Microcredit–a tool to eradicate poverty


by Samar Mahmood
If the proof of the strength and value of community driven projects is required, the Pakistan Poverty Alleviation Fund (PPAF) and its partner organizations are a living testimony of the success of this socio-economic model. It 
is a model that places people in the center of development rather than development in the center of people. The PPAF disburses the funds given by the World Bank to the poor through POs (partner organisations), working in their respective areas. The PPAF Economic Development Sector comprises following four sub programs: Microcredit (MC) Programme; Capacity Building & Enterprise Development (CB & ED) Programme; Saving Mobilization (SM) Programme; Microcredit Initiative (MI) and Program for NGOs.
Presently, the first three components are managed together and specifically targets women as beneficiaries. The sector continues to improve the socio economic conditions of the poor communities in the areas of four districts of Sindh. The SAFWCO is a partner organisation of PPAF, an independent body that provides 54 per cent of the total micro-credit disbursed in the country. The PPAF on February 28, 2007 had are source base of US$ 826.17 million. Its bond of directors consists of 12 members of whom nine are from the private sector. Since 2001, PPAF through SAFWCO is supporting the microcredit sector for the uplift of socio economic condition of rural people.
The Pakistan Poverty Alleviation Fund (PPAF) envisions community empowerment through poverty focused development initiatives and interventions at the grass roots level. As an apex institution, PPAF operates through Partner Organizations (POs) with the aim of strengthening their institutional capacities and expanding their outreach. In this way, it plays a pivotal intermediary role between donors and communities that ensures transparency, efficiency and sustainability.
PPAF operations continue to reflect an equitable gender balance manifest in the growing number of female beneficiaries: women accounted for approximately 39 percent of microcredit loans disbursed and 38 percent of the trainings conducted during FY 2005-6. Additionally, women comprised an estimated 50 percent of all direct and indirect beneficiaries of PPAF’s infrastructure interventions.
By the end of the financial year, 10 out of PPAF’s 68 partner organisations were catering exclusively or predominantly to women. The early signs of a meaningful long-term change at the grassroots level have already been empirically validated in independent assessments of PPAF interventions. The Gallup study showed that PPAF’s microcredit beneficiaries, among other things, have experienced a) increase in personal and household incomes, b) increase in consumption of key high protein food items, c) usage of better household facilities, and d) enhancement in social status of both men and women beneficiaries.
By end of June 2006, PPAF’ funded microcredit loans had reached around 943,370 borrowers in approximately 21,741 villages of the country. In the process, over 60,334 community organizations have been organized as a direct result of PPAF support. In addition, approximately 8,357 physical infrastructure schemes have been completed, while over 39,000 community members were trained by June 30, 2006.
The benefits of PPAF interventions have been equitably distributed across all regions of the country. In the event, they have helped in raising awareness, creating social capital and engineered the basis for a long-term development process with the active participation of the disadvantaged people of Pakistan. According to a research, there is an adequate evidence to suggest that on the average low income households who borrowed from PPAF are better off today than they would have been if they had not borrowed. This observation was initially made for the first group of borrowers surveyed in 2001, and has been found to be equally true for the second, and comparatively larger, pool of borrowers surveyed in 2005.
Sultana Ghulam Mustafa resident of village Mir Ghulam Shah 25 kilometers away from Shahdadpur while talking to Money Plus said, “I have eight family members to feed. My husband drives a tonga and it was really difficult for us to survive on his income. So I borrowed Rs 10,000 from SAFWCO a year ago to buy a cow, which costs around Rs 25,000. I sell 5 kilo milk everyday and have returned all the money back and now want another loan to expand my business. My children are studying in Shahdadpur now and we make a happy living.”
Another lady Sahul residant of village Mua Chhora situated 26 km from Taluka Head Quarter Shahdadpur said, “I have learned embroidery and stitching from SAFWCO training center and bought my own machine by borrowing money from them. I do embroidery work on clothes and linen and make about 10 suits a month and charge Rs 200 per piece for embroidery, sequin or beadwork. Rich ladies and boutique owners from Hyderabad and Nawabshah come to me with work every month. They take the embroidered clothes from us, make the payments and give us more work. This cuts out the middleman’s profit and we make more money this way. I have returned all the loan now.’’
