Social Impact of Microfinance Programmes, Pakistan Zaidi et al 2007

359 Pages·2007·3.15 MB·English

Social Impact Assessment of Microfinance Programmes

by

S Akbar Zaidi and
Haroon Jamal, Sarah Javeed and Sarah Zaka,

with support from
Shafi Ahmed, Mansab Ali, Riaz Hussain and Amima Sayeed

Draft Report

Study Commissioned by and Submitted to the European
Union-Pakistan Financial Services Sector Reform Programme,
Islamabad, April 2007
Executive Summary

Introduction and Methodology

• There are numerous assumptions which have been made about what microfinance
can do and has done. However, there is insufficient empirical evidence to support
most of the claims. This is the first Study of its kind and scale in Pakistan, which
attempts to quantify and demonstrate some of the outcomes from microfinance
interventions.
• Estimates show that around 300,000 individuals, many of them women, have
benefited from non-governmental disbursement of microfinance. A number of
NGOs working in the microfinance sector in Pakistan have gained national and
international recognition for their work and have formed a forum called the
Pakistan Microfinance Network, where issues and ideas are discussed and
exchanged.
• Despite recent growth, the forms of institutions which provide microfinance in the
formal sector are limited: there are formal, full service broad spectrum providers,
MFIs which provide a number of formal sector financial services, and
microfinance is one such activity; full service microfinance specialists, which take
on savings and provide microcredit and may be involved in other microfinance
activities as well; restricted service microfinance broad spectrum, institutions
which provide some microfinance services along with other services; restricted
service microfinance specialists, which provide only some microfinance services,
mainly credit, and not other services such as savings; an, apex institutions which
lend on to NGOs which may provide microfinance services specifically or along
with other services.
• It is important to state, that the term ‘microfinance’ has been used interchangeably
with ‘microcredit’ in Pakistan, largely because other services and products in the
sector have been far less developed than credit. Savings and insurance, for
example, are still in their infancy as far as their provision by microfinance
institutions is concerned, and even some microfinance banks have been slow to
evolve their savings instruments and potential. Debate about microfinance in
Pakistan, continues to be largely about microcredit.
• Six microfinance institutions have been selected to participate in this study on the
basis of the following criteria. They have at least three year’s continuous work
experience in microfinance and a strong business plan for the next three years;
they have a portfolio of at least 2,000 active borrowers; have audited accounts for
the last three years; and are willing to participate in this social impact assessment
study. The group of six institutions cover a range of sizes, ownership patterns,
source of funding, lending methodology, programme area, organizational
structure, borrowers, communities etc.
• The literature on Impact Assessment Methodologies underscores the pitfalls of
undertaking studies in which an attempt is made to observe, leave alone quantify,
the ‘impact’ of any intervention in order to address poverty. IA experts caution
researchers about making grand statements and reaching firm, final, conclusions
based on the quantification based on many measurables. In the case of softer
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indicators which are more difficult to measure and quantify – such as
‘empowerment’ – they are doubly cautious and suggest that one always needs to
be tentative in suggesting that they can ‘prove conclusively’, that such-and-such
poverty alleviation or microfinance institution, had a quantifiable impact on
members or recipients of an intervention.
• This Study is designed to establish plausible association between changes
identified and participation in the microfinance programme. However, it is
important to state that the observation, leave alone the quantification of impact, is
