The International Fund for Agricultural Development (IFAD) has agreed to provide $35 million to Pakistan to help finance a programme for increasing sustainable microfinance.

The loan will formally be approved by the 91st session of IFAD Executive Board meeting in Rome from September 11-12. The loan to be directly supervised by Rome-based IFAD is within the 2007-2009 allocation cycle, according to the loan document made available to Dawn.

The development goal of the programme is to reduce poverty, promote economic growth and improve the livelihoods of rural households under the overall objective of facilitating sustainable growth in microfinance in order to give the rural poor greater access to financial services.

The programme for increasing sustainable finance is concordant with the government’s Second Poverty Reduction Strategy Paper, which sees microfinance as “an important instrument for poverty reduction”.

It recommends that microfinance “move away from subsidisation of microfinance services to commercialisation”, and concludes that “the key to reducing costs is to introduce market competition, innovation and efficiency.”

In particular, the programme will support the Government’s stated target of reaching three million microfinance borrowers by 2010, it says.

The programme is consistent with the objective of the IFAD Strategic Framework 2007-2010 of increasing access to financial services, and with the objective set out in IFAD’s country strategic opportunities paper of expanding rural enterprises and financial systems in Pakistan.

It is also in line with the IFAD Rural Finance Policy, in particular the partnership with an autonomous microfinance apex institution; the focus on commercialisation of the sector; and the use of instruments such as equity participation in rural financial institutions and the provision of credit guarantees.

The programme was developed to respond to one of the key gaps in the microfinance sector identified in the April 2007 Country-Level Effectiveness and Accountability Review issued by the Consultative Group to Assist the Poor, and to be complementary to ongoing donor-funded projects.