The growth of microfinancing sector has started making waves in country’s financial sector as a whole. Presently, six microfinance banks (MFBs) and microfinance institutions (MFIs) operating in public and private sectors at national and provincial levels are involved in disbursing credit to the disadvantaged and in mobilising their savings.

The microfinancing has reached 1.13 million borrowers by close of first quarter of 2007 and keeping in view the momentum of growth, it is expected that the target of benefiting 3.5 million poor by 2010 will be achieved.

The impact assessment studies carried out by various MFBs and MFIs independently or in collaboration with foreign funding agencies reveal opportunities of employment and self-employment created through credit disbursement programme, but their performance with regard to social dimension of microfinancing programme is lacking.

Thus, the criteria of success for microfinancing programme initiated by an MFB/MFI should not only be the financial or economic sustainability or in other words, growth of the institution for the sake of growth.

The growth of these specialised institutions must be linked to the socio-economic welfare of their clients—the disadvantaged. Their financial up-gradation must get social back-up also for putting in place a mechanism of human capital development by making quality education accessible to their children, easy availability of proper health care, improving their housing environment and also protecting their lives and businesses against easy and affordable insurance facilities.

According to Dr. Muhammad Yunus — proponent of modern microfinancing concept and founder of Grameen Bank (Bangladesh), the criteria for determining whether a micro-credit programme is successful or not is basically to see whether poorest of the poor are coming out of clutches of poverty or not, which need to be depicted from the following facts that, a) family entering the orbit of microfinancing must be able to live in a semi and pucca house worth 25000 takkas, with clean drinking water and sewerage facilities after a short span of availing loan. b) children above six years of age go to school. c) family members have adequate clothing for every day use and have access to health care facilities at their village level. d) and most importantly family must have an average savings of 5000 takkas. e) to meet disaster / natural calamity situation rehabilitation programme for affected clients should be in place.

It means a microfinance institution whether operating as a full-fledged bank or an MFI must strive to enhance socio-economic welfare of the clients in totality. Further, it is obvious that assessment of the performance of micro credit programme on the basis of above indicators will definitely depict extent of aggregate welfare, harmony and brotherhood achieved at village / community level. The very essence of success of modern approach to microfinancing is mutual cooperation and trust among the members of targeted community.

However, few of microfinance banks and MFIs in collaboration with funding agencies and multinational financial institutions take initiatives to launch social development loan products to promote education, timely basic health care facilities and cost effective insurance facilities to secure assets, crops and livestock of their clients and also financial security through accidental life insurance to the family in case of sudden death of the client who is head of the family.

For meeting needs of the rural poor, MFBs should launch special loan products for financing crop production, storage of agriculture products and most importantly for marketing and trading of the crops produced. These loan products obviously need to be low in cost and allowed against group / communal guarantee.

Presently, loan products launched by MFIs facilitate income generation activities and working capital management of micro businesses of the borrowers. There is need to introduce seed capital products for clients having expertise to run the business but no capital to start with.

Although it involves a high risk, yet certain percentage of total credit disbursement budget, say five per cent be allocated under this head to enable upcoming graduates from professional colleges not only to start their micro businesses for getting self-employed but also for creating employment opportunities for others.

As a part of social product development loan programme, low cost business and entrepreneurial skill development training programme need to be launched by microfinance institutions as a part of package to women borrowers. Their capacity building and business specific skills developments initiatives would ensure sustainability of their businesses in all circumstances. Further, MFBs and MFIs can work with local agencies / local government tiers to provide information about market and profitable business opportunities and to explain market risk and how to cope with it.

Few of the MFBs, particularly First Micro Finance Bank Ltd have launched housing improvement loan programme for the poorest of the poor in order to improve their living condition. This initiative apart from providing healthy living environment has been helpful in improving the work place for women entrepreneurs operating from their houses.

Marketing has been a pertinent issue for the small borrowers, particularly women. They seldom get due price because of involvement of middleman in the process. MFBs and MFIs need to make a move in this direction. They can set up product display centres at least at district level to enable women clients to fetch orders direct, for their products. Some of the NGOs like APWA, Behbud and A-Falah Trust have set up spacious display centres in Karachi where women display their handicrafts. It will be appropriate for microfinance entities to enter into partnership with such NGOs for expanding marketing outlet programmes-- both in rural and urban areas.

In rural areas, some of the MFBs are putting in place a mechanism to provide built-in marketing arrangement in loan package. Presently, it is being offered for dairy products only. Banks finance purchase of buffaloes and cows and arrange borrowers linkage with various multinational and national companies manufacturing dairy products. Companies collect milk from the village and deposit the price into the account of the supplier maintained with MFB concerned. This facilitates automatic recovery of loan instalments and thus administrative cost is reduced. Almost all the microfinance banks in private sector have floated loan products to finance higher education of their clients’ children. These loans are repayable on easy instalments. This initiative on the part of microfinance banks to propel the cycle of human capital development promises a sustainable economic empowerment of family and outreaching effect on social status of the borrower’s generation after generation.

The newly introduced loan product for purchase of cell phones and PCO equipment in microfinance sector is the brain child of Dr. Muhammad Yunus, who provide this facility to women clients of the Grameen Bank, not only as a source of earning for poor women, but also to facilitate communication with male members of the village working abroad or in big cities of the country. This special product did social service to communities by saving village inmates from worries regarding their family members. The facility extended by Pakistani microfinance banks has played a major role in facilitating marketing of the products of borrowers due to easy and low cost communication process.

The outreach of an MFB/MFI is another criterion for evaluating their financial sustainability and their contribution towards social development of the communities they target for their programme. Quite a number of microfinance entities have taken initiative to improve their outreach through mobile banking and by setting up satellite units (like booth offices) in far flung areas/villages linking clients in remote areas with branches of the bank where actual banking transactions are recorded. Arrangement of disbursement of credit through Pakistan Post is yet another innovative step taken by First Micro Finance Bank to have access to greater number of poor living in remote areas.

The millennium target of halving the poverty is still a distant dream. More vigorous efforts are needed to expand outreach of microfinance programme and to make it an effective vehicle through which country’s poor be lifted up to a visibly demure socio- economic status.