often difficult to capture and quantify.
• Studies have shown that impacts on enterprise profits may occur early and then
taper off within the first year or two of microfinance programme participation.
Other impacts, for example the accumulation of selected household assets, may
take as long as three to five years of microfinance programme participation to
happen. Other studies show that social impacts (such as changes in women’s
mobility) are likely to take longer to occur than economic impacts (such as
changes in income).
• While the huge potential of microfinance is always acknowledged, studies on the
impact of microfinance conclude that it is unclear whether microfinance
contributes to a reduction in poverty or is the most efficient method to reduce
poverty without additional measures in areas such as education, health and
infrastructure. Moreover, it is recognised that ‘impact’ takes some years to work
its way through into the lives of beneficiaries, and contradictory or ‘mixed’ results
are not uncommon.
• The methodology for this Study is based on the Difference-in-Difference
approach, which compares the difference between income for participants and
non-participants in treatment sites/locales, with the same difference in income in
control sites/locales. This is the best method for undertaking such an exercise and
better than taking one which focuses on programme participants and new/likely
participants – the Pipeline Approach – which has an in-built bias as many of the
new clients are already ‘sold’ on the issue of and efficacy of microfinance.
• Along with the quantitative questionnaire, the Study also included questions about
the perceptions of borrowers and non-borrowers in order to understand how they
see the impact of the intervention. In many cases, perceptions seems to be very
different from ‘hard data’ and ‘facts’. Since we use Mixed Methodology, we not
only capture the quantitative side through our questionnaire, but also include
extensive Focus Group Discussions with clients, borrowers, non-borrowers, those
who have left the programme – so-called ‘drop-outs’. We also conducted
substantial Institutional Reviews which are based on interviews and give yet
another dimension to the Study.
• The six MFIs chosen for the Study, with their characteristics were: Orangi
Charitable Trust (OCT), urban, Sindh, not simply concerned with poverty
alleviation, but also entrepreneurial and economic development, individual
lending; Sindh Agricultural and Forestry Coordination Organization (SAFWCO),
rural, Sindh, poverty alleviation and income earning focus; Kashf, Lahore, urban,
peri-urban, exclusively women, poverty alleviation, gender empowerment,
economic security; National Rural Support Programme (NRSP), the largest rural
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support programme in every province of the country, multi-sectoral with
microfinance being one of its important, though not exclusive, activities – we look
at the NRSP microfinance programme in the Punjab and Sindh, as well as the
NRSP’s Urban Poverty Alleviation Project (UPAP); Akhuwat, urban, Punjab, an
Islamic microfinance provider, based on the zero-interest principle; and Asasah, a
Lahore-based MFI which is different from the others because its financing
structure represents fully commercial funding.
• It is important to state and highlight the fact, that all the six institutions which
agreed to participate in this Study, did so completely voluntarily. They agreed to
open up their offices, their records and gave us unprecedented and complete
access to their staff and clients. Their willingness to be part of this Study and their
full cooperation with the Team, reflects very highly on the maturity and
confidence that members of the microfinance sector in Pakistan have about their
programmes.
• Each institution has a separate mission statement, style of management, different
set of priorities, etc., hence, comparison, if made at all, must be made with
considerable caution. The intention of this Study as specified by the client, was
not to compare or evaluate the performance of MFPs in Pakistan, and the design
of the Study does also not provide for such comparison.

