla's SKS microfinance going public in Mumbai:

MUMBAI, India — Vinod Khosla, the billionaire venture capitalist and co-founder of Sun Microsystems, was already among the world’s richest men when he invested a few years ago in SKS Microfinance, a lender to poor women in India.

But the roaring success of SKS’s recent initial public stock offering in Mumbai has made him richer by about $117 million — money he says he plans to plow back into other ventures that aim to fight poverty while also trying to turn a profit.

And he says he wants to challenge other rich Indians to do more to help their country’s poor.

An Indian transplant to Silicon Valley, Mr. Khosla plans to start a venture capital fund to invest in companies that focus on the poor in India, Africa and elsewhere by providing services like health, energy and education.

By backing businesses that provide education loans or distribute solar panels in villages, he says, he wants to show that commercial entities can better help people in poverty than most nonprofit charitable organizations.

“There needs to be more experiments in building sustainable businesses going after the market for the poor,” he said in a telephone interview from his office in Menlo Park, Calif. “It has to be done in a sustainable way. There is not enough money to be given away in the world to make the poor well off.”

Mr. Khosla’s advocacy of the bootstrap powers of capitalism is part of an increasingly popular school of thought: businesses, not governments or nonprofit groups, should lead the effort to eradicate global poverty.

Some nonprofit experts say commercial social enterprises have significant limitations and pose conflicts of interest. But proponents like Mr. Khosla draw inspiration from the astounding global growth of microfinance — the business of giving small loans to poor entrepreneurs, of which SKS Microfinance is a notable practitioner.

Advocates also find intellectual support for the idea from the work of business management professors like the late C. K. Prahalad, who have argued that large corporations can do well and do good by aiming at people at the so-called bottom of the pyramid.

Besides Mr. Khosla, entrepreneurs like Pierre Omidyar, a co-founder of eBay, and Stephen M. Case, a co-founder of America Online, have started funds with similar aims.

But Mr. Khosla, 55, who moved to the United States from India as a graduate student in 1976, has another motive, too. He wants to goad other rich Indians into giving away more of their wealth.

India’s torrid growth over the last decade has helped enrich many here — Forbes estimates that India now has 69 billionaires, up from seven in 2000 — but only a few have set up large charities, endowments or venture capital funds.

“It surprises me that in India there is not a tradition of large-scale giving and helping to solve social problems and set a social model,” Mr. Khosla said.

Mr. Khosla is not alone in worrying about the state of Indian philanthropy. Bill Gates, the Microsoft co-founder, who was in China last week with the billionaire investor Warren E. Buffett, said Thursday that he and Mr. Buffett might go to India as part of their campaign to get the very rich to give away half their wealth.

Riaz Haq said...

Here's the story of how Acumen's Jacqueline Novogratz got into microfinance, as published by Businessweek:

I was an accidental banker. To please my parents, I went for an interview with Chase Manhattan Bank in 1983. They promised to send me into their offices in more than 40 countries and essentially audit the practices. It was an extraordinary job.

I had an epiphany in Brazil. We had made a $100 million loan to an airline owner who immediately moved the money to the Cayman Islands. Yet I saw all these people in the favelas who were incredibly productive but had no access to capital. I decided to leave Chase to work with a group that wanted me to help create credit systems in Africa.

As I was preparing to leave, though, the COO offered me a once-in-a-lifetime opportunity to work directly with him. He made it clear that, in a few years, I would be able to write my ticket on Wall Street. I was torn. No one wanted me to go to Africa: not my family, my friends, or my employers. But I thought, "If I don't go now, I might never go." So I quit.

I ended up going to Rwanda in the late 1980s to set up a microfinance institution and a bakery. I came back to the U.S. to get an MBA and work at the Rockefeller Foundation before returning in 1996. When I got back to Rwanda, all the women from the bakery had been killed. Of the other women I'd worked with, one was killed in the genocide, another saw her family killed, and another was a perpetrator who was sentenced to life imprisonment.

The aid system was broken. The financial markets alone weren't going to solve the problem. I wanted to invest in entrepreneurs who could see the potential of the very poor. The poor want to produce and consume and solve their own problems. In 2001, I started Acumen as a nonprofit venture capital fund. Instead of giving their money away, philanthropists could invest it in businesses. Now it's a $50 million fund that has leveraged another $200 million of capital and created 35,000 jobs. My dream is to build this into a more powerful asset class. Everything comes at a price. I have to say no to a lot of things I love to do. But we have the potential to help build businesses that change lives.

Riaz Haq said...

Here's a BBC report on Indians banks committing to work with microfinance industry in the wake of borrowers' suicides:

India's banking industry has thrown its support behind microfinance lenders after weeks of upheaval and confusion.

Major banks like the State Bank of India, Standard Chartered and Citi have all agreed to continue lending to microfinance firms.

The multi-billion dollar industry was on the brink of a mass default.

The banks' support has hung in the balance since lenders became embroiled in controversy in the southern state of Andhra Pradesh.

About four weeks ago, authorities started blaming microfinance firms for a string of suicides in rural villages.

They claim the suicides have been caused by company malpractice, heavy handed debt recovery methods and high interest rates.

Lenders deny the accusations.

Microfinance is designed to offer small, cheap loans to poorer borrowers, often in rural areas, who have difficulty accessing funds from banks.

Riaz Haq said...

Rumors of the death of microfinance in India have been greatly exaggerated, says Lindsay Clinton is the editor of Beyond Profit.

Here's what's really happening.

Until recently, microfinance was the darling of poverty alleviation. A foolproof way to pull people out of $2-a-day poverty. But, now, the microfinance sector in India is in crisis, so much so, The New York Times announced last week that “Indian Microcredit Faces Collapse from Defaults.” Is this another sub-prime fiasco? What happened to take us from “putting poverty in a museum” to putting the kibosh on the whole model?

Well, we got a little ahead of ourselves for several reasons. But, before we go there, here’s a brief recap on what’s happening in Indian microfinance: Last month, the government of the state of Andhra Pradesh, India’s most saturated microfinance market, ordered microfinance institutions to stop lending, and told borrowers to stop repaying. A spate of suicides by men and women who were microfinance borrowers alarmed many, and the government felt that microlenders were to blame. Were they?

In AP, two dueling parties provide a financial service to the poor. It gets a little complicated, but in essence, there are two ways to get a microloan, from the government or from a microfinance institution. Through banks, the government lends to groups of 11 to 20 women in so-called self-help groups or SHGs. The government has a mandate to disperse $22 billion to SHGs by 2014. The other option is a commercial, for-profit microfinance lender. They are shooting to use profits to scale up and reach even more borrowers. To get commercial microfinance money you become a member of a "joint-liability group" for a loan supported by group collateral. Some choose the SHG, others the standard microfinance institutions, and some take advantage of both, receiving multiple loans from multiple sources.

Microcredit is only impactful if we create a deep connection to a borrower by offering a suite of services: microinsurance, financial literacy, business development training, etc. Some MFIs are already offering these services, and doing it well (see BASIX, for one great example), accepting that they may not grow as fast. The sooner MFIs evolve beyond the growth mantra and commit to making a real impact, the sooner we’ll be on the right track.

Riaz Haq said...

Here are a few excerpts from a recent NPR discusion of microfinane:

In 2006, Muhammad Yunus was awarded the Nobel Peace Prize for his work lending very small amounts of money to very poor people. Since then, microfinance institutions have popped up all over the world. Some organizations are using investors to make significant profits from this work, drawing criticism from traditional non-profit organizations. Host Neal Conan talks with Vikram Akula, the founder of SKS Microfinance, a for-profit microfinance organization in India, and Grameen Foundation president and CEO Alex Counts, about the pros and cons of fighting poverty for a profit.
CONAN: I just wanted to bring Alex in on that point. From what you understand about the regulatory system in India, is are the rates being charged by SKS out of line, do you think?

Mr. COUNTS: Actually, no. In fact, SKS, we have some disagreements with their approach, but I would say that by global standards they are quite an efficient organization, pass many of those efficiencies on to the poor, and the trend is in the right direction. I think people are can afford those, running certain types of businesses.

But I do think there's a larger point, which is that, you know, there's in microfinance and outside of it, there's a lot of wishful thinking about people being able to make a lot of money and do a lot of good for the poor, and yet in reality there are not the accountabilities in terms of doing right by the poor, that there are in terms of making money.

And this is why we've, through Grameen Foundation, have been trying to take a model developed by the Grameen Bank, which we call the Progress out of Poverty Index, a kind of self-accountability tool for how the poor moving out of poverty. It is now the most widely used tool in the industry. We've long hoped that SKS would adopt it or any other tool that does the same purpose, and they've not elected to do that.
And in case of Vikram, according to analysis that I've seen, his own personal stock options, there something in the range of $60 million. And I don't begrudge him that - those resources at all, but it does provoke a kind of a backlash. And that backlash is right now threatening the microfinance sector throughout India. And it's something a lot of us are worried about. And we think it didn't need to happen if people had been a little more thoughtful about how they rolled out this model.
CONAN: The concern, and I don't again, would not put words in Alex Counts's mouth. But the concern is that sometimes profits become the goal, as opposed to the goal of eradication of poverty.

Mr. AKULA: Well, I think there's a distinction that one has to make between sort of what happens in theory and what's actually happening in fact.

You know, Neal, you had started with the question of, you know, wouldn't competition bring down prices over time. And in fact, that's exactly what we're seeing in India.

If you look at SKS, we were, at one point, as high as 40 percent interest when we started out, because we needed to charge that much to break even. We've lowered it to 31, 27 and now 24.5 percent. And what's interesting is at the same time, our return on equity went up from five to 12 to 18 to 21 percent, where it stands now.

So the actual history, the actual facts that suggest that competition does lower price over time, you know, as you get more and more, you know, players in, and simultaneously because of our volumes and our efficiency, you can actually provide even greater, you know, shareholder return.

I think the real question to ask is: Look, if the market works forthe middle class, it works for the wealthy, if competition gives choice and, you know, better pricing, why should the poor have anything less?

Riaz Haq said...

