MICRO-Finance Bank

[Guest]

DAWN Editorial <p>18 March 2002 Monday 03 Muharram 1423 <p>Micro-finance bank<p>Inaugurating the First Micro-Finance Bank in Islamabad last week, President Pervez Musharraf welcomed the establishment of a bank for small borrowers in the private sector. Terming it a valuable addition <br>to the on-going national effort to alleviate poverty, he pledged the full support of his government to the building of micro-finance <br>institutions to provide affordable financial services to the poorest section of society. <p>The new bank, having a capital of Rs 500 million, will be backed by two decades of successful experience of the Aga Khan Rural Support Programme (AKRSP) and Aga Khan Foundation in managing micro-credit and mobilizing small savings among the poor. The president's appeal to affluent groups to join in the endeavour of reducing poverty and enabling people to raise their living standards deserves a prompt and favourable response. <p>Poverty in Pakistan has been growing rapidly in recent years. In the last two decades, the proportion of the poor and indigent has nearly doubled from 20 per cent of the population to 40 per cent. <p>Today, four out every ten persons are living below the internationally recognized poverty line. The rise in poverty can be attributed to various factors: stagnating, in fact declining, economic growth, a high population growth rate of nearly three per <br>cent, and rising unemployment caused by the restructuring of the economy. <p>Basically, poverty is the consequence of the maldistribution of national wealth and income. The traditional banking system aggravates this maldistribution by placing nationally mobilized resources in the <br>hands of those few who already hold assets. Skill and initiative are not bankable collaterals for getting access to resources. <p>What micro-finance aims to achieve is to overcome this liability by substituting social acceptability and group guarantee for tangible assets as collaterals for securing loans. To function successfully, such institutions need to be close to the target groups and work in surroundings where clients feel comfortable. <p>Lavish offices in affluent areas often intimidate poorer clients and make the institution appear unapproachable. The First Micro-Finance Bank and its public sector counterpart, the Khushhali Bank, would do <br>well if they keep this simple truth in mind. <br>