Asasah

• Asasah was started in 2003 with the objective to enhance micro productivity and
alleviate poverty. Asasah was established with a 100 percent commercial
financing structure and was registered in December 2003 as a non-profit
Company by Guarantee under Section 42 of the Companies Ordinance 1984.
Initially Asasah had no donor funding available and paid a very high interest on
its commercial finance, therefore, sustainability became a major focus. Asasah
now has 27 branches, over 25,000 active members and has disbursed over Rs.457
million and has a recovery rate of 100 percent.
• Asasah’s mission is quite broad and comprehensive and states that its objectives
are to: improve living standards of people below the poverty line through the
provision of diverse economic, educational and information services; safeguard
the interest of donors, financial institutions and individuals interested in poverty
alleviation; improve community well-being, and balance the interests of
stakeholders by encouraging participation; and, keep employees motivated and
ensure continuous achievement of objectives through staff capacity building.
• Asasah uses the Grameen Bank methodology for its group lending of the
protective and productive loans and monitors each individual client to assure
portfolio quality and verify loan usage. Asasah asserts that it lends to households
who have sufficient skills but insufficient resources. Furthermore, Asasah
believes that female empowerment lies in having a say in important household
decisions, which are traditionally under a man’s domain in Pakistan.
Consequently, Asasah works to correct these imbalances by disbursing the loans
only to women, but making both spouses responsible for fulfilling the terms and
conditions.
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• Since Asasah has been in operation just a few years, 86 percent of its clients are
still only in their first or second loan cycles. Clearly, any ‘impact’ of the
intervention by microfinance institutions, is highly tenuous, and at best, slight and
partial. We would expect little to have changed in a matter of two years.
• Most of Asasah’s clients, all of whom are women, are involved in ‘business/retail
shops’ or ‘cottage industries’; the perceptions of clients over the loan cycle about
how well they eat, seem to suggest that the longer they stay with the programme,
the greater the perceived impact in terms of improvement in quality of life and
diet, on their lives. On most welfare questions, the longer they have been with the
programme, the better they think they are doing; with numerous small and large,
official and donor programmes funding microfinance, there is a huge amount of
information available about microfinance services and results from Asasah
confirm this view that a large proportion of Non-Borrowers are aware of credit
facilities.
• Asasah’s Active Borrowers have significantly higher Expenditure Per Capita and
Income Per Capita than do all other categories. This suggests that perhaps Active
Borrowers benefit from the microfinance intervention. However, in terms of
Housing variables, this difference is not at all significant, a result which is not
surprising, given the fact that investment in Housing takes large amounts of
capital and investment, and we do not envisage that clients of any microfinance
institutions will be significantly better-off in a couple of years to allow them to
divert excess capital to Housing.
• The results do show that women in Asasah’s microfinance programme feel that
they are significantly more empowered in terms of Economic Empowerment and
in terms of Empowerment Related to Education and Health.

Orangi Charitable Trust

• The Orangi Charitable Trust (OCT) is an off-shoot of the Orangi Pilot Project
(OPP), a non-governmental development institution created in 1980 in the
squatter settlement of Orangi Town in Karachi. Respecting the entrepreneurial
spirit of people as articulated in OPP’s vision, all the programmes focus on
‘supporting effective existing structures’ instead of creating new structures which
would likely be unsustainable and counter-productive.