Here is SKS Microfinance IPO analysis by Xavier Reille of World Bank's CGAP published Wednesday, August 11, 2010:

By market standards, the SKS IPO is a great success. Institutional investors have over-subscribed their allocations by 13 times, and the company’s valuation of USD 1.5 billion came in at the top end of the offer band price.

This sky high valuation represents 6.7 times the company’s post issue book value, and about 40 times the company’s fiscal year 2010 earnings.

Such multiples are not in line with market peers. In emerging markets, banks are valued at 3 times the book value, while finance institutions serving low-income customers are trading at 2.6 times the book value. The SKS valuation is even higher – by a margin — than Compartamos’s valuation in its landmark 2007 IPO. At listing, Compartamos was valued at 27 times the company’s historical earnings although its 2006 return on equity (ROE) at 55% was more than double the ROE of SKS today.

Earning prospects at SKS are attractive, but on their own don’t justify such a high valuation. On the positive side, SKS still has a lot of room for growth. It has ambitious plans including offering new financial products, distributing goods and services beyond microfinance at the bottom of the pyramid, and transforming into a universal bank. But there are clouds on the horizon. Portfolio yield might stagnate as increased competition and political scrutiny put pressure on interest rates. The cost of risk will likely go up in the absence of a well-functioning credit bureau. Transaction costs for group lending will also increase as SKS focuses its growth on underserved, harder-to-reach clients and states.

So what might explain the unrealistically high valuation? This “irrational exuberance” in the SKS IPO price is probably due in part to excess capital flow. It reflects strong institutional investor interest in microfinance combined with the dearth of publicly-traded microfinance securities. Investors are seeking more exposure to emerging markets and to alternative assets. They are eager to buy into the microfinance story and with only two pure microfinance institutions listed, prices are getting ahead of fundamentals.

One of my concerns is that investors buying at such a high level may pressure management to increase profitability, at the expense of clients’ interests and long-term company sustainability. There is indeed a risk that a focus on short-term profit and quarterly earnings might overshadow—if not clash—with the social mission of SKS. True, this did not happen in the Compartamos case (the company did not become more “commercial” after its IPO) but there is still a risk.

What does appear likely is that someone is going to lose as, over time, the SKS valuation should come in line with global standards. Will it be the latecomer investors who bought too high? Or will it be clients as the institution prioritizes profit maximization? And what about possible broader ripple effects? Unmet expectations might make it harder for other MFIs to go gain the confidence of the public markets.

Riaz Haq said...

Here are some excerpts from a BBC report on allegations against Mohammad Yunus:

A documentary maker has alleged that cash was diverted from Professor Yunus' Grameen Bank to other parts of Grameen.

In a statement, the bank said that the allegations were false.

It said that a full explanation with more details would be provided at the "earliest convenient time".

The bank was set up by Professor Yunus to provide micro-credit - or small loans - to the poor.

The move by the Norwegians - who insist that no criminal activity has taken place - comes at a time when the reputation of the micro-credit industry has been under attack.

The original aim of the micro-credit concept was poverty reduction, but in recent years some micro-financial institutions have been criticised over exorbitant interest rates and alleged coercive debt collection.

In the south-eastern Indian state of Andhra Pradesh, for example, micro-loans have been blamed for a series of suicides among struggling farmers.

It is estimated some 250 organisations in the state have handed out loans totalling more than £1.65bn (£883m), only a small proportion of which have been paid back.

The Grameen Bank's denial followed the release of a documentary by Danish filmmaker, Tom Heinemann, who claimed Professor Yunus and his associates diverted nearly $100m of grant money to another company - Grameen Kalyan - which was not involved in micro-credit operations.

Mr Heinemann said he stumbled upon the documents and letters relating to the alleged transfer while doing research for his documentary on micro-credit.

"I got most of the documents from the archives of Norad, the Norwegian aid agency in Oslo," he said.

The Grameen group of more than 30 companies headed by Professor Yunus is divided between those not operating for profit and those which do.

Mr Heinemann's report alleged that after the Norwegian authorities raised objections to the alleged transfer of funds, the Grameen bank returned about $30m. The aid money was from Norway, Sweden and Germany.

Professor Yunus, known as the Banker to the Poor, and the Grameen Bank were awarded the Nobel Peace Prize in 2006 "for their efforts to create economic and social development from below".

The economist founded the bank, which is one of numerous organisations now providing loans to the poor - especially women - in Bangladesh.

The micro-credit lending model has been replicated in other parts of the world.

Reacting to the latest report, the Norwegian authorities say they have no suspicions of tax fraud or corruption committed by Grameen Bank.

"Having said that, the Government of Norway finds it totally unacceptable that aid is used for other purposes than intended no matter how praiseworthy the causes might be," Norwegian International Development Minister Erik Solheim said in a statement e-mailed to the BBC.

Mr Solheim said that he had asked the Norwegian Agency for Development Co-operation for a full report on the matter.

"At the same time it is important to stress that we are firm believers in micro-finance as a tool in the fight against poverty," he said.

The documentary "Caught in Micro Debt" was shown on Norwegian National Television earlier this week.

"I travelled to Bangladesh, India and Mexico to find out whether micro-credit loans have really helped the poor. But I found out that poor people are getting into more and more debt because of micro-credit loans," Mr Heinemann told the BBC.

He said that he was not accusing Professor Yunus of misusing the money or personally benefiting from the transfer.

Riaz Haq said...

Here's Newsweek on India's Microfinance Blues:

Small borrowing has big problems. Last month’s $221 million rescue loan to a group of troubled Indian microfinance companies—with some $2 billion on the line, nearly eight of 10 borrowers were in default—has stirred a crisis of faith in development circles. Critics complain that private banks, lured by the sizzling market in making small loans to the poor, betrayed the neediest by creating a mutant, developing-world subprime monster with 20 to 30 percent interest rates. Now there are fears it could spread.

Microcredit has ballooned into a $38 billion industry, but there’s less and less consensus over its efficacy. Abhijit Banerjee of MIT discovered that only about 5 percent of the 7,200 households that took money from Indian firm Spandana Sphoorty Innovative Financial Services managed to launch a business. Studies have reached similar conclusions in Morocco, the Philippines, and Bangladesh. “Most poor people do not have the basic education or experience to understand and manage even low-level business activities,” writes U.N. economist Anis Chowdhury. “They are mostly risk-averse, often fearful of losing whatever little they have.”

Riaz Haq said...

Here's a piece from Newsweek about improving access to fnancial services by the poor in developing nations through in-store banks:

Today, hundreds of millions among the world’s poor have access to microloans—small sums of money borrowed from financial firms, sometimes at sky-high interest rates. What they haven’t been able to acquire is something far more basic: a savings account. Few banks in developing countries have found ways to profit in poor, rural areas, leaving people with a dearth of safe options for accumulating cash. According to one recent survey, nearly 90 percent of adults in emerging markets store money at home, with friends, or with a local co-op.

Now a solution has emerged: across the developing world, a small but growing number of banks have set up shop in convenience and retail stores that already cater to the rural poor. Latin America in particular has embraced this new kind of piggy bank, which McKinsey & Co. says costs 25 percent less to run than a traditional bank branch. In Mexico, more than 5,000 in-store banks have sprung up over the past year; and in Brazil, about 1,600 municipalities have no banks other than these hybrids. Meanwhile, the Mexican government, working with development bank Bansefi, is mulling a plan to link savings accounts to smart cards. The cards, which are distributed to some welfare recipients, can be used at Diconsa, a network of stores that cater to the rural poor. The plan could bring an easier way to save to millions. In the U.S., most have easy access to savings accounts, but McKinsey says these hybrid banks could still help some among the rural poor.

Riaz Haq said...

The best way to subvert the status quo and spark a revolution is to invest in girl's education, argues Nancy Gibbs in Time magazine:

We know what the birth of a revolution looks like: A student stands before a tank. A fruit seller sets himself on fire. A line of monks link arms in a human chain. Crowds surge, soldiers fire, gusts of rage pull down the monuments of tyrants, and maybe, sometimes, justice rises from the flames.

But sometimes freedom and opportunity slip in through the back door, when a quieter subversion of the status quo unleashes change that is just as revolutionary. This is the tantalizing idea for activists concerned with poverty, with disease, with the rise of violent extremism: if you want to change the world, invest in girls.

In recent years, more development aid than ever before has been directed at women--but that doesn't mean it is reaching the girls who need it. Across much of the developing world, by the time she is 12, a girl is tending house, cooking, cleaning. She eats what's left after the men and boys have eaten; she is less likely to be vaccinated, to see a doctor, to attend school. "If only I can get educated, I will surely be the President," a teenager in rural Malawi tells a researcher, but the odds are against her: Why educate a daughter who will end up working for her in-laws rather than a son who will support you? In sub-Saharan Africa, fewer than 1 in 5 girls make it to secondary school. Nearly half are married by the time they are 18; 1 in 7 across the developing world marries before she is 15. Then she gets pregnant. The leading cause of death for girls 15 to 19 worldwide is not accident or violence or disease; it is complications from pregnancy. Girls under 15 are up to five times as likely to die while having children than are women in their 20s, and their babies are more likely to die as well.......
A more surprising army is being enlisted as well. A new initiative called Girl Up aims to mobilize 100,000 American girls to raise money and awareness to fight poverty, sexual violence and child marriage. "This generation of 12-to-18-year-olds are all givers," says executive director Elizabeth Gore, the force of nature behind the ingeniously simple Nothing but Nets campaign to fight malaria, about her new United Nations Foundation enterprise. "They gave after Katrina. They gave after the tsunami and Haiti. More than any earlier generation, they feel they know girls around the world."

Riaz Haq said...

Here's a disappointing report from about Pakistan missing its target of 3 million borrowers by the end of 2010:

KARACHI: The microfinance sector in Pakistan failed to achieve its target of three million borrowers at the end of 2010, said the State Bank of Pakistan in a recent report.

Microfinance Strategy of 2007 set a target of three million borrowers to be achieved by the end of 2010 from 0.9 million borrowers at end-2006.

“The current outreach of two million borrowers is only seven percent of the potential market,” the central bank said in a report on ‘Strategic Framework for Sustainable Microfinance in Pakistan’ released recently.

