Foundation. In 1998, this precursor of the Pakistan Microfinance Network (PMN) began to play a role in representing emerging Micro Finance Providers (MFPs). Further developments followed in 2000, when the Pakistan Poverty Alleviation Fund (PPAF) made its first loan to MFPs, and SBP opened a microfinance unit. In 2001, the GoP helped to create a major retail institution, the Khushhali Bank, dedicated to serve the poor. 1.4 Problem Identification and Objective of the Report The beginning of a new era in microfinance was marked by the 2001 Microfinance Ordinance. The ordinance along with other regulations by SBP, laid some foundations for the development of the financial system. The focus of such a strategy was to realize the importance of the Micro finance Banks (MFBs) and their outreach to the population. By 2007, six MFBs received their licenses. Overall the development of this industry has been rapid and less solid as expected. The
Chapter 1 Introduction 13total number of loans outstanding is still negligible compared with the total potential demand, and deposit services are not well developed (Microfinance Gateway, 2007). Thus there is a dire need for an analysis of the microfinance policy and its realization in Pakistan. Such an analysis would retrieve information of what the MFPs or the government lack and what changes need to be made in order to make the MF industry grow. The central research question that would be answered in the report is: What are the differences between the Microfinance Policy goals and the realization in Pakistan, and which factors influence such differences? The derived research questions are: 1.What are the concepts of Microfinance? 2.What is the MF policy in Pakistan? 2a. What role does government play in the MF industry? 2b. What are the goals, targets, and expectations in the MF industry? 3.What is MF in literature, and what are the expectations and bottlenecks in this field in Pakistan? 4.What is the reality of MF policy in Pakistan? Are its goals being realized? 5.What are the factors responsible for the differences between 2 & 3?
Chapter 1 Introduction 141.5 Research Methods This is an exploratory research and would try to identify the factors responsible for the differences in the MF policy and its realization. It is based on secondary data that is collected through various resources mainly literature available over the internet. A few key words that were used for searching such online literature were “microfinance”, “microfinance in Pakistan”, “microfinance in developing countries”, “role of policies in microfinance”. Various reports of the World Bank (CGAP), reports by SBP, various institutes of Pakistan (including Pakistan Microfinance Network), and other world financial institutions (Asian Development Bank, United Nations Development Programme etc) have been studied to gather the relevant information that was used in order to draw conclusions on the subject. Various academic papers regarding microfinance policies in other countries are also consulted. Non- Governmental organizations providing microfinance in Pakistan were also contacted in order to gain more insight into the practical aspects of microfinance. These organizations were contacted mainly through email (number 20) and sometimes through telephone (3). Although the response rate has been almost insignificant (5%) enough to draw concrete conclusions, further study should eliminate these shortfalls. 1.6 Outline of the Study The outline of the study can be illustrated in figure 1.1. Chapter 2 of the report defines what microfinance is and tries to explain the need for its implementation in the world especially in the developing countries. Chapter 3 focuses on the MF policy in Pakistan and the role of GoP in making microfinance a success. It focuses on the goals,