2. Comparative Study of Micro Finance Models in Pakistan BY USMAN KHURSHID PHD STUDENT, IIUM INSTITUTE OF ISLAMIC BANKING AND FINANCE MALAYSIA PRESENTED IN 5 TH GLOBAL ISLAMIC MICRO FINANCE FORUM, KUALALUMPUR

3. ABSTRACT  The research examines the micro finance activities in Pakistan through the comparative studies of three different models i.e. micro finance bank, micro finance NGO and Islamic micro finance NGO. The study analyse their products, financial and social outputs of these organizations. The study over all see the impact of these micro finance organizations on the poverty alleviation in the country. The balance between the social goals and financial goals are given a deep analysis by which the objectives of the organizations are Clearfield. The study highlight a different vision for micro finance where credit is not the right of ever one but economic up liftment is. A special focus is given to Akhuwat in this study and a critical analysis is done for the growth of the organization in future.

4. OUT LINE  RESEARCH OBJECTIVE  METHODOLOGY  CONCLUSION

5. OBJECTIVE OF RESEARCH  The main objectives of the research are to distinguish pertinent features between social and commercial micro finance models operating in Pakistan and to examine the policy and criteria on target micro finance recipients for each model. The research will also focus on the assess viability of the model based on the features and policy adopted by the institution.

6. SIMPLY DO MICRO FINANCE INSTITUTIONS IN PAKISTAN EITHER CONVENTIONAL OR ISLAMIC HELP IN POVERTY ALLEVIATION?

7. ELEMENTS FOR SUSTAINABLE MFI Sustainabilit y of MFIs Financial sustainability Outreach to poor Welfare

8. WHY MICRO FINANCE IN PAKISTAN  According to the Islamic development bank the Human poverty index, Pakistan ranked as 65 with 17% of the population on $1 per day along with 73.6% with $2 per day and out of 165.8 million people 122 million are officially declared as poor  In Pakistan the conventional micro finance has served almost 7% of the poor households where as the large portion of the poor are not being served by this program because of their living conditions, this large portion is the poorest of the society to whom conventional micro finance cannot serve due to its certain conditions for the advancement of credit

9. SAMPLE MF ORGANIZATION FOR THIS STUDY  FINCA MICRO FINANCE BANK (FORMALLY KNOWN AS KASHF MICRO FINANCE BANK)  SUNGI FOUNDATION MICRO FINANCE PROGRAM  AKHUWAT; ISLAMIC MICRO FINANCE ORGANIZATION

10. FINCA MICRO FINANCE BANK  Model DEPOSITSFINCA BankFINANCING

11. PRODUCTS  Kamyab Karobari Qarza (Successful Business Loan)  Mal Maweshi Qarza (Cattle Loan)  Raqam Barqat (Running Finance)  Sunehri Qarza (Golden Loan)  Zarai Qarza-Bullet Repayment (Agricultural Loan)

12. TARGET CUSTOMERS  The target customers of the bank are small and medium enterprise owners, with a running business. These kinds of customers are lower middle class in Pakistan that have limited skills and are operating small businesses to support their families. Most of the customers of the bank are the businessmen who want to expand their businesses to keep themselves in the competitive market.  The poor or in other words the people who are below the poverty line are not the target customers of the bank and have no benefit from this institution.

13. GROWTH INDICATORS  Total Assets were PKR 15,218,334 in 2008 and increased to 21,774,520 in 2012  No of offices were 19 in 2008 and 31 in 2012  No of personnel were 273 in 2008 and 596 in 2012  No of active borrowers were 24401 in 2012  Cost per loan is USD 288 in 2012 i.e. PKR 30376 as of today