It said that microfinance in Pakistan has failed to make major breakthroughs to become a dynamic participant within the overall financial sector and to reach millions of underserved people.

The sector achieved an impressive growth rate of 43 percent per annum in 2007 and 2008, but the growth decelerated in 2009 and 2010, it added.

The report said that microfinance in Pakistan has come a long way since 2000 and is gradually mainstreaming into the formal banking system. Eight microfinance banks (MFBs) have been established, three of them transformed from microfinance institutions (MFIs). Two of the world’s largest MFIs have started operations in Pakistan, reflecting private sector participation and institutional diversity.

Pakistan has one of the lowest financial penetration levels in the World with 56 percent adult population totally excluded, and another 32 percent informally served.

“Despite considerable support from the government, donors and the State Bank of Pakistan, the microfinance sector has only been able to tap a small fraction of the potential market,” the report said.

In 1999-2000, various government initiatives were undertaken to lay the foundation for a national microfinance sector. The year 2007 heralded a second phase, in which policy and strategy focus has been on accelerating growth through scalable and sustainable approaches.

In order to promote sustainability and encourage a market-driven formal system, the SBP, with broad stakeholder consultation, formulated a national strategy called “Expanding Outreach of Microfinance” (EMO), which was approved by the government in February 2007.

Traditionally, funding to microfinance in Pakistan has been supported by donors. This form of funding is limited and unsustainable. In order for the industry to grow in a financially stable manner, permanent sources of funding are crucial.

“Unfortunately, there are presently various challenges on availability of appropriate funding sources: Firstly, commercial banks are risk-averse due to, inter alia, tight liquidity conditions and less know-how of the microfinance sector. Secondly, though MFBs have the license to mobilize deposits, these have been unable to do so on a large scale.”

Even though MFB deposits registered 73 percent growth in 2009, they only contribute 40 percent of the entire funding structure.

The high growth rate was the result of lower base, and also concentrated in two leading MFBs (First MicroFinance Bank Limited and Tameer). Around 74 percent of the total deposits belong to one MFB, it added.

The report said that the country has immense potential for micro-savings but the MFBs are still largely credit driven.

MFBs have also been unable to leverage their geographic spread by offering home remittances and inland money transfers. Similarly, the MFBs’ interest in providing micro insurance is also limited.

Riaz Haq said...

Here's a Christian Science Monitor report about inexpensive health insurance for the poor in Pakistan:

Karachi, Pakistan

Wilayat Shah, a security guard at the luxury Avari Towers Hotel in Karachi, Pakistan, was rushed to a hospital last December after experiencing headaches and losing consciousness at work.

Unlike the wealthy patrons of the hotel he guarded, the father of four wouldn't ordinarily have had access to top-notch medical treatment.

But thanks to a health-care program run by the nonprofit Naya Jeevan (New Life), Mr. Shah, who earns just $150 a month, paid nothing for the MRI scans and treatment he received, worth some $1,400. He now has returned to work.

Shah is one of some 13,000 low-income workers in Pakistan signed on to the Naya Jeevan program. It was founded in 2007 by surgeon-turned-social entrepreneur Asher Hasan and began operating in Pakistan last summer.

"In Pakistan, privileged people can afford their care," Dr. Hasan explains. "The poor, who work alongside the rich, were just excluded from the system."

Hasan left a successful career in the United States to return to Pakistan, where he had spent his formative years, on a mission to provide affordable health care to low-income workers.

He lived a "clichéd life," he says, with a résumé that includes an MBA from New York University, research work at Harvard Medical School, and a stint as a senior executive at a California-based pharmaceutical company.

"I knew there was much more I could be doing in Pakistan," Hasan says.

By working with insurance companies to spread risk across clusters of low-income workers, who typically earn less than $200 a month, Naya Jeevan opens up high-quality health care to a segment of the population that couldn't afford it before.

Each participant pays in about $1.80 per month. The maximum catastrophic payout is $1,800 per year – the average cost of heart bypass surgery at a good private hospital in Pakistan, Hasan says.

That low monthly premium, which he calculates as roughly 2.1 percent of the monthly income of the working poor, as well as the absence of deductibles and copayments, is "commendable," says Farasat Bokhari, a Pakistani-American health economist at King's College in London.

"More impressive is the fact that they have contracts with a large number of private hospitals, which are presumably of higher quality compared with the public hospitals, which are severely underfunded," Mr. Bokhari says.

Last year, the Pakistani government spent an average of $18 per person for health care, one of the consequences of its struggle to deal with an ongoing battle against Islamist insurgents on its western border and the aftermath of last year's catastrophic floods.
Hasan has first-hand experience. Born in London into a middle-class family, his mother moved him and his three sisters to Karachi following the death of their father in 1983. On a trip back to Britain, Hasan's mother suffered a nervous breakdown. She had no contact with her children for the next three years.

During this time, Hasan grew close to the children of his maid. While his education was provided for by the colleagues and friends of his late father, his maid was unable to tap any wealthy connections when her father fell seriously ill, forcing her to withdraw her children from school.

"I realized that a single catastrophic event can lead to the perpetuation of the cycle of poverty," he says. "We had to create a system which could break that cycle."
The next step after that, he says, will be to work with other major institutions to sign up 2.5 million Pakistanis and lobby the federal government to set up a similar program of private health-care insurance nationwide.

Riaz Haq said...

Here's an interesting 2004 ADB assessment of Pakistan's rural economy:

Despite recent good macroeconomic performance, Pakistan continues to have high levels of poverty. Poverty estimates of 2000-2001, indicate that around one third of the population lives at or below the poverty line, with poverty being concentrated in rural areas. Available international literature indicates a strong and clear-cut relationship between agricultural growth and poverty reduction. The agricultural sector is a major determinant of the overall economic growth and well being in Pakistan, contributing 23 percent of total GDP; employing 42% of the total employed labor force; and accounting for nearly 9 percent of the country's export earnings. Thus, high agricultural growth is essential for significant poverty reduction in Pakistan.

However, in addition to the direct impact of agriculture growth on poverty reduction, there is also a much larger indirect effect through the linkages between agriculture and non-farm growth in rural areas. Non-farm growth is closely linked with agricultural growth since peasant farmers spend a large portion of their incremental income on locally produced non-agricultural goods thus generating employment and incomes in the adjoining areas. The increased demand for non-farm goods leads to a much larger increase in employment, which is a key vehicle for poverty reduction. Available information also points to the increasing importance of non-farm incomes for rural households. The five major sources of income in rural Pakistan are wages/salaries, transfer income, crop income, rental income and livestock income. Livestock is a particularly important source of income for the poor with a majority of poor households, especially the landless and small landowners, dependent on this sector.

In the light of increasingly limited income generating opportunities in the on-farm sector, poor households are increasingly turning to the non-farm sector as a key source of livelihood. In addition, there appears to be a higher incidence of vulnerability to falling into and remaining in poverty, among households which are dependent solely on agriculture. Rural areas that are well connected with the urban areas seem to be more prosperous, in part because the lack of employment opportunities in rural areas results either in labor reallocation or migration. In both cases, human capital plays a positive and significant role and the poorest of the poor neither possess the human capital nor have the resources to migrate. This vulnerable group needs special attention.

Pakistan's Poverty Reduction Strategy Paper outlines four pillars for accelerating growth and reducing poverty. Pillar One focuses on accelerating economic growth, pillar Two on improving governance and devolution, Pillar Three on investing in human capital, and Pillar Four on targeting the poor and vulnerable. Pillars One and Four focus on generating employment, especially in the rural areas, small and medium industries and micro-finance. There are also very strong linkages between income poverty and the other two PRSP Pillars. For example, access to justice, successful devolution, increasing the human capital of the poor, and ensuring effective safety nets are also central factors for increasing the incomes of poor people.
To increase incomes of poor households and build social capital, the ADB is funding a Micro-Finance Sector Development Program. As part of its objective to efficiently provide financial and social services to the poor, the ADB assisted with the establishment of the Khushali Bank, a public-private enterprise in partnership with NGOs, under this program. The ADB is also engaged in several rural development projects such as the Malakand, Federally Administered Tribal Areas, Bahawalpur, and Dera Ghazi Khan Rural Development Projects, to enhance household incomes, particularly for the smallholder and tenant farmers, and the landless.....

Riaz Haq said...

Here's a report about Dawood Foundation encouraging entrepreneurship in Pakistan:

KARACHI - Six of the most dynamic women entrepreneurs talked about their experiences, triumphs and losses before a spell-bound audience at the second Ladiesfund Entrepreneurship Conference (LEC) hosted by the Dawood Global Foundation (DGF) at the Avari Towers.
The event was organised in partnership with the Higher Education Commission, the Avari Group, the Dawood Capital Management, and over 60 partners, sponsors and supporters. The audience was diverse and consisted of Very Important Persons, top entrepreneurs, budding entrepreneurs, journalists and enthusiastic university students.
The Ladiesfund was established in 2007 as an initiative to provide financial security to women and to promote and train women entrepreneurs. It aims to integrate the entrepreneurial needs based on the economic and social aspects of the local communities with respect to greater women participation in the workforce.
The conference started with recitation of the Holy Quran, followed by a welcome address by TU Dawood with an introduction to virtual businesses and how they are a fabulous option for women entrepreneurs. This was followed by a speech from British Deputy High Commissioner Francis Campbell, who was the chief guest. He spoke on the importance of entrepreneurship in Pakistan and how much it could help boost our economy.
To educate the budding entrepreneurs and students in the audience about what entrepreneurship really is, there was a short academic presentation by Avari Karachi General Manager Gordon Gorman. Then followed the first panel of the conference, which consisted of Mehrbano Sethi of Luscious Cosmetics, Ayaz Khan of Okra, and Wajeeha Malik of Olive Soap.
And as a pleasant surprise for the audience, Rohail Hyatt, the powerhouse behind the famous Coke Studio, joined the panel. This panel focused on the basics of entrepreneurship. They answered questions about the realities on entrepreneurship and what made them decide to become entrepreneurs.
The second panel comprised architect Naheed Mashooqullah, designer Hassan Sheheryar Yasin, and Naila Naqvi of Pie in the Sky and Chatterbox. They shared the inside scoop on how their brands tipped to being the best in their industries, despite facing the problems that all Pakistani entrepreneurs face, like electricity, human resources, etc.
They talked about expanding businesses, and whether expanding through other people, platforms or on your own is a better option. This was followed by a question-answer session. At the end was an art auction by Mehreen Ilahi of the Majmua Art Gallery to raise funds for the DGF, followed by a lucky draw conducted by the chief guest.
The conference was moderated and hosted by Sidra Iqbal. TU Dawood finally presented the plaques to the chief guest and panellists. The event concluded with thanking all the sponsors, supporters, students, event catalysts, volunteers and ambassadors. Funds raised from the LEC 2011 are audited by Ernst & Young Ford Rhodes Sidat Hyder, and go toward Ladiesfund Fellowships & Scholarships as well as women development initiatives.