• OCT started its microcredit servicing from 1987 with an aim to support the
existing businesses. The rationale being that micro enterprises in Orangi were not
able to access loans from commercial banks due to loan size, collateral
requirements and other considerations. The key objectives of OCT are to: provide
credit for the expansion of the existing micro-enterprises in urban communities;
provide credit for agro-inputs in rural areas; strengthen the capacity of NGOs and
CBOs to support micro-enterprises in the area through guidance and training; and,
provide lines of credit to trained NGOs/CBOs
• OCT opted for a different paradigm for microcredit instead of seeing microcredit
as a direct tool for poverty alleviation. Contrary to other institutions, it provides
credit solely to facilitate the movement of entrepreneurs into better economic and
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social conditions. Consequently, it has not engaged in identifying the poorest of
the poor or empowering women, for instance, to bring about gender equity.
• OCT does not envisage any major expansion in its direct operations, geographical
reach or client base. It works with a carefully selected and focused client base
within Orangi, with just a single office located in the building of OPP-RTI. The
total loan disbursed in Orangi between 1987- August 2006 amounts to Rs.
157,760,184 to 9,508 units. Out of these, as many as 7,301 units are closed and
2,207 units are open, which reflects on OCT’s resolve to keep its client base small
and manageable.
• This portfolio is balanced by replication of its microcredit programme by
supporting NGOs/CBOs, where institutionalization becomes the core focus rather
than operational expansion. OCT is working with 47 NGOs/CBOs where a total
of Rs. 286,600,604 has been disbursed to 25,606 units till August 2006. Out of
this 13,926 units are closed while 11,680 are open in 433 areas and villages.
• OPP-OCT is providing microcredit to existing micro enterprises at bank rate of
interest without collateral ranging from Rs. 2,000 to 50,000 with simple
procedures and documentation. There are eight different types of products that are
offered by OCT to its Orangi and non-Orangi clients. Loans to Schools; Loans to
Manufactures; Loan to Traders; Loan to Service Providers; Loan to upgrade
Thallas; Loans to Farmers and Fisher folk; Loan to Clinics; and Loan for
Livestock.
• The recovery rates have not always been stable and positive. For instance, in the
first year 35 percent of clients defaulted causing 20 percent of amount loss.
Gradually, the trust in borrowers began to pay off and, indeed, clients followed
the principles of fair business deals. According to OCT’s data, the recovery rate
has improved tremendously over the years with the current rate at 97 percent.
• OCT has aimed to reach sustainability since its inception and for this purpose, the
mark-up rates were kept equivalent to bank rates and operational expenses were
consciously kept low.
• OCT is the only MFI in our sample which is a largely male client oriented. It also
has other characteristics which are dissimilar to other MFIs, particularly that it is
not in the business of poverty alleviation, as most other MFIs claim. Hence, its
criteria and standards are different as well.
• Most of OCT’s clients are in the Business Retail Shop profession, and many of
the Non-Borrowers move from the category of Technical Service Provider and
Personal Community Service Provider to those who own Businesses or set-up
some sort of Cottage Industry. This suggests that credit is a constraint to
entrepreneurs who, once they receive the loan, may want to set up different sorts
of economic enterprises since their credit-constraint may have been released.
• Borrowers’ perceptions about the positive Effect on the Quality of Life are high
as soon as the first loan is given and continue to rise thereafter. This trend is
found in most other indicators about perception as well, and most Borrowers
believe that the rise in Income and the improvement of Quality of Life can be
sustained over time. We found that OPP clients, who had been borrowing for 3
year or more, were spending more on food expenditure.

