Microfinance Challenges and Opportunities in Pakistan

Highlighting challenges for MFIs in Pakistan
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This paper discusses microfinance sector development in Pakistan.

The Pakistan government selected microfinance as a means to alleviate poverty and established the Pakistan Poverty Alleviation Fund in 2000 in coordination with World Bank. It also simultaneously established a microfinance bank called Khushhali Bank. Pakistan’s microfinance sector is now reaching the end of its primary growth stage and its future growth depends on the strategic thinking of microfinance providers. Challenges to the growth of the microfinance sector in Pakistan include:

  • Improper regulation;
  • Increasing competition;
  • Difficulties in MFI profitability;
  • Lack of diversification of financial products and services, and concentration on microcredit;
  • Difficulties in MFI stability;
  • Limited MFI management capacity;
  • Political interference;
  • High transaction cost;
  • Unfavourable policy environment;
  • Inadequate investment in agriculture development;
  • Low knowledge levels.

The paper states that there are several opportunities for sector growth. These include areas such as poverty alleviation, impacts on health, social capital and economy, economic development, growth of commercial banks and women’s empowerment.