In an article on Pakistan’s ‘The Nation’ online news portal, reporter Saadia Qamar makes a number of important observations on microfinance based on a publication by the State Bank of Pakistan (SBP) entitled ‘Towards Achieving Social and Financial Sustainability – A study on the performance of microfinance in Pakistan’. The publication is not currently available in the public domain. According to the report in The Nation, results of the SBP study reinforces a point that has been made on many prior occasions in both informal and scientific contexts; namely that the provision of microcredit alone is not always sufficient to alleviate the socio-economic problems of poor households.
The study revealed that the availability of microcredit has had a limited impact on the reduction of child labour in Pakistan. Although many respondents reported increased income levels as a result of receiving microcredit facilities, this alone was not sufficient to convince all parents to stop involving their children in labour. As many of 62.3 percent of parents indicated that raised income levels allowed them to take their children out of work and put them into schools. The study noted that the rejection of child labour is more extensive in cases where microcredit is combined with the provision of other services such as formal or informal child education, health education and widespread efforts to mobilize families against child labour.
Reference should be made at this juncture to a paper that was published by CGAP entitled ‘The Miracle of Microfinance? Evidence From a Randomized Evaluation’, which was covered in a former Microcapital Paper Wrap-Up. Based on a study of randomly selected households in the Indian city of Hyderabad, that paper concluded that microfinance had a small effect on the fortunes and almost no effect on the lifestyles of poor people after the opening of an MFI in their neighborhood. Authors of the paper observed ultimately that those households that received microfinance facilities experienced some differences, though not significant differences, in business profit and consumption patterns.
In relation to the specific issue of child labour, it is worth noting a paper entitled “How Does Credit Access Affect Children’s Time Allocation? Evidence From Rural India” which was published by the Institute of Developing Economies (IDE), a semi-governmental research organization that merged with the Japanese External Trade Organization. The authors of that paper, which was the subject of a former Microcapital Paper Wrap-Up, conducted research in the Kurnool district of Andhra Pradesh, where the child labour rate was unusually high at 54.2 percent. Terming education “the most important investment the poor can make,” the authors found that an increase in child labour does not necessarily lead to a decrease in schooling because leisure time is reduced instead. Significantly, the authors noted that there has not yet been a comprehensive empirical study of how the allocation of time by various members of the household is linked to the availability of microcredit in any particular area.
Another important point made by the SBP study is the observation that microfinance only reaches 4 percent of the potential market in Pakistan. Despite the growth of the microfinance sector in Pakistan, the study noted that there remains a need to reach 25 to 30 million potential clients in the country. The problem of improving outreach is exacerbated by the requirement for loan applicants to produce identity cards. Women often do not have such cards and are consequently unable to access much needed credit. The study recommends the use of technology to facilitate and process the applications for identity cards. Product diversification was also highlighted as an important way to enhance outreach and sustainability in Pakistan’s microfinance sector. The report notes that increasing numbers of MFIs in Pakistan have started to offer individual loans due to increased client demand for such products and the apprehension some clients have about group lending facilities.
Additional Resources:
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE: The Triangle Of Microfinance: Financial Sustainability, Outreach And Impact
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