Tackling the Failure of Microfinance Efforts through Amalgamating Microfinance with Charity: Two Viable Alternatives in the Context of Pakistan

This paper discusses the paradigm shift in the microfinance during the early 1990s, where the donor community changed its focus from providing subsidized financial services to MFIs to emphasizing self-sustainability of MFIs through commercialization.The paper presents an overview of the microfinance sector in Pakistan. Findings include:

• Microfinance programs are expected to reach about one million poor households;
• Microfinance ventures are lagging behind total demand for microfinance services;
• Donor community is interested in reliable assessment of MFIs performance;
• Zakat, an obligatory tax paid by affluent Muslims to the eligible poor, serves to be the biggest timely financial aid.

The paper states that MFIs were left with no option but to charge high interest rate in order to provide a steady rate of return on their investments. It presents two viable alternatives, amalgamating microfinance and charity principles, to help achieve the dual objective of ensuring donors' access to additional sources of low-cost funds and facilitate the poor's access to affordable sources of financial help. The paper suggests that these proposed programs be pilot-tested in order to ascertain their success and analyze them further.