Microfinance Performance in Pakistan 1999-2005: Growth - But a Structural Flaw Persists

Performance analysis of eighteen MFIs under USAID-sponsored WHAM project in Pakistan
Download 24 pages

This document examines the progress that Pakistan has made over the years in generating growth, minimizing costs, and ensuring repayment. It argues that:

  • Despite this progress, performance data reveals a reluctance to increase the revenue earned form lending to fully cover costs;
  • Interest rates, service charges, and other fees charged to borrowers are too low for growth to continue.

The report identifies the following features of the microfinance industry in Pakistan:

  • Massive upfront investment;
  • Investment initiating growth;
  • Globally competitive credit delivery costs;
  • Solid loan repayment for most institutions;
  • Insufficient revenue generation to cover costs;
  • Lack of movement towards sustainability.

The report identifies the following implications of this shortfall of revenue against costs for the present and future of microfinance:

  • Upfront investment in microfinance is used to cover this gap;
  • Covering-up losses for too long misses the opportunity to build assets across the sector and create a capital base that can fund growth;
  • Investment funds are leaking out of the sector, further weakening long-term growth prospects;
  • If the flow of investment funds slows, the microfinance industry will contract below its current size.

The report concludes that:

  • Under the current conditions, microfinance can continue but cannot grow towards sustainability;
  • Pakistan can consider the costs and benefits of raising interest rates, service charges, and other fees necessary to become sustainable.

About this Publication

By Burki, H., Chen, G., Ahmed, S.M.