14. SOCIA INDICATORS Target market > WomenYES Target market > Clients living in urban areas YES Target market > Clients living in rural areas NO Development goals > Increased access to financial services YES Development goals > Poverty reduction NO Development goals > Employment generation YES Development goals > Development of start-up enterprises NO Development goals > Growth of existing businesses YES Development goals > Improvement of adult education NO Development goals > Youth opportunities NO Development goals > Children's schooling NO Development goals > Health improvement NO Development goals > Gender equality and women's empowerment YES Development goals > Water and sanitation NO Development goals > Housing NO Development goals > Other *data collected from mixmarket.com and then cross checked NO

15. Poverty targets > Very poor clientsNO Poverty targets > Poor clients NO Poverty targets > Low income clients YES Poverty targets > No specific poverty target NO Measures client poverty YES Measures client poverty > Unknown NO Poverty measurement methods in use > Per Capita household expenditure YES Poverty measurement methods in use > Per Capita household income YES Poverty measurement methods in use > Housing Index NO Poverty measurement methods in use > Participatory Wealth Ranking (PWR) NO Poverty measurement methods in use > Means test NO Poverty measurement methods in use > Food security index NO Poverty measurement methods in use > Own Proxy Poverty Index NO Poverty measurement methods in use > Other NO

16. SUNGI FOUNDATION  MODEL Donations+ national and international funding SUNGI FOUNDATION Micro Finance Activities

17. PRODUCTS  Small Enterprise Development

18. TARGET CUSTOMERS  The target customers of the SUNGI FOUNDATION are the poor people with the skill but have no access to funds, which includes women and men with handicraft skills, farmers, small business operators etc. this is mostly the upper lower class of Pakistan who have the basic education and can help lower class by employing them in their farms and fields.  The target market have skills which are transferred to them by generations and due to the non-financial assets availability the family fell to poverty level at the time of shock, mostly because of the death of the head of house or basic family earner. The modern world is not easy for a person like small cattle farmer who lives mostly on the top of the mountains, SUNGI Foundation provide them with the financial consultancy through different seminars and assist them in building small financial assets for them.

19. GROWTH INDICATORS  Total Assets change from PKR 425,039 in 2003 to PKR 534441 in 2010  No of offices were 6 in 2003 and 4 in 2010  No of personnel 10 in 2003 and 35 in 2010  No of active borrowers are 5512 in 2010 and all female

20. SOCIAL INDICATORS Target market > WomenYES Target market > Adolescents and youth (below 18) NO Target market > Clients living in urban areas NO Target market > Clients living in rural areas YES Target market > Other NO Development goals > Increased access to financial services YES Development goals > Poverty reduction YES Development goals > Employment generation YES Development goals > Development of start-up enterprises YES Development goals > Growth of existing businesses YES Development goals > Improvement of adult education YES Development goals > Youth opportunities YES Development goals > Children's schooling YES Development goals > Health improvement YES Development goals > Gender equality and women's empowerment YES Development goals > Water and sanitation YES Development goals > Housing YES Development goals > Other NO Poverty targets > Very poor clients NO Poverty targets > Poor clients YES Poverty targets > Low income clients YES Poverty targets > No specific poverty target NO Measures client poverty YES

21. AKHUWAT  MODEL DonationsAKHUWAT Loans (Qard Hasan)

22. PRODUCTS  Family Enterprise Loan  Liberation Loan:  Education Loan:  Marriage Loan:  Emergency Loan:  Silver Loan:  Health Loan  Akhuqat Mutual Support Fund

23. TARGET CUSTOMERS  Target customers of the Akhuwat are the upper level lower economic class of Pakistan, which have no assets to mortgage and have some level of education. The customers have basic knowledge and skill sets that help them in opening and operating their own business for example car mechanic who wants to open his own business, bread maker, small grocery shops etc.  The target market of the Akhuwat is mostly in the province of Punjab, where there are more business opportunities then the rest of the country as this province is the richest amount all four, also it have the highest population in the country.

