Executive Summary
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State-run plans for poverty reduction in the poorest of the developing countries—particularly Pakistan—have largely failed, primarily due to lack of commitment to the development of customized strategies that have regard to the constraints of the region.
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Governance structures to monitor the formulation, implementation, and evaluation of poverty reduction policies and practices are deficient. There is scarce capacity to recognize deficiencies or enforce best practices.
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The private sector has emerged as the leader in developing the social sector, rural financial structures, and the specialized microfinance sector.
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The establishment of the microfinance sector revolutionized the financial sector in rural areas. However, during the last three years the pace of diversification of the base of the microfinance sector has dawdled compared to the rate of opening of new microfinance outlets.
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There is a need for stronger governance structures that will guard against manipulative commercialization, build the capacity of professionals, diversify products, increase regional collaborations, and meet the need to ensure complete disclosures to beneficiaries regarding interest rates and ancillary costs.
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The economic downturn globally and natural devastations during the preceding half decade in Pakistan, particularly the earthquake in 2005 and the floods of 2010, have hit microfinance institutions hard. Yet microfinance institutions may rebound and develop in the right direction if a rational strategic plan is implemented for the provision of an appropriate range of financial services to the poor.
Introduction
Since its establishment in 1947, Pakistan has struggled to achieve long-run economic stability. There are multiple explanations for this that range from regional conflicts and natural calamities to severe failures of governance. Among the latter can be noted corruption, mismanagement of resources, “hypothetical” economic development measures, and lack of good governance generally. However, the concept of access to finance has strengthened, acting as a catalyst to the development of the financial sector. Due to its simple yet effective structure, microfinance is seen as a potent weapon in the fight against poverty. There is a lack of awareness among financial market practitioners, who have yet to see that—apart from commercially viable microcredit and microenterprise—global financial markets will be the main tool available for policy initiatives that seek to foster development and eradicate poverty.
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