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Akhuwat

• Akhuwat was established in 2001 with the objective of providing interest free
credit to the poor so as to enhance their standard of living. Akhuwat derives its
name from ‘mua’khat’ or brotherhood, which was first exhibited by the citizens of
Madina when they shared their wealth with the ‘muhajirin’, the immigrants from
Makkah. The philosophy is based on the premise that poverty can only be
eliminated if society is willing to share its resources with the poor and needy. For
Akhuwat, microcredit is a means to an end and not an end in itself; the end is a
vibrant, economically strong society, based on sharing resources.
• At present, Akhuwat has 13 branches in the Punjab and 7,150 active clients, and it
has disbursed over Rs 150 million over five years. To increase the outreach of
interest free loans, Akhuwat has partnered with individuals in other cities to start
similar initiatives. Akhuwat is rapidly gaining legitimacy and in the last one year,
FY 2005-06, its acceptance has increased immensely as the organization has
received donations worth Rs. 30 million.
• Akhuwat’s management has stated, that ‘the Programme is non-political and non–
sectarian. Muslims from all sects are welcome in the mosques. There is no gender
discrimination in the mosque. Women also come to mosques to get loans.
Christians are also welcome in mosques. Akhuwat derives its inspiration from the
Islamic spirit of mua’khat but its message is for all people of this country. Quite a
large number of borrowers are Christian who are given loans in mosques.
Akhuwat also works in a church in collaboration with Christian religious leaders’.
• Akhuwat started lending with the group methodology in 2001 and introduced
individual loans in 2003. The current plan is to phase out group loans and
concentrate on individual lending. As of June 2006, Akhuwat has not formed any
new groups and is waiting for the end of the loan cycles of those formed earlier.
The reason for phasing out group loans is that the group leaders were found to
manipulate their position and extort money from the borrowers for group
membership.
• Akhuwat’s Group lending programme only focused on women who were
organized in Self Help Groups (SHGs) of 10 members each and thus relied on
social collateral. In each group a president and a manager were elected through
consensus and the group collectively had to save Rs.3,000 before it could become
eligible for receiving loans.
• While the loan has no interest on it, there is a belief that some of the cost of the
credit has to be transferred to the clients or they would not value the loan and it
will be like a free meal. So, five percent of the loan is charged as a membership
fee and this makes the process professional and is not seen as charity since people
demand better services when they pay the fee.
• Akhuwat has a large portfolio of individual lending with a total of 14,711
beneficiaries and it has devised a rigorous appraisal method to ensure maximum
recovery. In 2005, individual loan disbursements grew by almost 390 percent and
in 2006 they grew by 135 percent. A prominent feature of individual loans is that
they are marketed through mosques and the disbursement of the loans also takes
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place in mosques. Each branch is associated with a particular mosque and is
located within or just outside the mosque’s premises.
• When loans are renewed, the main aspects looked at are how the loan was used
and whether it has benefited the borrower. The loan is renewed only if he was
regular in returning the instalments, if he used the loan correctly and if it
benefited him and his household in the final analysis. On average, about 40
percent of clients are given loans again based on their need and how they used the
loan and whether it benefited them or not. Like mainstream MFI’s Akhuwat does
not work on minimizing dropout clients as it wants to reach out to a large number
of people.
• Akhuwat also has liberation loans, of which there have been more than 700.
These people were paying interest at 100 to 200 percent, which translates to Rs
2000 to 3000 per month. By availing a liberation loan, they have been able to get
rid of this exploitation. They are also said to feel empowered and socially
integrated. There are also loans for health, education and a daughter's marriage,
which are supposed to have had a phenomenal impact.
• The organization’s performance on profitability and sustainability has been
steadily improving. However, as Akhuwat does not charge any interest on its
loans, and only charges a membership fee of 5 percent, it is unable to cover its
costs which stand at 7 percent. Nonetheless, as Akhuwat increases its outreach it
will be able to lower the cost and in time will be able to cover its operating
expenses.
• Since Akhuwat has been in operation just a few years, almost all of its clients are
still only in their first or second loan cycles. Clearly, any ‘impact’ of the
intervention by microfinance institutions, is highly tenuous, and at best, slight and
partial. We would expect little to have changed in a matter of two years, and so
find not much significant difference between Active Borrowers, Pipeline
Borrowers and Non-Borrowers. Most of Akhuwat’s clients, are involved in
‘business/retail shops’ or are ‘personal community service providers’. The results
suggest that the Per Capita Income of Active Borrowers is greater than it is of
other categories. However, on the basis of the Official Poverty Line, only 15
percent of Akhuwat’s clients fall below this threshold, implying that like almost
all MFIs in our sample, Akhuwat is concentrating on that category of client who
is above the Poverty Line. The Health and Education characteristics of all three
categories, as in the case of most other MFIs in urban areas, are not very different
from each other.
• The perceptions of clients over the loan cycle about how well they eat, seem to
suggest that the longer they stay with the programme, the greater the impact in
terms of improvement in quality of life and diet, on their lives. This result is
similar to that of other MFIs. On most welfare questions, the longer they have
been with the programme, the better they think they are doing.

