Micro Finance and Poverty Alleviation in Pakistan

Abstract

Initiated in the 1970’s, microfinance promised to “combat poverty and to develop the institutional capacity of financial systems through finding ways to cost-effectively lend money to poor households,” (Morduch, 617). Its ultimate purpose was to prove that “micro lenders can both make profits and serve the under-served,” effectively (Aghion & Morduch, 135). The microfinance is based on the “win-win proposition: microfinance institutions that follow the principles of good banking will also be those that alleviate the most poverty,” (Morduch, 617). The MF sector in Pakistan, while a late starter, is less far behind the sector in other countries in South and South-East Asia than might be apparent at first glance. This research would tell how micro finance movement in Pakistan followed a unique evolutionary path over the last decades. The MF sector has yet to demonstrate its potential in terms of its social and poverty impact. These issues, however, are characteristic of an early-stage MF sector. The report supports the view that the MF sector in Pakistan is now in a position to consolidate the gains it has made during the years since the passing of the MF Ordinance in 2001 Microfinance has a strategic value. Combined with education including imparting of skills required by diversifying economy, microfinance empowers the poor to improve their livelihood themselves.