Money Matters

Microfinance for inclusive growth

By Muhammad Aftab Alam
Mon, 06, 24

In developing countries like Pakistan, where socio-economic disparities persistently challenge progress, a staggering 39.4 per cent of the population grapples with poverty.

Microfinance for inclusive growth

In developing countries like Pakistan, where socio-economic disparities persistently challenge progress, a staggering 39.4 per cent of the population grapples with poverty.

On the financial inclusion front, however, Pakistan has made significant strides. The ratio of account holders among the adult population has more than doubled compared to the recent past when it stood at 25-30 per cent. Out of the total adult population of Pakistan, financially excluded individuals now make up 40 per cent, while women, comprising nearly half of the populace, face entrenched obstacles in accessing formal banking channels.

Approximately 60 per cent of Pakistan's adult population, totalling 83 million individuals, possess an account, according to recent data disclosed by the State Bank of Pakistan (SBP). Notably, out of this figure, only 29 million are women, constituting 43 per cent of the female adult population.

A significant gender gap persists in financial inclusion and banking access, highlighting the urgent need for measures to bridge this divide and improve access to finance from formal financial sources. Only 2.4 per cent of the total adult population have access to credit from formal financial sources. This number needs significant improvement.

Pakistani microfinance banks have emerged as catalysts for significantly expanding the reach of banking services, improving financial inclusion and bridging the divide by tailoring financial services to the unique needs of women entrepreneurs.

In the majority of cases, they provide doorstep financial services to women. By offering access to credit, savings and insurance products, microfinance institutions have empowered women to pursue their entrepreneurial ambitions and elevated their status within their households and communities. This is not restricted to urban cities; the majority of the microfinance women customers are from rural Pakistan.

The road to Pakistan's economic recovery lies with the Micro, Small and Medium Enterprises (MSME) sector including agriculture. MSME serve as the backbone of the economy, employing over 80 per cent of the workforce. Microfinance has played a pivotal role in nurturing this sector, providing much-needed support and capital to budding entrepreneurs and existing businesses alike.

Embracing a holistic approach, microfinance banks have combined financial services with capacity-building initiatives at their institutional level and also with the support and guidance of the SBP, to nurture a culture of learning and entrepreneurship among the underserved.

By extending microcredit and a comprehensive suite of financial services, including bank accounts, fund transfer, internet and mobile banking, credit and insurance, to aspiring entrepreneurs and rural communities, these institutions have unlocked a wave of innovation and enterprise, propelling Pakistan towards a more inclusive and dynamic economy.

The journey towards inclusive economic growth will not be easy, demanding concerted efforts from all stakeholders. Policymakers need to prioritize an enabling environment that fosters innovation, competition, supply of affordable funding and sustainability within the microfinance sector.

Bolstering investments in financial literacy programmes and digital infrastructure are paramount, ensuring that individuals and businesses can harness the full potential of microfinance as a powerful instrument of change, empowering Pakistan's grassroots and paving the way for a more resilient and prosperous economy.

The writer is chief business officer, Khushhali Microfinance Bank Limited (KMBL).