Riaz Haq said...

Here's an Express Tribune story on rapid growth of branchless banking in Pakistan:

With State Bank of Pakistan demoing a constructive regulatory approach for branchless banking, a number of players are now evolving to offer branchless banking in Pakistan as a viable business model, said a report published by CGAP.

CGAP says that Pakistan has become one of the fastest developing markets for branchless banking in the world.

According to the report, SBP has issued four branchless banking licenses and is considering several others. Meanwhile, the government is planning to further encourage the mobile banking by planning to distribute the government payments through branchless banking.

There are currently two major operators in the market with several to jump in during the next couple of years.

Easypaisa, a joint venture of Tameer Microfinance and it’s parent company Telenor, claims to have over half a million mobile accounts. Easypaisa claims to have processed bill payments and domestic money transfers of worth Rs. 43 billion (US$500 million), unveils the report.

UBL Omni, another branchless banking service launched in April 2010, has reportedly won several contracts to disburse payments for nongovernment organizations and government schemes.

UBL claims to have 5,000 agents, countrywide, disbursing payments to around 2 million recipients.

New players including Mobilink, TCS, Bank Alfalah, Askari Bank and MCB are expected to enter the branchless banking market.

CGAP says that next 12 months will be critical for the newly emerging branchless banking sector in Pakistan. The evolution of the sector will likely yield important lessons for the rest of the world.

You can download the complete report by clicking this link.

Riaz Haq said...

Here's a report on Benazir Income Support Program:

ISLAMABAD: The Benazir Income Support Programme (BISP) has proved to be highly effective programme for poverty alleviation and women empowerment considering its efficiency, technology based operations and transparency; the programme ought to be replicated in the other countries of the world as well.

According to a press release, Michal Rutkowski, Director Human Development South Asian Region, World Bank, said this during a meeting with Federal Minister and Chairperson of BISP, Farzana Raja while heading a delegation here at BISP Secretariat Wednesday.

Rutkowski said that the World Bank is proud of working with organization like BISP and appreciates its performance and reliability. While taking special interest in vocational training scheme of BISP, he said that the corporate sector and foreign employers may also invest in this particular initiative.

He termed Waseela-e-Taleem initiative of BISP, instrumental in the promotion of education, as similar initiatives have been proved successful in the other countries as well.

Earlier, Farzana Raja presented details of various initiatives of BISP for uplifting the living standards of millions of poor families across Pakistan. She said that one million out of school children of these poor families will be enrolled in the schools under Waseela-e-Taleem.

She said that BISP has employed state of the art technology in all of its mechanisms to facilitate its beneficiary in a more efficient and transparent manner. Farzana Raja said that BISP is seeking cooperation from various public and private organizations of the world working in the social sector to continue its various initiatives aiming at poverty alleviation in an effective manner.

She added further that BISP needs support of the World Bank for marketing BISP in the world especially for replication of such experiences in the other countries.

Riaz Haq said...

A big donor is giving $50 million to Stanford to help promote innovation and entrepreneurship for alleviating poverty in the developing world. Here are some excerpts from a Mercury News story:

A Silicon Valley venture capitalist has donated $100 million to Stanford University's Graduate School of Business to establish a new institute to promote entrepreneurship in developing countries and eventually alleviate poverty.

Robert King, along with his wife, Dorothy, also gave a second gift to the entire university, $50 million in matching funds to encourage more donations to Stanford. The couple's gift is the second-largest publicly disclosed single donation to the school, behind a $400 million donation in 2001 by the William and Flora Hewlett Foundation.


"The institute will be about sponsoring and creating entrepreneurial activity in developing economies," said Robert King, 76, who founded Peninsula Capital in Menlo Park. "Stanford is in an absolutely leading position to do that."

The Stanford Institute for Innovation in Developing Economies will be devoted to research, education and on-the-ground support to help entrepreneurs innovate and grow their businesses. Students and faculty will travel abroad to help businesses overcome obstacles to growth. The institute also will provide formal courses for entrepreneurs and nonprofit employees overseas.


The Kings say the inspiration for their philanthropy grew from hosting foreign students while they attended Stanford, a more than four-decade experience that underscored the importance of the link between education and entrepreneurship. It also led to a successful investment by Robert King, who provided seed money for China's giant search engine, Baidu, after he met the company's co-founders, Eric Xu and Robin Li, through one of the couple's home-stay students more than a decade ago.

"If anyone knows the value of encouraging entrepreneurship in the developing world, it's Bob King," Li said in an email statement. "Bob took a big chance on Baidu in our earliest days, investing in a Chinese search engine at a time when China's Internet was still in its infancy. I'm sure that this generous endowment will help create some great business leaders in the developing world."

The institute will build on work Stanford students and faculty already are engaged in through a collaboration of the business school and the university's Hasso Plattner Institute of Design in which products and business models are created for the developing world.

One venture to emerge from this work is d.light, a company creating products for people without access to reliable electricity. The institute will dispatch students and faculty members to work with overseas businesses and NGOs, or nongovernment organizations, identified as having great promise by other organizations.


"If their research is focused on Guatemala, we will send them there," Lee said.

The university is beginning the process to hire three tenure-track professors to fill research positions in the institute. They will join four current Stanford professors, Saloner said.

The Kings, who are active philanthropists, also founded the Thrive Foundation for Youth, which supports research on youth development and organizations that work with young people.


Riaz Haq said...

Here are some excerpts from Forbes cover story (Dec 19, 2011) on venture money for Pak entrepreneurs:

Novogratz plays the role of auditor because, as CEO and founder of the Acumen Fund, helping people starts with financial due diligence. In April Acumen sank $1.9 million into the bank (National Rural Support Programme Bank in Pakistan) in exchange for an 18% stake, one small investment in a decadelong experiment in charitable giving. Instead of shoveling aid dollars to causes or governments that give away life-­sustaining goods and services, Acumen espouses investing money wisely in small-time entrepreneurs in the developing world who strive to solve problems, from mosquito netting to bottled water to affordable housing. It’s a new twist on the old adage about teaching a man to fish, except that Novogratz wants to build an entire fish market.
Acumen has given Pakistani farmers the ability to access cash at credit card rates, versus the loan shark terms of before—a staggering 125,000 clients have tapped the bank for $30 million in new credit this year. Novogratz’s infusion has also allowed the bank to take deposits for the first time, introducing the idea of savings, and 6% interest rates, to a community that has been locked in poverty for centuries. Since April 10,000 farmers have deposited $7 million in the bank, which of course has resulted in yet more loans.
Weeks later Novogratz fortuitously got two anonymous gifts of $500,000 each and took her first trip to Pakistan in January 2002. Acumen has since invested $13 million there in 12 businesses: Ansaar Management Co. (affordable housing), Kashf Foundation (microlending to women) and Micro Drip (agricultural irrigation), among them. She has also collected $2.7 million from 40 Pakistani donors and traveled to that country 20 times, turning one of the most volatile, anti-American populations into a vibrant experiment in alleviating poverty.
That’s why I find myself in a rural village 10 miles outside the city of Lahore, Pakistan’s second-largest city. Novogratz has come to check on another investment—and to collect the precious data she hopes to use in new fundraising. Here on 20 acres, Saiban, a nonprofit developer, has built homes for an eventual 450 Pakistani families, most of whom earn $2 to $4 a day. The $4,000 units are 85% occupied. You see the occasional motorcycle parked in front, where a few women mill about, talking or hanging laundry.
These aren’t the answers Novogratz is fishing for. She wants to hear examples of people using their homes as collateral to get college loans for their children or amassing a better dowry for their daughters so they can marry into a more prosperous family. She wraps up the meeting. “So, the next time I come, you’re going to have some good metrics for me? ’Cause this is my challenge for the world.” Someone says, “Inshallah [God willing].”

Novogratz smiles, but shakes her head: “Not inshallah. We’re going to do it!”

Riaz Haq said...

Here's a report in The News about SBP Gov Yaseen Anwar's assessment of Pakistan finance sector:

KARACHI: Yaseen Anwar, Governor, State Bank of Pakistan (SBP), said on Friday that the country has one of the lowest financial penetration levels in the world.

“Microfinance in Pakistan has made good progress but must make major breakthroughs to reach millions of underserved people,” he said while addressing at 5th Pakistan Microfinance Country Forum.

“Pakistan has one of the lowest financial penetration levels in the World with 56 percent of the adult population totally excluded, and another 32 percent informally served,” he added.

The SBP governor said that despite considerable support from the government, donor and the SBP, the microfinance sector has only been able to tap a small fraction of the potential market. “The current active borrowers standing at roughly two million,” he added.

He said that the microfinance regulatory framework has been ranked globally at the top in 2010 and 2011 by ‘the Economic Intelligence Unit’ of the UK’s The Economist Magazine. Anwar said that the recent development in mobile phone banking is highly encouraging and that the expansion in the retail network of microfinance has been brought about overwhelmingly from agents and mobile phone channels. Within a span of just two years, there are now almost 18,000 branchless banking outlets surpassing the 10,000 conventional bank branches, he added. He lauded the role of UKAid and Asian Development Bank in the development of microfinance in Pakistan and said that under the programmes sponsored by these donors, a number of market interventions are managed by the SBP.