Sindh Agricultural and Forestry Workers Coordinating Organization

• Concerned about the poverty stricken lives and social marginalization of their
community, a group of five activists came together in 1986 to bring about social
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and economic change in their surroundings. This group was then known as Samaj
Sudhar Adabi Idara and undertook small scale social work like arranging for
medical and health camps and distributing books amongst poor students.
• Long and intensive reflections led to the establishment of the Sindh Agricultural
and Forestry Workers Coordinating Organization (SAFWCO) in 1990. Registered
under the Societies Registration Act XXI of 1860, SAFWCO kept rural
development as its key priority. As a result, it started addressing cross-cutting
issues including conditions of peasants and rural women, education, the role of
feudal lords, the political situation in the area, unemployment, water logging and
salinity, low wages and housing.
• Starting from Rs. 5,000 for goat-rearing and home-based poultry, SAFWCO
initiated its microcredit programme in 1993-94. The expansion of the portfolio
and credit line has been gradual and firmly grounded in the contextual needs of
the communities SAFWCO is catering to. SAFWCO’s concept of microcredit is
the extension of small loans to entrepreneurs too poor to qualify for traditional
bank loans. It also ensured a more integrated approach towards meeting
organizational mission and targets.
• SAFWCO articulates its principles and policies for microcredit as: affordable
services for low-income groups; greater outreach to the general public; minimal
risks for new entrepreneurs; loan pay back systems are nurturing towards small
businesses; increased and easily accessible opportunities for the economically
disenfranchised groups to support them in gaining economic power.
• SAFWCO provides both group and individual loans. Loans are made to
established groups of both men and women, comprised of three to six individuals,
that have been operating for over a year. For credit and saving activities, villages
are identified on the basis of their socio-economic situation. For the savings
programme, monthly meetings are conducted to collect savings, with a minimum
voluntary contribution of Rs.20. The programme is operated through COs, which
collect deposits, and manage the savings records and passbooks. Communities are
also encouraged to utilise their savings through their village development
organisation as internal lending.
• The socio-economic status, soundness of business proposal and social collateral
are the most important criteria for selecting individuals and groups for loans.
Loan delinquencies of over one month can result in the disqualification of an
entire village for further loans. This ban is lifted only when all arrears are cleared
either by the individual or the group of guarantors. According to the management,
the loan recovery rate averages 95 percent for men and 99 percent for women. An
operational reason for encouraging women clients is also because they not only
ensure that instalments are paid on time, but also take responsibility for
appropriate and effective utilization of the credit. Consequently, SAFWCO has
brought flexibility in its lending strategy where credit is given to female units
which can involve other family members in its use.
• The average retention rate is 60 percent with variations across districts and
communities. Of the 40 percent that drop-out, SAFWCO’s management reports,
that these do not qualify as drop-outs because they return after a gap of 12-18
months.
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• We find that more than 85 percent of SAFWCO clients belong to the first three
loan cycles, which will have a bearing on our attempt to capture the extent of
‘impact’. A large proportion of Borrowers, whether they are older (Active)
Borrowers or new (Pipeline) Borrowers, have as their professions/business the
classification ‘Livestock Management’, while most Non-Borrowers are ‘Personal
Community Service Providers’. This finding related to Livestock Management
may suggest that in the case of SAFWCO clients, many want to enter the
Livestock business but are resource/credit constrained. Once they have access to
credit, a large proportion of them are likely to opt for Livestock Management.
• One important and interesting finding, is the substantial number of households
who are part of the SAFWCO microfinance programme, who are below the
Official Poverty Line.
• The perceptions of clients and non-clients show a number of features. The longer
Borrowers stay with the programme, the larger proportion feel that they are
better-off and that the Quality of their Lives has improved; most say they eat
better and they feel that this improvement in their Quality of Life can be
sustained. Most Non-Borrowers are aware of SAFWCO’s microfinance
programme, and most Non-Borrowers also feel that there is an overall
improvement of the Quality of Life on account of taking the loan – New
(Pipeline) Borrowers in particular, have a very positive perception about the
consequences of the programme, and so do those Non-Borrowers who are located
in the same area where the programme functions.
• The results from the estimation show that one area where SAFWCO is having a
clear impact is women’s empowerment. Old borrowers perform significantly
better on all indices compared to other respondents. On the overall index old
borrowers score 10 points higher than other respondents. Old borrowers also
perform better than pipeline clients in the single difference estimates on 3 indices
of empowerment. Furthermore, young borrowers also do significantly better on
the income empowerment index in both single and double difference estimates.

National Rural Support Programme and the Urban Poverty Alleviation Project

National Rural Support Programme

• The National Rural Support Programme (NRSP), is Pakistan’s largest multi-
sectoral rural development programme, established in 1991 by the Government of
Pakistan. At present, it is operational in 35 districts, has 110 field offices and 13
Regional offices that reach out to 620,330 people directly, and many more
indirectly. Programme districts are selected according to district poverty ranking
from data available from national level surveys conducted by government and
international organizations, and distributed among other Rural Support
Programmes (RSPs) like the Sarhad and Punjab Rural Support Programmes
(SRSP and PRSP). The poor in the area are targeted according to the local
community assumptions with poor households identified by the communities
themselves in respective localities. NRSP’s main programmes focus on social
mobilization, infrastructure development and microfinance and enterprise
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