An ever present feature of developing countries would appear to be the large number of people who live below or around the poverty line, making it even more difficult for these countries to progress. The new international poverty line of $1.25 a day at 2005 prices is the mean of the national poverty lines for the 10-20 poorest countries of the world. In Pakistan, 23 percent of the population lives on under $1.25 a day and 60 percent lives on $2 a day. These are alarming statistics, and for planners and governments, poverty is a definite “call to action”. As defined by the World Bank, poverty is “a call to change the world so that many more may have enough to eat, adequate shelter, access to education and health, protection from violence, and a voice in what happens in their communities”.
With no access to formal mechanisms to address their financial needs, the poor have no choice but to engage in informal financial relationships and mechanisms, which are most often risky and unreliable: they may tuck cash under the mattress, buy animals or jewellery that can be sold off later, or stockpile inventory or building materials. Poor people live in precarious conditions, threatened by lack of basic necessities. They need secure financial services which enable the poor to borrow, save, build assets, increase incomes, and overcome poverty in the long run.
The solution could well be microfinance – the provision of financial services to the poor and low-income clients, giving the poor the opportunity to find their own solutions to address their needs. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs), says the microfinance gateway, a comprehensive online resource based in Washington DC.
In order for microfinance to realize its full potential and be valuable as a tool for expanding the economy and bringing about poverty alleviation, it must be sustainable
Through a range of microfinance products and services, poor people can build their assets and increase earnings, leading to socioeconomic empowerment and better living conditions in the long run. For example, access to credit helps the poor to smooth cash flows, manage their emergency cash needs and avoid periods where access to food, clothing, shelter, or education is lost. With access to a related facility, micro-insurance, poor people can cope with sudden increased expenses associated with death, serious illness, and loss of assets, states the Pakistan Microfinance Network (PMN).
Sustainability in Microfinance
In order for microfinance to realize its full potential and be valuable as a tool for expanding the economy and bringing about poverty alleviation, it must be sustainable. Sustainability – “the potential to continue as a closed, self-generating system” is imperative. It should be capable of expansion beyond the limitations imposed by a reliance on development assistance. Sustainable MFIs have the potential to attract non-subsidized resources to reach the maximum number of clients and finance expansion of outreach.
MFIs are normally considered to be development-oriented organizations. To ensure sustainability, the microfinance industry is increasingly assuming characteristics of for-profit businesses, while maintaining a mission focus. For commercial banking institutions, financial results (the ‘bottom line’) are a key driver. Sustainability in this sense means the ability to continue to provide service, and when no outside funding is available, a sustainable institution must be able to survive without assistance.
The Social Enterprise Associates in its paper ‘Microfinance: A Sustainable Tool for Poverty Alleviation’ define ‘sustainable microfinance’ in light of two goals: “on a micro level, finan-cially self sufficient institutions able to provide services without external funding; and on a macro level, industry ‘massification’ to rapidly extend outreach to reach more people and make micro-finance a meaningful vehicle for poverty alleviation. Test factors of sustainability include: 1) market-driven cost of services to clients; 2) institutional financial soundness; 3) repeat clients; and 4) an ongoing industry.”
Key Instrument of Sustainable Development in Developing Economies
About 90 percent of people living in developing countries continue to lack access to financial services from institutions, which fuels the “vicious cycle of poverty”, accor-ding to a report on Sustainable Microenterpreneurship by Guy Vincent. The poor have limited or no skills and education and micro-enterprises are a means of economic opportunity for them as business owners and employees. Microfinance projects promote entrepreneurship and income generation and serve as a means to empower the poor to become economically self-sufficient. They provide sustainable and long-term benefits to the poor in developing communities, enabling them to earn enough to escape poverty over the long run.
Microfinance has evolved over the past two to three decades. Its origins are found in the development projects that experimented with subsidized agricultural credit in the 1950s. As micro-finance has evolved, non governmental organizations that funded projects for the poor have transformed themselves into formal microfinance institutions, states a report by IFAD.
A Local Microfinance Banking Model
There is a pressing need to recognize microfinance as a commercial and profitable business activity, in order for it to realize its potential to be an instrument for sustainable development. In Pakistan, there are now a large number of MFIs. Tameer Microfinance Bank is one of the MFIs which recognizes the need to approach microfinance as a commercially sustainable viable activity, and has developed a unique business model to address the diverse needs of the “un-banked” and marginalized.
Driven by its triple bottom-line (3BL) goals of poverty elimination, sustainable development and economic empowerment, Tameer recognises the key role of micro-finance as a powerful intervention in achieving many Millennium Development Goals (MDGs), and when it is financed through commercial sources, it has the potential to serve as a catalyst to sustainable socio-economic development and growth.
Tameer’s Community Banking Approach
Driven by its 3BL model, Tameer’s responsibility extends far beyond just achieving financial results (‘the bottom line’); to delivering social welfare value and sustainable benefits to the communities it serves. Tameer engages in various community activities and programmes that promote economic and social wellbeing.
The Bank’s outreach approach to communities and its resulting products and services are built on some core beliefs, of which the central focus is the customer. It strives to provide the world’s best practices and most innovative and cutting edge solutions which result in enriched and sustainable relationships with customers and communities, by aiming to address the customers critical needs, and create unparalleled standards for providing solutions which address those needs.
Innovative research to understand and determine the needs of its distinctive communities and develop value-added products, services and outreach systems is an integral part of the approach.
Tameer’s customers (entrepreneurs) have reported between 50-150 percent average direct growth impact to their monthly incomes with Tameer’s Financial Solutions.
The Bank’s full-service and low cost banking outreach capability is achieved through the rigorous field usage of real-time-online banking platforms with multi-level, real-time, delivery channels which include low cost GPRS based Point of Sale (POS) systems. Such innovative and technology based practices make the banking experience for microfinance customers fast and easy to access, via 24-hours real time online outreach, enabling customers to get a solution from a Tameer Counter or better still from their mobile phones or the corner store, that is, the micro-franchise.
Microfinance has to become an integral part of Pakistan’s poverty reduction strategy, as indeed for any developing country.
Although there is now a school of thought gaining strength that microfinance must not be seen primarily as a panacea for poverty alleviation and must be taken as a commercially viable proposition, poverty alleviation will come about as a welcome consequence.
By continuing to efficiently meet the financial needs of the less privileged and extend outreach, microfinance will have a sustained, increasing, and positive impact on poor people and promoting economic growth in the community at large.