Suleman G. Abro CEO of SAFWCO told Money plus, “The recovery rate in these areas is 100 per cent and, people are availing loans over and over again. He says a lot of stress is laid on forming innovative alliances and partnerships with the corporate sector to reach out to the poor.” The foundations have been laid. PPAF today stands at the threshold of bringing about a wholesale transformation in the attitudes of poor people across the length and breadth of the country. Wherever PPAF sponsored infrastructure schemes, credit facilities and training programmes are operative, the poor have started reaping the benefits of self-help strategies, generating income and reducing their dependence on external support.
In line with organizational objectives, funding for microcredit has been equitably disbursed in urban and rural areas of 78 districts of Pakistan through 38 POs, of which 10 are exclusively or predominantly catering to women. Repayments to PPAF from POs continue to be at 100 percent. In contrast to previous years, sectoral distribution of credit showed significant increase in income generating activities in commerce and trading, which accounted for nearly 40 percent of the total portfolio while agriculture and livestock accounted for 35 percent and 18 percent share of funds disbursed respectively. This was principally on account of fast growth of partner organizations working in a pen-urban environment.
Independent and externally commissioned studies have concluded that PPAF loans have brought a positive change in the incomes, assets, lifestyles and, above all, the social status of borrowers. Particularly refreshing is the evidence suggesting a much improved social status of female borrowers.
The Gallup study, has shown that 64 percent of PPAF female microcredit beneficiaries perceive their social status to have increased. Similarly, 60 percent of the women interviewed stated that they had a greater say in business decisions than before, 55 percent were of the view that they had an increased role in the purchase and sale of household items, while 50 percent were of the view that their opinion now mattered in deciding issues regarding the purchase and sale of property. As an organization with the aim of empowering women, PPAF takes great strength from these findings.
At the same time, PPAF has carefully noted the observation of the Gallup study with respect to the limited scale of change as far as the more empirically verifiable indicators are concerned. This is not surprising keeping in mind the short period of time between the financing of the loan facility and the Gallup study. An additional factor suggested by the study is the relatively small amount of the loan size.
The Gallup study is very encouraging in noting a positive direction of change, as well as in its findings regarding the better standing of beneficiaries to non beneficiaries in a number of areas including increased personal and household incomes, increased expenditure on house repair, as well as increased household consumption and possession of consumer durables.
Although microcredit continues to account for a major percentage of PPAF’s credit facility, Rs. 235 million have also been distributed under the Enterprise Development Facility (EDF), which caters to the needs of the ‘missing middle’ of the relatively poor who are neither covered through the conventional poverty programs of civil society organizations nor by formal sector financial institutions. Initiated with the financial support of the United States Agency for International Development (USAID), EDF loans are designed to support entrepreneurship and local micro-businesses and are thus much bigger than the average size of the traditional microcredit loan.
The value of well-targeted microcredit products in poverty alleviation has been well established. PPAF, in its capacity as the largest wholesaler of funds to microcredit institutions in the country, is leading the field in this regard. As such, it has assumed the responsibility of meeting the ‘double bottom-line’ by making microcredit delivery both a sustainable venture as well as an effective tool for poverty alleviation.
There is overall improvement in the income as well as personal and business assets of PPAF borrowers. Their lifestyle by way of housing facilities has improved. The social status, particularly of the women borrowers, has undergone a positive change. Admittedly the scale of change is limited, as is the scope and amount of the loan. But the direction of change is, on the whole, positive. Our research shows that the benefits of PPAF loan appear in terms of poverty alleviation and improvement in the basic lifestyle indicators of the borrower. The direct impact on generating employment or the effect on other development indicators is not very significant.
However, improvement in the basic lifestyle indicators of microcredit borrowers can possibly have a second order positive effect on development indicators.



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