ISLAMABAD – Following the death of her husband, Hanifaan, a poor Pakistani widow, did not known what to do to feed her three children.
But thanks to a loan from a specialized microfinance institution, the 52-year-old was able to provide a suitable life for her beloved.
"I had no source of income after my husband died (three and a half years ago). Nor did I have any experience," Hanifaan told OnIslam.net.
The poor woman received a Rs 50,000 (600 dollars) loan from Kashf Foundation, Pakistan's first specialized microfinance institution to make a living for her family.
She used the money to open a small shop in one of the two rooms in her house in the northwestern town of Kasur.
"I won't say I am doing a very good business, but thanks to Allah, whatever I earn, is sufficient to meet my needs," a humble Hanifaan said.
Microfinance has shown a massive uplift in Pakistan in the past decade.
The industry was first launched in Pakistan three decades ago by renowned social worker Akhtar Hameed Khan, who had established Orangi Pilot project under which small loans were provided to home-based workers.
But the specialized micro-finance began in the south Asian Muslim country in the mid-1990s.
Currently, nearly three million people have benefited from microfinance in Pakistan in the past 15 years, according to unofficial statistics.
Among those, 1.2 million were assisted by Kashf Foundation, which provides only small loans to women, who make up 51 percent of Pakistan's 180 million population.
"Men have other options also, like they can borrow loans from government and private banks, and other institutions, where women are generally discouraged," Nasir Mumtaz, an official at Kashf Foundation, told OnIslam.net.
"Secondly, there is a myth that women usually waste money or cannot handle money.
"We have broken this myth by providing loans to some 1.2 million women during last 15 years," he said.
"Our recovery ratio is 99 percent as a huge majority of women who started their businesses with the help of loans (granted by the foundation) have successfully been making a living."
Usually, loans range between Rs 10,000 (120 dollars) to Rs 50,000 (600 dollars) in the private sector, whereas the ceilings are much higher in the government-backed microfinance sector.
Some 20 non-governmental institutions, including a few Islamic charities, are dealing with microfinance sector while the creation of the government-backed Retail Bank, the Khushhali Bank and the Pakistan Poverty Alleviation Fund (PPAF), has picked up this sector.
Growth and diversity in the sector have also been encouraged by the microfinance ordinance 2001, which resulted in the establishment of microfinance banks, such as The First Microfinance Bank, created from the transformation of the microfinance department of the Aga Khan Rural Support Program.
Developed in the 1990s, other Rural Support Programs (RSPs) have had a major impact on the development of microfinance in Pakistan as they continue to represent one of the highest numbers of MFIs and the largest coverage in Pakistan.
In the banking sector, a public commercial bank specialised in serving women, the First Women’s Bank, is active in microfinance, while the Bank of Khyber in the north-western Khyber Pakhtunkhuwa province (KP) has developed new products and partnerships with NGOs in order to serve low-income populations.
Islamic charities do not leg behind vis-à-vis the growth of microfinance sector.
Sailani Welfare Trust, a Karachi-based Islamic Charity, Lahore-based Akhuwat Foundation, and Al-Khidmat Foundation, the country’s largest NGO, and charity wing of Jammat-e-Islami have been providing small loans to low-income bracket people for business and service purposes for past years.
They lend loans in the fields of cottage industry, hand embroidery, and shoe making businesses, and procurement of taxis and rickshaws.
Despite the growth of the microfinance sector in Pakistan, economists see a marginal effect vis-à-vis poverty alleviation.
"There is no second word about growth of this sector," Shahid Hassan Siddiqui, a Karachi-based senior economist, told OnIslam.net.
"But it has a very marginal impact vis-à-vis efforts for poverty alleviation."
According to World Bank figures, around 34 percent of Pakistan's population lives below the poverty line.
Government estimates, however, put the figure at 18 percent.
Siddiqui says the total volume of loans granted by both private and government institutions is Rs 3,500,000, which makes up 80 percent of the total loans, have been borrowed by only 25000 people.
"When 80 percent of the total loans are held by only 25000 people out of 180 million population, what impact do you expect vis-à-vis poverty alleviation."
Siddiqui, who is expert in Islamic banking, believes that if microfinance is linked to Zakat, only then it would yield the desired results.
"Pakistanis pay nearly two billion dollars Zakat every year, but it goes away in a haphazard manner," he said.
The economist contested international figures that suggest that Pakistanis pay Zakat to the tune of one billion dollars annually.
"If 20 percent of the total loan is granted under Zakat fund, then one person will get Zakat one time in life, and next year other people would benefit from that (Zakat)."Only this way, we can reduce the growing poverty in the country, otherwise in traditional Zakat system, a needy person receives Zakat every year instead of standing on his or her own feet."
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