Microfinance institutions contribution for sustainable entrepreneurship development in Pakistan
Draz, Umar (2018)
Pro gradu -tutkielma
2018
School of Business and Management, Kauppatieteet
Kaikki oikeudet pidätetään.
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2018110947798
https://urn.fi/URN:NBN:fi-fe2018110947798
Tiivistelmä
Microfinance providers offer microloans to poor people with or sometimes without collaterals. Microfinance considered as ‘best solution’ to fight poverty. The purpose of this master’s thesis was to find out some evidence of MFIs role poverty reduction and entrepreneurship development in Pakistan. Attention is given to form some comparison between conventional lending models (CLM) and Interest-free lending models (IFLM) or Akhuwat Model. Which model is better to boost entrepreneurial activities? An attempt was made to find suitable answers about MFIs role in selected sustainable development goals (SDGs) such as poverty reduction, income generation, eliminate hunger, provision of quality education and promote gender equality and women empowerment. It is a qualitative study where secondary, as well as primary data, is collected and analyzed through qualitative software NVivo and MS Excel. Secondary data consists of anecdotal evidence in the shape of success stories whereas primary data structured questionnaire and executive interviews.
Findings reveal that microfinance is not the panacea for all the problems. It is a necessary tool for development without any doubt. All borrowers will not become entrepreneurs. Underutilization of loans is noticed where somehow 60% loan is utilized fairly and deviation of 40% recorded. Financial inclusion is the most important element of microfinance which provides small borrowers access to financial services. MFIs contribution towards entrepreneurship development services like enterprise skill development, entrepreneurial education, technical skills, and vocational training is evident. MFIs impact in following factors are noted 1) income generation/poverty reduction, 2) family well-being or improved living conditions, 3) education (primary and adult), 4) other workers jobs, 5) women empowerment, 6) capacity building and 7) sustainable business or asset development. Women empowerment does not only mean access to finances but includes leadership training and women rights education as well. CLM models are dominating the market with 90% market share where IFLM only stands for 10% of the total market size. Total market size is about 20 - 25 million and borrowers till 2017 stands at 5.7 million. Both models will carry on in future and the likelihood of IFLM replacing CLM model is very low. CLM models generally charge 20% -22% interest on their products. They also reported having a 95% return rate which means this is good business for them. IFLM is characterized by a new philosophy of brotherhood and solidarity rather than pure business. IFLM Models such as Akhuwat is getting popular and growing due to less administrative costs and no cost of capital. The myth of charging high interest and inability to pay back the loan is not all true. We can see the high loan repayment rate of MFIs using CLM models. Borrowers are not hesitant to use microfinance only due to interest factor.
There is a need to develop a centralized database for micro-entrepreneurs to get quantitative evidence rather than anecdotal evidence. There is a need for a comprehensive national strategy to attract more Microfinance Service Providers to fulfil market demands.
Findings reveal that microfinance is not the panacea for all the problems. It is a necessary tool for development without any doubt. All borrowers will not become entrepreneurs. Underutilization of loans is noticed where somehow 60% loan is utilized fairly and deviation of 40% recorded. Financial inclusion is the most important element of microfinance which provides small borrowers access to financial services. MFIs contribution towards entrepreneurship development services like enterprise skill development, entrepreneurial education, technical skills, and vocational training is evident. MFIs impact in following factors are noted 1) income generation/poverty reduction, 2) family well-being or improved living conditions, 3) education (primary and adult), 4) other workers jobs, 5) women empowerment, 6) capacity building and 7) sustainable business or asset development. Women empowerment does not only mean access to finances but includes leadership training and women rights education as well. CLM models are dominating the market with 90% market share where IFLM only stands for 10% of the total market size. Total market size is about 20 - 25 million and borrowers till 2017 stands at 5.7 million. Both models will carry on in future and the likelihood of IFLM replacing CLM model is very low. CLM models generally charge 20% -22% interest on their products. They also reported having a 95% return rate which means this is good business for them. IFLM is characterized by a new philosophy of brotherhood and solidarity rather than pure business. IFLM Models such as Akhuwat is getting popular and growing due to less administrative costs and no cost of capital. The myth of charging high interest and inability to pay back the loan is not all true. We can see the high loan repayment rate of MFIs using CLM models. Borrowers are not hesitant to use microfinance only due to interest factor.
There is a need to develop a centralized database for micro-entrepreneurs to get quantitative evidence rather than anecdotal evidence. There is a need for a comprehensive national strategy to attract more Microfinance Service Providers to fulfil market demands.