SBP governor said that the Microfinance Credit Guarantee Facility (MCGF), a £10 million guarantee facility of UK’s DFID, was launched by SBP in December 2008 to mobilise wholesale commercial funding for microfinance providers through partial guarantees to commercial banks.

“The facility has thus far mobilised commercial funding of Rs3.225 billion for four microfinance providers for onward lending to around 200,000 new micro borrowers,” he added.

Nadeem Hussain, President and Chief Executive Officer (CEO) of Tameer Microfinance Bank said around 18-20 million account holders have access to credit. “If excluded the multiple account then the number is only at 8-10 million account holders,” he added. He termed branchless banking key to enhance outreach significantly.

Hussain said that potential exists in banking through telecommunication technology. “Presently phone density is one hundred million where banking density is much lower,” he added.

Riaz Haq said...

Here's an Economic Times story on promoting women entrepreneurs:

Prominent leaders from India and Pakistan today called for concrete steps to empower women in South Asia by enabling them to assert their economic independence through entrepreneurship as a means of eradicating poverty, illiteracy, disease and crime.

Providing women with networking platforms is essential in the current globalised world, said Member of Parliament Najma Heptullah at a seminar organised by industry chamber Assocham here.

The seminar, titled, 'Fostering Women Entrepreneurship - The Way Forward for South Asia', was organised ahead of the visit of an Assocham delegation of business leaders to Islamabad, Karachi, Lahore and Rawalpindi from January 9 to 14, 2012.

Expressing her views, Pakistan Minister of Social Welfare Nargis Khan said women can play an important role in developing societies and nations.

"The country is exploring new channels to promote entrepreneurship with micro loans. Pakistani women are more empowered now after a prolonged dictatorship in a male-dominated society," Khan said.

Speaking at the seminar, Creative Living Organisation Founder and Chief Executive Officer Harbeen Arora said the formation of women associations and support groups should be encouraged to provide them bandwidth for both critical thinking and also critical mass.

"There is need more than ever for having more examples of successful entrepreneurship by women and inspiring role models," she said.

Qadim Moosarat, the Executive Director of the Paiman Trust in Pakistan, said space for women in economic and political spheres is essential for equitable development and peace in South Asia.

National Youth Congress leader Alka Lamba said both countries have many commonalities and traditional linkages. Indian and Pakistani business leaders should pursue their entrepreneurial ambition by forging economic partnerships with the neighbouring nation to promote core values of unity and peace, she said.

Riaz Haq said...

Asasah, a microfinance institution (MFI) in Pakistan, reportedly has announced that it will be utilizing Easypaisa, the branchless banking service of MFI Tameer Microfinance Bank Limited (TMFB) of Pakistan, as an option for borrowers to repay their loans [1]. Easypaisa is a joint venture of TMFB and Telenor Pakistan, a subsidiary of Norwegian mobile communications company Telenor Group. Easypaisa users are able to conduct financial transactions using mobile phones or by visiting an Easypaisa shop, Telenor service center or TMFB branch. There are reportedly 14,000 Easypaisa agents in approximately 600 cities across Pakistan.

As of 2010, Asasah reported to the US-based nonprofit Microfinance Information Exchange (MIX) a gross loan portfolio of USD 1.9 million and 18,900 active borrowers, most of whom are women. TMFB reported to MIX total assets of USD 61.7 million, a gross loan portfolio of USD 36.2 million, return on assets (ROA) of 3.74 percent, return on equity (ROE) of 12.6 percent and 111,100 active borrowers as of 2010.

By Nisha Koul, Research Associate

About Asasah: Asasah was established in 2003 in Pakistan as a nonprofit organization with the aim to “enhance the micro productivity of the house hold living below the poverty line by providing economic, educational and diversified information opportunities” and has since been operating as a microfinance institution (MFI) with 100 percent of its funding supplied by commercial sources. As of 2010, Asasah reported to the US-based nonprofit Microfinance Information Exchange (MIX) a gross loan portfolio of USD 1.9 million and 18,900 active borrowers.

About Tameer Microfinance Bank Limited: Tameer Microfinance Bank Limited is a licensed commercial bank in Pakistan that provides microfinance services such as small business, group and emergency loans; micromortgages; microinsurance; savings; and money transfers. It was founded in 2005 and is based in Shahrah-e-Faisal, Pakistan. Telenor Pakistan, a subsidiary of the Norwegian mobile communications company Telenor, owns 51 percent of TMFB. As of 2010, TMFB reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 61.7 million, a gross loan portfolio of USD 36.2 million, return on assets (ROA) of 3.74 percent, return on equity (ROE) of 12.6 percent and 111,100 active borrowers.

About Telenor Pakistan: Telenor Pakistan is fully owned by the Telenor Group, a communication services provider operating in 11 markets in Europe and Asia as of 2010. Telenor Pakistan began commercial operations in Pakistan on March 15, 2005. At the end of October 2010, it reported a subscriber base of 24.1 million and a market share of 24 percent. Telenor Pakistan acquired 51 percent of Tameer Microfinance Bank in November 2008. In 2009 it launched Easypaisa to offer branchless banking services across Pakistan. There are reportedly 14,000 Easypaisa agents in approximately 600 cities across Pakistan.

Riaz Haq said...

Here's a Daily Times report on State Bank of Pakistan's National Financial Literacy Program:

...Pakistan’s first-ever NFLP has been launched with the support and collaboration of Asian Development Bank (ADB), Pakistan Banks’ Association (PBA), Pakistan Microfinance Network (PMN), Pakistan Poverty Alleviation Fund (PPAF) and Bearing Point.

He said the programme has been developed after the Financial Literacy Gap Assessment Survey of beneficiaries. The survey has been helpful in development and adaptation of curriculum and dissemination strategy. The curriculum will also be translated into national and main regional languages including Urdu, Sindhi, Punjabi, Pushto and Balochi, he added.

The SBP governor said that the programme is financed under the ADB-funded Improving Access to Financial Services Fund (IAFSF) and implemented under the oversight of the IAFSF committee, which has representation from SBP, PBA, PPAF, PMN, education sector, and the ADB. Upon completion of the pilot phase, an impact assessment of the pilot will be conducted by a third party, he said, adding that based on the experience and assessment of the pilot, the programme will be scaled-up to target more than half a million beneficiaries all over the country.

Anwar said that in addition to focused training sessions of beneficiaries, the dissemination strategy involves street theatres, board games, comic strips, activity-based competitions, website and media campaigns to reach out to the masses on a larger scale. The training sessions will be sourced from banks, Microfinance Banks (MFBs) and Microfinance Institutions (MFIs) based on their interest and pre-defined qualification criteria, he said and added that in order to encourage and incentivise participation from partners, professional fees and out of pocket expenses of partners will be reimbursed from the programme budget.

Besides involvement of local institutions, the project has formed international partnerships with international financial education programmes including Microfinance Opportunities, Finmark Trust, Association of Microfinance Institutions of Uganda (AMFIU), Sewa Bank, Microfinance Innovation Centre for Resource and Alternatives (MICRA), World Bank Institute, Aflatoun, and others, Anwar added.

The SBP governor said that consumer protection and financial education should be vital components of any financial inclusion initiative. It is now clear that policies, which focus entirely on changing the supply of financial products and services can leave consumers ill-informed, vulnerable and not willing to participate in financial markets, he said, adding that focus of financial literacy programme should be broader than financial inclusion.
He briefly touched upon various conventional and non-conventional measures adopted by SBP to boost financial inclusion.

SBP introduced Basic Banking Account (BBA), a simplified financial product for low income consumers.

SBP introduced Microfinance Banking Regulations in 2001 to specifically meet the demands of low income consumers.

SBP has adopted innovative solutions to overcome geographical barriers, including branchless banking through retail agents and harnessing technology via mobile-phone banking.

SBP has been managing various market interventions funded by donor agencies:

- The Institutional Strengthening Fund providing grant funding to microfinance providers to top and middle tier MFBs and MFIs for key investments in HR, IT, product development, risk management systems, business plans and branchless banking development.

- The Microfinance Credit Guarantee Facility to link microfinance with financial markets for mobilization of wholesale commercial funding through partial guarantees...\01\21\story_21-1-2012_pg5_16

Riaz Haq said...

Pakistan leads the world in Islamic microfinance, reports The Philippines Star:

Pakistan has been acknowledged as a leader of Islamic microfinance with more than 20 institutions providing microfinance services.

In an international summit on Islamic microfinance in Istanbul, AlHuda Centre of Islamic Banking and Economics chief executive officer Muhammad Zubair Mughal said that conventional microfinance has badly failed and its examples can be clearly seen in India and Latin America.

“People do not use financial and banking system due to interest as it is strictly prohibited in Islam, hence forced to live in poverty whereas through Islamic microfinance, by using the financial products based on Shari’ah principles, we can get the people out from poverty,” he said.

He said many countries in the world are adapting Islamic microfinance system for poverty alleviation through which not only poverty will be eradicated but also a sustained economy shall come into being in these countries.

He claims that 44 percent of conventional microfinance clients live in Muslim countries and that the United Nations has added half of the countries of Islamic Development Bank in the list of least developed countries, which shows that Islamic microfinance can be used to eradicate poverty from Muslim dominated nations.

He said that Islamic microfinance is essential to achieve Millennium Development Goals (MDGs), proposed by United Nations for alleviating poverty and social uplifting. He said that Islamic microfinance sector is facing difficulties due to apathy of donors and to fulfill this deficiency, sukuk (Islamic bonds) can be issued.

The center executive further said that more financial products can be introduced by enhancing research in the field of Islamic microfinance and there are many opportunities for development in this field.

AlHuda Centre of Islamic Banking and Economics has established a specific microfinance help desk so that trainings, research and technical consultation could be provided to microfinance institutions (MFIs) worldwide.

Riaz Haq said...

Here's a news story on the success of Pakistan's microfinance sector assessed by Economist Intelligence Unit:

Pakistan today stands third in the global rankings of overall microfinance business environment and one cannot find India and Bangladesh even amongst the top 25 countries in the list, a leading banker said Friday. Ghalib Nishter, CEO and president Khushhali Bank in an interview quoted quoted a report published by the Economist’s Intelligence Unit titled Global microscope on the microfinance business environment 2011 to describe the success of microfinance sector in the country.