24. GROWTH INDICATORS  Total assets changed from PKR 168,989 to PKR 15,661,664 in 9 years  No of offices increased from 6 IN 2001 TO 170 IN 2011  No of personnel were 32 in 2004 and 485 in 2011  No of active borrowers were 3023 in 2004 and were 63,086 in 2011  Only micro finance organization with write off loans

25. SOCIAL INDICATORS Increased access to financial servicesNO Poverty reduction YES Employment generation YES Development of start-up enterprises YES Growth of existing businesses YES Improvement of adult education NO Youth opportunities NO Children's schooling YES Health improvement YES Gender equality and women's empowerment YES Water and sanitation NO Development goals > Housing YES Development goals > Other NO Poverty targets > Very poor clients NO Poverty targets > Poor clients NO Poverty targets > Low income clients YES Poverty targets > No specific poverty target NO Measures client poverty YES Poverty measurement methods in use > Grameen Progress out of Poverty Index (PPI) YES

26. SUMMARY OF ORGANIZATIONS NAME OF THE ORGANIZATION MODEL FOLLOWEDPRODUCTSTARGET CUSTOMER FINCA Pakistan Micro Finance Bank Business Loans/ SME loans SME or individuals with small businesses Sungi Foundation Non-Government Organization, using conventional practises of distribution of funds Small Entrepreneurship development Rural Skilful unemployed people specially women Akhuwat Non-Government Organization, using Islamic principles for Financing Qard HasanUrban Skilled and unemployed people (men and women)

27. QUESTION POVERTY ALLEVIATION Access to credit Access to Better living standards Access to utilities Access to education

28. Conclusion  The research conclude that micro finance organizations in Pakistan have to do more for their Social out reach and to bring a package of products that not only provide access to the credit to the poor but also other basic necessities. Akhuwat is so far the best model in Pakistan but the sources of income need to be stable.  Micro finance bank have same objective as the commercial bank, i.e. maximizing share holder wealth and for them micro finance is an opportunity for profit. The cost and risk of loans are high therefore interest rates are also high. Micro finance banks are doing less in poverty alleviation but they are important for small businesses to expand.  Both Akhuwat and Finca micro finance bank operate in Urban areas of Pakistan where as the major low income group is in rural areas.

29. RECOMMENDATION  Akhuwat Islamic micro finance have to create an alternative source of funding, donations are not the way to move forward in long run. It’s a good and ethical model of micro finance but donations risk their market expansion.  Introduction of the equity based products are also important for the Akhuwat micro finance. This will not only increase their market share but will provide diversification in the loan portfolio which will minimize the risk.  Finca Pakistan have the disadvantage of high interest rate which is calculated because of the cost of loan, minimizing that cost will be essential in future and that can be done by minimizing the operational and personnel costs. It can be achieved by cutting the long process short and by giving more than one task to an individual official.

30.  Interest will provide benefit to bank but it is not helping the poor and the core objective of poverty alleviation will not be achieved. Interest put extra burden on the customer and it takes longer time for the borrower to be self-sustained. The first instalment of the loan should be interest free and from second instalment the interest should be charged, if charged. Pakistan is an Islamic republic it should not have the interest on the first place.  Finca Pakistan as a bank is on a very ideal situation to provide medical facilities to its borrowers by making them take the medical insurance, this will help them in case of medical emergencies

31.  Sungi foundation micro finance work is an ideal for the micro finance organization if they remove the interest and increase their operational area. The organization is not growing anymore and its operations will stop after some time if attention is not paid to it.  Akhuwat model in Sungi operations will bring a very interesting model in the market. As Sungi foundation become the partner in the sales of the goods made by the customers, mostly handicraft items, on Sungi handicraft shops. This can be converted into the mudarabah and musharakha model which will help both customers and organization.

32. Thank you contact info usmankhurshid@live.com

33. AlHuda CIBE FZ LLE - U.A.E P: + 971 56 9286664, + 971 55 938 99 00 AlHuda Center of Islamic Banking & Economics - Pakistan Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056 Email: info@alhudacibe.com Website: www.alhudacibe.com info@alhudacibe.comwww.alhudacibe.com