Micro finance practices in developing countries: a research study of practices of selected institutions in Pakistan and their comparison with micro finance institutions of other third world countries

Abstract

This research report consists of the analysis of business model of Khushhali Bank in the light of best practices of micro finance in third world countries such as Grameen Bank in Bangladesh and Self Employed Women Association Bank in India. On the basis of this analysis a comparison has been made in terms of their institutional strengths, quality of services and outreach, and financial performance. The comparison is made keeping in mind the international standards recommended for the micro finance institutions such as "Institutional Performance Standards and Plans" published by the Global Development Research Centre (GDRC) in year 2002. This enabled the researcher to identify the sound practices of micro finance. Based on the comparison and analysis it is concluded that regarding institutional strengths, accurate management information systems which facilitate effective planning, control and timely monitoring of loan repayment are necessary for success of micro finance institutions. In addition to this staff training, accountability and reward through monetary incentives and promotion, innovative lowcost distribution systems and mobile banking are other factors which contribute towards the success of micro finance institutions. Similarly good quality of services and outreach such as client appropriate lending, saving services and sound financial performance by means of appropriate pricing policies, good portfolio quality and movement towards financial independence have contributions towards the Micro Finance Institution's operational performance. Favorable macroeconomic policies, agricultural and rural policies, adequate investment in the physical and social infrastructure, high degree of i management autonomy in the formation of operational policies compliment the success of micro finance institutions.