The Global microscope on the microfinance business environment 2011 benchmarks and evaluates business and operating conditions for microfinance in developing countries around the world. It is the Economist Intelligence Unit’s third annual effort to assign ratings to microfinance markets in 55 developing countries worldwide.

“We are much better than India and Bangladesh as far as the business environment for microfinance players is concerned. India’s microfinance has been a big disaster. The wildfire that spread from Andhra Pradesh has now engulfed the whole microfinance sector in that country. They are now doing what we have done in 2000, i.e. making a policy, regulatory and legal framework,” Nishter asserted.

He said that today Khushhalibank was the largest microfinance institution in the country with presence across Pakistan and particular focus on rural and marginalized areas. It has been a catalyst towards facilitating the establishment of the microfinance policy, legal and regulatory framework that proved critical in mainstreaming microfinance into the formal financial services sector as a commercially viable business proposition in Pakistan. The framework was attracting private investment in the microfinance sector leading to positive outcomes as evidenced by an increasing number ofmicrofinance banks, a competitive environment and growing financial service outreach to low income segments of the market.

“The success of Khushhalibank has motivated the private sector and foreign players to invest in this sector and today there are eight microfinance banks in the country along with around 20 microfinance institutions. There are 1500 microfinance outlets across the county.

The only growth in the banking sector seen in the last one decade is in the area of microfinance. Every major player of microfinance in the world is coming to Pakistan because of Khushhalibank’s success story,” he claimed.

As a consequence of these endeavors, the role and importance of financial service access in reducing poverty and promoting entrepreneurship is better understood and financial Inclusion is an integral part of the National Developmental Agenda, he added.

Riaz Haq said...

Pakistan plans disaster insurance, reports Reuters:

Pakistan plans to roll out a national insurance scheme, making it mandatory for every citizen to be covered against risks from natural hazards, the head of the country's disaster management authority said on Wednesday.

Pakistan is highly vulnerable to earthquakes, cyclones, droughts, floods, landslides and avalanches. Devastating floods in 2010 disrupted the lives of 20 million people – many more than the 2004 Indian Ocean tsunami – and cost $10 billion.

"Pakistan is making it mandatory for the entire population to be covered against disaster risks. The idea, at the end of the day, is to cover the lives and livelihoods of the population of the entire country," said Zafar Iqbal Qadir, chairman of the National Disaster Management Authority.

"Most parts of our country are vulnerable … either to disasters, or to poverty, or to both."

Qadir, who was speaking at a regional conference on "managing the risks of climate extremes and disasters in Asia", said Pakistan's cabinet has approved the plan and his agency was working on a comprehensive risk insurance plan that would hopefully be rolled out by the end of the year.

The country had already received a $500-million World Bank loan to set up a fund to pay for the plan, he said.

Authorities also intend to tap private sector money through their corporate social responsibility schemes as well as local philanthropists, he added.

And he said a meeting held with international insurance companies to discuss the issue in Karachi last month was positive.

Last month, a major report by the United Nations said the world needed to prepare better to deal with extreme weather and rising seas caused by climate change, in order to save lives and limit deepening economic losses.


The U.N. climate panel report forecast that all countries will be vulnerable to an expected increase in heat waves, more intense rains and floods and a probable rise in the intensity of droughts.

It suggested possible strategies to help countries adapt and prepare better such early warning systems, improving building standards and preserving ecosystems such as mangroves.

Financing disaster recovery and rebuilding through micro-insurance was another tool, the report said, which would help limit the already-strained cash reserves of poor nations.

"We are considering subsidising premiums for those who can't afford and paying full premium for those who are living below the poverty line," Qadir said, adding that it was essential that those most vulnerable, who are often the poorest, were covered.

Pakistan plans to pre-negotiate payments with insurance companies and also discard the need to file claims, said Qadir, as disaster insurance would need to reach people quickly.

"The best part is that communities which are prone to disasters are currently dependent on someone to come to respond to their needs, someone to feed them and give them shelter. We would remove the dependency syndrome of communities," he said.

"We would like them to be getting (a) response, within a few hours of the disaster occurring, from the insurance world."

Riaz Haq said...

Here's an except of a microinsurance report on Pakistan:

Pakistan still needs a sustained effort to raise awareness amongst its people with regard to the benefit of insurance, followed by the delivery of insurance products to the poor. There is also great scope in Pakistan to diversify microinsurance products, for example, crop insurance. Indeed, there is a dire need of agriculture microinsurance: in case of natural calamities farmers have to bear the loss of their crop and face default on credit. The need to cover risk and investments of marginalised farmers is of paramount importance.
Existing microinsurance providers in Pakistan : (alphabetical order)

• AKDN Aga Khan Development Network
• BRSP Balochistan Rural Support Programme
• Development Action for Mobilization and Emancipation (DAMEN)
• Kashf Foundation
• NRSP National Rural Support Programme
• PRSP Punjab Rural Support Programme
• Sindh Agriculture and Forestry Workers Coordinating Organization (SAFWCO)
• SRSO Sindh Rural Support Organization
• SRSP Sarhad Rural Support Programme (SRSP)
• SUNGI Development Foundation
• TRDP Thardeep Rural Development Programme
In Pakistan, serious efforts for microinsurance at the national level only picked up in the last decade with the advent of Microfinance institutions (MFIs) and a mushrooming growth of NGOs. However, there is still scope for extensive growth in this area. The Government has been doing its part by providing support to the RSPs through the creation of SMEDA (Small and Medium Enterprises Development Authority) and recently by the State Bank of Pakistan’s directive to all banks to have at least 20% of their branches in the rural areas. This will open up new avenues to infiltrate financing into crops, livestock and other basic requirements.

The government is also currently working on microfinance policy. It is involved in many social protection programmes, one of which is Benazir Income Support Programme (a cash grant programme being implemented nationwide and aiming to cover 3.5 million women during its first round).

The Planning Commission is also committed to organising roundtables workshops for gathering the viewpoints and perspectives of various experts and professionals for the development of the microinsurance policy.

Besides, the Asian development Bank (ADB) is also playing an important role in Pakistan in the microinsurance sector. From 2001-2008, the ADB had a $150 million Microfinance Sector Development Programme which included $80 million for on-lending, $40 million for social development and $20 million for community infrastructure. A more recent programme from 2006-2008 has been improving access to financial services of which one is microinsurance. A $20 million grant has been given to the Government by the ADB which will be administered through the State Bank of Pakistan over the next 2 decades.

The RSPN-Adamjee Health Microinsurance Model

The Rural Support Programmes Network (RSPN) was registered in 2001 under Pakistan’s Companies Ordinance (1984) as a non-profit company by the Rural Support Programmes (RSPs) of Pakistan. RSPN is a network of ten RSPs. The RSPs involve poor communities, mainly but not exclusively rural, in improved management and delivery of basic services through a process of social mobilization. RSPN is a strategic platform for the RSPs, providing them with capacity building support and assisting them in policy advocacy and donor linkages.
The Adamjee-RSPN partnership started in 2005 – the very first health microinsurance scheme in Pakistan, providing hospitalisation and accident insurance to low-income rural population across the country who have organised themselves into community organisations (COs) fostered by the RSPs.

Riaz Haq said...

Telenor to offer agri info to farers via its wireless telephone network, reports newstribe:

Telenor Pakistan, in partnership with the Government of Khyber-Pakhtunkhwa, will provide agriculture and livestock information to farmers in the province.

In addition, farmers will be offered the Easypaisa platform to trade in agricultural commodities. Information will be provided via push SMS, voice recordings and small community gatherings.

The aim is to benefit farmers — especially small farmers — by providing them relevant and timely information, and the ability to carry out related mobile transactions on their handsets. All information will be provided by the Government of Khyber-Pakhtunkhawa while Telenor Pakistan will act as the distribution channel of the information. A pilot project will initially be run in Mardan district.

To mark the occasion an MoU signing ceremony was arranged at a local hotel. Arbab Muhammad Ayub Jan, Minister for Agriculture, Khyber Pakhtunkhwa was the chief guest. The MoU was signed by Roar Bjaerum, Vice President Financial Services, Telenor Pakistan and Arbab Muhammad Ayub Jan, Minister for Agriculture, Khyber-Pakhtunkhwa.

Roar Bjaerum, in his comments, highlighted the benefits the project will bring to the farmers of the province. “We will provide farmers the information they need to grow better crops and to raise hardy livestock. By doing so, we want to help them make more informed decisions when it comes to agriculture and livestock planning and trading. This way we hope to contribute toward alleviating poverty and empowering farmers economically. We will also offer mobile branchless banking solutions to enable farmers to carry out transactions right on their mobile phones through Easypaisa.”

Ayub Jan in his remarks spoke about the partnership between Telenor Pakistan and the Government of Khyber Pakhtunkhwa’s Agriculture, Livestock and Cooperative Department (ALCD). He said: “The Department has the mandate of promoting the interests of agriculture and livestock farmers in the province of Khyber Pakhtunkhwa. It has undertaken various initiatives to modernize the sector, and to augment the dissemination of relevant information to farmers to help increase production. Our partnership with Telenor Pakistan is another step in this direction. We are ready to offer all the support it needs to achieve its goals for this project.”

Small farmers, living in far-flung areas, are usually isolated from market information which may help them in dealing with commodity whole sellers (‘beopari’ and ‘arthis). They also do not have immediate access to information about best practices in agriculture and livestock rearing.

Telenor Pakistan’s project will help farmers in getting the information they need to increase yield through access to best quality commodities, latest agri trends, information on judicious use of pesticides and fertilizers, best breed of livestock, new methods of disease control, and quality feed and fodder.

abhishek chaturvedi said...

mr riaz we very well know the situation in pakistan... it is the 12 th failed state... i accept that poverty is in india.. but india is doing well in eradicating it..even china after india has many poor people in the world but we all know its progress and so do we know india's... it is requested that u stop critisizing us and first look at ur problems.... don't u see pakistan news channel.. they themselves talk about india's progress and how miserable and pathetic their condition is .. better focus on ur development and we'll focus on our's....stop comparing countries and think of u can eradicate all social issues present in ur country.. every country has problem and every country tries to solve it except pakistan.. u can't even stop terrorism funded by ur ISI and state actors .. it's a sad situation to hear .. too bad u don't even have any solution..ur state is pathetic...learn from china if not from us...

Riaz Haq said...

Here's an assessment of Pakistan's Rural Support Network Program:

In the global search for poverty alleviation and sustainable development, Pakistan’s ‘Rural Support Programmes Network’ remains little known, yet offers enormous potential for the eradication of rural poverty across the world today.

The power of a collective community vision is what Pakistan's little known 'Rural Support Programmes Network' (RSPN) has used to empower rural communities to alleviate poverty. RSPN, Pakistan’s largest rural development NGO, is one of the most effective rural poverty alleviation models of the previous three decades. Yet its secret is surprisingly simple - community organizing.

The Network consists of eleven Rural Support Programmes, or RSPs. Founded in the early 1980’s, the Aga Khan Rural Support Programme (AKRSP) was created to improve agricultural productivity and raise incomes in poor, remote northern regions of Pakistan. Building on the success of AKRSP, other RSPs spread across the country, out of which came the birth of RSPN in 2000.
Since its inception, the model has received widespread international recognition. The World Bank's Independent Evaluation Group noted the RSPN's "impressive record of performance”. It has also been described as the NGO encapsulating one of 13 development ‘Ideas That Work’. Founding RSPN Chairman Shoaib Sultan Khan was nominated for Nobel Peace Prize for his work in "unleashing the power and potential of the poor". He has addressed the UN General Assembly to showcase RSPN's proven model of sustainable development.

Yet if the model is really so effective why has there not been an even greater transformation across rural Pakistan, especially given the high concentration of rural poverty? After all, the RSPN model has been widely replicated outside of Pakistan. In 1994, the UN Development Programme requested that RSPN Chairman Shoaib Sultan Khan set-up demonstration pilots of the model in Bangladesh, India, the Maldives, Nepal and Sri Lanka. The success of those pilots led India to subsequently launch a similar countrywide programme that benefited over 300 million poor.

One reason for this discrepancy lies in the very secret of RSPN's success; the RSPN model is an effective but long-term one, where significant results can only be gauged in the long-term over periods of more than a decade. As such, international aid agencies fail to provide the level of support RSPN needs to kick-start the crucial early stages of new programmes across different regions. These agencies have also failed to continue servicing current programmes before rural communities achieve some semblance of self-sufficiency.....

Riaz Haq said...

Here's Daily Times on crop insurance for small farmers in Pakistan:

ISLAMABAD: The Pakistan Poverty Alleviation Fund (PPAF) has launched the first-ever indexed and hybrid weather micro-insurance products to facilitate and compensate small farmers in Pakistan.
Presided over by Securities and Exchange Commission of Pakistan Commissioner Muhammad Asif Arif, a simple ceremony to this effect was arranged at a local hotel, which was attended by representatives of State Bank of Pakistan, the World Bank, International Fund for Agricultural Development (IFAD), KfW, German Development Bank, UKAID, Tameer Microfinance Bank, National Disaster Management Authority, Pakistan Microfinance Network, government bodies, insurance companies and others.
Addressing the occasion, Arif said that micro-insurance stands at a critical juncture in Pakistan. He commended PPAF on for introducing revolutionary indexed crop and livestock insurance products in Pakistan. As regulator, he said, SECP has remained committed to promoting micro insurance in the country through research, introducing pivotal regulations and promoting a healthy policy environment.
PPAF Board of Directors Member Zubyr Soomro said that the need for micro-insurance has been felt over the years and it is the tipping point to upscale it. He said that we would have to make the most of this opportunity. He said that sincere efforts are needed to make micro-insurance sustainable.
In his remarks, PPAF Chief Executive Qazi Azmat Isa said that micro-insurance initiative is the result of close collaboration between PPAF and IFAD. He lauded the role of insurance companies and SECP as a regulator to make micro-insurance a success. He said that farmers are badly affected by climate change, fluctuation in the prices of their produce and poor quality of agri inputs. He said that micro-insurance would prove to be a vital instrument in fight against poverty.
State Bank of Pakistan Agricultural Credit and Microfinance Department Senior Joint Director Kamran Bakshi said that by launching indexed and hybrid weather micro-insurance PPAF has provided a unique platform to market leaders to serve the poor, particularly the farmers. He said that the focus must be on protecting the borrowers.
PPAF’s Senior Group Head Ahmad Jamal said that PPAF is committed to grassroots development and micro-insurance would prove to be one of the instruments to alleviate poverty. He said that PPAF would capitalise on its outreach so that maximum people could benefit from micro-insurance.
PPAF’s Financial Services Group Head Yasir Ashfaq highlighted that these products will lead the new era for micro insurance in Pakistan. He said indexed insurance products are easy to administer, transparent, innovative and significantly reduce any chances of moral hazard or fraud. He said PPAF envisions scaling up these products at a national level, preparing detailed indices for various districts with the support of stakeholders including government agencies, donors, MFIs and insurance companies.
The weather-indexed crop and ‘live-weight’ livestock insurance products have been designed by PPAF, with support from IFAD through a strategic partnership with SECP.
These products have been prepared in collaboration with Meteorological Department, Livestock Research Institute and are based on needs of small and marginal income farmers. PPAF has launched these products as a pilot in collaboration with local insurance companies in districts Khushab and Chakwal.
The pilot projects have received overwhelming response and showcased significant potential in providing efficient and transparent form of risk mitigation for small and marginal income farmers and livestock owners across the country.\01\30\story_30-1-2013_pg5_9

Riaz Haq said...

ISLAMABAD: Benazir Income Support Programme (BISP) has been a success story for the welfare of the people of Pakistan. Its various initiatives especially Emergency Relief Package (ERP) to help conflict ridden people in tribal areas and victims of terrorism has been a phenomenal step. This was declared by a delegation of journalists from leading newspapers of Indonesia during its meeting with Federal Minister and Chairperson BISP, Madame Farzana Raja in BISP secretariat. The journalists appreciated BISP’s performance and were of the view that the Programme’s success in the social sector of Pakistan has been an overwhelming experience for them. The Indonesian journalists said that the welfare of the people is the primary responsibility of the state and through BISP; Pakistan has been able to achieve this objective to a great extent.
Madame Farzana Raja on the occasion informed Indonesian journalists that BISP has introduced Waseela-e-Haq (Right to Livelihood), Waseela-e-Rozgar (Right to Employment), Waseela-e-Sehet (Life and Health Insurance) and Waseela-e-Taleem (Right to Education) for its beneficiary families which are bringing sustainable economic growth in the society by empowering people from lower strata. Chairperson BISP said that BISP in the lights of the Millennium Development Goals of the UN is striving hard to provide basic health and education facilities to 7 million families. She said that the wellbeing of the people is the primary role of a welfare state. Federal Minister said that BISP is working for making Pakistan a progressive welfare state where most deserving families are provided ample opportunities to become self-reliant.

Riaz Haq said...

Here's a Guardian report on social entrepreneurship in Pakistan:

The social enterprise landscape in Pakistan is nascent but fast-growing. From diverse sectors ranging from dairy farms to educational hubs to micro drip irrigation, early-stage enterprises have the potential of achieving hybrid financial return and social impact. Crucially, they are attracting interest from impact investors and business angels alike.

But how can these entrepreneurs be better financed, nurtured and trained?

Crucially, funding for small enterprises should meet the specific needs of the entrepreneur from seed financing to venture capital to growth equity. Social entrepreneurs need financial, but also non-financial, support such as mentoring, implementation guidance, and skills training development. Business school 'accelerator' programs and incubator hubs, which aim to accelerate the development of successful enterprises through such support mechanisms, combined with strong policy frameworks, can help create a long-term, self-sustaining ecosystem.

A report launched today by the Economic Policy Group (EPG) explores how incubator hubs can unlock the innovation potential of Pakistan's social entrepreneurs.

Successful incubator models already exist in some of Pakistan's premier business schools. The country's top business school, the IBA in Karachi, has in fact launched a partnership with Invest2Innovate (i2i), a social impact intermediary, to fast track the best entrepreneurs through its i2i Accelerator, a four-month program providing access to quality entrepreneurship education, skills, and opportunities.

"The IBA-i2i partnership helps start-ups who have passion and ability, but not the resources, to start their own businesses. It is a necessary step for growing and scaling viable businesses in the Pakistani market," says Kalsoom Lakhani, founder of i2i.

Other independent incubators across Pakistan, such as the Pasha Social Innovation Fund and Women's Business Incubation Centre, work with entrepreneurs across demographic segments in both rural and urban areas. The rise in popularity of these players is largely due to their ability to harness technology and digital media as communication platforms to empower entrepreneurs.

In the northern areas of Pakistan, where honey is one of the main agricultural commodities, Hashoo Foundation's Honeybee Project provided women beekeepers with beehives, as well as the associated training programmes to transfer this specialised skill-set to the wider community.
According to Dr Iman Bibars, regional director of Ashoka Arab World, "creating awareness for the potential of entrepreneurship among policymakers, relevant institutions and the public at large is essential to help establish an enabling environment that social entrepreneurs can flourish in."

On a macro level, the investment in human talent and institutions will raise both investor confidence and entrepreneurial confidence in the country. By changing minsets through incubator hubs, education, mentoring and training programmes, a strong enabling environment for social entrepreneurship can be fostered in Pakistan.

Riaz Haq said...

Here's ET on increasing e-banking in Pakistan:

The overall value and volume of e-banking transactions throughout the country increased during the second quarter (October to December 2012) to Rs 7.6 trillion (18.02 per cent)and Rs 79.45 (11.31 per cent) million respectively, the State Bank of Pakistan reported on Wednesday.

State Bank of Pakistan’s Payment Systems report for the second quarter of FY13 released today revealed that the branches of 484 banks in Pakistan were added to the Real-Time Online Branches (RTOB) network during the second quarter of the current fiscal year (FY13) and now 94 percent branches are offering online banking services.

Calculating the overall internet banking services across the country, overall 9,896 branches of banks out of 10,523 are offering the service. During the second quarter, the overall value and volume of internet banking transactions had seen an increase in of 18.82 percent and 14.29 percent in the overall value and volume of internet banking from the first quarter of 2012, respectively.

The Payment Systems infrastructure in the country had also seen an increase because of the installation of 245 new Automated Teller Machines at banks around the country. Today, the number of ATMs across Pakistan has reached a total of 6,232. The report further said that ATM transactions had a major share of 61.12 percent in terms of transaction volume with an average value of Rs9,779 per transaction.

The overall e-banking transactions in value terms was 6.27 percent during the second quarter, increasing the value and volume of ATM transactions by 10.33 percent and 10.68 percent respectively in the second quarter as compared to the first quarter of the current fiscal year.

The report also said that over 20.72 million banking cards were issued in the country by the end of December, 2012, witnessing an increase of 5.33 percent in the second quarter compared to the preceding quarter.

Point of Sale (POS) terminals showed a growth of 6.25 per cent and 5.06 per cent in value and volume respectively as compared to the first quarter of the current fiscal year, with value and volume of transactions standing at Rs22.1 billion and Rs4.5 million, respectively, in the second quarter.

The report also pointed out an increase of large-value payments through Real Time Gross Settlement (RTGS) with 9.46 percent in value and 10.35 percent in volume as compared to the first quarter. The recorded value and volume was Rs42.13 trillion and Rs12.16 billion respectively in the second quarter.

The report also revealed that major portion for the increased number of overall Pakistan Real Time Interbank Settlement Mechanism (PRISM) transactions increased 14.06 percent during the same period, which was contributed by Interbank Funds Transfers (IBFT). Similarly, the value of overall PRISM transactions increased by 14.96 percent due to securities settlement.

Riaz Haq said...

Here's a Daily Times report on solar lights in Pak villages:

Creating a new micro-finance system to empower women with a unique blend of production of much-needed renewable energy to electrify over 50,000 power-deprived villages of Pakistan is the best ever innovation so far being implemented successfully by Bukhsh Foundation in various villages of Punjab.

Over 100,000 villagers are the direct beneficiaries of this project under which solar lanterns have been provided to around 50 houses each in 40 selected villages of Punjab where electricity was an imaginary thing for people, even in this modern era of second decade of the 21st century. Hence the project has achieved 10 percent of its target, 90 percent is left to reach the mark of lighting one million lives.

The project titled Lighting a Million Lives (LaML) has been implemented successfully in 10 villages of Sahiwal, besides achievements in Lodhran, Minawali, DG Khan, Dera Ismel Khan and other villages.

The cost of the project in one village is $5,500 (over Rs 50,000).

Besides lightening their house and proving these villagers the facility to continue their household work with an ease at night, mobile charging units have also been installed and sustainable employment opportunities have been created for over-40 needy women of these village. These women are now known as “roshna bibi” or “light lady” in the village. These chargeable lanterns remain active 6-8 hours depending on selection of light strength mode. Light charging system have been installed in the house of light ladies and this charging system is connected to the solar panels installed on the rooftops of their homes.

Each light lady charges Rs 4 to charge the lantern with the solar system every time and out of this amount she deposits Re 1 to a bank’s account for repair works, while the rest of Rs 3 is her earning. She earns around Rs 1,000 a day to support her family. Most needy women – mostly widows – have been selected to make them self reliant under this micro-credit project, launched with the help of various donors. The villagers have been provided lanterns free of cost.

Buksh Foundation, a concern of HKB Group, was established in 2009 with its two offices in Lahore – in Shahdara and Township – to provide soft loans of up to Rs 100,000. Later, Buksh Energy, a sister concern of the foundation, was also established, when CEO Faiza Farhan met with Indian Nobel laureate Dr Pachauri, who is also the director of Teri Technical Energy Resource Institute, at an energy summit in New Delhi.

India’s Teri institute was already working on this project and they had provided electricity to some 260-plus villages in the last few years.

Now, this model is also available in Uganda and Bangladesh.

With some innovations and local wisdom, Ms Faiza brought this project to Pakistan. Now, Teri is the technical partner of Buksh Energy. Out of total 40 villages, Coca-Cola provided funds for lightening of 15 villages in Sahiwal, Jahangir Tareen supported 14 villages in Lodran, USAID supported 15 villages in Bahawalpur and Imran Khan Foundation supported three villages – one each in Mianwali, DG Khan and Dera Ismael Khan. Engro Corp, Silk Banks, Bank Alfalah and UBL are some other donors....

Riaz Haq said...

Pakistan ranks 8th in the world of Islamic Finance, according to a Guardian story. Here's an excerpt:

How it works

Islamic finance is all about sharing risk between financial institutions and the individuals that use them. To do that, the two parties are tied into a longer-term relationship with each other that is supposed to shift incentives and avoid cut and run financial deals.

So, for example, sharia-compliant mortgages mean that the bank and the borrower share the risks of repayment rather than charging any form of interest. Similarly, Islamic bonds like the one announced by David Cameron today involve both parties owning the debt, rather than a simple promise to repay a loan.

Since it's Islamic, that also means that financial trading is off-limits for things that are forbidden even if no interest is charged - so investments can't be made in alcohol, tobacco, non-halal meat products such as pork, pornography or gambling companies.

You don't have to be Muslim to use Islamic financial services - a fact which has stimulated further interest in the sector. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.

In numbers

275: The number of Islamic financial institutions in the world.
75: The number of countries where they have a presence.
US$1.357 trillion: The value of the global Islamic finance services industry by the end of 2011.
US$4 trillion: The projected value of the global Islamic finance services industry by 2020.
£200m: The value of the planned Islamic bond being unveiled by David Cameron today.
11th: The ranking of the UK (up 4 places from 2011) in the Global Islamic Finance Report which weighs up variables like the number of institutions involved in Islamic finance industry, the size of Islamic financial assets and the regulatory and legal infrastructure.


bay 'al-mu'ajjal: Instant sale of an asset in return for a payment of money (made in full or by instalments) at a future date
gharar: Describes a risky or hazardous sale, where the details of the sale contract are unknown or uncertain
ijarah: Leasing contract
istisna': Refers to an agreement to sell a non-existent asset, which is to be manufactured or built according to the buyer's specifications and is to be delivered on a specified future date at a predetermined selling price.
mudarabah: Profit and loss-sharing
musharakah: Joint partnership
qard hasan: Interest-free financing
riba' : Usury
sharikat al-'aqd: Contractual partnership
sharika al-milk: Proprietary partnership
sukuk: Islamic bonds
tahawwut: Hedging
takaful: Islamic insurance
wadiah: Safe custody
wakala: Investor entrusts an agent to act on his behalf
zanniyyat: probabilistic evidence

Riaz Haq said...

Not long ago, we put out a podcast that asked the question “Would a big bucket of cash really change your life?” That episode looked at whether winning a land lottery in antebellum Georgia significantly altered a given family’s financial future. University of Chicago economist Hoyt Bleakley, who studied that 1832 lottery, told us this:
BLEAKLEY: We see a really huge change in the wealth of the individuals, but we don’t see any difference in human capital. We don’t see that the children are going to school more. If your father won the lottery or lost the lottery the school attendance rates are pretty much the same, the literacy rates are pretty much the same. As we follow those sons into adulthood, their wealth looks the same in a statistical sense. Whether their father won the lottery, lost the lottery, their occupation looks the same. The grandchildren aren’t going to school more, the grandchildren aren’t more literate.

Now enough of these (cash to the poor) programs are up and running to make a first assessment. Early results are encouraging: giving money away pulls people out of poverty, with or without conditions. Recipients of unconditional cash do not blow it on booze and brothels, as some feared. Households can absorb a surprising amount of cash and put it to good use. But conditional cash transfers still seem to work better when the poor face an array of problems beyond just a shortage of capital.

When Give Directly’s founder, Michael Faye, went to traditional aid donors with his free-money idea, he remembers, “They thought I was smoking crack.” Silicon Valley, though, liked the proposal—perhaps because Give Directly is a bit like a technology start-up challenging traditional ways of doing things (in this case, aid). Google contributed $2.4m; Facebook, $600,000

Riaz Haq said...

#Pakistan to have 100 million bank accounts by 2025. #financialinclusion #banking …

“Thanks to the concept of the one-minute bank account, the industry is opening close to a million accounts a month,” he said.

There were a total of 41.7 million bank accounts in Pakistan at the end of last fiscal year, according to the State Bank of Pakistan (SBP). More than 31.3 million accounts, or 75% of all bank accounts, belonged to the personal accounts category.

The SBP has recently modified the regulatory framework to quicken the bank account-opening process with the help of the national database authority.

“NADRA is the real-time online depository of the biometric impressions of close to 100 million people,” Hussain said, adding that utilising its database had so far resulted in eight million one-minute accounts.

The industry expects 50 million accounts by 2020 and 100 million accounts by 2025. Assuming the average balance of Rs1,000 in these accounts, Hussain said these accounts will bring as much as Rs100 billion back into the banking system.

It will also make access to credit possible for people and small businesses that are currently unable to borrow from commercial banks, he noted. “A bank account is the centre of gravity for financial inclusion,” he said.

Speaking on the occasion, Lucky Cement CEO Muhammad Ali Tabba said his group had plans to invest $1.8 billion in the next four years. “The economy and the security situation are on an improving trajectory. The feel-good factor is prevailing,” he said.

Urging people to “believe in Pakistan,” Tabba said the China-Pakistan Economic Corridor (CPEC) will be a game-changer for the economy. “I think $46 billion investment will materialise and transform Pakistan into a major economic hub.”

Addressing the audience, Planning and Development Minister Ahsan Iqbal said Pakistan has undergone a huge change since 2013. “The world now considers Pakistan an important player in the region, as Chinese investments would integrate Pakistan with Central Asian countries.”

The CPEC will bring development and prosperity in the country with investment of up to $5 billion in infrastructure and networks of roads and bridges, he said.